What's the fixation with NE3? Can't find any reference to the Near East Big 3 in any publication. It's the Middle East Big 3.

Your comments about the airlines come as a plausible perspective but lack the hard evidence. The evidence as you say is not in what we see but what's hidden. Now that's a weak approach to present an argument.

In Japan, and to boost GDP figures and lower unemployment, they undertook massive infrastructure projects decades ago (some are seen as useless like concreting river beds).

Funny business or not, that's not the question. The real question is what's the point? Few posts ago you claimed that EK are growing their fleet at the expense of EU/US tax payers through discounted airframes, while at the same time gloating about their generous contribution -through these orders, to the respective local economies. If this was truly the case, then why not see every other airline in the world do the very same thing?

Lack of credit guarantees? these can be arranged fairly easily, regardless of the market/country/bank.

The UAE spends billions a year on a whole heap of projects. Aviation may be one of them, but that's still a vehicle, a tool, not the final goal. I can't claim to know the details of their strategy, but they seem to benefiting others as well as themselves. And have been doing so for decades.

Do we have to wonder if the ME3 didn't exist, where would Airbus and Boeing be today? Largest operators of the 380 and 777 (and one day the 787/350), gone. Can we reasonably expect A and B to live off 30-40 year old designs?

Exactly my point, so what is all the fuss about? One should not forget however that this strategy resulted in financial dire straits for Dubai already some years ago.

The main point and the reason why this discussion is relevant is based on the beliefs of some members that the strategy used by some carriers like EK is the path to follow for all airlines. It is not, in the history of aviation no frills carriers have been far more successful, so I fear no-frills is the way to go. No showers, no F suites, but 800 seats on the -800. ;)

Are you shooting yourself in the foot here?;)

Airbus and Boeing would be at the exact same place or are you arguing that no other airline would have picked up the traffic offered by the ME3 or NE3, since it is sooo profitable?

Since it is apparently so profitable to fly ultra long-haul flights and operate hubs in the Middle East, I am pretty sure that somebody else outside of Qatar, Abu Dhabi or Dubai would have followed a similiar strategy to make gazillions of money? ;)

The conversation has incorporated some additional tangents about the broader aviation sector and its history, specifically government investment across the world in it - at the moment, there are many different opinions informed from various posters' economic views and ideas, which I think is leading to a little bit of confusion - with a sprinkling of perceived personal attacks, either through outright aggressive accusations or snide denigrations which have the same effect, even if they might be within the letter of the policies of the forum. I will of course defer to the moderators on that one :D (Happy new year, eightblack and Zol!)

I think it's helpful to take a step back and try and untangle the various issues as discussed, and I think it's quite useful to look at post 461 to see the various levels we are talking about:

We have a discussion about the aviation sector in Dubai as a whole and how it's sponsored by the government. We then have Emirates Group, including dnata and the other operations included. Then we have Emirates Airline, which was the original topic of the post.

The complicating matter for discussion is that the government of Dubai is the ultimate owner of: the airport, the group and the airline and also sets aviation policy, and is able to create an economic and political environment that supports this. Thus a poster's view about corporate conflict of interest, their socio-political view about Middle Eastern cultural norms, governments across the world and their historical interest in the aviation industry, their views on the ethics of economic liberalism and it's application in the 21st, globalised century, provide additional ways for their opinions to be informed and the facts interpreted through these prisms of belief and scepticism.

So, let us start from the top and work down, instead of from the airline up as I think we have been doing in this thread.
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Aviation in Dubai
Firstly, let’s talk about developing industries - if you are a government, what do you do to develop them, or indeed, should a government be even involved economic development, or should it be left up to individual actors in a market based economically liberal environment. If you are of the more libertarian persuasion when it comes to economic ideology, then you don’t even need to read this thread - Emirates, both the airline, and the group, is at the very least operating in an unfair environment, at worst a scam as they have been benefitting from “improper” allocation of capital due to the fact a state has used its effective monopoly power (in a very real sense) to distort “market” forces. In fact, aviation everywhere (except that which is to be defined as having “spontaneously” arisen due to the market) is operating “unfairly” due to the history of state support of aviation industries, either through infrastructure work on airports or through direct fiscal transfers in order to achieve some other public political objective such as employment support - a moral judgement which for the purposes of our discussion here I think is a red herring, although we need to state it to exclude anyone raising points about the principle of governments using their power to influence development, especially economic development.

