A brief look at how the Gulf carriers have influenced small market growth

The airlines' influence goes beyond improved connectivity, extending to massive economic impact. This report examines growth rates, trends and impacts at airports where the ME3 have grown during the last five years to command collectively an international market share of over 5%.

Of course it is not possible to investigate every case here. The three carriers jointly serve 362 cities directly (Emirates 131; Qatar Airways 140 and Etihad Airways 91 - figures that are changing constantly) although naturally many of those cities are served by more than one of them.

Very occasionally they are served "indirectly" (i.e. not non-stop) by application of fifth freedom rights. Emirates alone will offer over 130 international routes this winter season, to cities on all continents. They all interconnect - at least in theory - through one terminal at Dubai International Airport, which is allocated solely to Emirates, with the exception of its codeshare partner, Qantas. Selected cities have been highlighted on each of those continents and particular reference is made to some cities where services by any or all of the ME3 have previously featured in CAPA reports.

It is important first to establish where each of the Big Three is particularly strong. The majority of Emirates' capacity is in Western Europe (24.5%). The second largest agglomeration is in South Asia (16.8%), followed by the Middle East itself (15.1%). Southeast Asia comes in at 10%, while North America accounts for only marginally more than does the Southwest Pacific region (Australia/New Zealand), at 6.3%. But there is a sting in the tail (see next page). Neither Latin American nor African capacity is sufficient to merit inclusion in a separate category and they are lumped together in 'others' (21.3%), (data as at Sep-2015, according to OAG).

Digging a little deeper, as shown in the table below of international seat share by country, India has the greatest share of capacity, followed by the UK and then by the US.

The second largest of the ME3 in terms of seats offered and ASKs is Qatar Airways. Qatar's capacity is oriented more in favour of the Middle East (27.1%). Again, both Western Europe (19.6%) and South Asia (13.7%) feature prominently.

Examining the results in more detail by country, the UAE attracts Qatar's largest capacity, followed again by India and the UK, which are sandwiched between UAE and Saudi Arabia.

Turning finally to the smallest - but the fastest growing - Etihad Airways, the third largest of the three carriers, its seat distribution data is similar to that of Emirates. The majority of seat capacity (21.6%) is allocated to Western Europe with South Asia just behind (20.5%). When the country data is examined in more detail India again leads the way, followed by the UK. Meanwhile the US, at 6.4%, accounts for almost all of North American capacity, a reflection of Canada's closed door protectionist policy.

Qatar Airways' distribution is a little differentiated from those of Emirates and Etihad on account of a greater Middle Eastern/CIS/Eastern Europe focus but the underlying trend for the ME3 is for the Indian and UK markets to have the greatest significance by this measure.

The table opposite expresses the international seat market share at selected destinations by continent of the ME3 collectively, where it is 5% or more. (In a small number of important cases, a total of slightly less than 5% is acknowledged and recorded.) 'Home' airports (Dubai, Abu Dhabi and Doha) are highlighted; inevitably the greatest ratio of capacity will be taken at these airports.

The first thing that stands out is the tiny ME3 penetration to date at airports in the Americas. There is no example where it was 1% at any individual airport, let alone 5%, with Dallas Fort Worth being one of the leading airports in this respect at 0.6% (Emirates). It can be concluded - from that statistic alone - that concerns about the ME3 in North America are considerably overstated - though there are other factors to take into account in that calculation. Neither, by this measure, are the ME3 strong in Germany either, another country that has been vocal about the threat to national airlines from the Gulf.

The same is true of North Asia, another traditionally protective market, where ME3 impact is also very low. The Gulf airlines have not achieved a 5% market share at a single airport there.

Secondly, despite so much capacity being allocated by all three of the carriers to South Asia and the UK, the African continent, which barely figures in the airline capacity allocation figures, actually has only two airports fewer than Asia Pacific in the table of airports with 5% or more capacity with the ME3 (18 versus 22). Indeed the airport with the greatest ME3 capacity of all is Mahé, serving the Seychelles. Other African airports featuring in the top 15 include Lusaka, the capital of Zambia is at #5, the island of Mauritius at #6, and Asmara (Eritrea) at #7.

This trend does not continue uniformly throughout Africa however. The three main cities of the Republic of South Africa: Johannesburg, Cape Town and Durban, have ME3 capacity levels well below this, only approaching 5% at best. There are several reasons for this despite the fact that the 'dog-leg' transit from either the east or west of the northern hemisphere via the Gulf to and from the Gulf has grown in popularity.

In this instance there are many more direct flights to and from main centres of population; Europe in particular has been able to hang on to its 'legacy hub' status in this case for connecting flights (through London, Paris, Frankfurt, Amsterdam etc); while domestically there are many air services connecting those three main cities. The scope for the ME3 to obtain a high capacity share there is thus far more limited.

