The airline industry is one of the most protected sectors in the world, but a new competitor has emerged to challenge the West's longtime dominance of the skies: the Arabian Peninsula. Over the past 15 years, airlines based in the Gulf monarchies of the United Arab Emirates and Qatar have seen a staggering amount of growth. Dubai's Emirates Airlines, for example, recently became the largest airline outside of North America when it carried 51.8 million passengers a whopping 255.3 billion passenger seat kilometers (158.6 billion miles) in the 2015-16 fiscal year — a huge leap from the 5.7 million passengers and 20.5 billion passenger seat kilometers it logged in 2000-01. Qatar Airways and Abu Dhabi's Etihad Airways, the latter of which didn't even exist at the beginning of the millennium, have undergone similar growth spurts. Together, the three Gulf companies have upended the global commercial airline industry as it struggles to cope with other problems, including rising jet fuel prices.
Unsurprisingly, the Gulf airlines' success has not been met with enthusiasm among their more established competitors. Accustomed to their governments' protection from foreign competition, many major U.S. and European airlines have begun to pressure officials to investigate the practices of their "Big Three" Gulf rivals, claiming that the Emirati and Qatari monarchies have given them an unfair advantage by granting them $42 billion worth of various perks over the years. Now that protectionism is rising in the West, those airlines may get their wish. But regardless of the action U.S. and European governments take to shield their own firms, the Gulf airlines have made it clear that they are here to stay.
The West Locks on Its Target
U.S. President Donald Trump met with the CEOs of American Airlines, Delta Airlines and United Airlines — the three largest passenger airlines in the world — on Feb. 9 and vowed to help them fight back against foreign peers who receive state support. Across the pond, Brussels is gearing up to do the same; the European Commission is expected to publish draft legislation in April that would enable it to slap duties on foreign airlines or suspend their flying rights to European airports if the commission finds that they have "done harm" to the Continent's airlines.
Though neither Trump nor Brussels has mentioned the Gulf's Big Three by name, it's clear that they are the primary targets of the West's renewed resolve to regulate the industry. U.S. airlines in particular have long called for punitive measures against Qatar Airways, Emirates Airlines and Etihad Airways. Former President Barack Obama chose not to answer them, though, despite a lengthy report the U.S. companies published in 2015 that accused the Gulf airlines of having received a combined total of $39.2 billion in subsidies and $3.1 billion in other benefits, such as tax exemptions, interest-free loans and bans on unions, since 2004 from their respective governments.
Beyond charges of receiving generous financial gifts, U.S. and European airlines have leveled accusations against their Gulf rivals of abusing open skies agreements. (These deals, usually made between two countries or between a country and the European Union, grant certain rights to their signatories' airlines.) Emirates Airlines, for instance, has been criticized for leaning too heavily on the "fifth freedom of the air," which allows airlines to include third-party countries on their routes as long as the flight includes the states that have signed an open skies agreement. But in practice, these routes — such as flights from Dubai to New York that stop over in Milan — often give passengers a way to get off the flight without stepping foot in the final destination country. As a result, U.S. and European airlines have argued that these flights are unfair, especially given Emirates Airlines' tendency to use massive A380 aircraft to shuttle more passengers along them. Not long after the 2015 report was published, Delta Airlines canceled its direct flight between Dubai and Atlanta, claiming that it couldn't compete with the direct flights of Qatar Airways and Emirates Airlines to similar hubs.
Of course, not all U.S. airlines are on board with the crusade the nation's larger companies have started. In fact, the United States' smaller, domestic airlines — Alaska Airlines, JetBlue and Southwest Airlines, to name a few — have asked Washington to stay out of the dispute. (FedEx Express, the world's largest cargo airline, has also stood against protectionism in the industry because it relies on open skies agreements to keep its own business running smoothly.) Their stance underscores the different circumstances facing regional airlines and their larger competitors; after all, major Western airlines have to jockey for a share of the market with rivals at home and abroad. Domestically, smaller and cheaper airlines such as JetBlue and Spirit Airlines are slowly drawing in more local consumers, while internationally, foreign airlines from the Gulf, Australia, Singapore and China are carving out their own places in the global market. In many ways, the two categories of airlines offer complementary services — all of which the Western giants are trying to provide on their own.
