Mideast airlines reach for the sky

Arab sheikdoms eager for higher international profiles are ratcheting up their aviation race despite the global economic slump.

Qatar Airways 88 248 (photo credit: )
Qatar Airways 88 248
(photo credit: )
Arab sheikdoms eager for higher international profiles are ratcheting up their aviation race despite the global economic slump. On Monday, the city-state Dubai plans to launch its second government-run airline - the third major carrier this decade to spring from the United Arab Emirates, a country of less than a million citizens. The new low-cost airline will cater to budget travelers in a region better known for opulence than bargains. Unlike their counterparts elsewhere, other Persian Gulf airlines vow to stick to plane delivery schedules, as their deep-pocketed patrons push ahead with ambitious airport expansions. The head of one Gulf carrier has even hinted at another headline-grabbing order at the upcoming Paris Air Show. The climb to the skies reflects the Gulf nations' drive to re-brand themselves as more than just oil-rich monarchies. Qatar, for example, is morphing into a research hub because of its natural-gas wealth, while Abu Dhabi aims to become a cultural capital on the back of its petrodollars. But concerns are growing - particularly now that the global economic downturn has undermined demand for long-haul and premium air travel. Some analysts wonder if the region's airlines are stuffing their fleets too quickly with too many planes, much like Dubai's overzealous developers raced to build luxury apartment blocks that now largely stand empty. "Absent continuing growth in construction and services, you really don't need all those seats," said Bob Mann, an independent airline consultant. "It's the rate of capacity growth that's the question." The rapid expansion is redrawing the world's air routes: It is now easier to fly from Houston to Dubai or the Qatari capital Doha than to Rome or Beijing. Gulf carriers, which typically boast more generous in-flight services than Western competitors, enjoy increased business even as traffic falls most everywhere else. The International Air Transport Association said demand in the region grew 11.2 percent in April, extending a rare winning streak. Still, the trade group expects Middle Eastern carriers to lose a combined $900 million this year as traffic gains are overshadowed by even larger increases in capacity. In effect, the region is gaining market share but flying emptier planes. "In the short term, that's a bit of a mismatch," Mann said. The pace of expansion has been phenomenal, both for the airlines and their suppliers. Gulf oil money has added tens of billions to Boeing Co.'s and Airbus's order books, helping to preserve thousands of US and European jobs for years. Among the carriers, Dubai's Emirates, the market leader, has grown in under 25 years from a humble short-hop airline into one of the world's biggest international passenger and cargo haulers. It now operates more than 130 planes flying to six continents, carrying more passengers abroad than any US carrier except American Airlines. New planes arrive on average every three to four weeks, among them some of the 58 double-decker Airbus A380s Emirates has ordered - the most booked by any airline anywhere. The carrier uses its hometown Dubai, which has little oil of its own, as a global hub linking east with west and north with south - much like Chicago's rail yards and airports turned that city into a US transport mecca. Emirates recently posted what it said was its 21st straight year of profits - although the earnings were 71% lower than a year earlier. A second Dubai airport, slated to eventually become the world's busiest, is due to receive its first flights next year - even as expansion at the original airport moves ahead. The success has bred competition, with multiple carriers now flying similar routes in the tense airspace around Iran and Iraq. The overlap may help drive down prices, but also leads to unnecessary duplication, analysts say. Tiny Qatar is quickly scaling up its national carrier, Qatar Airways, which flies to more than 80 cities. It is also building a new airport on reclaimed land along the crystal blue Gulf. "Who told you it is a tough market for us?" Qatar Airways' head, Akbar al-Baker, recently said after outlining plans for at least half a dozen new routes in the coming months. He said the company plans to make "further announcements" at the Paris Air Show in June, suggesting it could add to plans for more than 200 planes worth over $40 billion in the coming years. In Emirates' own backyard, the neighboring sheikdom of Abu Dhabi is pumping its vast oil wealth into Etihad Airways - which it pointedly dubs the seven-state federation's "national airline." The six-year-old carrier made waves last year with an order for at least 100 planes. It recently announced a $70m. revamp of its first-class cabins. Sheikh Ahmed bin Saeed Al Maktoum, Emirates' chairman and chief executive, said he sees little reason to worry about having so many well-funded rivals based a quick drive or shuttle flight away. "The competition will always be there, in good times and bad times," he said in a recent interview.