Yesterday I addressed the issue of whether or not Emirates is subsidized, but I touched on something much bigger. Let’s assume the airline isn’t subsidized. Even if that’s true, does it have an unfair labor advantage? That’s a much more complex question.
One of the things you often hear is that labor costs at Emirates are very low. Is that true? Oh yeah. Take a look at the average cost per employee for the last fiscal year for Emirates as compared to a couple of our big guys here in the US. (This is in US Dollars.)
Just think how much airline labor costs have dropped in the US over the last decade and this is even more jaw-dropping. It’s not a perfect comparison, of course, because it doesn’t reflect the different structures at the airline, but one thing is clear. Emirates doesn’t have to pay nearly as much for its labor as other airlines do.
This isn’t anything surprising. There are very different standards and costs of living in many different places around the world. But often lower costs of living come with significantly worse living standards.
Living in Dubai
There has been plenty of criticism over the years of the working conditions in the United Arab Emirates. You can read a report from back in 2006 if you’d like more details. But these reports generally focus on lower level jobs, often in construction, and not those of people who work at Emirates.
Take a look at this page that Emirates puts out talking about flight attendant jobs. There are no unions. Flight attendants are hired on three year contracts from all over the place and that contract can be renewed by the company only if it so chooses. People can resign, but if they do, their visa to work in the country is terminated.
Since people are hired from all over, Emirates provides company housing in Dubai. Pilots seem to get high quality housing, and the flight attendant shared housing seems spartan but certainly passable, even by western standards.
Emirates does provide medical and dental care through its own medical clinics. It also provides transport to and from work. Wages aren’t up to what you’ll find at legacy carriers in the US or Europe, but there is no income tax to take a chunk out of the salary for each worker. In the end, this comes together to make for a pretty nice package.
This sounds like a very structured lifestyle that is designed to get the most out of each employee while he or she works at the airline. But is that a bad thing? Apparently not for a lot of people since there is no shortage of applicants and the standard of living seems acceptable.
Sustaining the Advantage
More importantly to our discussion, is this an unfair advantage for Emirates? That’s a debate for the ages. It’s an advantage, to be sure, and it makes life difficult for those airlines that are based in higher cost places, but that doesn’t make it unfair. This is an issue that’s not unique to the airline industry by any means. It’s the whole free trade issue that’s been replayed over and over again. Some countries can make TVs for less than others, and that’s why we generally buy TVs in the US that aren’t made here. Whether or not it’s unfair depends upon who you ask. It doesn’t seem that way to me.
What I’m more interested in is whether or not it’s sustainable. Emirates has placed a huge bet that it can grow to be an enormous airline. It is looking to operate 100 A380s and many more 777s. The sheer volume that it is hoping to support is mind-boggling.
Can Dubai continue to grow and deliver big money traffic? If it does, then surely the cost of living will continue to increase and Emirates will see less of a cost advantage as compared to its peers. If it doesn’t, and it really can’t grow at a fast clip forever, then the state will likely be unable to keep its friendly no income tax policy. It will need money to support its infrastructure. If it starts to struggle with money issues, then Emirates could find itself operating in a different, less friendly environment as both the airline and state see growth slow.
When that happens, will another airline and country come in to take its place? While it was easy for TV manufacturers to switch to China or Indonesia when costs rose in Japan, geography is much more restrictive here in the airline industry. There’s not going to be a major hub in Zambia despite the low cost of living and eager workforce. The lack of local population and inconvenient geographic position certainly doom a place like that.
But there are other Middle Eastern hubs that would be happy to serve that population. Outside of the UAE, Turkish and Qatar are the most threatening, but others will follow. There will always be a new low cost provider if the opportunity is there.
I’m getting a little off track here. Is this an unfair advantage? If Emirates is providing an acceptable quality of life for its employees, then it’s pretty hard to argue that the advantage is unfair. Only if a company is succeeding by providing poor working conditions that violate human rights should it be considered an unfair advantage.
That doesn’t seem to be the case here, but I’m more than happy to hear from those with experience. Hit the comments down below.
70 comments on “Does Emirates Have an Unfair Labor Advantage?”
Actually, I’ve read more in the way of commentary that asserts, correctly IMO, that issue isn’t so much the wage rates at Emirates, Etihad, or Qatar, but the fact that they are subsidized by the U.S. taxpayer.
The government operated Export-Import Bank of the United States (a.k.a., the Ex-Im Bank) provides massive subsidies for foreign companies, in this case airlines, to purchase American-made goods, in this case, airplanes.
