One thing people should realize about the UAE is that it is not really a federal system, each of the states financially is mostly independent from the others. Dubai itself is very small in terms of people. Around 80% of the population are expats. Dubai is not a large oil and gas producer unlike Abu Dhabi so they do not have large cash incomes. Dubai does not have the financial resources to subsidise the airline especially with their low tax rates. The airline has to pay its own way, so whether the op believes it or not they must make money. Currently Emirates and the airport business makes up around 25% of Dubai's GDP so it is pretty crucial that it is run successfully.

The other thing Op doesn't get is that Dubai is central to half the worlds population. Singapore has been losing out on a lot of through traffic as the middle east is a more central hub.

Hi The Wolf and thanks for bringing some really good points to the thread.

I think what we're seeing here is the distinction between the idea that a subsidy is a direct fiscal transfer (or on-going capital provided at a cost significantly below international market rate) from an external entity or whether you can count advantageous external corporate operating environment as a subsidy.

No one here disputes that DXB (and perhaps the UAE generally), but especially Dubai, has some excellent competitive advantages if you decide to operate a business there, specifically labour costs and the absence of corporate tax.

Firstly, if I might reply to the specific points you raise after the points about European aviation:

- Airport: As others have commented, it's not unknown for governments all over the world to own and operate airport infrastructure. In Europe, yes, many airports are owned privately, but what matters from the perspective to airlines are the service charges that are levied: and that is the same for every carrier using DXB (information available publicly). If EK got a sweetheart deal from Dubai Airports above and beyond what you would consider reasonable for a major airline tenant then I think the subsidy argument could be made. And also what one considers reasonable is also debatable.

As to having dedicated Emirates facilities, I don't see how this is any different from a situation such as BA having T5 at LHR dedicated to their use - and the gate spurs of T5A/B/C constructed for them. Or for Star Alliance at LHR to be moved into one terminal (T2). Or AF/Skyteam to use 2E at CDG. Or KE/OZ being in the main terminal at ICN whereas everyone else has to use the satellite terminal. It's not an uncommon phenomenon across the world for a major tenant to have relatively dedicated facilities.

- Labour costs: definitely one of the major contributors to the difference in unit costs between airlines. Whether this amounts to a subsidy I think I would have to disagree: it's a benefit anyone who establishes a business in DXB would have access to. However, EK isn't entirely run on unskilled low-cost labour: correspondingly, to get skilled staff such as pilots, they have to offer above and beyond what skilled staff could get at home - and provide expat packages which can double the on paper cost (schooling, housing, transportation, healthcare). Even "cheaper" expat staff still need to be provided housing and healthcare and transport - this goes for everyone from duty free sales assistants to spa treatment therapists. If anything, EK is subsidising their workforce! As to whether that "makes up" for the low-cost of labour in their cheaper workforce, I think perhaps not entirely, but it makes EK globally comparable to other airlines in relatively lower cost jurisdictions instead of being anomalously cheap.

As to whether it's unfair competition, I hesitate to say it's "unfair". I think that EK definitely uses its unit cost to its advantage, but then EK is not the only airline in the world with labour costs as low as EK. AI, SQ, TK, MH, TG, CX all have similar or lower labour costs. U2, FR, FD, AK have lower costs. So I think that EK definitely use this to their advantage but it's not the whole picture: no one is saying that these other carriers are being "unfair" - it's just that EK have a successful history, and a PR story that makes them look unstoppable (even though I agree with a previous poster that the "easy" growth has already come and now it's going to be difficult) that makes it look unfair - and there are other incidentals that converge (staff costs, a government that lets you have 24 hour hub operations, geographical position for fuel efficiency in intercontinental operations, previous success making future financing deals good)

I think this is like blaming Norway for being "unfairly" rich when they happen to have a lot of oil in their backyard - a natural advantage that hasn't been squandered but instead developed. EKs is taking advantage of location/corporate business environment/supportive government (of the sector, not EK directly) to make profitable operations.

