US GCC Airlines
Content
feature
AV I AT I O N
US-GCC
The big subsidies debate
by Martin Rivers
[email protected]
N
o-one disputes that the
meteoric rise of Emirates
Airline, Dubai’s stateowned flag-carrier, has
changed the face of civil
aviation. Having started life in 1985
with just two aircraft, the Gulf carrier
has ballooned in size to become the
world’s largest international airline by
seating capacity. Its rapid growth has
gone hand-in-hand with the broader economic development of Dubai,
whose government sees aviation as a
strategic priority.
Geographical advantage undoubtedly
lies at the heart of Emirates’ success
- Dubai sits at the cross-roads of East
and West, making it an ideal stopover
for intercontinental travel - but has
this blessing been harnessed fairly by
A 55-page dossier produced by a lobby group headed
by three leading American airlines has, for the first time,
unearthed compelling evidence of government subsidies
at three fast-expanding Gulf carriers
a commercial entity, or leveraged by a
deep-pocketed government?
That is the question facing US lawmakers as they pore over a 55-page dossier
produced by the Partnership for Open
& Fair Skies - a lobby group headed by
three American carriers - which has
for the first time unearthed compelling evidence of government subsidies
at all three of the fast-expanding Gulf
carriers: Emirates, Abu Dhabi’s Etihad
Airways and Qatar Airways. The
Partnership believes these subsidies
and related benefits, estimated at $42
billion over ten years, are damaging
the commercial prospects of privatesector airlines in America, which do
not have the advantage of a dynastic
ruler as sole shareholder.
Without their governments’ support,
it contends, Etihad and Qatar Airways
“would not be commercially viable”,
while Emirates would be growing at a
markedly slower pace.
It is a familiar argument that has
already found favour in Europe, where
the Gulf carriers are shackled with
bilateral restrictions that limit their
access to the continent. Little wonder
that Carsten Spohr, the chief executive
8
the gulf | April 2015
13
feature
AV I AT I O N
‘We will rebut all the things
that are said about us.
Once we have done that,
I expect to be given the
benefit of an apology from
people who have actually
made these allegations’
Sir Tim Clark, Emirates
of Lufthansa, Germany’s flag-carrier,
immediately endorsed the dossier and
praised his US counterparts for being
“more effective” at gathering evidence
of subsidies than Europe has ever been.
But while his comments will be
welcomed by the US carriers at the
helm of the Partnership - Delta Air
Lines, United Airlines and American
Airlines - it is Washington’s response
that really matters. If US lawmakers
deem the allegations to be credible,
they could move to re-negotiate the
Open Skies treaties that America signed
with Qatar and the UAE between 1999
and 2002.
Those treaties are the regulatory
frameworks that afford Emirates,
Etihad and Qatar Airways unlimited
access to American airports. Without
them, the Gulf carriers would face
European-style
restrictions
when
flying over the North Atlantic, severely
curbing their expansion prospects in
America.
“We will rebut all the things that
are said about us,” Sir Tim Clark, the
president of Emirates, told reporters in
Washington in March. He described
the allegations as “tosh” and promised
a “line-by-line” rebuttal in due course,
adding: “Once we have done that, I
expect to be given the benefit of an
apology from people who have actually made these allegations.”
Sir Tim went on to accuse his US
rivals of seeking protectionism, saying:
“Open Skies between the USA and
UAE have been hugely successful for
US consumers, trade and the overall
economy. There should be no reason
for the US government to do a freeze
or a U-turn, just to protect the interest
of a narrow few and their European
JV (joint venture) partners; especially
Emirates’ president Sir Tim Clark has accused his US rivals of protectionism
not when the restriction or denial of
competitive choice on international
routes will be to the detriment of
consumer interest.”
Since the early 1990s, Open Skies
agreements have been the cornerstone
of America’s international civil aviation
policy. Washington has signed 111 such
agreements with countries around
the globe, removing bilateral restrictions that were historically used by
governments to shield their domestic
airlines from foreign competition. The
policy is, effectively, a poster-child for
free-market capitalism. By enshrining
the right of airlines to fly as often
as they like between two countries,
Open Skies treaties embrace the idea
that a fully liberalised marketplace
maximises both commercial efficiency
and consumer activity.
