My Article in Airline Economics magazine published by Aviation News Limited, London. The Megacarriers of the Gulf have gained the most market share of most of the world\'s long haul routes and this article talks about their fleet strategies.

1. ISSUE FOUR | NOVEMBER/DECEMBER 2011
w w w. a v i a t i o n n e w s - o n l i n e . c o m

2. EDITOR’S LETTER
Once again the world is teetering on the edge of another recession. The sovereign debt
and eurozone crisis is crippling European banks and, with countless tales being told
of assets being sold and mandates being renegotiated, it feels like 2008 all over again.
But this time it will be worse. In 2008, European governments and the European Central
Bank had money to prop up the failing banks, but in this new world of austerity the pot
has run dry.
The availability of funding for aircraft assets will become much more constrained
in 2012 and possibly through until 2015. Although the airframe manufacturers have
pledged to support the industry while the banking industry recovers, it will not be
enough to fund the record deliveries due next year (estimates stand at $70 billion) and
in 2013 (when estimates soar to $100 billion). The Export Credit Agencies (ECAs) of
ISSUE FOUR, VOLUME ONE
November/December 2011
course will be there to lend a hand, as they were in 2008, but ECAs only guarantee
loans – banks still need to fund the deals. And although Ex-Im bank can fund deals
EDITORIAL TEAM
if it needs to, it prefers not to. Still, the ECAs are prepared to do as much as they
Victoria Tozer-Pennington
can, as the ECGD’s Gordon Welsh confirms in our lead story ‘Collision course’ (p16).
victoria@aviationnews-online.com
The article also examines other sources of funding open to airlines and lessors, from
Philip Tozer-Pennington retail investments to capital market structures, and finds many are expecting the first
philipt@aviationnews-online.com
non-US airline EETC to be issued early next year.
Kaleyesus Bekele Thanks go to our cover artist, Martin Pope, who’s image sets out all the banana skins
kaleyesus@aviationnews-online.com facing airlines as we turn the corner into 2012.
SUBSCRIPTIONS Aircraft lessors are gearing up for the harsher funding environment, and have
Annual subscription: £250 / €250 / $300 been first movers in terms of diversifying their sources of funding. Leading the pack
Subscription enquiries to: is Aviation Capital Group. Group managing director and chief executive Stephen
victoria@aviationnews-online.com Hannahs shares his views on the current market environment and ACG’s strategy for
ADVERTISING SALES the months ahead (p30).
John Pennington Added to the funding crisis is the pressure from the world’s ageing population on
john@aviationnews-online.com travel spending, which is examined in our World Fleet report (p34). Fuel cost remains
Philip Tozer
a major headache for airlines, and although many airlines are reporting hedging losses,
philipt@aviationnews-online.com having a sophisticated, well thought-out hedging strategy can help provide certainty
during this period of volatility. The same concept can also be applied to carbon hedging.
PRODUCTION AND ONLINE
From January next year, all airlines travelling into and out of the European Union will
Dino D’Amore
be subject to the Emissions Trading Scheme. In ‘Trading carbon’ (p50), Airline Economics
dino@aviationnews-online.com
outlines the political wrangling over the scheme, but also offers more practical advice
Kathy Alys, subeditor
in terms of carbon hedging and commercial strategies.
Cover work by Martin Pope If there are any issues or concerns you want us to investigate and cover in Airline
DIGITAL ISSUE Economics, please do not hesitate to contact me.
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www.airlineeconomics.co Airline Economics November/December 2011 1

3. MIDDLE EAST
Stealing the show
The ‘megacarriers’ of the Middle East
have gained most of the traffic growth on
some of the world’s main long-haul routes.
Monis Ahmed Hasan, an aviation strategy
executive in Dubai, examines what aircraft
fleet strategies of Middle Eastern airlines.
A
s the Dubai Air Show had among the highest levels of growth
comes to town in Novem- in air traffic and aircraft capacity in the
ber, the spotlight is world over the past 10 years. This has
thrown on the Middle resulted in the region’s airlines placing
East airlines and their large aircraft orders, especially for wide-
large fleet orders. We expect Emirates bodies. New routes are being launched
and Qatar Airways to outstage the oth- by these airlines on a monthly basis, and
ers, with Etihad not far behind, in their frequencies on existing routes are also
new aircraft orders. The Middle East has being increased.
44 Airline Economics November/December 2011 www.airlineeconomics.co

