Our old friend he Cardinal is back with an unlikely guest post. Why is he writing about Air Seychelles? It has global implications. Read on.
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When Americans think of island paradises, thoughts generally drift to the Pacific and the Caribbean because those are the islands on which we tend to vacation — either Hawaii (or occasionally further south, to Tahiti or Fiji, or west, to Micronesia) or places like Aruba, Jamaica, St Barts (if you’re stinking rich), Dominican Republic and so forth.
But if you’re European or Asian, the natural geographic choices are different. In particular, they include the Indian Ocean, in between Africa and Australia, and places like Mauritius, the Maldives, the French Indian Ocean territories like Reunion and Mayotte (these islands are actually part of France, similar to how Hawaii is part of the United States), or the Seychelles.
Map via the Great Circle Mapper
The Seychelles are a beautiful group of islands about 900 miles east of Africa and north of Madagascar (that’s the big-*ss island off the east coast of Africa). The people are a melange of African, Indian, Chinese and Caucasian, reflecting the history of the islands, which were originally grabbed by France, and then transferred to British control after Napoleon was defeated. The country’s economy was once plantation-based, but now it’s all about tourism — not unlike many island paradises closer to the US.
OK, beautiful islands but, for most Americans, terribly remote. Why’s Cranky spending pixels on Air Seychelles, the national carrier?
Air Seychelles has done something quite extraordinary. Despite a national economy dependent on tourism, Air Seychelles is getting out of the long-haul business — the business of carrying tourists from Europe to the Seychelles.
On the face of it, it sounds suicidal for the Seychelles economy. But the Seychelles are in no danger of losing tourists. Instead, Air Seychelles has essentially been driven out of this business by the fast expanding Persian Gulf carriers — Emirates, Etihad and Qatar. Older carriers in Europe (and to a lesser extent, Asia) have been screaming for years about the pressure they’ve been put under by these fast-growing behemoths. In that respect, Air Seychelles amounts to a canary in a coalmine — this little carrier has been driven off its former main routes. Going forward, it will maintain only some smaller aircraft to serve the local neighborhood — other Indian Ocean islands and Africa.
What’s happened is that the amount of service to the Seychelles has exploded. From Dec 03 to Dec 11, the number of seats on flights over 2000 miles (which includes Europe, the Persian Gulf and South Africa — i.e. where most tourists come from) to the Seychelles has almost doubled, from a little more than 16,000 in Dec 03 to a little less than 30,000 in Dec 11 (source: mi.diio.net).
In 2003, none of Emirates, Etihad or Qatar flew to the Seychelles. In Dec 2011, between the three, they accounted for over 18,000 seats. Yes, these three carriers flew more long-haul seats in Dec 2011 than there were total in the market in Dec 2003 — when none of them were present.
For the Seychelles as a whole, this is good news. It depends on tourists, the Gulf carriers are delivering a ton of them. For Air Seychelles, not such great news. At some level, one has to applaud the Seychelles for recognizing their national carrier is a service, not a reflection of national virility, and simply getting out of the way. If this was France or Italy, the national government would be throwing bales of money at the carrier to keep the phallic symbol, I mean the flag, flying.
Is there a danger to the Seychelles here? Not really. Air Seychelles won’t cease to exist, and if, one day, the Gulf carriers get into trouble, it’s only a matter of Air Seychelles acquiring long-haul aircraft again. That’s the great thing about aircraft — you can move them around to where they’re needed.
But the wider significance is that Air Seychelles is somewhat of a canary in a coalmine. For many years, European carriers have been screaming about the danger posed to them by Emirates, Etihad and Qatar. Each of these carriers is big and getting bigger fast. In the past 25 years, Emirates has grown from zero to one of the largest international carriers in the world, with a penchant for spectacularly large orders (including a record order just recently for Boeing 777-300ERs and by far the largest outstanding order for A380s — it accounts for a stunning 90 out of 243 total orders and deliveries). Etihad and Qatar have been built in straightforward imitation of Emirates.
The size and growth of these carriers is greatly at odds with the size of their home countries. Emirates and Etihad both hail from the United Arab Emirates, population 8 million, while Qatar Airways is from Qatar, population 1.7 million. Tiny countries, massive airlines.
What they do have going for them is location — smack between Asia and Europe. Essentially, each of these airlines is operating a wayport — a hub with a heavy predominance of connecting traffic.
Each of them has costs that are far below those of European carriers. European carriers routinely complain that Emirates, Etihad and Qatar are subsidized.
Ever since Emirates started ordering A380s by the score (roughly a decade ago), it’s been clear the Gulf carriers would have a substantial impact on European, Asian and African airlines (US carriers are half a world away, so are, for once, spared this particular scourge). The major airlines of Europe are not about to be driven from key markets like Asia, even given the massive capacity increase in the Gulf. But without a doubt, the nature of this business is changing for Lufthansa, Air France and British Airways.
Lufty, AF and BA have costs that are much higher than Emirates, et al. There is simply no way to compete with these guys on price. One thing the Europeans have done is appeal to their national governments to restrict access of the Gulf carriers to Europe — and not only to Europe. Air Canada’s stout opposition to allowing expansion of Gulf carrier landing rights in Canada was almost certainly a favor to its Star Alliance partner Lufthansa (although the Gulf carriers pose almost zero threat to Air Canada, the Canadian government is unfortunately doing what AC wants).
But there’s an issue — the Gulf carriers are some of the best Airbus customers in the world. So, for instance, should the German govt protect Lufthansa, it could end up doing so at the expense of future Airbus business. Tricky, since while the German govt loves it some Lufthansa, it probably loves it some Airbus even more.
The other way for European carriers to compete is by offering the one thing the Gulf carriers can’t — a nonstop flight. Provide a nonstop flight from Frankfurt, Paris or London to a secondary Asian city — travelers prefer nonstop flights, and are generally willing to pay more for them. Of course that means buying smaller long-range aircraft. So, ironically, the sale of mass quantities of A380s to the Gulf carriers may mean sales of fewer of them to European carriers.
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Air Seychelles’ exit from long-haul flying is therefore a signal event. The Gulf carriers have collected a pelt. If they continue to execute their massive growth plans, it won’t be the last pelt they collect. Is that fair?
It’s fair to the extent Emirates, Etihad and Qatar are not subsidized. Emirates has routinely denied it’s subsidized (and it routinely reports profits), though a lot of that comes down to what you count as subsidy. If the crews don’t have to pay income tax because no one pays income tax in the United Arab Emirates, is that a subsidy? It presumably reduces the wages Emirates needs to pay its employees, but so what? Countries have the right to decide how to run their national finances. Europe, for instance, has a large Value-Added Tax (a type of sales tax) system that is not present in the US, but that’s not viewed as a trade issue.
Qatar Airways posted a profit in its most recent fiscal year, but again, you’d likely find severe skepticism in the executive suites of most European airlines as to how real that is. Etihad has yet to report a profit.
But significant sanctions against Emirates, Etihad and Qatar don’t seem likely anytime soon. They’re simply too important to the health of Airbus. In which case, watch to see which is the next domino to fall.
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The Cardinal is an occasional anonymous contributor to The Cranky Flier. A long-time airline geek, The Cardinal is currently a [redacted] at [redacted].
