After years of eye-catching expansion, the big Gulf carriers have spent much of the last 18 months taking stock, with a resulting impact on traffic and capacity growth.
Economic challenges in the region, driven by the effects on the energy sector of the fall in oil prices, has hit demand. In its Gulf Economic Monitor update in March, the World Bank noted fractional economic growth in 2017 among the Gulf Cooperation Council states. That growth is forecast to strengthen this year and next, amid higher energy prices and a loosening of fiscal austerity.
Foreign travel restrictions, notably from the USA in the early months of the Trump administration, also took a toll. The associated impact on demand was compounded later by American Airlines' withdrawing its codeshare with Etihad and Qatar Airways amid the wider US clash with Qatar and the United Arab Emirates over alleged subsidies. This resulted in Emirates and Etihad in particular, after years of rapid growth, trimming their US services.
While those travel restrictions have been lifted – and US aviation relations with Qatar and now the UAE have improved after framework accords on level playing fields were struck – capacity from the Gulf to the USA has not been fully restored. Emirates has been adding US capacity back, notably returning Florida frequencies, but its capacity in June 2018 nonetheless remains around a fifth down on January 2017, the month of Trump's inauguration.
The closure of airspace to Qatar from four neighbouring states also hit services closer to home. Almost a year on, the restrictions remain – resulting in the loss of the 20 routes from Doha, including high-frequency links to Dubai, Abu Dhabi and Bahrain.
Hence, the breakneck pace of expansion set over recent years by Emirates, Etihad Airways and Qatar Airways has stalled in the last year.
FlightGlobal schedules data shows that Emirates and Etihad increased ASK capacity a little over 1% in the year to June 2018, compared with the previous 12 months. That is by a distance their lowest rate of expansion in the past 10 years.
Qatar Airways still increased its ASK capacity by just over 10% over the year. But even that marks its second slowest annual growth over the same 10-year span.
The focus on and development of long-haul services at these carriers means their ASK growth has outpaced other capacity metrics. Notably, in terms of flights and seats, capacity is down slightly at all three in the last year, compared with the previous 12 months.
The most notable difference between ASK and flight capacity trends is seen at Qatar Airways. FlightGlobal schedules data shows that for June, its widebody capacity is up by all metrics compared to June 2017. But its narrowbody flight and seat capacity are down by a fifth, although its ASKs with the type are slightly increased.
This change is driven by Qatar's sudden diplomatic isolation among Middle Eastern neighbours since last June.
With that diplomatic isolation came airspace isolation – Bahrain, Egypt, Saudi Arabia and the UAE immediately closed flights to and from Qatar, while they also imposed restrictions on overflights to and from the country. There appears no obvious momentum at present toward breaking the impasse.
In response, Qatar Airways began fast-tracking its network-expansion programme, while it also appeared to intensify its focus on adding to its IAG and LATAM investments. While an "unsolicited" move for a stake in American Airlines was aborted, Qatar Airways did in the second half of 2017 confirm its Meridiana stake and make a surprise purchase of Cathay Pacific shares. Qatar chief executive Akbar Al Baker also says it remains "very keen" on investing in Royal Air Maroc.
These partnerships have also provided opportune alternatives to redeploy some of its fleet. The revamped Meridiana operation relaunched as Air Italy in March, leasing aircraft from Qatar to support its expansion in the interim. IAG unit British Airways meanwhile has just sought to wet-lease three Airbus A330s from Qatar Airways in order to overcome schedule disruption caused by Boeing 787 engine maintenance.
While US relations improved with January's framework deal – which included commitments on clearer financial reporting for Qatar Airways, and that the carrier would not add US flights from third countries – this has not yet been enough to salvage Qatar's codeshare with American Airlines.
The wider disruption has taken a toll on the airline's profits. "There will be pressures on our operating costs, pressures on our bottom line, which I have already not shied to speak about," Al Baker said in February. "But at the end of the day, we're a very robust airline."
In April, he indicated the airline made a "substantial" full-year loss. He noted that other parts of the Qatar Airways group business were profitable but not to the degree that they could make up for the airline's deficit.
The region's biggest carrier, Emirates Group, however, has just reported a rebound in profits for the year ended 31 March. It turned in a full-year group profit of Dh4.1 billion ($1.1 billion), including a profit of Dh2.8 billion for the Emirates airline division.
The group profit is up two-thirds from the previous annual figure – which had been badly affected by geopolitical events, said the company.
Business conditions improved over 2017-2018 but rising oil prices have increased costs, and the company has faced "downward pressure" on margins from "relentless" competition, states chairman Sheikh Ahmed bin Saeed Al Maktoum.
He adds that the environment for Emirates "remained tough" with continuing political instability, volatility with currencies, and devaluation in Africa. "On the positive side, we benefited from a healthy recovery in the global air cargo industry," he says.
The sharp fall in profits recorded for the previous year had prompted Emirates to rethink parts of its strategy, including deepening its co-operation with sister carrier Flydubai. The two airlines embarked on codesharing as part of an alignment of their networks, enabling Flydubai to support feed to Emirates' long-haul flights.
