posted on October 16, 2011 14:41
Arab Spring sows seeds of change in regional charter market
Political turmoil throughout the region has not quite quashed appetite for private jet travel, although the sector has had to adapt to new realities. Liz Moscrop reports
Mohamed Bouazizi's self-immolation protesting about high-level corruption in Tunisia in December 2010 sparked a wave of unrest throughout the Middle East and North Africa that is still simmering today. Known as the “Arab Spring”, to date there have been revolutions in Tunisia and Egypt; a civil war in Libya; civil uprisings in Bahrain, Syria, and Yemen; and major protests in Algeria, Iraq, Jordan, Morocco, and Oman. Kuwait, Lebanon, Mauritania, Saudi Arabia, Sudan, and Western Sahara have also seen minor protests.
The tumult naturally is having a huge effect on people’s day-to-day lives in many countries – however, dig a little deeper and it is possible to see how its political and financial implications are affecting businesses in the region as a whole.
A key indicator is the state of the private aviation charter market. By March 2011 the segment had taken several punches. According to Magnus Henriksson manager of Avinode Business Intelligence, the turbulence led to huge peaks in demand followed by enormous drops in requests. He said: “What we have seen is remarkable. Demand for flights departing from these countries increased heavily after the first full day of turmoil and then dropped off significantly as soon as leadership changes had been achieved.”
Claire Brugirard, of Dubai’s Air Charter International described the regional charter aviation situation as “chaotic.” She said, “Egypt is settled, but Libya is extremely busy and difficult with lots of hurdles and obstacles.” It would appear that the greatest challenge for operators is obtaining permits for operations inside Libyan airspace. A number of companies have opted to forgo travel into the country due to the problems with obtaining proper permissions. Sharjah-based aviation services company Gama’s managing director Dave Edwards pointed out that such procedure changes have had a huge impact on the market. He said, “Alongside the massive changes of governments there have also been big changes in how to go about obtaining permits.”
The regulatory situation in Egypt during the worst days of unrest was reasonably clear. “During the protests we were required to obtain special permission from the military to fly in and out of Egyptian airspace,” said Tarek Fouad, of Smart Aviation, based in Cairo. “The process was very smooth. The names of those people who were not allowed to travel abroad at the time were on a published list so we only needed to give military officials the names of our passengers to obtain permission.” According to Fouad, most of the flights out of Cairo during the unrest were for European and Middle Eastern business people and their families looking to get out of harm’s way. However, Brugirard said that Libyan departure requests were far more diverse, and came from oil and gas companies, governments, corporations and private individuals.
The company also said that the overall trend appears to follow a predictable pattern, with charter demand rising and falling in line with the ebb and flow of political unrest. Ralph Eisenschmid of Bahrain-based Mena Aerospace Eisenschmid theorised, “People have seen their investments devalue and are being cautious. There is a ‘wait and see approach’ to flying.”
He added, “We had a flurry of charter requests at the start of April with employees and families getting out.” Gama experienced a similar situation. Edwards said, “There was an initial mad rush to move people around the region as businesses got staff out of hotspots.”
British charter broker Air Partner’s director of private flying David Macdonald agreed. He said, “What we have experienced in the Middle East is a notable corporate interest in our emergency planning services, where we has been extremely active.”
To compensate for the loss of charter revenues Mena has several business lines, which are supporting its charter strand. The company has taken on a second freighter 737-300 as its cargo business has picked up, mainly transporting perishables into the region. Mena is also building a hangar and offers maintenance services. Eisenschmid said, “We have scaled back on charter to keep costs in line with earnings. This has been more on pruning opportunity costs, such as office arrangements and sales and marketing spend.”
Gama, too, has scaled back on its charter operations, however, it has seen an uptick in its management business, with a new Sharjah-based VIP airliner set to enter service in its fleet coming online within the next few weeks.
Improvements
Today it looks as though the market is growing slightly. Eisenschmid said, “We’ve had a smattering of business aviation travel, which picked up a little bit in June. Then there was a steady stream of requests though July, though we haven’t seen the levels of last year.” Edwards believes that the unrest will help charter businesses reassess their core offerings and how to make them work. He said, “Arab Spring has been a brilliant training course, along with the recession, on how to make our business leaner.”
The Middle East market traditionally dips in the peak summer months as ultra high net worth individuals typically fly to cooler climates, especially London. Both Mena and Gama report that with Ramadan coming up people are choosing not to travel.
However, there are shoots of green among the gloom. Founding chairman of the Middle East Business Aviation Association Ali Al Naqbi points out that the unrest is predominantly localised to certain countries. He said, "People talk about their concerns about the region after the 'Arab Spring' uprisings, but we look at this positively. Libya, Tunisia and Yemen account for barely 2% of the business aviation activity, but we know there is much greater potential. In Yemen for example there is not a single AOC issued for business aviation - yet I can think of 12 Yemeni owners with Swiss-registered aircraft. We know there needs to be infrastructure in place."
Although there is an obvious need for such development, it seems that charter companies are a long way from hanging up their wings as the two major centres for private aviation are still reasonably busy. Air Partner reports that it has not seen any “significant” trends in the Middle East as a result of the unrest. Macdonald highlighted, “The troubled areas do not have such great volumes for private jet travel that Dubai and Saudi Arabia have.