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Still the top dog

January 2007
Airlines competition is heating up, but Emirates is confident it can keep upstart Etihad in its place.
The Gulf's biggest airlines aren't letting the troubles at Airbus ground their plans for bigger fleets and better destinations. Abu Dhabi's Etihad is as keen as ever to wrestle market share from Dubai's dominant Emirates , while Gulf Air , backed by the Bahraini and Omani governments, is determined to stay in the race.

There's a lot at stake: air traffic in the Middle East is expected to show the highest 2006 rise -about 12 percent - of any geographic region, with healthy, if slightly less exuberant, growth forecast for 2007 and 2008. "It is anticipated that the traffic of the airlines of the Middle East will show the highest average annual growth rate of about 10.7 percent, including 12 percent for 2006, 10.5 percent for 2007 and 9.5 percent for 2008, reflecting good economic performance and aggressive marketing by the airlines," the International Civil Aviation Organization said in its annual review.

It is instructive to note that the review suggests that marketing has not outpaced performance, meaning that concern among industry observers that the sector is overtraded and hurting itself in its pursuit of too few customers is perhaps unfounded.

"Everybody is talking about too many airlines [in the region] but if you look at things as they were two years ago, the region had maybe fewer than 200 aircraft and the load factor was around 60 to 70. Now we are getting close to 500 aircraft and the load factor is 84," says Habib Fekih, the president of Airbus Middle East. According to him, there is not only sufficient demand but the competitiveness itself is attracting new clientele: "The competition is certainly not killing the airlines. On the contrary, it has been good for the industry and has created a demand that was not there earlier," he said.

To meet projected demand, the two big carriers have placed orders to expand their fleets. Emirates ' total order book exceeds 155 billion dirhams ($42.2 billion), while Etihad has invested a more modest 29 billion dirhams. By 2012, their combined fleet size will be close to 300.

Though much of the growth in demand derives from Abu Dhabi and Dubai's utility as regional hubs and long-haul stopovers, the cities are increasingly tourist destinations in their own right, with new routes are being opened to destinations such as India and Oman. "This is good for passengers as well as commerce in these countries," said Fehih. Data compiled by Airbus projects continuous growth in traffic to 2010. The company says the demand will be met by the addition of 940 new and 236 recycled aircraft by 2025.

The cloud on the horizon, of course, is the inability of Airbus to fill its orders. Emirates has suffered the most, having to contend with three delays in the long awaited delivery of 43 high capacity A380 aircraft. Worse, it appeared that rival Etihad could receive its A380 aircraft sooner than Emirates . That concern has receded, with Airbus saying it will honor its schedule of delivery. In the meantime, Emirates has reshuffled its sizable fleet on its established route network to steer itself through this tricky period. Tim Clark, the president of Emirates , says the airline's home base gives it a strategic advantage. "We are fortunate to be based in Dubai where our geocentric location allows us to potentially serve a large catchment area of 5.5 billion people [who are traveling] an eight hour flight," he said.

Clark dismisses the idea that pressure from other airlines will erode its business. "It's nothing new to Emirates , being based in Dubai where we compete with over 100 airlines under an open skies policy, with no protection or subsidies. We take all competition seriously but do not spend a lot of energy monitoring our competitors," he said. "In terms of new markets, we have made no secret of the fact that we would like to expand in the Americas. We would also like to strengthen our operations to Australia, Africa and several cities in Europe," Clark said.

Emirates is to order 50 or more mid-size jets from Airbus and is said to be considering the Boeing 787 Dreamliner to expand its fleet in the 250-350 passenger capacity bracket. The airline already has about 100 planes on order, including the 43 Airbus A380s. Emirates registered a record performance in 2006, with net profit for the first six months of its 2006-07 financial year touching 1.2 billion dirhams, compared with 922 million dirhams recorded in the previous period, a 29 percent increase.

Passenger revenue registered 31 percent growth, with passengers carried increasing by 1.41 million, or 20 percent, to 8.39 million, compared with 6.98 million for the first half of 2005-06. Dubai International Airport also enjoyed a jump in passenger throughput during October, registering growth of 18.4 percent over the corresponding 2005 period. The airport handled nearly 2.3 million passengers in October 2006, compared with just over 1.9 million in the corresponding month previously. This brings the total number of passengers handled between January and October to 23.6 million, an increase of almost 15.5 percent. The Dubai government, meanwhile, is investing a total of 300 billion dirhams in numerous aviation infrastructure projects.

Abu Dhabi is following suit, having grasped the importance of outfitting Etihad for the long-haul market. The recently created Abu Dhabi Airports Company is to spend $6.8 billion on airport expansion. Along with the Gulf Aircraft Maintenance Company , well established in aircraft maintenance and repair, the emirate has a number of aviation support facilities in the pipeline. Air France Industries is to open a logistics center that will handle Airbus and Boeing parts distribution, while Lufthansa is teaming with Amiri Flight to launch a VIP Maintenance center.

Etihad has taken possession of its first three-zone A330-200 craft, bringing to 14 the number of new aircraft the carrier added to its fleet in 2006. The A330-200s form part of Etihad 's luxury Diamond Zone offering that includes flights to important European destinations such as London and Frankfurt. The airline hopes to boost passenger capacity by 150 percent, from 1.2 million in 2005 to 3 million by the end of 2006, with equally strong growth in cargo.

Regional airlines also face stiff competition from international operators that are expanding fleets and flights. The US's United Airlines recently launched its routes to Kuwait and the US's Delta is to fly to Dubai again. "The UAE aviation sector is becoming one of the most competitive in the region, given the remarkable expansion of Emirates and Etihad fleets," said Willie Walsh, the chief executive officer of BA. Competition is coming from other quarters as well. Cathay Pacific is bolstering its Asian routes to guard against further encroachment by Emirates and other Middle East carriers.

Meanwhile, the third large carrier, Gulf Air , is faring poorly. The company is expecting to make a loss for the second straight year despite its campaign to raise passenger numbers. Sheikh Ahmed bin Mohammed Al Khalifa, the finance minister of Bahrain and the chairman of Bahrain Properties Holding Company, recently held a meeting on the airline's performance with Darwish bin Ismael, the secretary general of the Omani finance ministry, and Mohammed bin Sakhr Al Amir, the under secretary of the Omani aviation ministry, among others. Al Khalifa said the governments of Bahrain and Oman had assured the airline it would get all necessary financial assistance to keep it in the air.

By Ehtesham Shahid

© Arabies Trends 2007