The good news...so to speak

Gulf car­ri­ers win­ning battle for pas­sen­gers with in­no­va­tive ser­vice of­fer­ings and newer air­craft

Finweek English Edition - - FRONT PAGE -

NOT SINCE THE WEEK be­fore the Battle of Bri­tain has avi­a­tion faced such omi­nous ad­ver­sity as it does now. How­ever, this time the is­sue at hand isn’t the de­fence of a coun­try but the threat­en­ing dom­i­na­tion of avi­a­tion world­wide by car­ri­ers sit­u­ated in the Gulf States. Since 1985 avi­a­tion in the Gulf has grown by in­ter­con­ti­nen­tal-sized leaps and bounds. The three ma­jor air­lines based in the re­gion – Emi­rates, Eti­had and Qatar – are fly­ing di­rectly to more in­ter­na­tional des­ti­na­tions than all the air­lines in Africa and South Amer­ica com­bined.

These air­lines’ late en­try into the busi­ness meant they had an ad­van­tage over legacy car­ri­ers that had been around for decades. That ad­van­tage – pri­mar­ily mod­ern fleets – meant the Gulf car­ri­ers ini­tially had air­craft that were more fuel efficient and could there­fore of­fer a newer, ar­guably bet­ter, of­fer­ing at lower prices than their ex­ist­ing, long-es­tab­lished com­peti­tors.

Build­ing on that ini­tial suc­cess the three car­ri­ers over vary­ing num­bers of years de­vel­oped their re­spec­tive bases of op­er­a­tions into sig­nif­i­cant and efficient hubs for air­line traf­fic. They’re now stronger and meaner and hun­grier than be­fore. And the pres­sure they’re putting on legacy car­ri­ers is cre­at­ing a real headache for air­lines, gov­ern­ments and avi­a­tion bod­ies world­wide.

Coun­tries such as Canada have al­ready started im­pos­ing strict mea­sures to limit the in­flu­ence of Gulf car­ri­ers, in­clud­ing grant­ing them just three land­ing slots daily. Other coun­tries are im­pos­ing ev­er­in­creas­ing land­ing fees and taxes on for­eign car­ri­ers, which then sim­ply get their own gov­ern­ments to re­spond in kind.

But most coun­tries – in­clud­ing South Africa – are more lib­eral. For now.

Chris­tian Klick, cor­po­rate af­fairs vicepres­i­dent at Star Al­liance, the world’s largest al­liance of air­lines, says the is­sue is about ca­pac­ity growth ver­sus de­mand growth. “South Africa’s tourism traf­fic grew last year by around 16%. Yet ca­pac­ity growth from all air­lines to SA grew by 60% or there­abouts. That should be a cause for concern.”

Klick has a point. SA Air­ways used to fly be­tween Cape Town and Frank­furt but closed that route when it was no longer sus­tain­able. To­day Emi­rates flies two daily flights from Cape Town to Frank­furt.

“Can a coun­try like SA re­ally af­ford to lose flights from key ar­eas like Cape Town? I think not. Flood­ing a mar­ket un­for­tu­nately can lead to this very thing hap­pen­ing,” Klick says.

One way that car­ri­ers be­gan fight­ing the Gulf threat was by join­ing and cre­at­ing al­liances. What those al­liances do is help their af­fil­i­ated car­ri­ers work to­gether to pro­vide more op­tions and a bet­ter prod­uct of­fer­ing to pas­sen­gers. Cur­rently 29 of the world’s big­gest air­lines – in­clud­ing SAA – be­long to Star Al­liance, and 16 air­lines – in­clud­ing Air France/KLM and Delta – be­long to the Skyteam al­liance. The third ma­jor al­liance – Oneworld – in­volves 12 air­lines, in­clud­ing the likes of Bri­tish Air­ways and Cathay Pa­cific.

None of the big Gulf car­ri­ers be­long to an al­liance.

Lufthansa board mem­ber Kay Kratky says the Gulf car­ri­ers have changed the competition dra­mat­i­cally over the past few years. “The main way we’re deal­ing with it is with an in­creased fo­cus on prod­uct. We look at what our cus­tomers are ask­ing for and give it to them.” Kratky says an added ad­van­tage to a legacy car­rier is ex­pe­ri­ence. “We have more than 50 years of it. Along with ex­pe­ri­ence go re­la­tion­ships that have been de­vel­oped and built over the years.”

Kratky says now it’s not all about price of air tick­ets. “It’s more about value for money.” Lufthansa is in­tro­duc­ing up to 35 new air­craft into ser­vice each year to en­sure the av­er­age age of its fleet re­mains

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