Observer article on how Middle Eastern airlines and airports compete with Europe

In an interesting article in the Observer, Gwyn Topham explores the current competition between Middle Eastern airlines (Emirates, Etihad) from the United Arab Emirates and Qatar, (with Dubai, Abu Dhabi and Doha airports), and Heathrow and European hub airports. They sit at the crossroads from Europe to the east and between Africa and Asia, which are young and vibrant markets, and have lots of money and no capacity constraints. Intriguingly, Heathrow boss Colin Matthews – who now counts Qatar’s sovereign wealth fund as a major shareholder with a 20% stake and has Al-Baker on his board – has started to make a virtue of the growth of the Gulf hubs, as well as Istanbul. He twice suggested that projections of growing passenger demand in the UK might have to be downplayed.  Can the vast oil wells in the desert successfully nurture not just one but three burgeoning aviation hubs, two within an hour’s drive of each other? With growing demand from India and China, perhaps they can. 



Emirates’ concourse for A380s is another staging post on new Silk Road

While the debate rages about airport expansion in Europe, the ambitious Gulf hubs are growing fast – and look set to become the global interchanges of the future  

By Gwyn Topham 


Emirates' new terminal at Dubai airport

The new concourse at Dubai international airport, designed to accommodate Airbus A380s. Photograph: Ali Haider/EPA

Multiplying lanes, stretching runways and new terminals in the sands may not be everyone’s idea of making the desert bloom. But in Abu Dhabi, where the aviation industry has grown up almost as spectacularly as the skyscrapers on the shoreline, the sheikhs who bankrolled the towering investment do not doubt that the fruits will come.

While London’s great and good grapple with the question of airport expansion, the world beyond is changing, as those running Britain’s biggest airport and airline know all too well – frequently expressing their frustration that rivals are “eating our lunch” and leapfrogging them to aviation’s top spot.

The announcements last week that Etihad Airways – based in Abu Dhabi – was splurging $70m (£47m) to secure three Heathrow slots, (from India’s Jet Air  – link) while British Airways saw its profits wiped out and its parent company, IAG, record a near-€1bn (£863m) loss, will not have made them much happier.

“In aviation,” says Jos Nuihuis, the boss of Amsterdam’s Schiphol airport, mischievously enjoying his role as the current chief beneficiary of Heathrow’s inability to build another runway, “you have to take the chance when it’s your turn.”

While the northern hemisphere and transatlantic traffic draws the money, Europe’s five hubs can do battle. But the political geography is changing and the crossroads of the world look ever more likely to be located in the Middle East.

Developments at the three expanding hubs in Qatar [main city is Doha] and the United Arab Emirates [main cities Dubai and Abu Dhabi] underline that shift. The UAE’s biggest airline, Emirates, last month completed the opening of an entire 20-gate concourse at its Dubai airport base purely for its fleet of giant A380s, Airbus’s flagship aircraft which typically carry 500-plus passengers.

Etihad – which was established less than a decade ago – announced that passenger numbers had passed 10 million a year and it was turning increasing profits, as plans to double the airport capacity take shape.

And in Qatar, the $15.5bn Hamad International airport [in Doha – map] opens next month with a 4,850m runway fit for fleets of A380s to take off in the desert heat.

The ambition is immense, as is the speed and scale of the growth to date. Qatar’s airport will be able to handle 28 million passengers a year on opening, but chief executive Akbar al-Baker is planning extensions for 50 million by 2020, when the state hosts the football World Cup.

In the gleaming new headquarters of Etihad Airways in Abu Dhabi, the airline’s chief executive, James Hogan, spells out a vision of being a “truly global airline”. Staff drawn from 125 countries come through the training facility on site, the graduating class photos spreading along the walls showing a multinational mix in each intake.

With 70 planes, Etihad is the smallest of the Gulf airlines, and all three have orders that will more than double their existing fleets. “With aircraft technology you can fly to all points in the world from the Gulf,” Hogan says. “We fly to 86 cities and connect well [at] Abu Dhabi, and Abu Dhabi itself as a destination is becoming more relevant.”

For many British passengers, long-haul to the south and east of the globe has meant going on the classic Kangaroo route to Australia via Asia. But the longer range of modern aircraft and the rise of the Gulf hubs has set a new course for the Gulf and south east Asia.

