IndexIntroductionResultsDemographics and geography of the Middle EastThe difficulties of traditional air carriersFuture for expansionResponse of other carriersConclusionsIntroductionOver the past decade, seismic changes have occurred in the industry of air travel in the Middle East. The rapid expansion of three Gulf-based airlines and the development of three major air transportation hubs in the region have brought large amounts of new air service to these cities, while these carriers' growing route network has placed great pressure on other established airlines carrying passengers. throughout the Eastern Hemisphere. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay Fifteen years ago, the region's air travel market looked very different. Only one airline, the government-owned airline Gulf Air, served as the national carrier for Bahrain, Qatar, Abu Dhabi and Oman. It operated services to Europe, Asia, Africa and Oceania; however, lacking a central hub, it did not aim to serve passengers traveling between those regions, instead focusing on origin and destination traffic to the Middle East. Traffic between these continents was left to carriers based on each end of the route. An example of this is the Kangaroo Route which refers to flights between Europe and Australia. Until the 2000s, the Kangaroo Route was dominated by Qantas and British Airways which operated stopover flights for fuel in South Asia (Schofield, 2012). These long point-to-point routes lack the efficiency and economies of scale provided by a centrally located hub. In 1985, Emirates Airline began operating as a small airline based in Dubai. This airline would later become one of Gulf Air's main rivals and spark the airline boom in the Middle East (“Our History,” 2012). Starting in 2002, states that had invested in Gulf Air began to withdraw and form their own state airlines with hubs in each's capital. By 2006, Gulf Air was fully controlled by Bahrain and Qatar Airways, Oman Air and Etihad Airways were formed in Abu Dhabi. Since these carriers' inception, three have grown significantly through the expansion of their route networks, fleet size and improvements to the airports where they are based. These are Emirates, Etihad Airways and Qatar Airways and have become known as the Middle East Three or ME3. In this memorandum I will analyze the factors that have enabled the expansion of ME3 and attempt to determine the effect that the growth of these companies has had and will have on other airlines. Findings Part of the growth in the Middle East air travel market can be attributed to trends that are impacting the industry globally. Over the past decade, long-haul airline tickets have declined, making intercontinental travel accessible to many more people. In the coach class travel market, consumers have become more price sensitive and tend to opt for the lowest fare over other factors such as comfort or route. This led to the launch of numerous no-frills carriers and caused full-service carriers to increase seat capacity and decrease free services in order to lower ticket prices and compete better. On the other hand, in the premium class air travel market, competition has focused on providing the most luxurious product in the sky (Smyth, 2008). ME3 outdid each other by installing showers, private rooms, bars and even an entire apartment in their cabinsfirst class. The introduction of codesharing and airline alliances has also allowed airlines to launch routes that may previously have proved unprofitable. Codeshare allows passengers traveling with one airline to seamlessly connect to a partner airline's flight and stimulates demand for flights between partner carriers' hubs. All ME3s have extensive codeshare relationships with airlines around the world, allowing them to sell tickets to more destinations and operate more comprehensive flights (“What the”, 2005). Qatar Airways is also a member of the Oneworld alliance, which allows them to share the code with all other member airlines, as well as coordinate flight times and reciprocate frequent flyer benefits. Demographics and Geography of the Middle East The demographic and economic changes of the Middle Eastern countries have also caused demand for air service in the region to grow, making the expansion of the Three Middle Eastern Countries possible. Gulf nations have seen extreme population growth, largely due to immigration. Qatar's population has experienced an average annual growth of approximately 15% over the past decade (“Population Growth,” 2015), while the United Arab Emirates has experienced a growth rate of approximately 14% (“Demographic Profile” , 2011). Expatriate and migrant workers in the UAE and Qatar have also expanded rapidly over the past decade. 84% of the UAE's population and 90% of its workforce are migrant workers, many of whom come from India, Bangladesh and Pakistan (Malit, 2013). This has spurred large demand for flights between Gulf countries and their workforce's home countries to serve workers starting and ending their contracts and returning home to visit family. There has also been great economic growth in the Middle East. Over the past decade, the United Arab Emirates has averaged 4.66% annual GDP growth (“United Arab,” 2015), while Qatar has averaged 3.81% (“Qatar GDP,” 2015). This economic prosperity has created demand for skilled workers, especially in the financial and banking sectors. The Dubai Economic Council has even stated that “Dubai is highly dependent on expatriates for continued economic growth and development” (Al Awad, 2008). Many of these expatriate workers come from Europe, East Asia and North America. As companies open new offices in cities such as Doha, Dubai and Abu Dhabi and send employees to these cities to conduct business, a large amount of corporate travel is created in the Gulf region, allowing air carriers to launch new routes and add capacity to other business centers. The ME3 also have a geographic advantage. The hub cities of these carriers are located on or near the shortest route between Oceania and Europe and are centrally located in the Middle East region for connections to other cities in the region. They are also located near the halfway point for travel between Europe and South Asia. These geographic factors make ME3 ideally located to handle traffic connecting these regions using a hub and speak model. Some examples of this are Air India, Kingfisher Airlines and Qantas. According to one aviation analyst (Manju, 2009), state-owned Air India has faced serious financial problems since it chose to "aggressively lease dry and wet planes to increase market share" in 2006 and unsuccessfully merged with Indian Airlines in 2007. They have since significantly reduced the scale of their operations, cutting routes and selling orleasing