Coming to America

Carriers in the Gulf are starting to target the North American market. Emirates launched services to New York last year in a wave of publicity and others are set to follow, reports Randy Watson.

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By  Randy Watson Published  May 31, 2005

|~|3405246USforweb.jpg|~|Emirates first class cabin|~|Expanding as fast as it has, it was only a matter of time before Emirates declared that it would serve the United States. Indeed, there were those who said that Dubai’s carrier had merely run out of other destinations and still had hundreds of new aircraft that would need cities to serve. Perhaps, but the April 2004 announcement that one of the carrier’s newly delivered Airbus A340-500s would connect the emirate with New York still created a sensation considerably greater than the addition of another city to its route map normally would. And indeed, it was not much later that several other airlines from the region announced that they, too, would connect their home airports with the largest city in the US. A year after its first flight, however, Emirates remains the only Arab carrier landing at Kennedy Airport on a daily basis. So how is Emirates faring with its transatlantic flight and what is the status of the competition’s plans to add North America to their route maps? “The route is doing very well.” That is the summation of the performance of Emirates’ most ambitious service by Nigel Page, the airline’s New York-based senior vice president for commercial operations, Americas. Page admits that it took some time for the flight to catch on, and that the cost of fuel has hurt its bottom line, but says that the market has been an unequivocal success. He says that, since December, the 14-hour flight has had load factors in the 80% range, with a jammed business class cabin and good overall yields, too. Addressing the costs involved, Page explains that the increased prices commanded by kerosene means that fuel now accounts for 21% of Emirates’ total costs, up from its historic level of 14%, a development that is especially punishing to longer stage-length flights. This phenomenon, he says, is why the carrier will not launch its second flight to North America this month, as had been planned. Even so, the New York route is doing sufficiently well, even against this backdrop, that Page says another US flight will come online sooner rather than later. The Emirates’ planning department is examining Los Angeles and other cities on the West Coast, as well as destinations in the Midwest, and Page also believes that “New York could easily take a second daily service.” For now though, the carrier must wait for the delivery of additional A340-500s before any new transatlantic flying can begin. Its newly delivered Boeing 777-300ERs do have the range to reach the East Coast of the US, but they do not have the crew rest facilities necessary for long-haul service. Aside from Emirates, there are few other direct services between the Gulf and North America at present. Saudia flies twice a week non-stop from Jeddah to JFK, while Kuwait Airways has five flights a week to JFK, including three via Heathrow, and two weekly flights to Chicago via Amsterdam. However, as part of the carrier’s plans to simplify its operations, it is looking at pulling out of O’Hare and instead focusing on JFK. “We are thinking of shifting the two Chicago flights to New York in order to have a daily service, and... just one point in the US as our gateway,” says Sheikh Talal Al-Ahmed, chairman & managing director, Kuwait Airways. However, other Gulf carriers are now chomping at the bit to start US services. Qatar Airways has consistently made noises about touching down in New York, and even ordered a specially engineered, longer-range version of the A340-600 to enable such a flight. But it thus far can only sit on the sidelines watching the action. The carrier’s CEO, Akbar Al-Baker, explains its non-participation so far by pointing to governmental hurdles. “We are just waiting for the completion of the regulatory requirements before we launch services to the US. There are very complicated requirements now, especially since 9/11,” he comments. Outwardly Al-Baker remains undaunted, however, saying that the fast-expanding carrier still intends to “start services initially to fly to New York, and then we have plans to expand to other destinations... We may be able to give more details on destinations next year.” Etihad Airways, another Gulf region upstart, has also spoken of serving North America, and pointed to New York when explaining its order for 777-300ERs, the first of which will arrive in the carrier’s Abu Dhabi base in October. However, the airline, which also has four A340-500s on order, plans to serve Toronto first, with flights expected to begin before the end of the year. “Eventually, I foresee that we will spread out and I hope to include New York. However, I think it is more probable we will start with Canada and then, when we have experience in that region, we will head to New York as well,” explains Ian Ferguson-Brown, head of marketing at Etihad. “There is quite a large two-way demand [between Canada and the UAE], primarily because there is a large Canadian population in the emirates who work here, then there are those who do business here occasionally and also the family and friends network,” he adds. “Equally, there is a growing Arabian community in Canada, which is why we see this as a huge potential market.” Gulf Air too has said the US will one day feature among its destination offerings, but for now it serves America exclusively through its codeshare agreement with American Airlines, which it offers through London. That situation is unlikely to change in the short term, according to vice president for network, John Shepley, as the carrier simply does not have the