Gulf airlines expansion is the new silk road, and the future

Multiplying lanes, stretching runways and new terminals in the sands may not be everyone’s idea of making the desert bloom. But in Abu Dhabi, where the aviation industry has grown up almost as spectacularly as the skyscrapers on the shoreline, the sheikhs who bankrolled the towering investment do not doubt that the fruits will come.

While London’s great and good grapple with the question of airport expansion, the world beyond is changing, as those running Britain’s biggest airport and airline know all too well – frequently expressing their frustration that rivals are “eating our lunch” and leapfrogging them to aviation’s top spot.

The announcements last week that Etihad Airways – based in Abu Dhabi – was splurging $70m (£47m) to secure three Heathrow slots, while British Airways saw its profits wiped out and its parent company, IAG, record a near-€1bn (£863m) loss, will not have made them much happier.

“In aviation,” says Jos Nuihuis, the boss of Amsterdam’s Schiphol airport, mischievously enjoying his role as the current chief beneficiary of Heathrow’s inability to build another runway, “you have to take the chance when it’s your turn.”

While the northern hemisphere and transatlantic traffic draws the money, Europe’s five hubs can do battle. But the political geography is changing and the crossroads of the world look ever more likely to be located in the Middle East.

Developments at the three expanding hubs in Qatar and the United Arab Emirates underline that shift. The UAE’s biggest airline, Emirates, last month completed the opening of an entire 20-gate concourse at its Dubai airport base purely for its fleet of giant A380s, Airbus’s flagship aircraft which typically carry 500-plus passengers. Etihad – which was established less than a decade ago – announced that passenger numbers had passed 10 million a year and it was turning increasing profits, as plans to double the airport capacity take shape. And in Qatar, the $15.5bn Hamad International airport opens next month with a 4,850m runway fit for fleets of A380s to take off in the desert heat.

The ambition is immense, as is the speed and scale of the growth to date. Qatar’s airport will be able to handle 28 million passengers a year on opening, but chief executive Akbar al-Baker is planning extensions for 50 million by 2020, when the state hosts the football World Cup.

In the gleaming new headquarters of Etihad Airways in Abu Dhabi, the airline’s chief executive, James Hogan, spells out a vision of being a “truly global airline”. Staff drawn from 125 countries come through the training facility on site, the graduating class photos spreading along the walls showing a multinational mix in each intake.

With 70 planes, Etihad is the smallest of the Gulf airlines, and all three have orders that will more than double their existing fleets. “With aircraft technology you can fly to all points in the world from the Gulf,” Hogan says. “We fly to 86 cities and connect well [at] Abu Dhabi, and Abu Dhabi itself as a destination is becoming more relevant.”

For many British passengers, long-haul to the south and east of the globe has meant going on the classic Kangaroo route to Australia via Asia. But the longer range of modern aircraft and the rise of the Gulf hubs has set a new course for the Gulf and south east Asia. Etihad’s investment in, and partnership with, Virgin Australia is one way that the journey now bypasses Singapore and Heathrow too. More notably, at the end of this month Emirates will take over from the ousted British Airways in a partnership with Australian flag carrier Qantas.

Qantas’s UK general manager, Eric Jelinek, said it was an “amicable divorce” from Heathrow’s largest carrier: “BA understands our reasons and that things have changed.”

He doesn’t extend the metaphor, but has the air of a man whose airline has found a younger, richer, more glamorous partner, really going places and unsullied by previous trysts. This is Emirates’ first alliance, and Qantas is clearly overjoyed to have been chosen. For its Australian passengers flying via Heathrow, it offered five European destinations, with two stops. Now it can sell 33 with just the one stop. Qantas has since reported a surge in ticket sales from Australia to Europe.

The Gulf hubs are undoubtedly well-placed to update some long-established routes. As Hogan, a native Australian, puts it: “It’s the new Silk Road.” But, he adds: “What people forget is that India, Pakistan, Bangladesh are huge populations. And even in the Middle East: at a point, post-Arab spring, when the Middle East normalises, Iraq and Iran have huge numbers of young people who want to travel.

