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The Emirates Advantage… Not just subsidies

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The Emirates Advantage… Not just subsidies

Old 04-19-2015, 06:59 AM
  #101  
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Originally Posted by TeddyKGB View Post
Thats the bottom line that people like TP don't get. They signed an agreement but they don't want to play by the rules. Time to play by the rules you agreed to ME3. You can spout superior service, geographic location, hot F/A's all you want but it's all irrelevant. All that matters at the end of the day is that the ME3 is in major violation of the open skies agreement which they signed and enough is enough.
Oh he gets it. Absolutely. The ME carriers have an upper hand because they don't play be the same rules, and they know it. They have 2 governments fighting for them and as long as we have a government that only cares about consumerism, they will laugh all the way to the bank. Just one more example of how the US policy is making us the laughing stock of the world. Disgusting. But lying in that culture is acceptable.
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Old 04-19-2015, 08:21 AM
  #102  
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I've been reading these threads for a while now and have to admit that I'm of 2 minds on these issues. (Full disclosure: I worked for Emirates for almost 16 years and I have read the entire White Paper):

Within the paper, which was written entirely to achieve an end and not to present a balanced viewpoint, there is compelling evidence that subsidies have taken place - not to the extent claimed but subsidies nonetheless and which ARE counter to the Open Skies Agreements. What the paper also does is lump everything that might be considered unbalanced, "unfair" or just an advantage and calls them subsidies. I don't buy that. As many have pointed out, there is no such thing as a "level playing field". Government provided infrastructure, landing fees, etc. exist in some form for almost all players. (landing fees are the same for all airlines serving Dubai - it's just that whoever has the most operations benefits the most. Kind of like a new runway- in Atlanta.)

Outlawed unions are definitely an advantage (and Emirates' treatment of their employees is generally awful - something for which they are FINALLY starting to pay). Sanctions to try to level a playing field by identifying structural advantages is a slippery slope that I don't think we really should be going down. The same logic could conclude that since American companies might not pay the same taxes as say, European companies, there needs to be a "leveling mechanism". That's exactly where Chapter 11 fits in. It is a feature of our system that skews the competitive playing field to our advantage. An awful lot of the paper devoted itself to these types of advantages. I would like to see some of these advantages addressed, but don't think it's appropriate to do by punitive means, but rather to get our own house in order. Conversely, if we choose to legislate ourselves into oblivion, I don't think that's anyone else's problem.

Now, what to do about the actual subsidies. I'm amazed that no one has advocated taking this to the WTO. They actually have a pretty good record of separating the wheat from the chaff and recognizing subsidies (which DO exist on both sides of the argument) and applying appropriate measures.

Here's the irony as I see it; the only real subsidy that was stated for Emirates was the government covering their fuel hedge losses. The other complaints about Emirates fell under government supplied infrastructure, wholly owned divisions not operating "at arms length" (how's that different from owning your own refinery?) and Ex-Im bank financing/guarantees for aircraft orders, while the lion's share of direct subsidies was identified as going to Etihad and Qatar, yet Emirates certainly represents the biggest commercial threat to the major U.S. carriers. You could make them pay back the hedge losses (and I wouldn't be opposed to that) but it wouldn't eliminate the threat. That's the point that Typhoon is trying to make. It's like the movie Apollo 13 where Gene Kranz' character says, "work the problem people". The real problem is the changing world demographics.

I know many will reject this next statement outright but here it goes: Emirates is not receiving subsidies to compensate for losses due to the dumping of capacity on markets that cannot support the traffic. Etihad and Qatar, maybe but the paper made no case for Emirates though it cleverly tried to lump them all together. Emirates definitely has a lower cost structure due to a number of factors, some of which were outlined in the paper but one of which is that they control their costs ruthlessly (I wish they had been subsidized. If they weren't such sh!theads, I might still be working there.) They have also been far ahead of others in the industry in recognizing the changing demographics and traffic flows and using their advantageous geographical position to exploit them. The U.S. carriers on the other hand have (for a number of reasons) been mediocre at best in recognizing these changes and have been mostly unsuccessful at taking any kind of advantage of them.

This is why I can't support what the U.S. majors are asking for. They still see the world air traffic market as if it was 1962. They have been given the gift of complete consolidation and are now whining because they finally recognize the very real threat of changing world traffic flows that others (Emirates) recognized almost 20 years ago. I would support addressing the subsidy question directly through the WTO but not allowing the U.S. carriers to dictate number of flights and or seats on any city pairs. (Unless of course no changes or redress occurs regarding the subsidies) I support re-authorizing the Ex-Im bank but agree that it was not intended to place some U.S. companies at a competitive disadvantage. Some changes to it are certainly needed. Unfortunately, as long as the Europeans do the same, it would be suicide to not have the same ability.

