Gulf carriers compete for world dominance

WHILE Gulf carriers Emirates Airlines, Etihad Airways and Qatar Airways have become daunting competitors to other airlines across the globe, they are themselves competing with each other for world dominance.

All three airlines have been up there in the charts as world’s best in one category or another, garnering awards mainly for premium travel. A recent announcement by Etihad of its decision to no longer participate in Skytrax surveys – allegedly over disagreement on the rating system – has come as a surprise. Yet it may be a sign of there being one too many that points to a meaningless pursuit in a class deemed to be without real competition, and which can only lead to embittered rivalry. In the last Skytrax survey (2013), Etihad was the world’s “best first class”, “best first class seats” and “best first class catering”. But in the “best airline” category, it was placed seventh, far behind Emirates and Qatar which were ranked first and second respectively.

Is there even competition for Etihad’s new Residence suites? (see Extreme luxury: What price prestige? Jun 25, 2014) The race is on: Emirates has said it would introduce a similar product, and it is unlikely that Qatar will want to be left behind.

Interestingly, apart from spending big to acquire the best of equipment and pushing the limits on creature comforts, all three airlines seem to be pursuing different strategies for market dominance.

Courtesy Airbus

Courtesy Airbus


Emirates Airlines

Emirates is replicating the Singapore Airlines (SIA) story of the ‘70s and ‘80s, growing organically with giant strides as it expands its network. Last year it carried 44.5 million passengers to more than 133 cities in six continents. The number far exceeded Etihad’s 12 million passengers to more than 90 destinations and Qatar’s 18 million passengers to over 125 destinations. There are no indications of a likely change in course as Emirates continues to add new destinations in its expansion. Unlike Qatar, which has since joined OneWorld, and unlike Etihad, which has been on a binge to acquire equity in foreign carriers, Emirates remains very much a loner in the game, relying on its own strength and reputation for growth – again, quite reminiscent of the younger SIA.

But unlike SIA, which is a leading member of Star Alliance, Emirates does not believe in alliances. Echoing the sentiments of Virgin Atlantic chief Richard Branson, Emirates senior vice-president of commercial operations worldwide Richard Vaughan said in 2010: “We don’t believe in alliances. We intend to stay as an independent airline.” He believed that alliances reduce the airline’s ability to react swiftly changes in the market place and that they actually reduce competition and lead to higher fares. So true it is that when a passenger books a ticket with an alliance member airline, there is no guarantee that the passenger will be flying with the airline of choice. Under the circumstances, Emirates would have felt its product compromised.

Emirates’ stance has not changed. It has held out impressively during the economic crisis that saw many airlines scrambling to cut back services and subsequently entering into extensive commercial agreements with partner airlines. While Emirates maintains its independence, it has entered into code share agreements – a common industry practice – with a small number of airlines that include All Nippon Airways, Cathay Pacific and Air New Zealand. Its extensive non-equity partnership with Qantas made headline news in 2012, but it was a deal seen as impacting the Australian carrier more than Emirates. The Gulf carrier continues to steer clear of mergers and acquisitions although there was speculation of its interest in acquiring an ailing Indian carrier as India relaxes its rules on foreign ownership. The question remains as to whether Emirates can continue to buck the trend.

Courtesy Etihad Airways

Courtesy Etihad Airways


Etihad Airways

Etihad on the other hand has been acquiring stakes in foreign carriers besides a list of code-share partnerships that include Air France, American Airlines, All Nippon Airways and Cyprus Airways. The cash rich Gulf carrier partially owns Air Berlin (29.21%), Air Seychelles (40%), Aer Lingus (2.987%), Virgin Australia (10%), Jet Airways (24% – to be formalized), Jat Airways which has been renamed Air Serbia (49%), Darwin Airline which has been renamed Etihad Regional (33.3%) and Alitalia (49%). Some of those airlines have been shrouded in financial problems, such as Jet Airways of India and Italy’s flag carrier Alitalia which is already partially owned by Air France-KLM. In the case of Virgin Australia, Etihad also shared ownership with two other foreign carriers – SIA and Air New Zealand.

While code-share partners do little more than allowing airlines to sell seats on each other flights, equity alliances play a more forceful role for partner airlines to feed traffic into each other and provide seamless transfers in an extended network. For the ailing airline, Etihad is the white knight. For Etihad, it proffers the opportunity for growth via a third party. Alitalia, which is reeling in debts of about 800m euros (US$1.1bn), is looking to further injection of capital by Etihad to not only save it from the brinks of bankruptcy but also growth from then on. Italy’s transport minister Maurizio Lupi was elated by the deal. He said: “It’s increasingly clear that this marriage should happen because it’s obvious to all that we are dealing with a strong industrial investment that will offer our airline concrete growth prospects.” Someday Air France-KLM might wish it had enough gumption and money to raise its stake of 25% which has as a consequence dwindled to 7%. But Air France-KLM chief executive Alexandre de Juniac said Alitalia was not a priority at the moment. Still, Mr de Juniac viewed Etihad’s investment “with favor”, adding that the doors to KLM-Air France raising its stake were not closed.

Courtesy Qatar Airways

Courtesy Qatar Airways


Qatar Airways

Qatar is the only airline among the three Gulf carriers that has joined a global alliance, in its case OneWorld, whose members include Qantas, British Airways, American Airlines, Cathay Pacific and Japan Airlines. At its induction in 2013, Qatar chief executive Akbar Al Bakar said: “Alliances are playing an increasingly important role in the airline industry today – and that will continue long into the future. Becoming a member of OneWorld… will strengthen our competitive offering and give our customers what they fully deserve – more choice across a truly global network served together with airline partners.”

That is the ideal scenario, but in reality airline relationships are more complex than that. Without downplaying the benefits of global alliances such as wider network connections, shared facilities (Qantas/British Airways/Cathay Pacific premium lounge at Los Angeles Airport) and a dedicated terminal to enhance coordination (London Heathrow’s terminal 2 for Star Alliance members), member airlines have also entered into bilateral agreements across alliances. It is not uncommon to find rival airline connected in some way through a third party. Perhaps, in this context, lies the reason why Emirates and Etihad have so far not been convinced of the need to join any of the global alliances.

Whatever the strategy adopted by the Gulf carriers as they compete for world dominance, they have become daunting forces in the global market. Lufthansa’s new man at the helm Carsten Spohr has identified the competition posed by Gulf carriers as a major concern in Europe. In Asia, SIA is facing increased pressure from Gulf carriers tapping into its traditional market for traffic between Europe and Asia-Pacific and on the kangaroo route. While they have the means and resources to cut a product above the competition, it is their increased popularity that worry more their rivals, which will be relieved to see the Gulf carriers shifting their energies to outdoing each other instead, for the time being, in pushing the limits for the best Residential suites in the sky.

This article was first published in Aspire Aviation.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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