Omani aviation sector has undergone significant changes - says CAPA report

The report offers a comprehensive, factual basis for review of what is generally a little-understood market, along with the Centre's interpretation and outlook on likely directions for the future.

Usama Bin Karim Al Haremi, Manager Corporate Communications and Media Department of Oman Air stated that the much respected research company with regional offices in Singapore, New Delhi, Geneva and Manchester, and representatives in Auckland, Bangkok, Beijing, Dhaka, Hong Kong, Shanghai and Tokyo has described The Middle East, as one poised to rewrite the world aviation system.

Air traffic growth in ME surged three times the global average - by 18.8% in July this year. CAPA through its report said that the value of the Gulf's near-perfect geographic position as a hub has been enhanced enormously in the past five years by two other main factors. Aviation liberalisation, which allows intermediate ports to become valuable crossroad hubs; and the introduction of ultra long-haul aircraft, permitting non-stop service to and from almost any point in the world. Together these features should in fact help the region's major airlines and airports to be at the forefront of the 'Next Generation Aviation' evolution. In this environment the report noted, growth rates can be achieved at levels which were previously impossible'. Reveling the study, Al Haremi said that the Middle East region is 'quickly becoming an influential player on the world stage. This is occurring not only because of its headline growth, but also because of the way that development is shaping (or re-shaping) the global aviation balance.

"With the air traffic growth accelerating, the gap between Middle East traffic growth and the rest of the world is also widening, with July traffic hovering some 12.9 percentage points above the global average, compared to 7.7 percentage points in July 2006 and 3.8 percentage points in July 2005," the Sydney-based group said. Boeing and Airbus expect the Middle East market as a whole to expand by 5.5% and 6.2% per annum on average until 2025. In the recent fifth Middle East & Africa Air finance, Conference held in Dubai, analysts predicted that total passenger traffic in Arab airports would surge to 158 million in 2007 from 144.5 million in 2006.

Al Haremi added that as per the report, the Omani aviation sector has undergone significant changes - at both the airport and airline level - in the recent period, with much more apparently to come. Tourism is witnessing big investment in infrastructure too. The report mentioned that Oman has in recent years embarked on a campaign to promote its tourism destinations to high-end travellers, with special emphasis on Europeans, noting that the World Travel & Tourism Counsel has highlighted Oman as one of the most aggressive investors in national travel and tourism infrastructure. Concurrent with the investment in its tourism infrastructure, the Government, like those in Qatar and Abu Dhabi before it, decided its economy - and especially its tourism sector - were not benefiting to the appropriate degree from its ownership stake in Gulf Air. This was so, even though Gulf Air management moved some long-haul capacity to Muscat, which experienced a large growth in traffic when Gulf Air stopped operating beyond services from Abu Dhabi.

Under a sub title within the report "Oman Air - big changes on horizon" the report mentioned that the Government to ensure that its economy is receiving the long-haul services it needs, has retained ownership of Oman Air and prepared it to launch long-haul services by 2008.

Concurrent with this development, it and its counterpart government in Bahrain reached an agreement whereby Oman withdrew from its ownership in the Gulf Air venture in May-07. Few airlines will be looking at such a change-filled near-term future as Oman flag carrier Oman Air, which is embarking on a whole-scale departure from its previous operational positioning.

The carrier, launched in 1993, has until now largely focused on offering regional services from capital city Muscat using a combination of B737 and turboprop equipment, relying on Gulf Air - which Oman co-owns with Bahrain - to provide intercontinental services. It is a formula that the airline had used to produce respectable results, with earnings rising 33% on 2004's.

The report unveiled that Oman Air reported a $7.5m profit in 2006, up almost three times on the 2005 result, as more capacity and better yields drove net income. Passenger numbers rose 2% to 1.2 million. However, like former Gulf owners Qatar and Abu Dhabi, the Government of Oman chafed at the concentration of long-haul services at Bahrain. With Muscat apparently relegated to a mostly regional role under the shared project, it began in early 2007 to act independently of the multinational platform to secure more intercontinental air services for its economy, a process that culminated with Oman withdrawing from Gulf on 05-May-07.

Because the investment necessary to support intercontinental flying - and the probability of heavy losses in the first few years - exceeded the capabilities of Oman Air's owners, the Government has enhanced its involvement of the carrier. First, a recapitalisation of the carrier, with the Government injecting OMR37 million and claiming ownership of 82%, up from the 33.8% it formerly held (with the remainder held by local companies and individuals) was mooted. Then in May-07, the Government announced it would fully nationalise the carrier and replace its entire Board. With the Government once more standing fully behind it, the airline has signalled its intention to acquire - initially through lease - three A330-200 aircraft in 2008 and a further two in 2009 to serve such destinations as Bangkok and Beijing.

Management envisages an ultimate route network of 42 destinations, of which 11 would be long haul. A key driver of the outlook for Oman's aviation sector is the decision of the Government and flag carrier to move into long-haul operations. Management has acknowledged that the venture will generate losses for several years, but anticipates ultimate profitability - and flow-on benefits to the Oman economy.

The report said that Oman has had a generic privatisation policy since the 1980s, which employs methods such as direct sale of government shares and assets, offering the capital increase for production capacity expansion projects for direct public subscription, and granting concessions to set up projects against investment on BOOT (build, own, operate and transfer) basis. Therefore, foreign participation in privatisation projects is still encouraged in order to benefit from foreign capital and technical and managerial expertise, pursuant to the provisions of the country's Foreign Capital Investment Law.

The country's main airport, Muscat Seeb International, was the subject of a well-publicised privatisation in 2002, when a 25-year concession was awarded to Oman Airports Management Company, a consortium comprised of local and foreign firms, as well as the Government, which retained a 20% stake. In an unforeseen sequence of events, the 2004 decision to expand the airport put in motion the unravelling (by October of that year) of the consortium, which had held a management contract for Seeb and Salalah airports. Under the contract, the consortium was required to invest up to USD235 million to upgrade Seeb Airport.

After financing for the new projects proved practically impossible for the consortium, the Omani Government resumed management responsibility of the airports on Nov-04. Then in Jan-06, it announced plans to construct three new airports at Ras Al Hadd, Duqm, and Sohar. In Jul-06, the Ministry of Transport and Communication awarded a contract to provide project management consultancy services for the expansion of Seeb and Salalah airports. The new parameters will see the airport upgraded to 12 million passengers during the initial stage, scheduled for completion by 2010, with a possible latter-stage expansion to 48 million, depending on needs. In all, $1bn is to be invested in upgrading Seeb and Salalah airports.