Flying New Skies: Foreign Airlines' Journey into the UAE Aviation Market
Transport & Logistics Focus
Yazan SaoudiPartner,Transport & Insurance
Bushra Abu TayehSenior Counsel,Transport & Insurance
Wael ElgouhariSenior Associate,Transport & Insurance
Ameen KimParalegal,Transport & Insurance
The aviation industry in the United Arab Emirates (UAE) has undoubtedly experienced significant growth in the recent decades, attracting a number of foreign airlines that seek to tap into these lucrative markets. According to the Global Fleet and MRO Market Forecast 2023–2033, which is an annual report on the commercial airline transport fleet published by an international consultancy firm Oliver Wyman, the Middle Eastern region is among the fastest-growing aviation markets in the world, with the fleet forecasted to expand 5.1% annually over the next 10 years. As the Middle East aviation market is heavily dependent on international travelers, the recent pandemic of 2019 stunted it growth significantly and contributed to a slow recovery. However, in recent months, the market has recovered exponentially in the region due to the rerouting of flights caused by the Ukraine-Russia conflict as well as the 2022 World Cup in Qatar, even managing to sustain recovery in the international market as well[1].
This article examines the current trends in the foreign airlines' entry into the UAE aviation market through varying levels of airline partnerships. Furthermore, it explores the broader aviation market trends with the launching of competitor airlines, which we expect to shape the foreseeable the landscape of the industry.
Airlines that desire to open and operate a new route in the UAE must do so under a bilateral agreement or through partnering with another airline that has the right to operate that route."
Airlines that desire to open and operate a new route in the UAE must do so under a bilateral agreement or through partnering with another airline that has the right to operate that route. The UAE Federal Act No. (20) of 1991 Promulgating the Civil Aviation Law provides that aircraft may only operate in the UAE or the airspace above it through authorization from the General Civil Aviation Authority (GCAA) and by virtue of an international treaty or a bilateral agreement to which the UAE is a party (Article 6). The UAE Civil Aviation Regulations (CAR) specifically provides that a foreign operator may operate flights in the UAE Flight Information Region only if the State of the Operator and the State of Registry are International Civil Aviation Organisation (ICAO) contracting states or have entered into bilateral Air Service Arrangements (ASA) with the UAE. The foreign operators must remain in compliance with the 1) The Chicago Convention on International Civil Aviation of 1944 and its Annexes (the “Chicago Convention”); 2) the UAE Civil Aviation Law; 3) the Air Service Agreement between the UAE and the state of the operator; and 4) any applicable UAE publications for regulating the UAE aviation sector. Nonetheless, the CAR provides a caveat that, notwithstanding the above, the GCAA may still authorize an operator whose State of Registry or State of Operator is not an ICAO contracting state (Part IV on Foreign Operators Regulation (FOR), Issue 02, FOR.GEN.004).
The Chicago Convention is a treaty that establishes the rules of air safety, aircraft registration, and core principles of civil aviation rights for contracting states to service air carriage of persons and property between states. As the aviation industry is highly regulated on the international scale, all route networks between states are governed predominantly by bilateral air transport agreements created within the bounds of the Chicago Convention.
According to the UAE CAR, these bilateral air transport agreements are defined as Air Service Arrangements (ASA), which may be in the form of an initialed or signed ASA and/or a signed Memorandum of Understanding, Agreed Minutes or Record of Discussions (Part IV on FOR, Issue 02, FOR.GEN.003).
A prominent example of an ASA in the UAE context is the 2002 UAE-US Air Transport Agreement (ATA), commonly referred to as the Open Skies Agreement. This agreement, which is in effect to this day, continues to shape aviation relations between the UAE and the US, granting equal opportunities for both passenger and cargo airlines to access each other's markets. Moreover, it serves as a foundation for collaborative marketing initiatives, including blocked-space, code-sharing, or leasing arrangements between airlines from either party or even those from third countries, given that similar arrangements and authorizations are in place.
Foreign airlines can further enter joint ventures or partnerships with UAE based airlines. This cooperative approach provides an opportunity for foreign airlines to expand in the UAE market and greater region while benefiting from the local partner's existing infrastructure and customer base. Such partnerships often involve codeshare agreements, which are exceedingly common in the aviation industry as an effective method to expand the airline’s route networks. Under these agreements, airlines can share flight codes for the same flights and offer passengers seamless connectivity to destinations beyond their own networks.
