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Greecing the Wheels of an Airline Free Market
January 26, 2017 -- Emirates Airline of Dubai announced this week that it will launch nonstop flights from Newark Airport to Athens, the first year-round service between the United States and Greece in at least five years.
Yet the big news is how little controversy the route is stirring. The Emirates announcement isn't a sign of strength, but an admission that the once-mighty Gulf airline is finally out of runway. Coupled with a separate dispatch--Etihad confirmed the departure of chief executive James Hogan, architect of the Abu Dhabi carrier's strategy of buying busted airlines--it's a sure sign that Gulf Carriers have hit a financial and competitive wall.
But before we examine that, um, big, beautiful wall, some background ...
The U.S. airlines' carefully planned political war against the Gulf carriers effectively ended nearly two years ago when Richard Anderson, then Delta's chief executive and chief instigator of the campaign, imploded live on national television.
"Itís a great irony to have the United Arab Emirates from the Arabian peninsula talk about" U.S. airline bankruptcies, Anderson told CNN's Richard Quest. "Our industry was really shocked by the terrorism of 9/11 which came from terrorists from the Arabian peninsula that caused us to go through a massive restructuring."
Anderson's bizarre remark--which is what we now call "alternative fact"--exposed the U.S. carriers' campaign against Emirates, Etihad and Qatar Airways for what it was. A lie wrapped in a smear inside the well-known desire of legacy airlines to rig the playing field.
As I said at the time, there was nothing substantively wrong with the U.S. carriers' financial claims against Emirates, Etihad and Qatar Airways. All three were and are heavily subsidized directly and indirectly by their governments, all of which are run by the same families who control the airlines. Despite their claims to the contrary, the Gulf airlines are the states and the states are the airlines.
As I also said at the time: So what? U.S. carriers vigorously suck at the teat of U.S. taxpayers in many of the same ways. And U.S. carriers are in bed with the Gulf carriers--and other heavily subsidized foreign airlines--whenever and wherever it suits them.
And as I also predicted at the time, the U.S. carriers' campaign against the Gulf airlines would lead to very little. All the sound and fury signified nothing and the U.S. carriers must fight Gulf airlines on the competitive field of battle.
Which brings us back to that, um, big, beautiful competitive wall that Gulf carriers now seem to be hitting. And hitting quite hard.
The thing that most worried U.S. carriers--a massive influx of Emirates, Etihad and Qatar Airways flights into point-to-point transatlantic markets--just hasn't happened.
Emirates did launch nonstops between New York/Kennedy and Milan in October, 2013. Those flights offer a small first class cabin, something U.S. carriers and Alitalia do not operate between the two cities. Other than that, however, Emirates is an also-ran in the New York-Milan market. Even when transatlantic coach fares were substantially higher than they are now, Emirates often offered seats for less than $500 roundtrip. Business class fares are also frequently discounted.
Before Emirates' Newark-Athens announcement on Monday, the only other transatlantic incursion by the Gulf carriers was a 2012 pronouncement from Qatar Airways about a New York/Kennedy-Athens nonstop. Qatar never started the flights. Never even scheduled them. It was all smoke, mirrors and bluster from Akbar Al Baker, the boss of Qatar Airways and the airline industry's primary purveyor of alternative facts.
Even Emirates apparently isn't expecting much from the Athens route, scheduled to begin March 12. It'll use Boeing 777-300ERs heavily skewed to low-yield leisure traffic with 304 coach seats. The planes have just eight first class seats and its 42 business class chairs don't even convert to lie-flat beds. They are outdated angled-flat seats. U.S. airlines, which fly seasonally to Athens, offer lie-flat seats from their Newark (United), New York/Kennedy (Delta) and Philadelphia (American) hubs.
Yet Emirates, which has been on a 30-year growth tear, has run out of other places to grow. The transatlantic skies are clogged with low-fare flights from carriers like Norwegian and competition from reinvigorated airlines such as Aer Lingus and TAP Air Portugal. Emirates is left scratching for marginal routes like Athens and weighing nonstops to Budapest, which also lacks a year-round nonstop to the United States.
Meanwhile, Emirates is in global retrenchment mode, something the airline euphemistically calls a "modest restructuring." Its workforce is shrinking, it has trimmed a few frills for coach flyers and now even hawks paid access to its lounges at Dubai Airport. After years of pooh-poohing premium economy cabins, Emirates executives now admit they need to create extra-space seats to generate additional revenue.
Things are much worse 75 miles down the E11 in Abu Dhabi, home of Etihad. As I explained before Christmas, Hogan's strategy of scooping up broken airlines has come a cropper. Hogan can justifiably claim that, as the last Gulf carrier to launch, Etihad had few other ways of building traffic. But the patience of self-important, oil-rich sheiks wears thin when profits don't arrive.
And that is what's at the structural core of the Gulf carriers' problem: profits, specifically energy profits.
No one really cares much about the Gulf states even if they are geographically well-located for global airline hubs. Their appeal, Bur Dubai and Deira notwithstanding, is access to oil or gas.
Say what you wish politically about the Obama Administration's controversial Iranian nuclear deal, but it injects Iran's oil back into the market and that will keep global energy prices comparatively low. Without outsized oil profits to grease the aeronautic wheels, three long-haul carriers with little domestic feed and overlapping hubs just a few hundred miles apart make very little sense. They won't all survive as global long-haul players in a world of $50-a-barrel oil, slack demand and a planetary desire to find cleaner energy sources.
What's it all mean? I dunno. But it proves again that the market will work if you let it.
Airlines, especially U.S. carriers, hate letting the market work.
It's why they create political warfare that eventually becomes slimy innuendo. It's why they invent alternative facts and attack anyone who challenges the phony narrative. They act like thugs and claim they are acting in the best interest of the average American.
It's why whenever an airline tells me something, I assume it's a lie until I can prove it to be the truth.
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