Large purchases of planes by middle eastern airlines heralds change in Heathrow-type hub model
Date added: November 26, 2013
Emirates ordered 150 Boeing 777Xs at the 5-day Dubai air show, worth about $76bn [£46bn]. In total Emirates bought $99 billion-worth, and the total value of orders for planes bought was over $200bn – much by middle east airlines, like Qatar Airways and Etihad of Abu Dhabi. The middle east airlines are redrawing the global aviation map, enabling Gulf carriers to move traffic from hubs like Heathrow, Frankfurt and Singapore. They will be doing more long haul routes in future, not merely medium haul, and competing more with established long haul European airlines like BA, Lufthansa and Air France. An aviation analyst said the hub-spoke model, where long-haul passengers transfer to a short flight to reach their destination, would come under increasing threat. Hub traffic (the Heathrow model) with one long-haul and one short-haul flight is incredibly wasteful. Two medium-haul flights into a hub is more efficient. A 16-hour flight broken up into two 8-hour flights is quite efficient- more so than a huge plane carrying enough fuel for a very long flight. That suits a middle eastern hub airport. . Tweet
Gulf potentates lavish $200bn on new airliners in a battle for the skies
Emirates ordered a large number of planes this month at the 5-day Dubai air show. They will order 150 Boeing 777Xs and another 50 purchase rights – worth about $76bn [£46bn]. The middle eastern airlines are planning for 10 years ahead. The star of the Dubai Airshow was Boeing’s new 777X, a twin-engine jet which can carry 350 – 400 passengers, which with 259 orders and commitments, has become the largest product launch in commercial aircraft history. It is designed for hot climates, where take-off is harder in the thinner air. An aviation analyst said the hub-spoke model, where long-haul passengers transfer to a short flight to reach their destination, would come under increasing threat. “Hub traffic with one long-haul and one short-haul flight is incredibly wasteful. Two medium-haul flights into a hub is more efficient.”
“Dubai will overtake Heathrow as the world’s busiest international airport by 2015. It is a well-conceived hub airport with a home carrier, Emirates, tapping into the air travel needs of key growth economies. When the current airport is full, Emirates will move seamlessly to the new Dubai World Central Airport. No 20-year wait, no fragmented split hub operation.
“Even in Europe there is spare capacity at rival hubs, not least Amsterdam. Having worked for the Dutch carrier KLM (half of Air France-KLM), I know what an effective job it does in tempting traffic from the UK market.”
British airports under threat from rise of Gulf hubs, says Etihad boss
Heathrow especially in danger of losing status as global conduit of air traffic warns airline’s CEO, James Hogan
Lack of long-term planning will damage British aviation as the Gulf hubs grow and passengers bypass Heathrow for long-haul trips, the boss of one of the world’s fastest-growing airlines has warned.
James Hogan, chief executive of Etihad, the Abu Dhabi flag carrier, said decisions about allocating fleets and routes for the next 30 years are being taken now and airlines were unsure about Britain’s position in their plans. The expansion of Heathrow, while officially ruled out by current government policy, has been thrown back on the agenda by industry lobbying.
Hogan said he would like greater access to Heathrow but that the airport was “maxed out” and his airline was not interested in off peak slots that would not command traffic. “London plc needs a competitive gateway – and a long-term decision needs to be taken about where that is. As we plan our gateway 30 years out, London needs to do the same.”
He said a new airport meant building “infrastructure, schools, housing”, adding: “When cities make decisions about an airport the infrastructure moves towards it – but that doesn’t happen overnight.” Hogan said most people outside London would bypass Heathrow if they could use a local airport and “would rather do one [airport] scanner than two”.
He also affirmed his airline “was in Manchester for the long haul”. The European call centre for Etihad is now in Manchester. Two flights daily operate to Abu Dhabi, while its bigger, more established Gulf rival, Emirates, runs three daily flights to its hub in Dubai. Qatar Airways also runs daily services from Manchester to the third major, growing Gulf hub of Doha. Hogan said the constraints on British aviation would give the Gulf the competitive edge.
Etihad was formed in 2003 but started to expand rapidly from 2006 when Hogan was appointed to the top job with a mandate to buy aircraft and grow the business. In 2008 he placed a $43bn (£27.3bn) order for up to 205 aircraft and he expects to have 160 in operation by 2017. A new runway and terminal has since been constructed at Abu Dhabi airport, along with offices and accommodation for thousands of expat employees.
Etihad’s name has become familiar to millions as the name of Manchester City’s stadium. It has sponsored the Premier League champions since 2009 and Hogan claimed the deal was “on strict commercial terms, although we were very lucky to get the terms” and was struck independently of the fact that the team is bankrolled by one of the Abu Dhabi plutocrats, Sheikh Mansour. He said he “treats the City CEO exactly as I do the CEO of Harlequins”, the rugby club Etihad also sponsors, although he confessed to having no idea of the latter’s name.
