Emirates and the ME3 are having to circle the wagons in the face of increasing global resistance to the Middle Eastern carriers.
This resistance is no longer restricted to American Airlines, Delta Air Lines, and United (collectively the “US3″) in the United States and Air France-KLM and Lufthansa Group in Europe.
The world has become less hospitable to a company whose marketing projects a sunny globalism; one Emirates ad sums up a corporate ethos that feels increasingly at odds with the times: “Tomorrow thinks borders are so yesterday.” Those borders are going up again – and the walls with them.
Of course Emirates whole business model depends on borders being irrelevant. Some 80% of the airline’s passengers are not visiting Dubai – they are passing straight through – onto somewhere else.
On Wednesday last week Avianca of Colombia called on its government to reject a Qatari proposal for Open Skies. Avianca argued that any such bilateral agreement would have to be based on “real and effective reciprocity”. The question here is, how do you ensure “effective reciprocity” with a country whose only major gateway – Doha – is used more as a transit point than a final destination?
And this is the issue with many of the bilaterals with the UAE and Qatar; their cities are not end destinations – they are waypoints in the way to somewhere else.
In January, the Kenyan government withdrew Emirates’ authority to run a third daily flight between Dubai and Nairobi on the grounds it wanted “to ensure parity in the exercise of rights granted.” Though the measure had initially targetted the Dubai-based carrier, it was soon expanded to cover thirty-four other foreign airlines looking to increase their frequencies to the Kenyan capital.
Kenya’s Transport Ministry Principal Secretary Irungu Nyakera was pretty blunt about the motive behind it all – to protect ailing national carrier Kenya Airways which has been struggling to regain its footing following continuous quarterly losses.
And this is the same sentiment PIA Pakistan’s acting CEO, Bernd Hildenbrand, has echoed. Pakistani media last week quoted him asking PIA’s largest shareholder, government, to curb UAE-based carriers’ access to Pakistan’s large market given the increased pressure they have placed on his already struggling airline’s unit revenue.
Zimbabwe, too, has joined the fray with Air Zimbabwe CEO Ripton Muzenda complaining that Emirates’ 5th Freedom Lusaka-Harare-Lusaka route has, in fact, now morphed into a 7th Freedom service (i.e. the freedom to base an aircraft in a foreign country for use on international services) at his airline’s expense; though this would seem to be stretching reality.
Zimbabwe and Pakistan have yet to take official action.n the last two cases mentioned, no government action has yet been taken publically, but it’s usually only a question of time before a diplomatic communique gets trundled off (this usually happens a lot quicker towards election time for some bizarre reason).
Canada is still holding out – back in 2010, Canada rebuffed requests from the UAE. to allow Emirates and Abu Dhabi-based Etihad more landing rights in Toronto. The UAE bilateral allows just one flight a day between the countries for designated carriers from each nation. The UAE raged. For some reason the UAE (and many commentators thought they had some sort of entitlement to fly where and as often as they wanted and trumpeted (and still do) consumer choice. The UAE abruptly closed its airspace to Canada’s defense minister while he was in midflight, which forced a diversion, and evicted Canadian troops from a Dubai base they were using to support combat in Afghanistan. Canadian visitors to the U.A.E. were slapped with visa requirements, including fees of as much as C$1,000 ($754), though the gambit backfired.
Then-Prime Minister Stephen Harper told his ministers he wouldn’t allow soldiers to be used as a bargaining chip. The UAE’s landing rights still have not been increased.
Of course the ME3 problems are not just geo-political.
We are also in a period of sharply lower oil prices and thus jet fuel prices.
For years the ME3 could offer lower prices due to a mixture of economies of scale, strong cost discipline, and favorable regulatory regimes, particularly on cost-line items such as labor expenditure and maintenance (a benefit of their newer fleets).
They also had a strong cost advantage based on fuel prices thanks to their younger fleets. And passengers chose them in droves based on pricing, often backtracking to fly the MEB3 on itineraries such as London – Dubai – Africa or Asia.
The cost advantages for the MEB3 in an environment of high fuel prices were massive. But with lower fuel prices, the nominal fares in pretty much every market have come way down, which in turn has squeezed the ability of the ME3 to compete on price.
Add to this equation – new airplanes; with more nonstop flights utilizing the newest generation aircraft technology and overflying the Middle East hubs.
More and more Boeing 787s and Airbus A350s ply the skies each day, and these are used increasingly for routes like Tokyo – Dusseldorf, San Francisco – Tel Aviv, and Toronto – Mumbai.
The new nonstop options take away premium cabin and higher yielding economy class business travelers.
The ME airlines all expanded in anticipation of lucrative and growing air travel markets around the globe.
But Turkish Airlines and Qatar Airways are largely spectators in the Indian market despite years of negotiations, while Emirates cannot add service to more than a dozen Chinese airports that serve more than 20 million passengers a year.
For the ME airlines to grow further, they need better access to both mature and fast-developing markets. Right now, they aren’t getting that access.
Each of the ME airlines have issues of their own to deal with; Turkey’s political woes have impacted tourism; Etihad’s investment strategy has imploded and Qatar has to deal with increasing scrutiny as the nation builds up to the 2022 World Cup.
Emirates has the double whammy of excess capacity and a home airport that is too small for its needs.
The wagons have circled. There is turbulence ahead. But that is not unusual in this industry.