Nothing odd about buying the majority of fuel at outstations, in fact, that's the case for every airline only having one base.

Simple mathematic.. if you're running absolutely no other routes but Base-Outstations, you'll be at 50% (Give or take) - but since EK runs quite a few Non-DXB routes (MXP-New York, SIN-MEL, CMB-MLE, BKK-HKG and plenty of flights between the ANZAC..) mathematic forces the only logical way is that significantly over 50% is bought elsewhere. Wherever it is 52% or 54%, I'm not sure, but it's definitely the majority.

Keep in mind that historically EK was from the relatively oil-poor Dubai while Dubai's rival Abu Dhabi has the big oil and a major historical and personal rivalry against Dubai. Abu Dhabi came up with EY because Dubai had EK.

The notion of Abu Dhabi wanting to subsidize EK with low oil prices is rather amusing to those of us who know of the intra-UAE rivalries, of the intra-family rivalries within some of these UAE emirates, and of how these mentioned rivalries have played out in this sector.

It's semantics I guess.... but when talking about a little over half I would prefer something like that instead of the majority.

Source: http://skift.com/2015/02/19/emirates...s-credibility/

Burn.

Edit: This is actually somewhat smart. Publicly questioning the integrity of the report is an interesting way to get them to release it.

Edit 2: The president of the US-UAE Business Council had some strong words as well:
Source: http://www.cnbc.com/id/102436269

The subsidy debate is heating up in the blogosphere. TheCrankyFlier discussed it early in this week, and now we have Lucky and Gary Leff dueling it out.

Lucky, who's apparently been briefed about the USA airlines' report, adds lots of color to the dispute: showing how the President of Emirates Airlines holds just about every other aviation leadership post in the country (much easier to move the money around this way). But then Lucky drops an extraordinary bombshell: he says the gov't simply picked up Emirates recent $4 BILLION fuel hedge loss. If that's not a subsidy, I don't know what is.

http://onemileatatime.boardingarea.c...tem-heres-why/

And this, of course, is the fundamental difference between what's going on with the Middle East airlines and what has previously occurred in the int'l aviation industry. Before, every country, to some extent, extended favors or subsidies to their own airlines. But these were marginal benefits: they kept badly run airlines (Alitalia, anyone?) in the air. But they didn't pour billions of dollars into an effort at world domination, such that tiny countries can order half the widebody planes built in the world. This is crazy stuff. And I suspect the current fight is the beginning of the end of this nuttiness.

Why not wait for the report to be published before using it as a weapon? Is lucky an industry expert?

That's some awfully strange logic? On the one hand you claim that's Emirates must be subsidized because it is government owned yet you express shock if the owner clears a liability. What do Emirates accounts say? If they have hidden it in the accounts then it you have an argument otherwise it is more huff and puff over nothing. You seem to forget Emirates is owned by the Emirate of Dubai not the UAE. Dubai does not have a large oil industry like Abu Dhabi, it didn't have enough money to bail out its property groups several years ago so why do you think it has the cash to keep throwing at Emirates? Etihad and Qatar are a somewhat different story but this is the Emirates thread!

With respect to Lucky - many of the issues that he raised in his blog post have actually been raised in this very thread.

Firstly: he doesn't say he has been briefed about the report, he has "been doing some research on the issue" - which I assume would be reading up about all the information that is out there.

Let us discuss the specific points that he raises:
Once again he is also falling into the trap that is set by the various PR campaigns (and I think the US carriers are winning here), in that QR, EY and EK are now similar monolithic entities. Anyone who has any idea about the geopolitics and historical rivalries (and indeed history of aviation in the middle east, e.g. the Gulf Air joint venture) around the Middle East know that how different QR and EY are to EK. I again emphasise this discussion is about EK - there are convincing arguments about QR and EY being subsidised: EY got a 3 billion dollar interest free loan from its owners, for instance, which is a matter of public record. We are talking about EK here.

