iahphx

Doug Parker (who, on another matter, is in the doghouse among American investors this week for being "too candid" in his public statements) said exactly that at the Press Club conference last week. He said his team observed the ME3 doing seemingly stupid things awhile ago, but didn't find it that unusual -- because he is used to seeing airline management teams doing stupid things. But the stupid airlines always run out of money on their own and stop. The ME3 seem "different" because they not only continue their economically unsustainable behavior, but they double down on it. That's when he got interested in how they're financing the illogical commercial behavior.

FD1971

Absolutely, and in this low margin industry, one disrupting force could already destroy the working business case for all other players in the market.

And we do not only have one disrupting force, we have at least three + the Turks.

I am pretty sure that the US could handle them in soccer, I am not so
sure about Aviation.

But remember that EK actually claimed that they are suffering from overcapacity as well (Yield decrease YoY)

The same happened over here in Europe and I can assure you that 10-15 years ago, people were really really curious what was going on.

When they started buying Airbus' Finest, the 345, shortly afterwards, everyone knew that this cannot really work out for them.

But I still think that EK has a working business case now on their trunk routes between Europe and Asia. Of course, there is a massive amount of debt somewhere, but at least most of Europe and Asia should be working for them most of the year.

eternaltransit

India-bound or not, we also know that the load factor data from the US government implies that there is significant non-zero premium demand on USA flights. If you say they aren't going to India, then perhaps they are going to DXB/GCC (big premium for O&D), or perhaps further to SE Asia - although travel time makes that less likely, but it still exists.

If it's DXB/GCC, then EK gets a nice bonus on the fat yields there which can pay for the below cost Y pax going to the ISC. If it's going to the ISC, then it's paying for itself anyway.

Indian aviation is a bit of a basket case so let's go with US3 airlines - more likely that during the period where this traffic started to grow (early 2000s), the US3 were busy with their own problems, and decided to focus on more profitable markets (domestic).

EK, if it wants to pretend to be a global carrier, has to fly to the USA - no question. It's a bit like the US3 in that, they want to pretend their are global carriers, but make the vast majority of their revenue and profits (75%+) in the US domestic markets. In EKs case, the majority of their revenue and profits come from other regional pairs (like Europe-Asia, Africa-North Asia).

India is probably still not sufficiently profitable enough for US carriers to be interested - after all, you need 15%+ operating margins at a minimum for them to be interested - as they don't yet have the fleet and product to make a good attempt at service (as in, there are better uses for the fleet/better markets for the products).

Perhaps this will change as India becomes wealthier. Perhaps the US3 will have lost out by not being entrenched deep enough. Perhaps EK will hit headwinds and start to lose money on their strategy giving the US3 an opening. None of these future scenarios indicates fraud on their part though.

eternaltransit

On this we totally agree - although perhaps, low margin might be qualified to say, historically low margin, as we know the excellent margins now enjoyed by the US3 and the lengths they are going to protect them!

I suspect EK are being "out-EKed" by QR, EY and TK. Unfortunately EK doesn't have the deep pockets so it remains to be seen if they can keep their heads above water.

abaca12

I certainly understand the limitations of the peer-reviewed publication system, and appreciate your use of Enron and others to illustrate your point (which I find suitable on many levels), but I must repeat my criticism once again: all that can be accomplished without resorting to sound bites that are not always factually correct, don't you think? If you knew that you were about to write something that is not truthful, why bother writing it? Your reply to OP added nothing but animosity to the discussion, and it wasn't even factual!

Furthermore, let me give you one other example: when replying to my cited article, one could remark something quirky along the lines of "de Wit is certainly honoring his surname by phrasing the highlighted passage in red the way he does right [etc] [wink]?" and so on, or the same person could point out that he only talks about a very specific subset of financial activities, which happens to be citable and publicly verifiable, but he does not touch at all on where the contentious issue seems to be, the fact that EK itself can be squeaky clean, while other sister/aunt/twice-removed-cousin companies are the ones left with the debt/cost burden (which itself cannot be citable, thus never likely to be accepted for publication). Which one do you think is more likely to generate a positive response?

Anyway, this is more of a meta-discussion which aims only to help with the flow of the thread, so please carry on.

UA1K_no_more

Nobody would take your "Tales of an airline conference waiter" report seriously.
When you talked to the people who worked for the airlines, did they ask you to bring them red wine or white wine?

knit-in

We do not know that there is not enough premium demand between USA and India. Your understanding of the geography of the market and how it is served is questionable. By your metric, there need to be ~30 non-stop flights a day between the various US cities and the various cities in India, to be comparable to how EK serves the Indian market. India is not ONE airport.

Geographically, the distance from Dubai to Mumbai is approximately the same as that from EWR to MIA. What EK does is no different than US carriers bringing international traffic to their hubs in America and transporting them to hundreds of locations across the continent.

The relative lack of nonstop flights from continental US to the Indian subcontinent proves nothing. There are still THREE daily non-stops from the US to India.