Sir Tim described the advent of Open
Skies as a “watershed in aero-political thinking” that has changed the
world. His US rivals, together with just
about everyone in the industry, largely
concur on that point. But their shared
understanding goes no further.
According to the Partnership, the
statutory
authority
underpinning
America’s Open Skies regime no longer
applies to the Qatari and UAE treaties.
It cites two obligations on lawmakers
that are allegedly being overlooked:
first, the treaties are supposed to “[e]
nsure that competition is fair and
the playing field is level by eliminating marketplace distortions, such as
feature
AV I AT I O N
government subsidies”; second, they
should bestow “benefits of similar
magnitude… between the rights granted
and rights given away”.
These two legal requirements will
be the guiding sticks that determine
Washington’s
response.
While
everyone agrees that Open Skies are,
in principle, a good thing, lawmakers must decide whether the current
treaties with Qatar and the UAE live
up to the spirit of the policy. If the Gulf
carriers have not been playing by the
rules of private-sector commercialism,
or if the benefits of Open Skies have
somehow been skewed in their favour,
then Washington will likely side with
the Partnership.
“[In 1999] US negotiators failed to
foresee the extent of the unfair compet-
itive threat, or the lack of balance in
the benefits that would accrue to each
side,” the dossier argues. It dismisses
both treaties as “a function of their
time”, drawn up in an era when
the Gulf carriers commanded only a
modest market share.
United’s senior vice president of
corporate and government affairs,
Mark Anderson, summed up the
Partnership’s stance best: “We’re not
competing against air carriers; we’re
competing against governments.”
The first complaint is easy enough
to understand. By allegedly distorting the marketplace with government
subsidies, the Gulf carriers have the
luxury of being able to sell unprofitable tickets without worrying about
covering their cost of capital. If true,
that damages the global marketplace.
Unreasonably low airfares would
eventually force foreign airlines to
withdraw from some routes, reducing
competition and shrinking US industry.
For every daily widebody flight
relinquished by an American carrier,
the Partnership claims, 800 US jobs are
lost. Washington will not like that.
The second complaint - the imbalance
of bilateral benefits - is more abstract.
It relates to the Gulf carriers’ reliance
on connecting traffic, rather than
origin-and-destination traffic.
Open Skies treaties should, in theory,
open up lucrative markets on both ends
of the bilateral chain. But, in practice,
the Gulf hubs are primarily used as
stopovers for onward journeys - for
example, New York-Dubai-Mumbai meaning most of their passengers fly
to destinations that the US airlines can
serve independently. There is relatively
little traffic originating or disembarking at these three Gulf points, therefore
the commercial appeal of unfettered
access to them is not compelling;
certainly not when compared with the
huge US market.
Ultimately, the legal inertia behind
these two complaints will hinge on
concrete evidence of government
subsidies. All three Gulf airline bosses
- Emirates’ Sir Tim; Etihad’s James
Hogan; and Qatar Airways’ Akbar al
Baker - have repeatedly and vociferously denied receiving such benefits.
The latter two claims now seem highly
If the Gulf carriers have
not been playing by the
rules of private-sector
commercialism, or if
the benefits of Open
Skies have somehow
been skewed in their
favour, then Washington
will likely side with
the Partnership
dubious, while the jury is still out for
Emirates.
Etihad does not release its financial
statements, but by sourcing company
filings from third-country jurisdictions
the Partnership unearthed evidence of
up to $17 billion of subsidies since
2004. That figure includes $4.6 billion
of alleged interest-free government
loans - valued at $6.6 billion when
factoring in commercial interest rates
and authorised future draw-downs.
According to Etihad’s purported
2010 statement, most of these liabilities have been reclassified as “equity
instruments” because there are “no
contractual obligations to repay the
loans in the foreseeable future”. The
dossier also provides a year-by-year
breakdown of alleged government
capital injections totaling $6.3 billion.
