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Underestimated:The Middle East Carriers

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Underestimated:The Middle East Carriers

Old 15th Feb 2011, 11:28
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Underestimated:The Middle East Carriers

For Emirates Airline, all routes lead to Dubai. The strategically located aviation hub is the centrepiece of the carrier’s ambitious expansion strategy to tap economic growth in India, China and the Middle East.

For its competitors, the renegade carrier and its grand plans have the potential to change global air traffic patterns, disrupting a fragile industry that’s already under pressure from rising fuel prices.

Emirates’ game plan – funnelling travellers through Dubai instead of Europe, and on larger and larger planes – has worked wonders so far. The state-owned carrier has managed to not only survive but thrive as an independent carrier, declining to join one of the three major airline alliances in the world – Star, SkyTeam and Oneworld. When it launched in 1985, Emirates flew only to Pakistan and had just two planes. Now, it flies to more than 110 destinations in 66 countries and has some 150 wide-body jets, including 15 Airbus A380 double-decker planes and 85 Boeing 777s. Emirates has become the world’s sixth-largest airline for international passenger traffic.

Emirates’ success reflects the emergence of a new world economic order, one in which other Gulf carriers such as Abu Dhabi-based Etihad Airways and Doha-based Qatar Airways are also rapidly expanding, said Robert Kokonis, president of airline consulting firm AirTrav Inc. “The balance of economic power is shifting away from North America and Europe,” said Mr. Kokonis, who depicts Emirates as a trailblazer seeking to take advantage of Dubai’s location in the thick of global air traffic routes.

But an array of nervous rivals warn the carrier is trying to muscle in on territory long held – and amply served – by the old-guard “legacy airlines.”

Air Canada and Germany’s Lufthansa, partners in the Star Alliance of global airlines, are pitted against the Dubai-based carrier for transatlantic traffic. They view Emirates, owned by the Dubai government, as a clear and present danger to their lucrative international flights.

Seeking to protect their Frankfurt hub, the two partners allege that Emirates receives subsidies from the Dubai government in the form of cheap landing fees at Dubai International Airport, an accusation that Emirates hotly disputes.

The airline’s transition from tiny regional carrier to global player has happened quickly. During its first two decades, Emirates easily won approval for landing slots from foreign governments because it was too small to be considered a threat by other carriers.

That started to change last year, after Emirates sharply increased its orders for new Airbus A380s and Boeing 777s – planes that are larger and more fuel-efficient than the Airbus A330s and A340s in its fleet. More than 190 aircraft are on order, including about 75 Airbus A380 double-decker planes, which seat almost 500 passengers, and nearly 50 Boeing 777s, which have room for about 400 travellers. In 2015, the 350-seat Airbus A350 will be introduced into the Emirates fleet.

Alarmed by Emirates’ steady stream of new plane orders, some of the world’s leading carriers – including Lufthansa, British Airways, Air France/KLM and Australia’s Qantas – have publicly criticized its expansion strategy. Air Canada, for one, warned that Emirates is unfairly seeking to siphon off international traffic, and accused its rival of trying to dump seats into the Canadian market. “Few Canadians actually travel to Dubai as a destination and fewer still residents of Dubai travel to Canada,” Air Canada chief executive officer Calin Rovinescu said in a speech last fall. Others critics pointed out that the A380 jumbo jets have been designated for Toronto, Vancouver and Calgary, alleging Emirates wants to pick and choose among the top Canadian destinations, hammering at the heart of Air Canada.

Last fall, the Canadian government denied additional landing rights beyond the three already held by Emirates, a decision that the Harper government has stood by, despite heavy political pressure from the United Arab Emirates. Germany is still deciding whether to acquiesce to Lufthansa’s lobbying and turn down Emirates’ requests for more German landing rights.

Andrew Parker, senior vice-president of international affairs at Emirates, bristles at what he terms “Lufthansa propaganda.” He said Emirates prides itself on having a young fleet of planes, and will retire about 100 jets, including older models of the Boeing 777, within the next decade as it takes delivery of new ones.