It will also be evident that two of the four African airports referred to earlier are also island airports (as is Malé in the Maldives in the Indian Ocean, which is at #4 in the table). It could be argued that the ME3, and especially Emirates, are helping to sustain tourism, a critical part of the economy, in these African island groups, in the absence of comprehensive national airline service. Air Seychelles has only four mid-to-long distance aircraft in service while Seychelles Airlines' AOC application is suspended. Air Mauritius is better equipped with eight long haul aircraft in service and four A350s on order but demand is high, while Mega Maldives Airlines is restricted to five mid-to-long haul aircraft. Air Mauritius has A340s but, without the aid of airlines like Emirates, many potential tourism feeder cities are out of range.

The same argument could be deemed to apply to Europe, where the ME3 (again in the form of Emirates) has achieved over 5% market share at Larnaca, the main gateway to Cyprus, and 2.7% at Malta. The air service linking Dubai with these two Mediterranean island nations, both of which are members of the European Union, is a linear one with fifth freedom rights. Since Cyprus Airways suspended flights in Jan-2015 the significance of the Emirates' flights for business and commerce as well as tourism has been heightened. The same could be said for Malta where the national airline will reduce its fleet size by 30% as part of a restructuring exercise (and which will probably increase Emirates' market share beyond 5%). In both Malta and Cyprus there are significant business and commercial interests quite apart from tourism and despite the combined population only adding up to 1.5 million.

In South Asia and particularly India, the location of so much ME3 capacity, another peculiarity arises in that it is Pakistan rather than India where the ME3 have made the greatest impact by this measure. Aviation is more advanced in India than Pakistan and its airports are busier, with more flights by more airlines. But while seat capacity penetration reaches only 4.4% in Chennai and 4.3% in Hyderabad (and less in cities like Delhi, Mumbai and Bangalore) it is 21.2% in Karachi and 17.5% in Islamabad while other Pakistani cities also rank highly. Moreover the penetration comes to 31% in Sialkot in Bangladesh, but only 7.9% in the capital, Dhaka. It is notably the three gateway airports to Kerala state - Kochi, Thiruvananthapuram and Kozhikode - that score the highest in India.

Is there any single reason behind these apparent anomalies? Probably not - they are good examples of local traffic demand of the sort that it is not always easy to quantify when planning for a new air route.

In the case of India, Kerala is known as a vacation state, but without the ME3 flights it is not easily accessible from outside India. It also has well established IT industries, which tend to generate business travel, and there are strong links to the Gulf States anyway, without the sixth freedom passengers that are inherent to the ME3 business model. Kochi's Airport was built partly from funding by 10,000 expatriates so they could fly home more easily.

In the case of Pakistan and Bangladesh, a great deal of the ME3 traffic will derive from routes to and from the UK that are heavily used by VFR passengers. High levels of population - up to 20% in some British towns and cities in the North and Midlands especially - are recorded by South Asian diaspora residents from Pakistan and to a lesser degree Bangladesh. They travel frequently. In the case of India there are more travel options on national/flag carriers and other direct or indirect services than there are to and from Pakistan and Bangladesh and there is also individual choice to take into account; the ME3 has been particularly good at instilling support from these ethnic groups, and in all cabins, at the expense of airlines such as PIA, airblue and Biman Bangladesh.

The most extreme example is Sialkot, Bangladesh's 12th city by population (450,000) but barely heard of outside the country. But from the 1970s onwards it was the source of a mass exodus of workers to fill the gaps left in the cotton industry in northwest England by indigenous employees who were moving on to better jobs. That exodus is reflected in that enormous ME3 market share (split between Emirates and Qatar Airways) four decades later. It is not the only reason but it is a large part of it.

Of course what applies in South Asia also applies at the other end of those routes in the UK. While market share may not be anything like as high for the ME3 in cities such as Manchester, Birmingham, Glasgow and Newcastle because of the far more advanced British aviation network, the passenger profile is very similar with many of them being transfer passengers through to and from South Asia. Moreover, the ME3 - Emirates mainly in this case - have been able to capture many of these UK based passengers as vacationers on separate journeys to the Gulf, via airports they have become familiar with whilst in transit.

As the table on page 65 demonstrates it is Birmingham Airport that has the highest ME3 capacity ratio for European airports, at 5.9%. It is a rather symbolic figure for an airport that was in the vanguard of the movement to redirect airport development away from the English southeast airports to the regions and it demonstrates that foreign airlines will provide the supply accordingly if the demand is there.

Additionally Birmingham is an interesting case because the capacity is provided only by Emirates; both Etihad and Qatar Airways serve only London (Heathrow), Manchester and Edinburgh airports in the UK. So Birmingham is potentially drawing demand and passengers away from direct Heathrow Airport services onto sixth freedom routes operated by a Gulf carrier although the impact remains minor momentarily.

This is a factor that the Airports Commission acknowledged in its two reports on UK capacity and connectivity but ultimately chose to overlook. The acid test will be if the ME3 carriers reach 10% market share at Birmingham, which is possible if Emirates upgauges to A380 and Etihad and Qatar commence services as well. At that stage it would be of far greater significance to Heathrow's business model.

