Gulf airlines turn up the heat on old world carriers
By Kevin Done
Financial Times; Jul 26, 2004

The order placed last week by Etihad Airways for 24 long-haul aircraft, including four Airbus A380 super-jumbos, caused many jaws to drop at the Farnborough Airshow.

The aviation industry has become accustomed to unlikely mega-orders out of the Gulf , but the usual source has been Dubai-based Emirates and occasionally Qatar Airways. But Etihad was one of the least-known names among world airlines until last week.

Suddenly the challenge posed by the Gulf region to the established world aviation hierarchy has taken on fresh impetus, fuelled by the income flowing from the oil and gas sector.

The pace of development at Emirates itself was already astonishing rival airlines.

It currently has 100 wide-bodied aircraft on order from Airbus and Boeing including 45 A380s, accounting alone for a third of the total orderbook for Airbus's 555-passenger behemoth.

But Emirates has been in business since 1985. Compared with Etihad's stated intentions, its progress has been positively snail-paced. The carrier from Abu Dhabi is oblivious to any notions of learning to walk before it tries to run.

It has come out of the blocks at a startling sprint for a race to build a leading world airline from scratch, along with a new aviation hub on the shores of the Gulf, only some 60 miles from Dubai to the east and little more than double that distance from Doha, to the west - home of fast-growing Qatar Airways, another early A380 customer.

All three states - Dubai, Qatar and now Abu Dhabi - are seeking to use the aviation sector as a key driver for developing infrastructure, tourism and their economies for a future era when they can no longer rely so heavily - in particular in the case of Dubai - on oil and gas incomes.

They are seeking to create new aviation and commercial hubs between Europe, Asia and Africa, having been inspired by the success in previous decades of the island state of Singapore in its development as a leading aviation hub.

Last week Tim Clark, the president of Emirates, said: "If you look at the Middle East it is placed at the middle of a market with four billion people: China, India, south-east Asia, the Russian Federation, Europe. The Middle East is plumb in the centre - look at the size of the markets."

For travellers between Europe and Asia-Pacific or Africa and Asia-Pacific, the Gulf carriers are suddenly offering new choice.

Dubai has set the pace. There is in excess of $35bn (£19bn) of expenditure by both public and private sectors under way on improving infrastructure.

It is investing $4.5bn on expanding Dubai airport, on top of the $1.5bn already spent, increasing its capacity from 20m to 70m-80m passengers by 2008.

The rapid growth of the state-owned Middle East carriers is creating unease among some competing international airlines - most notably Qantas of Australia and Air France - which have been alarmed at the surge in capacity and what they claim is the uneven playing field created by state support. For its part, Emirates insists it is "financially self-sustained and unprotected", but its rivals refuse to believe that it does not receive substantial state backing, even while they give grudging respect to its operational performance and service standards.

Geoff Dixon, the chief executive of Qantas, says that government ownership becomes a problem "when airlines have the normal commercial disciplines removed or when they become vehicles to satisfy governments' strategic, rather than commercial aspirations".

James Hogan, chief executive of Bahrain-based Gulf Air, which is also under threat from the growth of the newer Gulf carriers, also admits the problem.

He has become concerned about new regulations announced by the European Commission on third country airline subsidies and unfair pricing. "All of a sudden airlines that the Commission believes are subject to state aid or that make unfair pricing decisions face investigation and punishment. We should pay more heed to what the EC is saying. And we should see the EC as only a harbinger of more to come."

Certainly the origins of the three younger Gulf airlines are beyond dispute.

Etihad was born in July last year, created by a UAE government decree signed by Sheikh Khalifa bin Zayed, Crown Prince of Abu Dhabi and deputy supreme commander of the UAE armed forces. The government will drive its development.

Etihad only started flying last November. It plans to be operating 50 aircraft to 65 destinations by the end of 2009. Abu Dhabi is also embarking on its own big investment programme to develop its airport as an international hub. Sheikh Ahmed Bin Saif al Nahyan, chairman of Etihad Airways, says: "If you think the last eight months have been busy for us, this is nothing compared to what the coming months and years have in store. Just watch this space."


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