Forward momentum: Despite regional instability, the aviation sector continues to record solid growth

With 2015 seeing national carrier Royal Jordanian (RJ) returning to profit helped by the low oil price, along with solid growth in passenger numbers at Queen Alia International Airport (QAIA), the kingdom’s aviation sector has been undergoing something of a rebirth. More airlines and more routes operating from Jordan have also added to the positive mood.

Now, the sector faces the challenge of maintaining momentum, particularly within such a turbulent region. Achieving greater efficiencies and improving market access may be the key to achieving this.

Passenger Boom

According to figures released by Airport International Group (AIG), the Jordanian company with responsibility for QAIA’s expansion, rehabilitation and operation, QAIA recorded around 5.9m passengers in the year to September 2016, a 5.7% increase compared to the same period in 2015. Over the same period QAIA also registered 56,923 aircraft movements and handled 75,287 tonnes of cargo, an increase of 4.2% and 2.3%, respectively, over the same period in 2015.

Monthly passenger records were broken in July, August and September in 2016, with August recording the highest levels in the airport’s history. This is a big improvement compared to 2015, when the yearly passenger total rose just 0.1%, to 7.1m. Cargo saw more impressive growth that year, however, with levels up 7.3% over 2014 at 100,691 tonnes, although aircraft movements fell by 1.9% to 71,753.

Facilitating Growth

Increasing capacity in the aviation sector could hold the key to boosting tourism growth and improving inter-regional connectivity over the next five years, important aims of the government’s development plans for Jordan going forward. Annual passenger traffic through the kingdom is expected to double to more than 15m by 2034, helping to increase the aviation sector’s contribution to GDP from 6% to 12%, according to the International Air Transport Association.

Against The Grain

The achievements made in passenger handling in 2016 are all the more remarkable considering that they have taken place at a time when the MENA region is undergoing some of the most significant instability in decades. External events led to a round of route closures in 2014 and the first half of 2015, as security deteriorated in previously important destinations, such as Baghdad, Basra and Beirut. The closure of Syrian and Iraqi airspace, along with periodic closures of the Sinai Peninsula, have also added to costs, as some planes now have to fly via less direct routes.

On the upside, lower oil prices helped trim one of the country’s main expenses; Jordan imports all of its petrol due to a lack of domestic resources. RJ likely benefitted from these lower costs, announcing in March 2016 a pre-tax profit for 2015 of JD21m ($29.5m). In contrast, 2014 ended with a pre-tax net loss of JD49.5m ($69.6m). Low oil prices were not the only factor, with the airline’s 2015-19 business plan a major contributor to boosting efficiencies.

Under the plan, routes have come under further review. Non-profitable operations to Delhi, Mumbai, Colombo, Lagos, Accra, Alexandria and Milan were halted in 2015, while Kiev was also removed as a destination in March 2016.

More Options

Meanwhile, RJ has added other routes to its portfolio. In 2015 Jakarta, Tabuk, Najaf, Ankara and Guangzhou were added, with RJ flying to a total of 56 destinations worldwide as of November 2016. In addition, regional airlines, including a number of low-cost carriers (LCCs), have begun offering more services through Amman, further establishing the country as a transit hub and driving down airfares. Alitalia resumed direct flights from Rome in March 2016, after April to October 2015 results for the Italian national carrier showed passenger numbers up 20% on indirect Italy-Jordan routes. March also saw Turkish LCC Pegasus launch three weekly flights from Ankara to Amman. Later, in early September, the inaugural flight of a new route from Khartoum to QAIA took place, operated by Sudanse carrier Tarco airlines. There will be two regular flights per week.

These new routes and lines followed last year’s announcement that the Sharjah-based LCC Air Arabia had made Amman its fifth hub. This followed the airline’s acquisition of Petra Airlines, which has been renamed Air Arabia Jordan (AAJ). AAJ now flies direct to Kuwait, Erbil, Alexandria, Riyadh, Medina, Dammam and Jeddah from QAIA. AAJ plans to add more routes in the future, potentially to Europe, which would make Amman a key link between the Middle East with European destinations.

On The Ground

On top of new routes and airlines, large-scale improvements at Jordan’s busiest airport have recently been completed, raising its capacity in readiness for the growing levels of passenger and cargo activity. In 2012 a $750m terminal was constructed at QAIA in addition to $100m worth of overhauls to facilities. This raised the airport’s capacity from 3.5m to 9m passengers per year. In September 2016 a second expansion phase was completed, adding 12 new gates to the terminal and raising capacity to approximately 12m passengers. The completion of this phase will take the total investment in the new terminal close to $1bn.

Maintaining Competitiveness

As a result of more airlines entering the market and an expanding number of destinations on the books, Jordan is opening itself up to new high-potential markets, in particular travellers in nearby countries on the lookout for cheaper day trips. “LCCs have great potential for Jordan as it sits on the edge of the MENA region, where their offering has yet to be fully maximised,” Kjeld Binger, CEO of AIG, told OBG.

To further boost the kingdom’s appeal, the government has set aside some JD37m ($52m) for marketing activities, in addition to cutting visa fees from JD40 ($56.25) to JD10 ($14) and reducing entry fees to certain tourist sites for Arab visitors.

In a recent development, the government enacted a visa fee waiver for all non-restricted nationalities travelling to Jordan individually or in groups on packages arranged by Jordanian tour operators. The visa fee is waived on the condition that travellers spend at least two nights in the country.

Furthermore, the Jordan Tourism Board (JTB) has readjusted its focus to segments that have been less affected by regional trends. For example, it is actively targeting religious tourism, the meetings, incentives, conferences and exhibitions segment (MICE), as well as ecotourism and adventure travel. Indeed, some within the industry cite business travel as being responsible for a large share of the passenger traffic, which could be partly the result of a five-year MICE strategy to develop the sector, implemented in 2014 by the JTB. In Amman in particular, hotels are seeing increasing numbers of business guests travelling to Jordan with charities and international relief organisations (see Tourism chapter).

Future Potential

The year ahead looks likely to continue to offer some tough security conditions around the MENA region. Therefore, airlines operating out of Amman have to keep a close eye on costs in order to remain competitive. At the same time, the potential for regional market growth remains huge. Abdul Wahab Teffaha, the secretary-general of the Arab Air Carriers Organisation, recently told Venture magazine that in a region with 500m potential air passengers, only some 250m currently fly.

With passenger numbers continuing to climb as airlines pursue more cost-efficient strategies and compete for business from new source markets, QAIA looks likely to be increasingly busy in 2016-17, and with the airport’s second expansion phase now fully operational, the airport is geared for strong growth.