Dubai Air Show: what future for Middle East aviation?

Every two years the Dubai Air Show is the moment that the regional industry ponders its future, in between placing mega-orders for new aircraft. This year is no different, except that the aviation sector is expanding at such a pace that even airline owners wonder if there are going to be enough passengers to fill the new planes now on order.

Sir Richard Branson, speaking at the launch of Virgin Atlantic's Dubai service which starts on March 26, said: 'With all the new aircraft on order, you do have to ask if this new capacity will be needed. But Dubai, Abu Dhabi and Qatar are expanding at such a rate, and their growth assumptions have been proved right before.'

Another problem for the Gulf airlines is that the hub-and-spoke model may soon begin to give way to point-to-point, undermining their business. In short passengers may fly direct from one city to another, in the new long-range aircraft, rather than transiting via a hub airport like Dubai or Doha.

Fuel costs hit profits

It is not as though regional airlines are without problems this year. Even the mighty Emirates Airline saw its profit rise cutback to just 7% in the first half because of surging fuel costs that were not entirely paid by ticket surcharges. Gulf Air has also lost Abu Dhabi as one of its three state shareholders, with Oman and Bahrain remaining.

And the new discount carrier Air Arabia is a threat to the profitability of regional short-haul flights which are among the most expensive in the world; and Kuwait has just launched its low-cost airline Jazeera.

In any boom period there is a period of expansion and new launches, followed by a more competitive environment and lower profitability, and then an inevitable rationalization of capacity and downsizing. But if Gulf aviation is now in stage two, it would be a bold forecaster who could predict when we will move into stage three.

Sir Richard told a press conference in Dubai that of the unlucky 13 US carriers crossing the Atlantic in 1984 when he launched his airline Virgin Atlantic, none is still in operation.

Virgin opportunism

It would be hard to believe that the same fate awaits his new competitors in the Gulf. Indeed, the arrival of a private sector airline like Virgin Atlantic at this point suggests that the boom is not over yet, for Sir Richard would not be launching without more than a hope of decent profits on the Dubai-London route.

However, at some point in the not too distant future the Gulf aviation sector will find itself in a capacity crunch. Sir Richard said his airline had survived on the transatlantic route by offering the best quality for price in the market, and this may also be the ticket to success in the Gulf.