The battle for the skies of the Middle East

For a mixture of very sound commercial logic, and more than a dash of ego and pride, the Middle East is set to emerge as a major hub for global aviation over the next decade.

Just look at the numbers. Etihad Airways placed a jaw-dropping $7 billion order for 24 long-haul aircraft at the Farnborough Air Show. Emirates Airline has 100 wide-bodied aircraft on order from Boeing and Airbus, including 45 Superjumbo A380s. Qatar Airways is also buying the A380 and has placed multi-billion dollar orders.

Gulf Air is in the final year of a three-year financial turnaround, which has surprised some in the aviation industry, and is benefiting from good management and the booming Middle East.

The international airlines are not at all happy. The decision by these major GCC Oil States to pour money into new aircraft will increase competition in the sector, and make it even more difficult for the present industry giants to turn a profit.

This will spur consolidation of the industry. For there is little doubt that the new upstarts of international aviation will succeed.

First, they have bottomless pockets. Secondly, the geographical location of the Middle East is ideal for an aviation hub as it is right in the centre of the growth nodes of China, India, Russia and Eastern Europe. These countries will be the source of the passengers of the future.

Thirdly, the Middle East is itself increasingly emerging as a round-the-year sunshine destination for tourists. Having its own massive carriers makes sense in the context of a booming tourism sector.

What seems to be happening is the Middle East is that the commercial success of Emirates - which its huge profits in an industry accustomed to deficits amply acclaim - has attracted attention. Others have decided that they want a piece of this action and are coming into the market with big plans.

At a Government level this can be justified in terms of economic diversification away from oil revenues. Indeed, it is still hard for oil producer nations to come up with suitably large inward investment projects to absorb their oil revenues.

Airlines are the latest big infrastructure investment idea. In previous oil booms money poured into roads, bridges and buildings, and airports. Now times have moved on and airlines are the thing that everybody wants to do.

Now whether this is a wise investment or not, only time will tell. In the meantime, the world is going to have to get used to the idea that a major chunk of the long-haul aviation market is going to be located in the Middle East, where incidentally aviation fuel is also rather cheap.