Trends and News

How to compete wisely against the Gulf carriers

I think that everyone in the aviation industry is very well aware about the rift between the Big3 Gulf carriers – Emirates, Etihad and Qatar Airways – and the major airliners from the United States (Delta, American Airlines and United). The Big3 Gulf Carriers are very aggressive in expanding their route network in the United States and according to the major airliners of the United States, such expansions eat up their market share. But this is about free and open skies right? Well, not really. Delta, American Airlines and United allege that Emirates, Etihad and Qatar Airways are being subsidized by their governments with billions of dollars.

Checkin

Check-in counter of Philippine Airlines Flight PR659 bound for Manila. The airline, as well as most of the other airlines, utilizes the old Terminal 1 at the Dubai International Airport. Emirates meanwhile is the sole carrier that operates on the sophisticated and modern Terminal 3 which is the largest airport terminal in the world to date.

Gulf Carriers hit back by denying that they have received any subsidies from their respective governments. They claimed that the money was a loan that they need to return. They also reasoned out that their geographical position is actually their main advantage. Just recently, Qatar Airways launched its newest route in the US, a non-stop flight from Los Angeles to Doha. Passengers from Los Angeles will fly direct to Doha and use the newly renovated Hamad International Airport to connect to various cities in the Middle East and Asia. For Etihad, it uses its hub in Abu Dhabi and for Emirates its hub in Dubai.

Departure-Dubai

Dubai from above. The Dubai International Airport’s rapid rise is a direct result of transit passengers of Emirates which uses the city as its hub.

However, in a study conducted by Martin Dresnera, Cuneyt Eroglub, Christian Hoferc, Fabio Mendezd and Kerry Tan entitled “The Impact of Gulf Carrier Competition on U.S. Airlines”, such intrusions by Gulf Carriers has a big impact over the market share of US carriers including the prices of the tickets. It drove prices down that can kill any competition especially with all the dollars that were injected by the Gulf governments to their airlines. One analysis also shows that Emirates, Etihad and Qatar Airways don’t have to maintain a route profitable. Many of their routes especially in the Americas have low load factors yet had been operating for years. Delta for example had to axe its Atlanta to Dubai service because of low demand yet Emirates continue to fly the route.

Low-Load-Factor

All aboard! PR659 is very light flight with rows and rows of seats empty. Feedback from colleagues indicate that Philippine Airlines is also struggling to fill its seats on flights from Manila (MNL) to Dubai (DXB)

The unfair competition brought by these Gulf carriers is not just felt in the United States. In the Philippines, Emirates was recently fined for operating an unauthorized extra flights to Manila. The fine however was just a slap in the wrist for the rich airlines. The demand between Manila and Dubai on a point to point basis is so very low such that I experienced a very light flight of Philippine Airlines from Dubai (DXB) to Manila (Manila). Not even half of the seats were occupied. Emirates however thrived on this route thanks to the transit passengers who took advantage of the airlines’ extensive network. Up to 70% of Emirates passengers on MNL-DXB flights are going somewhere else mostly to Europe. This explains why many European carriers abandoned Manila. They just can’t compete with the Gulf carriers.

Dinner

Dinner for the night. I chose chili con carne with rice and a red wine to wash down the food. Food onboard Philippine Airlines is okay-ish. I once took a flight from DXB to MNL onboard Emirates and the food is way much better than this.

Just recently a renegotiated air deal between the Emirati and Philippine governments was opposed by both Philippine Airlines and Cebu Pacific. Basically, it granted Emirates additional flight frequencies to the Philippines. As both Filipino airlines are already struggling to fill their seats, additional entitlement would be an insult to their injury.

Inflight-Food-and-Entertainment

There are no TV screens at the back of the seats. If you wish to enjoy the inflight movie, you must bring your own device and must have the correct app from Philippine Airlines to make it work. Shows and music are then streamed via wifi. I am very much well-prepared for this, so I was able to enjoy some movies and TV shows during the flight. 

Serving-Food

Philippine Airlines was once notoriously known for snobbish flight attendants. My experience on this flight and on the other flights that I had with this airline dispels all the negative feedbacks that I’ve heard.