Hogan has promised to issue a
comprehensive rebuttal of the dossier,
though his argument looks set to be
largely semantic. He seems to not
deny the authenticity of the covertly-obtained financial reports. He also
seems not to dispute the assertion that,
contrary to earlier claims of profitability, Etihad has ratcheted up accumulated losses of $4 billion over the past
decade.
“The airline has always made clear
it has received equity investment and
shareholder loans,” Hogan insists. “Our
shareholder believes in our business
plan. They have increased their
commitment as we have developed.”
Qatar Airways’ confidential financial
statements make for equally embarrass-
8
14
April 2015 | the gulf
the gulf | April 2015
15
feature
AV I AT I O N
feature
AV I AT I O N
MARKETS
A New World of opportunity
The Gulf’s top three airlines have America in their sights, unleashing a
competitive onslaught on their US rivals
The Dubai carrier has previously pointed out that bilateral agreements “do not attempt to harmonise company establishment laws, labour laws or other domestic legislation”
8 ing reading. The Doha-based carrier
has allegedly received $16 billion in
subsidies since 2004, including $7.8
billion in interest-free loans (valued at
$8.4 billion under commercial terms)
and $6.8 billion in government loan
guarantees. Some of its loans were
allegedly converted to equity in 2009
because repayment was “neither
planned nor likely to occur in the
foreseeable future”.
Speaking to CNN in February after
news of the dossier broke, but before
its contents had been disclosed, Al
Baker remarked that [Delta’s boss]
“Richard Anderson needs to go and
study in a university to find out what
the difference is between equity and
subsidy”. Al Baker may in fact be the
one who needs lessons: the dossier
uses the globally-recognised definition of “subsidy”, as laid out in the
WTO Agreement on Subsidies and
Countervailing Measures. Nonetheless,
he reiterated his stance in March,
declaring: “The State of Qatar is the
owner of Qatar Airways, and whatever
funds are put into the airline is as
equity, which is quite legitimate.”
Some of the wider allegations in the
16
With no smoking
gun for Emirates, the
Partnership instead
maligns the flagcarrier by criticising
“Dubai Inc.”; a
“vertically-integrated”
aviation sector that
lacks transparency
55-page dossier are, admittedly, open
to interpretation. The $42 billion figure,
for example, includes cost savings that
many people would not consider true
subsidies: discounted airport charges,
tax exemptions, de-unionised labour
and so forth. Most of the allegations
against Emirates - which is accused of
receiving $5 billion of unfair benefits fall under this category.
With no smoking gun for Emirates,
the Partnership instead maligns the
flag-carrier by criticising “Dubai Inc.”;
a “vertically-integrated” aviation sector
that lacks transparency and may not
transact with related parties at arm’s
length, thereby drawing subsidies from
the ruling Al Maktoum family in a
more circuitous route.
Those could well be legitimate
complaints, but they probably belong
in a wider debate about global regulatory standards for civil aviation. As
Emirates has pointed out in the past,
bilateral agreements “do not attempt
to harmonise company establishment
laws, labour rules or other domestic
legislation”. It is therefore questionable whether the specific allegations
against Emirates justify a re-think of
the US/UAE Open Skies treaty.
Overall, however, the dossier is a
damning investigative report that
gives the lie to many prior claims
by Etihad and Qatar Airways. Bill
Shuster, a Pennsylvania Republican
who leads the House Transportation
and
Infrastructure
panel,
has
already indicated his support for the
Partnership.
If more congressional allies surface,
the Gulf carriers will face an uphill
struggle in their bid to woo American
travelers. <
April 2015 | the gulf
Qatar Airways operates to seven US points, including Dallas (pictured)
America’s legacy airlines have
good reason to be worried about
the seemingly unstoppable march
of expansion by the Gulf carriers,
which collectively have more than
680 aircraft on order. The long-haul
US market currently has one of
the lowest penetration rates in the
world by Emirates, Etihad and Qatar
Airways: just five per cent, compared
with 15 per cent in Europe, 20 per
cent in Australia and 26 per cent in
India. That makes America a prime
target for future capacity growth.