The U.S. carriers (and the U.S. government) are going to have to figure out how to compete in the changing world airline market. It's going to have to be a group effort to address how to take advantage of where the traffic is moving and growing. If the U.S. carriers got everything that they have asked for in the White Paper, it would freeze their commercial thinking in 1962 and ultimately still relegate them to second tier status.

Last edited by Gillegan; 04-19-2015 at 08:50 AM.
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Old 04-19-2015, 08:41 AM
  #103  
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Originally Posted by sailingfun View Post
Sadly we have labor laws in the US. How many flight attendants over 50 have the Middle East carriers hired? How many over 40? In addition airlines that have to fly for a profit can never compete on service with airlines that don't. If you can't understand why that is then I suggest you think about it more.
What you also omit is while the middle east carriers have a right to operate with giant subsidies, they don't have the right to open skies agreements in that situation. No one is asking for anything more then upholding the existing agreements.
If the Middle East carriers want to prove the giant subsidies are false then they need only open their books to audits. I am willing to bet they never agree to that!
The governments of the Middle East big three could care less if their state owned airlines currently make a dime. They are being managed, run and expanded to provide a political relevance and power base for when the oil runs out. Nothing more or less.
Nailed it......
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Old 04-19-2015, 08:59 AM
  #104  
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Great post, G. Oh and by the way, EK does have a number of 50plus year old flight attendants that started with the airline 30 years ago. A simple question really, is, why is Delta reducing it's flights from seven a week to five a week? The flights are ALWAYS overbooked and EK does not service ATL (yet). DAL is competing and was/is doing a damn good job of filling its aircraft, daily. So why back off a high yield market with load factors over 90%? My answer is that the legacy3 don't want to compete, but rather by into the argument that ALPA dug up three to four years ago. And tell me again what Lee Moak's current employment is? Now he wouldn't be a lobbyist now would he keeping this pig alive? I imagine he's making some pretty good coin now fighting with the Legacy3 on this matter.
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Old 04-19-2015, 09:12 AM
  #105  
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Originally Posted by Typhoonpilot View Post
But it's okay for Cathay Pacific to have 100 widebodies and Singapore Airlines to have 100 widebodies?

Could ATL, CLT, DTW, SEA, and many other U.S. hubs support the number of flights they have from a single airline based on the size of those cities?

See the point?, your above argument is fatally flawed. Hubs are the name of the game these days. The ME3 can support those numbers because of their near perfect geographical position. Emirates was the first to truly recognize it. Etihad, Qatar, and now Turkish are expanding on it. They are serving 4 billion people within an 8-9 hour flying radius of their airports. This compared to the 1 billion or less within 8-9 hours of U.S. hub airports.

Those are just the plain simple facts. The U.S. carriers just don't have the geographical position to serve some of the markets as efficiently as the ME3.

You complaint about their size also does not take into consideration the small percentage of their route network and revenue that North America represents. In earlier posts I pointed out that, as an example, the number of aircraft in Emirates fleet to serve their current U.S. flights was something like 15% and total revenue was something similar. So you would punish them for being good at running an airline on the other 85% of their flying not involving the USA?



Typhoonpilot
Your argument about hubs ignores the main issue of heavy government subsidies and the inattention to labor laws that really are human rights abuses. All are clear violations of the open skies agreement to which the carriers you so strongly defend were signatories.

None of this could happen without the respective governments heavily subsidizing and approving of the human rights abuses. These governments couldn't indulge themselves in these kinds of financial experiments if they had to properly fund a military defense of their indefensible sheikdoms. The U.S. takes care of that for them. With the U.S. President becoming more isolationist, it's ironic to think these sheikdoms could soon be under attack by the ultimate human rights abusers of ISIS.

Be interesting to see whether the sheikdoms will try to fund a military defense from ISIS, or whether the sheiks will just run for their vacation homes in Europe. I'm thinking ISIS may not see a need for all that hub capacity with A380's.

