The rapidly expanding route networks of the Gulf carriers are putting Europe’s hubs under threat, says Alex McWhirter
Every morning a bank of nonstop flights carrying thousands of passengers departs the Gulf for North America. This is a recent development, and Europe’s airlines and airports are the losers. Why? Because a couple of years ago, in the absence of direct flights from the Gulf, most, if not all, of these passengers used to change planes at a major European hub such as London Heathrow, Paris Charles de Gaulle, Frankfurt or Amsterdam.
Today’s nonstop flights are operated by Etihad out of Abu Dhabi, Qatar Airways from Doha and Emirates from Dubai. They are bound for New York, Washington DC, Houston, San Francisco, LA and Toronto. Other cities will be added as these carriers’ North American networks expand.
The Gulf region, with its small population base, cannot provide sufficient passengers to support this capacity. Instead, most travellers originate from airports in the Indian subcontinent, Africa and Asia. No wonder our readers tell us the transit hall of Dubai airport resembles a “mini United Nations” at certain times of the day.
What is happening now in the Gulf represents a new world order in aviation. For more than 50 years, Europe has been the world’s undisputed crossroads of the air, with carriers that have criss-crossed the globe linking the various continents. But Europe’s leadership is under threat as more long-distance travellers shun our hubs in favour of Abu Dhabi, Doha or Dubai.
And who can blame them? If you are located in Bengaluru in India and need to reach San Francisco, do you go via London Heathrow, with a tight connection, or chance Paris CDG, where you risk disruption caused by industrial action? No wonder more and more travellers are plumping for the Gulf, where your transfer is likely to be faster and where there is less chance of weather-related disruption. The standards being set by the Gulf airlines are among the highest in the world and, as a further bonus, your ticket might cost less.
Quoted on bloomberg.com, Air France chief executive Pierre-Henri Gourgeon says: “Europe is at the crossroads of international air travel and this is a role we need to value and defend. What we are telling the authorities is that we need a strategy that gives us a chance to resist.”
The new traffic flows do not sit well with Europe’s national airlines because this is competition they cannot control. Until now, they have kept the Gulf carriers at bay by restricting the number of flights they can operate. The French government has told Emirates that Paris is full up, while the aviation authority in Germany restricts the Dubai carrier to a maximum of five cities. Even in the liberal UK, Emirates has hardly expanded at all in recent times – despite the demand being there – suggesting behind-the-scenes UK government disapproval.
But such protectionism can only work for services linking Europe with the Gulf and beyond to Asia and Australia – it cannot protect today’s new travel patterns. It is not only transatlantic passengers who are defecting from Europe. Those clever strategists at Etihad, Emirates and Qatar realise their region is perfectly positioned to capitalise on the world’s new economic order.
So the Gulf airlines have started linking the growing economies and voluminous populations of India and China not just with North America but with the emerging economies of Africa, Latin America and Russia. It’s a market ripe for the picking because Indian and Chinese airlines barely serve these areas.
It has been reported that trade between China and Africa alone will have exceeded US$100 billion in 2010, with 1,600 Chinese enterprises now investing in that continent. James Hogan, chief executive of Abu Dhabi-based Etihad, says: “We are perfectly placed to transfer the new world traveller – passenger flows between South America and Asia, Europe and Australasia, and North America and the [Indian] subcontinent.”
So the Shanghainese businessman who might previously have flown to Nairobi via Amsterdam with KLM can now opt for Emirates via Dubai. An executive of a Guangzhou-based computer firm bound for Johannesburg need no longer depend on Air France via Paris CDG when Qatar will happily fly him there via Doha.
Alarmed at these developments, Europe’s carriers are calling for a level playing field. They claim they are disadvantaged by their Gulf rivals’ cheaper airline financing, which they want stopped. They also maintain their competitors enjoy more benign operating conditions. In particular, they are complaining about the regulations being imposed on them, such as the recent hike in UK air passenger duty and the new “eco” tax being introduced in Germany this January (see page 30).
