Expanding regional network could provide the next growth spurt for GCC’s leading airlines

The Gulf area is often described as the new geographic centre of the airline world. Its three big airlines have brought about this thinking.

Emirates has seen its traffic grow by 990 per cent between 1997 and 2012.... surely an industry record. Between 2000 and 2010 Qatar Airways saw traffic growth of over 300 per cent. Even relatively small Etihad Airways has seen traffic growth of over 65 per cent between 2008 and 2012.

“The three major hubs in the Middle East — Abu Dhabi, Doha and Dubai — added 7.7 million passengers between them in 2011, continuing strong growth despite the regional disruptions,” CAPA had reported.

These airlines have been focused on long haul services and their deliverables have typically been at the forefront of service levels. Emirates’ Airbus A380 has showers in first-class, for example.

By acquiring hundreds of new aircraft these airlines have been able to enjoy better fuel burn during fuel price spikes. New planes also mean a maintenance holiday for a few years while competitors faced higher fuel bills and maintenance costs.

Market share

But the big ambitions have run into resistance the world over. Their growth rates have far exceeded the industry’s traffic growth, which means they have taken traffic and market share from competitors.

Reactions have been swift; in Germany, Lufthansa has done whatever it can to curtail the growth of Gulf airlines. Unfortunately for Lufthansa, Etihad has been exceedingly clever – it has taken strategic stakes in EU airlines (notably Germany’s Air Berlin). As a consequence, Etihad Airways now has unfettered access to Germany and the rest of the EU.

Emirates has been the most impacted by competitor reaction.

It has taken an approach not to do deals. But it has become more flexible; by working on a deal with Qantas it is trying to keep growing its ability to serve the Australia/UK market.

Qatar Airways has grown in a multitude of directions, Africa and South America in particular. To enable all these far flung routes, the airlines have focused on long-range aircraft like the A380 and Boeing 777. The growth has been successful in turning their home airports into global hubs.

Regional traffic

In 2002 Dubai was not in the top 30 airports worldwide; in 2012 it was listed at ninth. This is a remarkable performance.

But what of the regional traffic around the Gulf? We have taken a 750 nautical mile range circle from each of the three airports from where the three Gulf airlines operate out of.

We selected 750 miles because this is the typical range of a regional airline flight — approximately 90 minutes or less. The countries that fall within the circles are tough markets to work with.

The Arab Spring has turned the region into a tough market. Iraq is not a market one can probably serve profitably, nor is Yemen and nor is Iran.

These markets constitute significant potential but current conditions make it tough. So is there a place for smaller airplanes among these three airlines?

We would have to say that for the near term future there is likely to be little opportunity. Were more regional economies stable, the three Gulf airports and their airlines could ensure business travellers could connect globally, overnight.

Of course, one has to expect the region’s current unrest will settle and then the opportunities will avail. But then again the unrest has been around for a long time and may yet take as long before it settles down.

The big ambitions at the three Gulf airlines at the present time do not lend themselves to acquiring smaller airplanes.

The writer is a partner at AirInsight, a US-based aviation and aerospace consultancy.