One notable and successful joint venture agreement in the UAE is the 2013 Qantas and Emirates partnership, which made provisions for flights connecting through Dubai to European destinations. Since then, Qantas and Emirates have been renewing their partnership every 5 years upon regulatory approval. Today the two airlines have more than 100 codeshare destinations together and have served more than 13 million passengers since the making of the initial partnership agreement [2]
An interline agreement is the lowest-level partnership between two airlines which enables airlines to cooperate with each other for the seamless transfer of passengers and baggage between flights operated by different carriers in different airports. This arrangement creates smoother travel experiences for passengers and a larger expansion of network options available to them. Emirates now has more than 150 interline partner arrangements with both foreign and domestic airlines[3] with the most recent announcement for a partnership with Kenya Airways this summer.
Emirates and Etihad were long rumoured to undergo a potential partnership or even a merger, considering the fact that they have overlapping international flight routes and have airports that are only an hour apart on the ground. While as of date there are no signs of a potential merger, the two major airlines have finally decided this May to take a small step in the direction of a partnership by signing a MoU for an interline agreement.
As new competitor airlines continue to emerge, existing airlines must focus on identifying and capitalizing market gaps to stand out from the crowd, as well as prioritize operational efficiency, and service reliability to build trust and loyalty among its clientele.
Airlines can further join global airline alliances as a platform in which they can expand their network into new destinations. Currently, the three main alliances are Star Alliance, Oneworld, or SkyTeam. These alliances bring together multiple airlines from around the world, to enable cooperation and coordination through joint venture partnership, code sharing, frequent flyer programs, lounge access, and coordinated route planning and schedules. Currently the major UAE flag airlines, Emirates and Etihad, are not part of any of the alliances, unlike other major carriers in the region. For example, Saudi Arabian Airlines joined the SkyTeam alliance in 2012[4] and Qatar Airways joined Oneworld in 2013[6].
The Middle East aviation market witnessed the launching of competitor airlines, introducing new dynamics to the industry. KSA has launched a new national airline, Riyadh Air, as part of its economic diversification efforts and to boost the aviation industry in alignment with its Vision 2030 plan, which focuses on sectors like tourism and transportation to drive economic growth and create job opportunities for Saudi nationals. Owned by the Saudi Public Investment Fund (PIF), Riyadh Air aims to be the next high-quality and accessible travel option for both domestic and international flights in the region and has ambitious plans to serve 100 destinations as a luxury long-haul airline, placing it in direct competition with Emirates and Etihad Airways as the current formidable players in the region’s aviation hub.
Wizz Air, a Hungarian budget airline, has also seized the opportunity to expand its reach in the Middle East Aviation market. Wizz Air is known for its indisputably affordable fares, making international air travel highly accessible for those seeking flights from the KSA to the UAE and European cities. Wizz Air aims to operate at a 30 percent lower cost than its competitors in the region, which is a bold move in an effort to stand out in an increasingly crowded market. Wizz Air has currently successfully established operations in four cities in the KSA, including Dammam, Riyadh, Jeddah, and Madinah, and plans to expand its services further, exploring potential connections in cities like Taif and Tabuk. These cities will now be one flight away from Vienna, Budapest, Rome, and Abu Dhabi.
Riyadh Air and Wizz Air exemplify innovative market strategies in a highly competitive industry. As new competitor airlines continue to emerge, existing airlines must focus on identifying and capitalizing market gaps to stand out from the crowd, as well as prioritize operational efficiency, and service reliability to build trust and loyalty among its clientele. These airlines showcase the importance of adapting to customer preferences and offering new alternative services to thrive in a dynamic and competitive market.
The UAE aviation market has experienced significant growth and has attracted foreign airlines through various partnerships and alliances. These collaborations, such as bilateral agreements, joint ventures, and interline agreements, have played a vital role in expanding airline networks and improving passenger experiences in the region. The recent launch of new airlines in the region further serves as successful examples of innovative market strategies that will continue to shape the aviation market for the foreseeable future.
Our experienced team of Aviation lawyers appreciate the complexities and challenges faced by airlines and aviation companies in UAE’s fast-changing and competitive industry. We offer specialized legal advice and assistance in helping clients navigate regulatory frameworks, compliance issues, and commercial agreements. With our established understanding of international aviation laws and local industry practices, we can provide comprehensive legal support to airlines looking to enter the UAE market or expand their operations to the larger region.
[1] https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2023/feb/Fleet-and-MRO-Forecast-2023-2033.pdf [2] https://www.emirates.com/media-centre/emirates-and-qantas-extend-partnership-to-help-boost-recovery-of-international-travel/[3] https://www.emirates.com/ae/english/travel-partners/[4] https://centreforaviation.com/analysis/reports/saudi-arabian-airlines-joins-skyteam-adding-35-destinations-74895 [6] https://centreforaviation.com/analysis/reports/saudi-arabian-airlines-joins-skyteam-adding-35-destinations-74895
For further information,please contact Yazan Saoudi or Bushra Abu Tayeh.
Published in August 2023
