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High fuel prices begin to take toll on Gulf carriers (page 1 of 2)

  • Middle East: Thursday, July 03 - 2008 at 10:51

Middle East airlines have so far shown little sign of being impacted by soaring oil prices, but as fuel costs continue to rise more carriers may soon follow the lead of Emirates, which has recently cut back on some of its routes.

At the International Air Transport Association annual meeting in Istanbul in June, Emirates announced that its growth plans would stand regardless of soaring oil prices.

But while the carrier has not cancelled any of its orders for planes, it has made cutbacks on some of its existing routes.

This week Emirates told AME Info that it is cancelling its service to Alexandria, Egypt because of high fuel costs.

This follows the airline's recent announcement that it is deferring its plan to have direct flights to Durban, South Africa from Dubai in December, also due to high oil prices.

Commenting on the closure of the Alexandria route, an Emirates spokesperson said: 'We closely monitor the performance of all our routes to ensure that our resources are deployed in a way that best meets our overall business goals. With the current high fuel prices we are watching the situation even more closely.

'For this reason, we intend to terminate our services to Alexandria with effect from 10th September 2008.'

The spokesperson went on to say, 'Overall, Emirates' route network continues to grow as we bring on new destinations and add more flights onto existing routes. In terms of new destinations, there are no changes planned except for the deferment of Durban services.'

Booming economy buffers Gulf carriers


The cuts at Emirates are the first sign that Middle East airlines are beginning to take a hit from high oil prices.

Until now, no carrier had announced cut-backs on flights or destinations. In fact, many carriers in the region have added one or more routes during the first half of this year.

Gulf carriers have been somewhat immune to high fuel prices largely due to the fact that Gulf region is buoyant economically, said John Strickland, director of aviation specialist JLS Consulting in London.

People in the region are the ones who are benefiting from the fuel price surge, so they have extra money in their pockets to spend on travel.

By contrast the economic slump in the US and Europe is having a negative impact on the carriers that are based in those markets, he explained.

Gulf airlines are also benefiting from the fact that they are increasingly serving as hubs for travellers across Asia and Europe.

Another key factor in Gulf carriers favour is that they tend to have young, modern fleets which are more fuel efficient than older aircraft, he noted.

Asked if subsidized oil could be one factor that has helped insulate government-owned airlines such as Emirates from high prices, Strickland points out that the carrier has repeatedly denied that it receives assistance from the government.

Regardless of whether or not it receives subsidies, Emirates is an efficiently-run airline that benefits greatly from its location. All airlines have been forced to improve efficiency and more tightly manage their budgets, and Emirates is no exception.

Gulf low-cost carriers under pressure


In the Gulf, low-cost carriers have had success in providing services to a price-sensitive customer base made up largely of workers who are travelling home to high population areas. However, the smaller low-cost carriers are under increasing pressure because they don't have the cash reserves to keep their prices low as fuel prices continue to rise, Strickland says.

One low-cost carrier in the region that has begun to feel the pinch of high fuel prices is Sama Airlines.
Emirates has made cutbacks on some of its existing routes 
Emirates has made cutbacks on some of its existing routes
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