ANALYSIS: Gulf carriers continue on strong growth path

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Middle East carriers' fortunes were again dominated by the profitability power of Emirates, while local rival Etihad Airways is now sustaining black ink and targeting profit growth in 2013. Meanwhile Gulf Air's restructuring efforts are aimed at ending losses as the airline morphs into a new leaner, meaner operation by downsizing and reorganising its orderbook.

Revenue for the Middle East's leading airlines increased by more than 12% last year to $48.3 billion. Emirates Group as usual was the dominant force, with its $21.1 billion equating to a large share of the region's total sales.

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The Dubai group's Dhs3.1 billion ($845 million) net profit was up by a third on the previous year. The airline division's profit of Dhs2.3 billion made up the bulk of the group result.

Group revenue rose to Dhs77.5 billion, the 17% improvement being slightly ahead of the 16% increase in operating cost. The airline was once again hit by a higher fuel bill, which increased by 15% to nearly Dhs28 billion.

"Managing volatile exchange rates, coupled with a persistently high fuel bill accounting for 40% of our total expenditures, has required continued strong resolve," said Emirates Group chairman Sheikh Ahmed bin Saeed Al Maktoum.

Emirates is beginning to feel the benefit of its wide-ranging alliance with Qantas, which came into effect in March. But the likelihood of any early move for a similar tie-up elsewhere is unlikely, according to outgoing vice-chairman Maurice Flanagan, who said earlier this year: "Qantas is a perfect fit but there's nothing else like that on offer."

After two consecutive annual profits, Etihad says it is targeting increased profitability this year.

In 2012, operating profits rose by more than a quarter to $170 million and net profits trebled to $42 million.

"Ours is a strategy that is different, but it is working and we are profitable," said James Hogan, chief executive of the Abu Dhabi airline.

Revenue rose by 17% year to $4.8 billion, nearly one-fifth of which was contributed by its codeshare and alliance partners. Revenue is expected to exceed $5 billion in 2013.

"The strategy with alliances is how we are stretching our network," Hogan said. "For 2013 we have set a profit target."

During the last two years Etihad has taken - or is in discussion to secure - equity stakes in airlines in Europe, Australia, Asia and Africa. This so-called "equity alliance" includes Air Berlin, Aer Lingus, Air Seychelles, Jat Airways, Virgin Australia and Jet Airways.

While its two peers have ruled out alliance moves, Qatar Airways is on course to be a Oneworld member by October, having announced its intentions to join last year. The airline saw group revenues rise by 12% to $7.7 billion.

"We hope to integrate our systems with the other carriers by October," says Qatar Airways chief executive Akbar Al Baker, who also hopes to have moved to Doha's all-new international airport by early next year, when the airline's first A380s are due to arrive.

In nearby Bahrain, loss-making Gulf Air halved its first-quarter deficit this year after it began to feel the benefit of its restructuring efforts, as part of which it has downsized to a fleet of 26 jets.

The improvement is mainly attributed to a 21% drop in expenses and "better than planned" revenue performance - arising from higher sales in Bahrain - following network tweaks. However, Gulf Air cautioned that the rest of the year will be "challenging".