Aviation chief blasts the region’s government-subsidised carriers

A TOP AVIATION boss has taken a swipe at Middle Eastern governments for funding airlines in the region, claiming that state-sponsored carriers damage the industry by buying business.

  • E-Mail
By  Rhys Jones Published  May 22, 2005

A TOP AVIATION boss has taken a swipe at Middle Eastern governments for funding airlines in the region, claiming that state-sponsored carriers damage the industry by buying business. Peter Hill, CEO of SriLankan Airlines claims that government-backed airlines in the region are able to grow their networks too quickly, without any financial restrictions. Hill believes the manner in which these airlines offer market fares below cost is hurting the industry. “A threat to commercially run airlines like ourselves, who receive no government funding whatsoever, are those airlines that operate with the support, to a lesser or greater degree, by their respective governments,” Hill told Arabian Business. “You only have to look at emerging carriers from the GCC such as Sharjah’s Air Arabia and Abu Dhabi’s Etihad Airways to see good examples of what I’m talking about,” he added. Etihad Airways, which is bankrolled by the Abu Dhabi government, started up in November 2003 serving Beirut alone. However, the airline was able to undertake a fast-track expansion programme with funds supplied by Abu Dhabi, rumoured to amount to around US$500 million so far. Etihad has since expanded its network to 16 destinations including London, Munich and Geneva. “Government-funded airlines are able to grow their networks very rapidly, without any financial constraints and literally buy business to increase their market share by being able to offer market fares below cost,” explained Hill. Nevertheless, SriLankan reported a near doubling of profits for the year 2003/2004. A net profit of US$44 million was posted by the airline and its SriLankan Catering Services subsidiary, an increase of 94.97% over the previous financial year. Total operating revenue rose 24.6%, while passenger numbers increased by 14.3% to 2.06 million. Meanwhile, the airline fleet expanded to 17 with the acquisition of two A340s, two A320s, another Antonov AN12F freighter and a Cessna Caravan floatplane. “We have shown you can make money out of what was a hugely loss-making enterprise and we have shown that you can build a reputation out of nothing with decent management and with everybody walking the talk,” said Hill. A less potent threat towards commercial airlines is the emergence of low-cost carriers (LCCs) in the region. Gulf Air’s ‘no frills’ offering, Gulf Traveller, has been operational for the last two years while Sharjah’s Air Arabia made its maiden flight just a month before Etihad Airways. The only carrier that currently flies to Sri Lanka’s capital, Colombo as a LCC is Air Arabia, which has progressively increased its services and now has daily flights. In spite of this Hill claims its daily A320 service from Sharjah has not had a major impact on SriLankan’s flights between South Asia and the GCC. “At the moment Air Arabia is offering 150 seats a day, which is a drop in the ocean as far as we’re concerned,” said Hill. “[Air Arabia] are focusing very much on point-to-point and we’re a network carrier, so at the moment it’s having very little impact on us but it will almost certainly increase. I think the strength of the network will be our strength, but it remains to be seen,” he added. Meanwhile, Gulf Air’s CEO and president James Hogan has talked down the chances of carriers looking to adopt the no-frills business model for short-haul flights within the Middle East. “Having worked in Europe, I believe that the low-cost model just doesn’t apply in this part of the world,” Hogan told Arabian Business. “Their strengths in Europe are secondary airports, internet penetration and they’re point-to-point, not to points beyond.” “There is no such thing as a low-cost carrier — only low-fare carriers,” added Ahmed Al Hammadi, vice president of finance at Gulf Air. “They have to incur the same costs as we do, if they are run commercially. Not having meals on board is not enough to call yourself a low-cost carrier,” he concluded. Hogan also said that rationalisation of Middle East airlines is a reality and predicted that many carriers would move to share back-room costs within the next five to 10 years. Speaking at the Arabian Hotel Investment Conference, Hogan predicted that airlines would come together to “take some of the costs out of the industry” and improve the bottom line, as seen in Europe and America.

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code