US airlines’ wrong assumptions and leap of logic: Emirates’ Clark

Emirates and Etihad refute allegations of subsidies

Emirates and Etihad Airways chiefs have refuted allegations of airline subsidies and ‘stealing traffic’ on popular US routes while addressing media and delegates in Washington DC this week.

Emirates airline President Sir Tim Clark and James Hogan, President and CEO of Etihad Airways, spoke at the US Chamber of Commerce Foundation’s 14th Annual Aviation Summit in the US capital, directly addressing a ‘protectionist campaign,’ as stated by Clark, which is being run by Delta, American and United Airlines.

In a media briefing, the Emirates head said American consumers, international gateway airports, local and regional economies and businesses will be the ultimate victims of the campaign being run by the US carriers.

“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 partners already control about two-thirds of international flights from the USA, want to further limit the international air transport choices available to American consumers, airports, local and regional economies,” said Clark.

“Consumers should be asking Delta, American, and United why they are amongst the most profitable airlines in the world but nowhere close to being ranked best airlines for service or product,” he said.

In his first public comments since three US airlines launched a campaign, Etihad’s Hogan also called for a ‘reasoned debate’ based upon facts.

He also warned against action which would restrict competitive choice for millions of US and international air travellers in markets which the American airlines have chosen not to serve.

Subsidies and credit allegations

“The US carriers took two 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,” said Clark, addressing the allegations compiled by the three American carriers in a jointly issued white paper.

The paper alleges Gulf carriers benefitted from government subsidies.

“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,” said Clark.

Speaking about the fuel subsidies and letters of credit accusations, Clark continued: “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, not the other way round.”

Separately, Etihad’s Hogan also took on the US carriers, saying: “We’ve been helped by our blank sheet of paper – no legacy systems, no legacy aircraft, no legacy mindsets.

“And we’ve been pushed hard by the vision and ambition of our shareholder to create a globally competitive airline,” he said.

Hogan said the ‘secret’ behind Etihad’s rapid growth was nothing more than ‘incredible customer service, delivered on modern new aircraft, with world-leading product, at competitive prices, on routes people want to fly.’

He also said that Etihad had been more transparent about its business than other airlines.

“Etihad Airways has had a greater focus on reaching and delivering sustainable profitability – we believe – than any other national airline in history,” he said.  “We set a timetable to break even within a decade and we beat that target.  We’ve delivered a net profit in each of the last three years.

“I say ‘we believe’ because it is surprisingly hard to find financial information about the first one or two decades of national airlines around the world.

“We get criticised regularly for our so-called lack of transparency but we see few national airlines that were as open in their first stages of development, as we are being in ours,” Hogan said.

The airline has always made clear it has received equity investment and shareholder loans which have been supplemented by $10.5 billion in loans from international financial institutions.

“Our shareholder believes in our business plan. They have increased their commitment as we have developed – they have invested in our success,” he said.

‘Stealing’ American passengers

The white paper also alleges that Gulf carriers ‘take passengers and revenues from US carriers and force US carriers to reduce, terminate or forego services on international routes’.

Responding to the allegations, Emirates said: “Infrastructure investment is long term in its nature. The Government of Dubai has made these investments, like other progressive emerging market economies (for example 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,” the airline said.

Emirates says it pays the full published rates at Dubai International.

The airline further states: “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.”

Open Skies has been “a model of success, generating enormous benefits for travellers and for airlines in the US, the UAE and around the world,” added Etihad’s Hogan.
He added: “This ultimately is all about consumer choice. Customers choose to fly Etihad Airways because we offer a great product, with outstanding service, on the routes they want to fly, at prices that are competitive within those markets.

“They choose us against many different competitors, depending upon which market we are in.  But quite honestly, it is very rare that US carriers offer those alternatives.”

“No US carrier flies into Abu Dhabi. There are very few US carriers operating to where we do in the Indian sub-continent, in south-east Asia, or in the wider Middle East,” he continued.

“We make no apologies for offering new competitive choice for air travellers.”

“Etihad is a David, a David who’s been facing Goliaths since 2003 when we started. In virtually every market we’ve entered, we’ve had to face existing competitors, with established businesses, established infrastructure, established sales and marketing, established brands, and established customer bases.

“In many cases, those established airlines were gifted amazing infrastructure – airports, terminals, slots, landing rights – over decades.

“To take them on, we’ve had to work harder and we’ve had to work smarter. That’s called competition,” he added.

Economic impact

Emirates currently 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 airline estimates its annual economic value of the services to these airports and their surrounding regions is $2.8 billion.

Emirates further states the high average seat load factors of over 80 per cent in 2014 on its US flights demonstrates the customer demand for Emirates’ services.

In its official statement, the carrier further says: “There has been a 503 per cent growth in US exports to the UAE since Emirates started services to the USA in 2004 and today the UAE is the number one market for US exports in the Middle East. 

Emirates further added: “In January, an independent paper published by US economists and academics 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.”
Hogan said Etihad, which flies to six US destinations, supports the US economy by creating more than 200,000 jobs.

He explained: “We are major customers of Boeing, of GE, of Sabre, and of many other American businesses. We work with strategic American partners – for example, with Atlas, on developing and improving global cargo operations.

“We work with US financial institutions, with US tourist boards, with US airports.  Our commitment to the US economy supports more than 200,000 jobs.”

He used the example of the airline’s first Boeing 787 Dreamliner flight into the United States, which started this week from Abu Dhabi to Washington DC.

The aircraft is the second of 71 Dreamliners on order from Boeing, part of total orders of almost 120 aircraft worth more than $36 billion with the American manufacturer.

In addition, he said, Etihad delivered 180,000 travellers onto the networks of US airlines in 2014 and 50,000 in the first two months of 2015.

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