As 2019 came to a close, the global airline industry celebrated a decade of extraordinary growth and strong profits. An air travel revolution had taken hold. Some 4.5 billion passengers boarded flights that year, more than at any time in history, and around 35 billion took to the air over the decade.

Gulf Arab carriers became major growth drivers of this air travel revolution. The “Big Three” airlines – Emirates, Etihad Airways, and Qatar Airways – became household names, their logos emblazoned on global soccer jerseys, and their wide-body fleet of Airbus and Boeing aircraft ubiquitous at major airports. Emirates, in particular, emerged as a symbol of luxury air travel and a powerful people mover that transported some 500 million people over the decade.

Meanwhile, low-cost carriers, such as Sharjah-based Air Arabia and Dubai-based flydubai, delivered a strong 2019 flying a total of nearly 22 million passengers, contributing to the United Arab Emirates’ position as a global air hub. Dubai International Airport retained its position in 2019 as the busiest international air hub for a sixth year in a row, and UAE airports combined registered more than 110 million passengers in 2019, nearly 6% of all international air traffic.

Then, the pandemic hit.

The coronavirus that emerged in Wuhan, China in late 2019 changed the world – and dramatically disrupted air travel. Around 40 to 50 airlines globally have entered bankruptcy or are restructuring, and Gulf Arab carriers have experienced the worst crisis in their young histories.

When UAE authorities shut down all air travel in late March 2020, they were exercising the “nuclear option.” After all, by shutting down the airports, the UAE was shutting down roughly 13% of its gross domestic product and an industry that supports 800,000 jobs, according to the International Air Transport Association. For Dubai, the hit was even harder as the aviation industry accounts for more than one-quarter of its GDP. The pain was also keenly felt in Qatar, where aviation accounts for 11% of its GDP.

The pandemic and shutdowns likely accelerated a restructuring process underway at Etihad Airways since early 2018. New Etihad CEO Tony Douglas has been leading a 5-year turnaround project aimed at restoring profits by 2023 after the airline’s previous strategy of purchasing equity stakes in airlines worldwide saddled the carrier with debt and proved a failure. In a November 2020 statement announcing “bold changes,” he declared that the company is “taking definitive and decisive action to adjust our business and position ourselves proudly as a mid-sized carrier.”

While the traditional Big Three, as well as a surging group of low-cost carriers, faced intense competition even before the pandemic, they did so in what was forecast as a favorable operating environment. That environment is gone. In 2020, according to the International Air Transport Association, the Middle East witnessed a 73% fall in air traffic, a year described by the association as “a catastrophe.” Dubai International Airport went from 86 million passengers in 2019 to fewer than 18 million in 2020. The International Air Transport Association does not expect a recovery to pre-pandemic levels of global travel until 2023 or 2024.

So, where is aviation headed in the region now? Four key themes will drive the year going forward: vaccine-led recoveries and a return to normal; the continued rise of regional low-cost carriers; the effects of diplomatic breakthroughs, including the end of the boycott of Qatar and the Abraham Accords normalizing relations with Israel; and intense competition for cargo traffic.

Vaccine-Led Air Travel Recovery?

Alexandre de Juniac, director general and CEO of the International Air Transport Association, said recently that the optimism fueled by vaccine distribution has been “dashed in the face of new outbreaks and new mutations of the disease.” Though the association predicts a return to pre-pandemic levels of travel within two to three years, domestic routes will pick up faster than international ones. Most Gulf Arab carriers, with the exception of those based in Saudi Arabia, are highly reliant on international routes.

Richard Aboulafia, a prominent aviation analyst, has a more bullish call on the future of air travel. He sees a return to pre-pandemic levels of travel by the fourth quarter of 2022. “People talk a lot about how technology has changed the workplace, and that is true,” Aboulafia said in an interview, “but when your competitors start traveling, and you stay home on Zoom, you will quickly get reminded of the need to travel.”

Martin Drew, senior vice president for Global Sales and Cargo for Etihad Airways, noted that “the rollout of the vaccine is key,” but he also said in an emailed statement that “we are confident that global passenger demand will start to recover in 2021.” Whatever the case may be, the goal in 2021 will be to stop the bleeding, begin recovery, and stay agile to limit further damage.

One such blow hit the UAE in late January when the United Kingdom banned all flights from the Gulf Arab country, owing to a coronavirus surge in Dubai. That month, despite the pandemic, the Dubai-London corridor was the busiest international route in the world, accounting for nearly 200,000 seats. British tourists had been flocking to Dubai beaches and tourist destinations through the winter.

The Rise of Low-Cost Carriers

As the Big Three look for ways to be more agile, all eyes are on low-cost carriers in the region. According to CAPA Centre for Aviation, low-cost carriers’ share of total seat capacity across the Middle East rose to 16.5% in 2019. The fast growth of low-cost carriers portends an “Asianization” of Middle East aviation: much deeper penetration of low-cost carriers. Today, some 30% of total seat capacity across the Asia-Pacific region is handled by regional LCCs. In Southeast Asia, the numbers are even larger: Regional low-cost carriers handle more than 50% of seat capacity.

