Tag: Middle East

Will Expansion Equal Success for Growing Gulf Airlines?

Posted on June 28, 2011

Intent on cementing itself as an international flight hub, Dubai continues to invest in its airline infrastructure and brand new airplanes. The sheikhdom will invest US$5.98 billion to expand Dubai and the new Al Maktoum international airports by 2020, officials say. Meanwhile, the Dubai government-owned Emirates airline plans to spend roughly US$10 billion a year to expand its fleet over three years, including 18 cargo planes.

Demonstrating the increasing clout of Gulf airlines in the aviation industry, Airbus has agreed to redesign its A350-1000 jet, after its Arab customers asked for changes that would allow the plane to fly further and carry more.

The government entity, Dubai Airports, recently forecast that international passenger traffic to Dubai would grow an average of 7.2% percent over the next decade, with passenger traffic reaching almost 100 million by 2020, and cargo volumes above 4 million tons.

Paul Griffiths, Dubai Airports CEO, told an audience in Bangkok recently that in less than a decade, aviation would account for 32% of the sheikhdom’s GDP — roughly US$45.4 billion. But in the same speech, Griffiths acknowledged that Dubai’s current airspace “is not currently configured to support this growth.”

Regional competitors will pose another threat to Dubai’s plans for aviation domination. Doha-based Qatar Airways is expecting to receive 200 jets worth US$35 billion, and is making a play for regional cargo business, converting 15 passenger jets to freighters and taking 33% ownership of Europe’s biggest freight carrier, Cargolux Airlines International SA. There is even competition from within the United Arab Emirates, as Dubai’s buttoned-down neighbor, Abu Dhabi, is undertaking major expansion plans for its international airport, and promoting its own airline, Etihad, which has ordered US$50 billion worth of jetliners.

Michael Wisbrun, managing director of SkyTeam Cargo, which includes the freight arm of Air France-KLM Group, told Arabian Business that such ambitious plans were of concern. “It will be tough. There’s no reason to have a hub in Qatar or the United Arab Emirates, and adding capacity with supply and demand as they are won’t help the equilibrium.”

There is need to question the sustainability of such growth, according to Wharton management professor Peter Cappelli. Speaking with Arabic Knowledge@Wharton about the Gulf airlines’ push to become a global hub for air travel, Cappelli noted that “only [a few] airlines in the world make money and the industry as a whole loses billions every year. Fundamentally, the nature of the industry is the problem: The marginal cost of filling an extra seat is almost nothing, so whenever the carriers have excess capacity, they have fare wars, and they all bleed to death. The only time any of them make any money is in the brief period in which demand is growing faster than capacity. Is there any reason to think that the carriers in the Middle East have somehow cracked this problem by spending more on new planes?”

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Osama bin Laden: A Victim of His Own Success?

Posted on May 2, 2011

The biggest manhunt in history is over. U.S. President Barack Obama announced last night that American military operatives had raided Osama bin Laden’s compound outside Islamabad, Pakistan, killed bin Laden with a gunshot to the head and buried his body at sea. One of bin Laden’s sons was also killed, as were three other people.

Yet by the time the U.S. finally caught up with him, bin Laden was seen by many as more of a symbol of terrorism than a major threat. The political upheaval throughout the Arab world of the past few months is not associated with Al Qaeda, nor does it espouse the violence that is the hallmark of bin Laden and his followers.  

Osama bin Laden “could be described as a victim of his own success – providing that ‘success’ applies to getting star billing as the world’s most wanted terrorist,” says Ann Mayer, Wharton professor of legal studies and business ethics, and an expert on the Middle East. ”After attaining a high international profile with the 9/11 atrocity, he became so relentlessly hunted that he had to disappear from the international stage where he had enjoyed the spotlight.”

As bin Laden became more and more isolated in order to “minimize the chances of detection and capture, he increasingly lost real practical relevance for the cause that he ostensibly championed,” Mayer notes. He wound up “cowering behind the high walls of a villa in Abbottabad, far from the action and totally dependent on the services of an old-fashioned human courier to communicate with the outside world. [Global] events quickly outstripped his limited obscurantist vision, a vision that did not contemplate that youths dedicated to nonviolent protests would turn out to be far more powerful forces in changing the political environment than [he] had ever been.”

Mayer compares bin laden to Carlos the Jackal, “who became the world’s most notorious terrorist” in the 1970s after his attack on the OPEC headquarters in Vienna, “only to dwindle into a fugitive preoccupied with evading detection by intelligence operatives around the world…. For his diminished coterie of fervent followers, bin Laden may be a martyr whose death will incite revenge attacks, but for the Muslim world at large, there are much bigger issues on the agenda than the killing of a terrorist general who effectively abandoned his troops on the field for a luxury prison of his own making.”

Howard Pack, Wharton professor of business and public policy whose interests include Arab and Asian economies, suggests that the death of bin Laden helps “to restore American deterrence against terrorism but has few substantive implications. The evolution of the revolutions in Egypt, Tunisia, Libya and Syria will be affected only to a limited extent. Bin Laden was not a factor in any of these nations, and their political and economic futures will be determined by the strength of domestic interest groups. His death has no obvious implications for any of the contending political factions….”

