Middle East aviation appears to be a picture of economic health: passenger growth is up 13 per cent, compared with 4 per cent worldwide. Freight is up 10 per cent, while the rest of the world is down slightly.
The region is buying aircraft and building facilities rapidly: Middle East carriers have ordered more than 500 aircraft, of which about 120 are scheduled for delivery this year, and some $30bn is slated for investment in airport projects.
This growth has come from several sources: business and tourist travel, expatriates are returning to the region more regularly, and labour demand combined with cheaper air travel has drawn more workers from Asia and elsewhere.
Yet looks can be deceiving. While the Middle East's airline industry appears strong, it could be far stronger. Its rapid growth masks significant challenges.
Regional regulatory co-operation to promote safety and efficient routing is limited and inconsistent. Traffic rights are restricted, hindering growth and profitability. Security requirements force airlines into inefficient routes.
The answer to these problems will come when the region goes beyond investing in world-class aircraft and airports, and adopts world-class aviation rules and management.
To liberalise routes, more nations need to implement the 2004 Damascus Convention - an agreement to liberalise air transport in the Arab countries. The convention would, in theory, open each country's air routes to competitors from other signing countries under certain conditions. Doing so would have an impact similar to that of the US-Europe Open Skies agreement, which fuelled double-digit increases in passenger volume in the late 1990s. But While most countries have ratified the Damascus pact, few have put it into action.
Regional regulators need to set up an equivalent to EuroControl to create a uniform system of air traffic management. No-fly zones imposed for security reasons create regional logjams; a shared civilian-military system of co-operation would reduce the impact of these.
Regulators should also aim to cut taxes to boost tourism, and jointly establish standards for security screening to ease movement.
National regulators need to work across borders to create ways for airlines to collaborate closely - perhaps even engage in cross-ownership - so they enjoy economies of scale.
On the airlines' side, some of the national carriers are beset by competition from low-cost operators such as Flydubai, NAS, Sama, Air Arabia, Bahrain Air and Jazeera. At the other end, premier airlines - such as Emirates, Qatar, and Etihad Airways - have won a significant share of wealthier business travellers by taking luxury and service quality to new levels.
These airlines are gaining share at the expense of the traditional flag carriers that appear to be stuck in the middle. Unless they can reinvent themselves, traditional flag carriers face possible extinction without government support.
They should sharpen their focus in five areas:
● Create a point-to-point strategy. Carriers typically focus on connecting passengers, building schedules around them rather than point-to-point travellers. More emphasis on larger point-to-point routes - such as intercity trunk routes, holiday destinations, and regional services - would improve their competitive position.
● Explore multi-hub operations. Traditional hub-and-spoke networks force many passengers out of their way to travel via the hub.
● Give customers what they want. Often national carriers can tailor their services to exploit cultural idiosyncrasies in their passenger base that will increase loyalty.
● Remove unnecessary costs. Traditional airlines can mimic low-cost carriers' use of as few aircraft types as possible, reduced turnaround times and higher utilisation, simplified and automated ground services, and flexible labour.
● Consider merger and acquisition opportunities. Many could realise 5 to 10 per cent cost savings by merging with a similar-sized airline.
As the Middle East plays an increasingly crucial role in global business, its aviation must keep up. Airlines and regulators need to define the priorities that will allow it to do so.