Alex McWhirter charts the unfaltering rise of the Middle East carriers – and how European and Asian airlines are fighting back.
Our cover story in December 2010-January 2011 reported on the dramatic rise of Gulf aviation and the threat it posed to Europe’s hub airports and airlines. Six years on, we can reveal that our predictions have come true. The three major Gulf airlines – Dubai’s Emirates, Abu Dhabi’s Etihad Airways and Qatar Airways – have continued to build their fleets and networks at the expense of rivals elsewhere.
When I interviewed Emirates founder Sir Maurice Flanagan back in April 1986, his airline was starting life with a handful of planes. The idea was that Dubai would have its own airline rather than rely on Bahrain-based Gulf Air for connectivity, so would be better represented on the world stage.
Nobody could have predicted that the following 30 years would see Emirates become the world’s largest airline in terms of international mileage flown, and that Dubai would overtake London Heathrow as the world’s leading international hub.
Gulf aviation has changed beyond all recognition. Like Abu Dhabi and Qatar, Oman followed Dubai’s lead and established its own airline, Oman Air. Together, these carriers have changed the travelling lives of many millions of people based not only in Europe and North America but also in India, Africa, South East Asia and Australia.
POINT OF TRANSFER
The European carriers initially viewed the newcomers as irritants, just as they would have viewed the then emerging Asian airlines in the 1970s. Once the Gulf carriers gathered momentum, the Europeans became alarmed because they offered millions of passengers the opportunity to overfly Europe.
For many decades, Europe saw itself as the centre of world aviation. Previously, Indian nationals or expats heading to North America would route via Europe. Some still do, but increasing numbers are attracted to the Gulf carriers with their nonstop flights to either the US east or west coast.
Similarly, those travelling from North America’s secondary cities to Africa, or vice-versa, found it just as convenient to take Gulf routings rather than change elsewhere in the US and again in Europe. In pre-Gulf days, Asian business travellers bound for Africa or Latin America had little choice but to route through Europe. Today, that’s no longer the case.
The Gulf carriers weren’t that innovative – they simply copied the business models of Dutch airline KLM and Singapore Airlines. They grew by targeting transfer rather than point-to-point passengers. In that regard, they were assisted by aviation-minded governments, beneficial geographical locations, the ability to operate 24 hours, and labour flexibility. In many cases they faced little, if any, competition.
The Chinese – and, soon, the Japanese – are investing heavily in African infrastructure. But how many Chinese or Japanese airlines fly between their home countries and Africa? Closer to home, how many international flights does British Airways operate from the UK regions, or how many long-haul routes do Air France, Lufthansa, SAS and so on operate from airports outside of their main hubs?
The past six years has seen the Gulf airlines strengthen their networks by serving both main and secondary destinations. In Europe, they now fly from points as varied as Lisbon and Dublin in the west, Moscow and Minsk in the east, Helsinki and Stockholm in the north, and Athens and Larnaca in the south.
So if I am based in Scotland and want to fly to Phuket in Thailand, do I take a one-stop flight via the Gulf or opt for a trickier routing via London and Bangkok? If an Italian business traveller based in Emilia Romagna wishes to visit Asia, do they trek north to Milan or south to Rome, or simply take Emirates from their local airport of Bologna? Does the Belgian exporter bound for a secondary Indian destination route through the Gulf, or undertake an Amsterdam or Paris trek followed by a plane change in Mumbai or Delhi?
FEELING THE HEAT
It is true that some countries have sought to protect their national airlines by restricting the Gulf carriers. But it’s highly political, and they haven’t always succeeded. In any case, no matter what some governments do, the Gulf airlines continue to expand.
Over the past six years, what impact have the Gulf carriers had on the voluminous traffic flows between Europe, Asia and Australasia? Market growth has mainly shifted to the Gulf carriers. One need only look at the vast number of wide-body flights operating daily between the Gulf, Asia and Australasia. Yes, there have been a few cases where the Europeans have started new routes but, on the other hand, some have been dropped.
For example, Kuala Lumpur and Jakarta have been axed by Air France and Lufthansa. Lufthansa and Austrian Airlines both scaled back their Gulf operations. Virgin Atlantic cut Mumbai, Sydney and Tokyo. BA’s Australasian operation is reduced to a single daily Sydney flight. Australia’s Qantas threw in its lot with Emirates. Its London services now route through Dubai in place of Singapore. Although it still flies twice daily to London from Australia, its other routes have been handed to Emirates.