“If you think within three hours’ flying time we have India – for them this is a weekend destination, a short break destination, an educational or medical care destination.

“You want sun, beaches, restaurants, shopping, it’s here all year round. The Gulf states, the subcontinent and the Middle East all see Abu Dhabi as a destination in its own right, as well as all the through traffic.”

If Dubai’s tourist industry and hotel scene is well-established, Abu Dhabi has plans to make a different type of tourist sit up, with a new Louvre, Guggenheim and national museum in fantastical designs from the world’s leading architects on a newly linked island on the city’s edge.

Such breathtaking, vaulting ambition typifies the Gulf but also leads many observers to question if these are Ozymandian dreams, unsustainable follies in the sand. Can the vast oil wells in the desert successfully nurture not just one but three burgeoning aviation hubs, two within an hour’s drive of each other?

John Strickland, an independent aviation consultant, believes so: “Probably they can. If you look at where they’re sitting and the aircraft they’re operating, they can serve pretty much anywhere in the world. None of them are having any difficulty filling their planes.”

Andrew Lobbenberg, an analyst at HSBC, predicts: “They will grow very seriously and gain status as major global aviation hubs. They sit at the crossroads from Europe to the east and between Africa and Asia, which are young and vibrant markets.” But the backing of their governments has, he says, been the driver that has capitalised on that geographical logic.

Strickland points out that, while the political aspirations of the various emirates mean that all want their own flag carrier and hub, and are backing aviation to the hilt, all three airlines are believed to be heading for profitability (although the accounts are not all transparent). “You’re not talking about carriers which are bleeding as businesses or in terms of the profits.”

Etihad’s own strategy of investing in partner airlines is questioned by some analysts – “when you see them buying parts of Air Seychelles or Air Berlin you do wonder what they’re doing,” says one – but the depth of the airline’s pockets is emphasised by moves to take a major stake in Indian airline Jet to secure its three Heathrow slots.

“Remember that the European flag carriers are retreating,” Hogan says. “You’re not going to see them operating into Tripoli, Basra, Baghdad.” Not to mention other destinations closer to home: “We fly into Manchester. BA isn’t flying out of Manchester.”

This, says Strickland, shows where Gulf airlines can directly compete with Heathrow right now. “While we’re agonising about runways in the south-east, they have no capacity constraint and can offer a very attractive proposition to travellers in the UK. If you’re in Manchester or Newcastle you can bypass London altogether.”

Intriguingly, Heathrow boss Colin Matthews – who now counts Qatar’s sovereign wealth fund as a major shareholder with a 20% stake and has Al-Baker on his board – has started to make a virtue of the growth of the Gulf hubs, as well as Istanbul. He twice suggested at a business event last week that projections of growing passenger demand in the UK might have to be downplayed as aviation’s focus shifts, meaning that a third runway, rather than a new four-runway facility outside London, might be sufficient for future needs.

Scant consolation, perhaps, for a struggling European aviation industry that could do without the competition – and unfair competition with subsidised fuel, some have complained, although Hogan says it is “a myth” that he has access to free kerosene or money.

Strickland, though, suggests that the future is one where the Gulf players become ever more prominent, but also more integrated – and those that embrace them will do best. “Capacity constraints here are going to help their growth, and some of the markets are ones that Europe cannot access. Traffic flows such as China to Africa or even Asia to Latin America are going to be the great growth of the 21st century.”

Instead, European long-haul airlines might, Strickland suggests, have to emulate a Ryanair-style model on a global basis. Passengers now are used to taking an Irish plane from Stockholm to Madrid. That possible evolution might mean BA flying passengers from Latin America to China via a future BA base – in Dubai.

Meanwhile, Europe’s aviation industry has to get used to the fact that the Gulf money it has seen splashed again last week has radically tilted aviation’s playing field, even more than the sponsorship of Man City and Paris St Germain has skewed football. Even the analyst who questions Etihad’s investment strategy, likening it to the ill-fated SwissAir that was dragged under by partner airlines, points to an essential difference: “Switzerland has got a lot of chocolate. And the UAE has got a lot of oil.”

This article originally appeared on guardian.co.uk