Does The End Of Etihad Spell Doom For Money-Losing National Airlines?

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Emirates this week discussed a long-rumored merger with Etihad Airlines. If it occurs, the ‘merger’ (really a takeover) will create one of the largest airlines in the world, with Emirates adding Etihad’s 18.6 million passengers to the 59 million carried by Emirates last year. The combined airlines will boast an impressive fleet of more than 110 Airbus A380s, the largest passenger aircraft in the world, plus an array of additional Airbus and Boeing aircraft.

Yet the acquisition may also represent another nail in the coffin of national airlines, also known as flag carriers. While the finances of the Gulf carriers can be opaque, it’s clear that Etihad, flag carrier of Abu Dhabi, lost $1.52 billion in 2017. While Emirates (also a national airline) reported a 2017 profit of $762 million, Etihad’s 2017 losses came on top of another $1.87 billion loss in 2016.

Such red ink is all too common to national carriers, claims Brian Sumers, a reporter at Skift. And if a wealthy oil-rich sheikdom like Abu Dhabi has tired of the financial bleeding and is willing to merge its airline with Emirates, what will be the fate of national carriers in impoverished countries around the globe?

Even successful airlines face difficulties today. Where does that leave often-inefficient national airlines, operated for national pride rather than profit? They must still meet the same challenges as any other airline, such as costly aircraft, a pilot shortage, higher fuel prices, competition, a looming trade war that may affect travel demand and the possibility of a recession.

In this environment, national airlines may face an economic reckoning, as Etihad apparently already has. “Governments may need to ask if there’s still value to having a national carrier, other than patriotism or pride,” writes Sumers. “And they may wonder whether it still makes sense to prop up airlines as more countries open their skies to new entrants and foreign carriers.”

Originally Published on Forbes.

americans4fairskies2015Does The End Of Etihad Spell Doom For Money-Losing National Airlines?
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Emirates, Etihad airlines deny report they may merge

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State-owned Emirates and Etihad, two of the Middle East’s top airlines, denied a Bloomberg report on Thursday which quoted unnamed sources as saying Emirates was seeking to take over smaller Etihad to create the world’s largest carrier.

“There is no truth to this rumor,” an Emirates spokeswoman told Reuters. Etihad made a similar statement.

Emirates is owned by the government of Dubai, the region’s tourism hub, while Etihad is controlled by the government of neighboring Abu Dhabi, which thanks to oil exports is the wealthiest member of the United Arab Emirates.

The ownership of the two airlines would make any merger politically sensitive. There have been few cross-border mergers within the UAE, a federation of seven semi-autonomous emirates; such tie-ups require the approval of the ruling families of the emirates involved.

Both airlines, which grew rapidly earlier this decade, have faced financial pressures in the past two years because of tough competition in the industry and a regional economic slowdown due to low oil prices.

Earlier this year, the two carriers signed agreements to cooperate in some areas, such as a deal under which Etihad pilots can join Emirates on a temporary basis for two years.

However, Emirates chairman Sheikh Ahmed bin Saeed al-Maktoum ruled out a merger in May this year.

A source close to Etihad told Reuters on Thursday that while a merger could conceivably happen in the future, Abu Dhabi would not quickly give up control of its airline and brand, especially after it had invested billions of dollars in its international airport and other aviation infrastructure.

A senior banker monitoring business in the Gulf said the idea of an Emirates-Etihad merger had been circulating “on and off for at least five years”, but that he hadn’t heard of any new development. No bank has been mandated to arrange a deal, which would be very difficult operationally, he added.

Emirates mainly operates alone – an approach that gives it control over its network and has helped it deliver 30 consecutive years of profit.

In contrast, loss-making Etihad built up a global network of partner airlines in which it invested; that strategy ran into trouble when two of the partners, Alitalia and Air Berlin, became insolvent. Now Etihad is shrinking operations in an effort to become a profitable mid-sized carrier.

Emirates is far larger than Etihad. Its fleet of 268 Airbus A380 and Boeing 777 jets as of March 31 is roughly three times as big as Etihad’s, measured by number of aeroplanes.

