Will Gulf Airline Bubble Burst?
The spectacular rise of Emirates and its Gulf rivals confounded the expectations of mature carriers in the U.S. and Europe. These fifth- and sixth-freedom carriers have limitless ambitions and enjoy the revenues won through hydrocarbon abundance to back them up. But personalities have also played a role and one thing is sure: the Ruler of Dubai has made himself a pivotal player on the world’s aviation stage.
It was at the 2003 Paris Air Show that Sheikh Mohammed bin Rashid Al Maktoum served notice to the global aviation community that things were about to change. Availing himself of the last global downturn, he placed an order–at the time the largest in aviation history–for $19 billion worth of cut-price aircraft. A string of record-breaking widebody jet deals later and the transformation of the Dubai Airshow into one of the world’s top four aviation shows has vindicated the ascetic sheikh.
Emirates Group announced its 25th consecutive year of profitability in May, after it made net income of $845 million in the year ending March 31. Group revenue was $21.1 billion, a 17-percent increase on the year earlier figure. That month it also announced that its all-widebody fleet had reached 200 aircraft. On August 1, Emirates celebrated the fifth anniversary of delivery of its first-ever A380, and claimed to have carried 18 million passengers to 21 destinations.
At 90 aircraft, Emirates has firm orders for nearly four times as many A380s as its nearest rival, Singapore Airlines; it took delivery of its 35th A380 on July 15. The airline is no shrinking violet: it is also the leading customer for the world’s other mainstay, the Boeing 777-300ER. As of late September, Emirates held a staggering 90 in the fleet with a further 61 on order. Not even the humble Dubai-Lusaka-Harare route is too trivial to benefit from the Boeing workhorse’s qualities.
On September 19 the airline announced that is has added Boston as its eighth U.S. route. It plans launches later this year to Conakry (Guinea), Kiev in Ukraine and Sialkot in Pakistan, as well as its own dedicated Milan-to-New York/JFK route. In 2013, Emirates has launched, or planned to launch, several new destinations: Warsaw, Algiers, Tokyo Haneda, Clark International (in The Philippines) and Stockholm.
Emirates is seeing continuing growth in headcount and said it is aiming to recruit 5,000 to 6,000 new employees this financial year (2013-14). It has also taken a leaf out of Qatar Executive’s book by launching private-jet charters through Emirates Executive. The fleet initially comprised a solitary ACJ319, but the airline was coy about when or if it would add new planes.
Sports sponsorship continues to be a major field of endeavor for the airline, as evidenced when it announced a new Real Madrid shirt sponsorship deal May 30, granting it logo and hospitality rights until the 2017-18 season. Last November it also signed a £150 million, five-year extension to its deal with Arsenal Football Club. Arsenal FC, AC Milan, Paris Saint Germain (PSG), Hamburger SV and Olympiacos FC shirts all bear the “Fly Emirates” logo. “We continue to see immeasurable value in our global sports sponsorships,” said Sheikh Ahmed bin Saeed Al Maktoum, Emirates CEO and chairman.
The Big Three
Many analysts question whether Emirates, Etihad and Qatar Airways will have to merge one day, given the fact that having three of the world’s biggest airlines operating from hubs situated within 250 miles of each other should not, on the face of it, be viable. By way of response, Abdul Wahab Teffaha, secretary general of the Arab Air Carriers Organization (AACO), told a conference in Dubai in 2012 that the viability of the Gulf region’s “Big Three” airlines is not in doubt. “The hubs of the twenty-first century in the Gulf are irreversibly established,” he asserted.
But as their inexorable rise continues, competition between the three is heating up. It is clear who is leading the race, but whether the leader can retain its position of preeminence is open to debate.
“Emirates has always been the leader in terms of brand name, overall size and experience,” said Richard Aboulafia, vice president of analysis at the Teal Group of Fairfax, Virginia. “Etihad is less aggressive and more conservative [and] Qatar is doing its best to catch up.
“It’s a good indication of the difference between Abu Dhabi and Dubai: Dubai is the brash, aggressive emirate, while Abu Dhabi is somewhat more conservative,” Aboulafia told AIN. “This reflects the economic reality. In Dubai, everything depends on commerce, as it has no natural resources; Abu Dhabi has the luxury of abundant oil and gas. Emirates has distanced itself by adding very large aircraft. It’s not just destinations, but traffic.”
The analyst does feel that the shake-up in global aviation brought by the Gulf carriers has been beneficial. “On the positive side, and not to denigrate the ‘cowboys,’ more competition in international traffic is very welcome. These guys do a great job. Air France and Lufthansa need shaking up. The days of the chummy flag-carriers secure with home traffic…that didn’t do any favors to passenger service…these guys have done quite a lot of good. The reality is that something could bite back.”
Aboulafia is referring to Emirates’ predilection for the A380, which he fears could come back to haunt the airline, given the very low likelihood that anyone will want them when Emirates is finished with them. “The A380 is a very good tool to add market share up front. But for future growth and profitability, it’s probably going to be the wrong jet [see box].
“Emirates’ fleet strategy is extremely diverse: seeing what planes work on its routes. The biggest number of planes in the fleet is [of] the 777. It has increased the -300LR emphasis. Qatar is looking at the A350. They will just wait and see how it plays out. If an airline wants planes, it orders them. If it keeps wanting them, it takes delivery. A lot can change in 18 months.”
Still, he said he cannot deny that the “Big Three” have changed the landscape. “At this point, there is an astonishing percentage of widebody backlog by value from [the Gulf] carriers. It means they are punching way above their weight in terms of the backlog. It all comes down to the issue of big plans to add capacity. Their O&D traffic growth is minimal. They are growing by taking other people’s traffic.”
Aboulafia agrees that Emirates markets itself cleverly. “Emirates does like to project an international face. They have a problem with local attractions they are doing their best to address. They have modeled themselves on Singapore. They are Singapore but with much better geography, and greater emphasis on cosmopolitanism.”
As he focuses on making good on the promise to make Dubai’s candidacy as host for World Expo 2020 a winning one, it is perhaps better to leave the last word to the man who may be said to have made all this possible, Sheikh Mohammed. The stress on open skies is emblematic of all that Dubai set out to achieve.
In the words of Sheikh Mohammed: “Aviation and transport infrastructure is the fundamental catalyst for the creation of global cities. The UAE’s open-skies policy is the cornerstone on which Dubai built its dynamic air transport hub, which in turn supports the growth of other industry sectors. The growth of Emirates embodies the spirit of competition and free enterprise which will continue to guide our policies for the benefit of the UAE and the global community in which we operate.” o