He insisted that the Abu Dhabi gazillions did not give Etihad a licence to lose money. “I don’t get free fuel or sovereign guarantees when I raise debt with the banks – it’s all on the strength of our business.”
Hogan said it was premature to describe the Gulf as a world centre for aviation, although he said its position at the crossroads of global air traffic and particularly the proximity to the relatively untapped Indian market would give its airlines and hubs huge opportunity. He warned: “This is a long-term game and the challenge to the European hubs is growing.”
In the meantime the Gulf hubs are trying to assert their position at the expense of longstanding south-east Asian stops on the “kangaroo route” – a development that could spell further bad news for British airlines. Reports suggest that the long-standing partnership between British Airways and Qantas may be at risk as the Australian carrier looks to switch its international focus to the Gulf, via a tie-up with Emirates. Qantas, which has been losing money rapidly on its international flights, has also faced increased competition due to Etihad’s own tie-up with Virgin Australia.
What’s driving the world’s leading international hubs?
The list of leading international airports is a highly dynamic one, reflecting the broad shifts occurring in the global economy.
AIRPORTS THRIVE ON INTERNATIONAL PASSENGERS. They make more valuable contribution to an airport’s overall revenue than domestic passengers, helping to drive airport retailing and a range of related services. Not surprisingly, airports aggressively court airlines to add new or expanded international services. Crucially for suppliers and investors, the list of leading international airports, is a highly dynamic one, reflecting the broad shifts occurring in the global economy. And equally, the trends in international airport growth faithfully track the evolution of the global industry.
London Heathrow is by far the world’s leading international airport, topping 60 million passengers last year. The gap to second-placed paris CDG is, however, closing as its hub role grow. In 2001, Paris CDG handled 43.8 million passengers – or around 80% of Heathrow’s 53.8 million. By 2009, Paris had accelerated to 53 million international passengers – or 87% of Heathrow’s 60.6 million. The gap is expected to continue to close this decade, as Heathrow’s capacity remains capped, while plans for a third runway have stalled.
In contrast, Paris and rising star Dubai have great flexibility to grow capacity and position for bigger slice of the global international aviation market.
Dubai has soared 20 places up the world ranking since 2001, when it handled just 12.4 million international passengers. Handling an astonishing 40.1 million in 2009 [and 57.7 million in 2012], Dubai is set set to leapfrog Amsterdam this year and challenges Frankfurt and Hong Kong as the word’s third busiest international hub in 2011. The Emirates growth story is a large part of Dubai ‘s ascent, but the Middle East hub is increasingly attracting new airline and it now has one of the most diverse airline customer lists of airports worldwide (with around 105 in total – only Paris, Frankfurt and Rome Fiumicino have more), a solid endorsement of the value of the UAE’s open skeis regime.
But outstripping even Dubai since 2001 has been the spectacular growth of the smaller Doha. Fuelled by Qatar Airways’ aggressive expansion, Doha’ s international traffic has risen 376% from 2.8 million in 2001 to 13.1 million last year. Growth of around 15-20% in 2010 is likely.
Istanbul Ataturk is another new entrant to the world’s busiest international airports club, surging into 20th place with 18.4 million international passengers – more than doubling from the 8.8 million passengers handled in 2001. Also in Turkey, reflecting the rapid expansion of flag carrier Turkish Airlines, is Antalya Airport, which handled 15.2 million international passengers last year, up 76.1% from 2001.
The Asia Pacific region generates much of the movement on the international leader board. Beijing Capital leapt into 33rd place with growth of 133% since 2001 to 14.1 million passengers. Beijing, with its massive domestic market, is now the world’s third busiest airport (in terms of total throughput, behind Atlanta and Heathrow) and will climb into the World’ s Top 30 internationally this year on the back of China’s strong economic growth. Air China, China Southern and Hainan Airlines continue to expand their international networks from Beijing. Foreign carriers are also adding capacity to meet rising demand.
Kuala Lumpur was another star performer in Asia, almost exclusively as a result of AirAsia’s remarkable growth last decade. The Malaysian low-cost carrier has catapulted the national gateway into 19th place on the world hub rankings, as 19.4 million international passengers passed through last year. AirAsia has focused its expansion on Southeast Asia, but is increasingly adding India and destinations in North Asia to its suite. AirAsia X will drive long-haul expansion to Australia/New Zealand, the Middle East, Europe and North America in coming years. Kuala Lumpur could easily reach the 30-million international passenger club by the end of this decade, taking it inside the world’s Top 10.