Dubai’s flag-carrier is the biggest
Gulf player in the US, serving nine
points: Boston, Chicago, Dallas,
Houston, Los Angeles, New York, San
Francisco, Seattle and Washington
DC. While this may seem like a
lot, Emirates’ entire North American
network - also including Canada and
Mexico - accounts for just 2.8 per
cent of its flights and 6.6 per cent
of its available seat kilometres (a
measure of capacity that incorpo-
the gulf | April 2015
Sir Tim Clark has
made no secret of his
plan for America to
become its third largest
source of revenue
rates the distance travelled).
Sir Tim Clark, the airline’s boss, has
made no secret of his plan for America
to become its third largest source of
revenue. He is adding new destinations
and growing existing ones by leveraging the Gulf’s geographical location
as an ideal stopover for the Indian
subcontinent and south-east Asia. That
strategy, in turn, takes market share
away from US carriers, which typically serve these points by funneling
passengers over their partner’s hubs
in Europe.
Qatar Airways and Etihad are
compounding
the
competitive
onslaught. Although their American
networks are smaller - seven and
six points respectively - the recent
pace of growth has been frenetic.
Abu Dhabi’s flag-carrier doubled
its US presence in 2014. Plans to
up-gauge one of its twice daily New
York flights to the Airbus A380 sporting an ultra-luxurious, threeroom first-class cabin - underscore
the airline’s focus on high-yielding,
premium passengers. These are the
long-haul customers most coveted
by US airlines.
It is true that sympathy does
not run deep for America’s legacy
carriers, which are widely accused of
poor service standards. Most travelers welcome with open arms the
lower fares and superior products
offered by the Gulf airlines. But
if their rapid growth is fuelled by
political expedience, rather than
commercial achievement, then the
long-term effect on the health of the
US sector is a legitimate concern for
Washington. <
17
AV I AT I O N
US-GCC
The big subsidies debate
by Martin Rivers
[email protected]
N
o-one disputes that the
meteoric rise of Emirates
Airline, Dubai’s stateowned flag-carrier, has
changed the face of civil
aviation. Having started life in 1985
with just two aircraft, the Gulf carrier
has ballooned in size to become the
world’s largest international airline by
seating capacity. Its rapid growth has
gone hand-in-hand with the broader economic development of Dubai,
whose government sees aviation as a
strategic priority.
Geographical advantage undoubtedly
lies at the heart of Emirates’ success
- Dubai sits at the cross-roads of East
and West, making it an ideal stopover
for intercontinental travel - but has
this blessing been harnessed fairly by
A 55-page dossier produced by a lobby group headed
by three leading American airlines has, for the first time,
unearthed compelling evidence of government subsidies
at three fast-expanding Gulf carriers
a commercial entity, or leveraged by a
deep-pocketed government?
That is the question facing US lawmakers as they pore over a 55-page dossier
produced by the Partnership for Open
& Fair Skies - a lobby group headed by
three American carriers - which has
for the first time unearthed compelling evidence of government subsidies
at all three of the fast-expanding Gulf
carriers: Emirates, Abu Dhabi’s Etihad
Airways and Qatar Airways. The
Partnership believes these subsidies
and related benefits, estimated at $42
billion over ten years, are damaging
the commercial prospects of privatesector airlines in America, which do
not have the advantage of a dynastic
ruler as sole shareholder.
Without their governments’ support,
it contends, Etihad and Qatar Airways
“would not be commercially viable”,
while Emirates would be growing at a
markedly slower pace.
It is a familiar argument that has
already found favour in Europe, where
the Gulf carriers are shackled with
bilateral restrictions that limit their
access to the continent. Little wonder
that Carsten Spohr, the chief executive
8
the gulf | April 2015
13
feature
AV I AT I O N
‘We will rebut all the things
that are said about us.