The problem is that, in attempting to protect one sector of the economy (i.e., Boeing), the Ex-Im Bank unfairly disadvantages another sector, (i.e., the US airline industry).
From this vantage point, Emirates appears to be well run enough that it doesn’t need what amounts to tens of millions in US subsidies per year. Neither does Boeing.
One, the Ex-Im bank is self sustaining and does not take tax revenues, though there is an implicit understanding that it has the full faith and credit of the Federal government which puts it in the same dangerous category as Fannie Mae/Freddie Mac.
Two, the Ex-Im often gurantees or otherwise supports loans often made by private banks, insuring them against risk or other possibilities. It does give out straight loans, and without looking into them, I imagine some of the ones they’ve given to purchase airplanes are those. But those are LOANS, and must be repaid, even if they are at preferential rates.
Three, the airlines only complain when its not one of their partners. Delta has made a huge push about the deals to Indian airlines, but kept mum about the sale to Vietnam Airlines, a SkyTeam partner.
Four, a loan guarantee from the government means the interest rate is lower and crowds out otherwise worthy non-Ex-Im borrowers, pushing up their rates. Even if the subsidy is not coming directly from the government (as in the case of a default) the subsidy is being borne by all borrowers that otherwise use that bank, even small mortgage customers or credit card customers.
Ex-Im is evil even if only perniciously so through its distorting effect on the economy. Please don’t defend it in any way, shape, or form.
Oh? I guess since you told me not to defend it I won’t. Certainly the debate has been won!
Export credit agencies of any country have distorting effects, and I’m not sure considering the minor scale of ExIms loans that its distortion effect is all that large nor a significant factor in loans made to other customers, especially the average consumer.
How much money are we talking about? I’m sure the foreign buyers are still paying some interest, so lets say its 2 percentage points. This is what fifty thousand dollars over the life of the loan?
Are the cost per employee without fuel? There are two type of advantages they have, one is fuel cost another is employee cost. We should address those separately.
As to sustainability of fuel cost advantage being in Middle East they will rightfully have it for some time. Also, Delta and United have and extensive feeder network of smaller less efficient planes than the widebodies the Emirates are flying that marginally will increase their fuel cost advantage. I bet you could see that in comparing the system stage length of the airlines.
As to the labour, the emigrant nature of the employees and the tax, or no tax is definitively not sustainable. UAE is a rich country with what ~6 million people. You can NOT sustain a civilization without taxation. The zero percent tax is not only unsustainable it is an adult on our western way of life!!! Is that unfair? Hell yeas. But I guess we have to wait until UAE grows up and actually becomes a society not just a kingdom it is right now. Comparing Emirates as if it was a normal company misses the point that it is run out of a 12century kingdom without any taxes.
I believe its 0% income tax, not 0% tax all together. There’s sales tax and such.
Also, this doesn’t consider dnata ground handling/catering/fueling whatever, which has plenty of low paid Indians and Filipino’s working for them. And these people may get discounted but not free travel back home cause they’re not actually part of EK.
This is a larger debate about working in the Gulf. About 40% of Dubai is from India alone. Is it low pay if they were jobless back home or suffering even worse? From what I’ve heard Dubai is a lot better than several other Gulf countries.
Pawel – This has nothing to do with fuel. It’s simply labor cost divided by the number of employees. There isn’t a fuel cost advantage that I’m aware of but that is a common misconception.
This is awfully tough. It’s unfair to blame Emirates; as you say, it seems that they treat their employees reasonably well. However, they do benefit from the global economic position of the UAE in a way that I think has very unfair consequences. (Matt Weber brought this up well in yesterday’s post.) The UAE can pay for massive infrastructure — which very much benefits Emirates — without any income tax due largely to oil money and aided by the lack of a social contract. Personally, I’ll choose to spend my money elsewhere. In a purely self-interested, capitalist sense, that’s obviously an irrational decision. However, there are macroeconomic “subsidies” that I strongly prefer not to support.
I would argue that US based airlines have an unfair advantage with American bankruptcy laws. European carriers would never be able to restructure in BK the way American airlines have. Both big US airlines you example would not exist under BK laws in most of the world. They would’ve been liquidated. (That said, European gov’t has done plenty to “save” their flag carriers.) Truth be told there is no free market capitilism in the airline industry the world over. “Legacy” carriers can complain about the unfair advantages that Emirates may have but they themselves have their own sweetheart deals so I’m not really going to defend anyone in this fight.