Saudi Arabia’s and Kuwait’s low-cost carriers had a strong pre-pandemic year. Saudi Arabia’s two major players, flyadeal and Flynas, led the charge, flying more than 11.5 million passengers combined. The Big Three low-cost carriers, as measured by passenger numbers, would be flydubai, Air Arabia, and Flynas, with flyadeal – the Saudia Airlines subsidiary – nipping at their heels. Both Flynas and flyadeal are well positioned for faster recovery given their relatively large domestic market and pilgrimage traffic. Kuwait-based Jazeera Airways also achieved record operating profits in 2019.

The pandemic stalled but not did not halt two new low-cost carriers that have entered the scene: Wizz Air Abu Dhabi, a joint venture between Hungary-based Wizz Air and the Abu Dhabi Development Holding Company; and Air Arabia Abu Dhabi, a partnership between Etihad and Sharjah-based Air Arabia. Both are now operating with regional flights to South Asia, North Africa, Israel, and Europe. India’s low-cost carrier SpiceJet also plans on getting in on the regional action with plans to launch a hub in Ras Al Khaimah.

Linus Bauer, a Dubai-based regional airlines analyst, said in an interview that partnerships between one of the Big Three carriers and a low-cost airline will be vital to “emerge stronger from the crisis.” Additionally, he sees the fastest growth opportunities in the near term for Gulf carriers in routes to India, Pakistan, Russia, Saudi Arabia, and Israel.

Diplomatic Breakthroughs: From the Abraham Accords to the Al Ula Agreement

Since the September 2020 Abraham Accords, establishing formal diplomatic ties between Israel and the UAE, Israeli tourists have been flocking to Dubai, and Emirati and Israeli carriers have been normalizing what once seemed remarkable: regular flights between Israeli cities and the Arabian Peninsula. The added revenue from Israeli tourists certainly will be welcomed by UAE carriers eager for revenue sources, but it could also create new opportunities for hub-and-spoke travel. Israelis took more than 8.2 million international flights in 2019, according to government data, and some of that traffic will likely end up flowing through Emirati or Bahraini airports.

Even before the pandemic, aviation industry insiders had been questioning the long-haul, hub-and-spoke strategies that underpin the growth of the Big Three carriers and their respective airports. This strategy had been predicated on the fortunate aero-geography of the eastern Arabian Peninsula: an 8-hour flight to nearly two-thirds of the world’s population and a 4-hour flight to about one-third of that group. Thus, the carriers and their airports promised a one-stop link to the vast majority of the world and invested heavily in globe-spanning long-haul routes and wide-body aircraft.

Aviation analysts often note that the rise of smaller aircraft that can go longer distances will disrupt this model, but it may be too soon to write off the model just yet. The model has been illustrated most powerfully between India and the UAE. The UAE has emerged as South Asia’s air gateway to the world. Over the past seven years, nearly one in three international flights that left India landed in the UAE, and nearly one in three international flights that landed in India emanated from the UAE, according to data from India’s Directorate General of Civil Aviation. To those who dismiss the hub-and-spoke model, these numbers are a powerful retort.

Meanwhile, the rapprochement between Qatar and three of its Gulf Arab neighbors – the UAE, Saudi Arabia, and Bahrain – plus Egypt, provided a much-needed boost to the industry. Low-cost carriers will benefit from a return to business as usual on Doha routes, and Qatar Airways will benefit from renewed access to Saudi airspace, particularly for its Africa routes as well as regular routes to Saudi cities and the UAE. Qatar Airways reportedly earned $600 million from its flights to Saudi Arabia in 2016, a number that dropped to virtually zero over the next three years.

While Oman Air benefitted from some of the traffic diverted away from Doha during the boycott, the sultanate has punched below its weight compared to regional peers. Oman outlined an ambitious plan recently to dramatically ramp up aviation as a contributor to its GDP, including a restructuring of Oman Air. Meanwhile, Bahrain’s new airport terminal will considerably add to the country’s capacity, boosting Manama-based Gulf Air, a regional aviation pioneer that just celebrated its 70th anniversary.

Air Cargo to the Rescue?

While air cargo also had a rough 2020, demand picked up in the fourth quarter and the Big Three airlines will become major carriers of vaccine supplies to the world. Both Abu Dhabi and Dubai have set up global vaccine distribution hubs, and, at the end of January, the ruler of Dubai and prime minister of the UAE, Mohammed bin Rashid al-Maktoum, announced the formation of a Vaccine Logistics Alliance that will support the World Health Organization’s effort to deliver 2 billion coronavirus vaccine doses in 2021.

Since Qatar Airways and Emirates are already among the top three air cargo players in the world, and Etihad’s air cargo business is surging, the Big Three are likely to double down on one area of business less beholden to coronavirus restrictions. By delivering vaccines to the world, they will also be doing good while protecting their future bottom lines.

After all, without some measure of herd immunity worldwide, the air travel revolution of the past decade will stall and become a nostalgic memory of the past – like a Pan Am jetliner.