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Al Bawaba Ltd.

Qatar Airways launched its inaugural long-haul Boeing 787 Dreamliner service to London in December. Almost simultaneously, rival Gulf carrier Emirates announced that it would solely use the giant Airbus A380 ‘superjumbo’ on its services between Dubai and London. The two decisions capped the airlines’ rapid emergence as major players in the airline business. Together with neighbouring Etihad Airlines, the three carriers are redrawing the global aviation landscape; yet, the struggles of Bahrain’s Gulf Air and Kuwait Airways suggest that all is not well across the Gulf.

Etihad, Qatar Airways and Emirates have been among the largest single purchasers of the state-of-the-art new aircraft from US-based Boeing and Europe’s Airbus. Etihad made waves in 2008 when it announced the largest aircraft order in commercial aviation history, and is awaiting delivery of 41 Dreamliners, while holding options for a further 25. Qatar Airways has taken delivery of the first two of 60 Dreamliners that the airline is planning to introduce in the coming years, while Emirates is expanding the use of the A380 across its burgeoning long-haul fleet.

The results are striking. The Boeing orders have propelled the United Arab Emirates into the State of Washington’s third-largest trading partner, and Emirates launched a daily non-stop service from Dubai to Seattle in March 2012. This illustrates how the Gulf carriers are positioning themselves as ‘global super-connectors’ capable of linking any two points in the world with a stop-over in the Gulf. Enormous new airports are under construction in Doha and Abu Dhabi to meet the demanding requirements of the new generation of long-range aircraft, while Dubai’s Al Maktoum International Airport will eventually become the largest in the world when it becomes fully operational by 2020.

Although it remains to be seen whether three such global airlines can be sustained in such a concentrated area, the Qatari and Emirati carriers are fundamentally reshaping the contours of the international airline industry. Once again, recent developments have highlighted and reinforced this shift. In September 2012, Australia’s Qantas announced that it was ending its long partnership with British Airways in favour of a ten-year alliance with Emirates. The agreement will see Dubai replace Singapore as the transit hub for all flights between Australia and Qantas’ European destinations, including the lucrative ‘Kangaroo route’ to London. Shortly thereafter, Qatar Airways surprised observers by declaring that it is to join the oneworld alliance in 2013, the first Gulf airline to do so.

The three big Gulf airlines benefit from numerous advantages compared with their older and more established competitors. They are not saddled with ‘legacy agreements’ that constrain productivity or hamper growth. Nor do they operate from outdated infrastructure that has failed to keep pace with the accelerating developments in the aviation industry. This has enabled them to buck the general loss-making trend, as Etihad registered its first-ever profit in 2011 while Emirates’ annual net income looks set to equate to more than half of the profits expected from all North American carriers combined in 2012.

However, it is not all good news. The two oldest and most venerable airlines in the Gulf are Kuwait Airways and Gulf Air. Both date back to the 1950s and were the pioneers of regional aviation, yet now are teetering on the brink. Kuwait Airways has been the subject of repeated privatisation attempts, yet it does not represent an attractive investment option given its over-saturated workforce, low productivity, and chronic safety problems. Gulf Air has gradually retreated from being a regional airline as Qatar, Oman, and the UAE all pulled out to establish their own airlines, and now faces the latest in a series of restructuring initiatives in its latest guise as Bahrain’s national carrier.

In this, as in broader aspects of policy-making in the Gulf Co-operation Council (GCC), a two-tier Gulf is emerging, split between dynamic growth in Qatar and the UAE and more sluggish developments elsewhere. Yet, the era of breakneck expansion cannot be maintained indefinitely, and factors such as the bleak world economic outlook are injecting a note of caution into the equation. There is also the potential problem of future over-capacity resulting from three super-airlines and mega-airports operating in such narrow confines.

This needs to be carefully managed to avoid white elephants further down the road.

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