The large connecting carriers of the Persian Gulf region, body punched by the Iran war, are creeping toward prewar capacity levels.
Kristian Coates Ulrichsen
While some industry stakeholders expect Emirates, Qatar Airways and Etihad to regain their mojo quickly once the fighting ends, the notion that the United Arab Emirates (UAE) and Qatar are largely insulated from Middle East instability has been shattered. The impact from that could linger.
"It just depends on how long this state of uncertainty lasts," said Kristian Coates Ulrichsen, Middle East research fellow for Rice University's Baker Institute, a nonpartisan think tank.
Collectively, Middle East airlines will suffer net losses of $4.3 billion this year and lose $21.40 per passenger flown, according to an IATA forecast released at its Annual General Meeting on June 6.
Despite those dismal figures, IATA's leadership sounded a bullish note for the future of the Middle East connecting model and for the so-called Gulf 3 of Emirates, Qatar and Etihad.
"My strong view is that this is not a structural change we're seeing," IATA director general Willie Walsh said. "The Gulf carriers will regain their position once we see stability in the region. I don't think the model of the Gulf hubs is undermined or damaged by the short-term impact we've seen."
Walsh explained that aircraft constraints will help protect the Gulf 3's long-term position. As flights were canceled en masse across the Gulf in March and April, European and Asian carriers added capacity on long-haul routes between those two continents. The increases, though, were only marginal because the airlines didn't have the spare aircraft required to do more.
Other bulwarks include the Gulf 3's strong service reputation, the size of their networks and the quality of the airports in Dubai, Doha and Abu Dhabi, said Kamil Al-Awhadi, IATA's regional vice president for Africa and the Middle East.
To discount or not to discount?
Still, IATA said Middle Eastern airlines could have to discount fares to bring back passenger volume.
"In the longer term, structural advantages should support a recovery in traffic, although potentially at lower margins, which could reshape the economics of the hub-based model," IATA said.
The Gulf 3 carriers are pushing back against the notion of discounting.
In a Financial Times interview, Etihad CEO Antonoaldo Neves said the Abu Dhabi-based carrier will eclipse its prewar capacity by June 15 with prices at a pre-war level — though not at a level needed to pass along higher fuel costs.
The CEO said the idea that Gulf 3 carriers need to cut prices was "bullshit."
Emirates and Qatar Airways haven't rebuilt capacity quite as quickly. Both airlines are scheduled to fly 18.4% fewer seats this June than last, according to airline data company OAG.
In a Reuters interview, Emirates CEO Tim Clark said the carrier would roll out incentives aimed at winning back customers, but they'll be focused on safety and reliable travel connections rather than fare discounts.
Reliability is likely to be a traveler concern, at least for a while, when they consider connecting itineraries through the Gulf. And because of the war, much remains outside the airlines' control.
For example, Ulrichsen noted that on May 2 the UAE lifted all airspace restrictions, only to bring back some restrictions after Iran launched missile and drone attacks on May 4. In Kuwait, the airport's international Terminal 1 reopened on June 1 but then was struck by an Iranian drone on June 3, killing one person and injuring more than 60.
"What type of normal is it if you're always living under the shadow of things that could happen?" Ulrichsen said.
Dubai's uncertain future
Bringing back connecting flyers won't be the only factor during a recovery. The Gulf 3 also need a strong resumption of origin-and-destination flying.
That's especially the case for Emirates, whose hub city of Dubai is a global tourism and business destination that recorded 19.6 million overnight visitors last year. Peace by the fall would be critical for Dubai, ahead of its primary visitation season over the cool winter months.
But even that might not be enough to overcome the shattered image of Dubai as a safe haven in the Middle East. During the war, Iran targeted Dubai and the wider UAE, a U.S./Israel ally, with missile and drone strikes.
"Dubai really marketed itself as being in the region but not of the region; that I think will take a while to recover from," Ulrichsen said.
Also, Abu Dhabi and Qatar's capital of Doha had reputations as premier destinations for meetings and conventions, and that business could take a while to rebound.