FD1971

Indeed, there is a big difference between Dubai and Qatar. In Qatar, they suffer building soccer stadiums, in Dubai they have to build residence and Hotel towers under more than questionnable conditions.

Are you really trrying to argue that the working conditions are different?

FD1971

Indeed, your contributions speak for themselves.

Knowing everything Fleece Shirts is appreciated anyway, so please keep on entertaining us.

UA1K_no_more

FD1971's area of "expertise" at airline conferences:

eternaltransit

Indeed many opinions for hire out there offering analysis of raw data - which is why the US3 claims must also be taken in context (their motivations and, well, reality - not just in the narrow aviation world, but also global economic trends) and with the scepticism that we must also approach this report.

However, the EY report does rely on more solid data (GDS pricing data and load factors, as FD1971 was previously demanding, especially on price!) - and as you say, long haul flying, especially DXB-US requires premium pax to work. I believe that a few months ago we came to this conclusion by working out the cost of the sectors involved and realising you need J and F to push the sector over the profits line.

Still, you may find page 10 of the EY report interesting as it shows that in the years 2009-2014, premium bookings on EK and QR increased 36% to the ISC and 51% to the Middle East. Out of the ISC bookings, that was 102% to Bangladesh, 36% to India - indicating perhaps that the bulk of this premium demand is going to India - 13% to Pakistan and 100% to Sri Lanka. I don't know about separating out EK from QR though, but I think that gives you an idea that there is premium pax demand.

So apparently, there is premium demand ex-USA. And as we know, the fares ex-USA in premium classes on EK are actually quite outrageous (20k for F!). Whilst it is likely true that the net margin going USA-Europe is higher than USA-ISC, given the fares involved and the loads - clearly the flying palaces are actually in demand and can be profitable enough to allow some pax to fly below cost.

Unless the argument is that premium pax are being flown at below cost as well? I think that would be vanishingly unlikely though, considering the J and F fares ex-USA are in the 10k+ range on EK, special offers notwithstanding.

And after all - it is not illegal or unethical to offer some people below cost fares if your operations are profitable by recouping those costs from other pax. The Ryanair example is a very good one - fare per pax is 46.4 EUR but cost per pax is 53.61 EUR - but they manage to make money because their higher yielding pax come in the form of charging ancillary fees such as margin on credit card fees, printing boarding passes and checking in at the airport and bags etc. etc. - which is broken out as a separate revenue line. This is a company that generates 10% net margins and pays out significant dividends and has done for years - and is listed on 3 stock exchanges (Ireland, London, NASDAQ) with the requisite corporate transparency that entails.

So for EK - it's not indicative of a scam to offer promotions like that 2-for-1 a while back ex-USA. EK fly some pax below cost (the 900 USD round trips to India in Y), because they have higher yielding pax (20k F tickets) to pay for it and come out the other side with 3-4% margins.

eternaltransit

Oh I'm sure that the cheapest bargain-bucket fare classes where it's 400 EUR net of tax revenue EU to say BKK, 100 EUR a sector that on an individual pax basis EK would take a loss. But if we're working on a per-sector basis, because you say we are allocating revenue and costs, then you can't discount the rest of the pax in all classes. We have to look at the airframe's total revenue and total costs (allocated staff costs and actual fuel). I suppose on this short sector of 4-6 hours we can put some cargo in as well - which once again, doesn't have to be the quickest, but in the cargo business there are a range of requirements, not everything has to be 24 hours. You can after all, wait to aggregate cargo to make it more efficient to transport if you have quoted a 3-10 day trip, which would beat a boat and ground transport in many, many locations.

Because I am also sure that not everyone on the plane is generating 100 EUR per pax. I'm sure that someone in F (and they do exist), is dropping in 1500-2000 EUR on that sector alone - and given the marginal costs of Y and F is on the order of 100-200 EUR per trip (25-50 EUR per sector, but let's be generous and say 75-100 to factor in gluttons), then you can see that one F pax can pay for 5-8 cheap pax to fly.

As long as you don't fill the plane up with your 400 EUR all-in pax you've got a chance of profits...(don't fill up the 76+14 J and F seats with 100 EUR a sector pax of course). Add some marginal cargo revenue for an extra 1-3% of revenue and you might just make it.

YMMV about the passenger mix, but alas, we don't have that information for 2014/15.

FD1971

And we can certainly expect the same level of transparency we know from companies subject to the capital market, i.e. Ryanair, Lufthansa or the US3 from the ME3...

They have nothing to hide, right?

knit-in

Well, I know large groups of fans that have plans to follow the US national team during the championship in June. My response was to a post that made a broad characterization of Americans' knowledge of soccer in a rather vague comparison with Emirates' ability to make money. And we all know that racial/ ethnic stereotyping never looked good for anyone.

And now we're dealing with the "all Indian pax on EK are poor migrant workers" syndrome from the same member of this esteemed FT family... sigh.

eternaltransit

Of course, my previous point still stands - the presence of a strong regulatory landscape and capital markets still doesn't preclude corporate fraud or malfeasance.