Are the cost per employee without fuel? There are two type of advantages they have, one is fuel cost another is employee cost. We should address those separately.
As to sustainability of fuel cost advantage being in Middle East they will rightfully have it for some time. Also, Delta and United have and extensive feeder network of smaller less efficient planes than the widebodies the Emirates are flying that marginally will increase their fuel cost advantage. I bet you could see that in comparing the system stage length of the airlines.
As to the labour, the emigrant nature of the employees and the tax, or no tax is definitively not sustainable. UAE is a rich country with what ~6 million people. You can NOT sustain a civilization without taxation. The zero percent tax is not only unsustainable it is an adult on our western way of life!!! Is that unfair? Hell yeas. But I guess we have to wait until UAE grows up and actually becomes a mature society not just a kingdom it is right now. Comparing Emirates as if it was a normal company misses the point that it is run out of a 12century kingdom without any taxes.
Wouldn’t American citizens still owe income taxes in the US, even if they weren’t charged them in Dubai? Do crew members at Emirates get their room and board in Dubai for free? Just curious how big a draw it is for people to go over there to work for the airline
They would on anything over the foreign earned income exemption. Considering a pilots take home pay, they would still be taxed on roughly 50-100K of their income. They wouldn’t pay FICA taxes though.
That is why you see mostly Brits there because unlike US citizens they do not have to pay UK taxes if they live abroad. Well, Brits from the west and 50% of population from India, Pakistan…
US citizens would still have to file US tax returns, including forms for each of their accounts in Dubai, and only specialized tax preparers know how to do that. Add $2k/year. And they will face issues with opening bank accounts in Dubai, and definitely in doing any investments (a local mutual fund is classified as a PFIC, requiring filing form 8621 and paying taxes on amounts that have not been cashed in).
The US is the only developed country in the world that makes it so expensive to be a global citizen. The only other country is Eritrea.
Yes, that’s why there are not many US citizens working in UAE, mostly those who fit within the exemption which given US econ is better than not working. Brits and Australians are majority, unlike US citizens Brits and Australians do not have to pay taxes in their countries if they work abroad.
Which is a great example of why the US tax system is rotten to the core. You end up double taxed if you work abroad and little, if any, representation.
Bit of an oversimplification…
Its also fair to remember that this is an EXEMPTION which means, while you do get taxed on the enxt 50-100K of your salary, you aren’t getting taxed at the actual 150-200K rate. So in many cases you still aren’t actually paying any significant taxes.
Also, Americans abroad are represented by the representatives and Senators of the last place they lived, and while consular services have certainly been short funded, its not immediately apparent what other services they could offer honestly. The State Dept. isn’t, and should not be, in the business of handling every detail for Americans who live abroad. And I say that as someone who has lived abroad and is looking to do so again.
Sean, it’s the Foreign Earned Income Exclusion, not an exemption :-) and it does not bring down the tax rate: a person taking the exclusion is liable for the difference between the tax they would owe without taking the exclusion and the tax they would owe on the excluded amount. See the Foreign Earned Income Tax Worksheet on the 2011 1040 instructions, page 36. The exclusion for 2011 is $92900, and the lowest tax rate above that amount is 25%.
I stand corrected. As someone who was nowhere near that amount while working abroad I was never affected!
….I’m wondering, why a three year contract for flight attendants? Do they recoop their expenses for training these individuals? Unless training is a non paid program, it’s (still) not cheap to send hundreds of flight attendants through training continuously. Do they get medical? I’m assuming no pensions, 401’s like some US carriers. No Unions, no contractual rights. Though, Housing is a big plus, I’m wondering what their salaries are and it’s progression through employment.
You’re comment, only if they are providing poor working conditions should it be considered an unfair advantage. Isnt limiting their employment accomplishing that?
Three and five year contract terms seem pretty common. It is thankfully more than adjunct professors at a US University who have a 1 year contract.
I’m willing to bet that the three years doesn’t completely recoup the training cost, but it gives the FA and the airline time to get to know each other and decide if they want to continue in a working relationship. If not, the most they are out is 3 years (FA) and a few thousand dollars (Emirates). Cranky did mention they get medical and dental, which to me, along with the housing, is a HUGE plus given the cost of that in the US.
I think the three year terms also give the good FA’s a chance to really shine and allows the airline to cut the dead weight. Thereby preserving the good service the airline is looking for.
