Emirates non-stop to anywhere

Source: The Australian

October1 is an important date in the history of global aviation. It will be the first time a carrier has simultaneously linked all the continents (North and South America, Europe, Africa and the Asia Pacific) with non-stop service from one hub.

The milestone is part of the dawning of the “Next Generation” era in global aviation, where Middle Eastern carriers will play an increasingly significant role.

Emirates received the first of 10 ultra-long-range B777-200LRs this month and will deploy the aircraft from Dubai to the Brazilian city of Sao Paulo from October 1, representing the first non-stop route between the Middle East and South America and achieving the “non-stop to all continents” dream.

Non-stop services to Houston and Toronto will be added shortly, as part of a big push by Emirates into North America.

Increases in capacity to its Indian network are also planned, as well as higher frequencies to Nairobi and Johannesburg. Emirates is also eyeing new routes in South Africa, China and South America and is preparing to operate to more Asian destinations within the next six months.

By November, Australian airports should know where Emirates plans to expand after being granted rights to boost its services from 49 per week to 84 by 2011.

Many observers view with disbelief the growth plans not only of Emirates (whose current order book would make it the biggest airline in the world within a decade), but also recent entrants like Etihad and Qatar Airways, already with massive aircraft orders.

There is also a concern at the billions of dollars that are being poured into new, neighbouring, airport developments in a seemingly unrealistic expansion surge.

These concerns are most probably unfounded.

The region’s relevance to global aviation far outweighs any of the usual market determinants for aviation importance (the most important of which has been population size).

This mould-breaking model derives from its increasingly valuable geographic situation. The Gulf’s geographic value has been enhanced enormously in the past five years by two main factors: aviation liberalisation, which allows intermediate ports to become valuable crossroad hubs; and the introduction of long-haul aircraft, permitting non-stop service to and from almost any point in the world.

In other words, the Middle East – and the Gulf in particular – has now become the only place where a traveller can, with a single stop, travel between any other two points in the world.

At best, this makes the potential market for Gulf carriers theoretically infinite.

At worst, the potential is vastly greater than any supposed historical precedent.

Once liberalisation and new aircraft deliveries permit, this evolution is magnified.

That such tiny states are even able to contemplate such development is amazing; some have been helped, initially, by the value of their oil reserves.

But there is clearly much more to the equation than that. The implementation of such a remarkable vision as Dubai’s, for example, does not come easily.

Regarding Dubai’s growth, the detractors well outnumbered the believers throughout most of the 1990s, but most have since been silenced (although they may continue to say that the “bubble” must burst sooner or later).

Nonetheless, despite the Dubai precedent, many believe that there is little prospect for success where two major airports – and a major intercontinental airline based at each of them – are within an hour’s drive, at Dubai and Abu Dhabi.

That is not to mention nearby Qatar, along with Sharjah, Bahrain, Oman and others.

Then there is the as-yet unexploited potential for hubs at large origin and destination markets like Jeddah, Amman and Cairo.

The overlapping “catchment areas” of these airports and their home airlines appear to suggest that some or all are headed for disastrous overcapacity.

While that may be cause for concern in a traditional environment, this view overlooks some very important features.

Most important, the catchment areas of these airports are not in their neighbours’ patch.

Certainly, each has upside in in-bound tourism (and Dubai is already a genuine major destination in its own right), as well as harbouring short-haul, point-to-point intra-regional expansion.

But as observed above, in a “Next-Gen” aviation environment, their main catchments are potentially the entire world. And as liberalisation spreads, the scope for expansion is restricted less now by air rights than by availability of sufficient aircraft.

Where aircraft can fly non-stop to any point on the globe, and where the great bulk of the traffic flowing through those airports is long-haul sixth-freedom, the relevance of local airport proximity evaporates quickly.

As a one-stop gateway – between, for example, Europe and southern Asia and the Pacific (which in turn can also one-stop to the US east coast); Europe and Africa; eastern Europe and South America; north Asia and (resource-rich) Africa and South America – the upside is substantial.

Add to that the impending intra-regional expansion as aviation liberalisation and emancipation of the young and affluent spreads through, along with genuine inbound tourism (Dubai’s inbound tourism last year was 50 per cent higher than India’s), and traditional forecasting techniques do not accommodate that sort of phenomenon.

In the right circumstances – and the fundamentals are falling into place for this – the Gulf airports and their airlines actually can work in a complementary way. In this respect, they are competitors with each other in much the same way as they are with conventional competition from third and fourth-freedom airlines in the origin and destination nations they serve.

There will clearly be competition between the neighbours. But the outlook is much more complex, and equally potentially productive, than that. It is not difficult, for example, to contemplate a complementary airport scenario.

The synergies between airports and between airlines will emerge gradually, as external limits allow them to. As these and other major players like Qatar Airways expand (perhaps accompanied by some metamorphosed older airlines of other countries) and as long-haul aircraft become the dominant intercontinental vehicle, so the airports of the Gulf have the opportunity to fashion an entirely new concept in global hub operation.

In the meantime, there will inevitably be some overlap and phases of excess capacity. In more traditional aviation times, this would have been financially punitive. However, as the key new operational and regulatory ingredients are added, the availability of additional consumer-friendly capacity is likely to catalyse that process of change, fuelling a virtuous circle of expansion.