As for comparisons between Canada and Germany, Mr. Parker said they’re overblown because the Gulf carrier already has access to 49 landing slots in Germany, compared with just three in Canada. A recovery in European carriers’ revenue last year and “substantial aircraft orders from every region should counter the pessimism and cries for protection from some carriers, and confirm it is not just Emirates that believes long-term investment underpins profitability and growth,” he said.

After Ottawa refused demands by Emirates and Etihad Airways for new landing rights at Toronto’s Pearson International Airport in October, the UAE responded by ousting Canadian soldiers in November from Camp Mirage, a staging base near Dubai that had been used for nine years to supply the Afghanistan war. In December, the UAE imposed visa fees of up to $1,000 on Canadian visitors, further escalating tensions between Canada and the Arab country.

So far, the political feuding hasn’t scared off air travellers, who appreciate Emirates’ far-reaching network and its attentive in-flight service and quality meals – impressive enough for Air Transport World magazine to name it the world’s “airline of the year” for 2011. The carrier specializes in long-haul flights connecting the globe’s major cities: Are you flying from Toronto to Mumbai, or Sao Paulo to Delhi, or Milan to Sydney? Aboard Emirates, the common theme is a stopover in Dubai, one of seven sheikdoms in the UAE.

Even travellers who could take a non-stop flight between western Europe and southeast Asia have opted for Emirates since it offers the comfort of bigger and newer planes, as well as better departure times on competitive flight paths and posh seating pods in first class and the executive-class cabin. On the upper level of the Emirates-operated A380, there are 14 suites in first class and 76 lie-flat seats in business class. First class includes a lounge and two shower spas.

But in opting for Emirates and its mandatory Dubai stopover, passengers are forsaking the traditional aviation map, in which national-flag carriers carved out lucrative routes for themselves and their alliances by focusing on such cities as London, Paris and Frankfurt.

Many passengers are accustomed to flying through these European hubs en route to China, India and the Middle East. But Emirates wants to increase its flights from North America, South America and Europe – via Dubai – to China and India, and to a lesser extent, Africa and Russia. It’s also counting on boosting traffic east to west, hoping to persuade more travellers in China and India to catch its planes when flying to Africa, Russia, North America, South America and Europe.

Those plans are of particular importance to Britain, for one, according to a research report by Royal Bank of Scotland, because of “the attraction of Dubai’s tourist product to U.K. consumers and Dubai’s position as a transit point” to India and Australia.

“It is a common concern that the very substantial aircraft orders of the Gulf carriers will take significant market share from European, Asian and U.S. network carriers,” the report states, “and will threaten to upset the long-haul airline market in the way that low-cost carriers have destabilized the short-haul markets.”

Fears that European airlines will be displaced by Emirates and other Gulf carriers are overstated, the report argues. But the RBS study does pinpoint concerns for air service to Canada: “From the perspective of European carriers, we think the major strategic issue will be that Gulf carriers are likely to gain very significant market share on traffic flows from India to the U.S. and Canada.”

In Canadian skies, Emirates is a fairly recent arrival. It launched its service here in 2007, and introduced an Airbus A380 jumbo jet on its Toronto-Dubai route in mid-2009. With only three flights a week, the airline argues business travellers require daily service – hence its request for additional landing rights.

Canada is seen as a key battleground, because if Emirates can be halted here, that would provide ammunition for carriers in Europe and elsewhere to step up lobbying of their governments to reject or limit its expansion requests. But there’s another factor affecting those political decisions: The main components for the Airbus A380 are built in France, Germany, Britain and Spain, employing thousands of workers. So industry analysts weren’t surprised when France, ignoring Air France-KLM’s lobby, recently granted approval to the UAE for 22 more French landing slots, boosting the total to 57 a week for the country’s carriers.

