There are two things everybody wants to know when it comes to the Gulf’s airlines: how can three airlines that were insignificant or did not exist a few years ago – Emirates, Etihad and Qatar Airways – sustain their breakneck growth when their domestic markets are relatively small and without cannibalising each other’s traffic? And what is the future for the region’s erstwhile champion, Gulf Air, now that its biggest shareholder, the Abu Dhabi government, has joined the state of Qatar in pulling out of the beleaguered airline?
Gulf insists it is business as usual following the Abu Dhabi decision. The airline has formed a “task force” to “ensure the most appropriate size and shape of Gulf Air in the future”. The decision leaves the 55-year-old airline with two hubs – in Bahrain and Oman capital Muscat, but without Abu Dhabi, which before the emergence of Etihad was Gulf’s main base, accounting for more than half its traffic. It remains to be seen whether the carrier continues to offer international services from Abu Dhabi, including its newly launched budget Gulf Traveller division, which is pitched at the expatriate market from the Indian subcontinent.
Just before Abu Dhabi’s announcement, Gulf Air had been in the middle of a fleet review. Although chief executive James Hogan – credited with leading a turnaround at the loss-making carrier – is not giving interviews, that evaluation is understood to be still taking place. However, given the likely impact on traffic figures of the Abu Dhabi pull-out and the ever-tougher competition for passengers in the region, it is hard to see a major fleet expansion happening.
Of the Arab giants, Emirates possibly has the most to lose from Abu Dhabi’s decision, which gives the green light to the UAE capital to put its full weight behind Etihad as it strives to emulate its neighbour Dubai’s success in attracting international commerce and tourists. However, Emirates’ suffering is not an easy concept to grasp. The region’s dominant carrier continues to order aircraft as if they were going out of production, and expand its network into the USA and Asia.
Airline president Tim Clark has no doubts that the region’s frenetic economic development leaves room for three growing carriers. “The UAE’s economy is exploding,” he says. “It’s a powerhouse of activity. As an airline, we’re playing catch-up all the time. Etihad’s arrival is good for the country.”
That view shared by Akbar Al Baker, chief executive of Qatar Airways, who has taken the tiny emirate’s flag-carrier from a fleet of four to more than 40 aircraft and 3.3 million passengers in eight years using a strategy similar to Emirates’ of upmarket service and hubbing passengers to destinations in Asia, Australasia, Europe and the Middle East. “There’s enough business for all of us,” says Al Baker. “All the countries are very progressive and are committed to growing their economies.”
Like Abu Dhabi – but unlike Dubai, which has little oil and has traditionally based its fortunes on commerce – Qatar has enormous oil reserves which help to underwrite the airline’s expansion plans. But it would be wrong to think of Etihad or Qatar Airways as vanity projects founded by billionaire sheiks with nothing better to do with their money. Under Al Baker, Qatar has for the past eight years been run highly efficiently, funding most of its expansion directly from its own revenues or against its balance sheet. The lack of income tax in these countries certainly helps: the reason service levels are so high is that the airlines can cherry-pick pilots and ground and cabin crew from around the world – there are no unions or disgruntled time-servers waiting for their pension.
The Gulf airlines’ economic position and strategy of aggressively developing new routes has seen the region become a key battleground for the manufacturers to pioneer new programmes and variants. Emirates was the first to sign a letter of intent for what was then the Airbus A3XX in 2000, launched the A340-500 and is leading pressure on Boeing to develop a “10X” stretch version of the 787. Qatar Airways was launch customer for the A350. Emirates and a handful of other go-ahead airlines around the world have helped change the industry to a “customer-driven” rather than “manufacturer-driven” culture, where airliners are shaped by market demands rather than by designers in Seattle and Toulouse who decide what airlines will need, says Clark.
Customer is king
Boeing agrees that the customer is king in today’s airliner market, but Lee Monson, newly appointed regional senior vice-president for sales, says manufacturers have to “balance airline expectations with our ability to deliver and the cost benefits to both”. Every aircraft is a compromise, says Monson. “Point-designed” aircraft – those built purely for a specific airline requirement – “have never worked”, he says.
In his new job, which is specifically focused on the Middle East, Monson is leading the US manufacturer’s efforts to win back share lost to its European rival in the region. “There is no question we are playing catch-up,” he says. “We have 50% of the fleet, but there was a time recently when we were getting our butts kicked.”
Airbus has an advantage in the region because of the A380, says Monson. “We have always said there is a niche for a big airplane and it works in high-density, slot-constrained routes and it’s a strategy that works for [Gulf carriers].” Now, with the emphasis on economy and longer range, Boeing has, with the 787, 777-200LR and -300ER, a “range ideally suited for the region”, he adds.
Beyond the Gulf oil states, the performance of the Middle Eastern airline sector has been less spectacular, with growth constrained by regional conflicts, sluggish economies and government control. Attracting private capital is increasingly an option for airlines such as Royal Jordanian, with Emirates mentioned as a possible investor.
Abdul Wahab Teffaha, general secretary of the Arab Air Carriers Organisation, believes privatisation and liberalisation of the region’s overwhelmingly state-run airlines is likely, although fears about job security remain. Adds a senior London-based analyst: “Given excess regional financial sector liquidity, IPOs of some national carriers may be successful.” There are two other key barriers to airline growth: trade restrictions and border controls, and regional conflict, he says. “We need fewer constraints on the movement of people and goods. For example, when visa requirements for travel between Lebanon and Jordan were removed, there was a 25-30% increase in travel. Relaxing visa requirements will trigger demand.”
The situation in Iraq and Palestine means air transport to these states is severely limited and creates no-fly zones for airlines, adding to congestion. Before the first Gulf war, Iraq accounted for five million passengers. Although the early optimism after the 2003 invasion, when several European carriers hastily announced plans to launch services to Baghdad, was quickly quashed, a stable Iraq would significantly boost the region’s airline sector.
MURDO MORRISON/ABU DHABI,DOHA & DUBAI
Source: Flight International