We now look at the three Middle Eastern giants (ME3) – Emirates, Qatar and Etihad – listing out some of the reasons for all of them being in a more favourable economic position throughout these tough times of increased competition and lower profit margins.
• Premium air travel for the wealthy
• Competitive advantages
• The raw financials
• The future
Luxury Travel Second To None
The ME3 have been touted as the benchmark in luxury travel – a sector of the industry that caters to a growing list of ultra high net-worth individuals looking for unsurpassed amenities and service levels while in the air. As mentioned during the course of these series, all three of them have been at the forefront of redefining luxury air travel with the competition often playing catch-up over the last decade – their suites even being compared to those found in luxury yachts.
All three carriers vary considerably in terms of their offerings to premium clientele, with Etihad garnering much fame for its Residences – an apartment in the sky, Qatar for its QSuite providing superlative business class benefits and Emirates’ pioneering and continual suite improvement. What is a constant across all three companies is their unwavering focus on the finer details, which has made them extremely popular among the wealthy.
The ME3 find themselves in a better position geographically than their competitors. With bases located in the middle of Europe and Asia, they are able to cater to a wide range of routes (someone flying from Asia to Europe can split their travel into two shorter flights etc.). For example, the fact that Dubai is well known as a tourist shopping destination allows Emirates to couple strategic stopovers with shopping experiences within the airport and beyond.
The three airlines also have deep pockets in terms of monetary support. All of them are government controlled/owned, either directly or indirectly. The Emirates Group is owned by the sovereign wealth fund of Dubai. Qatar Airways’ main shareholder was the ex-PM of Qatar and has been fully government controlled since 2013. Etihad has very close links with an Abu Dhabi Investment Authority. The airlines are also said to enjoy considerable discounts at their government owned bases.
The ME3 are at an advantageous position when it comes to their overall overheads. They all hail from some of the lowest income tax areas in the world, their staff are often paid less than their American or European counterparts but take home an almost equivalent salary. Also, with unions not being part of Middle Eastern work structures, they are almost never at risk of staff going on strike. Pensions across the airlines are virtually non-existent, giving them an advantage over their competitors economically.
Their strong government backings come with other obvious benefits – some say that they receive subsidies on jet fuel (due to the availability of oil in the region) but this has been heavily contested before – in terms of whether the privileges they enjoy are compliant with aviation regulatory standards. The three biggest U.S. carriers have long been lobbying the U.S. government to review the current Open Skies agreements that allow the Gulf carriers to fly freely from the United Arab Emirates and Qatar to any U.S. destination – they feel that the ME3 have an unfair advantage partly due to heavy subsidies from their respective governments.
The ME3 do need to watch their financials regardless of whether they have rich government backings or not. The aviation industry is one that is extremely unforgiving with competition rapidly increasing across the industry due to low cost budget airlines offering no frills services at a fraction of the price. Although still in the green, Emirate’s half-year profits have fallen by 75%, with analysts predicting that all three airlines will see major reductions in profits next financial year. They all need to pivot as their competition has done, going through their own restructuring of sorts to keep up with the competition efficiently.
All three airlines are expected to face more challenging times in the near future. This is partly due to the general instability in the region which has created fears of flying over the Middle East.
Emirates has the largest fleet in the world, with over-capacity being a huge risk – larger planes are not able to land at many airports due to lack of facilities and increased competition.
Etihad has also struggled in the past year as losses from its investments have been mounting, further aggravated by a spate of terror attacks also hurting mass-market demand.
Qatar has recently come into all sorts of issues including strife with the other two carriers’ governments – many countries cutting diplomatic ties with them for breaching counter terrorism agreements and keeping ties with Iran. This is threatening US-Qatar strategic relations and casts doubt over the country’s future in terms of international trade (which will have obvious effects on the airline as well).
It is apparent that the ME3 also have their fair share of issues and will have to make certain decisions on how their business models are going to pivot to keep up with the times. The area of luxury travel aside, it’s all about filling as many seats as possible at an attractive price that will be profitable for any carrier. Often easier said than done.