Interesting how the Aussies had to deal with the middle east airlines' encroachment back in 1996 and this is just now representing the same issue here in the USA. Aivars Lode
Air Canada Strained Diplomatic Ties While Lufthansa Lost Traffic
By Susan Carey
To understand why leading U.S. airlines are mounting a political campaign against growing competition in their markets from Persian Gulf rivals, look at the experiences of flagship airlines in Canada, Germany and Australia.
Canada has so far contained the Gulf trio’s growth, to the benefit of Air Canada—though its efforts have strained diplomatic ties. German carrier Deutsche Lufthansa AG, which has lost significant traffic to Gulf rivals, is asking the European Union for help in leveling the playing field. Australia’s Qantas Airways Ltd. chose to cooperate rather than fight, forging an alliance with Emirates Airline in 2013.
The U.S. government is considering a new request for help from American Airlines GroupInc.,United Continental Holdings Inc. and Delta Air Lines Inc. The U.S. carriers want Washington to limit expansion by Emirates, Etihad Airways and Qatar Airways, alleging the growth is unfairly fueled by subsidies from the Gulf airlines’ state owners.
Etihad, Emirates and Qatar insist that they are profitable companies that aren’t subsidized and that they offer Americans access to cities around the globe that U.S. airlines ignore. The chiefs of Emirates and Etihad are expected to address the dispute in separate speeches in Washington on Tuesday.
Supporters say the Gulf airlines are simply emulating a strategy pioneered decades ago by other carriers with small home markets, including Singapore Airlines and KLM Royal Dutch Airlines: Build a big home airport and scoop up international traffic between other countries’ airports via that hub.
The Gulf three have accomplished this in record time, developing hubs that easily connect travelers between Asia Pacific and Europe or North America. They recently began adding U.S. flights—they now collectively serve 10 U.S. airports—and their available seats have more than doubled since 2009. By choice, Delta and United each operate just one daily round trip to Dubai.
Air Canada is “aligned on most if not all of the points” the U.S. carriers are making about the Gulf trio, said Benjamin Smith, the Canadian flagship’s president of passenger airlines. “It’s a very serious issue.”
Canada’s air treaties with Qatar and the U.A.E. are more restrictive than the U.S.’s “open skies” accords. They have enabled Canada to limit the Gulf carriers to three round-trip passenger flights a week each. Some in Ottawa believe that number already far exceeds actual demand for travel to the Middle East and includes Canadians traveling beyond the Gulf. Air Canada doesn’t fly to the region, but it intends to start thrice-weekly service from Toronto to Dubai in November.
The U.A.E. showed displeasure with the lack of expansion in 2010. Its then-ambassador to Ottawa said it was “frustrating” that five years of negotiations hadn’t increased flights. “The fact that this has not come about undoubtedly affects the bilateral relationship,” the envoy said.
Within days, Canada’s then-defense minister said his nation would abide by the U.A.E.’s wishes and withdraw from a military base near Dubai that Canada was using as a staging area for the war in Afghanistan. Canadian officials decline to say whether the air talks were linked to the base closure. Soon after, the U.A.E. began requiring Canadian travelers to apply for pricey visas when they visited, a rule later rescinded.
U.A.E. officials in Abu Dhabi didn’t respond to requests for comment. The U.A.E. embassy in Ottawa said the ambassador was unavailable. Its embassy in Washington said the liberal U.S.-U.A.E. air treaty has supported a successful economic and trade relationship between the two countries and generates new flights that are creating thousands of U.S. jobs. It also noted that its two airlines are the largest buyers of Boeing Co. jets in the world.
Emirates remains interested in expanding in Canada, but it leaves that up to the Canadian and U.A.E. governments, a spokeswoman said. Etihad said it would be improper to comment on government-to-government issues, although it entered a code-sharing agreement with Air Canada in 2013.
Canada’s government says only about 2% of its international traffic is covered by air treaties that contain constraints. “What we are not supportive of is deals where the balance of benefits is heavily skewed to one party,” said Air Canada’s Mr. Smith. The Gulf carriers “aren’t creating new trips,” he added. “They’re just transferring traffic.”
In Germany, whose air treaties with Gulf states are more expansive, the Middle East carriers now offer 181,000 monthly seats on 529 flights from five German cities to their home airports. Etihad also owns 29% of Air Berlin, a rival of flagship Lufthansa. Air Berlin offers more flights to Abu Dhabi alone than Lufthansa operates to all three Gulf destinations.
Lufthansa said its Frankfurt hub has lost nearly a third of its market share on routes between Europe and Asia since 2005, with more than three million people now flying annually from Germany to other points via Persian Gulf hubs. Lufthansa said it is responding in part by cutting flights, including Munich-Singapore, Frankfurt-Hyderabad, India, and, coming next month, Frankfurt-Abu Dhabi.
Jens Bischof, Lufthansa’s chief commercial officer, says the market-share erosion will affect its United and Air Canada partners because Lufthansa won’t be able to offer as many connections to North American customers who change planes in Germany en route to points in Europe, Africa and South Asia.“The phenomenon we see here in Europe is more and more affecting the U.S.,” Mr. Bischof said.
In December, Lufthansa and Air France-KLM SA asked the European commissioner for transport to press the Cooperation Council of the Arab States of the Gulf to agree to “fair competition” provisions for current and future air treaties. Without that, Lufthansa and Air France said in a letter, “both the economic and strategic role of European aviation will be permanently impaired.”
The European Commission said that it has met twice with the six-nation Gulf council and that a third meeting is envisioned this spring. The EU intends to lay out its aviation strategy by year-end and will seek public comment on provisions related to fair competition.
The Emirates spokeswoman said the airline has long seen potential for adding cities such as Berlin and Stuttgart, but it respects the German government view that more service “is currently deemed unnecessary.”
Australia was an early expansion point for Emirates, which started serving Melbourne in 1996. Qantas—hampered by high costs and a market-share battle with Virgin Australia Airlines, which is 22% owned by Etihad—teamed up with Emirates. The deal has helped stabilize Qantas’s finances and end losses on international routes as the airline halted unprofitable flights to Europe via several Asian transit points and concentrated on promising markets in North Asia and North America.
Still, the Gulf buildup is changing travel patterns. In March, the trio offered 434 flights and 166,000 seats to their hubs from five Australian cities. Qantas has 31,000 seats on 60 flights from two Australian cities to Dubai. Both go on to London, the airline’s sole European destination.
Qantas CEO Alan Joyce, speaking in February when the company announced interim results, said his airline is receiving high consumer ratings for its “Dubai hub” and the increased range of destinations it now offers in Europe through the Emirates partnership. The deal also allows Emirates customers to fly to smaller Australian cities on Qantas’s domestic network.