Gulf airlines face challenges

Dubai: There are 16.7 million reasons why Emirates continues to rise among the ranks of international air carriers.

One of them is Marcos Herrmann. A vice-president of a Brazilian paint and timber company, Herrmann used to fly to Vietnam, where he has clients, via Frankfurt on Lufthansa.

But with Emirates now flying to Sao Paulo, he can cut his travel time by several hours by going through Dubai.

Providing better connections on newer aircraft and offering high standards of service, Gulf airlines have been the most prominent success story in the post-9/11 airline industry. Experts are, however, quick to point out the challenges. Among them: a lack of slots at major air hubs worldwide, the slow pace of liberalisation in some countries, and new long-range aircraft that can bypass the Gulf hubs.

Richard Aboulafia, an aviation analyst at the Teal Group, attributes Gulf airlines' success to the trailblazing of Singapore Airlines, which years earlier began with a small local population but developed itself as a transit hub between long-haul routes. "Emirates is basically following Singapore. Etihad is following Emirates, and Qatar is following those guys," says Aboulafia.

All three have leveraged their unique geographical location. But they can only succeed if they continue to receive slots at major air hubs and governments continue to grant traffic rights.

James Hogan, CEO of Etihad Airways, says this year his airline has seen "exceptional growth" on long-haul routes to Australia, the UK and Canada. But it cannot add more frequencies without obtaining approval first from foreign governments. "It's a bilateral issue," he adds.

A massive infrastructure boom at airports in Dubai, Abu Dhabi and Doha will create capacity for more than 300 million passengers a year in 2017, according to the International Air Transport Association (IATA). But these gleaming new terminals could remain empty if Gulf airlines aren't allowed to fly to all of their planned routes.

Foreign governments sometimes protect their home carriers by limiting access by foreign carriers. In the last year, both Australia and Germany reportedly considered blocking more flights from Emirates.

"The UAE is very liberalised, but we will need to see further liberalisation in other markets," says Brian Pearce, chief economist at IATA. Etihad, for example, says it wants more air rights to India, Saudi Arabia and Egypt.

Accommodation

Then there is the issue of receiving slots at major airports. Many hubs in Europe are full and cannot accommodate new airlines. "At Paris, the issue is slots," says Etihad's Hogan.

"These challenges we face in Europe will affect the ambitions of Middle East airlines to serve the Europe-to-Asia market," says IATA spokesman Lorne Riley.

But perhaps the greatest wildcard is the effect of new aircraft technologies, and how Asian and European rivals will use them.

Ali Al Rais, general commercial manager at Qatar Airways, called the new generation aircraft from Airbus and Boeing a "double-edged sword." Flying up to 19 hours and 17,500 kilometres, the Boeing 777-200 LR represents how Gulf airlines now have unprecedented access to faraway destinations. But the same goes for their competitors. With new energy-sipping planes, airlines are now considering point-to-point routes that fly over the Gulf that were until now unprofitable. Gulf carriers currently offer the shortest routes between many European and Australasian cities. As aircraft becomes more sophisticated, the advantage of a Dubai stopover may lose its lustre. "The ground is shifting from Europe to the Middle East and Asia, and this is no surprise to industry followers," Al Rais said. "But new long range aircraft can now bypass Middle East hubs, if we are not ready with our infrastructure."

Thanks to an open skies agreement between the US and EU, airlines are looking to set up point-to-point services from secondary or other cities that haven't been flown in the past, says Pearce of the IATA. "That is due to new liberalised environments but also new technology in the aircraft," he said.

One day, travellers like Marcos Hermann may be able to fly from Sao Paulo to Ho Chi Minh City directly. No one is projecting a major slowdown for Gulf carriers. But in the $450 billion airline industry, they can be sure no one will make it easy for them.