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Gulf Airlines face new European challenge
Published in Daily News Egypt on 25 - 10 - 2010

The Gulf's airlines, which over the last decade conquered the world's skies with armadas of long-haul jets serviced by glitzy airports, face a new challenge to their business from their European rivals, even as they move to double their capacity.
Led by Emirates, Qatar and Etihad Airways, Gulf carriers have $200 billion of new jets on order for delivery over the next 10 years, a buying spree that will more than double the number of seats they can offer fliers. The Gulf's carriers are the biggest customers for the next generation of super-long-haul carriers, the Airbus A380, a double-decker behemoth that carries up to 850 people over distances of 15,000 km.
“We're heading for a big bloodletting,” Philip Butterworth-Hayes, lead consultant at the UK-based aviation consultancy PMI Media, told The Media Line. “This growth rate is sustainable for the moment, but the big legacy carriers in Europe are starting to forge more effective alliances.”
Backed by oil-rich governments and fortuitous geography, Gulf carriers offer fliers a compelling package of low fares and the best connections between Europe and the emerging economies of Asia via some of the world's biggest and most modern airports. European and US airlines – known in the industry as “legacy” carriers in contrast to start-up, discount airlines – have struggled to meet the competition.
Middle Eastern and North African airlines today account for about 11 percent of all global airline traffic, up from 5 percent a decade ago, according to the International Air Transport Association (IATA), whose members include 230 of the world's airlines. Dubai International Airport recently surpassed New York's John F. Kennedy for total capacity, and that, before it opens a fourth terminal in 2012.
Across the Middle East, eight new runways are being developed amid $100 billion in airport expansion programs, the IATA estimates.
European airlines are still constrained by factors such as environmental regulations, which make the process of expanding the continent's crowded airports a long and expensive process, Butterworth-Hayes said. But the Europeans have started to regroup, forming alliances that should overcome the shortage of airport space and enable them to offer more frequent flights.
Meanwhile, the continent's carriers are pushing the European Union to provide antitrust immunity for services to Asia like they have on trans-Atlantic and trans-Pacific services. European carriers such as Deutsche Lufthansa and Air France-KLM have rallied against Middle East rivals, alleging they receive unfair subsidies. The Emiratis and others deny the charge.
Like their peers around the world, the Middle East's airlines were hit badly by the global recession, losing $600 million in 2009, Giovanni Bisignani, the IATA's director-general, told a conference in Cairo this week. This year, he forecast, they will earn a collective $400 million as the carriers' expand more slowly than demand, enabling them to fill their planes.
But already, next year, overexpansion will resume, with the number of new seats on the region's airlines expected to outstrip growth in passengers, a trend that will increase costs and weigh on profits. “2010 is as good as it gets in this cycle,” Bisignani told the conference. “The hard work of running airlines continues.”
Gulf airlines developed a winning strategy by flying from secondary cities like Manchester in England or Barcelona in Spain, routing passengers through Gulf airports and sending them on to high-demand destinations like Beijing and Mumbai. A business executive travelling from Madrid or London can typically fly for less on Emirates or Etihad and make better connections than on a traditional European carrier.
Butterworth-Hayes said he doesn't think it likely that renewed competition endangers any of the Gulf carriers for now, but they will face a tougher environment for their ambitious growth plans.
Bisignani said Middle East airlines could help their business prospects by market-opening measures. Morocco and Jordan have concluded Open Skies agreements with Europe, and Tunisia is weighing a similar accord, a trend that could lead to the emergence of low-cost carriers and more fliers.
Nor have the region's airline fully tapped the potential for regional business because efforts to build their regional, short-haul routes have been hampered by regulatory restrictions. The 2004 Damascus Convention was supposed to remedy that, but the number of governments to ratify the pact has so far been “disappointing,” Bisignani said.
Opening more airspace to commercial airlines would help the region's airlines, too. Right now, some 60 percent of Gulf airspace is restricted principally to military use, which limits airspace capacity and flexibility, and forces airlines to operate inefficient routes. “Military airspace is a big obstacle,” Bisignani said.


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