Emirates, Qatar & Etihad Have Grown up — & passengers love them! Lessons for United!
This is Part One of a Two Part Article. For a Spanish version please go to The Hispaviacion website
The airline industry, specifically United Airlines has been in the news over the last few days — thanks to an unfortunate incident that has focused on customer “service” & rights versus airline contracts of carriage! Has been causing quite a controversy and stir — causing us to ask the question;
Have airlines grown up enough to handle a social media savvy world?
Emirates, Qatar & Etihad are pretty grown up when it comes to their product offering for passengers — but they are regularly compared to small infants when it comes to subsidy debates — with fingers being pointed to the tender loving care that they seem to receive from their respective governments!
Why do 3 airlines that carry less than 2.5% of the world passengers, consistently make global news headlines?
Read this not as an article, but a story about airlines from the Middle East who have had more than their fair share of controversies, romances, intrigues, politics…. all the great & good stuff that make for a nail biting, cliff hanging Hollywood blockbuster! The three main “characters”, known fondly (or not so, depending from which part of the world you are from) as the MEB3 (Middle East Big 3) with millions of diverse passengers & thousands of employees from a wide spectrum of countries & cultures playing supporting roles that make airlines such very dynamic, innovation, colorful 21st century global (but sometimes very misunderstood) organizations!
We tend to lump Emirates, Qatar Airways & Etihad Airways all together — but each of them have a very different strategy. I do agree that from a brand perspective — all of them are positioned as premium carriers. This positioning means that in many key markets & traffic flows — they are now increasingly competing with each other.
I hope that this “story” will give a snapshot of the complex ecosystem of regulations, infrastructure & jobs that this dynamic but unfortunately cost heavy industry helps to nurture, support & grow!
One basic fact: Everyone seems to make money in aviation, except the airlines!
Let’s start with a question for you;
Do you believe that aviation & airlines will play an important role in your respective country or region?
I am not a mind reader — but I can take a guess & say your answer is “YES”!
To quote; “Airports will shape business location & urban development in the 21st century as much as highways did in the 20th century, railroads in the 19th and seaports in the 18th” — Dr.John D.Kasarda, Aerotropolis. While his focus was on airports, the same can be said about airlines as well!
The 21st century is all about speed — speed of information, speed of knowledge, speed of supply chains & travel — and high speed sky”ways” crisscrossing the world defined in large part by the thousands of aircraft of all shapes, sizes & flags. This slightly dated, but mesmerizing video from NATS visually displays these sky highways!
The 21st century has been defined by speed of decision making & rapidly changing business models — the integrated aviation model perfected by the MEB3, which has five key pillars all build around the passenger;
There is another key pillar that is currently evolving — DATA. Data will pay a very important role in driving future airline business models!
This model is not new to the aviation world, but the reason why it has not been a much wider success is that governments have tended to adopted a piece-meal approach to implementation as well as management!
Moving away from the Middle East, Singapore & Singapore Airlines is a good example of the success of this model. China is another example of how this model is being consistently nurtured. (It is not just about government owned or funded airlines, but should also be about governments closely working with private airlines / investors providing the right regulatory, investment & infrastructure support & guidance)
A good indicator of how healthy a country is, can be measured by the health of its airline(s)! Does your country have an Airline Health Index [AHI]?
A Global Perspective
2017 promises to be a very interesting year! We seem to be moving from a globalized world to a polarized world, which could push the aviation industry back into the red after a few good years of growth & profitability. But then again this article is not about politics, but about economics. There are quite a few dark economic clouds looming on the horizon.
This time around, airlines in the Middle East are not as insulated as they were in the past. During previous economic dips, they were much smaller versions of what they are today — still in the expansion or start-up phase. The chart below highlights how the Middle East’s fleet has matured. The fleet is now much bigger than Africa’s & very close in size to that of Latin America, two regions much bigger in terms of land area & population.
A Middle East Snapshot
To put things in perspective; the Middle East needs to be segmented into the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia & United Arab Emirates) & the non-GCC Middle East bloc. A majority of aviation & airline growth at the moment is centered in the GCC. (The focus of this article is on airlines from the UAE & Qatar)
It is worth noting the influence of the UAE who with only 17% of the region’s population, has 48% of the region’s aircraft fleet and carries 43% of all passengers flying to, from & within the region. It also boasts the world largest airport [by international passengers] & the world largest airline [by international ASKs]
A country to watch out for is Saudi Arabia, who is already a very big aviation player in the region thanks largely to its domestic market & religious traffic (but has a very low key when it comes to branding). Aviation is now a key part of its diversification strategy away from a reliance on oil revenues.
