Tuesday, October 12, 2010

David turns Goliath, The Case of the Gulf Carriers.

In the news,  the UAE and Canada have a political dispute over additional flights for Emirates and Etihad to Canada. The new frequencies are opposed By Air Canada (I can understand this) because of its traffic to Frankfurt and the Canadian Government ( I don't get that one with Canadian investment and over 26000 Canadians expats in the UAE). This is the latest of a series of events that have seen France and Germany refuse additional frequencies for UAE and Qatari airlines and QANTAS accusations in the media of Emirates being unsafe.

To complicate things there is the move that calls on governments (USA, UK, France and Germany) to limit export credits to airlines spearheaded by 10 North American and European carriers including the ATA, AA, LH and AF among others because in their view it distorts their ability to compete fairly with the airlines benefiting from export.credits. Having a look at the three world alliances membership (Star alliance 28, Sky Team 13 and One world 11) totalling 52 carriers of which half of these benefited from export credits and in turn contributed billions of dollars to the revenue of the complaining majors. I fail to see how a small or medium sized carrier in Asia, Africa or MENA can affect or compete with an airline like AA, AF, BA or LH.
So mega carriers expect governments to stop providing airlines with financial assistance that is repayable and is designed to promote national industries and services because AA  or AF can not fairly compete with an airline in Africa or Asia, mind boggling isn't it.

But we digress, Emirates, Etihad and Qatar Airways are the champions of Ultra Long Range flights with aircraft capable of flying 16 + hours. they use them effectively to take you from the west coat of the USA to the east coast of Australia with one stop in Dubai, Abu Dhabi or Doha. All new aircraft with the latest entertainment systems. Well the three world alliances were created to do just that and seamlessly with the same level of service regardless of the carrier. Seamlessly was overstated there is nothing seamless when you step from an A340, B777 or B747 into a 40 passengers regional aircraft with a beat up interior and no service.

The issue put forward is simply Gulf Carriers get cheaper fuel, airport charges and taxes and therefore they can offer cheaper tickets according to AF CEO, oh as if European carriers never got subsidies or cash injections. One has to take into consideration that these carriers are not promoting only their flights but also their hubs as destination at their own cost, so it evens out. But then these European majors opposed carriers entry into their markets as far as I can remember and way way before Emirates, Etihad and Qatar Airways were even started. So it is old policy in a new guise

Is it that alliances can not compete with Ultra Long Range Flights, maybe not on all routes. Let us take LA or San Francisco to Sydney as an example, QANTAS can fly you through their Singapore hub, a one stop flight just like Emirates, and Singapore is as attractive as Dubai. So it boils down to efficiency and productivity of each carrier.

Finally, the Gulf Carriers can only compete on certain routes, while the USA domestic or intra European markets are effectively barred to them. The three carriers combined fleet and network are not even close to Delta or United.

It boils down to the fact that the major carriers are resisting to increase capacity and not willing to extract more productivity from their employees for fear of conflict with the unions. So, more of old policies in new guise.

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