Did the Delta and United exit from the Persian Gulf have any effect on the market’s fuel efficiency?

In the first quarter of 2016, both Delta Air Lines and United Airlines ended all flights from the U.S. to the Persian Gulf. Delta stated that they terminated their Atlanta-Dubai route because it was not profitable, claiming they could not complete with the heavily-subsidized gulf carriers Emirates, Etihad Airways, and Qatar Airways. With the U.S. carrier’s exit from the market, one would expect that there was some impact on the market’s average fuel efficiency. But, is it due to a less diverse mix of aircraft, or something else?

While there are now only a handful of airlines that operate in this market, there is an abundance of flight options for passengers. Overall capacity between the United States and Qatar, and the U.S. and the United Arab Emirates, increased an incredible fiftyfold from 2005 to 2016, from 51 million to 25 billion available seat kilometers (ASKs). Through the first three quarters of 2017, flights by the Gulf carriers accounted for 27% of all ASKs in the Atlantic region, which includes Europe, the Middle East, and Africa. According to the Federal Aviation Administration, passenger growth across the Atlantic Ocean is forecasted to grow an average of 3.3% a year through 2038 due, in part, to an increasing share of passengers from the Middle East. With an increase in flights comes an increase in fuel use and carbon dioxide emissions.

Emirates and its fleet of Airbus A380s is responsible for much of this dramatically increased capacity (Figure 1). It is the world’s largest operator of A380s, with 101 aircraft in service, and 41 more on order. For the first half of 2017, the carrier accounted for over half of all capacity in the U.S. to Gulf market, with nearly 40% of its flights operated with the A380. We showed in a recent white paper that the four-engine A380 was less fuel-efficient than twin-engine aircraft on transpacific routes.

Capacity on flights between US and Persian Gulf
Figure 1 Capacity on flights between the United States and the United Arab Emirates, Qatar, and Kuwait, 2004-2017

When they were still operating in the Gulf market, Delta and United both flew Boeing 777-200 aircraft to Dubai from their Atlanta and Washington-Dulles hubs, respectively. United also flew from Washington to Kuwait City. The three Middle East, or ME3, carriers use a variety of aircraft, including the Boeing 777 and 787 Dreamliner, as well as the Airbus A350-900 and A380. With the increased capacity attributable to greater A380 usage by Emirates and the removal of Delta and United’s more efficient 777s, you would expect the overall fuel efficiency of carriers flying between the US and the Gulf market to decline somewhat starting in 2016. Indeed, Figure 2 shows that fuel efficiency started to decline in 2012, with the trend in average efficiency shown by the thick black line. The average fuel efficiency at the end of the 2nd Quarter of 2017 was 10% lower than at the end of the same quarter in 2012.

Average fuel efficiency on flights between the US and Persian Gulf
Figure 2 Quarterly average fuel efficiency on flights between the United States and the United Arab Emirates, Qatar, and Kuwait, 2004-2017

A more important driver of the decline in fuel efficiency than the mix of aircraft, however, is falling passenger load factors due to an increase in the number of flights despite the U.S. carriers exit from the market. While capacity was still growing in 2016, the percentage of seats filled by passengers declined from 85% at the end of the 2nd Quarter of 2012 to 73% at the end of the same quarter of 2017 (Figure 3). The number of passengers on each Delta and United flight decreased sharply from 2012 until the end of service, giving weight to Delta’s claim that the route wasn’t profitable. And the ME3’s decline in passenger load factor suggests that the U.S. carriers’ downturns weren’t due to passengers switching airlines.

Average passenger load on flights between the US and Persian Gulf
Figure 3 Quarterly average passenger load factors on flights between the United States and the United Arab Emirates, Qatar, and Kuwait, 2004-2017

So, Delta and United’s exit did not affect fuel efficiency in the Gulf market; the two airlines did not provide enough capacity to affect the industry average fuel efficiency. The total capacity of the two airlines combined peaked at 19% of all seats in the market when United began service between Washington-Dulles and Dubai in 2008. The U.S. carriers ASKs remained constant, while the Gulf carriers added more routes and larger aircraft. Five years later, Delta and United accounted for only 8% of total capacity.

So, the reason for a decline in fuel efficiency on the Gulf routes is not due to less diverse mix of aircraft. Instead, it’s due to overcapacity. The average fuel efficiency in the market has decreased since 2012, and during that time, Emirates has increased its capacity dramatically, despite there not being enough demand to fill the increase in seats. And the ME3 have no plans to slow down their growth. Qatar said that they will keep expanding and receive the first of 37 Airbus A350-1000s this month. And Emirates is going to need somewhere to fly all of the new A380s.