- Taxation: I think we should just look at income tax, as corporate tax would go to the main shareholder, the government of Dubai and in a way, their dividend payments to its owner can be seen as equivalent to a tax on its profit by reducing available cash to re-invest in the business. EK does of course pay tax in the overseas jurisdictions it operates in, as it evidenced in their accounts. So once again, the question is whether you think that a lower cost base due to having major operations based in a low labour cost country amounts to a direct subsidy or a company taking advantage of something to the max due to its physical location. It's not as if other airlines or companies around the world don't try and move operations to lower cost locations (e.g. call centers get moved around, IT operations, catering, tax jurisdiction)

- Arms-length: I think it's difficult to have any major operation that's related so closely to national prosperity in the Middle East to not have ruling family involvement and I agree that it "looks bad" especially from a Western European perspective with a healthy and not unfounded imho scepticism of corporate government in the aviation sector especially. I don't think it's prima facie evidence of subsidy (direct state support) though, but for someone to be convinced you would have to persuade them as to the trustworthiness of the representations of the people involved. I don't think the terminal example is a good one though, as I point out above with regards to LHR T5 which cost 4.5 billion GBP and was essentially built for BA and I think that EK provides transparent, audited results, and that you can do enough calculations regarding service profitability from public information to see that the results are plausible given certain conditions that seem to be met (yields, load factors, traffic data). Although the default position in, say, the EU is that when the government is involved with a company, some fiscal support has been given: e.g. RBS in the UK. But, I think it's certainly possible for a senior government figure to be on the board of wholly owned corporate entity and for it to be run at arms-length. Think Lee Kwan Yew and his founding of GIC in Singapore, now chaired by Lee Hsien Loong. I don't think anyone can argue that GIC supports its portfolio companies other than on a commercial basis.

---
Your points in 334 are interesting and I think deserve comment. There have been rumblings of discontent from airlines in the EU for some time now about this additional competition, but I am unsure as to whether subsidies are the answer - quite apart from the fact I think EU taxpayers have better things to be spending their money on, but that is an issue for OMNI!

I mean, EU member states have already directly subsidised and supported EU airlines in the past but that didn't fix their problems - it was money down the drain as structural problems weren't fixed. AZ - billions of Euros in the last 20 years. Even though it might have been "illegal" under EU law, the Italian government just went ahead and did it. LH's pension deficits plugged by the German government. Malev collapsed because the EU wanted its state aid back, but the airline had already wasted it. Not in the EU, but Swissair. Supported but eventually failed in 2002.

You make it sound as if it's impossible to run a profitable and successful airline in the EU and that is simply untrue. IAG, Easyjet and Ryanair are some of the most profitable airlines in the world. Easyjet and Ryanair have even lower costs than EK! Easyjet for instance in 2013: pre-tax margin of 11.3% (double EKs), with full year profits of 478 million GBP. EK made only 591.91 million GBP, but with a margin of 4.23%. IAG made 770M EUR on 18675 EUR of revenue in 13/14 :4.1% margin, but this is with (at the time) a loss making IB operation which they have successfully turned around: in the 9 months to Sep 14, their margin is now 6.9% with revenue up 10%. Even after tax they still have better margins than EK! Ryanair is the most profitable airline in Europe and has been for many, many years: operating profit at the half year for FY14/15 is 933 million EUR on revenue of 3537 EUR - 26.4%! After tax that's 795 million EUR. That is ridiculously successful!

What those three carriers have in common are that two started from a low cost base, and one (IAG) went on a painful restructuring in 2003 (you may remember the major labour/strikes issues then). There are some carriers (mainly legacies) who haven't been able to restructure their operations and cost bases properly to compete with lower cost competition, but instead of trying to fix that, they try and wage a PR war to find a scapegoat - but their margins give the game away. They are simply not competitive - and for those airlines to argue that it's because of external unfair competition is just untrue: other airlines based in similar jurisdictions can make plenty of money. It's just that a large chunk of these legacy carriers' profitable business: long haul high yielding premium intercontinental routes is being eaten away: people in their home markets are more price sensitive than they thought and they haven't adjusted their models to take advantage/take that into account. They have been slow to innovate or restructure the cost base. Instead of wasting taxpayers money, I think legacies struggling to compete should learn from other successful EU carriers in order that they might become more profitable and start to pay tax instead of be propped up - and we as passengers might benefit from better fares which leaves us with more money in our pockets to spend and be taxed on! :D

Let me just say that in the 5 odd years of moderating the EK forum, this thread has probably been the most thought provoking, and had some of the most intelligent set of responses (eternaltransit, take a bow...)

Let me give credit where credit is due. The OP has not shirked from the issue and continues to chime in. I do not consider his behaviour to be troll like. Yes, many responses have probably crossed the line as far as our guidelines are concerned, but in the interest of letting the conversation continue, Zol and I have put away our Mod feather dusters. For now.

Easily wins thread of the year...

Agree with you here - AA has a logical rationale for the DFW-HKG route for the reasons you mentioned: great feed at both ends and decent partners. I also think that EK has a logical rationale for DFW-DXB, even with a A380, but from a different perspective - one that works for their business given their target markets.