Speaking during the Dubai air show last November, Emirates Airline president Tim Clark said having the two carriers working together "makes a huge amount of sense". He adds: "As we delaminate the overlap routes, it kicks in enormous commercial power."
The airline, by far the largest customer for the Airbus A380, also eventually gave the programme a shot in the arm by placing a major follow-on order for the type in January.
But Emirates' more moderate fleet-renewal pace over the last year, in which it halved the intake of new aircraft to 17 compared with the previous 12 months, serves as a reminder of the pause in growth.
The airline introduced eight Airbus A380s and nine Boeing 777-300ERs, while withdrawing eight older jets. This lifted its overall fleet to 268 by the end of March this year, nine more than the 259 in operation at the same point in 2017.
Emirates kept its total seat capacity rise at just 2.4% in its financial year to March 2018. Emirates says it has been pursuing a "focus on yield improvement".
The wider issues impacting the Gulf region have taken a toll at Etihad Airways as well, but the group and its strategy of delivering growth through its Abu Dhabi hub has faced further distractions. Notably, the bulk of its major European airline investments collapsed, as Alitalia, Air Berlin and Swiss regional Darwin Airline entered formal restructuring during 2017.
Alitalia's future remains to be decided, but Air Berlin was broken up and its primary assets acquired by rivals, while Darwin was ultimately liquidated some months after Etihad sold its stake to Adria Airways.
The Abu Dhabi carrier continues to have equity partners, notably Jet Airways and Virgin Australia, as well as a range of commercial partners. But there has been little outward clarity over the extent to which it will continue to embrace the equity-alliance strategy following the departure of group chief James Hogan and since successor Tony Douglas took the helm at the start of the year.
Closer to home, though, there have been signs of a continued overhaul at its core Etihad Airways operation. In February, it confirmed plans to transfer all of its Airbus A340s to UK-based aviation services company European Aviation Group.
Etihad's withdrawal of the A340s follows its previous reduction in freighter activity. The airline has given few details about its fleet rejig beyond stating that consideration of aircraft requirements and modifications to the fleet are part of normal airline activity.
The airline in April disclosed it was cutting flights to Perth in Australia and Edinburgh in Scotland this October "as part of an ongoing review of network performance".
FlightGlobal schedules for June show the airline no longer serves a number of destinations to which operated in the same month last year: Dallas/Fort Worth and San Francisco in the USA, Venice in Italy, Entebbe and Kampala in Uganda, Jaipur in India, the Iranian capital Tehran, and Doha. Only Baku in Azerbaijan has been added to its network compared with June 2017.
With its rapid growth, its ambitious development plans, and its location linking Europe and Asia, Turkish Airlines has often been described as the fourth Gulf mega-carrier. Turkish too has enjoyed a run of double-digit expansion and has welcomed an array of aircraft to its fleet over the same period.
It also recently faced challenges. Political uncertainty in the country, including a failed coup, hit demand. Troubles included the devastating terrorist attack at Istanbul airport in June 2016. Against this backdrop, Turkish Airlines was forced to quickly pull back capacity.
But the situation stabilised, tourism demand began to recover and so too have the airline's fortunes. Its revival continued in the first quarter of 2018 as it made an operating profit – before investment activities – of $41 million, reversing a loss of $172 million in the same period of 2017.
The Star Alliance carrier's full-year result for 2017 had likewise brought a return to profitability, as an operating loss of $291 million in 2016 – a year that brought terror attacks and a coup attempt in Turkey – was transformed into a surplus of $1.02 billion.
It has also signalled no let-up in its growth aspirations, having struck deals in March for 50 new widebodies, split equally between the Boeing 787-9 and Airbus A350-900.
Turkish Airlines will start taking delivery of its new long-haul fleet next year, with the introduction of six 787-9s. Its latest fleet-development plan, detailed in its first-quarter financial statement, shows that the A350s will start arriving in 2020 when five aircraft – plus another nine 787s – are scheduled for delivery.
The airline is also set to receive 92 A321neos and 75 737 Max jets over 2018-2023, taking the overall fleet from 329 aircraft at the end of last year to 475 in 2023.
The impact of the issues at Gulf carriers was evident as the Middle East was the only region that had a reduction in traffic growth, according to IATA data – although it still increased by almost 7%. This also marked the first time in 20 years that the region's share of global traffic fell.
Similarly, traffic levels fell during the year at fast-growing hubs in the region like Abu Dhabi and Doha.
But IATA figures for March do show traffic at Middle Eastern carriers jumped 10.7%. While that must be seen in the context of the busy Easter period's timing – last year, it fell a month later, in April – it is still much improved on the 4% rise in February.
"This reflects healthy growth in the market between the Middle East and Asia. Demand also shows signs of stabilisation on Middle East-to-North America routes, following the disruption caused in the first half of 2017 by the now-lifted ban on large portable electronic devices, as well as a wider impact stemming from the proposed travel restrictions to the USA," IATA says.
Notably, as capacity was lifted by only 4.3%, the load factor jumped 4.4 percentage points to 76.7%.
Additional reporting by David Kaminski-Morrow
Source: Cirium Dashboard