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U.S. Airlines vs Gulf Carriers: That Escalated Quickly

U.S. Airlines vs Gulf Carriers: That Escalated Quickly

Alex and I opened the last podcast episode with the story of the major U.S. airlines sending a report to the White House about what they call unfair competition.

Little idea we had that the war of words would reach fever pitch that fast, or, in the words of Ron Burgundy in Anchorman:

Boy, that escalated quickly

Skift reports that Delta CEO, Richard Anderson, went live on CNN with what can only be described as very harsh words. I'll let you be the judge:

it’s a great irony to have the UAE from the Arabian Peninsula talk about that, given the fact that our industry was really shocked by the terrorism of 9/11, which came from terrorists from the Arabian Peninsula.

Contentious to say the least. 

Unfair competition?

This comes as the last, well, escalation, since the report was filed. The U.S. airlines argue that they've lost market share due to various forms of state aid given by governments to the Gulf carriers, Emirates, Etihad, Qatar (and others). It affirms that more than $40bn of loans, tax exemptions and other support since 2004 is what allows those airlines to compete—unfairly if you follow their argument.

Delta, United and American Airlines have apparently lost, for instance, more than 5% of the share of bookings from the US to the Indian subcontinent since 2008. The overall share of booking from the carriers located in the Arabian peninsula has increased more than tenfold if you follow their numbers.

Tim Clark, Emirates Airline CEO, was quick to ironically respond that he'd be very interested to see how the aforementioned $40bn was calculated—not to mention hinting that the Chapter 11 proceedings are a form of state aid, which certainly led to Anderson's reply mentioned above.

Competing on experience?

EK's chairman simply added "offer the best to the passengers and people will fly with you."

That last sentence seems to be what Richard Quest echoed when interviewing Anderson:

Everyone would accept they give superb service and quality of flight, so you’re not necessarily going to have the consumer on your side.

Or Akbar Al Baker, Qatar Airways' CEO, never shy from pushing his point across:

It is like you open a shop and there’s a neighbor who is already established. Everybody knows him so they mostly go there. You have to do something different for people to come to your shop. We attract customers by giving them a ‘wow’ product.

Ben Schlappig, author and aviation expert at One Mile At A Time, contends that it's a bit too easy of an argument:

The US airlines historically haven’t had nearly the capital of the Middle Eastern carriers — no US airline could afford to order 100 A380s, for example

This is why I said on the podcast that it was difficult to take sides here. A lot of the airlines around the world, including U.S. ones, were borne out of government subsidies, sometimes being the flag carrier of a country. It is the case in Japan, in China, in Thailand, in Europe, almost everywhere. Even to this day, after privatization efforts have gone underway, voices are raised on how Lufthansa got help for its pension plan funding or how SAS seemingly had preferred treatment during its latest restructuration. 

Such subsidies still exist in many parts of the world, but even beyond that, it's the philosophy of building an airline, a corporation or even an entire economy that is at stake here. Gulf countries are building an infrastructure, not only companies—no matter how people judge this goal. Shareholder value, potential subsidies notwithstanding, is not the primary concern. I again encourage you to read Schlappig's point of view on this.

Closing Open Skies?

As Alex and I mentioned in the podcast, the creation of a Milan-JFK route is certainly not foreign to the heating up of the debate, nor is the Etihad's capital entry into airlines, from Alitalia to IAG. The competition is basically not centered for flight routing via the Middle East anymore.

The more general topic of Open Skies, the "free trade agreements for airlines", is what it boils down to in the end. Which airline can fly where to and from? The U.S. has 114 such agreements currently. We will cover the topic in a forthcoming episode, as it's more complex than a few lines I could write here.

Of note, the deregulation of the market has led, in the U.S.A. to a consolidation of the market, whereas in Europe it seems to have opened the market more widely. While the two entities are hardly comparable for various reasons (timing, regulation, history, local rules, etc.), the largest carrier in Europe controls 13% of the market, whereas AA/US has 25%. The top 4 control 39% and 83% respectively (read more about those numbers over at The Travel Insider). 

Competition is a variable concept, depending on how you see it, whether based on the numbers I've just mentioned or on your opinion on the "Big Three" ways of doing business from the Gulf.

Sides are another variable concept. While the unions are, for once, siding with the airlines in the US, not everybody is. JetBlue voiced its willingness to defend the Open Skies agreement—a sign of its challenge to the big four. The U.S. Airports are in that same camp.

This might just be the beginning

It is not the first time we've heard those types of argument. Delta had, for instance, already sought to block the loan guarantees for Gulf carriers acquiring Boeing jets (Emirates is, for instance, the largest operator of 777s in the world, having almost double the number of them compared to UA).

