Is an industry, aviation has always attracted the wealthy.Tycoons rarely resist the chance to have their own airline, as Howard Hughes, Aristotle Onassis or Richard Branson are enough to prove, whilst virtually every country in the world proudly flies a national flag carrier, even if it makes a loss in doing so.
Little surprise, then, to observe the billions of dollars being poured by Gulf states into the expansion of airline sand airports. Thanks largely to this investment, the MiddleEast is now easily the fastest growing region in the world in terms of air traffic, which in 2006 rose by 16% compared to a global average of 5.1%.
But aren’t there just too many fish swimming in too small a pond? Despite the small size of the domestic market in theGulf, there are now at least eight airlines operating fromKuwait, the UAE, Bahrain, Qatar and Oman alone, with more set to arrive.
Older players like Emirates continue to expand, marketing themselves ever more aggressively in new markets like the US or the far East. Meanwhile, the original stakeholders ofGulf Air—the governments of Abu Dhabi, Bahrain, Qatar andOman—have gradually pulled out of the partnership to create new airlines.
Abu Dhabi launched its own carrier, Etihad, in 2005, whilstDoha has spent extravagantly on expanding Qatar Airways in the past few years. Low-cost carriers have also entered the market, and with great success. After its launch in 2003,Sharjah-based Air Arabia chalked up a $27.5 million profit in 2006 and offered a $700 million IPO last month. Jazeera Airways, a privately-owned Kuwaiti airline which began flying no-frills flights in 2005, already goes to 20destinations and says it also wants to list stocks.
Even more new airlines are on the way, including a fourthUAE carrier, the delayed RAK Airways, which will operate from the northern emirate of Ras al-Khaimah. Across the border, meanwhile, Saudi Arabia has said it will issue licenses for two low-cost domestic carriers in theKingdom.
On the surface of it, the preponderance of upstarts in such a tiny geographical area would seem to be nothing but an ego-trip, a publicity stunt designed to get names on the map and planes around the world. Yet whilst an element of that might be hard to deny, this lavish expense on aviation forms part of a longer-term, and fairly sensible, economic strategy for many of these countries.
Thus far, the growth of all these airlines can be attributed to a number of contributory factors. Most important is the wider economic boom in the region: the massive influx of immigrants to the Gulf, whether middle-managers from Europe or legions of construction workers from the subcontinent, has filled hundreds of thousands of plane seats, whilst long-haul tourism is developing quickly in places like Dubai and Oman.
Second, most airlines rely heavily on the so-called hub and spoke model for their business, bringing passengers in from a large number of cities around the world, connecting the mat the airport and then flying them out to their final destination. In some cases, like Qatar and Abu Dhabi, these kind of transit passengers make up more than 70% of total traffic.
With that in mind, it helps greatly that the Gulf lies between large centers of population with underdeveloped international airlines, namely Iran, the Indian subcontinent and Africa, as well as being a natural halfway point betweenEurope and the Far East.
The airlines can also benefit from airport investments whose size and cost seem to make no commercial sense. Over $40billion is earmarked for airports in the Gulf over the next10 years, with Dubai building what will be the largest airport in the world and Abu Dhabi, Qatar, Oman and Kuwait all spending combined billions on new infrastructure to support aviation growth.
Lastly, many suspect that these airlines are given an unfair leg-up from their government patrons. Some European carrier shave queried whether the Gulf airlines receive hidden subsidies, have access to cheap rates of borrowing or benefit from a privileged position at their hub airports—which are also owned by the state.
Whatever the case, though, this is missing the point. Even if they’re doing well now, these airlines don’t really need to make money in the short-term. Qatar Airways, for instance, doesn’t even expect to turn over a profit until2012. Instead, they should be seen as elements of a wider investment plan—which includes tourism, ports, media and finance—to sustain Gulf economies once the oil and gas dry up.
Many argue that everything epitomized by the Gulf boom is built on hydrocarbons and hyperbole. That may be true. But for now, there is more than enough money being spent to ensure that by the time economic growth slows down, the new arrivals become fewer and energy resources dwindle, these carriers will have been able to establish a global marketshare that will both sustain their businesses and, more importantly, keep bringing people into and through theGulf.
Perhaps not all of them will manage to be successful in the long-term, but there is at least some justification—apart from national pride—for so many apparently nonsensical airlines in such a small area.
ALEX WARREN is a freelance journalist based in Dubai
