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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48 Comments on "Emirates Tries to Grow Beyond Its Home Market, Others Freak Out"

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***
Guest

If Emirates decides to make a major move on the US market I wouldn’t be surprised to see US airlines
go to the Dept. of Transportation or the US Congress to try and stop them some way.

kt74
Guest
While MXP-NYC is heavily served, from a consumer perspective, Emirates offers a superior product in every class of service, greater reliability and higher service levels. There’s no reason why local carriers could not match this. It’s not really Emirates’ fault that its US and Italian competitors are beset by labour relations issues, higher labour costs and a high tax environment… For years, and despite the (illegal?) bail outs and inherent protectionism of its government, Alitalia has under-served Milan, so the locals are thrilled that there’s now another choice! If Alitalia went bust as a result of competition, and was replaced… Read more »
Ben
Guest

Bingo! You called it. It is the same reason US airlines didn’t want Virgin America to get off the ground. They don’t like the fact there are other airlines out there with a much better product with lower costs. It is a free market, and consumers should be allowed to shop around for the cheapest airfare (or shop for the amenities they value), regardless of where that airline is based or the cost structure of the propped up state-run airline.

jay
Guest

Even Emirates has done similar routes (i.e. serving the US via Europe) before. I seem to remember that an EK 777 went DXB-HAM-JFK up to about 5 years ago. What’s the fuss all about?

***
Guest

I think the fuss is whether Emirates is going to increase by a significant margin the number of flights to the US in the future, it looks like that is a real possibility considering the number of new
planes they have on order. Look for US airlines to try and put up as many roadblocks as they can to protect their turf.

Neil S.
Guest
Honestly, I hope this’d make the US carriers up their game. Rather than protest and get the gov’t. to protect their sub-par service. As someone who has been fortunate enough to fly upfront for work on UA, DL, BA, CX, NH, and KE – the service on the DL and UA flights just isn’t good. Sometimes the hard product is ok, depending on the plane, but the service isn’t ever amazing, and the food is usually terrible. I lucked out over this past weekend. Did DL from SIN-NRT, and then NRT-JFK. Was upstairs on the second leg, and the two… Read more »
southbay flier
Guest

I can talk about how uncomfortable the 10 abreast 777 is and how they don’t have flat beds in business and that their hard product isn’t as good as UA or DL, but they should still have the 5th freedom right to do this flight. It looks like Italy is just protecting their airline who would be unable to compete on an open market.

Consumer Mike
Guest
I find it VERY difficult to say that ANY airline is worse than United in Y class. Unless you pony up more bucks for a reasonably sized seat your flight is shear torture. AND I am not big in stature. 10 abreast on Emirate would not be my first choice to travel, unless it was priced extremely low, and then I would still have to think twice on it. Brett, I personally am happy to see more competition in ANY industry. The US airlines have abandoned the rule of good customer service (ground and air) long ago. They continue to… Read more »
David SF eastbay
Member

As was said before, EK isn’t doing anything that other carriers haven’t done or are doing now, so what’s the big deal. Look at the nonstops between LAX and LHR, are US and British carriers protesting NZ flying the route, no and they’ve been doing it for decades.

If it was say Kenya Airlines flying it no one would give a hoot, but since it’s EK that is the only reason.

Bob S.
Member

You’re right … unless KQ suddenly ordered 300 modern widebody aircraft …

A
Guest
I know there are a lot of EK fanboi’s out that love to beat up on American based carriers for their so-called inferior product. Up front that may well be true but as someone who is not up front I can assure you that the difference between foreign and domestic carriers is minimal at best. I’d rather have the miles flying Delta (gasp) than be crammed 10 abreast on EK. I also don’t particularly want to fly in a A380 cattle car. Given the option, when flying in the back-o-bus I’ll take my US based carrier. I do support more… Read more »
Hua
Guest
This is interesting to me as I had to fly EK to a client site in DXB. I was originally told J class was a distinct possibility, and was quite displeased to find out that it was actually Y. You can imagine my dread at boarding the flight from LAX to DXB. Fortunately, my fears were misplaced as the flight was very good. EK provides decent pitch, generous recline, and good meals with actual metal silverware. IFE was good, and I managed to catch some sleep when I felt tired. I didn’t even notice the 10 across seating. After that… Read more »
David M
Guest

If you think the EK A380 is cramped now, just wait. Airbus is talking about an 11-abreast A380, and EK is thought to be the prime customer.

