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.
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.
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.
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.
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.
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.
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.
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.
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