Dubai: Air passenger flows to and from the Gulf are expected to reach 140 million by 2015, led by the region's big three carriers, but there will be significant challenges as these airlines pursue aggressive expansion plans, Boston Consulting Group (BCG) has warned.

In its latest report, BCG says that Middle East airlines -- led by Emirates, Etihad, and Qatar Airways -- are expected to triple their capacity over the next 20 years.

Emirates, the region's largest carrier, is on track to become the largest operator of wide-body aircraft in the world by 2016, with Qatar Airways and Etihad not far behind in the ranks of the top 20, the report added.

At a time when many carriers throughout the world were struggling with weak growth in overall demand, Emirates' performance over the past few years stands out as "exceptional", the report said.

The carrier has nearly tripled capacity and passenger revenues over the past five years, adding 32 new destinations while improving aircraft utilisations, load factors and yields.

Although the company's cash margins decreased from 28 percent to 23 percent during the past five years, they still compare favourably with those of other international airlines, the report found.

Emirates' financial strength gives it greater flexibility to expand capacity and boost market share.

BCG estimates that Emirates will increase its capacity by up to 12 percent annually through 2015, with a key to its growth being the considerable savings it enjoys compared to other legacy carriers in terms of fuel and operating costs.

The report noted that Etihad and Qatar Airways share similar cost advantages and also benefit from being closely aligned with the national policies of their home countries.

One key challenge that each of the carriers must contend with is the need to manage the pressure that their aggressive expansion plans will exert on margins.

BCG also sees the carriers facing threats on five major fronts. These include competition from full-service legacy airlines, which can leverage their networks and schedule advantages to attract more profitable business travellers who prefer nonstop flights at business-friendly departure times.

The airlines must also contend with low-cost carriers within the region, as well as the emergence of airlines in Turkey, India and potentially, China, that embrace the same type of advantaged hub business models being used by the Middle East mega-carriers.

Lastly, the big three carriers face the risk that foreign governments will restrict market access or alter pricing regimes.

The next five years will see even greater levels of competition in the airline industry, as Middle Eastern megacarriers add capacity well ahead of underlying demand.

(Agencies)