Once we have done that,
I expect to be given the
benefit of an apology from
people who have actually
made these allegations’
Sir Tim Clark, Emirates
of Lufthansa, Germany’s flag-carrier,
immediately endorsed the dossier and
praised his US counterparts for being
“more effective” at gathering evidence
of subsidies than Europe has ever been.
But while his comments will be
welcomed by the US carriers at the
helm of the Partnership - Delta Air
Lines, United Airlines and American
Airlines - it is Washington’s response
that really matters. If US lawmakers
deem the allegations to be credible,
they could move to re-negotiate the
Open Skies treaties that America signed
with Qatar and the UAE between 1999
and 2002.
Those treaties are the regulatory
frameworks that afford Emirates,
Etihad and Qatar Airways unlimited
access to American airports. Without
them, the Gulf carriers would face
European-style
restrictions
when
flying over the North Atlantic, severely
curbing their expansion prospects in
America.
“We will rebut all the things that
are said about us,” Sir Tim Clark, the
president of Emirates, told reporters in
Washington in March. He described
the allegations as “tosh” and promised
a “line-by-line” rebuttal in due course,
adding: “Once we have done that, I
expect to be given the benefit of an
apology from people who have actually made these allegations.”
Sir Tim went on to accuse his US
rivals of seeking protectionism, saying:
“Open Skies between the USA and
UAE have been hugely successful for
US consumers, trade and the overall
economy. There should be no reason
for the US government to do a freeze
or a U-turn, just to protect the interest
of a narrow few and their European
JV (joint venture) partners; especially
Emirates’ president Sir Tim Clark has accused his US rivals of protectionism
not when the restriction or denial of
competitive choice on international
routes will be to the detriment of
consumer interest.”
Since the early 1990s, Open Skies
agreements have been the cornerstone
of America’s international civil aviation
policy. Washington has signed 111 such
agreements with countries around
the globe, removing bilateral restrictions that were historically used by
governments to shield their domestic
airlines from foreign competition. The
policy is, effectively, a poster-child for
free-market capitalism. By enshrining
the right of airlines to fly as often
as they like between two countries,
Open Skies treaties embrace the idea
that a fully liberalised marketplace
maximises both commercial efficiency
and consumer activity.
Sir Tim described the advent of Open
Skies as a “watershed in aero-political thinking” that has changed the
world. His US rivals, together with just
about everyone in the industry, largely
concur on that point. But their shared
understanding goes no further.
According to the Partnership, the
statutory
authority
underpinning
America’s Open Skies regime no longer
applies to the Qatari and UAE treaties.
It cites two obligations on lawmakers
that are allegedly being overlooked:
first, the treaties are supposed to “[e]
nsure that competition is fair and
the playing field is level by eliminating marketplace distortions, such as
feature
AV I AT I O N
government subsidies”; second, they
should bestow “benefits of similar
magnitude… between the rights granted
and rights given away”.
These two legal requirements will
be the guiding sticks that determine
Washington’s
response.
While
everyone agrees that Open Skies are,
in principle, a good thing, lawmakers must decide whether the current
treaties with Qatar and the UAE live
up to the spirit of the policy. If the Gulf
carriers have not been playing by the
rules of private-sector commercialism,
or if the benefits of Open Skies have
somehow been skewed in their favour,
then Washington will likely side with
the Partnership.
“[In 1999] US negotiators failed to
foresee the extent of the unfair compet-
itive threat, or the lack of balance in
the benefits that would accrue to each
side,” the dossier argues. It dismisses
both treaties as “a function of their
time”, drawn up in an era when
the Gulf carriers commanded only a
modest market share.
United’s senior vice president of
corporate and government affairs,
Mark Anderson, summed up the
Partnership’s stance best: “We’re not
competing against air carriers; we’re
competing against governments.”
The first complaint is easy enough
to understand. By allegedly distorting the marketplace with government
subsidies, the Gulf carriers have the
luxury of being able to sell unprofitable tickets without worrying about
covering their cost of capital. If true,
that damages the global marketplace.