Dubai and Abu Dhabi are both spending heavily on airport facilities. Dubai is developing a new airport that will one day be able to handle around 200 million passengers a year and replace Dubai International, currently the world’s busiest airport for international passenger traffic, as Emirates’ hub.

Meanwhile, a new terminal is scheduled to open next year at Abu Dhabi International Airport, where Etihad is based.

Originally Published on Reuters.

americans4fairskies2015Emirates, Etihad airlines deny report they may merge
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By: Newt Gingrich, Former Speaker of the United States House of Representatives

Since he was a candidate, President Trump has said free trade must also be fair. He has consistently challenged anti-competitive and unfair practices by our trading partners while working to forge new agreements.

The most recent example of this is the announced deal with Mexico — which his critics had claimed would never happen — and the potential deal with Canada, which has been spurred and shaped by Trump’s toughness.

President Trump’s success in international trade is happening because he understands every trade partner is self-interested and, if allowed, will take actions to benefit their own population and economy. Since the United States is the largest market in the world this gives us enormous leverage in negotiating trade deals.

While the tough negotiating approach has been working, there is a key piece missing. For Trump’s trade revolution to work, there must be a revolution in trade enforcement. It doesn’t matter how fair and equitable new trade agreements are written if other countries are happy to sign them and then cheat.

So, as a part of his revolution in trade, President Trump must build a new, dramatically more effective enforcement system that constantly monitors all trade agreements and quickly acts when parties bend, break or ignore the rules.

The current multinational, globalist system simply moves too slow to be effective. Countries that disregard the rules have years to make money and dominate markets by cheating the system before they face any consequences. Meanwhile, for those countries who are keeping their words, justice delayed is justice denied. The current, slow system only benefits the cheaters.

An important example of something this revolutionized trade enforcement system should monitor and check are unfair state subsidies.

State subsidies are devious because they unfairly eliminate financial pressure on foreign competition, which, in turn, allows the companies in subsidizing countries to lower prices, expand distribution, or upgrade products without concern on how to pay for it — or whether the market even wants it.

One example of this system of cheating through state subsidies is the more than $50 billion in state subsidies that have gone to airlines in Qatar and the United Arab Emirates (UAE) since 2004. With state subsidies, these airlines have been able to ignore market considerations and dump excess capacity all over the world in order to push out competition and gain market share — destroying market-based U.S. aviation jobs in the process.

Earlier this year, President Trump’s administration signed historic agreements with Qatar and the UAE to create transparency and accountability frameworks to expose the full levels of state subsidies flowing to these airlines. This leadership by President Trump has led to statements and understandings by the European Union and Japan to address state subsidies in aviation.

The United States’ seriousness about these state subsidies, however, is being tested. Prior to commitments to the Trump administration, the Qatari government-backed Qatar Airways cleverly invested in Meridiana, a small privately owned airline that formerly operated out of Sardinia. Before Qatar intervened, Meridiana had lost more than $50 million in both 2015 and 2016, had reduced the number of flights to just 54 per day, and had only 15 aircraft with no new orders in sight.

Enter Qatar Airways.  While the investment from Qatar Airways is capped at 49 percent, it is the Qatar CEO who has made the announcements about Meridiana’s future. A future that rebrands the airline as Air Italy, relocates the airline from Sardinia’s small market to the financial and industrial center of Italy in Milan, expands the fleet with more than 50 new planes from Qatar’s existing fleet and order books, and expands service by nearly 350 percent.

Certain facts about this are incontrovertible. First, Qatar Airways, in both action and word, is in full control of Meridiana/Air Italy.

Second, Qatar Airways will report losses over the last two year in excess of $1 billion, so the investment in Meridiana/Air Italy is unquestionably a state subsidy from the Qatari government.

Third, Qatar Airways’ expansion of Meridiana/Air Italy flights to the U.S. is directly counter to the assurances provided by the Qatari government to the Trump administration at the beginning of the year. This final point is what the Trump administration must address.