their long-haul aircraft to other carriers. The airline has sold five of its long-haul Boeing 777 aircraft to Middle Eastern rival Etihad Airways and is focusing on growing its short-haul operations (“Air India,” 2013). Civil Aviation Minister Ajit Sing cited foreign competition as the cause of the problems, saying: "The airline cannot be complacent because many new airlines are coming up. Both the management and employees of Air India have to work or die." (Phukan, 2013). Another, younger Indian airline, Kingfisher Airlines, died after going through a financial crisis resulting from non-payment of income taxes and subsequent bankruptcy. The airline, which for years had India's second largest market share, suspended all operations permanently in 2012 (“Kingfisher Airlines,” 2012). The downsizing of Air India and the elimination of Kingfisher from the market have come as a huge opportunity for ME3 carriers. Their hubs are geographically well positioned to serve traffic traveling between India and points westward and are based in countries with large amounts of migrant labor traffic to India. Qantas Airways has historically dominated the market from Oceania to Europe with its well-known Kangaroo Route; However, the airline's long-haul operations have recently generated significant losses, forcing the airline to implement cost-cutting measures and begin a restructuring campaign. This resulted in Qantas cutting 5,000 jobs, ceasing flights to Europe, growing its low-cost subsidiaries and forming codeshare partnerships with other carriers to carry the airline's traffic headed to Europe (“Qantas responds”, 2014). Middle East-based carriers have once again benefited from this airline's reduction in service. They have hubs that are on the straight line between Australia and Europe and are capable of handling large amounts of traffic connecting the regions. Qantas has chosen to discontinue its former flagship service to London in favor of routing passengers through Dubai on flights operated by codeshare partner Emirates (Leo, 2012). Future for Expansion The future for the Middle East Three continues to be bright. All three carriers have pending orders for significant numbers of large, long-range, widebody aircraft. Qatar Airways has orders for aircraft that will expand its fleet by more than 140% (“Our Fleet”). Emirates' fleet will expand by 130% and Etihad's will grow by almost 200% over the next ten years (“Our Fleet”, 2015). All ME3 carriers operate the world's largest passenger aircraft, the 500-passenger Airbus A380. Emirates plans to operate a fleet of 140 of these aircraft and is already by far the largest operator of this aircraft type (“Our Fleet – The Emirates Experience”, 2015). Carriers plan to add new destinations to their route maps as more capacity is added to the fleet with Qatar Airways opening at least four new cities within the next year. Etihad Airways has been particularly aggressive in growing through acquiring stakes in other carriers. Etihad bought 49% stakes in struggling airlines Alitalia and Air Serbia, rebranded Switzerland-based Darwin Airlines to Etihad Regional to funnel traffic from small European cities onto flights from Geneva to Abu Dhabi, and also holds large stakes in Air Berlin, Air Seychelles, Virgin Australia, Jet Airways and Aer Lingus. The airline has started what it calls the Etihad Equity Alliance,composed of all carriers in which the airline has significant investments (“Etihad Airways”, 2013). The airlines cooperate in a similar way to the three major traditional airline alliances; coordinating programs, launching co-branded marketing campaigns and implementing codeshare agreements. The base hubs of each of the ME3 carriers are also undergoing significant improvements. Doha Airport, Qatar, was recently completely replaced to provide additional services to its primary tenant, Qatar Airways and improve the passenger experience (“Hamad International”). Dubai International Airport, home to Emirates, is currently completing its master expansion plan with a new Concourse D and Terminal 2 expansion to be completed this year (Jain, 2011). Dubai also opened a brand new airport called Al Maktoum International Airport to which some smaller carriers have moved, making way for Emirates to expand into Dubai International (Cohen, 2010). Abu Dhabi International Airport is also being expanded with two new runways and a completely new terminal complex to facilitate the growth of Etihad Airways (“Terminal Complex”, 2014). The expansion of these airports will enable ME3 to further expand its operations, reduce congestion and make the hubs more attractive as connecting points for transit passengers. Response from other carriers Of course, the extreme growth of the Middle East air travel market and the expansion of Gulf-based airlines have impacted other players in the global airline market. This led other air carriers to make changes to their operations in response. To compete with the ME3, Turkish Airlines has expanded its hub operations in Istanbul to accommodate more connecting traffic. Also well positioned to handle traffic traveling from Europe to Asia, Turkish Airlines seeks to emulate the ME3 hub model in order to remain competitive (“Turkish Airlines”, 2013). The airline is also expanding its fleet of aircraft, with the fleet set to expand by approximately 75% (“Turkish Airlines – Fleet”, 2014). Turkish Airlines is also promoting the construction of the new Istanbul Airport to allow the airline to further expand and relieve congestion at Ataturk Airport. ME3's development of the Middle East air travel market and the ongoing demographic and economic expansion in the area have also led to the launch of several low-cost air carriers in the region that cater to more price-sensitive travelers who fly shorter routes. Air Arabia was founded in 2003 and operates from Sharjah, in an emirate not served by Etihad or Emirates. Profitable since its first year of operation, the airline's fleet and route network continues to grow. Competing more closely with Dubai-based Emirates, low-cost airline flyDubai was launched in 2009 operating regional routes with aircraft configured as coaches (Hofmann, 2009). They also continue to expand their fleet and move closer to being a full-service airline with the addition of a Business Class cabin in 2013 (Algethami, 2013). Strong competition from the ME3 has led a number of airlines to cancel long flights - transport routes more easily served by hubs in the Gulf region. As previously mentioned, the end of Qantas' Kangaroo Route and their choice to partner with Emirates on the route signals that the ME3's geographic and cost advantages have had a significant impact on the operations of other players in the air travel market. British Airways also stopped its service,.