Emirates Tries to Grow Beyond Its Home Market, Others Freak Out

Emirates is a big airline, and it’s only going to keep getting bigger. But while Dubai is a large and growing hub, Emirates has been looking for ways to expand beyond its home base because of the tremendous capacity it is bringing online. The answer seems to be the use of fifth freedom rights bringing passengers from one country to another outside the United Arab Emirates. (I told you yesterday we’d be talking about this shortly.) This naturally scares the heck out of other airlines, so they’ve been fighting it vigorously. Right now, the spotlight is on one single route, the one between New York/JFK and Milan/Malpensa. But this is just one of the battlegrounds in a future world war.

Emirates Pinky and the Brain

Of the roughly 300 or so A380s that have been ordered, Emirates is responsible for just under half. Last November, it added 50 orders for the airplane to bring its eventual total up to an incredible 140. That doesn’t include the more than 100 777s it operates or the order for 150 of the new 777X aircraft that’s on the books. This airline is already huge but it’s going to get way bigger.

Dubai is an incredible crossroads and Emirates has made its living almost entirely on shuffling people into and through that hub. It has ventured out, on occasion. It flies Trans-Tasman routes between Australia and New Zealand. It also runs a flight from Hong Kong to Bangkok and does other similar ones in Asia. In the Americas, it briefly operated a flight from JFK to Hamburg but that disappeared in 2008. Now, however, times are different. And when Emirates started flying from New York/JFK to Milan/Malpensa on October 1, other airlines (notably Delta and the Air Line Pilots Association) freaked out.

It’s no surprise that this route would be contentious. After all, Delta, American, and Alitalia all fly from JFK to Milan, and United flies from Newark. It’s already a competitive route, but now it’s become even more competitive. And it’s proving to be the so-called line in the sand that many airlines hope will prevent Emirates (and other Gulf carriers) from expanding further.

US/Canada and EU-based airlines don’t like Emirates encroaching on their turf. There have been accusations for years that Emirates has an unfair cost advantage. The reality is that it does have an advantage because it operates in a country that wants to promote aviation instead of penalize it. But it’s not getting a discount on fuel or anything like that. It’s just able to avoid the stifling taxes that others face. It also has an advantage in some areas of labor (particularly the lower skilled areas) but really, it is an airline that’s competing under the law and making money doing it. That scares a lot of airlines because they don’t like the idea of competing against someone with a structural advantage that can’t be matched. I can’t blame them, but that doesn’t mean it should be illegal.

The details of why this particular move is or isn’t allowed remains murky to me, so maybe someone else knows this better. Emirates received permission from Italy’s Civil Aviation Authority (ENAC) to start the flight and it did just that. Assaereo, the trade group that represents Italian airlines, went to the courts to say Emirates shouldn’t have been given permission according to the agreement between the two countries. The courts agreed and ruled that Emirates should not have been given permission, but that has been appealed. In the meantime, Emirates is allowed to continue flying the route.

I’m not sure why Italy is even involved since it seems to me that it should be a European Union issue, but if Italy is the problem, then this is an isolated case. (Attempts to get any information from ENAC predictably resulted in no response.) Emirates will still find plenty of opportunities elsewhere, even if it is forced to stop the Milan flight at some point.

The big question is, however, whether it should be illegal. Emirates runs three 777s a day between Dubai and Milan. One of those continues on to New York, and I’m guessing that’s what allows Emirates to operate as many flights as it does in the Milan market. For Emirates, it’s great because it keeps an airplane in the air, flying profitably and providing options to travelers. For travelers, it’s another option in an already busy market, but more competition is generally good, right? Not always.

If Emirates has a structural advantage that can’t be matched by carriers in other countries, then there is risk of real financial harm to the airlines in those countries. There are possible regulatory moves that could help level the playing field (such as employment rules), but even without that happening, is it bad? Quite honestly is very hard for me to wrap my head around completely. I can see arguments for both sides, and it’s not crystal clear to me that one is absolutely right.

The only thing I do know is that this isn’t a problem that’s going to go away. For Emirates, what this is really about is finding a place to put all those airplanes. The airline has already butted heads with European carriers for years, but thanks to geography, US carriers have been mostly isolated. Now if Emirates can start operating from the US to Europe, South America, or Asia, it’s going to cause all kinds of friction here in the US. And that’s why we see this line being drawn now. It’s going to be a fight that goes on for a long time. And I can’t say I know who should win.

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