MeanMeosh
Guest
The charge that has been leveled against the likes of EK/EY/QR is that they are receiving massive subsidies from their respective governments to keep fares low, thus providing the unfair advantage opponents keep pointing to. How much truth there is to that, I don’t know, but if it is true, then that’s something that definitely needs to be dealt with. There is also a lot of talk about unfair labor practices at Middle Eastern airlines (notably the story you linked to a few months ago detailing abuses at QR), though as you note, that’s something that can be fairly easily… Read more »
Southeasterner
Guest

And just as ironic that the U.S. Airlines and labor unions are complaining about it given that U.S. tax payers are now backing most of their pension plans through the PBGC.

Of course the other irony is that all of those Boeing 777 that were sold to Emirates at deep discounts were directly subsidized by U.S. tax payers….

“Boeing’s federal tax rate works out to negative 3.3 percent.”

http://seattletimes.com/html/businesstechnology/2023026545_boeingtaxesxml.html

Frank of America
Guest
I have doubts that labor practices are much different at any ME carrier than described in the article about QR. I will happily fly a US carrier knowing the crew are rested, competent (think USAIR on the Hudson) fairly well paid and somewhat protected from capricious management practices and exploitation by their right to organize an operate a union. I enjoy young, good looking cabin staff as much as the next person but prefer to patronize companies where people get to keep their jobs as long as they can physically do them and not be fired for gaining 10 pounds,… Read more »
BOS Flyer
Guest
Wouldn’t 5th freedom rights need to be negotiated? In this case between IT, US and UAE? What I don’t get is why EK is so hung up on flying from Europe to USA, when they have this lovely facility in DXB from where they can fly as often as they wish (I do think the US and UAE have an open sky agreement, right?). Maybe they just can’t fill all those A380 and 777, so they feel the need to move in on someone else’s turf? I just don’t think that 5th freedom rights should be given to every airline,… Read more »
billyshearer
Member

The CAPA website did a great analysis of Middle East carriers to see if they had unfair advantages.

They concluded that, no they don’t. They are just more fuel efficient and provide a service people want.

timlsurfer
Member
kt74 above said it best. US carriers exercised and fought for fifth freedom rights for years. That’s how PA and TW both had round the world capabilities with 707s in the 60s and 70s. Now US carriers are pissing and moaning about EK doing it. Shut up US carriers…get back to work, improve your product and your service (yes, for some of us frequent travelers service still makes a difference!) and compete. Quit looking to the courts or government regulation to protect you. You have lowered your levels of service step by step, year over year, regardless of which cabin… Read more »
Oliver
Guest

Why did the DOT approve this? I assume EK needed both EU/Italy and US approval. In general, what are the criteria for approving 5th freedom routes like this?

