Regional airline rivalry is set to drive down fares

The Middle East flight hubs are about to feel the squeeze

March 6, 2023

The aviation market has always been competitive. Airlines such as Emirates, Qatar and Etihad have built their businesses on taking passengers indirectly from Europe to Asia or the Indian subcontinent.

This competition has resulted in cheap air fares for any traveller willing to stop over at 3am in Dubai, Doha or Abu Dhabi.

It has also allowed those airlines to both expand their networks beyond their natural reach and develop more local traffic rather than rely on those connecting passengers.

As the table below illustrates, the slow but steady migration away from connecting traffic to local passenger demand is clear in Dubai.

In Doha that reliance on connecting flows will probably remain for the next 30 or 40 years given the local market demand relative to available capacity.

In Abu Dhabi strategic choices continue to leave the carrier exposed to the whims of connections.

Percentage connecting traffic at Middle East hubs from Western Europe

Airline & hub airport	2012	2015	2019	2022
Emirates, Dubai	69%	68%	64%	54%
Etihad Airways, Abu Dhabi	75%	85%	82%	79%
Qatar Airways, Doha	81%	86%	87%	80%

Source: OAG Traffic Analyser

And therein lies a number of looming issues for the big three Middle East carriers.

Unfortunately, connecting traffic within the industry shows as much loyalty to an airline as a professional football player does to a contract. For a cheaper fare with a moderately acceptable competing airline, passengers will switch their loyalty.

And while price is always important, factors such as a little bit of extra luggage allowance or a free hotel room for a night can sway even the most loyal.

As a result, the Middle East hubs are about to get squeezed unlike any other time in their history.

Middle East sandwich

Saudi Arabia and India, two of the largest markets from which the Middle East sources volumes of connecting traffic, have had enough and are about to fight back for not just their own share but a bigger share of the total market.

For many years travellers from Saudi and India saw connecting traffic fly over their heads into one of the Middle East hubs and then connect on elsewhere. In the last year both countries have decided they want that connecting traffic.

Saudi Arabian airlines were once considered underperformers, likely to cancel and with variable degrees of customer service. Connecting via a Saudi airport was almost impossible, visas were required, lengthy connecting times all too common and delayed flights could leave you stranded.

In recent years that has changed. Low-cost airlines have sparked some competition, massive expansion projects at the major airports and international management of those airports have improved the travel experience for everyone.

Saudi Arabia is in transition. Vision 2030 has some ambitious targets in terms of visitors to the kingdom and air passengers flying through the airports. Some 10 percent of GDP is set to come from tourism, with the launch of at least two major airlines, the relaunch of Saudia and creation of leisure resorts along the Red Sea coast.

By 2030 there should be 100 million visitors to the kingdom. That growth requires both a huge leap of faith and an even larger leap in connecting traffic for the numbers to stack up.

And the prime market from which to take those connecting flows are the Middle East hubs.

India’s aviation market might also be finally getting its act together, or more accurately, the Air India part of the equation seems to be getting sorted.

Bought by the Tata Group in 2022, the airline has just placed the world’s largest ever order for new aircraft with deliveries starting from the end of this year.

Air India’s ambition is to turn Delhi into a major hub with a number of new long-haul destinations planned including expansion into the US, Australia and Europe – markets that for many years flowed out from India via the Middle East hubs.

The planned expansion in India and Saudi Arabia will add over 700 wide-bodied aircraft to an already saturated market, with every one of those aircraft competing for the current connecting traffic that travels via the big three hubs.

It is impossible to see how demand can be created for that capacity without some extremely competitive pricing being adopted by some airlines and some snazzy product differentiation by others.

With this degree of competition air fares are going to fall. Supply will certainly outstrip demand, and that’s good news for travellers.

The bad news is that those fares are only likely to be for connecting traffic from markets such as Western Europe and Asia that will have at least three new alternate hubs to consider in the coming years.

John Grant is a partner at UK-based consultancy Midas Aviation