The New Silk Road
All paths lead back to the Middle East
Quick, name the global airport with the most international travelers.
Is it London Heathrow, many would ask, which indeed held the record until this year? Atlanta, still the busiest airport in terms of total passengers and aircraft movements? Hong Kong, Paris Charles DeGaulle, Tokyo Narita, Frankfurt? All huge, venerable airports, lynchpins of the global economy. But the airport with the most international travelers is one that was barely a footnote thirty years ago: Dubai.
The rise of Dubai airport has closely paralleled that of the city itself, which transformed from a sleepy port city to a glittering playground of conspicuous consumption, boasting some of the world’s largest buildings, luxury extravagances and expatriate populations. The change largely came about because oil was discovered nearby, leading to an enormous economic boom. Dubai’s then-leader, the royal Maktoum family began to pour money into modernizing the emirate and turning it into global business hub. Expatriates poured in from all over the globe, from Indian laborers to British stockbrokers to Chinese traders. So the emirate invested in one of the critical necessities of such international cities, a symbol of prosperity that virtually every small nation covets: its own airline.
Emirates Airlines was formed in 1985. Like other such organizations in Dubai, it was funded by the government and largely run by experienced foreigners under the supervision of the royal family. Its start was modest, with a handful of used aircraft flying to regional capitals and eventually a few of the standard European and Asian hubs. Both the city of Dubai and its airline grew quickly, but the leadership had bigger game in mind.
Emirates is located roughly halfway between Europe and Asia, which made it an ideal place to exchange goods from both continents, and a very well-situated transfer point between Asia and Africa, Europe and India. The Silk Road and sea trade routes ran through the region for centuries, as did some early air routes before the development of intercontinental-range passenger jets.
Modern technology allowed European and Asian airlines to fly direct routes between major hubs on either end, giving airlines like Lufthansa and Singapore Airlines dominance. But the razor-thin financial margins and nonstop schedule of the airline business allows Emirates to exploit a seemingly narrow advantage: the longer the flight, the more fuel an airplane must carry to fly it, and more fuel means offloading passengers or cargo to stay under maximum weight restrictions, so it costs more to haul fewer people. A stop about halfway means more people per plane, requiring less fuel, therefore more money and lower costs than nonstop competitors. With the right geography, cheap fuel and an enthusiastic government unhampered by pesky labor laws and noise ordinances, Emirates already had substantial advantages over its competitors that enabled massive growth.
Go big or go home, the saying goes, but Emirates did both – the airline built new terminals at Dubai’s current airport, and the government helpfully built a newer, larger airport, Dubai World, which is slowly being completed. Critically, the airline decided to buy big, widebody aircraft in huge quantities, establishing economies of scale rapidly, relying on the lower cost of hauling one seat one mile (the US market, in contrast, demands more frequent flights, requiring smaller planes with higher costs per air seat mile). Just how impressive their fleet growth is cannot be overstated: With a total of 120 orders, Emirates is by far the world’s largest operator of the 777 (United Airlines, the largest US operator, has about 80); it has also ordered 150 of its successor, the 777X, nearly ten times more than any other single customer thus far. Same for the behemoth Airbus A380, of which the airline has ordered some 140 to date, and has come down strongly in favor of a re-engined version to replace them. Many orders, however, are for replacement of older aircraft rather than expansion, and Emirates evidently plans to retire aircraft well before their designed 25-30 year shelf life, saving a lot of maintenance headaches.
Nearby competitors have come to the same conclusions, and, riding the same waves, they too have become world-class airlines. Emirates is but one branch of the Middle East Three, a group of expanding airlines from the Persian Gulf (the others are Qatar and Abu Dhabi-based Etihad) that compete against one another for roughly the same transfer markets. European and, to a lesser degree, North American airlines have been objecting loudly as the Middle East Three poach valuable market share.
The traditionally dominant airlines, such as Air France and Lufthansa, are facing duel pressures – low-cost carriers are eating the regional market with unbeatable ticket prices, and Middle Eastern airlines (especially Etihad) has been on a European buying spree, taking major stakes in Air Berlin and Alitalia, amongst others. Emirates, which has eaten much of the Europe-Asia market, has secured fifth freedom rights on the Milan, Italy-New York route. The venerable and respected Australian airline, Qantas, that for so long dominated the so-called Kangaroo Routes between Australia and the UK, has effectively cried ‘uncle’ and established a mini-hub in Dubai with Emirates, allowing their customers connections to far more places than Qantas has capability to fly.
It's a strange new world for the old airlines, competing against these Middle Eastern upstarts, and they may simply have to get used to not being the apex predator.