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ICAS

Despite economic crises, terrorism, pandemics and natural disasters the aviation sector has seen an impressive growth in the last decade with the Middle East among the fastest growing regions in the world. This growth not only heralds new opportunities for the airline industry but for wider regional development and economic growth. Tourism, trade, cargo & logistics hubs and related employment opportunities are but a few examples of regional opportunities that go hand in hand with a flourishing aviation sector. In Egypt, for example, around 80% of tourist traffic comes through Egypt’s airports with tourism estimated to provide about 2.5 million jobs directly and indirectly (World Bank 2012). The Dubai aviation model also demonstrates how the aviation sector can become a major driver of economic growth in a region with the entire sector contributing to about 19% of total employment in Dubai and 28% of the Emirate’s GDP (Oxford Economics 2011).

At the same time, there are severe regional disparities as not all countries in the MENA region have been equally able to seize growth opportunities through the aviation sector. Amongst others, infrastructure, human capital and regulatory conditions at the national and international level have been identified as major developmental constraints (AACO 2011, ICAO 2011). To address such infrastructural constraints the World Bank has supported in Egypt, for example, the Cairo Airport Development Project. At the international level, there are continued deregulation initiatives calling for the removal of restrictions from market access, ownership and control. In the MENA region, deregulation initiatives have recently, culminated in the Damascus Convention of 2004 involving a timetable for the implementation of a liberal Arab regulatory framework in air transport. The latter has been connected to calls for a reformulation of Arab-European aviation relations (e.g. EURMED Agreements) with the goal of achieving a balance between the air transport sectors in both regions (AACO 2011). One aspect of this initiative also involves the severe lobbying against the European Emissions Trading Scheme (ETS), coming into effect 2012, which is not only seen in breach of the Chicago Convention of 1944 but also as a policy that puts players from developing countries at a competitive disadvantage with adverse growth effects for their home economies.

While the growth and development of the aviation sector involves clear opportunities for different national economies in the MENA region and beyond, it also poses substantial sustainability challenges on a global scale. These involve first and foremost environmental challenges such as noise and emission prevention (CO2, NOx, Methan, condensation trails, and cirrus clouds). Air traffic, for example, contributes currently to only 2-3 % of global CO2 emissions, projections are that these will rise to more than 20% by 2050 (Wit et al. 2005, Scheelhaase und Grimme 2007). Indeed, the need to respond to these challenges has been generally acknowledged. At the same time, global agreements (e.g. Kyoto, ICAO) to curb greenhouse emission largely failed giving rise fragmented and halfhearted solutions, involving for the most part unilateral or regional caps and trade schemes such as the EU ETS, Chinese ETS or South African or the Australian Carbon Tax.

Yet, not only environmental issues related to growth pose sustainability challenges. Growing competition in the sector severely challenges arrived business models and labor standards. For instance, while some new players have seized the opportunities offered by market growth and deregulation and developed new successful business models, as in the case of Rynair or Emirates Airlines, the business models of traditional national flagship carriers have come under increasing pressure for change. For many small players, a stand-alone business strategy has proven unsustainable and for some joining strategic alliances has become the only survival option. However, such memberships may lead to further marginalization and excessive dependence. Importantly, alliances membership may even affect wider regional development as just a few mainly European players dominate global alliances which account for almost 70% of the total share of international air traffic. By the same token, as competition intensifies and becomes increasingly cost based, arrived employment relations and labor standards come under pressure for change. Plehwe (2012) argues in this context that the increased adoption of low cost strategies in the airline industry has contributed to a substantial increase in labor conflict across Europe.

On the whole an ever more pressing question for the industry and its individual players is how to develop innovative solutions that are at the same time environmentally, socially and economically sustainable. For example, low cost and full service carriers alike, are faced with the continuous challenge to develop or leverage innovations that satisfy requirements for reducing their environmental footprint (e.g. better performing airframes and engines, biofuel) while improving their performance in the competitive game (e.g. cost reduction through fuel saving). To respond to the above calls, a better understanding of the enabling and constraining conditions for innovation in the aviation sector in general and in airline business models in particular are clearly needed.