Gulf Gullivers keep expanding amidst global downturn

The rise and rise of Emirates (Dubai), Etihad (Abu Dhabi) and Qatar Airways has been well documented. These so-called ‘Gulf Gullivers’ have placed multi billion-dollar aircraft orders, expanding their airports and developing their tourism infrastructure, with the aim to  turn the geographically ideally situated Gulf region into the world’s aviation hub. Some of the ingredients of their model: high frequencies to major urban destinations, target large metropolitan areas without direct connections (for example, Manchester, Birmingham in the UK, Düsseldorf, Hamburg in Germany) so passengers can bypass busy hubs in their region and transfer at the carrier’s 24/7 Gulf hubs, and large investments in their premium services.

The past year, major airlines in Europe, North-America, and Asia-Pacific have put their brakes on fleet expansion amid significant drops in passenger volumes and yields. Nevertheless, Emirates, Etihad Airways and Qatar Airways have continued their aggressive fleet and network growth, introducing more than 30 new widebodies between them during 2009. Middle East airlines saw passenger grow 11.2 percent in 2009 according to IATA. By contrast, passenger demand dropped 5 percent in Europe and 5.6 percent in the Norh America, as well as in Asia Pacific. And plans remain bullish: With a new wave of aircraft coming, most notably Emirates and Qatar Airways are now turning their attention to other European metropolitan catchment areas and to Japan.

In 2010, Emirates will add 8 A380 aircraft as well as 1 B777 a month to its 145-strong fleet, and open routes between Dubai and Amsterdam, Prague, Madrid, and Tokyo. Qatar Airways this year will take 18 B777s and open routes from Doha to Copenhagen, Barcelona and Tokyo amongst others. “The addition of the European cities of Copenhagen, Barcelona, and Ankara follows [our] strategy to expand [our] operations to diverse and underserved cities from the Gulf”, Qatar’s CEO Akbar Al Baker recently said. Etihad will add Tokyo, Nagoya and SriLanka to its network in 2010, as well as (just) 3 new aircraft. The airline says its second expansion phase will start at the end of 2012, when the first of the 100 aircraft it ordered will be delivered. 

However, the Gulf Gulliver’s rapid expansion clearly has got its risks. The airlines all say they suffer serious yield problems, which have seriously dented their revenues. According to Qatar Airways’s CEO “our biggest challenge is holding our yield. There is a downward pressure because our competition in the region is getting very aggressive, just to keep passenger numbers without looking at the bottom line.” Furthermore, the global credit crisis has hampered the ability of Dubai-based companies to raise new loans to refinance maturing debt. This has forced Dubai to push back the shift to an all-new airport hub (capacity: 120 million passengers a year), which is likely to affect how Emirates can expand its fleet. Furthermore, the Gulf Gullivers’ inroads into aviation markets around the world has upset many of their rivals, and has sparked allegations the carriers receive unfair government aid and cheaper fuel – which all three airlines deny. The carriers are also meeting resistance in for example Germany and Canada in their attempts to open more routes.

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