Etihad’s investment in, and partnership with, Virgin Australia is one way that the journey now bypasses Singapore and Heathrow too. More notably, at the end of this month Emirates will take over from the ousted British Airways in a partnership with Australian flag carrier Qantas.

Qantas’s UK general manager, Eric Jelinek, said it was an “amicable divorce” from Heathrow’s largest carrier: “BA understands our reasons and that things have changed.”

He doesn’t extend the metaphor, but has the air of a man whose airline has found a younger, richer, more glamorous partner, really going places and unsullied by previous trysts. This is Emirates’ first alliance, and Qantas is clearly overjoyed to have been chosen. For its Australian passengers flying via Heathrow, it offered five European destinations, with two stops. Now it can sell 33 with just the one stop. Qantas has since reported a surge in ticket sales from Australia to Europe.

The Gulf hubs are undoubtedly well-placed to update some long-established routes. As Hogan, a native Australian, puts it: “It’s the new Silk Road.” But, he adds: “What people forget is that India, Pakistan, Bangladesh are huge populations. And even in the Middle East: at a point, post-Arab spring, when the Middle East normalises, Iraq and Iran have huge numbers of young people who want to travel.

“If you think within three hours’ flying time we have India – for them this is a weekend destination, a short break destination, an educational or medical care destination.

“You want sun, beaches, restaurants, shopping, it’s here all year round. The Gulf states, the subcontinent and the Middle East all see Abu Dhabi as a destination in its own right, as well as all the through traffic.”

If Dubai’s tourist industry and hotel scene is well-established, Abu Dhabi has plans to make a different type of tourist sit up, with a new Louvre, Guggenheim and national museum in fantastical designs from the world’s leading architects on a newly linked island on the city’s edge.

Such breathtaking, vaulting ambition typifies the Gulf but also leads many observers to question if these are Ozymandian dreams, unsustainable follies in the sand. Can the vast oil wells in the desert successfully nurture not just one but three burgeoning aviation hubs, two within an hour’s drive of each other?

John Strickland, an independent aviation consultant, believes so: “Probably they can. If you look at where they’re sitting and the aircraft they’re operating, they can serve pretty much anywhere in the world. None of them are having any difficulty filling their planes.”

Andrew Lobbenberg, an analyst at HSBC, predicts: “They will grow very seriously and gain status as major global aviation hubs. They sit at the crossroads from Europe to the east and between Africa and Asia, which are young and vibrant markets.” But the backing of their governments has, he says, been the driver that has capitalised on that geographical logic.

Strickland points out that, while the political aspirations of the various emirates mean that all want their own flag carrier and hub, and are backing aviation to the hilt, all three airlines are believed to be heading for profitability (although the accounts are not all transparent). “You’re not talking about carriers which are bleeding as businesses or in terms of the profits.”

Etihad’s own strategy of investing in partner airlines is questioned by some analysts – “when you see them buying parts of Air Seychelles or Air Berlin you do wonder what they’re doing,” says one – but the depth of the airline’s pockets is emphasised by moves to take a major stake in Indian airline Jet to secure its three Heathrow slots.

“Remember that the European flag carriers are retreating,” Hogan says. “You’re not going to see them operating into Tripoli, Basra, Baghdad.” Not to mention other destinations closer to home: “We fly into Manchester. BA isn’t flying out of Manchester.”

This, says Strickland, shows where Gulf airlines can directly compete with Heathrow right now. “While we’re agonising about runways in the south-east, they have no capacity constraint and can offer a very attractive proposition to travellers in the UK. If you’re in Manchester or Newcastle you can bypass London altogether.”

Intriguingly, Heathrow boss Colin Matthews – who now counts Qatar’s sovereign wealth fund as a major shareholder with a 20% stake and has Al-Baker on his board – has started to make a virtue of the growth of the Gulf hubs, as well as Istanbul. He twice suggested at a business event last week that projections of growing passenger demand in the UK might have to be downplayed as aviation’s focus shifts, meaning that a third runway, rather than a new four-runway facility outside London, might be sufficient for future needs.

Scant consolation, perhaps, for a struggling European aviation industry that could do without the competition – and unfair competition with subsidised fuel, some have complained, although Hogan says it is “a myth” that he has access to free kerosene or money.

Strickland, though, suggests that the future is one where the Gulf players become ever more prominent, but also more integrated – and those that embrace them will do best. “Capacity constraints here are going to help their growth, and some of the markets are ones that Europe cannot access. Traffic flows such as China to Africa or even Asia to Latin America are going to be the great growth of the 21st century.”

