The Rise of the Emerging Middle East Carriers: Outlook and Implications for the Global Airline Industry
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The Rise of the Emerging Middle East Carriers: Outlook and Implications for the Global Airline Industry by Karim Al-Sayeh B.E. Civil Engineering M.Eng. Construction Management Vanderbilt University, 2010 Submitted to the Department of Civil and Environmental Engineering in Partial Fulfillment of the Requirements for the Degree of Master of Science in Transportation at the Massachusetts Institute of Technology June 2014 © Massachusetts Institute of Technology 2014. All Rights Reserved. Author: ________ Department of Civil and Environmental Engineering May 09, 2014 Certified by: Peter P. Belobaba Principal Research Scientist of Aeronautics and Astronautics Thesis Supervisor Accepted by: Heidi M. Nepf Chair, Departmental Committee for Graduate Students 2 The Rise of the Emerging Middle East Carriers: Outlook and Implications for the Global Airline Industry by Karim Al-Sayeh Submitted to the Department of Civil and Environmental Engineering on May 09, 2014, in partial fulfillment of the requirements for the degree of Master of Science in Transportation Abstract The development of the aviation industry in the Middle East over the past decade has captivated both industry watchers and passengers alike. The interest in the Middle East aviation industry is due to the fact that it has produced a new type of airline – the Emerging Carrier, specifically Emirates, Etihad Airways, Qatar Airways and Turkish Airlines. These Emerging Carriers have expanded rapidly over the past decade, frequently disrupting the status quo in aviation markets. This thesis analyzes the growth of the Emerging Carriers over the past 10 years, across major inter-regional travel markets. Airline schedule data is used to determine how these markets have grown during that time, as well as how the Emerging Carriers have contributed to that growth. A forecast of the potential deployable capacity of each of the Emerging Carriers in 2020 is developed, in order to evaluate the implications of their continued rapid growth. This forecast is evaluated against industry forecasts in order to assess the viability of their growth plans through the end of the decade. By 2013, the four Emerging Carriers collectively accounted for over 50% of the available capacity from the Middle East to Europe, Asia, North America and Africa. They currently have over 600 aircraft on order, the majority of which are widebody aircraft. By the end of the decade their fleets are forecasted to double in size, which would rank all four of them among the world’s 20 largest airlines. The forecast developed in the thesis projects that they will account for over 90% of the capacity in several major inter-regional travel markets to and from the Middle East. Their rapid expansion over the past decade was due to both an increase in demand for air travel, and a diversion of passengers from other carriers. Our projections indicate that their planned growth through the end of this decade may outpace the increase in demand, thereby resulting in an overabundance of capacity. Thesis Supervisor: Dr. Peter Belobaba Title: Principal Research Scientist of Aeronautics and Astronautics 3 Acknowledgments This thesis marks the end of my two year journey as a graduate student at MIT. During that time I have had the pleasure of working with some of the most intelligent and remarkable individuals, without whom I would not have been able to complete this thesis. First and foremost, I would like to thank my thesis supervisor and research advisor, Dr. Peter Belobaba. His guidance and support have been indispensable during my time as a graduate student. I am extremely fortunate to have been able to benefit from his knowledge and wisdom, both as a student and as a research assistant. During the course of writing this thesis, he was always readily available to provide feedback and help in furthering my research efforts. Secondly, I would like to thank the members of the airline industry consortium. Their support for the various airline research programs at MIT is greatly appreciated. The input and feedback provided during the consortium meeting presentations was very valuable, and helped me better understand the realities of the airline industry. I am extremely fortunate to have worked alongside the exceptional members of the International Center for Air Transportation. It has been a tremendous learning experience, and I will remember with fondness the time spent discussing the latest developments in the airline industry with them. I would like to especially thank Mike Wittman, Eric Hao, Daniel Fry and Tamas Kolos-Lakatos. The last two years have been remarkably memorable and enjoyable, due in large part to the experiences we shared together. 