The Impact of Emirates on the Industry
Since Emirates entered the Australian market in 1996, no fewer then 11 Australian and Continental European operators have terminated service. That traffic and the associated economic benefits now flow through Dubai.
In 2000, Australia enjoyed services to nine European cities aboard 5 carriers (Qantas, British Airways, KLM, Austrian and Alitalia). Today, the only carriers left serving Australia are British Airways, Qantas and Virgin Atlantic operating to just two European cities: London and Frankfurt.
As a result of the Australian experience with the Gulf carriers, the Australian government today has decided to block any new carrier access to its Trans-Pacific routes (i.e. Australia to North America) including the refusal to provide these rights to Canada at the negotiations held in February 2009. The Australian government has made it clear that Australian carriers (particularly V Australia) will be given reasonable opportunity to establish services on the Trans-Pacific route prior to negotiating any new rights for Trans-Pacific Access with any country.
Emirates and the other Gulf carriers rely disproportionately on connecting traffic for their flights. In Canada, existing flights already provide more than enough capacity for current traffic between Canada and the UAE as well as any growth in traffic for the foreseeable future.
If the Australian experience were repeated in Canada, the resulting impact on Air Canada and the Canadian air transportation sector would be devastating.
Air Canada routes such as Ottawa-Frankfurt rely on connecting passengers for as much as 85% of their traffic. These customers take the Ottawa-Frankfurt flight and connect at Frankfurt for points in Europe, Africa, the Middle East and Asia. The impact of greater UAE access to Canada would mean the loss of nearly 2.5 million international passengers putting over 20 international flights at risk representing over 10,000 direct and indirect jobs*.
In addition, this loss of international traffic would also have a severe negative impact on Air Canada’s domestic and transborder networks which rely on connecting international passengers for traffic placing dozens of domestic and transborder flights and the associated jobs at risk.
The Gulf carriers (Emirates, Etihad and Qatar) are able to dump capacity into markets such as Canada and undercut incumbent air carriers such as Air Canada because of the virtually unlimited subsidies and support they receive from their respective governments.
A recent study by Arthur D. Little estimates that Emirates Airlines pays 48% less on labor than European airlines due in large part to the lack of any income taxes in Dubai and favorable labor rules which allow for the importation of guest workers from overseas. The same study estimates that Dubai Airport charges 78% lower landing and other fees for an Airbus 340-300 than other international airports such as Frankfurt.
Canada is not the only jurisdiction concerned about access from the UAE - and Air Canada is not the only international carrier to sound the alarm bell:
- In an October 7th interview the CEO of Air France - Pierre-Henri Gourgeon remarked "Emirates, the biggest Gulf carrier, already pays very little in the way of airport charges or fuel tax at its Dubai hub, as well as escaping many of the social charges that weigh on European companies. Those benefits could generate 3 billion euros ($4.2 billion) of operating income if applied to Air France-KLM," he said. “They don’t pay tax -- they don’t even have a word for it.”
- The Government of France has rejected Emirates application for additional access to Paris - approving only a single landing slot at Lyon.
- Emirates has been refused additional capacity to South Korea.
- Emirates has also become embroiled in a fare dispute with the German Government who last year forced the carrier to raise ticket prices on some routes to German to prevent the undercutting of European carriers.