fleet to serve the US. Its current long-haul workhorse — the A340-300 — does not have the legs to make the Bahrain-New York hop. ||**|||~||~||~|The carrier has explored numerous avenues around this technical constraint, initially with a view towards serving Sydney non-stop (it currently flies to Australia’s largest city via Singapore). Shepley says that the carrier considered taking on some of the A340-500s that Air Canada ordered but never took possession of, but came away from the analysis doubtful that the aircraft could facilitate profitable flying, especially with today’s oil prices. “The aeroplane burns 23% more fuel than the -300, and has considerably less capacity. We just did not think we could get a high enough yield on 240 seats to make any money.” Even so, Shepley says that the carrier will serve the US, something he says it will have to do to remain competitive in the region. Putting forth 2007 as the likely roll-out date, he says Gulf Air will probably undertake a re-fleeting exercise in the next half year, and that this project will likely see more fuel-efficient aircraft, such as Boeing’s 787 or the Airbus A350, join the company’s stable. He also says that it is possible that a US carrier would fly to Bahrain with the Gulf Air code. A planner with the international network department of a US major says this is perhaps wishful thinking. While he concedes that fares to the Middle East are tantalisingly high at present — something thought to be driven by US contractors travelling to Iraq — he quickly adds that analysis has shown that a non-stop service to a Gulf destination would be a likely money loser. “There is no single destination with high enough yields and the population necessary to support direct flying. We feel that we can do better flowing the traffic over Europe, where our alliance partners can take passengers to just about any city in the Middle East.” Commenting on the ostensible success of Emirates’ service, he adds: “Adding the US to their route map has much bigger benefits to their network than adding their main hubs will have for ours. Without a connecting complex behind it, it is tough to make those markets work for US carriers.” For his part, Shepley concedes that getting a US codeshare partner to make the long flight to Bahrain will be a tough sell, and that Gulf Air therefore anticipates flying the route itself. With Emirates, the other major Arab carrier to the US is Royal Jordanian, which uses its A340-200s to serve JFK four times a week, Detroit twice, and Chicago four times (twice non-stop and twice in conjunction with its Detroit flight). RJ has had good success with its services to North America, with marketing manager for the US, William Connors, explaining that the carrier has benefited from renewed origin and destination traffic journeying to Jordan for tourism and religious travel. He also says that the carrier’s twice-daily service to Baghdad has served to bring enhanced business traffic aboard its transatlantic flights. Connors also says that the flights to and from the US have been aided considerably by Jordanian’s codeshare agreement with America West, which he says brings visiting friends and relative (VFR) traffic from the Arab communities that dot the southwest quadrant of America. As a result, the services carry considerable numbers of connecting passengers bound for regional cities, such as Beirut, Cairo and Damascus, as well as for the Indian subcontinent. But looking at the experience of Royal Jordanian is perhaps not instructive for considering the wisdom of flying from the Gulf to the United States, as Jordan’s large population base and foreign diaspora — both key drivers for the critical O&D market — are features not shared by the country’s Gulf brethren. So what is the likelihood that the carriers from the much more sparsely populated Gulf states can generate a positive financial return on their North American services? Count David Treitel, chairman of the airline consultancy SH&E, as one who thinks that finding traffic, at least, will not be the problem. “The growth in the region and its position to capture connecting passengers from the Indian Subcontinent, Africa and Southeast Asia should enable the carriers to attract sufficient traffic,” he says. However, the head of the New York-based firm, which has years of experience advising Middle Eastern carriers, quickly adds, that getting a profitable yield will be considerably more challenging. The consensus seems to be that, if anyone can make the route produce black ink, it is Emirates. Although Dubai does not have a huge population base, the city has become the region’s de facto business centre, a fact that will serve the emirate’s flag carrier well as it looks for passengers willing to pay a premium to sit in the front cabins. EK’s man in New York, Nigel Page says this fact has already begun to pay dividends, pointing to the flight’s 60-40 O&D-to-transfer ratio to buttress his point. SH&E’s Treitel also believes Emirates will benefit from both the nature of its traffic base, as well as its first-mover benefit, which he says is significant. “The key to the route will be the ability to attract first and business class traffic, and Emirates has the inflight product and route network to do that.” Looking at the second feature, he remarks that the greater market looks to have enough business demand for one carrier, but that “the second carrier in will have a hard time catching up.” Page would seem to agree on both points. Addressing the likely advent of competition across the Atlantic, he says: “Is Bahrain or Doha big enough to support non-stop service to US? I would say not, but those carriers will have to do the sums themselves. In any case, and even with competition, we are not concerned about our future in the market.”||**||

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