Business | Aviation
Private investment is the key to improved civil aviation industry
The level of passenger traffic has increased enormously over the ensuing three decades, to the point that many of the world's airports are reeling under the pressure of more planes and people than ever before.
- By Adel Ali, Special to Gulf News
- Published: 00:08 July 14, 2008
Thirty years ago, outside of the United States, the worldwide civil aviation industry was almost entirely state-owned and run.
Passenger traffic and its impact on airport infrastructure wasn't much of an issue, simply because there wasn't very much passenger traffic.
Times have changed. The industry has expanded at an unprecedented rate.
The level of passenger traffic has increased enormously over the ensuing three decades, to the point that many of the world's airports are reeling under the pressure of more planes and people than ever before.
At the same time, airlines have reaped the benefits of additional customers, and the industry has blossomed with profits and a myriad of technological innovations that have greatly increased comfort and convenience for passengers.
How did this happen? It is no coincidence that, since the 1970s, carriers from around the world have opened their doors to private investment from investors in their home country and abroad.
Governments have often continued to own significant shares of the carriers they started, but day-to-day decision-making has become market-driven.
Governments have also deregulated the industry, opening the skies and allowing for increased competition.
Economic driver
The aviation industry didn't privatise and deregulate primarily because it felt that the opening of industry to new investment would mean greater profits and expansion.
Rather, they have privatised and deregulated to cut costs. Little did they know that the move would lead to the aviation industry becoming one of the most significant economic drivers in the world.
The Middle East's aviation industry is still in a nascent phase in many ways.
Every Arab nation has a flag carrier that is largely or completely state-owned. Like the carriers of Western countries in the past, many of these airlines are not open to foreign investment.
Just as important, regional labour laws cap foreign participation in the workforce, limiting the contribution of global experts - and global best practice insights - in the sector. Yet like Western carriers in the past, Middle East airlines have been by and large very successful.
But history has shown us that market conditions can change, and they can change rapidly. To run and expand an airline costs billions of dollars per annum.
The industry is a demanding one with ever-increasing competition, and a litany of requirements and regulations always impinging upon it.
And with the price of fuel breaking new records almost every day, the global aviation industry has become of the most volatile industries on the planet.
Foreign investment and deregulation are possible solutions to these potential problems. Governments see their carriers as an enormous boon to their economies, and as a source of employment for their citizens. And they are right to think so.
But the industry can go further still. Foreign investment and increased competition make for airlines that are even more dynamic and vibrant.
Carriers that gain access to the capital markets by becoming publicly listed also have to open up to the demands of shareholders. These demands make for greater accountability, and stimulate growth and prosperity for all.
Advantageous position
The Middle East is in a very advantageous position. Governments can look at the experiences of other parts of the world, with older aviation industries, and see which are the correct steps to take, and which to avoid.
Opening the industry here to increased private investment is a step in the right direction; timing it properly will require careful analysis and guidance. The only difficulty is finding the impetus to make it happen.
The writer is board member and chief executive officer of Air Arabia.
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