Analysts say aviation firms will be affected in many ways, including in their plans for development and diversification
Airlines everywhere are reeling from the impacts of COVID-19 and the Middle East carriers are no exception.
Bloomberg reports that the UAE-based Emirates airline is considering reducing its workforce by 30,000 – a 30% cut. The Israeli government bailout deal with El Al would lay off approximately 2,100 employees, about 33% of its workforce. Around 1,500 Kuwait Airways employees, a quarter of the company’s international workforce, will be cut.
Gulf countries that turned their airports into hubs for connecting flights to other parts of the world and expanded their air carriers to serve those routes may see costly changes in a post-pandemic aviation industry.
“The business model of all the major Gulf carriers is based on the region’s strategic position … and this faces serious challenges in a post-COVID 19 landscape, where passengers are likely to opt for more point-to-point flying and avoid hubs such as Doha, Dubai and Abu Dhabi,” Aaron Woolner, senior reporter at Airline Economics, told The Media Line.
In Abu Dhabi, the UAE’s capital, the government has spent about $2.94 billion so far on a new terminal while airport expansion in Dubai is expected to cost $36 billion. In Qatar, the cost of enlarging Doha’s Hamad International Airport is unknown, but in two years, it will be able to accommodate 53 million passengers a year. In 2018, the airport hosted 34.5 million travelers.
“The shift into aviation investment by GCC [Gulf Cooperation Council] states is part of a long-term strategy to move their domestic economies away from reliance on hydrocarbons,” Woolner said.
Andrew Dahdahl, assistant professor of commercial law at Qatar University’s law college, says government plans will be affected by the coronavirus pandemic.
“The decline in the airline industry will slow down those diversification efforts, but they will not stop.”
The pain in the aviation industry is radiating outward to other sectors.
Annie O., a Middle East aviation expert who declined to use her last name because of contractual obligations with her employer, told The Media Line: “The impact of COVID-19 has far-reaching consequences on not just the airline industry but also on the broader tourism and retail sectors due to a reduction in the inflow of tourists and social distancing measures enacted by government authorities.”
“It is envisaged that this will impact hotel developers and operators, retail malls and wholesalers, retail workers – mainly due to a reduction in revenue and the need to implement required safety measures,” she said.
The Emirati and Qatari governments’ investments in these fields highlight the importance of the airline industry to these countries’ economies.
“The aviation industry slowdown will not go unnoticed in the economies of the UAE and Qatar, where the air-transport sector accounts for a sizeable segment of gross domestic product,” Robert Mogielnicki, a resident scholar at the Arab Gulf States Institute in Washington, told The Media Line.
“Dubai is particularly reliant on its air-transport sector as a primary contributor to the emirate’s gross domestic product,” he said, adding: “The aviation industry plays an outsized role in employment generation in both countries. Hundreds of thousands of jobs are at risk as a result of forecasted slumps in demand.”
In Doha, Qatar Airways is one of the country’s main employers, Dahdahl said.
“Whilst there have not been massive job cuts at Qatar Airways, austerity is on the horizon,” he said. One-fifth of its employees have lost their jobs.
“The pilots all have families, many of which also have kids in school, and their departure will impact the education,” he said. “The cabin crew are usually single with no kids, so a decline in their numbers will probably hit the retail and hospitality sector the most.”
The aviation industry slowdown will not go unnoticed in the economies of the UAE and Qatar, where the air-transport sector accounts for a sizeable segment of gross domestic product
Mogielnicki says that the UAE and Qatar invest heavily in their airlines and related infrastructure not only to boost the economy but also because they are a source of national pride.
This Hanukkah Give the Gift of Truth
The Media Line plays a crucial role in providing fact based news that deserves your support.
The Media Line
“The global brand recognition of state-owned airlines in the UAE and Qatar … provides commercial prestige for each country,” he said.
“Etihad, for example, lost nearly $1 billion in 2019, the fourth year in a row there was red on its balance sheet.”
“It’s difficult not to conclude that investment in aviation by GCC governments hasn’t entirely been done on an economic basis,” Woolner added.
Dahdahl said that the coronavirus depression in the airline industry and related sectors is not the worst blow absorbed by these countries’ economies, particularly in Doha’s.
“The broader economic downturn and decline in demand for energy resources globally is the more impactful factor,” he said. “The extent to which the airline-industry downturn plays into that broader story will reveal how Qatar’s balance sheet will fare in the medium- to long-term,” he said.
Anne O. said she believes that COVID-19’s damage to aviation and related sectors will not be long-lasting.
“It is expected that the effects will not linger for too long, as Qatar prepares for the 2022 World Cup and 2023 World Aquatics Championship and market participants adjust to either online retailing or change preferences to home deliveries, etc.,” she said.
The broader economic downturn and decline in demand for energy resources globally is the more impactful factor
Andrew O’Connor, vice president of portfolio management at SITA Industries, a company that specializes in air transport communications and information technology, said that technology will help airlines adjust to the new normal of social distancing, hygiene and health checks.
“We see technology as vital in helping airlines and airports to be compliant with new and fast-changing regulations and to restore passenger’s confidence in flying,” he told The Media Line. “New preventive measures aimed at limiting risk in the airport and on board will require a new approach to passenger management.”
These include adding temperature checks in places such as check-in kiosks and having passengers use their own personal phones to avoid touching common surfaces and for dropping off bags.
Despite the downturn in the industry, Anne O. says investments in airport infrastructure are still wise in airports like Doha’s.
“Prior to the COVID-19 pandemic, the airport witnessed a 12.4% increase in annual passenger traffic in 2019 from 2018. The 2019 result was quite impressive if one considers that the Saudi-led blockade [of Qatar] over 2017-2018 could have made things worse,” she said. The boycott was due to concerns over Qatar’s ties with Iran.
Dahdahl agreed with Annie O.
“The expansion of the airport is a multigenerational investment,” he said.
“The design and build alone will be a significant infrastructure project that will help the economy,” he noted. “Other countries have their mega-infrastructure stimulus plans. This can be Qatar’s version.”