The Gulf airlines have wasted no time in disputing the claims their U.S. peers have made. Emirates Airlines has categorically denied the allegation that it has received government subsidies, and it has responded, line by line, to each of the charges made in the 2015 report. The company has also supported its statements by publishing detailed financial records that have been audited by third parties. (The firm pointed out that four separate auditors failed to find evidence of unfair practice.) It has likewise noted that many international airlines — particularly those in Europe — have enjoyed government assistance for the past 20 years, and that several U.S. airlines have made use of the fifth freedom of the air when flying to Asian destinations beyond Japan. According to Emirates Airlines, its cheap labor costs and other advantages are simply benefits that come with its strategic location near South Asia's ample, low-cost labor pool. Qatar Airways and Etihad Airways have issued similar responses, rejecting their Western rivals' attempts to place blame elsewhere for their dulling competitive edge.
The Gulf Keeps a Steady Course
There's no question that Gulf airlines stand to gain from their monarchies' munificence, and in a pinch Dubai, Doha and Abu Dhabi would certainly come to their companies' aid. (It is also worth nothing that the chief investment bodies responsible for managing the royal families' money are shareholders in the airlines.) But the Gulf's newfound success in commercial air travel has less to do with policy and more to do with geography. The region has the good fortune of being positioned at the center of aviation routes connecting Europe, Asia and Africa, just as Mesopotamia has sat at the crossroads of overland travel since antiquity. The Gulf's importance to global aviation became clear as far back as the 1930s, when the British Empire used the Emirate of Sharjah (located in what is now the United Arab Emirates) as a connective hub between Great Britain and its distant possessions in Singapore and Australia. A few decades later, Gulf Air — a company run by Bahrain, Oman, Abu Dhabi and Qatar — became a prominent regional player in passenger and commercial aviation throughout the Middle East.
Not long after, Dubai Crown Prince Sheikh Mohammed bin Rashid al-Maktoum made the quick decision to fashion the emirate into a transportation hub. His plan required an airline that would free Dubai from having to rely on other airlines as it grew and developed. But though he granted the newly founded Emirates Airlines $10 million in investment from his family's own coffers, he warned the company's startup team against expecting any additional funds. And so far, the Emirati leader's aspirations of turning Emirates Airlines into a profitable firm that can stand on its own have become a reality.
Today, Dubai need only point to the facts to show its international competitiveness. A third of the global population lives within a four-hour flight of the emirate; two-thirds live within an eight-hour flight. Though Doha and Abu Dhabi can make the same claim, no other region in the world rests in such an ideal place. Moreover, Gulf airlines have used their location to better shape their strategies, buying modern wide-body aircraft with large carrying capacities and high fuel efficiencies to give them an edge in servicing markets from five to 10 hours away — including some of the biggest consumer markets in East Asia and Europe. Passengers on these flights also enjoy more amenities than they would on many competing flights, enabling the airlines to attract more customers with the promise of greater comfort. Though wide-body aircraft are less advantageous for flights outside the five- to 10-hour range, Gulf airlines have concentrated their efforts on the niche market in between where they routinely excel.
As the Gulf states attempt to diversify and modernize their economies, aerospace, aviation and related industries will become all the more critical to their futures. Over the past five years, these sectors have only become even more important as Doha and Abu Dhabi have renewed their efforts to move away from their historical reliance on oil and natural gas. Though aviation will be only one part of their attempt, it will certainly be a crucial one.
Despite their peers' criticism, Gulf airlines will press onward with plans to expand their services around the globe. Trump has promised to put America first and support U.S. jobs — something U.S. airlines have said their Gulf rivals are destroying — but pursuing punitive measures against the Emirati and Qatari companies will not be easy. Trump will have to rely on the United Arab Emirates and Qatar to make headway on many of his foreign policy goals, including containing Iran's influence in the Middle East and combating jihadist groups such as the Islamic State. Rather than targeting Gulf airlines directly, then, Trump will probably count on corporate tax restructuring and other regulatory changes at home to make U.S. airlines more competitive.
There are limits, meanwhile, to just how much bigger Gulf airlines can get. As the region's Big Three expand, the competition among them will no doubt intensify. It remains to be seen just how — and whether — the United States and Europe will be able to take advantage of their burgeoning regional rivalry. But although Western protectionism could make for a bumpy ride, the Gulf airlines have already proved that they are capable of withstanding it.
