MIDDLE EAST

RECONFIGURES

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AT A GLANCE

Housing one of the world’s busiest airports, the Middle East is consolidated as a global hub, providing efficient connectivity to regions like Asia, Africa and Europe.

After decades of strong international traffic growth, the region is starting to present a growth slowdown as flow restrictions take place.

As an ever-evolving market, airlines from the region can find, with a more flexible fleet, new ways to grow.

Airlines in the region still strive for better margins as they remain in a low profitability environment.

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A HOME FOR GLOBAL CONNECTORS

In the last few decades, the Middle East emerged as an important global hub, constantly adding new passengers to its system, especially when we consider international traffic. As a great option, geographically, to efficiently connect regions such as Asia, Africa and Europe, the airlines based in the Middle East have been taking the opportunity to expand their operations and footprint.

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GROWTH SLOWING DOWN

After the period of strong growth, traffic in the region has started showing signs of a slowdown. In 2017, the international traffic rose ~7%, far from the CAGR of ~15% seen in the first decade of the millennium. Factors including limitations on carrying large electronic devices on board, as well as US travel restrictions for certain countries in the region contribute to the slowdown.

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MIDDLE EASTERN
TRAFFIC EVOLUTION

Source: Innovata, Embraer – March 2018
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AN EVER-EVOLVING MARKET

The current fleet in service illustrates the region’s focus on international markets. With almost 90% of the fleet having more than 150 seats, the capacity has been designed almost exclusively to serve long-haul routes. In order to innovate and improve frequency and connectivity of the local markets, the need to right-size is ever present.

As the international market presents problems for strengthened growth, a look to the domestic market can present alternatives for the region. Countries like Turkey and Iran, for instance, have deep wells of local demand which can feed the hubs, for which there will be no aircraft more versatile than 70 to 150-seat jets.

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MIDDLE EAST
FLEET IN SERVICE

Source: Flight Global, Embraer - March 2018
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LOW PROFIT ENVIRONMENT

According to IATA, net profits for the region in 2018 are forecast to be only slightly above breakeven, at US$ 0.6 billion, with operating margins of ~1%. Relative to 2017 (US$ 0.3 billion and 0.6%, respectively), there is a timid improvement, but still far from industry demand for sustainability.

More connectivity based on a more flexible and right-sized fleet can give the Middle East more efficient options to encourage profitability growth.

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