Burgeoning Middle East Airlines Still Face Challenges Aviation Week & Space Technology
Jens Flottau
IATA's legacy members meeting in Qatar see how their fiercest rivals continue to grow
Field Study
A Qatar Airways A320 operated the first official flight into Doha's new Hamad International Airport on April 30.
A version of this article appears in the May 26 edition of Aviation Week & Space Technology.
Delegates of the International Air Transport Association's (IATA) annual general assembly do not need to imagine the transformation the industry is experiencing in the Middle East - as some of the first passengers to land at the new Hamad International Airport in Doha, Qatar, they are seeing it firsthand.
Delayed by years, Hamad is now the new home base for Qatar Airways, one of the "Big Three" Gulf carriers, which had been using as a base an airport that is suboptimal for hub operations. Hamad, however, can accommodate Qatar's needs and be enlarged when needed.
The annual IATA World Air Transport summit is taking place in the Middle East because of the region's increasing importance as a long-haul hub, which is growing fast at the expense of incumbent carriers in Europe and Asia. And the fact that the gathering is in Doha, rather than Dubai or Abu Dhabi, has a lot to do with Qatar CEO Akbar Al Baker's ambitions to be the ambassador of the air transport industry in the region and represent it on IATA's board of governors, among other places.
The Middle East represented 8% of global revenue passenger kilometers (RPK) in 2012, a huge number for the region's relatively small population and the amount of political turmoil there in recent years. But if Airbus and many other industry players are correct - and Emirates Qatar Airways and Etihad Airways take delivery of the hundreds of new widebodies they have on firm order - then the balance will change further.
According to the latest Airbus global market forecast (GMF), traffic within, to and from the Middle East will represent 12% of global air transport in 20 years. The number of RPKs will be higher than in Europe, North America or the Asia-Pacific region today, but the structure of traffic will be different: Most of it will be long-haul and almost all will be international. In other words, Middle Eastern carriers will, to a large extent, grow at the expense of others.
When asked recently to discuss the most daunting challenge for his tenure, Lufthansa's new CEO, Carsten Spohr, said, "the Gulf carriers."
At a 7.1% annual average growth rate, the Middle East is going to be the fastest-growing air transport region, Airbus projects. And the latest IATA traffic figures indicate that at least at this point, Airbus and other market forecasters may have been too conservative. In February, traffic in the region increased by 13.4%, almost twice as fast as the long-term guidance predicted. In March, demand was still up 10%, more than three times as strong as the global 3.1% figure.
The Big Three Gulf carriers also are emerging as innovators in cabin products. In May, Etihad presented plans for the Airbus A380 in which first-class seats are called "apartments." If passengers wish to upgrade further, they can book a "residence," a suite that includes a separate living room, bathroom and bedroom. Emirates has similar plans for its growing fleet of A380s.
But it is not only the current growth rates that are setting off alarms in European and Asian airline headquarters; it is the prospect of seemingly unlimited funding available to the Gulf carriers, be it through commercial loans, export-import bank financing or direct injections from the Gulf states, which are the shareholders. Spohr argues that because European legacy carriers share operating environments with low-cost carriers, they should ultimately be able to adjust. This does not take into account the radically different frameworks of the legacy and low-cost carriers - their financial support, airport capacity and labor costs.
On the other hand, the Middle East air transport industry is not immune to troubles. Apart from the three giants, airlines that have not participated in the creation of the new long-haul hubs are not really in better shape than they were before the Gulf airline revolution started in earnest. They are either plagued by a legacy of inefficiency or trapped in new challenges - or perhaps both.
For example, in spite of Gulf Air's huge cutbacks, its sustainability remains unclear. Judging from the size of Egyptair's market and the quality of its airport, it should be a successful airline, but state interference and the country's political turmoil have undermined the carrier. Royal Jordanian is suffering, too, and undergoing another leadership change. Sometimes it is simply economic and political stagnation such as that in Algeria that holds back the development of a more active air transport sector. The situation is obviously a lot more dramatic for airlines in Libya or Syria.
There are intriguing developments taking place beyond the Big Three carriers. Saudi Arabia is slowly opening up its domestic aviation market, and the amount of burdensome regulation remaining will determine whether there will be a second wave of start-ups and how many new projects on the horizon will succeed. Liberalization is still not happening across the region even though powerful forces are targeting it, including the Arab Air Carrier Organization (AACO).
In the Gulf, the challenges primarily relate to infrastructure constraints. The opening of Doha's new international airport has removed the main limitation on Qatar Airways' growth, but the new home Abu Dhabi Airport Co.'s (ADAC) is building for Etihad Airways is not due to open before July 2017, leaving the airline to continue operating out of its small Terminal 3, which is a serious bottleneck at peak times. Meanwhile, Dubai International is building another terminal to allow further growth ahead of the now accelerated move to the new giant Djebel Ali facility.
According to a recent government study revealed by the Bloomberg news service, Dubai's latest capacity-handling plans call for low-fare carrier FlyDubai to move to Djebel Ali soon to give more space to Emirates at the main airport. Around 2024, Emirates could then move to the new airport, which would have been greatly expanded in the meantime to accommodate the traffic of the world's largest international airline, while FlyDubai would return to the current Dubai International Airport.
Although Middle East countries are tackling their airport capacity problems, they are still lagging in improving the efficiency of their air traffic control. IATA Director General and CEO Tony Tyler points out that historically a sole flight information region (FIR), in Bahrain, covered the Persian Gulf area. "From the early 1980s, it began to be fragmented, and today there are six FIRs. For an airline, the important thing is to get from point A to point B as smoothly as possible," Tyler says. "The challenge for the air navigation providers is to work together to make that happen as seamlessly as possible across six FIRs as if they were one."
The Middle East should not repeat the mistakes of Europe, he notes. "The single aviation market created enormous demand for air connectivity, but this was not matched with a Single European Sky," Tyler says. "The result is an inefficient and fragmented air traffic management system that is a burden on European competitiveness."
Issue: Aviation Week & Space Technology May 26/June 2, 2014
Location: Frankfurt and Abu Dhabi
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