Instead, European long-haul airlines might, Strickland suggests, have to emulate a Ryanair-style model on a global basis. Passengers now are used to taking an Irish plane from Stockholm to Madrid. That possible evolution might mean BA flying passengers from Latin America to China via a future BA base – in Dubai.

Meanwhile, Europe’s aviation industry has to get used to the fact that the Gulf money it has seen splashed again last week has radically tilted aviation’s playing field, even more than the sponsorship of Man City and Paris St Germain has skewed football. Even the analyst who questions Etihad’s investment strategy, likening it to the ill-fated SwissAir that was dragged under by partner airlines, points to an essential difference: “Switzerland has got a lot of chocolate. And the UAE has got a lot of oil.”



Veterans of the airline conference circuit are familiar with the sight of Gulf airline executives getting irritated when their western rivals make offhand allegations about their “subsidised” financial performance. Claims of state-underwritten fuel budgets and landing fees may goad senior figures at Emirates, Etihad and Qatar Airways, but they can at least flaunt robust annual figures in response. It is a boast that few European or American rivals can repeat, with the entire industry achieving a profit margin of little more than 1%.

For 2011-12, Emirates reported net profit of 1.5bn dirhams (£272m), from 5.38bn dirhams the previous year, still strong for the industry. In 2012, Etihad trebled its net profit to an admittedly modest $42m (£30m), but that compares with a near-€1bn (£863m) loss at International Airlines Group. Qatar, however, made a “very small loss” in 2011-12, according to its chief executive, because of high fuel costs.

Nonetheless, some see the Gulf airlines as having a permanent cost advantage with none of the capacity constraints faced by the likes of BA. As a consequence, a European airline merging with a Gulf player, even being taken over by one, is a possibility over the next decade. Etihad has taken tentative steps, acquiring stakes in Ireland’s Aer Lingus, Virgin Australia and Air Berlin, but a full-blown deal is restricted by EU regulations, which currently limit foreign ownership of EU airlines to 49%



Etihad Buys Jet Air’s Three Heathrow Slots


27.2.2013 (Wall Street Journal)

MUMBAI– Etihad Airways, which is in talks to acquire a stake in Jet Airways (India) Ltd., has bought the Indian carrier’s three pairs of landing and departure slots at London’s Heathrow airport for $70 million.

The transaction, and expectations that the two companies are close to announcing a deal on Jet’s stake, drove the Indian carrier’s shares up more than 19% to close at 534.85 rupees on the Bombay Stock Exchange, where the benchmark index rose 0.7%.

The agreement for the landing and departure slots was signed Tuesday, Etihad said in a statement Wednesday. Jet will continue to use the slots on lease, the Abu Dhabi-based company said.

Takeoff and landing slots at Heathrow, the busiest airport in the world, are a highly prized commodity and sell for millions of dollars as the airport is running at full capacity.

Etihad said its talks to make an investment in Jet are progressing. A Jet spokesman declined to comment.

A deal to sell a stake to Etihad will give Jet much needed funds to expand operations and retire part of its debt, as well as an access to Etihad’s global network. Etihad will get a bigger chunk of the Indian air passenger market.

While the talks are continuing, the transaction for the Heathrow slots will give Jet some immediate cash.

Officials at India’s aviation ministry had said that Jet was looking to sell a 24% stake to Etihad for $300 million.

But recent media reports said the deal was stuck as Etihad wanted more representatives on Jet’s board than the Indian airline was willing to offer. Following these reports, Jet’s shares fell 17% in seven sessions through Tuesday.

“The Heathrow deal is a positive development and highlights the close relationship between the two airlines,” said Amber Dubey, an analyst at KPMG.

He expects the stake deal to also go through.

India last September allowed foreign airlines to buy up to 49% stakes in Indian carriers. Local rules don’t allow foreign airlines to take management control of local carriers.

The move was aimed at helping India’s aviation industry which has been hit by high fuel prices and interest rates, and stiff competition. National carrier Air India hasn’t posted a profit since 2007 while Kingfisher Airlines Ltd., hit by a cash crunch, grounded operations since Oct. 1.

Another company interested in India’s aviation market is AirAsia Bhd.The Malaysian carrier last week said it approached the Indian government to set up a budget airline along with the Tata Group and another Indian investor.