Are good moods making a comeback at some of Europe’s legacy carriers? After all, it seems, the big three Middle East airlines’ recent difficulties could stymie their growth, solving many problems for their European rivals. And should the big two aircraft manufacturers, Airbus and Boeing, worry that three of their most important widebody customers could fall by the wayside?

It is easy to see why one might consider the era of aggressive Middle East airline expansion to be over. There would be many reasons for such a view: Low oil prices driving down demand in the region’s economies, the temporary laptop ban on flights to the U.S., the diplomatic spat between Qatar and its neighbors, the anti-Gulf carrier lobbying campaigns in the U.S. and Europe, Etihad Airways’ decision to pull the plug on support for Alitalia and Air Berlin, Emirates’ first-time decision to defer deliveries of some incoming Airbus A380s, low yields, low load factors in more than a few markets, massive losses in the case of Etihad Airways and massively reduced profits at Emirates.

“I don’t see it,” says Daniel Roeska, airline analyst at Bernstein Research. “The [growth] peak of 2014-16 may be behind us, but there is still as much additional capacity coming in over the next several years as is flying today.” And John Strickland, an airline consultant, says while 2017 may turn out to be a “pivotal year of change” for the big three, he still considers the logic of the hubs’ position and network to be intact.

Clearly, Emirates, Qatar Airways and Etihad have entered a new stage in their development. For some years, it seemed that all three were developing in parallel. Led by Emirates with its first-mover advantage, the airlines grew networks as fast as they could, ordered multiple billions’ worth of aircraft as their home countries tried to build airport infrastructure to keep pace with the rapidly growing requirements. Not only is Emirates by far the Airbus A380’s most important customer, it also launched the Boeing 777X program, along with Etihad, Qatar Airways and Lufthansa

In terms of long-haul network development, Qatar and Etihad largely followed the path defined by Emirates years earlier, leading to sometimes explosive capacity growth in many markets the three began serving. Qatar and Etihad accompanied that buildup by growing their narrowbody fleets, a segment so far untouched by Emirates. The underlying concepts and business drivers were similar—using the airlines as tools to enable general economic and trade growth in Qatar, Abu Dhabi and Dubai.

Their orderbooks are impressive. Emirates has firm orders in place for 44 additional A380s, 15 Boeing 777-300ERs and 150 777Xs. Etihad is awaiting delivery of 40 A350-900s, 22 A350-1000s, 54 more 787s, 25 777Xs and one 777F. And, Qatar Airways will receive 12 777-300ERs, three 777Fs, 60 777Xs and 30 787-9s. On the Airbus side, it has unfilled orders for 30 A320neos, 16 A321neos, 24 A350-900s, 37 A350-1000s and two A380s.

But over the past year or so, the three carriers have discovered that each has its own issues to deal with: Etihad essentially halted its partnership strategy and is in the process of redefining its plan. Qatar Airways’ long-term vision is unclear while management is busy dealing with the ongoing diplomatic crisis and the widespread airspace closures for Qatar-registered aircraft in the region. And even Emirates is going through a period of some consolidation as it begins the new process of closer integration with FlyDubai.

All these factors lead most observers to conclude that the upcoming Dubai Airshow will only see a limited amount of aircraft orders, making it vastly different from earlier events used by the big three to display power, optimism and the ambition to develop global networks at the expense of other carriers. Still, the OEMs have bet big on the Middle East market. Airbus forecasts the region’s fleets will more than double to 3,320 from the current 1,250 over the next 20 years. Traffic on average will grow by 5.9% annually, leading airlines to spend $600 billion for additional aircraft. Of the 2,590 new jets, only 520 will be for replacement and the rest for growth, Airbus projects.

Emirates, by far the biggest of the three and the largest international airline by revenue passenger miles, is the target of intense lobbying by Airbus, which hopes to place its proposed A380plus with the biggest operator of the type. There are mixed signals as to whether the courtship will be successful and what exactly a new deal would entail. The carrier has placed orders for 142 A380s, and 98 had been delivered by the end of September. It plans to accept its 100th A380 on Nov. 3.

