Middle East Airlines Face Mounting Losses And Disappearing Passengers Amid Coronavirus Crisis

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In mid-February, an aviation executive in Muscat was playing down the damage the novel coronavirus might do to his industry. At the time, Oman had just one scheduled flight to China, where the outbreak was still concentrated, and it seemed the Covid-19 disease caused by the virus might cause some turbulence but nothing more than that.

“We have seen a bit of a decline in the last month,” said Khalfan al-Shueili, chief executive of Oman Air Services. “I can’t attribute it directly to [coronavirus] but we are comparing month to month. We are being cautious about our projections for this year, but we hope things turn out better… It’s merely the cancellation of one flight.”

Little more than a month later and the landscape for aviation in the Gulf has been utterly transformed and not just in terms of making trips to and from China. Travelling around the Middle East as a whole has become extremely difficult in the past few days, as governments impose ever tighter restrictions on who can land at their airports or cross their borders.

The Oman government halted all international flights in and out of the country on March 17 and Kuwait, Saudi Arabia and others have taken similar measures in a desperate bid to halt the spread of the disease.

Kuwait now stops any foreign nationals from entering the country and commercial flights to and from its main international airport have been suspended. Saudi Arabia stopped all international flights on March 15 and is doing the same for domestic flights from tomorrow morning. “Consider Saudi Arabia completely closed until March 29 at the earliest,” says aviation industry site OPS Group.

Qatar has stopped international passengers from entering the country, even if they have a residence permit. Transit passengers can still connect through Hamad International airport in Doha though. Bahrain has suspended visas on arrival and is denying entry to anyone who has recently visited China, Iran, Iraq or South Korea. The UAE – home to both Emirates and Etihad Airways as well as several low-cost carriers – has also suspended the issue of visas on arrival and has blocked flights from Iraq, Iran, Lebanon, Syria and Turkey.

The cost of all these restrictions is impossible to know at this stage, but industry bodies have been making some estimates. The International Air Transport Association (IATA) says the pandemic is “a catastrophe for economies and for aviation” and much worse than other emergencies such as 9/11, SARS or the 2008 global financial crisis.

A lot of routes around the Middle East have been suspended but even ones that are still operating have seen passenger numbers slump by as much as 60%. IATA modelling suggests more than 50 million passengers may be lost, along with more than $10 billion in revenue, while more than 800,000 jobs are being put at risk. The worst affected markets are Saudi Arabia, with $3.1bn in potential lost revenue, the UAE with $2.8bn and Egypt with $1bn.

So far, more than 16,000 passenger flights have been cancelled around the Middle East, a number that is expected to increase exponentially as tougher measures are brought in. The biggest hit is on international traffic, with cross-border bookings down 40% year-on-year for March and April, while domestic bookings are down 20%. Ticket refunds increased by 75% from February 1 to March 11 this year, compared to the same period in 2019. Overall, Middle East airlines had lost $7.2 billion in revenue by March 11.

Even before the crisis hit many of the Gulf’s major carriers were struggling financially, as a result of weak economic growth in the region, the enforced grounding of Boeing 737 Max planes or simply poor management performance.

Abu Dhabi-based Etihad has been going through a restructuring programme and cutting its losses, but they remain substantial. Others like Bahrain’s Gulf Air and Oman Air are also loss-making, not least because of expensive fleet modernisation schemes, while Qatar Airways has been haemorrhaging cash since four of its neighbours imposed a boycott in June 2017. Low-cost carriers have also had mixed results in recent years and FlyDubai only recently returned to profit.

Iran’s aviation sector may be in the worst position of all. It has been struggling under the restrictions of U.S. sanctions which has made it impossible to buy badly-needed new planes or even spare parts for the existing fleet (let alone medical equipment to tackle Covid-19). Since the healthcare crisis began, air travel has slumped – Tehran’s Mehrabad Airport is reportedly handling just 30 flights a day, down from 350-400 a day beforehand. The total number of domestic flights in Iran is down at least 70%.

In response to the situation, Gulf airlines have scrapped restrictions on passengers changing their bookings, stepped up the cleaning regime for their planes and cut their route networks – either because of airport closures or a lack of demand.

Some will also be hit by problems at other airlines they have invested in, notably Qatar Airways which has stakes in IAG, which owns British Airways and Iberia, and Chile-based LatAm.

So far, airlines have been slow to spell out the financial impact of the crisis, but the pressure they are under is clear from the fact that Emirates has been asking pilots and cabin crew to take unpaid leave and Qatar Airways has reportedly laid off 200 staff.

Given that airlines in the region have, on average, cash reserves of just two months according to IATA, support measures are urgently needed.

The governments of Qatar, Oman and Bahrain have been willing to cover the losses of their flag carriers in recent years, while also pushing them to improve their performance, but not all governments are in a position to offer large amounts of help. With oil prices crashing thanks to the price war between Saudi Arabia and Russia, many countries know their revenues this year are likely to come in well under expectations.

However, all will also know that aviation is vital to their chances of economic recovery. IATA estimates the economic contribution of the aviation industry to Middle East economies is $130 billion and it supports 2.4 million jobs and contributes 4.4% to GDP.

In response to the current crisis, IATA has called for direct financial support to cover lost revenues, as well as tax relief, loans, loan guarantees and support for the corporate bond market

“Our ask is that airlines, which are essential to all modern economies, are given urgent consideration,” said Muhammad Al-Bakri, IATA regional vice president for Africa and the Middle East. “This will help keep them alive and ensure airline staff – and people working in allied sectors – have jobs to come back to at the end of the crisis.”

 The Arab Air Carriers’ Organization has also drawn up a list of measures it is encouraging governments to adopt, including two years of tax relief, a grace period for airlines to pay lenders and suppliers as well as airport charges. It also wants airport slot rules to be lifted in the region, for airlines to be exempted from passenger rights regulations, and governments to cover the costs of heightened hygiene standards.

These days, no-one in the region is trying to play down the seriousness of the situation they are in.

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