The Middle East has been one of the world’s fastest growing regions for luxury goods. From yachts to private planes, cars to clothes, the last decade saw the region’s luxury sales skyrocket as much as 20 percent per year. But now that consumers have tightened their purse strings, demand has fallen, and luxury market sales in such high-profile shopping destinations as Dubai have dropped as much as 45 percent. Some retailers estimate the region will rebound more quickly than others, due to the rising price of oil. But how are those tasked with making and selling luxury goods dealing with the downturn in the meantime? Some are focusing on long term customers, others on consumers looking for quality instead of flash. In this special summer section, Executive profiles the purveyors of premium goods and services in the Arab world to find out how they’re faring and strategizing in these challenging times.
There is little doubt that the region’s jet-setting executives have been humbled by the global economic downturn. As a consequence, the slump has left the high-flying Middle Eastern private jet industry feeling the turbulence of the downturn’s headwinds.
“Today, the rates we are offering are 20 to 25 percent below what they were before the crisis,” said Abed el-Jaouni, chairman of Imperial Jet, a multi-national aviation services group based in Lebanon, Saudi Arabia and the United Arab Emirates.
The global airline industry is set to lose $9 billion in 2009, according to the International Air Transport Association, and the business jet industry is by no means bucking the trend. Bombardier, the Montreal-based transport behemoth and the largest manufacturer of business jets globally, recently announced that it expects new orders to slow to 375 aircraft this year and not to return to last year’s level of 1,400 aircraft until 2013. The company also announced that it will lay off more than 4,000 employees and lower production due to the slump in demand.
Western woes
Most of the damage that has been done occurred in western markets where jets are produced. But if one compares the region to other more developed markets, the Middle East seems to have been spared the brunt of the downturn.
“The market in Europe is dead and it will continue to be a medium to bad year [for them],” said Jaouni. “But here in the Middle East it is picking up.”
Nicholas Meszaros, general manager of the Beirut-based Executive Aircraft Services, agrees.
“Manufacturers are looking more to the Middle East because there are still some deals to be done here, as opposed to the States or Europe,” he said.
It would be fallacious, however, to say that the entire region has flown right through the storm. Those who splurged during the upturn now seem to be in a tailspin.
“Most of the operators in Dubai had to take some dramatic decisions,” Meszaros said. “They have reduced their pilots, cutting down on routes and stops, and have cancelled a lot of aircraft they were waiting to get on management certificates.”
But those companies in the region that did not over-extend have done moderately well considering the economic turmoil afflicting the world today.
“The two biggest markets we have in the region are Saudi and Egypt,” Imperial Jet’s Jaouni said.
Other markets such as Qatar and Kuwait are expected to continue to do relatively well in the months to come, according to most observers.
The good news for the region’s executive jet industry is that the negative effects of the downturn on western manufacturers has led to bargains for the Middle East’s aviation service operators and jet enthusiasts.
“Manufacturers have stopped production on certain things and what has happened is that people have forfeited their down payment so the manufacturers are saying ‘take it for cheaper,’” Jaouni said. “I see the bottom and the right time to buy planes. [An] aircraft that was valued only eight months ago at $38 million is being offered to us today at $22 million.”
Landing in reality
With less disposable income and a risk-averse approach, manufacturers are less keen to build large, expensive aircraft. Operators are shying away from large aircraft as well, having less money for purchases, operations and maintenance.
“More people are looking at the smaller airplane, because when you are looking at 10 or more seats, you are looking at long-range expensive aircraft, and the demand has been less in this area,” said Meszaros.
While the skies over the Middle Eastern jet market may still be cloudy, aircraft services executives say the region’s market is already looking brighter.
“It is better today, it will get better come the beginning of next year and it will be much better towards the end of next year,” Jaouni said.