But, overall, the pace of growth is slowing. Emirates took delivery of 36 aircraft in calendar year 2016 (20 A380s and 16 777s), but it also retired 29 jets, mostly older 777-200s and -300s. This year the airline plans to take 22 more aircraft and has so far retired nine: one 747F and eight older 777s. In its fiscal 2017 (ended in March), the airline’s traffic grew by 8.4%, but that came at the expense of load factor (down to 75.1% from 76.5%) and yield, which is now 20% below where it was in 2014. And the group’s operating profit was down 71%.

Late in 2016, for the first time, the airline decided to defer A380 orders. Six aircraft that would originally have been delivered this year are moving to 2018 and six more are shifting from 2018 to 2019. But the big question is whether Airbus can convince Emirates to buy into the A380plus. The project was presented in June—its main features are an increase in maximum takeoff weight to 578 tons from 575 and a densified, rearranged cabin that makes space for 80 additional passengers. 

Emirates’ initial response has been cautious, and airline President Tim Clark has rejected key items from the cabin changes, such as removal of the forward staircase. He had been unsuccessfully pushing Airbus to reengine the A380. On the other hand, he has frequently said that the airline would need more of the aircraft and pondered an order for up to 200 more, had Airbus launched the A380neo.

There is a significant group within Emirates’ management ranks, however, that is critical of the A380 exposure, according to an industry source. They argue that the airline should instead focus on expanding the 777 fleet to generate higher profits, taking advantage of both the lower costs and ability to control yields with a smaller degree of capacity expansion. Nonetheless, one observer believes Emirates may sign for 10-20 more A380s at the air show as a token that it is staying with the program.

The other big fleet decision is whether Emirates will order either the A350 or the 787 for sectors up to 10 hr. from Dubai. The airline has been studying that for years, after canceling its initial order for 70 A350s in 2014. Clark recently indicated no decision is imminent.

To understand Emirates’ fleet scenarios, it is important to keep in mind that Dubai’s air transport strategy has dramatically changed. Ever since sister carrier FlyDubai was launched in 2009, the two airlines have operated with no integration, but they have now been tasked with closely assimilating their systems, operations, sales and network. Sales and network projects have been started but will take another 12 months or so to be completed, says one source with inside knowledge of the situation. There are major issues to be addressed in terms of the fleet and operations. FlyDubai operates narrowbodies with a cabin product that has not been in line with Emirates’, although the airline has moved away from its original low-cost concept and now offers a business-class cabin. 

FlyDubai has 58 737-800s and took delivery of the first of 76 737-8s in July. The two carriers must decide to what extent alignment is necessary. Including a large fleet of 737s in the broader Emirates world raises questions about how many A350s or 787s will be needed, as many sectors up to 6 hr. in length could conceivably be covered by the 737 fleet. Separately, the airlines need to figure out how to transfer passengers in Dubai. FlyDubai still operates from the low-cost Terminal 2 on the other side of the two runways, whereas Emirates mainly uses the big Terminal 3. At least in the interim, many passengers will have to be bussed from one side of the airport to the other, which is neither convenient nor efficient. “It will be difficult to implement, but eventually it will work,” says one source.

The FlyDubai project is taking up a huge amount of management attention—at the same time that the airline is undergoing a deep self-review of processes and information technology systems under the leadership of Chief Digital and Innovation Officer Christoph Mueller.

The two projects mean the airline is, for the first time since its 1985 launch, having to integrate with another carrier and conducting a fundamental process restructuring at the same time.

And where the FlyDubai integration will lead is not clear yet. “The organization has not understood yet how deep the cooperation is supposed to be,” says an observer who believes the project will take 2-3 years to complete. One side effect of the new Dubai alliance that cannot be underestimated is that FlyDubai can no longer move to the new Dubai World Central Airport, as originally intended, which would have freed up space for Emirates at what is the extremely congested Dubai International Airport. While it is unclear whether the cooperation will eventually lead to a full merger and the disappearance of the FlyDubai brand, it does yield some hints as to the future executive team of Emirates Group.

Ghaith Al-Ghaith, the current CEO of FlyDubai, could move up into a central leadership position at group level below Ahmed Bin Saeed Al Maktoum, who is chairman and CEO of Emirates Airline and the group but leaves the day-to-day running of the business to others. There has been talk about when the much-admired Clark may retire. While that does not appear imminent, he could ultimately be replaced by Mueller, should Al-Ghaith become engaged on the group level, industry sources say.