4. MIDDLE EAST
Sheikh Zayed Grand
Mosque, Abu Dhabi
www.airlineeconomics.co Airline Economics November/December 2011 45

5. MIDDLE EAST
In my last article for AE (The road more the total 10-year period.
travelled, September/October 2011) I In the Middle East, the ambitious
wrote about how global cities such as growth plans of three carriers have led to
Dubai, Doha, Abu Dhabi, Mumbai, Delhi, the emergence of a new class of airline in
Shanghai and Beijing are becoming the the world – the Middle Eastern megacar-
main geopolitical and economic players rier. These three airlines are Emirates,
in the 21st century. And with the strategic Qatar Airways and Etihad Airways.
axis shift in trade routes, the Middle East Capacity at the three carriers collec-
along with Asia finds itself at the heart of tively has grown 23% annually over the
world commerce. The concept of mega- past 10 years. Their growth is likely to
cities is emerging – cities with 10,000 continue as the large backlog of new,
long-haul passengers a day. Dotted along efficient airplanes that the three carriers
the world’s new trade routes, they are cre- have on order will provide a competi- between North America and Europe, and
ating air travel markets for many of the tive advantage over European and Asian the Indian subcontinent and the Asia-
world’s airlines. Many of the Middle East- rivals. Approximately half the 885 air- Pacific, transiting via Dubai. In addition,
ern cities will eventually be mega-cities. planes on order in the Middle East, the stability of government ownership
And the respective airlines based there including 72% of the widebodies, will go has allowed the company to develop long-
are preparing for this growth in air travel. to these carriers. range plans and to secure hefty discounts
for its sizable fleet orders.
AIRBUS AND BOEING FORECASTS FOR STRATEGY BASED ON LOCATION Using this strategy, the airline has
THE MIDDLE EAST The market strategy of these megacar- developed one of the world’s largest
The Middle East region is an important riers is based on the so-called ‘sixth long-haul and intercontinental route
market for air travel, although smaller freedom’, which allows an operator in one networks. It flies to more than 100 desti-
in potential size than has been predicted country to carry passengers or cargo from nations with only 16 in the Middle East.
for the Asia-Pacific market. Both Air- a second country to a third country via a The remaining are on other continents,
bus and Boeing publish 20-year market scheduled stop in the operator’s home and constitute a large number of long-
forecasts describing the world market country. Sixth freedom privileges have haul and ultra-long-haul routes.
for commercial aircraft, with a Middle enabled Emirates, Qatar Airways and The airline’s strategy of providing long-
East focus as well. Over the period 2011- Etihad to take advantage of their central haul connecting services via Dubai revolves
2030, Boeing predicts 2,520 new aircraft location to expand their share of traf- around three connection banks a day. This
will be delivered to the Middle East, with fic between Europe and Asia. This large limits the number of daily frequencies on
180 large, 1,110 twin-aisle, 1,160 single air travel market does not depend on the each route to three in most cases. Other
and 70 regional aircraft. Over the same small populations of the home countries. limitations on frequencies could be slot
period Airbus predicts 1,973 new aircraft The three carriers have expanded into restrictions at airports or restrictions in air
will be delivered to the region. This would new markets, offering more than 100 service bilateral agreements.
include 302 large, 801 twin-aisle, 779 sin- weekly frequencies to destinations in the Many routes are operated as single
gle aisle and 91 regional aircraft. Americas – including Chicago, Houston, daily frequencies. Thirty routes have
Aviation is at the heart of the region’s Los Angeles, New York, San Francisco, two daily frequencies, five routes have
economic growth plan. Major infra- Washington, DC, Toronto and Sao Paulo. three and 10 routes have four. The airline
structure investment in airport capacity More than 70 weekly flights are offered in generally opens a route with an aircraft
expansion is taking place in many coun- the rapidly growing China market. type such as A330 or B777 on a daily
tries of the region. While air transport frequency. Second and third frequency
markets in the rest of the world shrank AIRCRAFT FLEET STRATEGY is added with traffic growth. Further
during the global economic downturn Emirates growth on the route is handled with an
of 2009, international air travel contin- Emirates was the first to use its geo- upgrade in type to the first frequency.
ued to grow for Middle Eastern carriers, centric location to create a strategy of Its aircraft types include the A330-200,
demonstrating the region’s prominence using its hub as a connecting point for A340-300, A340-500, 777-200, 777-
in global air travel. International traffic long-haul passengers. The advantages 300 and the A380. The combination of
continued to grow during 2010, rising it has includes cheap labour, lower fuel high traffic volumes and frequencies, and
17.8% for Middle Eastern carriers – far distribution costs due to its location, an the limits on most routes of two or three
exceeding the world average of 8.2% intensive branding programme, and an daily services means average aircraft size
growth. Passenger flows to and from overall lower unit cost compared with on many routes has to be large. The big-
the Middle East increased by 45 mil- many other airlines in the world. This gest aircraft is the A380, with 489 and
lion passengers from 2005 to 2010, and allows it to offer lower fares for multi- 517 seats. The 777-300 is configured at
are forecasted to increase by another 45 leg transiting flights than European, 364 and 380 seats, 777-200 at 266 and
million over the next five-year period Asia-Pacific and other airlines can for 346 seats, A340-500 at 258 seats, A340-
to 2015. This would create a compound point-to-point services. The company 300 at 267 seats, and the A330-200 at
annual growth rate of 11% growth over has been able to attract passengers flying 237 and 278 seats.
46 Airline Economics November/December 2011 www.airlineeconomics.co