So let’s take Dubai. A port city that made a decision to promote aviation in order to boost their development, as a natural extension of the decision to capitalise on trade flows that already existed through the port. They have to do two things: one, create an environment that incentivises foreign investment and two, actually build the infrastructure - most importantly an actual (decent) airport.

Taking the first one: creating the environment. To facilitate trade and cargo operations, they create a low-tax regime and economic free zones. The government makes it relatively easy for foreign workers to come and work and indeed, try to make it an attractive place for them to come to work and stay, e.g. being relatively socially liberal for the region. They allow 24 hour operations at the airport they are going to build - concerns about noise and pollution are secondary to the objective of aviation promotion.

Does this amount to a subsidy or “unfair” competition, now that we have excluded the premise that any government action at all is itself “subsidy/unfair”? My argument would be that this is no different to any government around the world creating tax incentives for companies to migrate operations or to direct infrastructure spending in order to try and stimulate economic development and demand (e.g. inner city regeneration projects). This is, in my opinion, a completely reasonable action of any government, anywhere. In fact, any government that tries to do better for its citizens I would expect to make investments for promote the economic well-being of their citizens and country. To broaden the term scam or subsidy to include a government creating an economically favorable environment in which to do business renders the whole term “subsidy” meaningless - companies and individuals (or indeed governments) don’t exist in vacuum. If the term is that broad, then you are regarding the interconnectedness of intangible (and tangible) benefits from the political and economic environment as a “subsidy” for any economic activity. It would be like saying that universal healthcare subsidises company payroll costs or that having a functioning civil judicial system subsidises revenue by reducing natural rates of losses on accounts receivable. It might be true in a technical sense with loose definitions, but It makes the term “subsidy” so broad it’s meaningless for any discussion about operational and on-going subsidies in a more direct sense. As I said, governments don’t exist to make profits.

Next: infrastructure development - does building an airport and operating it amount to a subsidy?

I think that most private capital around the world is not going to take risks on absolutely major capital investment programmes such as building an airport from scratch, either in a major city (or in the case of Dubai, in a port town with nothing much in the way of aviation going on) - they generally remain in the purview of public entities (who may later on privatise of course). Now, an airport is a real estate project - you have some land you want to develop. Sponsors of real estate developments have many different objectives e.g. commercial and want to earn a return (and in many different ways with different time horizons) and a government as a development sponsor is no different. Governments everywhere are not there to earn commercial returns. They have public service imperatives and their calculus for deciding what and how to develop their land is different to a corporation wanting to make some money.

Now, how does an airport make any money? It’s a real estate project, so they make use of the land by renting its space or conducting operations on it. So you have things like landing and parking charges, rental of hangar and cargo space to third parties (e.g. cargo forwarders), car parking, rental of space inside the airport to tenants (or operating that space directly, e.g. running a F&B operation), advertising (which is leasing space again), passenger charges, or selling fuel (although that is handled by third parties at most major airports now).

This is where you can see the possibility of subsidy creeping in. The essential question is what is Dubai Airports charging EK - does Dubai Airports deliberately try and set prices for landing and parking charges below “the market” or does it give EK a major preferential rate, above and beyond what would be considered “reasonable” for an airport’s major tenant?

