The record-breaking haul in new orders at this week’s Dubai Air Show is great news for Boeing (BA) and Airbus (EAD:FP)—but it’s likely to rekindle complaints among U.S. and European airlines that are being eclipsed by fast-growing Middle Eastern carriers.
Emirates, Etihad, and Qatar, the region’s top three airlines, ordered hundreds of jets worth more than $150 billion as the Dubai show opened on Nov. 17. They need more planes: Passenger traffic at Persian Gulf airports is growing 10 percent annually, about twice the rate at airports worldwide. “The Gulf airlines are growing as fast as any airlines in history,” the Sydney-based CAPA Centre for Aviation says in its annual review of the industry.
Even worse for the likes of Delta Air Lines (DAL), United Airlines (UAL), and European flag carriers such as Lufthansa (LHA:GR) and Air France (AF:FP), the Gulf airlines are attracting highly profitable business travel on intercontinental routes. Emirates already flies to more than 30 European cities and says it plans to serve 15 U.S. cities within the next five years, up from seven cities currently.
Some U.S. and European carriers are crying foul. “Essentially, these are not airlines—they’re governments,” Delta Chief Executive Richard Anderson told the Wall Street Journal last month. Anderson contends the Gulf airlines are subsidized by their government owners. “They have the ability to gain advantages in markets because profitability doesn’t matter.” Carriers such as Emirates deny receiving subsidies.
Are the critics right? Analysts who’ve tracked the rise of the Gulf airlines say their success isn’t based on government aid. “There’s very little merit” to the subsidy allegations, says analyst John Strickland of JLS Consulting in Britain. The Gulf carriers “are offering things that customers are willing to pay for,” including brand-new aircraft and convenient connections to fast-growing markets.
For example, Gulf carriers have introduced flights linking China to several African countries where Chinese have invested heavily. “An American carrier or a European carrier would not have done that,” Strickland says.
What’s more, says Will Horton of the CAPA Centre for Aviation, many of the planes ordered in Dubai were to replace older models that Gulf carriers plan to retire. “The growth from Gulf carriers is not about redirecting passengers from other carriers,” he says.
Horton says that U.S. and European airlines would do well to follow the example of British Airways (IAG:LN), Qantas (QAN:AU), and American Airlines, which are forging stronger links with Gulf carriers. BA has just welcomed Qatar into its Oneworld alliance, Qantas has a new marketing deal with Emirates, and American earlier this year announced a codeshare agreement with Etihad. Says Horton: “If you can’t beat ‘em, you should join ‘em.”