Despite being one of the wealthiest regions in the world, thanks to its substantial oil reserves, the Middle East has seen GDP growth slow again in the wake of the Arab Spring in 2011. Protests and revolutions plague more than one market in the region, and are now spreading to previously stable markets, creating negative perceptions of the region.
As a result of the political turmoil, a number of destinations suffered in 2011, including Egypt, Tunisia, Yemen, Syria and Libya, while others, like the UAE and Saudi Arabia, are set to benefit from the crisis. Egypt is among the destinations expected to see continued negative growth during the forecast period, notably in inbound tourism spending, mainly associated to the decline in average prices across different categories.
Segments such as air transportation are also expected to be negatively affected. Air transport is the main method of travel among the major distant areas in the Middle East region, but international tourism growth has been the major source of air transport growth in the last 10 years. With the current turmoil affecting many regional destinations, growth in value sales is expected to be slower between 2010 and 2015 than such regions as Asia-Pacific, for example.
Inbound and Outbound Tourism Flows
The Middle East experienced a “double dip” in tourism arrivals, with sharp falls in 2009 and 2011, with recovery predicted in 2012, but remains threatened by continued instability. Arrivals declined by more than 7% in 2009 and again in 2011, by close to 8%, while 2010 saw an 8% increase.
The Middle East is an important source region for the world travel industry, not just because of the rapidly growing number of trips taken abroad, but more importantly because of the high purchasing power of consumers in key markets like Saudi Arabia and Kuwait.
The 2010-2015 period is expected to see encouraging growth in three major markets’ tourism and economic indicators. These are the UAE, Saudi Arabia and Morocco, with Saudi Arabia seeing an impressive 12% CAGR in arrivals related to religious and business tourism.
Outbound travel continues to support growth in the air transportation sector, and the large regional players, like Emirates Airlines and Qatar Airways, are still among the fastest growing global airlines, but smaller players are threatened by the current conditions across the region.
Outbound spending by Saudis, for instance is set to grow at a CAGR of more than 10% during the forecast period, while Qatar will see a 12% CAGR. Spending from Iran is predicted to grow at a 15% CAGR during the forecast period, and from Kuwait by 8% annually. These figures have not only encouraged regional countries to refocus their strategies on drawing Arab tourists, but also global markets worrying about the state of the world economy and hence seeking to target those that have shown and should continue to show more resilience.
Air transportation increasing in importance…
The Middle East is the fourth largest region by value in the air transportation sector, with total revenues of US$43 billion worth in 2011, after Western Europe, with US$178 billion, North America, with US$166 billion, and Asia-Pacific, where revenues reached US$156 billion.
Air transport is the main method of travel among the major distant areas in the Middle East region, but international tourism growth has been the major source of air transport growth in the last 10 years.
…but bankruptcies threaten new private airlines
Private airlines in the Middle East face the threat of bankruptcy in the absence of mergers in the region. Most airlines are 100% government owned in the Middle East. They generally wait until privatisation and then merge.
The major issue in the region, however, is that the industry in the Arab world is not ready for aviation mergers because of inadequate and unattractive regulations and legislation at a national level. As a result, any airline which is facing the threat of bankruptcy is likely to disappear completely as it is unlikely to be purchased by another airline.
Sama Airways in Saudi Arabia went bankrupt in 2010 following poor management and internal issues. The airline received SR200 million in loans from the government to cover fuel costs and SR500 million from shareholders, but was still had a deficit of SR300 million. Sama also faced competition from state-owned Saudi Arabian Airlines, which received government subsidies and support, making it very difficult for Sama to survive.
Another recent bankruptcy is Kuwait-based, Wataniya Airways, which closed down in March 2011, mainly due to the political unrest and the world economic situation, which had an impact on its financial performance. The airline says the lack of fair-trade requirements in the local market made it hard to survive.
Investor opportunities exist Infrastructure is still underdeveloped in many countries, be it in terms of tourism, transportation or travel accommodation, and the time is therefore ripe for investors to contribute to developing this. Some markets that are currently undersupplied will benefit from new developments, including Saudi Arabia and Qatar.
The global economic turmoil has motivated investors in many corporations across industries to turn to the Middle East for future growth opportunities. There is a number of emerging niche markets which are still under-tapped. This includes medical tourism in places like Lebanon, and ecotourism and adventure tourism in many other destinations, which can be leveraged in the post-revolution era to help reposition tourism destinations in the region and lure tourists back.