Dubai Airports is a critical part of the government’s plan to promote aviation - it is not outside the realms of possibility to charge low fees to get people to use their airport (and cargo connectivity services). Is it in fact a loss-leader and they make up for it in the increased value of rental concessions in the terminal due to higher footfall? As it’s part of the government and provides in their view, a public service - are operating losses tolerated because their horizon for profitability is much greater - or profitability is a secondary concern and the airport is operated as a public service which doesn’t have to be self-sustaining. On the other hand, how do you define what “the market” rate is, when there are only two airports in the area both owned by the same entity? Do you define “market rate” as the rate necessary for a landing and parking to be profitable intrinsically or do you look at the airport operations as a whole? If Heathrow Airport, for example, reduced their prices for landing A380s and bumped up single-aisle jet prices and twin-jets in order to get more pax through that airport and make up the loss in revenue in shop sales, would they be considered as subsiding A380 operators or making a commercial gamble? To rephrase: at what level of granularity of operations does something need to be profitable for it not to be considered a “subsidy” or “scam” instead of “poor management”. Does it come down to fundamental numbers or something as nebulous as “ownership intent”? Once again that’s a value judgement you have to base on your perception of motivations of actors involved and your prism of interpretation.

So, from the perspective of EK - I would agree they receive a subsidy if they themselves were the only tenant of the airport and that they received an absurdly preferential rate compared to other carriers that didn’t reflect their tenant mix. Instead, every airline that flies into DXB enjoys their relatively average prices. If you say they benefit disproportionally because they are based there - of course, that’s the point from the owner’s point of view, isn’t it? To get a major airline to provide major connectivity to their city. Also, landing and parking charges for DXB compared to other global airports are quite comparable to places such as AUH and IST according to IATA. Less busy airports charge more (e.g. BKK). This information is available from IATA (if you pay for it). It’s not as if this is a completely opaque thing - unless your argument is that Dubai Airports gives EK a massive, unsustainable rebate every year that is funded by its owner.

When it comes to the aviation industry as a whole, globally, not just in Dubai, my view is this: that governments have and continue to be involved in supporting all players in the industry because they believe that aviation provides a public service and social good (connectivity). Therefore to rely on this alone to say that EK benefits from “subsidy” is to render the whole term meaningless and the idea that it’s “unfair” can be applied using the same logic to any airline in the world - unless the point is to simply illustrate that EK is taking advantage of something everyone else has, then the cries of “unfair” is itself an unfair singling out.
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Emirates Group
Now we’ve dealt with (some of) the issues surrounding the ethics of government involvement in the economy, let’s move on to actual operations, down to the Emirates Group itself. Emirates Group is basically Emirates Airline and dnata, which provides ground handling services. There are some other real estate and commercial operations such as Dubai Duty Free sales and Hotel operations.

Now, we had best define what we mean by subsidy in this context. Does the group itself generate positive cash, or make continued losses that need to be funded by owners, or does it make a paper profit that is funded by implicit subsidies such as putting liabilities off the balance sheet? Is there transfer pricing going on to shift losses out of the group onto another entity which isn’t so publicly transparent? So your opinion on this needs to consider: how much do you trust the annual reports of the Group (aka, do you correlate more ostensible transparency - such as having published audited results - with less likelihood of outright fraud)? How suspicious are you of off-balance sheet entities - clearly when you have different owners, someone is getting ripped off, but in the case where all the entities are assumed to have the same owner, what would be the point if your assumption is that all the entities, from the airport to the airline to the government are all the same thing and act in concert?

Both dnata and Emirates Airline have the same owner. What would the point be for dnata to charge Emirates less money to make the airline look good and dnata look bad? There are no tax advantages to speak of - perhaps you could make a bit of money by having your accounts look better and so get better financing deals? Is that extra margin on EKs financing going to tip the Airline from loss to profit? Does Emirates get charged peppercorn rent for the Dubai Duty Free concessions in the Airport? I think that would qualify as a subsidy/scam, yes. But does that make the airline itself reliant on subsidy? Or a scam? Or would it simply reduce the profitability of the duty free division?
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Emirates Airline
This is where we move into an area where we can rely less on speculation or divining the psychologies of owners and the apparent conflict of profitability and public imperative - in fact, this is the original question of the thread. Does Emirates Airline rely on on-going subsidy, either direct fiscal transfer, or beneficial pricing to exist?

