Gulf’s biggest airlines hit you with the wind in the face

They have been in the aviation in the 21st century success story. Over the years, Emirates, Etihad Airways and Qatar Airways – the “Middle East three” or ME3 seemed unstoppable.

The airline became a point of reference for the quality and the service, while its global reach has earned a nickname: the “super-connectors”.

However, the winds are strengthening.

The Dubai Airshow, which begins on Sunday, which promises to be a bigger and better showcase for all things aviation, space and defense the last meeting in 2015.

But the largest region of the three airlines, economic, political and competitive backdrop is very different to that of two years ago.

The fall in oil prices have affected revenues and trade in the region. The security concerns over terrorism, in particular in the united states, have led to cuts in airline routes.

Also it has been a long diplomatic and trade impasse between Saudi Arabia and its allies on the one hand, and Qatar on the other.

And the years of rapid growth has led to concern about the excess capacity, which comes just as the competition from lower-cost providers of services – both long and short term, has intensified.’Under pressure’

The impact on the profits of the airlines in the region are highlighted in a report by the International Air Transport Association (IATA), the industry trade group.

It expects Middle East carriers posted a collective $ 400 million of benefit this year, down from $1.1 million in 2016.

During the first six months of 2017, in the conditions of negotiation “fell sharply” and “some business models have come under pressure”, IATA says.

“The region is struggling with increased infrastructure levies/fees and air traffic congestion,” he adds.

To make things worse, the once-growing cargo operations have also taken a hit.

Reuters

Emirates woes illustrate the problems.

In May, the region’s largest operator, posted its first year of profit decline for five years. Profits plunged 82 per cent to Dh1.3 billion ($340 million), after the airline’s president Sir Tim Clark said it was one of the company “the most difficult years to date.”

Emirates reported much better news, the Thursday, when he said that half-year net profit more than doubled to Dh1.7. It was a result of cuts in capacity and the rate of change of the dollar of benefits.

But the trade remains difficult. IATA says that in September Middle East operators saw their slowest rate of monthly growth international for eight years, with a demand of up to only 3.7%.

Economist David Oxley said services from the Middle East to America are clearly suffering despite the elevation of the cabin of the ban on large portable devices.

The Middle East-US “is the only international market have not grown in annual terms, during the first eight months of the year,” he says.

The situation in Abu Dhabi-based Etihad is even worse.

Says analyst Seth Kaplan, managing partner of the Aviation Weekly: “Emirates is struggling with relationship to their own history, but it is to keep your head above water. But Etihad is clearly in a lot of trouble.”

Etihad posted a $1.9 billion loss last year, which includes an $800 metres of the reduction in the value of its investments in other airlines.

The airline has spent hundreds of millions of dollars in buying stakes in other airlines, including Virgin Australia, Air Serbia and Jet Airways. One of the reasons was to help to feed more traffic through Abu Dhabi hub.

But the strategy is in the process of revision, a movement that landed in front of the door of Europe this summer: Alitalia and Air Berlin declared bankruptcy after Etihad decided not to invest more in the fight of the airlines.Cooperation

Lower-cost operators, such as India’s Indigo, Singapore-based Scoot, and the rapid growth of Norwegian Air are chipping away at their larger rivals.

Norway was recently offering Amsterdam-Dubai prices in more than half the price of Emirates.

The companies in the Gulf helped to bring back some luxury to air travel. But some of the fastest growth is now among the low-cost airlines, long-term market.

This month, Emirates has deepened its partnership with Flydubai which was first announced in July. There will be some coordination of schedules, marketing and reciprocal frequent flyer benefits.

But much larger it may be in the cards. Last month, Emirates Mr. Clark said that he was open to cooperation with Etihad.

A merger, or alliance, would reduce the capacity and costs significantly, given its proximity. But it would be fraught with political obstacles, not only commercial, Mr Kaplan says.

Even a limited agreement on, say, the articulation of the purchase or maintenance would be complicated, as both parties have sought to negotiate common standards, shared work, and the protection of its huge airport bases.

A lot depends on the future prices of oil and the generation of income for governments, says Mr. Kaplan. “The more prices rise, the less is the likelihood of an agreement.”

In the “cooperation” with Emirates, Etihad said only that it would consider all the possibilities that could make commercial sense.

Dubai Airshow
The trade-only has been a regular feature since 1989, when the 20 aircraft and 200 exhibitors took part
This week’s event is expected to attract 72,000 trade visitors, 1,200 exhibitors, more than 160 aircraft and 1,350 representatives of the media
The 2013 event recorded the highest count of orders for commercial aircraft of any airshow – $206bn
Russia and China, eager to exert its influence in the Middle East will have a large presence, with both showing fighter planes
The space sector will have a prominent role during the week, as the United Arab Emirates has a mission-to-Mars program

Of the big three of the Gulf carries, Qatar Airways had been holding up relatively well. The net profit for the year rose 22% to 1.97 million (£400m) riyals Qatari.

The airline has also made more shrewd investments of Etihad, raising their participation in British Airways-owner IAG to 20% and buy 10% of the South American Latam Airlines.

But that was before the united arab EMIRATES, Saudi Arabia, Egypt and Bahrain imposed an embargo on the state of Qatar in the month of June, accusing it of sponsoring terrorism, which it vehemently denies.

The blockade has piled on huge additional costs to the national airline, not least because of the need to return to the path of the flights. In September, Doha was forced to inject $38bn into the economy to cushion the crash impact.

The ME3 mounting problems as well as some of their fiercest rivals, providers of the USA, to see signs of recovery.

The u.s. airlines have long complained that ME3’s success has been bolstered by state subsidies that violate the Open Skies agreement that gave Gulf carriers access to the united states. They argue that the ME3 has collectively received $42bn in grants since the year 2004.

A trade of the row seemed unlikely – even Donald Trump was elected president, that is. Now resonates more with your “America First” view of the world.

The ME3 deny receiving unfair help. In addition, they point out, was US Chapter 11 bankruptcy protection that helped the major u.s. companies to restructure after years of losses.

It is possible that life for the ME3 going to get worse before they get better. But in the long term will remain a significant advantage.

With two-thirds of humanity about an eight-hour flight from the Gulf, will continue to be a fuel efficient, efficient place from which to fly.

And the region’s desire to build a tourism industry and diversify oil-dependency will continue to underpin domestic airlines.

Add to that, the lack of disruptive unions and pressure groups complaining about flights noisy, and the Gulf remains a very attractive place to base an airline.