Unreasonably low airfares would
eventually force foreign airlines to
withdraw from some routes, reducing
competition and shrinking US industry.
For every daily widebody flight
relinquished by an American carrier,
the Partnership claims, 800 US jobs are
lost. Washington will not like that.
The second complaint - the imbalance
of bilateral benefits - is more abstract.
It relates to the Gulf carriers’ reliance
on connecting traffic, rather than
origin-and-destination traffic.
Open Skies treaties should, in theory,
open up lucrative markets on both ends
of the bilateral chain. But, in practice,
the Gulf hubs are primarily used as
stopovers for onward journeys - for
example, New York-Dubai-Mumbai meaning most of their passengers fly
to destinations that the US airlines can
serve independently. There is relatively
little traffic originating or disembarking at these three Gulf points, therefore
the commercial appeal of unfettered
access to them is not compelling;
certainly not when compared with the
huge US market.
Ultimately, the legal inertia behind
these two complaints will hinge on
concrete evidence of government
subsidies. All three Gulf airline bosses
- Emirates’ Sir Tim; Etihad’s James
Hogan; and Qatar Airways’ Akbar al
Baker - have repeatedly and vociferously denied receiving such benefits.
The latter two claims now seem highly
If the Gulf carriers have
not been playing by the
rules of private-sector
commercialism, or if
the benefits of Open
Skies have somehow
been skewed in their
favour, then Washington
will likely side with
the Partnership
dubious, while the jury is still out for
Emirates.
Etihad does not release its financial
statements, but by sourcing company
filings from third-country jurisdictions
the Partnership unearthed evidence of
up to $17 billion of subsidies since
2004. That figure includes $4.6 billion
of alleged interest-free government
loans - valued at $6.6 billion when
factoring in commercial interest rates
and authorised future draw-downs.
According to Etihad’s purported
2010 statement, most of these liabilities have been reclassified as “equity
instruments” because there are “no
contractual obligations to repay the
loans in the foreseeable future”. The
dossier also provides a year-by-year
breakdown of alleged government
capital injections totaling $6.3 billion.
Hogan has promised to issue a
comprehensive rebuttal of the dossier,
though his argument looks set to be
largely semantic. He seems to not
deny the authenticity of the covertly-obtained financial reports. He also
seems not to dispute the assertion that,
contrary to earlier claims of profitability, Etihad has ratcheted up accumulated losses of $4 billion over the past
decade.
“The airline has always made clear
it has received equity investment and
shareholder loans,” Hogan insists. “Our
shareholder believes in our business
plan. They have increased their
commitment as we have developed.”
Qatar Airways’ confidential financial
statements make for equally embarrass-
8
14
April 2015 | the gulf
the gulf | April 2015
15
feature
AV I AT I O N
feature
AV I AT I O N
MARKETS
A New World of opportunity
The Gulf’s top three airlines have America in their sights, unleashing a
competitive onslaught on their US rivals
The Dubai carrier has previously pointed out that bilateral agreements “do not attempt to harmonise company establishment laws, labour laws or other domestic legislation”
8 ing reading. The Doha-based carrier
has allegedly received $16 billion in
subsidies since 2004, including $7.8
billion in interest-free loans (valued at
$8.4 billion under commercial terms)
and $6.8 billion in government loan
guarantees. Some of its loans were
allegedly converted to equity in 2009
because repayment was “neither
planned nor likely to occur in the
foreseeable future”.
Speaking to CNN in February after
news of the dossier broke, but before
its contents had been disclosed, Al
Baker remarked that [Delta’s boss]
“Richard Anderson needs to go and
study in a university to find out what
the difference is between equity and
subsidy”. Al Baker may in fact be the
one who needs lessons: the dossier
uses the globally-recognised definition of “subsidy”, as laid out in the
WTO Agreement on Subsidies and
Countervailing Measures. Nonetheless,
he reiterated his stance in March,
declaring: “The State of Qatar is the
owner of Qatar Airways, and whatever
funds are put into the airline is as
equity, which is quite legitimate.”
