American Consumers and Regional State Economies the Ultimate Victims of US Carriers’ Protectionist Campaign, Cautions Emirates Airline’s President
Protectionist Campaign, Cautions Emirates Airline’s President
Debunks allegations of subsidy and “stealing traffic” in white paper presented by Delta, American, and United
Highlights economic benefits of Emirates’ services to American consumers, local and regional economies, and businesses
Discusses the impact of selective protectionism that restrict international air transport links and trade bridges in a global economy
Washington D.C., USA, 17 March 2015 – American consumers, international gateway airports, local and regional economies, and businesses will be the ultimate victims of the protectionist campaign being run by Delta, American, and United Airlines, says Emirates Airline President Sir Tim Clark, at a media briefing held today in Washington DC.
The media event followed meetings with officials at the US Department of Transport, State Department, Department of Commerce, and National Economic Council, where Emirates’ President presented the airline’s perspective on Delta, American, and United’s campaign.
“All the debate about what constitutes a subsidy, what is fair or unfair competition under whose laws… are just distractions from the real issue at hand – which is that the three biggest US carriers, who together with their joint venture (JV) partners already control about two-thirds of international flights from the USA[i], want to further limit the international air transport choices available to American consumers, airports, local and regional economies,” said Sir Tim.
“Consumers should be asking Delta, American, and United why they are amongst the most profitable[ii] airlines in the world, but nowhere close to being ranked best airlines for service or product[iii].
“Airports, tourism boards, chambers of commerce and businesses, should be asking regulators and legislators why valuable, direct international air links - which are so important for businesses and critical for tourism, should be limited only to a few airport hubs served by the big 3 US carriers and their JV partners with whom they co-ordinate prices and capacity under anti-trust immunity.”
Allegations in US Carriers’ white paper
Sir Tim said: “The US carriers took 2 years, and goodness knows how much shareholder money, to assemble their campaign and a stack of allegations which included wrong assumptions and leaps of logic. We have reviewed their white paper and can debunk all claims that Emirates received subsidies. It will take time to assemble our own point-by-point rebuttal supported with financially and legally verified documents, which we are doing. However, we can tackle the main accusations against Emirates today.”
Allegation: Emirates benefited from $2.7b in subsidies from the government’s assumption of fuel hedging losses, and the government also provided Emirates $1.6b in letters of credit:
Emirates’ response: That is untrue. All cash losses incurred by Emirates as a result of its fuel trades in place in 2008/09 were settled in full from the airline’s own cash reserves and not paid for by the government of Dubai. The letters of credit mentioned in the white paper were in fact provided by Emirates to our owners, ICD, in support of the fuel trades novated, not the other way round.
Emirates’ response: Infrastructure investment is long term in its nature. The Government of Dubai has made these investments, like other progressive emerging market economies (e.g China, Singapore) with long term benefits in mind. Comparably lower airport charges or charge exemptions for transfer passengers are neither a subsidy nor discriminatory as all airlines who use the infrastructure at Dubai International (DXB) benefit.
Emirates pays the full published rates at DXB, which are highly competitive, commercially based, and in fact higher than a number of other comparable major airports such as Kuala Lumpur (KUL).
Allegation: Gulf carriers take passengers and revenues from US carriers, and force US carriers to reduce, terminate or forego services on international routes.
Emirates’ response: Despite what some carriers may think, air passengers are not proprietary to airlines. What Emirates is doing is competing in the marketplace - we don’t “take” or “steal” customers. We offer a great product at a competitive price, which appeals to the consumers who choose to fly with us. The three US carriers’ obsession with market share makes all the more apparent what they are really after: not competition, not open markets or Open Skies, but outright government directed market allocation.
Considering there is hardly any overlap between Emirates’ route network and that of Delta, American or United, this campaign by the US carriers is really about them protecting the revenue they earn from their JV partners. But why should the US government defend the interests of the European JV partners of these 3 US carriers? For that matter, what is the US national interest in forcing passengers to inconveniently connect in Frankfurt, Paris, Amsterdam or London – while depriving them the right to choose more efficient routing with a higher level of service?
