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Survivors of the battlefield.

AIRLINE OPERATORS in the Middle East have a captive regional market which is recovering strongly from the adverse and unpredictable effects caused by endemic strife in the region. Yet they survive and prosper.

Two airlines typify the turbulent fortunes of the aviation business in the Middle East. Gulf Air is embarking on a cost-cutting campaign to boost its revenues as part of a post-Kuwait war strategy. Middle East Airlines, the Lebanese national carrier, is moving from survival to expansion after years of civil war in its home country. In their different ways, each has had to contend with huge problems, and both are showing a new lease of life.

Gulf Air is jointly owned by the governments of Bahrain (where the airline is based), Qatar, Abu Dhabi and Oman. Its current strategy is based on increasing revenues by cutting the number of seats left empty on flights. Mohammed al Shafie, the company's regional vice-president, told a recent conference of Gulf Air's financial controllers that traffic within the GCC countries accounted for 64% of Gulf Air's total.

"Out of Gulf Air's total passenger sales target of BD311.8m this year, the GCC target responsibility is BD182.8m," he announced. "In the GCC region, our performance has to be perfect. Any failure on our part will have a direct effect on the company as a whole."

What he did stress emphatically was the need to avoid "seat wastage" through an effective revenue or yield management programme and by cutting down on no-shows. Gulf Air is now engaged in renewing its fleet. Among aircraft being bought are Boeing 767s, and Airbus A320s and A340s. Total seat capacity on the Gulf Air regional network will increase by 14% next year. Al Shafie says that regional carriers have the flexibility to adjust their fares using revenue management in order to maximise revenue potential. "Pricing flexibility provided under revenue management allows the carrier to offer a variety of different levels of fares in line with market demand and passenger purchase ability. Although these particular discounted fares are more profitable than empty seats, they would not be openly available without yield management control."

Shafie claims that overbooking on flights allows airlines to offset the effect of passenger cancellations and no-shows. The latter costs airlines around the world billions of dollars, Shafie says, and in order to offset the loss, airlines overbook. "Gulf Air is adopting the latest technology through revenue/yield management and through overbooking formulas to address and avoid seat wastage and improve our seat utilisation throughout the network."

Middle East Airlines (MEA), the Lebanese national carrier, has suffered far more acute problems. After years of turmoil in Lebanon, MEA and the country's cargo carrier, TransMediterranean Airways (TMA), have overcome financial and political difficulties, and are now looking towards modernising their fleets. The two companies are likely to become more closely involved with one another in the future. One indication of this is that the new chief executive of TMA, Shafiq Muharram, is a former chairman of the Intra Investment Company which has a 62% share in MEA. There is a possibility that the Lebanese Company for Aviation Investment, supported by the Banque Libano Francaise, could play a leading role in finding fresh capital for MEA.

MEA also has a new chairman. Abdul Hamid Fakhoury recently took over the reins from Salim Salam, the veteran chairman who has navigated MEA through the turmoil of the past 20 years. He says that a capital increase is crucial if the airline, which has a huge reputation in the region, is to develop. Last year, MEA recorded a $6m loss. This year it hopes to break even and expects to register a profit in 1994.

The modernisation plan involves the introduction of Airbus A310s and Boeing 767s at a rate of three aircraft a year over the next five years. These will replace the ageing Boeing 707s on which MEA still depends for much of its services.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Special Report; Middle East airlines
Publication:The Middle East
Date:Nov 1, 1993
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