Some of the wider allegations in the
16
With no smoking
gun for Emirates, the
Partnership instead
maligns the flagcarrier by criticising
“Dubai Inc.”; a
“vertically-integrated”
aviation sector that
lacks transparency
55-page dossier are, admittedly, open
to interpretation. The $42 billion figure,
for example, includes cost savings that
many people would not consider true
subsidies: discounted airport charges,
tax exemptions, de-unionised labour
and so forth. Most of the allegations
against Emirates - which is accused of
receiving $5 billion of unfair benefits fall under this category.
With no smoking gun for Emirates,
the Partnership instead maligns the
flag-carrier by criticising “Dubai Inc.”;
a “vertically-integrated” aviation sector
that lacks transparency and may not
transact with related parties at arm’s
length, thereby drawing subsidies from
the ruling Al Maktoum family in a
more circuitous route.
Those could well be legitimate
complaints, but they probably belong
in a wider debate about global regulatory standards for civil aviation. As
Emirates has pointed out in the past,
bilateral agreements “do not attempt
to harmonise company establishment
laws, labour rules or other domestic
legislation”. It is therefore questionable whether the specific allegations
against Emirates justify a re-think of
the US/UAE Open Skies treaty.
Overall, however, the dossier is a
damning investigative report that
gives the lie to many prior claims
by Etihad and Qatar Airways. Bill
Shuster, a Pennsylvania Republican
who leads the House Transportation
and
Infrastructure
panel,
has
already indicated his support for the
Partnership.
If more congressional allies surface,
the Gulf carriers will face an uphill
struggle in their bid to woo American
travelers. <
April 2015 | the gulf
Qatar Airways operates to seven US points, including Dallas (pictured)
America’s legacy airlines have
good reason to be worried about
the seemingly unstoppable march
of expansion by the Gulf carriers,
which collectively have more than
680 aircraft on order. The long-haul
US market currently has one of
the lowest penetration rates in the
world by Emirates, Etihad and Qatar
Airways: just five per cent, compared
with 15 per cent in Europe, 20 per
cent in Australia and 26 per cent in
India. That makes America a prime
target for future capacity growth.
Dubai’s flag-carrier is the biggest
Gulf player in the US, serving nine
points: Boston, Chicago, Dallas,
Houston, Los Angeles, New York, San
Francisco, Seattle and Washington
DC. While this may seem like a
lot, Emirates’ entire North American
network - also including Canada and
Mexico - accounts for just 2.8 per
cent of its flights and 6.6 per cent
of its available seat kilometres (a
measure of capacity that incorpo-
the gulf | April 2015
Sir Tim Clark has
made no secret of his
plan for America to
become its third largest
source of revenue
rates the distance travelled).
Sir Tim Clark, the airline’s boss, has
made no secret of his plan for America
to become its third largest source of
revenue. He is adding new destinations
and growing existing ones by leveraging the Gulf’s geographical location
as an ideal stopover for the Indian
subcontinent and south-east Asia. That
strategy, in turn, takes market share
away from US carriers, which typically serve these points by funneling
passengers over their partner’s hubs
in Europe.
Qatar Airways and Etihad are
compounding
the
competitive
onslaught. Although their American
networks are smaller - seven and
six points respectively - the recent
pace of growth has been frenetic.
Abu Dhabi’s flag-carrier doubled
its US presence in 2014. Plans to
up-gauge one of its twice daily New
York flights to the Airbus A380 sporting an ultra-luxurious, threeroom first-class cabin - underscore
the airline’s focus on high-yielding,
premium passengers. These are the
long-haul customers most coveted
by US airlines.
It is true that sympathy does
not run deep for America’s legacy
carriers, which are widely accused of
poor service standards. Most travelers welcome with open arms the
lower fares and superior products
offered by the Gulf airlines. But
if their rapid growth is fuelled by
political expedience, rather than
commercial achievement, then the
long-term effect on the health of the
US sector is a legitimate concern for
Washington. <
17
