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Wed 29 Oct 2008 04:31 PM

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Airlines to see revenue drop, may cut orders - IATA

Mideast carriers hit by global downturn due to transit traffic exposure, chief economist says.

Major Middle East airlines will likely see revenues drop and may be forced to cut back their large aircraft orders as the global economic downturn hits air passenger traffic, the IATA's chief economist warned on Wednesday.

The International Air Transport Association figures for September show passenger traffic for Middle East airlines dropped for the first time in years, falling 2.8 percent on the same period last year.

Regional airlines recorded traffic growth of 10.6 percent in the first six months of this year, but that slipped to 5.3 percent in July and 4.3 percent in August, figures show.

Brian Pearce said Middle East airlines that have a large portion of transit traffic are heavily exposed to the global downturn and will find it "very difficult" in the coming months as demand for air travel in the United States, Europe and Asia dries up.

Airlines such as Emirates, Etihad Airways and Qatar Airways have profited from the Middle East's strategic location, with cities like Dubai becoming a major transit hub for flights between the United States and Europe and Asia.

However, Pearce said this lucrative transit traffic is bearing the brunt of the downturn as economies in the West and East slide towards recession.

"Because of the transit traffic a lot of the airlines in the region are serving those markets that are going to be most affected by recession," Pearce told Arabian Business in an interview.

Within the Middle East, he said passenger traffic is "fairly robust" and that airlines more reliant on regional traffic will probably fair better than airlines more reliant on transit traffic.

Pearce said Middle East carriers have experienced revenue growth between 15-23 percent since 2003, but this will likely slow down to single digits.

The current downturn "will make a big dent in that growth", he said.

Asked how significant the impact of the slowdown will be on the airline industry, Pearce said: "Very. I think this is potentially more significant than the rise in fuel prices."

Oil prices hit an all-time high of $147 a barrel in July, sending the cost of fuel soaring and hitting airline profits.

Pearce said he expected regional traffic growth to drop further in the coming months due to airlines' exposure to transit traffic.

"I suppose one of the uncertainties at the moment is the extend which the steepness of the fall [in passenger growth] we saw in July, August and September was due to the rise in oil prices... but I think with the deepening economic weakness we are seeing we are going to see further negative numbers through to the end of the year," he said.

Pearce said the drop in demand could see huge aircraft orders made by regional carriers cut back.

"I think generally the industry will be scaling back on their aircraft orders for growth... And I think the banking environment makes it difficult to finance a lot of these aircraft. So I think there are a few pressures suggesting we are going to see some scaling back," he said.

Regional airlines have been some of the biggest buyers of aircraft from Boeing and Airbus in recent years, with Emirates the world's largest customer of Airbus' A380 superjumbo.

Emirates said in a statement it has seen a "slight dip" in passenger traffic, but that "we are seeing signs that figures are again strengthening".

Etihad said in a statement a "slight slow down" in sales from the UK has been offset by booking to the UK from other destinations around the world.

Qatar Airways was not immediately available for comment.

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