The position is the same at Glasgow (4.5% - all Emirates, while Etihad and Qatar fly to Edinburgh, 40 miles away). Manchester is different. All three of the Gulf carriers operate there; with two A380s in the schedule from Emirates with a third possibly to follow shortly. It is a significant operation that has undoubtedly affected the European hubs such as Heathrow, Amsterdam, Paris CDG and Frankfurt that chase the same transfer traffic. Even so the penetration remains lower than both Glasgow and Birmingham, even allowing for the fact that Manchester is twice the size of those two airports.

Newcastle is an interesting case. The northeast England airport handled 4.5 million passengers in 2014 and has a daily Emirates service following its introduction in 2007. It is one of only two scheduled long haul routes and the other (United to New York Newark) is seasonal. Apart from Malta it is the smallest European airport in Emirates' network and the penetration there is 4.4% of capacity.

The airport has long promoted the economic impact of the route in terms of trade not only with the Gulf but also with Southeast Asia and Australasia. That trade almost doubled in the first five years of the route alone and increased by 65% between the region and Australasia. At the time the service was upgauged from A330-220 to Boeing777-300 in 2012 a passenger survey revealed that just 23.7% of passengers had Dubai as their final destination. Other leading destinations included Bangkok (10.1%) and Perth (5.6%) although leisure and VFR are the most likely reasons for travel there, respectively.

Yet strangely, Newcastle seems to be an exception to the rule. Some airports and their supporting economic development agencies seem not to hold even basic data on the economic impact of the ME3, including in the UK. They might consider following Newcastle's example.

A case in point is that there is some UK government economic data on exports of goods (not services) from different areas of England to the Middle East & North Africa (they are lumped together for government administrative purposes). This data shows that the leading export region in 2014 in that category was the southeast, followed by the northwest, then London, then Wales, and the West Midlands. The northeast (Newcastle) actually brings up the rear in England, with only Northern Ireland having a lower total. But the statistics do show the dramatic increase in trade experienced in the northeast between 2006, the year before the Emirates service commenced, and 2008; a value increase (in GBP) of 74%. It also shows how varied the growth rates are, lurching up and down quite wildly in the years since.

There are no clear conclusions to draw from this data set as to the actual impact of the ME3 on the trade figures, and more needs to be done. All the regions mentioned in the paragraph above have ME3 flights from their main airport directly to the Gulf, with the exception of Wales. So why is that country's export prowess to the Gulf so strong? Does it demonstrate that no case can be made to link flights and trade?

Birmingham Airport has commissioned an economic impact study which will analyse the role the airport plays in supporting prosperity across the West Midlands region and beyond. It will be interesting to see what conclusions it can draw, if at all, about the ME3 (which, again, is actually the ME1 in Birmingham's case).

And economic impact is not limited to the UK of course. Studies have taken place in India - by Emirates itself - which claimed that for each dollar (USD1) that Emirates contributes in the Indian air transport sector, it generates an additional USD1.176 in the Indian economy.

Emirates (and Etihad and Qatar Airways) connect O&D airports to a large number of others in all continents which would otherwise not be linked directly to these airports, enhancing personal travel, tourism and business travel prospects. In some parts of the world the impact the ME3 have made is considerable while in other parts it appears to be much smaller. But that is merely a matter of relative scale. Unless there is a sea change in how the airline business operates it is highly likely that more airports will be going through the ME3 5% capacity barrier in the near future.

and has a daily Emirates service following its introduction in 2007. It is one of only two scheduled long haul routes and the other (United to New York Newark) is seasonal. Apart from Malta it is the smallest European airport in Emirates' network and the penetration there is 4.4% of capacity.

The airport has long promoted the economic impact of the route in terms of trade not only with the Gulf but also with Southeast Asia and Australasia. That trade almost doubled in the first five years of the route alone and increased by 65% between the region and Australasia. At the time the service was up-gauged from A330-220 to B777-300ER in 2012 a passenger survey revealed that just 23.7% of passengers had Dubai as their final destination. Other leading destinations included Bangkok (10.1%) and Perth (5.6%) although leisure and VFR are the most likely reasons for travel there, respectively.

Yet strangely, Newcastle seems to be an exception to the rule. Some airports and their supporting economic development agencies seem not to hold even basic data on the economic impact of the ME3, including in the UK. They might consider following Newcastle's example.

A case in point is that there is some UK government economic data on exports of goods (not services) from different areas of England to the Middle East & North Africa (they are lumped together for government administrative purposes). This data shows that the leading export region in 2014 in that category was the Southeast, followed by the Northwest, then London, then Wales, and the West Midlands. The Northeast (Newcastle) actually brings up the rear in England, with only Northern Ireland having a lower total. But the statistics do show the dramatic increase in trade experienced in the Northeast between 2006, the year before the Emirates service commenced, and 2008; a value increase (in GBP) of 74%. It also shows how varied the growth rates are, lurching up and down quite wildly in the years since.

There are no clear conclusions to draw from this data set as to the actual impact of the ME3 on the trade figures, and more needs to be done. All the regions mentioned in the paragraph above have ME3 flights from their main airport directly to the Gulf, with the exception of Wales. So why is that country's export prowess to the Gulf so strong? Does it demonstrate that no case can be made to link flights and trade?