Jason
Guest
I agree with the sentiment here that US carriers should suck it up and try to compete. When you’re printing money at the rate the carriers like Delta are these days, it’s hard to make the argument that you can’t compete because it’s not profitable. That said, there’s an issue here that people seem to want to ignore. That’s the fact that it’s important for countries to have viable domestic airlines so their business communities do not have to rely on the whims of a foreign country affecting their ability to travel. Nations will naturally be protectionist when it comes… Read more »
kt74
Guest
Two observations Italy’s business community already has two viable, profitable, reliable airlines providing domestic service on business trunk routes (to the extent possible when slots are reserved for AZ) – they’re easyJet and Ryanair. Indeed, are Hungarian consumers missing any air service now that Malev is history? Not at all, thanks to Wizz and Ryanair And, not technically a fifth freedom, but rather a sixth freedom case study. How have Canadian consumers and the Canadian economy benefitted from restricting Emirates and Singapore Airlines to 3 flights a week each? Air Canada doesn’t even fly to any of the destinations that… Read more »
Jim
Guest
I know people who have worked for Emirates airlines in Dubai. I would define it as modern-day slavery. Many of the workers are from India, Pakistan and other countries who are brought to Dubai for jobs. UAE’s labor laws are completely biased in favor of the company. Your employer can revoke your visa at any time for any reason, and if that happens, you have to leave the country immediately. Needless to say, employees dare not complain about anything. Many of them live in dorm rooms housing 8-10 workers each, and some don’t even have running water. This is taking… Read more »
Consumer Mike
Guest

Jim, sounds like Emerate is run by Walmart. Yup, you have brought up an excellent point and I like your suggestion. It makes total sense and I agree. You should write your congressman and senators about this. Hell, you might even get some horse power behind you from the American airlines and their unions!

Sanjeev M
Guest

I’ve heard EK conditions are on-par to what we have here in the US. Take a look at some of the crashpads outside our airports, and take a look at all the flight attendants who have second jobs. It’s a tough industry to work in.

EY is little more restrictive, but nothing compares to QR who are responsible for much of the backlash on cheap, ill-treated labor.

Hua
Guest

Jim,

How do the pay rates and living conditions of an EK flight attendant or pilot compare to a typical Mesa or Trans States crew, or to the likes of a new f/a at a mainline US carrier?

John Doe
Guest
Dear Jim, Thank you for this comment. I can not agree with you more, especially that I am working as a ground staff in Emirates (based in Dubai) for one year and I am recruited in Europe. Searching the internet I found that employees of the Emirates rarely express their opinion about the company, and if they do – they do it only in few words from which people can not get the full picture of what is happening there. I can attribute this to people’s disappointment, as I have witnessed many of my colleagues resigned and never want to… Read more »
Mrs. Ramsey
Guest

I love shopping in Milan!!

Mitch
Guest
Actually, I don’t think it’s about the US airlines at all. I think the bottom line is: either let Emirates fly where they want in the US or they will take their 100s of Boeing orders to Airbus. And vice versa. Europe is facing the same threat, Either give them the rights they want to fly anywhere in Europe they want, or risk losing all their Airbus orders to Boeing. Or let them fly anywhere they want in both Europe and the US — and everybody keeps their large airplane orders. Oh yeah, and they will stop on the way… Read more »
trackback

[…] Crankyflier explores why major international airlines are so concerned about the fact that Emirates has been flying between Milan and New York. […]

Graham
Guest
I’d just like to say that I work for Emirates and the working conditions are very good in Dubai and across the network. All employees from top to bottom get a profit share if targets are met and in Dubai there are in house medical and dental services. We are very proud to work for a professionally run and efficient company. We are all fully aware that geo political factors will come into play as less efficient carriers try under hand means to block our path but they wont succeed. We are happy for any carrier to compete with us… Read more »
John Doe
Guest
I am sorry, Graham, but this sounds like an deliberate advertisement. Conditions may be good in some departments, but not in all of them. Some departments are just exploited. Staff did get profit share this year, for the first time after couple of years) and, after chairman’s announcement that company made one of the biggest profits ever, lower grade staff got only 3 week bonus, which is not much considering their basic salary of 700 euros. Lower grades in ground staff had very poor medical insurance until recently, when it became obvious that it is embarrassing for Emirates not to… Read more »
Danie
Member

If the EU has an air service agreement with the UAE that is fully enforceable (ie ratified or explicitly to be honored pending ratification), then it’s the EU agreement that should apply. Otherwise, the default would be Italy’s earlier bilateral with the UAE. Either way, if fifth freedoms are allowed under whatever agreements are in place between the UAE, the U.S. and EU/Italy, nuff said. It should be cut and dry, whether Italy likes it or not.