6. MIDDLE EAST
Dubai International Airport
www.airlineeconomics.co Airline Economics November/December 2011 47

7. MIDDLE EAST
Qatar Airways signed a memorandum of agreement on May 30 for 80 A350 XWB aircraft.
Deliveries will begin in 2013
allow it to simplify its maintenance and It competes with Emirates and Etihad
crewing operations, reduce fuel costs by connecting long-haul passengers on 30
and achieve cost advances over other of its routes . Of its top 30 city pairs, 20 are
airlines that use older, more complex, intercontinental routes. The other 10 are
fleets. It is expected the airline will place Middle Eastern cities, to which the airline
additional orders among the three types operates three or more daily services.
The airline is focused on connecting to secure delivery slots for its aggressive Qatar Airways flies both with widebod-
passengers through its Dubai hub. Fre- growth plans. ies and narrowbodies, unlike Emirates.
quencies are added based on the demand Today its fleet consists of 99 passenger air-
being experienced and the key routes Qatar Airways craft, which includes 37 A320 family types,
needed to be connected to. The A380 is Qatar Airways has experienced a higher three A300-600s, 29 A330-200s/300s,
used in its first primary bank, where traf- rate of growth than Emirates from 2000 four A340s and 25 777-200s/300s.
fic flows are the highest. to 2010, equivalent to a 17% compound There are big expectations for growth, as
As traffic growth continues, Emirates annual growth rate. This has made Qatar reflected in the firm orders, which include
will use a larger number of 777-300 and Airways the second largest carrier in the eight A320s, 80 A350s, 60 787s, 29 777-
A380s on more services and routes. It is Middle East. It now operates to 84 desti- 300s and five A380s.
now consolidating its fleet to three types nations, of which 69 are intercontinental. Continued growth has resulted in 44
of aircraft – Boeing 777s, Airbus A380s The airline’s development strategy has of its 69 intercontinental routes becom-
and Airbus A350s. The airline has a firm been similar to Emirates, and its rate of ing high volume. Twelve routes have
order book of 199 passenger aircraft development is particularly impressive annual seat capacities of more than
split among six 777-200s, 48 777-300s, given the small size of its operations in 300,000; another 27 have annual capac-
70 A350s and 75 A380s. Having a fleet 2000. It now flies about half the number ities of 250,000-300,000; and five have
that is both scale- and fuel-efficient will of seats as Emirates. seat volumes of 200,000-250,000.
48 Airline Economics November/December 2011 www.airlineeconomics.co