Carl
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Old 04-19-2015, 09:50 AM
  #106  
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Originally Posted by Gillegan View Post
I've been reading these threads for a while now and have to admit that I'm of 2 minds on these issues. (Full disclosure: I worked for Emirates for almost 16 years and I have read the entire White Paper):

Within the paper, which was written entirely to achieve an end and not to present a balanced viewpoint, there is compelling evidence that subsidies have taken place - not to the extent claimed but subsidies nonetheless and which ARE counter to the Open Skies Agreements. What the paper also does is lump everything that might be considered unbalanced, "unfair" or just an advantage and calls them subsidies. I don't buy that. As many have pointed out, there is no such thing as a "level playing field". Government provided infrastructure, landing fees, etc. exist in some form for almost all players. (landing fees are the same for all airlines serving Dubai - it's just that whoever has the most operations benefits the most. Kind of like a new runway- in Atlanta.)

Outlawed unions are definitely an advantage (and Emirates' treatment of their employees is generally awful - something for which they are FINALLY starting to pay). Sanctions to try to level a playing field by identifying structural advantages is a slippery slope that I don't think we really should be going down. The same logic could conclude that since American companies might not pay the same taxes as say, European companies, there needs to be a "leveling mechanism". That's exactly where Chapter 11 fits in. It is a feature of our system that skews the competitive playing field to our advantage. An awful lot of the paper devoted itself to these types of advantages. I would like to see some of these advantages addressed, but don't think it's appropriate to do by punitive means, but rather to get our own house in order. Conversely, if we choose to legislate ourselves into oblivion, I don't think that's anyone else's problem.

Now, what to do about the actual subsidies. I'm amazed that no one has advocated taking this to the WTO. They actually have a pretty good record of separating the wheat from the chaff and recognizing subsidies (which DO exist on both sides of the argument) and applying appropriate measures.

Here's the irony as I see it; the only real subsidy that was stated for Emirates was the government covering their fuel hedge losses. The other complaints about Emirates fell under government supplied infrastructure, wholly owned divisions not operating "at arms length" (how's that different from owning your own refinery?) and Ex-Im bank financing/guarantees for aircraft orders, while the lion's share of direct subsidies was identified as going to Etihad and Qatar, yet Emirates certainly represents the biggest commercial threat to the major U.S. carriers. You could make them pay back the hedge losses (and I wouldn't be opposed to that) but it wouldn't eliminate the threat. That's the point that Typhoon is trying to make. It's like the movie Apollo 13 where Gene Kranz' character says, "work the problem people". The real problem is the changing world demographics.

I know many will reject this next statement outright but here it goes: Emirates is not receiving subsidies to compensate for losses due to the dumping of capacity on markets that cannot support the traffic. Etihad and Qatar, maybe but the paper made no case for Emirates though it cleverly tried to lump them all together. Emirates definitely has a lower cost structure due to a number of factors, some of which were outlined in the paper but one of which is that they control their costs ruthlessly (I wish they had been subsidized. If they weren't such sh!theads, I might still be working there.) They have also been far ahead of others in the industry in recognizing the changing demographics and traffic flows and using their advantageous geographical position to exploit them. The U.S. carriers on the other hand have (for a number of reasons) been mediocre at best in recognizing these changes and have been mostly unsuccessful at taking any kind of advantage of them.

This is why I can't support what the U.S. majors are asking for. They still see the world air traffic market as if it was 1962. They have been given the gift of complete consolidation and are now whining because they finally recognize the very real threat of changing world traffic flows that others (Emirates) recognized almost 20 years ago. I would support addressing the subsidy question directly through the WTO but not allowing the U.S. carriers to dictate number of flights and or seats on any city pairs. (Unless of course no changes or redress occurs regarding the subsidies) I support re-authorizing the Ex-Im bank but agree that it was not intended to place some U.S. companies at a competitive disadvantage. Some changes to it are certainly needed. Unfortunately, as long as the Europeans do the same, it would be suicide to not have the same ability.

The U.S. carriers (and the U.S. government) are going to have to figure out how to compete in the changing world airline market. It's going to have to be a group effort to address how to take advantage of where the traffic is moving and growing. If the U.S. carriers got everything that they have asked for in the White Paper, it would freeze their commercial thinking in 1962 and ultimately still relegate them to second tier status.
So your thesis is that 2, or 3 of the ME3 are violating agreements, but since they ALSO enjoy a geographic advantage, that the US legacies don't seem to "understand"... it's OK to let the process meander through the WTO (which I think doesn't address this sort of case), but not OK to have state-to-state negotiations that address the actual grievances, because at the end of the day, the US carriers are still not focusing on the legitimate part of the advantage?