And please, pray tell which US non-stop to India has recently exited? On the contrary, Air Canada seems to have some plans to start a non stop between Canada and India.

knit-in

Correct, while our resident self-proclaimed experts are still following their age-old prejudices.

irishguy28

But non-stop, from where and to where?

There are multiple large cities in the US, and multiple large cities in India. So, unless you link each of Boston, Chicago, Dallas, Houston, Los Angeles, New York, San Francisco, Seattle and Washington DC directly with each of Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Kochi, Kolkata, Kozhikode, Mumbai and Trivandum - for a total of 90 direct routes - the US carriers can only pick one or two such routes (as they have done) and hope that they can tempt this demand to travel on this ultra-long route with a crappy domestic sector in the US. Why would you choose that, when you can travel even more comfortably on a one-stop itinerary on more comfortable long-haul aircraft?

And, again, because Emirates routes everybody via Dubai, they get, on their flight from New York, not just those that want to travel to Mumbai (as Delta once only had), but also those that want to travel to Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Kochi, Kolkata, Koyzhikode and Trivandum; not to mention those wanting to travel to Karachi, Lahore, Kuwait, Erbil, Bangkok, Jakarta, Muscat, Dubai, Abu Dhabi, Doha, Jeddah, Madinah, Malé, etc etc etc...
The same applies on their flight from Boston. And from Chicago. And from Dallas...etc etc etc

So, while a US carrier will require their Boston to Trivandrum or their Seattle to Kolkata flight to achieve breakeven load factor (let's say it's as low as 50%, just to tickle FD1971's funny bone) just from O&D traffic - because they have no real onward connection options when they land in India - Emirates, instead, only requires a tiny number of passengers on each of their US flights to be destined for any of the 142 destinations that they offer as a single, easy transfer. We know that, on average, 36% of passengers on any US Emirates flight are bound to/from India. This is the combined total of passengers for each of Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Kochi, Kolkata, Kozhikode and Trivandum - so on each EK US flight, there probably is no single Indian destination with a pax count of more than 10%. That explains why the O&D model doesn't work in the US-India market. And why the one-stop model - which opens up not just 10 points in India, but points all over the Middle East, Africa, and Asia, which similarly have no direct service from the US - make such compelling sense. A US carrier could not sell a direct flight on US to India, see only 36% of its seats sold (or less - we don't assume that EK flights to/from US and India are ALWAYS 100% full, so the 36% of pax would equate to a lower actual load factor), and make it work - they can't fill up the remaining 64% of empty seats, because once they get to India, there is nowhere for these people to go.

It should be blindingly obvious why these formerly "difficult" routings are flocking to the easy Dubai transfer option.


But you fail to see the "beauty" of the connection at the crossroad of the world. A single connection in Dubai, with an airline having an ever-increasing constellation of ports around the globe, is always going to be more attractive than a multi-stop itinerary (which most connections sold by the US3 would be), and which involves more than one airline and more than one aircraft/stage length.

For markets like US-India - which has traditionally been served indirectly - the indirect model is, actually, the best way to service the demand of ALL the widely dispersed destinations in each country.

No, it doesn't. It is a model that finally gives what many previously ignored markets wished to have - a simple, easy, single-stop connection between an increasing array of first-, second- and increasingly third-tier cities around the globe.

The US3 could never have used such a model, because:

a) the US is peripheral for most major traffic flows, and therefore does not lend itself to being a transfer point;
b) the US makes the transfer process exceptionally difficult, and therefore does not lend itself to be a transfer point;
c) the US3 are spread across multiple hubs, so fail to benefit from the "concentrating" power of a single hub, serving EVERY point imaginable. This means that, even in a broad network, only a fraction of the points served can actually be served with a single stop - some of the own-metal itineraries will of necessity require an intermediate "hub-to-hub" transfer.
d) the US3 have never bothered much with making connections easy, appealing, or cheap. Presumably, because they assumed to do so was not lucrative - but also in recognition of the inadequacies of their networks, business model, location, and the US immigration regime, in making international-to-international itineraries such a pain.

eternaltransit

A little point about subsidiaries and related companies and associated ventures etc. - having any of these subsidiaries or related parties, joint ventures and equity investments is really nothing new in business or indicative of any kind of fraud or wrongdoing. Their existence, in and of themselves, it not suspicious. Companies do business with related parties and state themselves that they either are eliminate on consolidation or are not material. That seems to be enough for most readers and authorities.

After all, LH has 10 pages devoted to all of its subsidiaries, joint ventures and equity investments (over 250 of them) - not all of them at first glance to do with flying planes (Marriot eExport Services, C.A., Caracas, Venezuela; Inflite Holdings (Cayman) Ltd., Grand Cayman, Cayman Islands), IAG has 3 pages with over 50 subsidiaries and joint-ventures/equity investments (e.g. Binter Finance B.V. Prins Bernhardplein 200, 1097 JB, Amsterdam; Dunwoody Airline Services (Holdings) Limited for instance; Iber-América Aerospace, LLC 9800 Premier Parkway Miramar, Florida 33025, Miramar, FL).

