The other carriers are reeling too. The industry is acting swiftly to remove capacity – cutting routes and frequencies – in anticipation of reduced traffic in the coming months. And the U.S., industry isn’t alone.

Europe’s biggest carrier, Air France-KLM, warned of a profound “reshaping” of the global industry amid record fuel prices.  The European carriers aren’t nearly as exposed as their U.S. counterparts, but they’re certainly feeling the pain.

The International Herald Tribune notes, “With its bleak outlook for the airline industry, Air France-KLM joined American Airlines, the world’s largest carrier, which said Wednesday that it was adding fees, cutting hundreds of flights in the United States, and eliminating thousands of jobs to cope with the crisis.”

Asian carriers are reeling, too. Australian carrier Qantas hiked its fares for the second time in a month while Japan Airlines said it would increase its fuel surcharge along with its competitor, All Nippon.

Among the Middle Eastern carriers, Emirates looks to be in the best shape due to its healthy cash position. In fact, this may be their opportunity to take advantage of the worldwide economic downturn to fortify its position as a global player.

As other carriers cut back, Emirates can accelerate its plan to connect European and Asian traffic through growing Dubai hub. But this begs a question about its hungry rivals, Etihad and Qatar Airways: Can the region sustain three major carriers if there is a worldwide economic downturn?

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The Dubai air show — one of the most prestigious commercial trade shows — is regarded as a bell weather of Gulf region carriers who are racing to expand their fleets, and convert the region into a major global hub. Emirates’ regional rivals are Doha-based Qatar Airways and Abu Dhabi-based Etihad, and three have been reporting record growth.

Emirates Airline, the largest airline in the region, is already the world’s 10th largest carrier, and it’s gaining altitude rapidly. It already serves 99 cities in 62 countries and, on average, is adding a new city every couple months.

Despite its aggressive growth strategy, the carrier says its keeping its focus on delivering a highly differentiated service product.  The company offers customers a 200-channel in-flight entertainment system and a responsive, well-trained customer-facing staff.

Emirates is entirely government owned, but its chairman, Sheik Ahmed Bin Saeed Al Maktoum, said recently that 30 percent of the company may be sold in public markets.

Operationally, Emirates is a sleek machine. Its operating costs are significantly lower than those of its European or U.S. rivals, and the carrier continually seeks business process and supply chain efficiencies.

We’re betting that Emirates, like its regional competitors, will maintain its staffing and service levels, even as competitors outside the region begin tightening their belts. At a time when many carriers are battling both record fuel prices and a declining U.S. dollar, Emirates should realize $1 billion in profit in the fiscal year ending March 31 on total revenue of $8.1 billion, an 18.5 percent increase over the last year.

The carrier is ahead on the currency front because it’s pegged between the UAE’s dirham and the U.S. dollar. (Emirates reports results in dirhams, but a big chunk of its earnings is in euros and pounds sterling, and the dollar’s slide is helping the carrier.)

Emirates is benefiting from the Gulf region’s unprecedented economic growth.  This boom, fueled by high oil prices and a nascent tourism industry, is expected to continue despite a world-wide economic slump on the horizon that is being predicted my many economists.

Dubai is well-situated to capture European customers en route to Asia and about half its traffic moves through Dubai International Airport.  Over the past 15 years Dubai International Airport has developed into one of the largest hubs in world aviation.

A new airport, Dubai World Central Al Maktoum International Airport, the world’s largest, is under construction 12 miles from the city center.  It will be ten times the size of the current airport and will entail a port, hotels, residential areas, as well as a free-trade zone.

The only major ripples in the pond are concerns about regional political instability and, as other carriers acquire longer-range aircraft, Dubai’s draw as a hub may be reduced.  But, for now, the picture looks rosy.  If the carrier makes the same prudent business choices as it has recently, the airline should be a force to reckon with for a long time to come.

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