Having shuttled millions of travellers through their plush home bases, rival Gulf airlines are now battling over an Italian market which they see as ripe for expansion and key to driving traffic on to long-haul routes.

The tussle will add to the pressure on established European carriers who are already losing out on short-haul routes to upstart budget airlines.

Italy is Europe’s fourth largest travel market, one of the world’s top tourist destinations and its thriving fashion and leather industry underpin demand for business travel.

In addition, the perennial struggles of national carrier Alitalia mean that much of Italy’s long-haul traffic from its industrial heartland in the north has shifted to the German cities of Frankfurt and Munich.

Gulf carriers, looking for routes on which to deploy their fast-growing fleets, have spotted this shortage of long-haul flights and have expanded into Italy.

That is taking passengers away from Germany’s Lufthansa , British Airways and Air France-KLM in Europe, and Delta Air Lines and American Airlines in the United States.

“Italy’s market has a significant amount of trade in the fashion and leather goods industry, but lacks a real hub carrier, which is where the Gulf airlines want to come in,” said George Hamlin, a Virginia-based aviation consultant.

“Gulf carriers are causing consternation among European legacy carriers. If the airlines were profitable, they wouldn’t be worried,” Hamlin said, adding the Europeans were unable to fight price wars because of their higher cost structures.

The European carriers have long complained of a disadvantage against Gulf airlines which enjoy the support of cash-rich governments keen to boost aviation and tourism. The Gulf carriers are also under no pressure to publish quarterly financial results and match European employee terms.

New routes, new investments

Emirates in October last year became Middle Eastern carrier to fly passengers on the Milan-New York route.

It is now offering about a million seats on long-haul routes to Italy, second only to Alitalia which offers about 2.1 million seats, according to OAG, a leading airline data provider.

Already the world’s fourth largest carrier of international traffic, Emirates raised the bar this month by deploying the popular A380 superjumbo from Dubai to Milan.

Fares being offered by Emirates on its Milan-New York route seek to undercut rivals American, Delta and Alitalia.

Meanwhile, rival Etihad Airways has big plans for Alitalia, in which it has agreed to acquire a 49 percent stake, adding to its collection of minority stakes in global airlines.

“Italy, what a market … it has huge potential,” Etihad CEO James Hogan told journalists in Milan this week. He said Etihad sees Alitalia growing its transatlantic routes from Milan and Rome to the Americas, in addition to growing its long-haul connections to other parts of the world.

Emirates is the largest and the oldest among the Gulf airlines, followed by Qatar Airways. However, it is Etihad, the youngest of the Gulf giants and which has less access into Europe, which is emerging as the biggest threat.

Unlike Emirates, which grows organically and does not believe in equity partnerships, Etihad has gained on its competitors using a combination of stake buys and code shares.

Backed by Abu Dhabi’s oil wealth, it bought stakes in eight airlines, including five Europeans airlines — Air Berlin, Aer Lingus, Air Serbia, Darwin Airline and, the latest, Alitalia.

It has agreed to buy nearly half of Alitalia in August, promising to invest 560 million euros ($710 million) into the struggling airline and bring it back to profit by 2017.

“As far as the Italian market goes, Etihad is clearly coming out as the winner,” said Andrea Giuricin, a transport analyst at Milan’s Bicocca university, pointing to Etihad having secured government support, seen as crucial when operating in Italy.

“The government seems to have made a choice as to whose interests they would like to further and I doubt they can turn back. That obviously will put Emirates in some difficulty,” Giuricin added.

Bitter pill

Predictably, the European and American airlines threatened by these fast-growing carriers have moved to block their access.

Assaereo, an Italian carrier association whose biggest member is Alitalia, launched legal action, claiming that a non-European carrier like Emirates should not be allowed to fly out of Italy on the transatlantic route.

An Italian court initially backed its case and barred Emirates from flying on the New York-Milan route.

But the decision was temporarily suspended by Italy’s Council of State and Emirates was allowed to continue its flights pending a decision on its appeal expected to be known by the end of this year.

Etihad too, has its own battles to fight, with the likes of Lufthansa and Air France helping to push authorities to examine its 29 percent stake in Air Berlin and the codeshares it operates with the German carrier.

But the challenge from the Gulf giants is a bitter pill that Europe will eventually have to swallow.

Expensive labour contracts, older planes and increased competition from new budget carriers have dented airlines’ profits and forced the likes of Alitalia and Air Berlin to reach out to wealthy Gulf carriers for help.

“There are dozens of offers lying on our desks each week from airlines looking for funds and partnerships. Many from Europe too, but we just have to choose ones that work for us,” said a senior Gulf airline official.

Strikes at Air France and Lufthansa in recent weeks have been costly for the European carriers. Their Gulf rivals are meanwhile wooing customers with the promise of on-board bars, showers and butlers.

“One of the virtues of Gulf carriers is service,” said Richard Aboulafia, vice president of analysis at aviation consultancy Teal Group.

“Europe is vulnerable to Gulf carriers that offer a higher level of service.”

 
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