In Germany, Lufthansa uses the Canadian dispute to bolster its lobbying. “A remarkable battle for market access is playing out between Canada and the UAE,” Lufthansa said in a policy briefing to German politicians. “Hundreds of long-haul aircraft and enormous overcapacity have to be filled. Pressure is mounting on Germany, as well.”

Lufthansa and other critics complain that the UAE subsidizes Dubai International Airport, effectively clearing the way for Emirates to grow at a “breakneck pace,” and that it has unfair advantages that amount to “predatory” competition stemming from Dubai’s low-tax regime and access to cheap labour, notably immigrant workers from India and Pakistan.

Emirates’ Mr. Parker shrugs off the criticisms as sour grapes, saying Lufthansa is over-reacting to the airline’s attempts to enter Stuttgart and the new Berlin-Brandenburg Airport, set to open in mid-2012.

He said Ottawa considered “minuscule” improvements that were “utterly ridiculous,” adding that Emirates would have been satisfied if it had been allowed daily landing rights in Toronto, with a promise to review potential expansion into Calgary and Vancouver.

That day will come, he believes. For in the world according to Emirates, it is only a matter of time before Ottawa and other governments bend, in a trend that will ultimately redraw the world’s aviation maps.
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Old 15th Feb 2011, 11:54
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* Lower Wages in Dubai Dubai workers sacked and stuck homeless
* Lower Fuel Costs
* Lower DXB Landing Fees
* Complex subsidies to Emirates ie. marketing and other subsidies for Dubai Tourism and other business structures
* Near Zero Interest Rates on Government Loans

Most of the subsidies are deeply hidden in complex web of related companies. Emirates has diversified into related industries and sectors, including airport services, engineering, hospitality services, catering, and tour operator operations. Emirates has 4 subsidiaries and its parent company has more than 50.

Now the rest of the ME want to jump on the band wagon too. Etihad, Qatar.
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Old 15th Feb 2011, 12:22
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Makes it a whole lot easier when the autocracy owns: the airline, the airport, the national caa, the fuel, the imported slave labour.......
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Old 15th Feb 2011, 16:54
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A lot of things Emirates is....

But 'imported slave labour?'.......c'mon man, really?

Sure some work hard for relatively small pay (compared to western salaries)
but no-one has a gun to their head when they sign the contract.
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Old 15th Feb 2011, 17:00
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Dubai is FULL of slave labour. Where do you think all the construction workers come from? Its this slave labour that builds cheap infrastructure, which in turn means lower costs for the likes of EK

The dark side of Dubai

"To get you here, they tell you Dubai is heaven. Then you get here and realise it is hell," he says

"Every evening, the hundreds of thousands of young men who build Dubai are bussed from their sites to a vast concrete wasteland an hour out of town, where they are quarantined away. Until a few years ago they were shuttled back and forth on cattle trucks, but the expats complained this was unsightly, so now they are shunted on small metal buses that function like greenhouses in the desert heat. They sweat like sponges being slowly wrung out."
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Old 15th Feb 2011, 17:15
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From a passenger perspective, having flown EK many times, I found the experience worse each time. I hope I will never have to travel EK, or go to DXB, again.

My first trips were to/from DXB, thus there was no transit. I stayed with friends, privileged white ex-pats, who lived a life of idle luxury, most of the time in an alcohol induced haze in air conditioned sterile boxes, only going out in their American air conditioned SUV's to go to ex-pat bars to mix with similar people. Horrible. But I thought it was a good airline.

On subsequent trips I transited DXB - several times, and it's a hellhole of an airport, even when the transfer is EK-EK. The airline has become the victim of its own success and its hub is its Achilles heel.