However, Philippine Airlines took advantage of the deal. One of the things that they got from the renegotiation are fifth freedom rights. Just recently, Philippine Airlines launched flights between Manila to Jeddah and Kuwait and both flights stops-over at Dubai. With fifth-freedom rights, Philippine Airlines can also pick-up passengers from Jeddah who are only heading to Dubai (and vice versa) while the rest who are heading to Manila will fill up the empty seats of the Dubai-Manila flights. Philippine Airlines also planned to do that with their Kuwait-Dubai segment but was blocked by the Kuwaiti regulators. The airline is now on appeal since Kuwait Airways enjoy fifth freedom right on their Kuwait-Manila routes which stops over at Bangkok. On March, Philippine Airlines will also launch Manila-Doha flights with stopover in Abu Dhabi and will also exercise its fifth-freedom rights.

Breakfast

Two hours before landing in Manila, a pie, a chocolate bar and a cocktail of nuts were served as breakfast.

I think that the American carriers can learn a thing or two from Philippine Airlines. I am not so sure that the United States have fifth-freedom rights agreement with the United Arab Emirates but if they don’t it is time for them to renegotiate for it. While I also believe that the superior service of Gulf carriers make them an airline of choice for many Americans (think of the Emirates ad where Jennifer Aniston enjoys a shower onboard an A380), the playing field is simply uneven.

Seat-Pitch

Seat pitch onboard Airbus A330-200 is terrible by my standards. However, since there were so many empty seats, I had a row for myself where I was able to lie down flat for a good sleep. But how to keep my seat belts fastened while lying down is a bit of a struggle though.

Gulf carriers enjoy the financial backing of their uber-rich governments, there is no doubt about that. Their labor force also do not have formal unions and are largely outsourced from other nations so their costs are pretty much manageable than those of American carriers whose workers have strong protection from labor unions. The only way for Delta, American Airlines and United to get even with the Gulf carriers is to enjoy fifth freedom rights. Philippine Airlines cleverly exercised this right in order to compete but whether this will work in the long run is something that we have to wait and see.

Arrival-Manila

Arrival Manila. The flight leaves at night from DXB and arrives in the morning at MNL. In overall, this flight is not that bad and actually exceeded my expectations. While Philippine Airlines can’t compete with spectacular service of Emirates, airfare with the former is more wallet-friendly than the latter.

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Categories: Trends and News

1 reply »

  1. DL stopped flying ATL/DXB because the tens of thousands of contractors, government and civilian employees that were forced to fly US Air Carriers (i.e. DL and UA) by the “Fly America Act” (a large source of revenue for these carriers because US Federal Government intervention) in support of the conflicts in the Middle East and Central Asia no longer needed to as the conflicts wrapped up. BTW, the service was so bad on DL, UA and all North American Air Carriers, that I just no-showed for the DL or UA flight and paid, with my personal money, to fly QR, EK, or EY. or even take the long way on SQ So couple of things: The US Federal Government interfered in the market for years to support DL and UA. This is just one micro example. The ME3 beats all US carriers on product, price and service. I will continue to choose them. Also US airline industry has received over $200 Billion in USD, and continues to receive billions every year in the form of grants, guarantees and direct aid. The Middle East Airlines are building a brand, inducing trial, increasing their networks, and seeking new market share. The ME3 enjoy access to cheaper capital because they do not repeatly go bankrupt and back out their obligations. The ME3 is right to take advantage of their “access to capital” as it is strategic advantage. It is in nefarious or in anyway an unfair busines practice.

    No way would a US carrier establish a hub in ME with 5th flight freedoms. They can and could. They won’t. The ME3 would defend. That of course would mean that the carriers with the most cash (i.e. the ME3) would win at the end of the blood-letting. That’s why the don’t pick a fight with a large carrier in it’s hub rule is so relevant when starting new airlines or adding new routes. It would be a supremely unintelligent move to do so. So maybe UA. I mean they did for some reason think it was way to abdondon JFK!!! Anyway, Philippine airline is irrelevant in terms of global traffic. They don’t bother EK, EY, and QR and so if PH want to carry all the junk (i.e. low fare) labor traffic, even better. It’s a legititmate and safe strategy for an air carrier located at the “edge of the map” to implement. SQ does the same.

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