Regarding the costs of protecting against future terrorist incidents, Pack notes that “no economic benefit can be anticipated, since the network that was put together presumably remains intact. Most analysts of the Middle East attribute strategic thinking for Al Qaeda to Ayman al-Zawahiri who presumably remains alive.”

Perhaps the most “jarring aspect of the operation,” Pack adds, was the close proximity “and conspicuousness of bin Laden’s compound to the Pakistani military facilities. This, of course, does not bode well for the future of Afghanistan and Pakistan. Thus, while it is a substantial symbolic and emotional victory and a testament of the abilities of the U.S. military and intelligence community, the impact [of bin Laden's death] will be limited.”

Howard Kunreuther, co-director of Wharton’s Risk Management and Decision Processes Center, suggests that people will feel both a “great sense of relief that we got bin Laden but also a great deal of concern in terms of what might happen” should Al Qaeda seek revenge for bin Laden’s death. “There is so much uncertainty; we don’t know what Al Qaeda can and cannot do; we don’t know whether they are well organized or if they will have an influence on other groups who don’t like the U.S.”

It was very important for President Obama to talk about the need for heightened security, Kunreuther notes, because the costs of not issuing that warning “could be extraordinarily high.” And yet, because the President did in fact issue that warning, “we all now think about things in a different way…. It stirs up emotions and feelings that are very hard to control.”

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Uprising in Egypt

Posted on January 31, 2011

As opposition to President Hosni Mubarak’s government enters its seventh day, it is far from clear what the future holds for Egypt, the Middle East, the U.S. and the global marketplace. Knowledge@Wharton asked two faculty members who have studied this region for their opinions on what led up to this crisis, and what will unfold in the days and weeks to come.

Mubarak’s grip on power seems tenuous, and given his age (82), it is almost certain that he will not be president much longer, says Wharton management professor Mauro Guillén, director of the Joseph H. Lauder Institute for Management & International Studies. “Another matter is the Mubarak regime. The middle class in Egypt does not want disorder. The upper class, needless to say, is eager to preserve the status quo. I very much hope that the opposition leaders can figure out a way of sharing power with the regime, and then perhaps organize open elections in two to three years.”

As for whether the protest movement in Egypt will spill over to other Arabic countries (besides Tunisia), “there are no true democracies in the region” — from Morocco in the West to Iraq in the East, Guillén notes. “It is a part of the world that has always been ruled either by benevolent monarchs or sheikhs, or by strongmen, frequently from the military. But the basic problem is not democracy; it’s unemployment, which is as high as 25% or 30% in many countries … and as high as 60% among young people. When you do not have a job, you want change. You also want change when you are oppressed, to be sure, but I do not think that is the factor that explains unrest right now.”

Guillén does not see Egypt becoming another Iran. “The Iranian revolution of 1979 was a popular-religious uprising with a clear leader– Khomeini. There is no such figure in Egypt. There is an Islamic political movement (the Muslim Brotherhood), but it does not have the support of the urban middle and upper classes in the country.”

The unrest is “primarily motivated by economic issues,” Guillén emphasizes. “If instead of a peaceful settlement with the opposition, what we see is bloodshed and chaos, then Egypt’s two most important sources of income will suffer: tourism and the Suez Canal. As the most important economy in the region, what happens in Egypt would affect neighboring countries. That’s why it is so important that the opposition play a constructive role, allowing the supporters of the regime to find a place in the new state of affairs that is created with this transition.”

Howard Pack, Wharton professor of business and public policy, is co-author of a book entitled, The Arab Economies in a Changing World, written with Marcus Noland, a senior fellow at The Peterson Institute for International Economics. In a blog written today, Pack suggests that “the immediate response to the revolutions sweeping the Middle East is to blame poverty, unemployment, and rising food prices…. Yet per capita economic growth in the high population nations such as Egypt [is] comparable to many other middle income countries, poverty [is] not high by international standards such as the percentage of population living on less than two dollars a day, and progress in indicators such as life expectancy, infant mortality, and years of education has been quite remarkable, especially in Egypt. Tunisia’s standard of living and other indicators are even better.”

While the major problem that countries in the Middle East face is “providing employment for the growing labor force,” the causes for the discontent are many, Pack adds. These include governments’ failure to pay attention to unrest among their populations, lack of job opportunities specifically for young people — “Indeed, many of the leaders of the current unrest are university graduates” — corruption and nepotism. Yet Pack sees several ways out of this political, social and economic morass. One is to increase exports of labor intensive manufactured goods to the European Union because, as Pack notes, exporting is a “major route to generating jobs,” and Egypt’s proximity to the EU means relatively low transportation costs.

To encourage exporting, Pack suggests improved road and port facilities, the establishment of special economic zones, and efforts to improve productivity. Higher-quality education and more advanced technology are also needed. “It needs to be emphasized,” he points out, “that a move towards an Iranian style government will hardly address these issues as it is likely to be accompanied, as in Iran, by a Soviet style command economy with all its attendant failures. The rest of the world has little leverage [over] the outcomes of the current movements. But whoever emerges on top will face the same labor unrest and the need to implement changes ranging from education reform to economic policy. Americans need [no] reminder of how difficult such changes are. Given the history of recent revolutionary governments from Cuba to Iran, there is little room for optimism.”

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