Gulf carriers to the Netherlands: A system change or chance?

Together Amsterdam Airport Schiphol airport and KLM form the largest chunk of the Dutch air transport industry. As the market for air transport in the Netherlands itself is too small, KLM developed a worldwide route network with many transferring passengers. Schiphol facilitates connecting passengers with the best possible experience. During prosperous times this business model can create leverage in growth for an airline network. But due to the small margins in the air transport market, this business model is proving vulnerable during failing times. New carriers from the Gulf region have copied KLM’s business model. Significant cost advantages (and some critics even claim state aid), have allowed these carriers to grow rapidly. Thanks to additional advantages, the Gulf carriers can outcompete legacy European carriers, including KLM. The social and economic effects of air transport are many-sided: direct, indirect and catalytic it stimulates a nation. This research elaborates on the air transport system, with a focus on the Dutch situation, with the main question “How do the Gulf carriers influence the economic contribution of air transport to the Dutch society?”. Using a mixed method approach, most issues are addressed with a small quantitative analysis, though the underlying structure is unravelled with a qualitative approach. Various methods are used, emphasizing on the various aspects of this research: a theoretical framework on influences and change, a study of the contribution of KLM to the Dutch society and the possible futures for the Gulf carriers. Theoretically the air transport system consists of three sub systems: technology, market size and regulation. All sub systems are equally important, and have contributed to the evolution of the system into its current form. This structure is constantly subjected to changes, from both an endogenous and exogenous nature, resulting in temporary and permanent systemic transformations. The changes in market size of the various air traffic markets (Europe, U.S., Asia) over the years (due to globalisation) have fundamentally altered the air transport system, and enabled the Gulf carriers to take a key position in the system, as intermediaries between the old economies and Asia. Technology- and regulation-wise the Gulf carriers are docile to the old economies, although on the latter aspect early signs of trying to take a substantial role are visible. The Dutch government considers KLM as very valuable for the Dutch GDP, both in a direct sense as well as indirectly via Schiphol airport, as a large employer and connector to the world – for tourists and business alike. Over half of the operations currently undertaken at Schiphol airport are attributable to KLM. However given the abovementioned trend in air transport, it is questionable whether KLM is irreplaceable. Wider effects of this possible event – for example de- or re-hubbing of Schiphol – are uncertain, partly due to a missing political vision. Looking at examples of re-hubbing at Brussels, Budapest and Zürich airports, volume wise the impact of a defunct airline on the hub-function of an airport is limited. But in terms of connections and network, multiple visions are possible. When the Gulf carriers are analysed, one cannot but conclude that they employ similar business strategies. Emirates uses large, high-capacity aircrafts and high frequencies to forge its own airline network. Etihad buys airlines all over the world to create an equity alliance. Qatar resembles the more traditional strategy, cooperating in one of the old alliances. Looking at this strategic differences is interesting, as they can lead to different outcomes, when costs become an issue more than they do now, for instance due to a decrease in government funding of air transport. Emirates seems to have the most stable financial outlook, with reasonable ticket fares and a stable network. The other two might be more dependent on external sources of funding (i.e. government money), which could undermine a part of their business model. The research concludes that there is a possible future perspective which the Gulf carriers are a threat to KLM, eroding the profitability of its network – especially transfer passengers from the UK. This can be reflected in the operational volumes at Schiphol, and thus the Dutch GDP. However this assessment is dependent of the political vision used. De-hubbing theory and practise show volume wise a ceasing hub airline is not significantly affecting an airport. But in another perspective , for instance connectivity, de-hubbing can lead to a significant decrease in destinations, and thus network quality. Without government interaction it is likely the Gulf carriers will evolve to a role that is comparable with other competitors of KLM at Schiphol. Currently their operations at Schiphol do not erode KLM’s network. Consequently, it could be concluded that the Gulf carriers are a valuable addition to the Dutch air transport system that increases the network quality and connectivity, without derogation of KLM at Schiphol. Despite this seemingly comfortable conclusion, there is a point of attention. Currently the Dutch government does recognise the importance of a strong network, but has no policies in force to ensure the current network quality. Without a clear vision and policies by the Dutch government on the role of air transport, it is not possible to answer the question of the effects of the Gulf carriers to Dutch society, as answers cannot be interpreted.Multi Actor SystemsTechnology, Policy and Managemen