Let’s save the subsidy discussion for later!
“Those airlines aren’t airlines. They’re international branding vehicles for their countries” — Oscar Munoz, CEO United Airlines (I am being selective here in quoting him and it will pay to read the entire article on what he has to say about Middle East Airlines)
But I believe that time is always a big definer & a healer in many cases — look at what Lufthansa had to say a few years ago, & what they say now.
19th Mar 2015 — “ Lufthansa Criticizes Gulf Rival’s Subsidies”
01st Feb 2017 — “Etihad Airways & Lufthansa announce new cooperation deal”
The focus on this article is NOT going to be on the ever-popular topic of subsidies, state support and all the other advantages that the Middle East carriers are said to be blessed with. Every country has its very own unique collection of direct or indirect subsidies and regulatory support to support their airlines (but do they have the ability to support ailing state carriers on a long-term basis is another question?) A few “subsidized” examples from aviation and other industries from various parts of the world;
- “The US government $80 billion bailout of the U.S. auto industry”
- “South African Airways gets $350 million bailout; major reforms needed”
- “Government Allocates Rs 1,800 crore as Budgetary Support to Air India”
- Financial crisis: Banks nationalised by Government — The Government has begun nationalising the British banking industry, pumping £37 billion of taxpayers’ money into HBOS, Royal Bank of Scotland and Lloyds TSB.
- The European rescue and restructuring guidelines allow for granting of State aid under strict conditions, ensuring that the aided company will become viable without continued state support. [$9.5 billion in state aid for European airlines for the period up to 1995]
Aviation dominance has been shifting over the decades from the US to Europe and now to the Middle East. It is only a matter of time that the center of aviation will move to the booming & thriving young markets of Asia!
Remember that many legacy airlines have been nurtured for decades by their respective governments directly or indirectly. Even looking at the example of the US markets, thanks to all the consolidation that has happened over the last few years, there are now three main carriers that dominate the largest aviation market in the world! (Food for thought; as the oil price continues to inch up — how will US airlines react? Will the US government allow further mergers? Not likely, as could lead to massive duopoly or even monopoly issues!).
Let’s move subsidies aside & rather focus on the direct and indirect benefits that airlines bring to their respective countries and communities that they fly to and from.
Hyper-growth Connected Strategy
Growth, growth & more growth coupled with a premium product offering coupled with a model focused on operational & service excellence has been the theme for the Gulf carriers for most of their existence. This hyper-growth strategy has helped establish them as major players on the global stage & bigger than life household brands! Smart marketing & sponsorships in sports as varied as soccer, golf, rugby and sailing (to name but a few) have further cemented their brand positions.
They learnt from the successes, short-comings and failures of their legacy peers to invest in more flexible and dynamic models. They brushed aside their population disadvantages of very small home markets & leveraged their location advantage to offer international hub & spoke networks rivaled by very few airlines!
Their on-board product is the gold standard for the industry.
The Middle East has historically been a stopping point for aircraft flying from West & East and vice versa and it was only a matter of time, before governments in the region started to leverage new technology, aircraft and the travel needs of a globalized world. The pioneer was Gulf Air in 1950 (known then as Gulf Aviation), a good example of an airline built on regional cooperation and then shrunk due to national interests! Dubai picked up the aviation baton and was the first to seize the opportunity of a global world in the mid-1980s as it needed a vehicle to support its growth ambitions (remember, Dubai had always depended on trade & commerce. Oil was never a major part of its success equation).
The Integrated Aviation Model — The Passenger at the Core!
The success of the MEB3 has been largely because of the integrated approach that their respective governments have taken to developing their aviation eco-systems versus the piece meal or hand-off approach that has become the practice in many other parts of the world. The mistake that many countries and governments have made is that they have created layers of complexity not just in regulations but also in the strategic & economic approach. This tends to stifle innovation, dialogue and flexibility by boxing industry stakeholders into silos!
The question that most oil-reliant economies in the Middle East have been asking very vocally from 2016 is “After Oil — what next?”. While there is focus on alternate industry & revenue streams, aviation is perhaps the most valuable driver going forward, as its economic benefits have a very big ripple effect!
Dubai is perhaps a good example of the integrated aviation model, as they have perfected it to a fine art, nurturing not just Emirates Airlines, but a wide variety of other sectors (private & as well as government) ensuring that all stakeholders from the airport, tourism authority, airlines, retail sector, banking, private sector cooperate, collaborate and execute together!
The Integrated Aviation Model — Dubai Style
To be continued ………… in part 2