You get the picture - it's not uncommon, e.g Ryanair in its 2014 report states "We have related party relationships with our subsidiaries, directors and senior key management personnel. All transactions with subsidiaries eliminate on consolidation and are not disclosed. There were no related party transactions in the year ended March 31, 2014 that materially affected the financialposition or the performance of the Company during that period and there were no changes in the related partytransactions described in the 2013 Annual Report that could have a material effect on the financial position or performance of the Company in the same period"

So, for some airlines, just stating things were at arms-length/not material is enough to satisfy external observers (even though, as FD1971 said above, if the owners are happy and there are no law suits, what's the problem!), but for EK, the mere existence of these related parties and transactions with them (unavoidable considering the concentration of ownership in GCC countries and their population bases and not fully liberalised markets) is a signal of fraud to its detractors. Once again we come back to the double-standards issue.

So to reply to those posters asking who cares if EK is a scam - I don't think it really matters one way or another to the vast majority of people, myself included. Like I've stated many times before, I have no stake in the success of any carrier.

The thread has gone on because of the rampant hypocrisy of some of the arguments put forward through whatever medium, inaccuracies and falsehoods stated as fact and really quite unpleasant insinuations that I think does the whole of FT a disservice if they aren't answered and properly debunked.

sunseeker

dietrich,
whatever that's supposed to mean is beyond me....

GUWonder

Talk about confused logic on display above.

The fact of the matter is that ultra-long-haul service is expensive enough that even when premium cabins sell well and fares are at a substantial premium to connecting routes, it's still a challenge to make it work out .... more so if you don't have the right mix of VFR/leisure traffic and work/business/third-party-payer traffic -- and that includes the workdays, weekends, and holidays not lining up as well with the origin and destination schedules of such passengers. This is another area where EK has a natural advantage, as the peak leisure and business traffic days for the various regions it serves are rather different, thus giving it a good mix relative to what US airlines faced when offering ultra-long-haul service to India.

cargueiro

As Andrew Charlton put it “The LCCs ate European airlines’ lunch; the Gulf carriers are coming to eat their dinner.”

http://www.economist.com/news/busine...ines-looks-set

IAG also questioned many allegations in US3 report but you and FD1971 are cherry picking your responses to that...



Then there is this blog...



Andrew Charlton is the managing director of Aviation Advocacy, an independent air transport focused strategic consulting and government affairs consultancy based in Switzerland, with an office in Brussels. It was established in 2006.

Andrew has wide-ranging experience in the legal, commercial and aero-political aspects of all parts of the aviation industry. He has been involved in some of the most major developments in the industry. Previously, Andrew was the Chief Legal Officer of Qantas Airways before being responsible for Government Affairs for IATA and then SITA.

He has experience in airlines, service providers and industry bodies, in both the commercial and political arenas, as well as having served on a number of industry boards, including the Executive Committee of CANSO. Andrew’s clients include major industry suppliers, airlines, service providers and airports.

Andrew also regularly writes about and comments on aviation matters. He regularly speaks at and moderates industry events. Aviation Advocacy’s subscription only Aviation Intelligence Reporter is an increasingly influential monthly critique of developments. Its subscribers include senior regulators; airline, ANSP and airport senior executives; and several trade associations.

http://www.aviationadvocacy.aero/blog/

I guess his past employment at Qantas means you don't accept him as an expert!

iahphx

I'm sorry, but that piece is fan mail, not an analysis.


I was a foreign affairs major in college (a long time ago) and at that time we studied the media in the Soviet Union. I find a disturbing similarity between the press in the UAE and the press in the USSR. For instance, yesterday I read in one of the UAE papers excerpts from people who wrote in to the DOT to applaud Emirates' service (what we would have called the useful dupes). Try to imagine a US newspaper finding and printing the opinions of some random individuals supporting the US airlines' case. It's just creepy, but that's the way state-controlled media roll.

You definitely should enjoy the perks and, if you don't want to worry about who's paying the bill, you don't have to. This is a public policy issue. The world won't end if the UAE subsidies your travel. Yes, some Americans will either lose their jobs or not get them, and some American companies will make less money than "they should," but if you don't want to worry about that, you don't have to.


It will be fascinating to see how this ends. Because if the ME3 actually "win," they lose -- because they're going to need even more subsidies to keep themselves afloat. Because of geography, expansion to America has got to be the single worst "opportunity" they have. I mean, other than conquering the ISC, what's left? Thailand? I'm sure the Thais will be thrilled with this!

With the crazy competition amongst themselves (again, as I've said, I could envision one ME3 airline having "a business," but the idea that there's enough business for 3 such mega-connectors strikes me as the most idiotic idea out there), logic would suggest that fewer loss-making flights to America would be better than more. But logic never seems to play into their business strategy, which is why this thread exists.

eternaltransit

I know right, just finding random people who might have some sort of tangential interest in the subject and quoting their opinions as serious evidence is rather weak isn't it!

http://www.openandfairskies.com/what...gulf-airlines/

Hey, look, quoting a blogger, right there at the bottom (no disrepect to Mr. Schlappig, I quite enjoy his Trip reports!)