x Abu Dhabi, UAETuesday 23 January 2018

Region's dominance of skies to grow

Carriers' bold growth and booming passenger transfer business bring success and irk rivals.

Over the next 10 years, the centre of gravity for the world airline industry is expected increasingly to shift to the Middle East.

By 2020, Emirates Airline should be operating 90 or more A380 superjumbos, offering a total of 45,000 seats daily to points within 15 hours of Dubai.

This will link any two cities in the world through Dubai, part of Emirates's plan of running a 450-aircraft fleet by then.

Other Middle East airlines are not far behind. Etihad Airways, only seven years old, made its global ambitions known in 2008 with an order for 100 aircraft. Qatar Airways, already nearing 100 aircraft for its current fleet, has 142 on order.

Taken together, the three carriers' investments total more than US$100 billion (Dh367.27bn) in new planes. That is coupled with significant investments in in-flight services and airport infrastructure such as new terminals, runways and premium lounges.

Their competitors in the long-haul market, meanwhile, are more cautious. British Airways has 39 new aircraft on order, while Lufthansa has 85.

"European carriers will grow too, but not at the same level, and part of their orders are for replacements," said John Strickland, the director of JLS Consulting. The Middle East airlines were taking advantage of their geographic location to serve mature economies such as Europe, as well as the emerging economies of Asia, Mr Strickland said.

"The global economy is evolving in the 21st century and that suits all these Middle East airlines," he said.

Emirates ushered in the new age in April 2000 when it announced it would become the first airline to acquire the Airbus A3XX, the world's first passenger airliner with two full decks.

The superjumbo was later named the A380. Now, a decade later, Emirates has become the largest international airline by capacity and is also among the most profitable, with profit for the six months ending on September 30 quadrupling this year, compared with the same period last year, to $925 million.

"Whatever anyone says about Emirates being government-owned, it is unavoidably an increasingly powerful model and extremely cost-effective, while being able to drive better than average yields," the Centre for Asia Pacific Aviationin Sydney said in a recent report.

Mr Strickland credited Emirates with taking risks over the past two decades to exploit its favourable location while other Middle East airlines, in his view, sat back. Busy routes such as Brazil to Japan and China to Africa were facilitated by Emirates's use of Dubai as a transfer centre, he said.

In the next decade, the regional airline industry may be reshaped by low-cost carriers, forcing the big three Gulf airlines to realign their businesses, Mr Strickland said.

The Dubai Government has already launched the budget service flydubai, Etihad has created an all-economy service and Qatar Airways has considered launching its own low-cost service.

A more pressing concern is protectionist efforts in countries such as Canada, France and Germany, where governments have acted on requests from their flag carriers to restrict the expansion of Emirates and its Gulf counterparts.

Those governments are also considering changing the rules on export credits, which have provided Middle East carriers with cheaper financing to buy Boeing and Airbus aircraft. In many respects, the western airlines are as frustrated by their own governments as by their foreign competitors. UK authorities rejected plans for a third runway at London Heathrow, effectively capping further growth.

Calin Rovinescu, the president and chief executive of Air Canada, has argued that his airline is unable to compete equally with foreign competitors.

He decried what he said was Canada's "inappropriate taxation, inappropriate charges, [lack of] rail infrastructure, high landing fees and high ground rent".

"It's like having two arms tied behind your back and hobbling around on one leg," Mr Rovinescu told Canadian media last week.

"That's the kind of dynamic we find ourselves in when you look at the level of discrepancy between - forget the Middle East - even the US and Canada."

While the resistance to the big Middle East carriers may continue in the West over the next decade, it is unlikely to sprout among emerging economies desperate for more air links, Mr Strickland said.

And while critics have questioned the logic of having three global airline powerhouses spaced an hour apart, he argues a merger between any two of them is unlikely.

"The growth goes beyond pure commercial issues and there is probably an amount of national prestige and pride," Mr Strickland said. The airlines were also important economic multipliers for the local economies.

"Emirates is profitable, and Etihad and Qatar Airways as far as we know are not profitable, but are headed in the right direction, so there is no imperative or urgency to consolidate," he said.