There are financial reports of course, even audited - but looking at them depends on how much you trust the reports and the auditors. As many have said, it is possible for audited reports to conceal financial shenanigans. There is an undercurrent of either “it’s government owned, so they have a lot of motive to outright lie” or even “it’s owned by a really rich government so we should automatically be sceptical of them”. I think the second opinion veers very close to the line of internalised prejudice though, which I think is unfair.

It seems then we should look at things that don’t require as much information that is self-certified by EK to come up with some agreeable base line from which to form some opinions - and the obvious one is the financial viability of the business of flying planes around for money.

Many posters have mocked (my) analysis of financial viability of ultra-long haul operations (such as in posts 186 and 464) - but I have yet to see any figures put out there refuting them. The most that we see in reply is a straight up: “of course [ULH] isn’t profitable, it’s impossible” (with the implication you are mad to think otherwise). But clearly I disagree: you simply need to use fundamental and publicly available facts from neutral parties to make some quite reasonable estimates. The technical specifications of planes are available - from that you can work out the maximum fuel cost at market rates for fuel for any one sector. Fuel tanks don’t get bigger on each flight. The fuel cost can only be lower than the maximum, obviously. You have public data on configurations. You have public data on fares. You have public data on traffic statistics. You can create a mathematical model where all you need to put in is a range of load factors for each cabin (and cargo) and a range of costs that are not attributable to fuel. From this you can easily see there are conditions where ultra-long haul (or indeed, any sector) can be profitable. I don’t need to go back through this thread to repost them. The thing to note is while you might be 40% load one day, you can’t be 140% load another, so there is a greater potential for losses when a flight is empty than there is for profits when demand is through the roof (bumping up the fares notwithstanding). Apply this logic across the network and you can see whether you can make the business model work: you will generate load factors for sectors, yields and total revenues to make things work. Where you can argue subsidy and scam is whether the costs in their reports are a true representation (i.e. do you believe the reports or are they so far from some sort of external baseline - whatever that baseline even is) of what they actually are to the airline - or whether the yields and breakevens required for profits are achievable, which is, absent of detailed sales data, is again, speculation about economics and demographics.

Short story - ignore the whole lot about government support, it happens everywhere, so, what, basically, to decide if it’s viable or not, do some mathematics and see whether that matches your economic projections about enough people can give EK enough money for fares!

To answer the latter question, the parenthetical one:

Familiar with James Joyce's A Portrait of the Artist as a Young Man? James Joyce's use of the stream of consciousness voice in his narratives lended itself to entertainment more than to coherent, terse statements of clarity or to actual answers -- whether or not the audience had a question about relevance of some such narratives. The conversation has moved and it reminds me of proclamations such as this: " Long Live KLM - KLM is a Dead" or "KLM is Dead - Long Live KLM". Expect running and repeated 180-degree contradictions and a few ad hominem sidebars, as long as it makes for entertainment based on potential polarization and polarizing contradictions.

People may need to work from the above comment to get back to figuring out the answer to your first question above. I'm still trying to figure where the proof is that EK is any more or less a financial scam than any other 4+ continent-flying major airlines which have flown millions of passengers through their respective hubs while being a member of one of the big 3 global airline alliances.

Eternal, you are amazing. :o

Eternaltransit you sound like my Eco Prof back in Uni days :)

Haha, is that a good or a bad thing...! :D

I think it has been mentioned before, but what purpose would Dubai have to make it look like they are running a profitable airline but have the other services take the hit for it? Airlines are notoriously bad investments and your profit margins are small. So why would you want your airline to make all your profit? It really doesn't make sense to me that they would do it that way.

That is not to say that the points raised about the accounting and the auditing isn't valid, they may well be very true. But why would Sheik Al Maktoum run his country at a loss and his airline at a profit? Does he score brownie points over his cousins from Abu Dhabi? That doesn't make sense though...he will need to be bailed out in a few years time again if that is true.