Frank, that sounds more like a union vs not unionized argument. While I am very anti-union, there are some jobs they make a lot of sense, and flight crews are one of them.
For US citizens, working in the UAE isnt that big of an advantage. But it is huge for most of the EU due to taxes and the other fringe benefits.
Now, I dont know why the limit the contract, probably because they can and 3 years is easy for them to quantify. I know that contract is not in place for other workers at Emirates, like IT (I interviewed with them). Perhaps there is a high intrinsic turnover among FAs? One that our unions here in the US would keep from being an issue. Do all flight crews going into Emirates start at the same levels of pay/benefits/etc or are they compensated for their experience? Something we do not do here in the US.
So they can maintain a low average age and beauty level?
Ah…now that I hadnt considered….a very good point. And one that smacks of how parts of the world think/operate.
Hey Ryan, you can THANK a “UNION” for ending mandatory resignation of flight attendants DUE TO AGE.
Exactly, Oliver! …and you can add/maintain LOW PAY to that list.
Of course labor is going to be lower because of the three year contract that the company can choose wether or not to renew when the employee’s time is up. I too am a flight attendant for a major carrier here in the US and actually looked into Emirates a few years ago and noticed that immediately. With that being said its impossible to make a career at Emirates unlike you can at any airline in the US.
FRANK – There is actually a payout at the end of each contract, so it’s not a pension in the truest sense but if you fulfill your obligation you do get paid after completion.
Personally, I agree that this is a strategy to prevent people from making it a career. And I don’t see a problem with that at all. You know what you’re getting into up front, and if you don’t like it, you don’t have to work there.
Cranky, You dont see a problem with that, how, why am I not suprised? LOL.
Now, tell me, does that apply to other positions in the company? Ramp agents? Reservation agents? GATE AGENTS? I highly doubt it. I bet they hire YOUNG, hire PRETTY and hire under these restrictions so LABOR is kept CHEAP. And, it screams, ageism.
Do they hire their managers/executives with three year contracts? ;)
On the subject of 3-year contracts for F/A’s it seems a better idea then the way it is now in the USA. Those needing/wanting a job on a 3-year contract have to do an excellent job if they want that contract to be renewed. That is why you get better inflight service. Here a F/A just has to do the basic job and keep their job. They don’t have to go above and beyond to out shine the other F/A’s as EK workers do to keep their jobs.
better inflight service? David. I always say, Flight attendants GIVE YOU what Management gives US to give to you. Domestically, in the US, it’s about cost. I’m sure Emirates cares about the level of service in all classes. Many f/a’s care about their jobs, they just dont have the tools to do it.
Renewed contract? That’s just it, David. Emirates has that option not to renew a F/A contract to save on costs. I would like to know HOW OFTEN they renew these contracts? There’s an endless supply of hopefuls, thus making it easier for them to end them rather then renew.
Ryan, the airline industry is heavily unionized, now why do you think that is??
There are a lot of reasons for the heavy unionization in the US airline industry. Some of it is a holdover from times prior to deregulation when airline owners were the 20th century equivalent of the railroad robber barons, and some is pure necessity due to the highly specialized skill set and the way airlines as a whole treat their employees.
Pilots are an easy example of unionization that makes sense. A senior wide body captain cannot just up and leave his/her airline if he/she doesn?t get a raise or conditions are not favorable. That would cost him/her a lot of money in salary, seniority, benefits, job/position security etc. A union is pretty much required in this case to protect those employees.
Yes, but why are flight attendants unionized? It’s not a highly skilled job; a flight attendant can be trained in a few weeks and many legacy carriers have cut way back on annual training. Unionization has caused what used to be a transitional job for young people wanting to travel and experience different cultures to become a “career”. The result is US legacy carriers have many older, less fit, tired workers who feel overworked and underpaid. Unionization certainly doesn’t benefit the passengers or the company in the US; only the union management and the flight attendants themselves. Clearly Emirates (and some of the Asian carriers) don’t intend to let that happen to them and I expect their service will be superior to US carriers for as long as they employ the renewable contract model.
I also don’t understand why preventing pilots from taking their experience to a competitor is a good example of “unionization that makes sense.” The unions themselves are to blame for not allowing pilots to shop their skills and experience to the competition; instead of “protecting” pilots, the unions are actually impeding mobility to sequester their dues.
Sorry, I should have been more clear.
It only makes sense because of the complete mess that is the way airlines treat their labor pool. Pilots, ground handlers, and for god’s sake, customer service agents, should be able to shop their skills. It is insane the way it has evolved.
