As Headwinds Ease, Mideast Airlines Go Shopping

By Nicolas Parasie and Robert Wall Features Dow Jones Newswires

Middle East airlines are showing signs of emerging from a period of heavy turbulence.

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At the Dubai Airshow on Wednesday, budget airline Flydubai committed to buy up to 225 more Boeing 737 Max single-aisle planes valued at $27 billion.

Its sister carrier, Emirates Airline--the world's largest by international traffic--on Sunday placed a 40-plane commitment with Boeing for 787 Dreamliners valued at $15.1 billion at list price, though buyers typically get discounts.

The deals reflect an upswing in sentiment among executives at airlines in the Middle East whose earnings have been dented over the past 18 months by low oil prices, which have hit business travel.

Demand for U.S. flights this year has been hurt by efforts from the Trump administration to restrict travel from some Middle East countries, as well as a temporary ban on carrying laptops and similar electronics in the cabin on some U.S.-bound flights, over terrorism concerns. Airlines in the region deferred plane deliveries to cope with slower growth.

Those headwinds marked a sharp turnaround in fortunes for airlines that had been expanding heavily. Their growth drew ire from some U.S. and European rivals, who argued that state subsidies fuel their expansion--a charge the Persian Gulf carriers deny.

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Some of those economic headwinds may be starting to ease. "We have seen some strengthening in the region," Kevin McAllister, president of Boeing Commercial Airplanes, said on the eve of the Dubai Airshow, often a hotbed of plane deals.

Emirates Airline President Tim Clark said, "The whole market is experiencing an uplift." A strong rebound in recent months in cargo demand has been a boon to the airline, he said, adding that traffic on European routes has grown strongly and U.S. demand is rebounding.

Peter Baumgartner, who runs Etihad Airways in neighboring Abu Dhabi, said, "The Middle East has been particularly challenged."

The downturn has forced airlines to reconsider their strategies and pursue more measured growth, he said. For Etihad, that has also meant shedding some investments in foreign airlines that helped deliver larger passenger numbers, but cost billions and were a drag on earnings. Etihad this week remained on the sidelines of the aircraft-buying activity.

Mr. Baumgartner said ticket prices were starting to improve on the back of stronger regional economic growth. The rebound has been steady, but measured.

"I see signs of progress but not the rebound as for example after the global financial crisis," Mr. Baumgartner said in an interview.

The upturn also is being felt at the lower end of the market. Ghaith Al Ghaith, chief executive of Flydubai, said pricing "has stabilized" after a period of sharp declines. "There is momentum for growth in the region, " said the carrier, which this month received its first Boeing 737 Max 8 single-aisle plane.

The recent upturn in oil prices also could help boost airfares, he said.

Not everyone is enjoying an easy ride. The region's No. 2 carrier by passenger numbers, Qatar Airways, has been hit by a protracted diplomatic dispute between Doha and its Arab neighbors. It has been banned from flying to countries such as Saudi Arabia and the United Arab Emirates, and has had to reroute some other flights. Chief Executive Akbar Al Baker this month said the airline would lose money this financial year.

Questions have also been raised about whether an anticorruption drive in Saudi Arabia could affect economic activity, and in turn hurt the region's airlines. Flydubai's Mr. Ghaith said bookings from the kingdom so far hadn't been affected.

Even though their fortunes are showing signs of improvement, Middle East airlines aren't abandoning some of their cost-cutting steps. Emirates and Flydubai, both Dubai-government owned, will press ahead with a drive to increase cooperation, the airlines' bosses said, adding that the collaboration so far has been beneficial.

Etihad is similarly focusing on more-profitable growth. The airline has ceased flying some unprofitable routes, including to the U.S., and is introducing charges for seat selection. "In a good way [the downturn] forced everybody to do some reality checks in terms of the growth momentum moving forward," Mr. Baumgartner said.

Write to Nicolas Parasie at nicolas.parasie@wsj.com and Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

November 15, 2017 09:26 ET (14:26 GMT)