The positive economic impact of Emirates’ services to USA
Emirates has progressively, and based on rational commercial demand, grown its services to the USA. From seven flights a week between New York JFK and Dubai in 2004, Emirates today flies 84 flights each week from nine USA gateways – Boston, Chicago, Dallas/Fort Worth, Houston, Los Angeles, New York, San Francisco, Seattle, and Washington DC.
The estimated annual economic value of Emirates’ services to these airports and their surrounding regions is US$2.8billion[iv].
Our flights carry travelers from the US to 56 destinations in Africa (18 points), Asia Pacific (25 points) and the Middle East (13 points) which are not served by any American carrier, and we do this with just one plane change in Dubai. The high average seat load factors of over 80% in 2014 on our US flights demonstrate the customer demand for Emirates’ services.
There has been a 503% growth in US exports to the UAE since Emirates started services to the USA in 2004, and today the UAE is the #1 market for US exports in the Middle East. Our flights between the US and Dubai have carried over 470,000 tonnes of high value goods since 2004.
In addition, the vital air links Emirates provides from the US to the many developing markets which are not served currently by American carriers, facilitates US foreign trade and opens up new markets for US exporters, helping to further drive American economic growth, trade and job creation.
Selective protectionism in a global economy
Rather than harming US interests as the white paper prepared by Delta, American, and United claims, Emirates’ services have increased consumer choices, filled a gap in the market by taking travelers to destinations not served by their home carriers, and helped contribute to US economies, trade and tourism. Importantly, Emirates also provides a much-needed competitive alternative to the three airline alliances with antitrust immunity permitting them to keep fares artificially high.
In January, an independent paper published by US economists and academics[v] examined the impact of gulf carrier competition on US carriers’ passenger numbers and fares in international route markets and found that “gulf carrier entry stimulated accelerated market growth” on US-Middle East traffic volumes, and concludes in respect of other markets that “gulf carrier entry has likely resulted in a more competitive market-based equilibrium that indicates, on a global basis, a net gain to society.”
Sir Tim said: “One can argue that the 3 largest US carriers themselves enjoy a number of unfair advantages including access to the world’s largest aviation market in their own backyard, anti-trust immunity for their JVs, Chapter 11 and pension relief legislation, various types of support from individual US States and fuel tax breaks. We could draw up a full list and create a dossier similar to their white paper. But again, that is really not the crux of the issue, which is consumer choice, and the benefits of direct international air links for the many US stakeholders outside of the Delta-American-United coalition.
“Last year a record 75 million international visitors came to the US, stimulating the economy. President Obama’s goal is for that figure to rise to 100 million by 2021, and Emirates is pleased to be helping make that goal a reality.
“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 partners. Especially not when the restriction or denial of competitive choice on international routes will be to the detriment of consumer interest, and will negatively impact the many thousands of US businesses and industries reliant on efficient air transport links to be competitive in a global marketplace.” -ends
[i] US DOT T-100 International Data (YTD Sep-14). Data quoted includes all Delta, United and American/US Airways’ operations (incl. regional operations, operated as United Express, Delta Connection, American Eagle and US Airways Express). JV partners include: Delta (Air France/KLM, V-Australia, Alitalia, Virgin Atlantic), American (British Airways/Iberia, Qantas, JAL), United (Lufthansa, Swiss, Brussels, Austrian, Air Canada and ANA).
[ii] Airline Business 2014 World Airline Rankings (2013 figures) show Delta was the most profitable airline in the world ($10b in net profit including a one-time $8b income tax gain), and United ($571m net profit) ranked in the top 10. American Airlines, after emerging from the US Airways merger in 2013, reported $4.2b in full year profits for 2014.
[iii] Skytrax 2014 World’s Best Airline Survey – the world’s largest non-profit, and non-subscriber based consumer survey on airline service - ranked Emirates #4, while Delta, United and American were ranked #49,#53 and #89 respectively.
[iv] According to economic impact studies from respective airports or regions
[v] “The Impact of Gulf Carrier Competition on US Airlines” – Martin Dresner (University of Maryland), Cuneyt Eroglu (Northeastern University), Christian Hofer (University of Arkansas), Fabio Mendez and Kerry Tan (Loyola University Maryland)