Once again, President Trump’s intuition has proven right. Despite assurances of fairness, our international trading partners are seeking to gain an unfair advantage. This is why Trump’s trade revolution also needs a revolution in trade enforcement.

Originally Published on The Daily Caller.

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American CEO on Gulf Carrier Pact: ‘Someone Is Cheating Already’

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One of the three largest Gulf carriers is again not fighting fairly on transatlantic routes, American Airlines CEO Doug Parker said Wednesday at an industry event.

Parker made the allegation just four months after the Trump administration brokered a compromise with governments of Qatar and the United Arab Emirates over concerns airlines in those countries receive unfair subsides and undercut U.S. carriers.

“Someone is cheating already,” Parker said at Airlines for America’s Commericial Aviation Industry Summit in Washington, D.C.

In May, as part of negotiations with American diplomats, Qatar Airways, Emirates and Etihad Airways vowed to open their books to make it more clear whether or not they received government subsidies, as the largest U.S. carriers have alleged. In addition, under side letters, Parker said the three Gulf airlines had signaled they did not intend to launch new routes between the United States and Europe.

Technically, they have kept that promise. None of the three has added new Fifth-Freedom flying, or routes that begin in the Gulf but stop in Europe to pick up passengers. Delta Air Lines, United Airlines and American make major profits on transatlantic routes, particularly in business class, and they don’t want Gulf carriers to encroach on the market, even though aviation treaties permit it.

Today, there are two such routes, both flown by Emirates — Athens to Newark and Milan to New York JFK. But Parker said one of the three major Gulf airlines is circumventing the administration-negotiated agreement by helping an airline it invests in fly to the United States.


Parker didn’t name the airline. However, about a year ago, Qatar Airways bought a 49 percent stake in what was then a little-known regional airline called Meridiana. The airline changed its name to Air Italy, a move executives figured would improve brand awareness abroad.

Ostensibly, Air Italy operates separately from Qatar Airways. But earlier this year, Qatar Airways leased Air Italy five Airbus A330s, allowing the airline to fly nonstop from Milan to two of American’s hubs — Miami and New York JFK. Air Italy plans more expansion soon, and by next year should have Boeing 787s.

Because Air Italy is a European-registered airline, the U.S.-Qatar Open Skies agreement should not be a factor. But Parker said airlines like Air Italy that receive support from Gulf airlines still may be competing unfairly. In a way, he suggested, routes like Air Italy’s are just as disruptive to U.S. carriers as Emirates’ two U.S-Europe routes.

“We have side letters that talk about they don’t intend to fly nonstop flights from outside the Gulf to the United States,” Parker said. “We have one of them now using a carrier they made an investment in to fly to the United States.”

What’s interesting is that American is close transatlantic partner of at least two other airlines in which Qatar Airways invests. Qatar Airways owns 20 percent of International Airlines Group, owner of British Airways and Iberia, both of which have antitrust immunity with American.

But the threat posed by airlines like Air Italy is still serious, Parker said.

“This is about American jobs,” he said. “It needs to be addressed.”


Executives from American, Delta and United repeatedly say the Gulf carriers said they would not add new U.S.-European routes as part of the recent compromise. But even that is an subject of contention, with Emirates CEO Tim Clark saying last week his carrier made no promise.

“In no way was there any commitment, verbally or otherwise,” he said in an interview. “What we said was, that was never the thrust of our business model.”

Clark said Emirates continues to look opportunities to fly between Europe and United States, particularly in underserved markets. Often, he said, airports approach Emirates because they want service to a U.S. city and no other airline will do it.

But on Wednesday Parker again said it is unfair for American and other U.S. carriers to compete government-subsidized carriers on U.S.-European routes. Between New York and Milan, American flies a Boeing 777 in a standard configuration, with business, economy, while Emirates flies an Airbus A380 with showers in first class.

It is not surprising many premium customers prefer Emirates.

