Economy could take toll on luxury of Middle East airlines

On a Dubai-New York flight on Emirates airlines late last year, Jeff Rosenthal awoke in his first-class private suite with a craving for vanilla ice cream covered in chocolate.

Still in his pajamas, the textile executive from New York asked a flight attendant if the dessert was a possibility.

"She grabbed a martini glass and scooped some ice cream on it, but she couldn't find chocolate syrup. She just replaced it with chocolate liqueur. I had it in five minutes," says Rosenthal, who flew the Dubai-based carrier 57 times last year as he met with suppliers and vacationed in Bombay, Mauritius, Johannesburg, Maldives, Seoul and Singapore.

At a time of global economic meltdown, the top airlines in the Persian Gulf region — Emirates, Doha's Qatar Airways and Abu Dhabi-based Etihad Airways — continue to expand. They're adding new planes and luxurious services unimaginable in the USA at a time the rest of the industry is retreating.

But there are some ominous signs on the economic horizon, raising questions about when the good times for the world's elite airlines could start to taper off.

Most American travelers have never heard of these carriers. Etihad didn't start flying until late 2003. Aided by strong backing from their governments, they reached for the sky, with the ambitious goal of turning their home bases into international hubs.

By rolling out some of the industry's newest planes and touting their unique location on the globe, the Gulf carriers have expanded routes rapidly to Asia, Europe, Africa and in North America, with the aim of overtaking industry stalwarts in premium international flying, such as Singapore Airlines, Lufthansa and American Airlines. They're positioning themselves as the world center, where travelers can connect between Europe/North America and Asia/Africa/Australia and spend lavishly at some of the world's finest duty-free stores.

Air traffic growing fast

Since 2000, passenger traffic to and from the Middle East grew by 75% to about 170 million, partially fueled by the region's building boom as contractors, multinational executives, bankers and nannies arrived to fill vacancies unaddressed by the areas' small labor pools. Rising oil prices that have enriched their primary shareholders — their governments — also fueled the airlines' fortunes.

"Abu Dhabi, Dubai and Qatar have each realized the critical importance that a successful aviation sector can deliver to an economy," says James Hogan, CEO of Etihad Airways.

Emirates, the largest and most established of the Gulf airlines, boosted its capacity by more than 240% since the end of 2000, according to data by OAG — Official Airline Guide. Qatar Airways, the country's national carrier, has grown more than six times during the same period, including service from Houston that will start at the end of March.

Etihad started flying in late 2003 from Abu Dhabi on a government mission to launch a national carrier on par with nearby Dubai's Emirates Airlines. Etihad now flies to 50 destinations worldwide. Earlier this year, the heavily courted airline announced that it will begin flying to Chicago starting in September, its third city in North America after Toronto and New York.

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