8. MIDDLE EAST
ity, low frequencies yet high growth rates
increasing on most of its routes, with 40 means it needs large aircraft to routes
to North America, Europe, India and
seats. The largest aircraft it flies is the 777-
300, with 335 seats, which is used on 19 of ranging from 250-335 seats. Seat config-
its intercontinental routes. The 777-300, uration is as follows: A319 with 106 seats,
777-200 and A330-300 are prominent A320 with 136 and 162 seats, A330-200
on its highest density routes. The seat with 203 and 262 seats, A330-300 with
configuration for its fleet is: A319 has 203 seats, A340-500 with 240 seats,
109 seats, A320 has 144 seats, A321 has A340-600 with 292 seats and B777-
177 seats, A330-200 has 238 and 272 300ER with 378 and 424 seats. It uses its
seats, A330-300 has 259 and 305 seats, narrowbodies and smaller widebodies to
A340-600 has 306 seats, 777-200LR has fly to Middle Eastern routes and cities in
259 seats and 777-300ER has 335 seats. the Indian subcontinent.
The airline also has two business jets, the Etihad recently announced it was
-
- ing a 25% equity stake in Aer Lingus. It
is also in discussion with Virgin Atlantic Monis Ahmed Hasan is an aviation strategy
In preparation for the Dubai Air Show, about a possible partnership if Virgin executive who was born and raised in Dubai, UAE.
the airline has announced plans for a decides to buy out BMI-British Midland He helps aviation companies envision and execute
multibillion-dollar order for additional International airlines. This is definitely their business vision and strategy in the booming
aircraft. There are chances it will order a new strategy for Etihad. An ownership Middle East region. His life’s ambition is to play a
the A320neo as well as the Bombardier stake in BMI would enable the state- leading role in shaping the future of the new Mari-
backed airline to tap into European time Silk Road in the Gulf and Indian subcontinent
could possibly increase its A380 order domestic demand, while a stake in Aer and have fun while doing it.
Lingus would offer it greater access to
the North American market.
Etihad Airways on some of the world’s major long-haul
Etihad Airways was established in 2001 THE SMALLER PLAYERS markets. But ultimately they must fill all
Other Middle Eastern airlines with high the seats either by expanding their route
networks or capturing a greater share of
with the withdrawal of the Abu Dhabi are Oman Air, Fly Dubai, Air Arabia, their existing markets. They will face the
Royal Jordanian and Middle East Airlines. following threats in their growth:
It has 58 aircraft and flies to 86 destina- Oman air has grown about 5% from 2000
tions. The airline is essentially the third to 2010. The fleet consists of two Embraer airlines, which will attract the more
megacarrier of the Middle East and has
a strategy similar to Emirates and Qatar A330s. Fly Dubai is a low-cost short- to seek non-stop flights at better times;
Airways, which has created high traffic medium-haul carrier. It uses 20 737-800s
to fly to 45 destinations within 2,300 nau- Emirates, Etihad and Qatar Airways
Its rate of growth from 2001 to 2010 tical miles of Dubai. Air Arabia operates for connecting traffic to non-hub
has been at 13% annual compound from Sharjah with a fleet of 23 A320s and destinations and for intercontinental
growth rate. The airline’s fleet consists flies to 65 destinations, mostly in the Mid-
of 13 A319s/A320s, 24 A330s, 11 A340s dle East and on the Indian subcontinent,
and eight B777-300ERs. with a few African and European destina- such as Air Arabia and FlyDubai;
Etihad’s route network grew from a tions. Royal Jordanian has a fleet of A340,
A321, A320 and A319, two dedicated India and Turkey that use the same
frequencies with small capacities despite A310 freighters and Embraer 195 and 175 intercontinental connecting hub
growth high rates and the use of wide- aircraft. It flies to 59 destinations. The air- business models; and
bodies in its fleet. Etihad’s top routes line has experienced growth but mainly in
from Abu Dhabi International Airport relation to cities within the Middle East. restricting access to their markets
are Bahrain, Doha, Bangkok, London MEA from Beirut flies to 31 destinations through bilateral agreements or pric-
using a fleet of A330-200, A321-200 and ing agreements.
of the seat capacity on many of its routes. - The Dubai Air Show will shine a light on
- continental connecting network as the the fleet plans of many Middle Eastern
gapore, Lahore, Karachi, Frankfurt, airlines and we wait to see which aircraft
Paris and London. The megacarriers of the Middle East manufacturers win these impending
On its intercontinental routes where -
it has a monopoly or majority of capac- ing the majority of the traffic growth in the airline industry in the Gulf region.
www.airlineeconomics.co Airline Economics November/December 2011 49