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Middle East Is New Global Travel Crossroads

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The Qatari government is building a $15.5 billion airport in Doha, designed to handle 24 million people each year, nearly six times the capacity of the existing facility. In Abu Dhabi, the capital of the United Arab Emirates, the government is building a sprawling terminal twice the size of The Mall of America.

And construction was just completed in Dubai of a concourse designed exclusively for Emirates’ fleet of Airbus A380s. The new building has entire floors dedicated to first and business class customers who board directly from lounges, never interacting with coach passengers.

“Governments here understand the power of connectivity to drive economies,” Tony Tyler, CEO of the International Air Transport Association said in a recent speech in Abu Dhabi.

The airlines deny getting special treatment.

Emirates got $10 million in startup cash from the government in 1985. The airline’s president, Tim Clark, says his airline has had no assistance since and benefits from economies of scale. The airline reported a net profit of $628 million in its most recent fiscal year.

“People keep saying we’re cheats,” he says. “What they can’t understand is that something could be as good and profitable as it has been without subsidies. You know why? Because they’ve all had subsidies themselves and they still can’t make it.”

Clark says the U.S. government subsidizes airlines by allowing them to wipe out debt in bankruptcy court. All three of the largest U.S. airlines – American, Delta and United – have used the courts in the past decade to restructure.

European airlines stand to lose the most business because of their geography, but that doesn’t mean that U.S. carriers aren’t watching closely.

The three Gulf airlines already fly to Chicago, Dallas, Houston, Los Angles, New York, San Francisco, Seattle and Washington and are adding flights at breakneck pace. The airlines aren’t just dipping their toes into these markets; they are diving in, in some cases with giant double-deck Airbus A380s that can seat 489 passengers.

“I think they are a clear threat, much more so to our European and Asian colleagues, but nonetheless a threat to U.S. airlines as well,” Jeff Smisek, CEO of United Continental Holdings Inc., said at an investor conference last March. “They have a very good product. And they have the total and absolute support of their governments.”

The airlines are not household names yet, but they will be soon, analysts say.

United was a key sponsor of the U.S. Open tennis tournament for more than a decade. But last year, Emirates took over with a seven-year deal reported to have cost $90 million.

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Posted by FanningCommunications on Apr 1st, 2013 and filed under News. You can follow any responses to this entry through the RSS 2.0. You can leave a response by filling following comment form or trackback to this entry from your site

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