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00:00IS A CEO AND PRESIDENT. ALSO JOINING US IS TRACY ALLOWAY. LET ME KICK THINGS OFF WITH THIS REPORT SHOWING THE MIDDLE EAST HAS RECLAIMED ITS POSITION AS THE TOP REGION FOR PASSENGER TRAFFIC GROWTH. WE ARE SEEING 13.1% INCREASE THERE. IS THIS PACE OF EXPANSION SUSTAINABLE GIVEN THE GLOBAL MACROECONOMIC HEADWINDS? >> CERTAINLY, THE FOUR MAJOR CONNECTORS IN THE MIDDLE EAST ARE PLAYING A MAJOR ROLE IN THE AVIATION SECTOR WITH THE EXPANSION AND GROWTH, BECAUSE THEY HAVE EXPANDED -- INVESTED GREATLY IN THIS SPACE AND ARE ENJOYING THE OPEN SKY POLICY . OF COURSE, PRODUCT QUALITY. THEY HAVE A ROLE TO PLAY. THEY ARE EXPANDING TREMENDOUSLY. THE PACE OF GROWTH CERTAINLY WILL BE CHALLENGED DOWN THE ROAD BECAUSE OF SEVERAL FACTORS, FIRST, THE ABILITY TO EXPAND INTO NEW ROUTES OR FREQUENCIES. OTHER AIRLINES ARE FIGHTING THAT. THE OIL PRICES ALSO IMPACTING SLOWER GROWTH. YOUSEF: ALL OF THIS REALISTICALLY PUTS PRESSURE, MASSIVE PRESSURE ON THE YIELDS. THE MASSIVE YIELDS THAT THEY HAVE HAD IN THE PAST, THAT IS SOMETHING THAT MIGHT NOT RETURN . HOW ARE THEY GOING TO DEAL WITH THAT? SAFWAM: THEY ARE BENEFITING FROM LOW FUEL PRICES. CERTAINLY THEY HAVE TO BE MORE EFFICIENT. THEY HAVE VERY EFFICIENT AIRCRAFT. OPERATING COST IS QUITE REASONABLE. BUT THEY WILL BE CHALLENGED ON THE YIELD GOING FORWARD, CERTAINLY. I THINK IT'S GOING TO BE GOOD TO KNOW IN THE FUTURE IF THEY WILL BE ABLE TO MAINTAIN THE YIELD OR NOT. IT WILL BE CHALLENGING, CERTAINLY. TRACY: YOU MENTIONED CHALLENGES ON YIELDS, THE LOAD FACTORS. WE SAW A GOOD EXAMPLE OF THAT LAST WEEK. KLM IS GOING TO STOP FLYING INTO EGYPT BECAUSE OF ALL OF THE FX TROUBLE THAT COUNTRY HAS HAD. HOW DO CARRIERS WORK THROUGH THOSE SORTS OF CHALLENGES? WHAT SORT OF LEVERAGE CAN THEY PULL? SAF WAM: THE CARRIERS HAVE TO FLY IN THE REGION. KLM HAS THEIR OWN REGIONS. SOMETIMES THEY SHARE BETWEEN AIR FRANCE AND KLM WHERE THEY FLY. THE GEOPOLITICAL ISSUES IN THE MIDDLE EAST ARE AN IMPACT ON SOME CARRIERS. THEY HAVE TO LIVE WITH THAT. I THINK THE TRAFFIC IN THE MIDDLE EAST IS EXCEEDING 180 MILLION PASSENGERS AND YET TO GROW. I THINK THE EXPECTATIONS ARE FOR SLOWER GROWTH. CERTAINLY IN THE MIDDLE EAST, THE GEOPOLITICS ISSUES COULD BE ANOTHER CHALLENGE FOR THE AIRLINES. TRACY: HOW DID THE SLOWER GROWTH AND GEOPOLITICAL CHALLENGES STACK UP AGAINST ACTUAL AIRCRAFT ORDERS THAT A LOT OF THESE COMPANIES HAVE? SOME OF THEM HAVE A HUGE BACKLOG OF PLANES. SAFWAN: THERE ARE ABOUT 1400 AIRCRAFT IN THE MIDDLE EAST. THERE ARE 1000 AIRCRAFT -- OVER 1000 AIRCRAFT ORDERED BY THE CARRIERS, WHICH REPRESENTS AROUND $128 BILLION WORTH OF CARRIER PRICES. THEY HAVE TO RELY ON GROWTH AND OPENING NEW DESTINATIONS, FREQUENCIES. AND AS I SAID EARLIER, THE MEASURE -- MAJOR THREE OR FOUR CARRIERS NOW ARE BUYING INTO OTHER AIRLINES. FOR INSTANCE, EMIRATES HAS THIS ALLIANCE WITH QANTAS, WHICH IS HELPING TO