At a recent function held by trade body the Association of European Airlines (AEA), British Airways chief executive Willie Walsh said: “Our success is Europe’s success. If we are weighed down by taxes and charges at home we cannot compete to the best of our ability abroad. We cannot compete sustainably for passengers if, as a result of government-intervention, non-European hubs benefit, thereby drawing passengers, cargo, employment and economic growth from Europe.”
As Air France’s Gourgeon said: “If left unchecked, the competitive imbalance between the Gulf and Europe will lead to a mass shift in stopover traffic and other economic activities to Middle East hubs.”
Ultimately, some European carriers would have to slim their long-haul networks because there would be fewer connecting passengers to support them. “It will become more difficult for British Airways to have enough passengers to offer the same frequency of flights to Hong Kong,” Gourgeon said. “Traffic through Paris, Milan and Munich would also suffer.”
Heathrow, the world’s busiest international airport, is concerned too. Andrew Teacher, head of media relations for airport operator BAA, says: “With a different political framework and strong income from natural resources, oil-rich countries across the Middle East pose a real threat to Europe’s hub status.
“Emirates has the biggest order of A380s and it is using these to increase direct flights from Dubai to the developing world. These are the flights we need to have going from London if we are to support our government’s policy of galvanising trade links with the BRIC countries [Brazil, Russia, India and China]. It is vital we have an aviation policy that ensures the UK does not get left behind.”
In response, Etihad’s Hogan argues: “[The European airlines’] geographic location precludes them from being at ‘the crossroads’ Mr Gourgeon boasts of. To most of the world in 2010, Europe is no longer a hub but an end point. While once all economic activity and innovation emanated from the US and Europe, most of today’s growth is within the BRIC area.”
He adds: “[The European airlines] want more regulation to protect them, but do they need, or deserve, protecting? They are businesses built on years of bilateral agreements designed specifically to protect them as national flag carriers.”
As for the issue of export credits, which benefit airlines such as those in the Gulf that do not manufacture planes, Emirates president Tim Clark says: “We are an airline and these are government initiatives that have been in place for a very long time. If the governments decide to change the home rules it’s up to them. To say we shouldn’t take advantage of those is absolute nonsense. To say we are successful because we get cheap credit is complete nonsense.”
Paul Griffiths, chief executive of Dubai Airports, the leading Gulf hub, adds: “The only thing Dubai is guilty of is providing an environment that actually supports aviation. Most governments around the world treat aviation as a pariah, choking its growth with costly, misdirected regulations. They then compound the problems with parasitic forms of taxation that usually flow straight out of the [aviation] sector.”
But Europe has seen nothing yet. The Gulf airports are gearing up for huge expansion. Consider that while Emirates has ordered 90 A380s, it has taken delivery so far of only 15. In the coming years, Dubai will complete the opening of the world’s largest international airport, Al Maktoum, outside town at Jebel Ali. It will have five runways and an annual passenger capacity of 120 million.
Qatar will also open a new airport soon, and its national airline has big expansion plans including the introduction of A380s. One wonders if Europe ought to be alienating the Gulf states when they have so much invested here not just in aircraft purchases but also in property and retail businesses?
It will take time, possibly ten years, before the Gulf and its flag carriers build up a sufficiently extensive network to overtake Europe. As a European, I want our aviation industry to prosper, but do we have a divine right to remain the world’s aviation crossroads.
For the thoughts of key industry figures regarding the impact of UK and Germany imposing heavier taxes on travellers, click here.
Changing travel patterns
Take these scenarios as examples of the new world order:
- Previously, a Bengaluru-based IT specialist bound for California would have routed via Europe. Now he takes Emirates’ early morning flight to Dubai, spends 90 to 120 minutes in transit, then departs for San Francisco or LA.
- A US-expat family bound for Addis Ababa in Ethiopia may have flown from San Francisco via Europe, but they now use Emirates via Dubai.
- A Mancunian sales executive needs to reach Seoul. Normally she would have flown via Heathrow or Paris CDG but now she goes through Dubai with Emirates even though it’s longer. Why? Because she can visit the firm’s Dubai regional office on the way. (It opened because of the increased air links.)
- A businessman needs to get from Shanghai to Sao Paulo. He could travel via Europe but now has a choice of Qatar Airways via Doha.
