21 November 2005
On 16 November, UK-based Virgin Airlines officially unveiled plans for a Middle East operation. The move to start four flights weekly to Dubai reflects just how significant the Gulf has become - not only as a business and leisure hub, but also as a transit point between Europe and Asia. While Europe's elite carriers - Air France-KLM, Lufthansa and British Airways (BA) - have been the dominant force for the best part of a quarter of a century, they are being seriously challenged by the younger generation of airlines.

The emergence over the past two decades of three long-haul Gulf carriers - Dubai-based Emirates, Qatar Airways and Etihad Airways in Abu Dhabi - is revolutionising the regional aviation landscape. All three have consistently recorded annual growth of 20-40 per cent, stacking up billions of dollars worth of orders in the latest and most efficient aircraft. They have also introduced aggressive pricing strategies. Air France chief executive Jean-Syril Spinetta reiterated in October his concerns about the competition - but Europe's major players are, on the whole, taking a pragmatic approach.

'Let me put this to you,' says Uwe Wriedt, Lufthansa's UAE general manager for passenger sales and director for the Gulf and Pakistan. 'Have you ever heard of fair competition? Competition is competition. You cannot say it is fair or unfair. If someone is aggressive you have to be creative and flexible to face them.'

Lufthansa is not fazed by the emergence of the new airlines, especially as it already holds several competitive advantages. Its main hubs at Frankfurt and Munich are well established, serving more than 100 million passengers a year worldwide. 'We cannot compare ourselves with them as we have 85 per cent transit passengers into our network,' says Wriedt. 'We are not a point-to-point airline.'

Airborne alliance

Those passengers are equally well served by the Star Alliance system, which covers more than 800 destinations across the world. BA's membership of the One World Alliance also gives it a wide network that national carriers have difficulty competing against. 'Through our partners we are always just one stop from the final destination, which appeals to our business travellers,' says Wriedt.

And the signs are that Lufthansa is finding plenty of room in the Gulf market in particular. From January to October, it witnessed a 30 per cent increase in passenger numbers, compared with the previous year, and a 32 per cent rise in first and business class travellers. The business passenger has been a key area in which European airlines feel they have the advantage over their Middle East counterparts.

Lufthansa, in partnership with Frankfurt Airport, has invested $40 million to build the world's only first-class passenger terminal at the airport. The whole terminal caters to fewer than 40 passengers at a time and has the look, feel and service of a five-star luxury hotel. Passengers even have the option of being chauffeur-driven to the aircraft in a Mercedes S-Class or Porsche Cayenne.

'Investing money in the high-yield corporate customer is extremely important as they travel a lot and need that extra comfort,' says Wriedt. 'The Middle East is a vital growth area in terms of that business traveller.'

Like Lufthansa, BA has increasingly focused on developing its in-flight services and comfort to keep ahead of the competition. It is the only airline that provides flat beds in business class and is introducing new in-flight service technology to reduce meal times and enhance cabin services. 'These are little things that mean people will have a better experience and unless we do them first, then our competition will do them,' says Steve Harrison, BA general manager for the Middle East, North Africa and Central Asia.

BA in many ways has the most at stake in the region. It remains Europe's larges

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