Throughout the last two decades the gulf carriers have been competing with western counterparts mainly the European for air space, passengers and overall service. Now the competition is on for a new market, the $68 billion air freight market. Qatar Airways Ltd. and Emirates, already luring passengers from British Airways and Air France now intend to turn their bases into global cargo hubs.
The worlds biggest airline by international passenger traffic, Emirates aims to add as many as 18 cargo planes to its existing fleet in Dubai. While Doha based Qatar Air is converting 15 passenger jets to freighters and to keep up with its neighbor it also buying 33% of Cargolux Airlines International SA, Europe?s freight only carrier.
Further Emirates is on its way to build a fleet of 90 super jumbos and Qatar awaits delivery of 200 jets worth $35billion as part of a bid to persuade travelers to fly via the Gulf instead of London, Paris and Frankurt. This is sending out alarm bells to companies already under pressure.
Red lights are flashing at SkyTeam Cargo, which includes the freight arm of Air France-KLM Group which not happy about the expansion. ?We?re not blind,? SkyTeam Managing Director Michael Wisbrun said in Munich after a meeting of the alliance?s cargo chiefs. ?It will be tough. There?s no reason to have a hub in Qatar or the United Arab Emirates, and adding capacity with supply and demand as they won?t help the equilibrium.?
Qatar Air is very confident that by 2015 they will become one of the major players in cargo as the addition of Cargolux creates ?a very potential airline? says CEO of Qatar Air Akbar Al Baker.
Qatar is rapidly increasing its fleet. Currently it has a five strong freighter fleet of Airbus SAS A300s and Boeing Co. (BA) 777s. this number will rise to 16 planes with the addition of 11 Boeing 747 freighters from Luxembourg based Cargolux. The final total may reach 31 including the A330 passenger model earmarked for conversion.
Emirates has a total of eight 747 and 777 freighters, plus orders for five Boeing?s updated 747-8s and two 777s and nine options, giving a possible total of 24 dedicated cargo plans.
In expanding their freighter fleets the Gulf carriers are bucking a trend to focus cargo provision on the holds of passenger jets.
Paris-based Air France-KLM (AF), Europe?s biggest airline, moves 75 percent of its goods as belly freight and has 14 specialist planes, including five at Dutch cargo-only unit Martinair, while British Airways has just three leased 747Fs.
Even Lufthansa, the biggest cargo carrier among passenger airlines with a 50:50 split between belly freight and cargo aircraft, has only 18 Boeing MD-11 freighters at its main hub in Frankfurt. The Cologne-based company also operates six 747s through a business with China?s Shenzhen Airlines and eight 777s via a venture with Deutsche Post AG?s DHL Express.
Qatar Air?s passenger fleet provides belly space equal to about 25 freighters, Al Baker said. Airbus?s A380 double-decker, of which Emirates is the biggest operator, can carry 15 tons in its hold on average, and the single-deck Boeing 777 even more.
Fleet expansion has allowed Emirates, Qatar Air and Abu Dhabi-based Etihad Airways to add waves of frequencies radiating from their hubs, providing keenly priced connections to Europe, Asia, Australasia and North America. That?s led to clashes with more established rivals over the use of export-credit financing.
The gulf carriers are financed differently and that makes it easier to add capacity than if one has to stand at the banks door.
Competition is welcome
Air cargo volumes that currently account for just 2 percent of the global total are forecast to grow about 6 percent to 46.2 million tons this year and will increase at about the same rate for the next two-and-half-decades, the International Air Transport Association industry group said in March.
Emirates, whose record $1.6 billion profit for the year ended March 31 was twice of Air France KLM??s earnings for the same period, thereby only 20% of its plane purchases has employed export credit. European airlines are sore competitors, they don?t like it when other invade their space, but they need to learn to accept completion as the customers is in the drivers seat as said by Qatar?s Al Baker.
According to Ram Menon, Senior Vice President for Cargo, Emirates they intend to increase freight capacity to Latin America, Africa and Europe in the coming years. ?We?re in it for the long term, As the world becomes more globalised and economies move towards liberalization, capacity will need to improve. The wheels of commerce will not stop?.
Hot hub: Doha
Qatar, the world?s biggest exporter of liquefied natural gas, has an $81 billion economy and will likely see growth of 20 percent this year, the International Monetary Fund has said.
Qatar Air plans on building Doha into a ?variable hub? while meeting the need of the economy, Al Baker said. A $15 billion airport serving the city that?s due to open in 2011 will be able to handle 2 million tons of freight a year, more than enough to cope with the planned expaion of a carrier that moved 455,000 tons in 2009.
Even though they are neighbours, Qatar Air wants to distinguish itself from Emirates. Whereas the expansion of Dubai Al Maktoum International airport will accommodate a theoretical 150 million passengers a year, Qatar would ?never want? a hub bigger than one-third of that size, Al Baker said.
Its stake in Cargolux which serves 90 destinations will ?complement and supplement? Qatar Air?s own growth plans as both the carriers have contrasting networks/ Following the deal the pair may take reciprocal bookings via so- called code-sharing and could operate flights for each other.
However emirates has no plans in investing in outside airlines, Rgolux. ?What we?re seeing is a gradual maturation of the Gulf airlines,? said Seabury Group analyst Geoffrey Weston. ?Qatar is signaling that it?s going to push air freight as a major part of its service. Five years ago it and Etihad appeared to be chasing Emirates. Now we?re witnessing diverging strategies.?
SkyTeam?s Wisbrun said the Cargolux transaction amounts to a ?survival plan? for a carrier that couldn?t have survived as a freight-only operator and that the surge in capacity from the Gulf represents a setback for the global air-cargo sector. ?In times of high demand there is no issue, but if it?s added in times of low demand there will be an issue for the whole industry,? he said. SkyTeam members also include Delta Air Lines Inc. (DAL) and Korean Air Lines Co., which has one of the world?s biggest air-cargo operations.
Emirates reckons such a view is ?shortsighted? and that there will be more than enough demand in coming years to support extra capacity without it heightening competition, Menon said. ?If we doubled the capacity available in the market we would still not be able to satisfy the demand,? he said.