THE BLOG
21/11/2013 09:09 GMT | Updated 25/01/2014 16:01 GMT

The West Versus the Middle East: The Battle in the Sky

Airports speak volumes. Like tea leaves in porcelain cups; airports and airlines can reveal much about their parent country's fortunes.

It is not easy to dismiss the 17-21 November Dubai Airshow as just another middle eastern spending spree. In the heat, dust and hazy skies of 17th November the planned air display was cancelled as a sandstorm enveloped the 645,000 square metre venue. Undeterred sheikhs and airline executives paraded along aisles of parked jets. No, there was something else afoot. The very first day of the airshow at Al Maktoum airport saw deals worth £120 billion for commercial jets. The four local big players, Etihad, Emirates, FlyDubai and Qatar Airways ordered a total of 484 new planes.

Jim McNearney, CEO Boeing was all smiles as he presented Chairman of Emirates Group Sheikh Ahmed Al-Maktoum with a table-top scale model of a Boeing 777X plane. After all he had just sold more than £62 billion worth of planes. Emirates led the pack with 150 Boeing 777X planes valued at £47 billion. The aircraft is a larger and more fuel-efficient cousin of the popular 777. The airline also placed a more modest order for 50 Airbus A380 aircraft worth £14 billion.

It would be tempting to say that all is well with the airline industry. But is it really? After 9/11 the very first substantial market repercussions were felt by America's passenger airlines which were thought to be too big to fail. It took three years to recover the £14 billion revenue drop in the American airline industry between 2000 and 2001. Only by 2006 had airlines returned to profitability, albeit with an average margin of only 1.1%, only to plummet 14% in revenue with the global economic recession in 2008. While it is difficult to isolate the impact of the events of 2001, we can say that they were a part of a chain of events that cost the industry three years of growth. The 2008 global financial crisis cost another two years of growth.

As airlines and airports in the West struggled, many like Emirates and Etihad made hay. As emerging markets picked up steam, so did their airlines and their airports. Delhi, Singapore and Dubai all conspired to outdo each other in connections, in splendrous waterfalls and terminals. In particular, Dubai, Doha and Abu Dhabi have been constant in their efforts to appear as even more diversified financial hubs.

Gamechanger

The sheer scale of orders placed has its roots in the predicted year on year increase in air traffic through the Gulf region as hubs like Dubai and Abu Dhabi start to replace European airports as stopovers. It is sheer war over air routes and if the maxim about martial successes being dependent on money ever held true then the Middle East has already won. Not only do Emirates and Etihad have sovereign funds to back them up, they also have the home advantage of cheaper jet fuel and an army of low-paid airport workers from Southeast Asia at their disposal. Between now and 2030, Dubai wants air traffic at the new Al Maktoum airport to reach 160 million.

Sheikh Al-Maktoum made his stance clear, " We are buying a product from their countries. So why would they not allow us to fly to these airports? If they don't, they can take their planes back".

The battle of giants

Dubai has also become the sparring ground for Boeing and Airbus. In news recently for battery failures Boeing was dealt with a bloody blow in the Japanese market where Airbus gained prominence. To add to its woes, the Chicago based air manufacturing giant is looking for a new home after assembly workers rejected proposals that would have seen Boeing commit to 777X production in Seattle in return for restructured benefits.

The Dubai Airshow deal has come as a lifesaver. The latest sale has seen Boeing head off competition from rivals in the mini-jumbo market. Forget past misfires and technical problems and lets altogether shelve the lacklustre performance of Boeing's defence arm of business; Boeing's share price (NYSE: BA) has doubled in the last 12 months. Now, the company projects the size of its global fleet to double by 2030. This is an increase of more than 35,000 planes valued at £2.9 trillion. Meanwhile Airbus has started a sponsored campaign to set a minimum standard seat width of 18 inches on long trips, aiming to draw attention to what it says will be the 777's narrower seats.

Dubai vs London

Heathrow handled some 63 million passengers in 2003. This crept up to just under 70 million in 2012. It is currently operating at 98% of its capacity with no room for growth unless radical steps are taken. In the same period cargo increased from 1.2 million tonnes to 1.5 million tonnes. In the heated battle for passenger traffic from emerging markets traditional hubs like Heathrow are now fast becoming obsolete and ungainly dinosaurs. As Britain debates the third runway versus the proposed Boris Island, traffic at Dubai's new airport has increased by 50% over last year's number. With plenty of space to expand, an aversion to red-tape and a strategic use of its ports facilities Dubai has attracted airlines from over the world to shift their cargo hubs to Al Maktoum.

It is a wonder that Britain is no closer to a solution to the problem of accommodating extra traffic since Labour's white paper on the third runway expansion in 2003. With an investment of only £15 billion the runway would be cheaper than a rival hub option and bring in a net benefit of £100 billion; more than either Crossrail and HS2.

The review into capacity in the South of England, led by former London School of Economics and Confederation of British Industry boss Sir Howard Davies, will not publish its findings until after the next election. The consortium of more than 100 big British businesses called Let Britain Fly are pressing for rapid action and want the report's recommendations to be included in the manifestos of all three parties. They point towards an inextricable connection between international connectivity and economic competitiveness. On the other hand if the CEO of IAG, British Airways parent company is to be believed, the third runway will never be built as political parties will always place election campaigns over national interests. Even if the new runway is agreed to be built, it is likely to take more than ten years to materialise with a host of legal challenges in the fray.

Meanwhile if there is a lesson to be learnt from Dubai, it is this: evolve or move to second-tier.