I think the idea that "individuals tend to be loyal to their frequent flyer program" is becoming increasingly inaccurate - even in the US where these things dominate: you've got an additional billion people around the world who are only just getting into flying and their primary consideration is cost and connectivity, not a FFP. In the USA, WN had 133 million pax, in the EU, FR had 81.4 million and U2 had 61.3 million pax. None of those airlines are part of an alliance or has a frequent flyer program to speak of. If we take just WN, that's 133 million domestic pax who have selected the airline not based on a FFP. Compare that with the 140 million on UA, 164.6 million on DL, 193.7 million on AA and you can see there is still a growing and sizeable market of fliers who don't purchase based on loyalty programme.


From the MasterCard Global Destination Cities Report 2014
http://newsroom.mastercard.com/wp-co...inal_70814.pdf

Overnight visitors to HKG: 8.84 million, to SIN: 12.47 million, to DXB: 11.97 million.

So, comparable O&D demand. However, when you look at traffic stats for DXB, year to date to October, there were already 58 million pax using the airport. By year end, DXB is looking to have 71 million pax pass through. Now considering every flight at DXB is international - where are the other 60 million people going to disappear to, if not in transit/connecting?

As to your point about who would have a hub in DXB over HKG/SIN - well, QF moved their Asia hub from SIN to DXB. Still, QF is in the middle of its own painful restructuring, so it remains to be seen whether that is enough for them to make money on international operations. I mean, that airline hardly makes any money from flying; their major profit center is their FFP! But that is a discussion for a different forum perhaps...!

The argument about the US deficit and government economics is probably one for OMNI, but your point about US airlines receiving an ongoing subsidy I think is a fair one: they have a domestic market protected by legislation against external competition. Whatever your opinion about favourable corporate investment environments around the world (e.g. tax incentives such as those offered by countries around the world - Luxembourg/Switzerland come to mind in Europe, or taking advantage of lower costs of labour - Chinese/SE Asia/South Asian manufacturing hubs, free-trade area regimes), I think you can make a much stronger argument that having an entire industry that is protected by legislation from new entrants who happen to be based in another country is more of a direct subsidy from the state to existing companies operating in that industry, and is a greater advantage to them than just about anything you can think of, short of direct fiscal transfer.

Haha, thanks! Although I suspect in the secret moderator forums you are enjoying lording it over the other moderators with a 24 page thread to supervise :P

Plus, I'm only trying to get us 20,000 views...:D

For the record, I also do not think the OP is trolling - compared with a US-centric view of aviation, it at first glance looks crazy: massive capacity increases on an expensive ULH route. But I think that there are multiple ways to make good profits in the airline industry...

The idea quoted from the OP at the beginning isn't simply inaccurate, it has been proven to the contrary through research. The number of actual loyal flyer numbers is quite low. The bulk of frequent flyers that appear loyal exist in situations where there is little or no competition. And even those perceived as most loyal to an airline switch programmes rather quickly, to whatever airline that can provide equal or better value. There's a number of studies on the matter, looking at the matter from several perspectives.

Status benefits work as passive marketing that impacts a thin slice of the customer base. One can argue that this subset provides a large proportion of revenue. If this was the case then there's no reason for airlines like DL to switch loyalty criteria to dollars spent rather than miles flown, or for many other airlines to have their program based on actual spending.

After all, if what the OP suggested was spot one, airlines wouldn't have to market on several levels to get clients onboard.

Anyhow, all these arguments and counter arguments will not change the OP's convictions. I want the 5 years to pass quickly just to see what he will say about EK profits then, though I think he will just say then that EK's continued profitability further confirms that their accounting is fishy.

Sure, I definitely think that people are less "loyal" than they think they are - just look at all the howls of complaints and programme shifting in every single forum on this website. Even "die-hards" are shifting!

I think the greater point with specific relevance to EK is that they now have a catchment area with over a billion potential customers, of which a vanishingly small percentage of care about loyalty programmes as the primary consideration for choosing them - which renders the OPs point about alliances/FFP and how that affects buying choices for EK irrelevant. Even if 80% of EKs target markets would only choose based on alliance/FFP, that's still 200 million people EK can appeal to: 3 times the amount of pax that are going to through DXB this year - a market still bigger than the US aviation market.

Actually middle east is more centrally located for a connector hub than southeast asia or HKG.

The taxes don't match the benefits/spending which the government wishes to (and does) make. Or in other words, low taxes doesn't automatically mean there is a subsidy.