Uhhh, Duty free, that moves us over to the folks at Qatar and their little monopoly. ;)

But I assume it is completely normal to grant an airline a commission for Duty-Free sales..., well in this particular the percentage might just be a little higher. :D

Air service agreements are normally based on reciprocity, in more extreme cases even limited to the number of seats available per time period.

Traffic rights are the major obstacle for EK aside from financing their activities, hence you have to come clean and therefore they are doing everything they can to convince everyone that they are as clean as you can be, as pointed out 281 times now.

As you have said before, airlines and airports might be a bad investment, but do you see any other way to get people to Dubai (or Dortmund or Munich, the Seychelles, the Bahamas etc...)

Once again, it is not like EK is re-inventing aviation management, they are basically copying the efforts we became accustomed to over the last few decades. ;)

Hence , it is pretty naive to believe that EK is generating positive cash flows from ops., but it is also naive to believe that other airlines achieved that during comparable stages of their existence. @:-)

The most important thing, at a certain point in time somebody (mostly the Government) has to forget about all the debt that had been accumulated in the past...and EK did a nice job paying certain people to compile a report, so that we would never forget about that.

So it is not surprising that one of the reports started as follows:

'Emirates believes that the issue of ‘subsidy’ is a legitimate and important issue for any airline or multinational corporation.'

I'm not quite sure where the insinuation of improper commission involves Emirates. I am not familiar with how Qatar runs their Duty Free monopoly, but in Dubai, Dubai Duty Free (the airport operator) is owned by ICD again, directly, not coming under the Emirates Group. So any subsidy claim there would be between Dubai Airports and Dubai Duty Free - and you may have a point there that Duty Free, having a granted monopoly over Duty Free sales at Dubai Airports, might be benefitting someone, somewhere, although if both entities are relatively closed in terms of their financial results and both owned by the same entity, I'm not sure who's ripping off who - it's not as if any of the products for sale are actually manufactured in Dubai and they are buying them from non-for-profit entities?

Duty free sales that come under the accounts of EK refer to in-flight duty free sales, or sales of goods through the High Street online store. Just like any other global airline which has duty-free sales, that's reflected in their accounts and accounts for a small percentage of sales and profits. Unless the argument here is either EK is benefitting from inflated profits on duty free sales (how would they reduce the input cost from their suppliers as it's all imported goods anyway?) or that duty free sales somehow props up the rest of the airline?

If you assume that the Airline loses money flying planes around, is the argument Duty free sales inflight somehow funds these losses (which I think is a stretch due to the proportion of revenue that duty free brings in) or is the argument that it's "unfair" for duty free to "subsidise" airline operations, as it's nothing to do with flying?

If it's the latter - how is this any different from QF having loss making airline operations, international and Jetstar losses completely dwarfing the minuscule profits of freight and domestic, only to be "subsidised" by the loyalty program (making a massive 10x! the profit of domestic). I mean, QF is a loyalty program that flies planes around the side.

However, QF do not have any insinuations of improper accounting thrown at it (at least, not to the same level as EK - QF's accounting dodges seem to extend to the calculation of landing and parking fees when planes are on the ground, or depreciation being brought forward, nothing like the accusations of outright fraud in the accounts that EK and other airlines in the ME get). So what is the difference? We can't say that "oh QF is public, so they aren't going to be fraudulent", because there are loads of examples of publicly traded, audited companies, who turn out later to have massive corporate fraud scandals uncovered. So really, the only material difference is the ultimate ownership structure.

Why is it okay to level accusations of outright fraud and misrepresentation at some carriers, just because their owners are wealthy Middle Eastern governments, when carriers around the world have similar business models, some are also owned by their governments, some get actual bailouts all the time and aren't singled out for criticism. It just strikes me as, at best, wilfully selective frustration expressed at competition, and at worst a cynical attempt to misdirect public attention and to mould public opinion or even just another outlet for internalised prejudice and xenophobia which at its core is seen to be politically or socially unpalatable, so is dressed up with a very thin veneer of respectability by shrouding the ideology within fact-based innuendo and arguments that on the face of them have merit when seen through certain lenses, but upon closer inspection are quite specious.