However, until management fixes that odd stupidity, which will probably never happen since it is a form of legal indentured servitude that only benefits the upper echelons of airlines, the union actually makes sense. In the current situation, the pilots, and some other groups, actually need the protection afforded by the unions. Granted, as you have pointed out, they only need it because of the massive flaws in that system.
Ryan, you are correct that it is a form of “indentured servitude” but it’s the unions who impose and control seniority reciprocity rules, not airline management. The only ones who benefit from this is union management by locking in dues paying members for life. How does the “upper echelon of airlines” benefit from this arrangement? I believe they would much prefer a meritocracy rather than a seniority based system.
WHY ARE FLIGHT ATTENDANTS UNIONIZED?
For one, work rules. It’s important to have limitations on the number of hours worked in a day. It sets rest periods. UNIONS allowed flight attendants to abolish the no-marriage rule, a discriminatory practice. COURTS found that illegal. Flight attendants used the CIVIL RIGHTS ACT to challenge discriminatory policies based on gender, age and marital status. MANDATORY resignation struck down in 1968. In 1974, the COURTS ruled that the airlines must pay male and females EQUAL PAY. 1979, Flight Attendant litigation results in liberalizing WEIGHT RESTRICTIONS.
Now, for your ignorant remark that we don’t fight on your behalf. READ ON.
The Association of flight attendants prod the FAA into making low level emergency exit lighting a requirement on all US aircraft, lobby for less flammable CABIN INTERIORS, and other safety issues.
1987, AFA lobbies for a LIMIT to carry on bags. It becomes a federal law, a 3 bag limit.
1988, a SMOKING BAN goes into effect on all flights, 2 hours or less. Full ban in 1990.
After 9-11-01, AFA continue to lobby for improved security, including certification for all F/A’s. And, demand mandatory safety training.
THANKFULLY, I belong to a Union that fights on Capital Hill for passenger SAFETY but for legislation critical to the PRESERVATION ON MY JOB.
Correction: 2 bag limit. I know.
Sure Frank, as if none of these things would have happened without the FA union. LOL Also notice how 95% of what you mentioned happened over 20 years ago. I’m glad you at least feel good about paying your dues each month but your going to have a hard time convincing me that union management is looking out for the passengers nowadays.
and without those UNION efforts, would these improvements been made by the AIRLINE INDUSTRY “voluntarily? yeahhh, right, Dougie. ! You think AIRLINES want to spend money on safety improvements if they dont have to? If airlines had it their way, they would reduce the number of crew members onboard to bare minimums. Remove important exists.
F/A Unions also fought for and won FMLA coverage for flight attendants, they were previously excluded due to how our hours are counted.
F/A Unions help to pass legally binding seniority protection for airline workers in the event of a merger. tThe LAW prevents stapling another group of workers to the bottom of a seniority list.
After a year long battle on Capital Hill, Congress passes Flight Attendant certification legislation in 2003
The above, happened in the past TEN YEARS.
Frank, exactly what are these “tools” that the Emirates FA’s have that US legacy FA’s don’t? It certainly isn’t higher pay, which is the chief complaint I hear from most US cabin crew. So what is it that allows them to provide better service, and more to the point, exactly what tools are you lacking that would allow you to provide better service to your customers?
Most amenities are gone stateside. You have NOTHING to appease the passenger in a customer service orientated issue. Except, alcohol. Years ago, F/A’s could issue cleaning forms onboard. Issue some extra miles via a form. Or appease a first class passenger because their werent enough CHOICES for meals, back in the day they boarded extra’s. Bored passenger, you could offer some magazines or newspapers. GONE. Someone’s cold, BUY A BLANKET is the response nowadays. Hungry? SORRY, NOTHING. Or you can purchase some snacks. Or even worse, I get to your row, SORRY, we’re out of meals. Want some chips?
EMIRATES or US carriers???….You decide, there, DOUGIE.
I was referring to domestic service and we know that the LCC’s killed all the amenities in the US. You’re correct that the amenities (and service) on US carriers’ International flights don’t compare with Emirates but neither do the profit margins. It all comes down to money; those that have it can spend it. As far as your question, that’s an easy choice for me, Emirates any day for the amenities and the cabin service.
