Mideast airline mergers possible in 2009 - expert

MERGER CALL: Middle East carrier should consider mergers in bid to cut costs during global slowdown - IATA chief. (Getty Images - for illustrative purposes only)

Middle East airlines could lessen the impact of the global economic downturn by consolidating their respective operations, a leading aviation analyst has said.

Brian Pearce, chief economist of the International Air Transport, told Arabian Business that carriers should consider putting expansion plans on hold in 2009.

“Airlines are going to have to look at all options to reduce their cost base and match this reduced revenue outlook; for some airlines consolidation may well be the way forward,” he said.

“Until recently, regional travel demand in the Middle East has been holding up, but given that low oil prices are going to put budgets under pressure in the region we may see a weakness in regional travel.”

Pearce said airlines feeling the crunch in 2009 might also consider linking up. In late 2008, rumours circulated that Emirates and Etihad Airways were in talks about a potential merger – a development possibly arising from the difficult economic conditions. But both carriers strenuously denied the reports.

Emirates and Etihad have since insisted their respective expansion plans will not be affected by the downturn.

Last year, IATA forecast a $200 million drop in Middle East carriers’ profits. The organisation also said losses for the global airline industry would hit $2.5 billion.

Some analysts and commentators believe low-cost carriers will cope better than their legacy rivals amid the economic crisis.

A news analysis report recently published on the Centre for Asia Pacific Aviation (CAPA) website said budget airlines focusing on organic growth via fleet and network expansion will create a “shift in the balance of world aviation”.

The report quoted IATA and the International Civil Aviation Organisation as advocates of this view.

But Pearce said neither model will excel in 2009. “The low fares sector isn’t a magic solution to the airline’s problems, so I don’t buy that argument,” he said “It’s too simple to say, as CAPA does, that low-cost carriers will outperform the legacy sector.

"I don’t think that will be the case; we will see different performances among airlines in both categories.

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