But that's not the same thing as accusing a company of fraud because it's in a lower transparency jurisdiction, which I think is unfair, especially as the entity in question, EK, goes beyond what other companies in its jurisdiction does (actually publish audited results).

Because the regulatory regime seems to have no bearing on whether fraud happens or not, I don't think it's really valid to use that excuse to say "we don't trust you EK, because you're in Dubai".

Why do we take what, for example, LH, FR, the US3 say at face value, but not EK?
Why can LH for example, change its depreciation policy to 20 years with 5% residual value (totally legally of course) from 12 years/15%, and not come in for much criticism, whereas if EK tried something like that it would most likely be jumped on as evidence of fraud or intentional duplicity - trying to hide losses.

(before you say it, yes, I know EK doesn't really own enough planes for depreciation to have a massive impact on results, considering half the fleet is rented)

I'm not going to comment as to why LH changed their policy of course, as I believe that is something for the LH forum

FD1971

Of course, it is not a credible source...

Even better, as pointed out by irish yesterday, EK already explained everything

And on top of that, as pointed out eternal yesterday, the subsidies are actually not subsidies.

Like I posted before:

a) there was no unemployment in the GDR
b) it was a democratic state with highly democratic elections
c) allegations against a & b were just cheap Propaganda from West Germany and the USA.

knit-in

And, in your expert opinion, EK is the only airline that prices flights such that connecting flights to "spokes" are cheaper than the flights that terminate at the "hub"? And that too only to the Indian subcontinent?

eternaltransit

Actually, I also pointed out that even if you could say that airport infrastructure was a subsidy of 2.3bn USD over 10 years (which I don't think you can, obviously), EK could still afford to pay 230mn USD yearly and still be profitable

Unlike the GDR, there is actually publicly available external information that doesn't rely on GDR - or Dubai, although I find it rather distasteful that Dubai, with all of its faults and moral issues should be equated with the GDR and its systemic repression of its population to a degree that is not seen in Dubai - representations that we can use to compare their public statements with what could conceivably be possible. So in the case of EK, when we say the allegations against EK are rather unfounded, there is independent data that can back that up. The GDRs information control was based on suppression - that is not the case with EK and Dubai, as there is enough independent data out there to form viable conclusions.

I should probably say, in the interests of, heh, transparency, what I do consider to be subsidies: that would be the interest-free loans that EY receive and commitments on behalf of EY made by the government (such as pre-delivery payments and marketing); constant yearly cash injections by Qatar into QR and sovereign loan guarantees into their businesses to keep them going as operating concerns over 10 years after their founding - initial start-up funding is fine, or later stage funding with a plan to be profitable in a reasonable timeframe is fine, but I acknowledge that the owners of QR and EY could argue that these cash injections etc. are just a prolonged period of startup finance but I think that argument is a little weak considering the length of time it's been going on.

GUWonder

I don't know fleece shirts, although I have a fleece jacket or two which I use while skiing with some major US airline execs, past and present. Still doesn't make me an expert on fleece jackets, EK, backpackers on EK, on unskilled laborers' ticket prices, or American soccer. It doesn't even make me an aviation expert.

Anyone with a business consulting background who can talk a good game and play entertaining host or guest may pretend to be an "expert" rather easily and even perhaps get paid for it. I thank you for the example.

Then again, who is an expert when the "experts" are the ones who have been involved with rather poorly managed OECD country airlines which wouldn't be where they are today in the U.S. and/or Europe without US and EU governmental protection? As with Wall Street, monkeys picking stocks with darts may work just as well as (or better than) the average "expert"/"professional" in the industry.

FD1971

Do we really take what they say at face value?

I understand that there are a lot of people partcipating in this discussion who hardly have any idea what they are talking about, but at least those carriers are subject to pretty strict laws regarding publishing financial Information...

Once again, please seperate expert discussions from discussions on FT.


Depreciation rules are pretty strict in Germany per se, hence LH changed its depreciation policies to reflect both the increased length of using the aircraft (absolutely correct) and the current market situation of used aircraft resulting in a lower (residual) value (even more correct)

Highly transparent and perfectly in line with relevant law. They even pointed out the financial consequences and they did that, typical for a German company, with incredible precision. CFO Menne has a certain reputation in the industry, she is almost too accurate and super cautious.

But why are you also trying to redirect the thread away from Emirates?

FD1971

In Trentino?

GUWonder

Which I find rather interesting given how a lot of the U.S.-South Asia traffic culminates in a mix of rich and poor "migrant workers" on the DXB-South Asia routes. Last I checked, the passport-using Indian ethnic group in the U.S. were wealthier than the passport-using Euro-American group flying between the U.S. and Europe.

These business execs are just following the money, and the money isn't distributed how it used to be. Apparently Indian migrant workers are a diverse lot too.