Headwinds for Airlines as Emerging Markets Dominate Dubai
Boeing, and its arch rival Airbus, have in recent years witnessed something of a boom in airplane orders, despite the U.S. and Europe battling against financial crisis and economic slowdown.
This has been led by the expansion of airlines in the Middle East and Asia, while at the same time many carriers in the developed world have been upgrading to new, more fuel-efficient, planes to offset the rising oil prices.
Boeing on Sunday signed the biggest deal in its history at the Dubai Airshow as Emirates agreed to buy 50 777-330R aircraft worth approximately $18 billion. The deal, which is likely to be the highlight of the biennial airshow, showed that demand for new aircraft remains high despite a number of headwinds facing airlines across the world.
Jim Albaugh, chief executive of Boeing Commercial Airlines, told CNBC that the U.S. manufacturer is no longer dependent on domestic or European demand.
"Obviously we are concerned about what’s going in Europe and the softening economy in the United States, but the market has changed over the last 20 years," he said. "We were very dependent on Europe and the United States. Now that has changed. We’re seeing much more of a global marketplace and we’re seeing about 85 percent of the orders we have outside the United States."
That said, the company continues to watch what’s happening in the global economy very closely, he said. "We are concerned about the contagion spreading from Europe to elsewhere," said Albaugh, adding that he believes financing for new planes in the euro zone could dry up.
One of Boeing’s biggest problems is not winning new orders for new planes, but building them and delivering them on time. Albaugh expects delivery times to get longer and longer. After well-publicized major delays getting the Dreamliner to market, he is now "cautiously optimistic that we are going to be able to do what we promised our customers."
Akbar Al Baker, chief executive of Qatar Airways, which is expected to place a significant order with Boeing later this week, told CNBC the airline industry is facing a number of problems that could wipe out profits, or in a worst-case scenario lead to heavy losses over the next two to three years.
"I think airlines will pass through a very difficult 24 to 36 months," he warned. "Airlines will have to tighten their belts, employees will have to streamline and be more productive, and will have to make sacrifices to keep their jobs.
He added: "At best there will be no profit, at worst the airline will incur heavy losses, because the demand will go down due to the economic conditions."
Another problem for airlines in North Africa and the Middle East is the Arab Spring, which has impacted the number of people willing to holiday in or even fly through the region.
“It has affected all the airlines, not only Qatar Airways, in the region. We are down by over 5 percent in traffic numbers and we are unfortunately down in revenue numbers,” said Al Baker. “Yes, we are hurt. This is all the effect of the Arab Spring and the economic downturn in Europe which eventually will spill into other parts of the world.”
CNBC will report live from the Dubai Airshow on Monday.