As for the nasty side of Dubai, I could go on about this for hours, but it is a gaudy kitsch monument to depravity, greed, and excesses, built on slave labour. Double standards abound, morals are sacrificed on the altar of money. The sooner the place sees its backside the better.
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Old 15th Feb 2011, 21:58
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capetonian- Coming from a SAFA with the utopian society that exist in SA, I really had to laugh. At least people are not being massacred and raped in the streets of Dubai like they are in Jburg etc. No you are quite right - stay put in SA.
Did I ever say SA was a utopian society? I don't think so but please put me right if I did.

It may be a million miles from being perfect way but it's a damn sight better than Dubai. Yes it has more crime, far more crime than Dubai, but your statement is ridiculous.

On the other hand, the crime in Dubai is different, it's more subtle, it's insidious. But Dubai is built on slave labour and exploitation - does that sound familiar? Double standards? As one of our comedians said, hypocrisy is the Vaseline of political intercourse. Dubai is one of the most hypocritical places on earth.

And why assume that anyone from SA condones what went on there before 1994, or what's going on there now? It's like saying all Germans are Nazis because a few were 60 years ago.
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Old 16th Feb 2011, 05:18
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Originally Posted by Capetonian
It's like saying all Germans are Nazis because a few were 60 years ago
It's like saying all privileged white expats are
white ex-pats, who lived a life of idle luxury, most of the time in an alcohol induced haze in air conditioned sterile boxes, only going out in their American air conditioned SUV's to go to ex-pat bars to mix with similar people. Horrible.
because a few are now

Besides, my SUV (as you call it) is Jap
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Old 16th Feb 2011, 10:45
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Talking capetonian

People in Glasshouses................
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Old 16th Feb 2011, 11:26
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1a,

Please can you provide PROOF of the cheap fuel, cheap landing fees, and the Government loans?

Oh wait, you cant can you? You like many others jump on the assumption band wagon without doing ANY research.

If you had, you would have noticed that the UAE doesn't refine Jet Fuel. Indeed it is imported from the Singaporean market and EK will pay BP/Shell etc market rate for the fuel. (Think about it, if EK got cheap/free fuel, would we not tanker outbound from DXB on EVERY sector?).

In 1985 the Dubai Government loaned EK $10m to start operations. Since then, EK has been profitable for all but 1 year of its existence and has paid the Dubai Government substantial dividends each year (up to $250m in recent years). So I am at a loss as to which 'Government' loans you refer. Yes EK operates in a tax free Environment which means it pays NO Corporation Tax, but then no western company does either if it makes no profit. The more profit BA makes, the more tax it pays to the UK government. The same can be said for EK, the higher the profit, the larger the dividend it pays to its Government. Proof will be the enormous sum it will likely pay this year (my guess is approaching $1bn to pay off some of Dubai's debt). If you mean the loans it gets for the purchase of new Aircraft, EK (like any other Airline) goes to the open finance market. A couple of months ago, it secured around $200m in loans from the US and Japanese banking sector. Again, with a little research, you could have found this out for yourself!

Each year the EK accounts are independently audited by Price Waterhouse Coopers (the worlds oldest, largest and most respected of financial auditors). This is done partly to silence ill informed EK critics (such as you), but mostly to demonstrate to the lending houses that EK's accounts and business are financially sound. If those financial institutions - that will be lending hundreds of millions of dollars- are satisfied as to their financial legitimacy, why shouldn't you (or anyone else for that matter) be? In those openly accessible audited account summaries, PWC openly state that EK pays 'market rate' for landing/parking fees and Airport charges.

I've provided my argument, now please provide yours slightly better this time
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Old 16th Feb 2011, 11:41
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Because everyone loves competition - until they just can't compete. That's when the sledging starts.
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Old 16th Feb 2011, 11:47
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Great post oblas! They should send you to canada to negotiate with the pinheads there
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Old 16th Feb 2011, 12:28
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Auditors?