CHANNEL MORE TRAFFIC BETWEEN QANTAS AND EMIRATES. I THINK THE OTHERS ARE TRYING TO DO DIFFERENT KINDS OF APPROACH, BY BUYING INTO OTHER AIRLINES TO HELP BROADEN THEIR TRAFFIC. YOUSEF: HAS GROWTH BEGINS TO MODERATE IN THE COMING YEARS -- AS GROWTH BEGINS TO MODERATE IN THE COMING YEARS, ISN'T IT LOGICAL FOR GULF CARRIERS TO START CONSOLIDATING AND CREATING SYNERGIES? I REALIZE THERE ARE POLITICAL HEADWINDS TO A MOVE LIKE THAT. BUT FROM AN ECONOMIC PERSPECTIVE, DOES IT MAKE SENSE? SAFWAN: I DON'T THINK CONSOLIDATION IS POSSIBLE BECAUSE OF THE DIFFERENT GOVERNMENT OWNERSHIP. YOUSEF: I'M TALKING IN PARTICULAR IN UNITED ARAB EMIRATES. EVEN DOMESTIC CONSOLIDATION, WHERE YOU HAVE THAT MUCH CAPACITY. SAFWAN: PERSONALLY, I DOUBT THERE WILL BE CONSOLIDATION, AT LEAST FOR THE NEXT COUPLE OF YEARS, BECAUSE I THINK OF THE DIFFERENT AGENDA AND POLICIES, BECAUSE QATAR, THEY WANT TO PROMOTE QATAR MORE THAN UAE OR KUWAIT, AND VICE VERSA. I THINK IT'S GOING TO BE DIFFICULT TO CONSOLIDATE. ALSO, THEY ARE TRYING TO LAUNCH -- LOCAL SERVICES WILL PLAY A VERY IMPORTANT ROLE GOING FORWARD. THEY ARE CREATING A NEW MARKET FOR LOW INCOME PASSENGERS. THERE WILL BE GROWTH IN THAT SECTOR ALSO. TRACY: WE CAN'T LET YOU GO WITHOUT ASKING ABOUT THE LONG-RUNNING SUBSIDY QUESTION, PARTICULARLY IN THE UAE. IT WENT KIND OF QUIET FOR A WHILE, BUT WE RECENTLY HAD NEWS THAT THE U.S. MIGHT HOLD INFORMAL TALKS WITH THE UAE AND QATAR AS WELL WHAT DO YOU EXPECT THE OUTCOME OF THOSE TALKS TO BE -- AND QATAR AS WELL. WHAT DO YOU EXPECT THE OUTCOME OF THOSE TALKS TO BE? SAFWAN: I THINK THEY ARE PROBABLY LESS AGGRESSIVE AT THE MOMENT. U.S. POLITICIANS, I THINK THEY ARE NOT EAGER TO PURSUE THAT ASPECT. IT LOOKS TO ME LIKE IT IS NOT GOING TO BE SOMETHING HAPPENING IN THE NEAR FUTURE. YOUSEF: THE LOWER OIL PRICES -- THEY HAVE BEEN A BIT OF A DOUBLE-EDGED SWORD. YES, IT MEANS LOWER FUEL PRICES FOR THE AIRCRAFT, BUT IT ALSO MEANS THAT YOU ARE SUCKING LIQUIDITY OUT OF THE SYSTEM AND THE GOVERNMENT BUDGETS START DECLINING. A LOT OF THAT MONEY, ESPECIALLY OIL AND GAS, HAS PAID FOR THE BUSINESS AND FIRST CLASS SEATS ON A LOT OF THESE THINGS. -- PLANES. WHERE DO YOU SEE OIL GOING? WHAT'S A HEALTHY RANGE TO BE ABLE TO PLEASE BOTH SIDES? SAFWAN: THE INTEREST BETWEEN OPERATING COST OF AIRLINES, WHEN THEY ARE ENJOYING LOW COST FUEL, AND THE OTHER ECONOMY OF THE REGION RELYING A LOT ON THE OIL BUSINESS -- I THINK, GOING FORWARD, THE OIL PRICE DURING THE NEXT TWO YEARS

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The Outlook for Aviation in the Middle East

Safwan Kuzbari, chief executive officer at Novus Aviation Capital, discusses passenger traffic growth in the Middle East, the headwinds facing airlines and his outlook for the industry. He speaks to Yousef Gamal El-Din and Tracy Alloway on "Bloomberg Markets Middle East." (Source: Bloomberg)

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