GCC a 'sandpit with money'

Failing miserably in the face of competition from more efficient airlines, Lufthansa’s CEO Christoph Franz is resorting to verbal gimmicks by calling the Gulf nations a place “where nothing exists besides sand and a box of money.”

While Western airlines have been under performance pressure from competent Arab airlines for quite some time now, and have often desperately resorted to lamenting about the absence of a “level playing field”, Franz’s latest remarks, published in the May edition of the German ‘Manager Magazin,’ are clearly a way of trying to divert attention away from the airline’s own losses.

Ominously, these remarks came just before Lufthansa, Germany’s biggest airline, announced plans to slash 3,500 administrative jobs around the world as it tries to return to profitability. The news came a day after Lufthansa reported a first quarter operating loss that more than doubled to €381 million (Dh1.83 billion), missing a consensus forecast of a €289 million (Dh1.39 billion) loss.

In response to a query by Manager Magazin on whether the European airlines were blowing the competition issue out of context by labeling it as something that is a matter of survival for Europe and not just of a wellbeing of some airlines, this is what Franz had to say (translated from German):

“I like to answer with a picture. Let’s imagine – pure theoretically - a country, in which nothing exists besides sand and a box of money. What do you have to do to develop this country economically? First you have to build a runway and to establish a national carrier – just to bring this country on the world map and to support trade, the tourism sector and to settle industry. The Gulf countries understood that aviation industry is a motor for economic development. In contrast to this position we in Europe see this motor more and more only as a source for taxes or as a source of noise. I think we have to change our thinking fundamentally in regards to this.”

When asked if he feared the competition from Gulf airlines, he said (translated from German): "Of course we accept all competitors. But there must be a level playing field. And in the competition with the Gulf carriers does not exist a level playing field. The Gulf-carriers have special conditions, in regards to taxes and fees. And they hurt the balance in the reciprocal traffic blatantly."

This brings back (not-so-distant) memories of other Western carriers accusing Gulf airlines of flying on subsidized fuel and not having to pay taxes. While these are nothing new, the fact remains that airlines, by the nature of their operations, are global beasts.

So, if an aircraft takes off from, say, Dubai and is fully fueled-up and lands in, say, Frankfurt (Germany), it will have to refuel in Frankfurt for its onward or return journey. I am sure Germany will not offer the Gulf (or any other) airline any subsidy on the fuel it needs for the journey.

Not just that, the fuel that Gulf airlines like Emirates fill up at their home base (Dubai, in Emirates’ case) is sourced from global players like Shell, who are not going to offer any subsidy to their customers regardless of who that customer is. So clearly, the issue of fuel subsidy is one that is raked up now and again only for diverting attention from more existential issues such as operational efficiency and customer service quality.

On the issue of taxation, it isn’t the fault of Etihad, Emirates, Qatar Airways, Gulf Air or others like them that governments in the Gulf choose not to levy an income tax. To put it straight, the European airlines too do not have to pay taxes in the Gulf for their regional operations – so the playing field is really level in that regard too.

It is no secret that a recession in Europe is forcing some countries there to increase taxation on aviation and transport sectors, which is hurting its airlines.

But a mistake on the part of European policymakers is no reason for Lufthansa’s chief – or anyone else for that matter – to start labeling the Gulf states as sandpits with nothing more than money.

Europe’s aviation policy is under fire for raising the cost at a time when the industry is facing tough battles over airport expansion in the UK or a new EU scheme which charges airlines for carbon emissions. But instead of acknowledging the facts on ground and lobbying the issue with their own governments, major players like Lufthansa’s Franz are blaming the Gulf airlines of taking away their customers.

“The framework conditions deteriorated massively over the last years. The market was liberalized and we have new competitors, these market conditions are for most airlines already demanding enough. We can’t carry additional burdens in this phase of transformation. And we have to carry numerous additional burdens. The aviation tax in Germany and Austria for example. Besides that we have the EU-ETS, which develops more and more in the direction of a trade war with non-European countries,” Franz said in his recent interview to Manager Magazin.

However, he and others like him choose to ignore the most important issue of customer service at their own peril.

For decades, established airlines in the West took passengers for granted and charged them high fares for non-existent service standards.

With the superior service standards being now set by airlines from the Gulf – notably Emirates, Etihad and Qatar Airways – laggards in the western aviation sector are feeling the pinch even as Gulf airlines continue their expansion due to their excellent customer service.

“Aviation was made a strategic industry in Dubai 20 years ago. In Europe it is not strategic and it is not important for politicians to win elections. That is why airline lobbying is not heard, investments are blocked, taxes are increasing and as a result airlines do not have modern fleets and then they save money on products,” Thierry Antinori, former Austrian Airlines executive who has joined Emirates as Executive Vice President, Passenger Sales Worldwide, told Reuters in a recent interview.

“You cannot stop the Middle East airlines because they are in the centre of the world; they have the best infrastructure… and never save money on product,” Antinori said.

Are you listening, Mr. Franz?

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