…funny how you TRY to blame it all on money and yet YOU say these improvements to the airline industry would of happened anyway. that’s a CONFLICT OF INTEREST right there. ALL THOSE UNION improvements were fought for, the government got involved, laws were passed. It involved strikes, picket lines and fired employees. You think an airline would of come forward and said, “let’s do a study on PILOT FATIQUE?”
Federal LAWS had to be instituted to protect AIRLINE WORKERS.
I am actually a flight attendant here from the US. To answer a few things of what I have read over briefly:
1. The contracts are renewed 99% of the time (based on attendance and performance). We are reviewed about every other trip on one sector of the trip to track our performance. The reason for the three year contract is because the work visa for the UAE needs renewed every three years. Everyone starts as economy crew and works their way up through the ranks to eventually purser if they want to take on the amount of stress and paperwork the company puts on pursers. It takes a good six years to become purser now, and that is minimum with a near-perfect record including no customer complaints, near perfect attendance, and a decent amount of customer compliments. At the end of three years, crew are not more than business class typically, let alone a senior onboard or a purser. The company still isn’t spending much on a person at the end of a three year contract. Even at my rank, there is so much more stress than crew at a US, European, or Australian carrier would deal with. I will not be renewing my contract. :) Turnover is actually quite high. Average seniority last year was 3-5 years.
2. Where I live, the apartment is okay compared to the US. My apartment before I left the US was better. There is nothing around me. It takes a minimum 15 minutes to get to anything. There is finally a little grocery store nearby, however.
3. It is tax-free up to $90k (give or take) like someone else has said. No sales tax either. I just prefer to buy outside the UAE as I am not happy with selection in the UAE.
All in all, quality of life is more important to me than making a tax-free salary always wishing I worked somewhere else.
we can all speculate about this but it was REALLY interesting to hear your insight from inside EK, I enjoyed reading this, thanks very much!
Me too. thanks for sharing. Hope you enjoyed working overseas. I’ve lived aboard myself and thoroughly enjoyed the experience.
Singapore Airlines has long signed their FAs to 5-year contracts, which may be renewed only twice unless you’re a supervisor.
That seems to me to be the way to go. The FA position requires little education, and much less training than many professional jobs. It shouldn’t be a job for life. What is important is physical agility, calm demeanor, and empathy with passengers (which includes warmth, dress, appearance, and verbal communication skills). Two of those three characteristics are quite likely to decline with age. If suitable new job candidates can be found, through worldwide recruiting, a median FA length of service in the 5 to 10 year range seems about right. And it’s important for the company to be able to terminate employees for cause.
It shouldn?t be a job for life. What is important is physical agility, calm demeanor, and empathy with passengers (which includes warmth, dress, appearance, and verbal communication skills). Two of those three characteristics are quite likely to decline with age.
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WHAT A BUNCH OF CRAP. Now, tell that to http://en.wikipedia.org/wiki/Uli_Derickson who was in her forties when she was hijacked in the Middle East. Experience and TRAINING mean everything.
Funny, $50k per year, plus housing, plus full medical and dental, sounds like a very decent package to me, even if that was in the US. Not lavish, but decent. No problem with non-unionization either. Then again I don’t work in a unionized sector and likely never will.
WN flight attendants are unionized and the highest paid in the industry. However, that will also be to their disadvantage down the road. Especially when Airtran goes away completely and they have to start charging for bags. As for Emirates without getting political or sounding not culturally ignorant I wonder if they have the oil advantage; even during the times when prices are less than $90 a barrel. And also to the point of bankruptcy here in the US. AA, DL, and whoever else went bankrupt creates a much stronger airline if it can survive. But it screws over the workers that lose their jobs, and pensions.
Ironically the Middle East has an oil product disadvantage. The region produces mostly light-sweet crude that is priced at a US$20+/barrel premium over most of the heavy-sour crude that is now the predominant crude in many of the complex US refineries.
The refineries in the Middle East have a logistical cost advantage in terms of sourcing crude but that in no way makes up for the quality price disadvantage. Crude has an opportunity cost and even the Middle East isn’t interested in selling crude locally for a subsidized price and taking a hit on the opportunity cost of not selling it on the market. However, they do subsidize some products (gasoline and diesel fuel) to the market.
That’s true, but they don’t tax fuels to the same level as the west. When I was last there, gasoline was less than 2 AED per liter, or less than $2/gallon. I think it’s safe to assume a similar advantage for jet fuel as well.
That, however, is a benefit available to all planes flying out of the UAE – e.g. BA can overfill somewhat when flying back to LHR. I heard the EK and EY both fly out as heavy as is economical with fuel and top up as required for the return flights.