4 Table of Contents Abstract 3 Acknowledgements 4 List of Figures 7 List of Tables 8 Chapter 1) Introduction 10 1.1) Introduction 10 1.2) Background on the Global Commercial Aviation Industry 10 1.3) Recent developments in the global aviation industry by region 15 1.4) Background on the aviation industry in the Middle East 17 1.5) Previous studies of commercial aviation in the Middle East 19 1.6) Objective of thesis 23 1.7) Structure of thesis 24 Chapter 2) Types of Airlines in the Middle East 25 2.1) Introduction 25 2.2) Background 25 2.3) The Emerging Middle East Carriers 27 2.3.1a) Emirates 30 2.3.1b) Turkish Airlines 31 2.3.1c) Qatar Airways 32 2.3.1d) Etihad Airways 33 2.4) Low Cost Carriers in the Middle East 34 2.4.1a) Pegasus Airlines 36 2.4.1b) Flynas 37 2.4.1c) Flydubai 39 2.5) Legacy Carriers in the Middle East 40 2.5.1a) Saudia 41 2.5.1b) Royal Jordanian 42 2.6) Conclusion 44 Chapter 3) Regional Capacity Analysis between the Middle East and Select Regions 45 3.1) Introduction 45 3.2) Analysis of Commercial Passenger Aviation Services from/within the Middle East (2004 – 2013) 45 3.2.1) Middle East to Europe (Sept 2004 – 2013) 48 3.2.2) Middle East to North America (Sept 2004 – Sept 2013) 56 3.2.3) Intra-Middle East (Sept 2004 – Sept 2013) 64 3.2.4) Middle East to Asia 72 3.3) Conclusion 81 5 Chapter 4) Global Impact of the Emerging Carriers’ Growth 83 4.1) Introduction 83 4.2) UAE- Canada dispute 83 4.3) Diversion of Passengers from other carriers 87 4.4) The emerging carriers and the European big three 92 4.5) Emirates and Qantas 98 4.6) Etihad’s codeshare and partial ownership model 101 4.7) Relationship with Aircraft Manufacturers 104 4.8) Conclusion 108 Chapter 5) Outlook for the Emerging Carriers through 2020 110 5.1) Introduction 110 5.2) Emerging Carrier Capacity Forecast 2020 110 5.2.1) Current emerging carrier fleet size and composition 111 5.2.2) Current fleet operating statistics 112 5.2.3) Aircraft orders and delivery dates 114 5.2.4) Assess likely aircraft retirements 115 5.2.5) Create 6 year fleet plan (2014-2020) 118 5.2.6) Calculate deployable capacity in 2020 120 5.3) Assessing the 2020 emerging carrier deployable capacity forecast against airline industry forecasts 123 5.3.1) Assessing Boeing’s Middle East Traffic Projections 125 5.3.1.1) Determining Boeing’s Projected Middle East Airline Traffic Flows in 2020 126 5.3.1.2) Determining Middle East RPK Share by Carrier Type in 2020 128 5.3.2) Assessing Boeing’s Europe Traffic Projections 133 5.3.2.1) Determining Boeing’s Projected Europe Traffic Flows in 2020 133 5.3.2.2) Determining Europe RPK Share by Carrier Type in 2020 135 5.3.3) Summary of Forecast Assessment 137 5.4) Impact of the emerging carriers projected growth on their hub airports 138 5.4.1) Abu Dhabi International (AUH) – Etihad Hub 141 5.4.2) Doha International Airport (DOH) – Qatar Airways Hub 142 5.4.3) Dubai International (DXB) – Emirates Hub 143 5.4.4) Istanbul Ataturk Airport (IST) – Turkish Airlines Hub 145 5.5) Conclusion 146 Chapter 6) Conclusion 148 Appendix 154 References 160 6 List of Figures Figure 1.1 2013 Share of Global Flights by Alliance 14 Figure 1.2 Share of flights operated between Europe and Asia by Alliance 15 Figure 2.1 Timeline of Selected Arabian Gulf Carriers 26 Figure 2.2 Estimated Populations within 5 hour flight times of the Middle East and Europe 28 Figure 2.3 Emerging Carrier Aircraft Orders (Nov 2013) 29 Figure 2.4 Growth in Flights at Sabiha Gokcen (2004 – 2013) 36 Figure 2.5 Annual flights operated by Flynas (2007-2013) 38 Figure 2.6 Royal Jordanian profitability by year 43 Figure 3.1 Flights from the Middle East by carrier type (2004-2013) 47 Figure 3.2 Growth in flights from the Middle East to Europe 49 Figure 3.3 Share of flights from the Middle East to Europe by airline type 50 Figure 3.4 Annual changes in capacity from the Middle East to Europe 51 Figure 3.5 Growth in flights from the Middle East to North America 57 Figure 3.6 Share of ASMs by carrier type in the Middle East to North America market 58 Figure 3.7 North American Destinations by Carrier Type 59 Figure 3.8 Flights added at top 3 origin airports by carrier type 62 Figure 3.9 Growth in flights within the Middle East (2004 – 2013) 64 Figure 3.10 Flights by type of market in the Middle East 65 Figure 3.11 Flights by carrier in domestic Turkish market (2010 – 2013) 66 Figure 3.12 The ten largest carriers in the Middle East by flights (2013) 67 Figure 3.13 S-Curve Model (Market Share vs.