Etihad, the smallest of the big three Gulf carriers, is undergoing the most fundamental change in its new era following the involuntary departure of long-standing CEO James Hogan. Most crucially, the airline effectively abandoned its contentious partnership strategy by cutting ties with Air Berlin and Alitalia. Little more than two months after Etihad dropped its financial support, Air Berlin ceased all flight operations. Alitalia continues to fly, but only because of a government loan nearing $1 billion. Over the years, the carrier sunk multiple billions into affiliates, in many cases with no conceivable benefit. In 2016, it posted a $1.87 billion loss, equivalent to almost 20% of group and 40% of airline revenues.

At the same time, it is facing renewed pressure within its own network—with weakened demand in core markets—and is reducing capacity in some long-haul markets, including U.S. destinations.

Its future strategy is still a work in progress. The new CEO, Tony Douglas, is not starting until January. But there are other factors to take into account. Consultants have been working on the new plan, and industry sources say key elements include a renewed focus on digital sales, a push for higher yields and less dependence on transfer traffic. “They are on their way to becoming a boutique airline,” says one industry source. 

The results of the studies have not yet been implemented. While one reason for that is that Douglas is not yet in place, another has to do with Abu Dhabi’s Aviation Sector Development Committee, led by Diab Bin Mohammed Bin Zayed Al Nahyan, the powerful son of Abu Dhabi’s even more powerful Crown Prince Mohammed Bin Zayed Al Nahyan. Abu Dhabi has not really had the kind of integrated aviation strategy Dubai has been known for, but the committee is supposed to change that, and Diab is supposed to become the Sheikh Ahmed of Abu Dhabi, sources with inside knowledge of the plans say. But the committee has not given the formal go-ahead for Etihad’s change of course yet.

Aviation integration in Abu Dhabi’s case means primarily a better alignment of the airport, which is causing massive concerns. The midfield terminal is the core of the expansion to a capacity of 30 million passengers per year, more than the airport handled in 2016. Under construction for years, its opening was scheduled for September but has been delayed by about two years, well into 2019, because of severe issues around construction of the architecturally ambitious roof and glass window front, sources say.

The continued absence of the midfield terminal means Etihad is, for the time being, unable to further develop its hub wave structure, simply because the airport does not have the needed capacity. “That is the best excuse in the world” for stalling growth, says one observer.

The airport is not only an issue because it stifles whatever may be left of Etihad’s growth plans. It is also a huge cost factor. “The airport needs another round of financing that has not yet been approved,” an insider says. There is little doubt it will come, but the pain is visible.

This is where Douglas comes in. The incoming Etihad CEO ran Abu Dhabi International Airport until 2014, before he left the country for some years. “Douglas is very knowledgeable as far as the airport is concerned, and he speaks Arabic, which is [no small] detail,” a local source says. “But he does not know the airline.” That he was rehired in the first place is a clear indication that Abu Dbabi aims at a more integrated strategy—the former airport CEO now runs the airline group. But it also means Douglas “needs all the help that he can get” at Etihad, says one local observer. For now, Kevin Knight, a former Hogan aide who heads group strategy, is a powerful force. Douglas will also have to rely on the loyalty of Peter Baumgartner, CEO of Etihad Airways.

And what about the long-rumored tie-up of Etihad and Emirates? “In that debate, we are where we were in terms of Emirates and FlyDubai five years ago,” an industry source says. He believes that nothing will happen before 2020 at the very earliest, if ever, regardless of the obvious benefits consolidation would bring. Competition, even on a personal level, persists.

As for Qatar Airways? Following the Qatar boycott by four neighboring countries—the United Arab Emirates, Saudi Arabia, Bahrain and Egypt—the airline had to redeploy 20% of its capacity, and its most important origin/destination market, Dubai, was among the 18 destinations to which it could no longer fly. In addition, flight times to points in the west and south have become much longer because aircraft have to fly around closed airspace.

“There are some dark clouds,” Qatar CEO Akbar Al Baker said after the blockade took effect. “We will underperform, but not to the extent of our neighbors. We will continue to grow.” The carrier plans to shift growth from the affected markets to destinations in other regions. But it has become extremely difficult to judge the rate of its future expansion because the case has become so political, and Qatar is likely to provide all the support needed to the airline, irrespective of business realities. At the same time, Qatar Airways of late has been relatively quiet about network changes.