Oops, looks like that’s just over $2 US. Still envious as I’m paying £1.38/liter ($8/US gallon) gas these days.
As of the Chicago Convention There is no tax (or other charges) allowed on jet fuel for international flights in all ICAO member countries.
The reason why the EU carbon charge couldn’t be challenged is primarily because the individual EU members did not implement the ETS, it was put in place by the EU which is not an ICAO member.
An “unfair” business advantage? Probably not.
Different costs/standards of living in different geographies are a reality of our “flat” global economy and common across nearly all industries. What would the alternative be? Do we really think that Emirates (or any other lower cost carrier, or any business in any industry) wouldn’t use their lower cost structure to their advantage?
Now, if ethics is the question, that’s a different matter. It really is up to the flier to vote with their wallet/feet and align their own values with the informed decisions they make. So, if you – as a consumer – don’t believe that people are being treated fairly in a particular workplace, then don’t fly that airline (or buy that iPod).
There is certainly an a labor cost advantage to both the UAE airlines, EK and EY.
Management hires only Asian and subcontinent labor now. There is no contract per-se but if one leaves before 3 yrs you are not eligible for the state mandated goodies. Some employees end up owing the company money and trying to get out of the UAE in that condition leads to prison. They will get them at immigrations.
As far as fuel, the UAE has vast resources of crude, but little refining capacity so it must purchase jet fuel on the open market. There is no UAE federal tax on the finished product, though.
I worked in EY’s flight control for almost 4 years and saw labor abuses, including flight crews. The way of doing business over there is shocking! Expect 2 sets of books. Everything is privately held and self regulation is considered a sign of weakness.
EY unofficially owns most of EK due to the the bailout Abu Dhabi extended Dubai during the banking crisis. It was a deal between cousins. As an insider at that time, I have stories!
Anyone that thinks its “business as usual” with ANY dealings in the Middle East aviation arena will soon be parted with their money. Den of thieves!!!!
Thnaks a million Ace for the insights. The problem is that not enough of us who have lived there speak up and people have no idea of the reality, thus they do only logical thing and compare doing business in Middle East to doing business in the western world. It is our responsibility I think to speak out and make sure people realize there is a difference. Again, thanks for your comments Ace!!!
Pawel, you know what I am talking about. The Rulers of the UAE can do anything they want without recourse. If one wants to see accounting books, you will see the ones they want you to see. The GCAA regulatory oversight is corrupt (EY’s HQ is right next to the GCAA’s HQ).
A few years ago, EK wanted more access to Canada airports and the Canadians refused (at the behest of Air Canada). The Emirati rulers got into a snit and kicked out a Canadian military base in the UAE and then required all Canadian citizens to pay for a visa in Canada prior to entering the UAE, (US citizens just walk thru immigrations for free).
IMHO, the leaders of the UAE are just a bunch of spoiled “trust fund” children who are more concerned with “saving face” to the rest of the world. Do some reading on PPrune.com and see what I mean.
Shake hands with a businessman in the Middle East but count your fingers afterwards. Being truthful over there is considered a weakness.
The tallest building in the world, Burj Dubai, was renamed “Burj Khalifa” (after the Abu Dhabi Ruler) at the last minute because money was loaned from Abu Dhabi to Dubai…a huge slap in the face to Shiekh Mo, Dubai’s ruler.
Childish games. Look for EK and EY to merge in the not so distant future. Abu Dhabi is calling the shots now as they have the oil money and EK is a huge profit center. Dubai is still broke. The Dubai debts must be paid. Abu Dhabi will exact a harsh deal.
I’m not defending the accommodations that Emirates provides to flight attendants, but I will say, having spent two years living in Jerusalem and travelling in the Middle East, that that apartment is very respectable and in the style of what a normal upper middle-class family might own. (I will say the actual design aesthetic is more Western/Scandinavian, when most of the furniture in the ME is hideous; but the pieces and amenities themselves are pretty standard.) Taste in the Middle East is so often equated with the excesses of places like the UAE that people don’t realize that for the remainder of people living in urban areas, families are living in apartments and don’t choose to have clutter like North Americans.
If EK is just exploiting a wage arbitrage based on differing costs/standards of living between the U.S. and Dubai, then no, it isn’t an unfair advantage. It’s no different than any company that sets up its call centers in India to take advantage of lower wages (and you have people with college degrees in India working for call centers or other back office-type operations – because the money is good by Indian standards).