Just like it wouldn't be right to ask for a math teacher that's mollesting you kid to be removed, because the teacher is also teaching math to the kid?
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Old 04-19-2015, 10:21 AM
  #107  
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Originally Posted by Sink r8 View Post
So your thesis is that 2, or 3 of the ME3 are violating agreements, but since they ALSO enjoy a geographic advantage, that the US legacies don't seem to "understand"... it's OK to let the process meander through the WTO (which I think doesn't address this sort of case), but not OK to have state-to-state negotiations that address the actual grievances, because at the end of the day, the US carriers are still not focusing on the legitimate part of the advantage?

Just like it wouldn't be right to ask for a math teacher that's mollesting you kid to be removed, because the teacher is also teaching math to the kid?
Exactly. Their whole "a subsidy anywhere, anytime, in any amount, direct or indirect, completely excuses any and all subsidies in any amount form or duration for all eternity."

Not to mention their paultry little "dividend" they pay their government is a joke compared to the taxes and fees US airlines and their employees pay for all the "you didn't build that" infrastructure we use. I wonder if you added up just the US Bank of Boeing welfare check they get from us how just that compares to their little token joke of a "dividend". Not to mention their regional defense provided mostly by us. Full retail for the 5th fleet alone would likely exceed that.
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Old 04-19-2015, 10:45 AM
  #108  
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Originally Posted by Sink r8 View Post
So your thesis is that 2, or 3 of the ME3 are violating agreements, but since they ALSO enjoy a geographic advantage, that the US legacies don't seem to "understand"... it's OK to let the process meander through the WTO (which I think doesn't address this sort of case), but not OK to have state-to-state negotiations that address the actual grievances, because at the end of the day, the US carriers are still not focusing on the legitimate part of the advantage?

Just like it wouldn't be right to ask for a math teacher that's mollesting you kid to be removed, because the teacher is also teaching math to the kid?
No, I think that all 3 ME carriers are guilty, just to VERY differing degrees. I also think that the overall argument that the U.S. Carriers make in the paper is partially disingenuous. It makes SOME valid points that I think deserve to be addressed but I also think that the overall threat is partially of the U.S. carriers making so I don't support unilateral sanctions. I would support freezing routes at current levels until this is sorted out. The problem with the WTO from the U.S. carriers perspective is they will generally assign credit on both sides for subsidies (as they exist) and proceed from there. That would mitigate the U.S. Claims somewhat. It may be valid that the WTO doesn't do these types of disputes - I don't know.

The "problem" is twofold; there have been subsidies that make it difficult to compete AND there has been a change in traffic and demographics that the ME 3 are uniquely positioned to take advantage of. I support addressing the first through normal channels. However you do that, it's not going to address the second problem. Inflammatory rhetoric about child molesters isn't going to change that. There are a lot of issues that a "trade war" or whatever you want to call it would bring up that are not in our countries interest, just the interests of DL, UAL and AA. I'm not opposed to state-to-state negotiations. I'm just pointing out that some of the claims of the U.S. carriers are self-serving and IMO without merit. I don't begrudge them being made because, after all, they are ONLY being made in their own narrow self-interest. I just think that the issue should be decided differently from what is generally being written on here.
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Old 04-19-2015, 10:51 AM
  #109  
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Immediately cut MXP (they never had any right to do that kind of poaching anyway as its not in their agreements with us to begn with) and cap their daily flights to the US per day to what US airlines fly to their "countries" per day. Right now I think that's what, 2? And cut their Bank of Boeing welfare checks completely. Sounds fair.
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Old 04-19-2015, 12:24 PM
  #110  
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Originally Posted by gloopy View Post
Immediately cut MXP (they never had any right to do that kind of poaching anyway as its not in their agreements with us to begn with) and cap their daily flights to the US per day to what US airlines fly to their "countries" per day. Right now I think that's what, 2? And cut their Bank of Boeing welfare checks completely. Sounds fair.
The Lagacy3 are not prevented from adding as many flights as they want to Doha, Bahrain, Dubai or Abu Dhabi. They would rather do it through their code share agreements, except Delta. And as I said above, Delta is cutting back for some unknown reason to and from Dubai. In fact Delta is cutting or pulling out of Mumbai completely. These airlines just DO NOT want to serve these markets.

And human rights abuses? Really not much difference than most non Union carriers in the U.S. Given, they are illegal, however, market forces will dictate terms and conditions. Just like the contracts China airlines are offering these days. Perhaps you should turn your eyes a little more eastward. Maybe that's Moak's next target.
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