Hi O'pop...are we talking about the same
Price Waterhouse Coopers (the worlds oldest, largest and most respected of financial auditors)
The ones that couldn't figure out Madoffs's ponzi scheme? PricewaterhouseCoopers May Face Madoff Audit Liability - THE BIZOP NEWS
"Thirteen years of yearly audits PWC, and Fairfield still couldn't find out that the data was faked?"
or these guys?
PwC Settles Tyco Investors' Suit Over Fraud - washingtonpost.com
"PricewaterhouseCoopers agreed to pay $225 million to settle a class-action lawsuit brought by shareholders of Tyco International over a multibillion-dollar accounting fraud that ended with Tyco's top executives going to prison."
or these guys working a bit closer to Dubai?
PwC auditors 'ignored' Satyam fraud for fees - Times Online
"The bureau alleged that PriceWaterhouse received several times the market rate for the work that it carried out for Satyam."

...I am pretty sure EK gets the best auditor "money can buy"
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Old 16th Feb 2011, 14:15
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Who actually regulates Emirates anyway? Aviation becomes alot easier when the owner of the airline gets to write/enforce/judge the rules.
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Old 16th Feb 2011, 14:25
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EK "Subsidies"

About five or six years ago, at the Annual IATA Airline CEO Conference, in response to allegations of unfair subsidy emanating mainly from the then QF and AC CEO's, the EK CEO (strictly speaking, the "President-Emirates Airline"), offerred to open up the EK financial books to financial analysts from any other airline, without any impediment. The condition attached was that any airline taking up the offer should, in the spirit of reciprocity, open up their books to free inspection by Emirates.

One would think that they would have jumped at this opportunity. Guess how many took up the offer?
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Old 16th Feb 2011, 14:33
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Nobody took the offer because "I show you mine, you show me yours" only works in Kindergarten!
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Old 16th Feb 2011, 14:41
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Hi Schib,

Indeed I am aware that they (and many other Auditing companies around the world - Enron anyone?) have black marks against their names.

The point is that in light of those 'settlements', it is HIGHLY unlikely that they would risk doing the same thing again with another high profile client. As I said, it is unrealistic to expect finance houses to lend billion$ if they haven't done their own due diligence especially in the aftermath of the GFC. Banks are exceptionally 'tight fisted' these days with who they lend money to, and the fact that EK (despite the NOW bad name Dubai has in financial circles) is able to secure huge global funding is - I believe - testament to the robust financials of EK.

Say what you like about the operational side with the way the troops are treated - fatigue etc - but surely you cannot dispute the fact that EK is quite an impressively run BUSINESS?
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Old 16th Feb 2011, 15:28
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it is HIGHLY unlikely that they would risk doing the same thing again
c'mon...these guys have no conscience or feel any shame. As an example, google "PwC Malaysia fraud"...right now PwC is in BIG sh!t there!!

And why shouldn't the Banks lend any more money?...EK is backed by AUH and if the brown mass really hits the rotating thing again, there is always the taxpayer to bail them out!!
They are only "tight fisted" if the taxpayers or small business owners want some loan...

EK is quite an impressively run BUSINESS?
I don't dispute that...but that's also true for BP, Halliburton, Monsanto, KBR...and the Mafia!
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Old 16th Feb 2011, 16:52
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Sorry Schib, appart from hearsay and conjecture, do you have PROOF that AUH is backing EK? I thought they owned an airline called Etihad

Incidentally, Emaar is NOT a small business and I don't see many financial institutions flocking to lend money to them!!
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Old 17th Feb 2011, 01:31
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AUH has provided billions for Dubai, that's a fact!
Like I said, Dubai is like a big holding of companies incl. EK and Emaar.
So if EK will ever get into trouble, Dubai would back them as they do presently with others and ask AUH for more dough. Anybody really knows how much of EK already belongs to AUH? AUH has definitely asked Dubai for guarantees for the bail out! You can always ask PwC.
Btw HSBC, Standard Chartered and RBS are presently selling sukuk bonds for Emaar...and will probably find enough wannabe crisis profiteers.
You and me won't invest in Dubai but enough banks and investors will do...and guess who is paying the bill at the end?
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