If they’re abusing their labor force in the process, though, that’s a different story, and that’s where I’d have my concerns. I lived in India on and off for about 3 years, and there were constant exposes in the news about the abuses inflicted upon Indian laborers in the Gulf states, Dubai included. People go because of the promise of higher wages than you can possibly get in India, but many of these arrangements end up being no better than sharecropping – the laborer ends up indebted to the employer, often for travel/housing expenses; the employer immediately confiscates their passport, refusing to let them leave until the “debt” is paid off, which can take years. As Ace’s post alludes to, I wouldn’t put it past EK to use abusive practices like this for ground staff (and as a foreigner in a country like Dubai, good luck getting your day in court).
Sorry, that should have read “in a country like the UAE”. Hit reply too quick…
Brett, I belive that the real advantage that Emirates has is more in the regulatory enviroment in which they operate(well lack of regulations). You will likely never see Emirates base crews overseas as they would then have to operate under that countries regulations.
Take the tailscrape incident at Melbourne a few years ago as an example. There were four pilots operating the flight, only two of whom were on the flight deck for takeoff. The other two were on crew rest so as to not accumulate duty time. Emirates is the only airline I know of that if the pilots are not in the seat they are not accumulating duty time. There is a very cosy relationship between the airline and the ruling family and this is borne out in the lax rules that Emirates has to operate to in Dubai.
Well, this is simply the result of two things.
1. Globalisation. Some say that it couldnt be stopped anyway (I dont totally agree) – but places like the US embraced Globalisation all those years ago and they didnt seem to understand that when you open yourself up you actually have to compete and you cant hide behind regulations and border controls etc. Countries like the US and much of europe didnt seem to comprehend that globalisation was another word for ‘export jobs’. (and thats what the effect of this comparison will result in – Emirates will make a profit, the others will continue their cycles of bankrupcy and emirates will expand its network.)
2. Regulations. The western world just loves regulations. Health and safety, wages, climate costs (as though that will do anything at all), taxes on this , fees on that, etc.
We are over regulated and thus we pay ridiculous amounts of money simply ‘ticking the boxes’ and/or paying someone else to also tick boxes.
This sort of waste costs money and pushes up costs. Ill bet the cost per employee of Emirates results in a higher standard of living for them than the average Delta/UA employee has – but is paid a lot more.
Oh – and finally – you cant compare the levels of service either. Compared to other major airlines around the world, US majors are really pretty crap. It was different a few years ago – like 30 years ago. TWA had great service across the atlantic in their L1011’s and I remember great service from Northwest on its north asian service. Great ground service and good inflight service. But today – the US majors are falling way behind
I think this case maybe justified by the governments indirect subsidy program for their citizens through low to almost no tax policy on most of their products especially the primary commodities.
They’re won’t raise taxes, they have all the tax money they need from oil sales.
The one thing that worries me about Dubai, aside crazy economic growth and bubbling, is the terrorist threat. It doesn’t take much to spook a temporary worker away and back home. The work-life balance carefully crafted into the “nice package” that you described is a fragile thing.
PS: I was at EK for a while. The accommodation in the video is better than what CC were provided back then (2008). We were provided a “temporary” accommodation on Cheik Zayed road (same street you see in this video). Then we were moved to our permanent accommodation a couple of month later, at the edge of Dubai and Sharjah, a definitely less posh area. The flats were new but definitely smaller than what you see in the video.
I don’t know what housing you saw Cranky, but I visited a number of flight attendant housing complexes when I did my “flight attendant training” while working on a story for The New York Times and I use many words to describe the housing spartan would not be one of them.
You must keep in mind that by requiring FAs and pilots to live in the UAE, Emirates is also limiting by default the number of years any expat employee will stay with the company. Young people who decide to fly for Emirates do it for many reasons, travel, status, money, excitement all the things that motivate young people around the world. And while they do their stints in the UAE they are living luxuriously and having the time of their lives. That they are young and excited about what they do shows in the service they provide.
http://christinenegroni.blogspot.com/2011/09/you-want-smile-thats-gonna-cost-you.html
As for pilots, there’s a global shortage of pilots so I’d say those who chose to base themselves in Dubai are doing so because they find the living conditions and the salary conditions to their liking.
Emirates is no sweat shop. And the success of their service indicates they have a formula other airlines might want to follow rather than disparage.
http://christinenegroni.blogspot.com/2011/07/flight-attendants-flying-high-and-on-tv.html