I mean, is it so hard for some of the haters to say: "we don't trust your airlines because you're doing something we can't and the owners are people we think are stupid but have lots of money". It would be so much more honest than all the mental gymnastics that occur currently...

Agree with you that Dubai is doing nothing new at all with their promotion of aviation - I mean, without it, Dubai would be nowhere what it is today, of course! Everyone's done it to some degree all of the world!

However, I don't see that it necessarily follows that it is naive to think that EK is not currently generating positive cash flow from operations. The point about other carriers is not relevant to this situation, because other carriers at the time did not have the current global economic and demographic environment that EK finds itself in. EK benefits from economies around the world having invested to create aviation infrastructure - indeed, EK would not be successful if both sides of its transit banks didn't have decent infrastructure they can take advantage of, I think. Other carriers when they started didn't have the benefits of 70 years of capitalism dragging more people out of poverty than ever before - demographically there is a wider and deeper market of potential air travellers across the world. They may not have the fat margin yields - and that's reflected by EKs aviation business having a margin of 3.5%, which is at or below that of other network carriers, but it does mean it's sustainable and cash flow positive.

Even if it's "naive" to think that EK is cash flow positive from operations, it is nevertheless possible to come up with scenarios where operations can be profitable. In the final analysis, it comes down to an evaluation on whether yields are enough for load factors. As has been said countless times, calculations have been made showing there exist some plausible circumstances where the whole thing is shown to be feasible. To refute this, all you need to do is show that load factors and yields don't achieve the breakeven on a consistent basis - or can never be achieved at all. We haven't yet seen this in this thread - only "received wisdom" laid down as Fact.

The point about debt accumulated in the past - this is a red herring and irrelevant to the discussion about on-going sustainability of airline operations. It intentionally regards and assumes that all of an airline, the airport and sponsoring government as one, united entity that acts in concert. So if you come to the discussion with the preconceived notion that entities all with the same ultimate owner all act in a deliberate fashion to further an unspecified agenda, then that idea informs all your interpretation of events where you have to speculate about motives. In the end it's quite circular: eventually you get a point where someone asks you: "so why are they doing this", and you have to fall back on to "it's a deliberate conspiracy attempt by the owners to promote their agenda". Surely the logical way to prove that acting-in-concert point is to assume the opposite and find a contradiction? So right now we all the aviation related entities in Dubai as separate, arms-length controlled entities and try and find evidence that they actually act in concert, deliberately. That is a much more solid way to argue the subsidy/scam case, I think.

Back to the point about historical debt: who cares if a government has racked up debt to promote an industry - that is the prerogative of a government that wants to make economic planning decisions. It has no bearing whatsoever on an airline that wants to operate under those conditions - unless the point is to say that airlines everywhere benefitted from government policy and investment. But then you could say that about any private enterprise anywhere, in history and in the future - they exist within social frameworks that are supported by the power of governments, either through providing education to its citizens so you don't have to train your staff to be literate, or providing security and justice services so your company doesn't get ripped off. So the point about government debt in investment is completely the opposite of the "most important point", it's actually totally irrelevant when it comes to discussing on-going operations of an airline.

More A380s coming to the USA

http://pointmetotheplane.boardingare...80s-us-routes/



“In the future we will continue to open destinations and introduce A380s in more cities because the market just wants and likes this airplane,” Emirates Chief Commercial Officer Thierry Antinori said, adding that U.S. demand is increasing both for Gulf flights and onward services to locations such as India. “We will have 68 A380s in operation by the end of 2015 compared with 55 today


Makes you wonder what kinda of scam these guys are running ;)

lmao!

This thread feels like a combo of a wsj article with some loosely based arguments from analysts like those on fox. Some great points made as well as many assumption based arguments.

I won't add any additional fuel to the fire...but

Honestly, the price is good. The in air product is good. I honestly could care less if they are making money or getting it from the government. that is something the investors should worry about. ON the consumer end, everything is gucci :D

If someone's being scammed its def not me. and can't wait for the US entry of it!

How much less would you care if they are making money?