In Europe, Air France-KLM and Lufthansa addressed the European Commission to complain about the competition—seemingly focusing on voiding traffic rights.

It's not the first time and it won't be the last time. Those last comments by Anderson have escalated the debate to a new height and I'm not sure to like where all this is going. 

Listen to Alex and I talking about this topic (starting at 0:58). I've added some articles in the show notes too.

Etihad Gets New Striking Livery, Differentiates from Emirates

The rumors were founded, Etihad has unveiled a new livery.

Confidence in the winds.

Confidence in the winds.

I absolutely love the tail. It's modern, it's confident, it makes you ask questions and reflect. A stellar job by Landor Associates, the brand consulting firm.

The new design uses a colour palette which reflects the varying hues of the landscape of the UAE, from the darker sands of the Liwa desert to the lighter colours seen in the Northern Emirates.

As I mentioned in an earlier post, Etihad is the actual flag carrier of the UAE, not Emirates as many believe. The confusion is not only due to Emirates' emerging prominence around the world, but also for its use of the country's flag colors on its aircrafts' tails—something usually associated with national carriers, think American for instance.

Just look at this quick comparison I created for you:

Etihad versus Emirates, until September 2014.

The new design is strikingly differentiated, breaking from tradition:

Etihad versus Emirates, post-September 2014

In the words of the CEO:

The striking new livery also continues our commitment to breaking from convention and doing things differently

The UAE flag is not completely gone, it appears near the cockpit. The national emblem, featured on the old tail, is now featured next to the Etihad name along the fuselage (the brand name as well as its arabic counterpart seem to be pushed forwards to make room for it).

The unveiling happened during a live broadcast of the reveal of its first A380 in Hamburg, Germany.

I couldn't tell if the livery makes use of the undercarriage or not. This computer-rendered video released by Etihad doesn't give it away.

The below one is not rendered though and is really great to watch, as often with those time lapses videos

We'll have another chance to see the new livery during Etihad's 787 unveiling tomorrow (Saturday 27,) live from Everett in the US. The entire existing fleet shall be repainted within the next three years.

Allow me to repeat it once more, I really enjoy that tail design. Might become a true favorite of mine. Congratulations Etihad!

Etihad Launches Massive Recruiting Program


Etihad Airways, the national airline of the United Arab Emirates (UAE), is hosting a major recruitment drive globally, seeking individuals with outstanding hospitality experience to join the airline’s World Leading Cabin Crew. 

From the looks of it—and this is only the tip of the iceberg—Etihad is upping the ante like never before. 

I'm not privy of the airline's strategy details, but it looks like it wants to become a major player, going for the Emirates title. 

All smiles. (image credit: Etihad)

All smiles. (image credit: Etihad)

A New Livery for Etihad?


We have seen the new tail design on an Airbus A380 and also a Boeing 787-9, but there haven’t been any hints if this will be a fleet-wide livery update or just a special livery for their new aircraft. 
Mysterious tail. (photo credit:  Clement Alloing on Flickr )

Mysterious tail. (photo credit: Clement Alloing on Flickr)

I really like that design, it's very modern. Fingers crossed it actually becomes more than a special (and temporary) livery. 

Etihad and the Sexy Alitalia

Well, that's Etihad CEO saying it:

To me the sexiest airline in Europe should be Alitalia

At USD 2.4bn for 49% of the company, he must be hoping for some sexy indeed.

Etihad continues its strategy to buy minority shares in various airlines, a way to gain access to markets and expand.

Though one can't help but think that Alitalia will really be hard to turn around.

Etihad to Europe: Embrace Airline Consolidation

Etihad Airways Chief Executive James Hogan Thursday called on the European Union to welcome foreign investment in the bloc's airline sector at a time when the EU is scrutinizing such holdings.

Etihad has been investing in various European carriers, most notably Alitalia. It even has its own brand, Etihad Regional, operated by Swiss-based Darwin. As it seeks more scale in the continent, no wonder the CEO is going more on the offensive. 

It's actually smart to reverse the argument, which becomes: Europe needs Etihad to maintain competition and diversity. 

On the other side of the fence, Lufthansa has possibly be the most vocal opponent of state-owned Gulf carriers, having been the one calling the EU regulator to block the investment in the national Italian airline. 

The war of words will certainly continue, European carriers accusing Etihad of receiving state subsidies (which it claims it doesn't) and airport priority, Etihad claiming that, even privatized, some European airlines keep getting debt waivers or direct aid, like the one Lufthansa got to refinance its pension fund.