South Korea’s Incheon International Airport has also soared up the rankings from 23rd position in 2001 to 12th in 2009, as international passengers doubled to 28.1 million last year. Further growth up the rankings is possible in the near term (potentially leapfrogging Gatwick, Bangkok, Narita and Madrid this year or next), particularly if Japan and China liberalise aviation access to Korean carriers and LCCs gather some momentum in the sleepy North Asian triangle, as appears likely.
Tokyo Narita has so far maintained its position as the eighth-ranked international hub, growing its throughput by a creditable 38.9% between 2001 and 2009. Its position is, however, threatened by JAL’s bankruptcy and the addition of a fourth runway at Haneda Airport from late Oct-2010 and Haneda’ s expansion of long-haul services. But Narita is striking back with plans to grow its domestic network. A cross-flow of traffic from long-haul international to short-haul/domestic services is vital for most prosperous major hubs.
Singapore remains in 7th place (having overtaken Gatwick but been surpassed by Dubai), while Bangkok has slipped one place since 2001 to 10th last year (passed by Madrid).
The traditional European international hubs witnessed only moderate growth last decade and have been overtaken by several fast-charging Asian and Middle East airports. International traffic at Brussels and Manchester declined 1.2% and 14.3%, respectively since 2001, though both are making spirited comebacks as they focus on emerging markets, such as the Middle East, and – in Brussel’s case in particular – the LCC market.
London Gatwick’s largely point-to-point throughput was virtually static last year compared with 2001, while Copenhagen, Zurich, Stockholm and Palma de Mallorca have all experienced growth of less than 10% over the same period. Amsterdam and Frankfurt expanded by around 11%, while Dusseldorf grew 15%.
But some Southern Europe hubs have prospered, particularly those with exposure to emerging markets and/or LCCs. Madrid climbed into the Top 10, handling 29.1 million international passengers last year, driven by strong demand to/from Latin America and North Africa. A key reason for British Airways’ merger with Iberia is the pursuit of a growth engine – and looking to Southern Europe is a sound strategy. Unlike Heathrow, Madrid has plenty of room for expansion.
Rome’s international traffic has surged 61.5% since 2001, despite Alitalia’s turmoil. Paris Orly and London Stansted – favoured by LCCs – have seen a similar surge in traffic, while Spain’s Barcelona has also grown by greater than 60%.
The eastern and western fringes of Europe are also attractive. Dublin and Vienna have grown by 47% and 55%, respectively, though the downturn in 2008/09 has affected these airports, particularly Dublin. Not surprisingly, Aer Lingus and Austrian Airlines attracted takeover interest, from Ryanair (unsuccessfully) and Lufthansa (successfully), respectively. Munich Airport is the exception to the Northern Europe trend, growing 54.2% under the influence of Lufthansa’s strategy to build up its hub there.
Just four North American airports make the global Top 30, although none is in the Top 10. New York JFK is the busiest international airport on the continent, though it slipped two places to 14th in the global rankings, despite growth of 32% since 2001.
Toronto and Miami have experienced slow growth, of 12.1% and 4.7% respectively, since 2001. In Toronto’s case, this reflects the protective aviation policy pursued by Canada in recent years. Los Angeles’ international traffic has actually contracted by 5.3% over the same period, despite its seemingly favourable geographic positioning closer to burgeoning Asia Pacific gateways. Its congested and outdated infrastructure and the unfriendly impact of US visa restrictions makes transfer difficult. This creates further challenges, as new technology aircraft, such as the B787, raises the competitiveness of rival airports across the US for non-stop services to growth markets in Asia and elsewhere.
Miami has also failed to capitalise on Latin America’s boom, with other Florida-area airports gaining ground. Traditional trans-Atlantic leisure markets have been affected by the global economic downturn and domestic US LCCs have largely eschewed the famous Florida gateway.
There is no single formula for success in climbing the ranks of the world’s leading international hubs, as the examples above have demonstrated. But common themes include an aggressively expanding flag carrier, exposure to the LCC sector and airports located in regions of high economic growth, such as Asia. Undoubtedly, the preferred characteristics converge at Heathrow, with its geographical and end-to-end traffic advantages – but the missing factor there, as the UK government shoots itself in the foot economically – is capacity.
The shape of the Global Top 30 in 2020 will be very different again. CAPA expects greater representation of Asia Pacific/Middle East hubs in the upper echelons by that time. Dubai will overtake Heathrow at some point late in the decade and more European airports, especially those in the slower growing central part of the continent, will be squeezed out of the leading group – unless they can effectively court the European LCC segment and Middle East entrants.
CAPA expects airports on the fringes of Europe to do well as they tap neighbouring emerging markets. Some Latin American hubs will also take the place of their North American counterparts in the world’s leading international hubs as that region’s economy continues to develop.