Some Asian airline weaknesses have been exposed. Thai Airways and Malaysia Airlines have both scaled back their European services. Philippine Airlines and Garuda Indonesia returned to Europe with grand ambitions but failed to realise that the market had changed in their absence. Plans to resurrect routes to Paris, Frankfurt and Rome came to nothing.
Neither are the low-cost carriers immune. They’re adept at wooing passengers in Europe from the established airlines, but flying long-haul is a different matter. They find it hard to compete with Gulf aviation when you add on the cost of ancillary fees and the fact that the Middle East airlines operate from more convenient airports.
Three years ago, we reported how the Gulf carriers were undercutting Norwegian. The budget market is price driven; it has no loyalty. So if a member of the Malaysian community in Glasgow wanted a cut-price trip to visit family in Kuala Lumpur, it meant a choice between Emirates and Air Asia X. The cost and inconvenience of getting to London – let alone the cost of the ancillaries – meant Emirates won.
Air Asia X threw in the towel and retreated to Malaysia. To be fair, fuel prices at the time were much higher and the budget airline was operating inefficient aircraft. Whether or not Air Asia X returns to Europe with more fuel-efficient planes remains to be seen.
Norwegian, which originally wanted to fly all over Asia, ended up with a single service to Bangkok. Its Asian plans were dropped in favour of transatlantic ambition. The carrier increased flight capacity across the Atlantic by 51 per cent this summer – no wonder some airlines are saying there is now overcapacity.
SIA’s Scoot plans to arrive in Europe next year with a Singapore-Athens service. With low fuel prices and a leisure-based product, it might just work… but don’t hold your breath.
Some airlines are not just losing passengers. Kenya Airways has also lost staff. The generous (by Kenyan standards) salaries paid in the Gulf have prompted a brain drain that has led to its technical department being significantly understaffed.
Still, some carriers are fighting back. The Lufthansa Group has formed joint ventures with fellow Star Alliance members Air China and Singapore Airlines, while Skyteam members Air France, KLM and Delta want to form a joint venture with India’s Jet Airways. So far it’s too early to say how effective these partnerships will prove. In any case, it may take only the return of high fuel prices, political unrest or an economic downturn for the situation to change yet again.
THE RISE AND RISE OF EMIRATES, 2010-16
|NUMBER OF A380s
GULF AIRPORT GROWTH
Abu Dhabi International
Total traffic for the first half of 2016 reached 11.8 million passengers, a 6.6 per cent increase on the same period last year. The most popular destination was Mumbai, which saw a 26 per cent rise in passengers when comparing June in 2016 with June 2015. Etihad placed its A380 on the route in May. The new Midfield Terminal, slated for completion early next year, will increase the airport’s capacity to more than 30 million passengers per year.
The world’s top airport in terms of international passenger traffic and number three for total passenger traffic (as reported by Airports Council International). Traffic reached 40.5 million passengers in the first half of this year, up 5.8 per cent on the same period in 2015, with the top five countries in terms of total passenger volumes being India, Saudi Arabia, the UK, Pakistan and the US. Ten new A380 stands are due to be added at Concourse C by the end of 2018, taking the overall figure to almost 50, as part of a project to increase the airport’s capacity to nearly 120 million passengers by 2023.
Dubai World Central
Passenger traffic at Dubai’s second airport increased by more than 95 per cent during the first half of 2016 to 410,000, mainly driven by Flydubai, which, in addition to its operations at Dubai International, operates 35 weekly flights to five destinations from DWC. The airport is served by 17 passenger carriers, operating 174 flights weekly to 39 international destinations.
Hamad International, Qatar
The airport served 17.6 million passengers during the first six months of 2016, a growth of more than 20 per cent on the same period last year, with the top routes being Dubai, London, Bangkok, Bahrain and Colombo, generating collectively 20.3 per cent of the airport’s traffic. It has two dual capacity runways (used for take-offs and landings at the same time), an airside hotel, two airside squash courts, a gym, a 25-metre pool and a spa.