Up and away

TEN years ago, as he announced record orders of $19 billion of aircraft from Boeing and Airbus for the Emirates airline at the Paris Air Show, the ruler of Dubai told the world that the aviation industry was about to change. Last weekend’s Dubai Air Show revealed how true that prediction was: the big three Persian Gulf carriers (Emirates and the smaller Etihad and Qatar Airlines) ordered more than 320 long-haul planes worth hundreds of billions of dollars.

Most notable was Emirates's order for 150 of the 777X, the latest version of Boeing’s best-selling long-haul plane, in a deal worth $76 billion. The aircraft maker also landed orders for another 75 of the 777X from Etihad and Qatar, taking the total to $130 billion. No other model in the category of twin-engine planes ever had a faster launch. Airbus trailed in total orders, but secured an unexpected boost with sales of 50 more of its super-jumbo A380 planes to Emirates and 50 of its long-haul A350s to Etihad, the Abu Dhabi airline.

Deals like these cement the position of the Gulf Big Three as the leading force in global aviation, leaving the European and American flag carriers far behind. Emirates is already the biggest customer for the A380, for Boeing’s current 777 champion and now for the new version. The Gulf carriers also dominate purchases of the new Airbus A350.

Emirates operates out of two giant airports outside Dubai City. It already has a fleet of 200 wide-body aircraft and runs services to Europe, Asia, the Americas and Africa. Its has boosted its image in Europe by sponsoring football teams such as Arsenal, Paris St Germain and AC Milan. In its latest financial year it netted a profit margin of 4% on sales of $21 billion—which makes it twice as profitable as most network carriers.

The home hubs of Emirates and its smaller Gulf rivals are ideally located between Europe, the Americas and the growing markets in Asia. Few passengers visit the Gulf (although Dubai is still furiously building artificial ski slopes, duty-free malls and posh artificial islands for millionaire’s mansions to lure tourists). But long-haul aircraft that fly for up to 18 hours can reach any big airport in the world from Dubai, Abu Dhabi or Doha. Using the latest mini-jumbos such as the 777X and the A350, along with the double-deck A380, brings down costs per seat-mile. And using a hub system makes it easier to fill such big aircraft.

Struggling European rivals, such as Lufthansa, regularly complain that the Gulf carriers are bankrolled by their governments. That may be true of Etihad and Qatar—but not of Emirates. It began in the mid-1980s with only $10m capital from the government and has since generated much of its capital from retained profits. However, it does benefit from being in a low-tax, low-wage economy where a supportive government lays on any infrastructure needed to support the airline. Dubai has long passed the point where it could live off its small oil and gas fields: travel, tourism and trade are now at the heart of its economy.

Such industrial policy aside, the real secret of the Gulf Big Three’s success lies elsewhere: in the open-sky deals that the United Arab Emirates signed with countries happy to allow in its airline startups. Used to competition, Emirates, Etihad and Qatar were ready when America, Europe and others started liberalising their air space ten years ago. Yet the beneficiaries have not just been the new Gulf carriers, but travellers. They can now fly more cheaply to anywhere in the world, provided they are happy to break the journey in Dubai, Abu Dhabi or Doha. 

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