Without wishing to derail the thread, government spending and budget management is completely different to households where it's easier to imagine the concepts (earn more than you spend to accumulate net worth) - but households can't issue sovereign bonds, print the currency that their debts are denominated in or change interest rates...it could in fact be argued that it is prudent economic policy in certain circumstances to run deficits. And then there is the question of what the point of a government (or the public sector) continually running a surplus is for - is it better to repay debt that costs 1-4% or to continually invest in sustained future prosperity. But this is likely an OMNI discussion :)

But I agree with the point of the issue raised which is I don't think a low tax jurisdiction means companies that operate there receive a subsidy, unless you believe in the idea that all countries across the world should operate uniform standards of taxation and social provision and equalise costs, increasing them if necessary if they don't match the global standard/standard that is promulgated to be the "fair" standard. I think this would be quite infeasible.

For 2013 http://www.aci.aero/News/Releases/Mo...siest-Airport- in terms of passengers handled:
DXB 66.7 mil
HKG 59.6 mil
SIN 53.7 mil

In terms of "Sum : On-Flight Market Passengers Enplaned by Dest for 2013" from the US:
HKG 1,189,627
DXB 1,003,025
SIN 314,131

For comparison:
LHR 7,046,555
NRT 3,861,943
FRA 3,202,577
CDG 3,067,379
MUC 978,364
FCO 837,019
SYD 807,429
LGW 595,810
MXP 297,797
BNE 271,452
MEL 249,541

DOH 344,911
AUH 263,434

In terms of NON-STOP "Sum : Non-Stop Segment Passengers Transported by DestCountry for 2013":
UAE (incl. AUH) 1,293,393
Hong Kong 1,219,715
Singapore 37,378

All data from http://www.transtats.bts.gov/

DXB doesn't seem to be that outrageous now, now does it? The only startling thing is the OP's adamance that DXB is so out of the way.

Appreciate your lengthy reply and to the point reactions eternaltransit.

I actually largerly agree with the bulk of your arguments, though there are a few things that need a bit more discussion in detail IMO.

Airport
You are probably correct that all airlines have to pay the same low service charge for using DXB. However, if this fee is artificially low - and I dare to see it is - then naturally the hub-airline is profiting most, boosted even more because of it being a transit-airline.
Regarding your comparison of the dedicated terminal of BA in LHR and the EK Terminal in DXB, I think one can't compare it. LHR is privately owned and led by a Spanish consortium. Their only concern is making a profit. You could argue that the government-led DXB airport only concern is making a profit as well (goes without saying), but since they are and government-owned and the bulk of the profit for the government is coming from EK, I would presume they are being favoured. Also here, let us not forget the labour issue. In 2007 whilst the airport was being further extended, 4000 of them went on a strike and were promptly arrested and deported.

I'd agree but I cannot think of any other rich country/jurisdiction (apart from Qatar, Abu Dhabi,..) where it is as easy and as cheap to employ labourers from poorer countries. I hardly doubt their working conditions are on par with those of other rich countries.


Of course especially the location is a very big 'contra-scam' argument. One of the biggest advantages of the UAE is indeed their central location between the main economic centers of the world.

All in all I think their advantage is a convergence of different factors.
Yes, they are paying the same airport fees in DXB as other carriers, but for EK it is the hub.
Yes, other airports have dedicated terminals for their 'home-carriers' as well, but they are seldomly funded by a government relying on income of airtraffic of up to 25%.

Yes, the labour cost and corporate taxation are the same as for any other company in DXB, but none of them have the bulk of their business in EK.

And finally as for the arm's length, I remain firm on the fact as a company you cannot argue that you are completely independent from the government if your CFO (!) is from the royal family aka the government.


To summarize I must admit that a lot of the arguments I raised at first can be refuted, but looking at the full package I still think many points are a bit unclear. It would be great if EK would be a publicly traded company with full due dilligence and full openness of figures.

The one aspect you have to look at is that Emirates does not need an alliance. They are almost an alliance by themselves, offering one stop connections to passengers from secondary cities (in Europe) to other secondary cities (in Asia). If you are in the North East of England and you need to go to Chennai in India your choices are 2 stops with an alliance carrier (BA or LH) where you need to travel to their hub first. Once you are in London or Frankfurt you then can only fly to another city that is not Chennai and have an interior flight in India.

Or you can fly from Newcastle to Chennai and connect in Dubai with Emirates. Which one would you choose?

Just as Emirates have to make a profit, so does all the other entities like Dubai Airport. It would be silly to have your airline make a profit only to have that eaten away by losses from the other companies tied to aviation. The good thing for all these companies are that due to the numbers of passengers carried by EK, it makes it easier to run a profitable business as well.