June 25, 2008

Gulf Carriers Pile on the Pressure

By Simms, Jane

The prodigious growth of airlines in the region has left their European competitors playing catch-up. By Jane Simms Middle East airlines Emirates, Etihad and Qatar Airways are among the fastest- growing in the world, fuelled by huge infrastructure development projects in the booming Gulf region.

These projects include the construction of the world's biggest airport at the Dubai World Central development, which will comprise six runways and capacity for 120m passengers a year.

In addition, the Gulf airlines have marketing muscle. Dubai airline Emirates sponsors a range of sports events and teams around the world, including Arsenal FC and its stadium, while Abu Dhabi rival Etihad has just signed a deal with the Ferrari Formula One team.

Moreover, the airlines' hubs are positioned at what Etihad chief executive James Hogan describes as 'the crossroads of the world', the geographical centre-point between East and West, leaving them ideally placed to serve the rapidly developing economies of India and China.

It is not surprising, then, that these carriers exude a confidence that makes the more established European airlines, not least British Airways, whose problems with Terminal 5 are just the latest in a catalogue of difficulties, look like rabbits frozen in the headlights.

'The Gulf airlines have built a reputation for distinctiveness, quality and luxury. They are more aspirational than US or European carriers,' says Richard Cope, senior travel analyst at Mintel.

Conversely, he adds, the brand identities of some Western carriers are confused. 'What does BA mean to people now, for example?' he asks. 'It is perceived as vaguely traditional and upmarket, certainly for its business class and long-haul routes, but, at the same time, it gets involved in short-haul price wars. Its brand identity, which is closely associated with service and being wellorganised, has been severely compromised by events such as the T5 debacle.'

Colin Shaddick, director and founding partner of Continental Research, argues that Western carriers have a loyal base of customers who would choose them over Gulf carriers on routes served by both. Yet, those who do switch are won over by the excellent service, polite and experienced crews and competitive prices offered by the latter.

But Paul Charles, director of communications at Virgin Atlantic, believes the threat from the Gulf airlines is overplayed. His airline competes with Emirates on the London-Dubai route and he questions the demand for the extra capacity the Gulf airlines are creating, given that the market is forecast to grow at only 3% over the next two years.

He adds that while customers may feel reassured by the range of nationalities employed as crew on the Gulf airlines, the work involved in forging a consistent cultural style is considerable.

Environmental concerns, he says, could also come into play. 'We hope more people will choose to fly with carriers that take the environment seriously,' says Charles. 'You have to question the Gulf airlines' commitment to cutting emissions when their economies are built on oil.'

Furthermore, Charles argues that brand reputation cannot be 'bought'; while big marketing budgets may win exposure, he says, building trust and a reputation for customer service, bestvalue fares and products takes years.

Unfortunately, as BA is learning to its cost, it can take a fraction of the time for a positive reputation to be destroyed.

'BA is perceived as vaguely traditional and upmarket but its brand identity has been compromised by events such as the T5 debacle'

Richard Cope


Emirates: 58 superjumbos on order

Data file Gulf carriers

* Emirates has 181 planes on order, including 58 Airbus A380 superjumbos worth about $58bn (Pounds 30bn). It flies to 99 destinations in 62 countries spanning six continents.

* In 2009, Terminal 3, a facility dedicated to Emirates at Dubai International Airport, will become operational, boosting the airport's capacity to 70m passengers a year.

* Etihad has up to 100 planes on order, worth about Pounds 10bn. It flies to 45 destinations in the Middle East, Europe, North America, Africa and Asia.

* Etihad increased its passenger numbers by 40% in the first three months of this year and is on course to achieve its target of carrying 6m passengers by the end of the year.

Copyright Haymarket Business Publications Ltd. May 14, 2008

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