“The Middle Eastern carriers are subsidized to a level that makes them impossible to talk about as a fair competitor,” Parker said. “Give us $40 billion from the U.S. government and we’ll put showers in first class as well.”

Originally Published on Skift.

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Emirates May Resume U.S. Growth as Business Recovers From Trump Policies

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Feisty as ever, Emirates CEO Tim Clark said Friday his airline soon may expand in the United States by resuming double daily flights from some larger U.S. cities, or by connecting new markets to Dubai.

It’s a slight strategy shift for Emirates, as it has in the past couple of years reduced its U.S. footprint because of lagging demand. The airline was stung by the Trump Administration’s short-lived electronics ban last year, which required passengers departing Dubai and several other cities, mainly in the Middle East, to put laptops in checked luggage. Emirates was also hit earlier in 2017 by the Trump Administration’s sweeping executive order banning visitors from several Muslim-majority countries.

But today, Clark said, most Emirates customers who need a visa can get one, even though a version of the travel ban remains in effect. And with business improving, Clark said, Emirates could restore its second daily frequency to some cities that were cut to one, including Boston and Los Angeles.

In addition, he said, Emirates could expand into smaller U.S. markets. But he declined to say which U.S. cities Emirates might pursue, saying he feared U.S. airlines, and the trade groups that support them, might complain about new competition.

“I’ve been there,” Clark said during an interview at the Aviation Festival in London, an industry conference. “The moment I do it, suddenly everyone is rushing off to Washington to stop us from doing it.”


Emirates has generally focused on the largest U.S. cities, as well as a couple of markets — Boston, a JetBlue Airways focus city, and Seattle, a Alaska Airline hub — where its partner airlines are strong.

But by using the newest twin-engine jets, such as the Boeing 787, U.S. and foreign carriers have been increasingly flying between Europe and Asia and U.S. cities that historically could not support long-haul service. In recent years, Austin, Texas, New Orleans, Indianapolis and San Jose, California have all secured long-haul service that might been impossible with larger, older-generation aircraft.

Emirates still flies the biggest aircraft — Boeing 777s and Airbus A380s — and that makes smaller U.S. markets challenging for it. But last year, Emirates placed an order for 40 smaller and more fuel efficient Boeing 787-10 Dreamliners, and while the 787-10 have the least range of the three 787 models, Emirates has conversion rights to the Boeing 787-9 that can fly longer routes. Emirates also soon will begin taking delivery of the newest Boeing 777 that could allow it access to U.S. markets that previously were not viable.

“Imagine the 787-9 going into some of these cities or even the 777-8X,” Clark said. ‘It’s still a big airplane, but it’s not a 380. You’ve got much more [appropriate] capacity for fitting the demand for these second or third-level tier cities than you might have with a A380.”


Clark again declined to rule out future fifth-freedom flights, or routes that originate in Dubai, but stop in Europe to pick up passengers.

These flights, which Emirates can fly under the United Arab Emirates’ aviation treaty with the United States, have irritated U.S. airlines, who do not like competing with Emirates between the United States and Europe. For now, Emirates operates two — Newark to Athens, and New York JFK to Milan.

In May, representatives for the U.S. carriers said Emirates had agreed to not add more fifth-freedom routes for the foreseeable future, under a deal brokered by government officials. But Clark said Friday that while Emirates signed an agreement that requires it to be transparent about its finances, it made no promises about fifth-freedom opreations.

“In no way was there any commitment, verbally or otherwise,” said Clark, a Brit who has been in aviation roles in the Middle East for more than 40 years. “What we said was, that was never the thrust of our business model.”

Clark said Emirates continues to receive pitches from European airports desperate for a nonstop route to the United States. But he said Emirates only moves when it sees a prime opportunity.

“We don’t do it for the sake of doing it,” he said. “If there’s an opportunity there, if they’re underserved markets and if the incumbent carriers don’t take it and if we have the air service rights to do it, then why wouldn’t you do it? It’s a commercial decision.”

Originally Published on Skift.

americans4fairskies2015Emirates May Resume U.S. Growth as Business Recovers From Trump Policies
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