Capital for EK is neither unlimited, nor interest free. EK pays market rate for aircraft financing: look at Amedeo http://www.amedeo.aero, a leasing company that came up with a solution of making A380s leased out to EK become owned by investment trusts that are publicly traded on the London Stock Exchange. You want to buy a chunk of 7 A380s? You can here: http://www.londonstockexchange.com/e...BXSFM2&lang=en. Here is more information about that deal: http://www.dnairtwo.co.uk/home.html. Within the public disclosures is the effective coupon that EK has to pay for these: on the order of 5-6%. Amedeo additionally sources funding for A380 aircraft purchases via Debt Capital Markets and Commercial Facilities. Clearly none of those entities would demand interest free financing. EKs own annual report states lease liabilities to have an average effective interest rate of 2.8% - but this of course depends on how much you believe their annual report.

Let us also look at other sources of EK funding: a 750 million USD bond issued in the United States in 2013. A 12-year amortised Sukuk of the amount of 1 billion USD. There is a SGD denominated bond of the equivalent of 450M AED and 3 billion eurodollar bonds outstanding. If you want to buy it, here is the ISIN: XS0885065887 http://www.boerse-berlin.com/index.p...n=XS0885065887 for your broker. The coupon is 4.5% (traded in Berlin) for the 2025 maturity. There is a 2016 maturity one too: ISIN: XS0632833553, traded on the LSE. http://www.londonstockexchange.com/e...33553LUUSDCWNR

I'm sure you will agree that this is not "unlimited" or "interest free". So, let us put the idea that EK has access to unlimited capital/interest free capital to bed. I know these massive orders for planes makes Boeing and Airbus look good - but those numbers are pure marketing fluff. No major customer pays list price, and no major customer pays cash up front for planes. Not one. We shouldn't be using those orders as a yardstick with which to measure EKs capital requirements - it is totally misleading.

Next:
Once again this issue came up and my reply is in 348 and 364 to The Wolf - which i'll copy here.
- 364
It's actually the Chairman and Group CEO who is from the royal family. And to add to your scepticism he's also Chairman of Dubai Airports and on the board of UAE Civil Aviation Authority

Once again, I think one's position on whether they are "arms-length" really depends on your opinion of the trustworthiness of their representations.
- 348
- 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. [..] 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.
-

In case you didn't read that: yes - it looks very bad, especially if you come from a western background of government where there is an idea there should be a separation of powers: however, any conclusion can only rely on innuendo and insinuation, absent any evidence. It depends on how much you believe their representations that there is no conflict of interest. I give an example of a place where governments have massive interest in sovereign investments, yet they do not subsidies or otherwise operate at anything other than arms-length with regards to portfolio companies (GIC in Singapore)
.

-
Two points here, one, landing and parking fees, and two, passenger charges.

Now, we must credit FD1971 from bringing his historical and current perspective on the airports and all the tricks they use to justify their construction and operation - and my reply is in 469. I'll summarise below.

Once again Lucky is assuming that the carrier and the airports are all initially one entity. Let us analyse the landing fees claim first.

Landing fees globally are compiled by IATA. They are not opaque. Yes, they are low (not as low as KUL!) and that of course benefits a major user of the airport, but in the absence of EK getting a specific rebate for landing fees, you can't say this is a direct subsidy, as all operators benefit from it. We must look at landing fees from the perspective of the airport and the sponsor of the airport development project. This is where we can also address the question of passenger service charge.

The government of Dubai needs to promote Dubai as a aviation hub and tourist destination. This is their prerogative as a government entity trying to promote economic development. Governments everywhere use this calculus (and in fact, governments everywhere also own airports, e.g. the US) when deciding on major capital projects. So they have built an airport and operate it. As we have discussed before airports and their project sponsors use different calculations to see whether it's economically advantageous - as I raised in my previous posts, at what level of granularity does an operation need to be profitable in order to not be accused of being subsidies/offering subsidy? An airport doesn't need to make money from landing fees if the objective is to get people through the airport in order to spend money at the Duty Free, for instance. (e.g. LHR). Or the government builds an airport in order to get people to visit the city and spend money there and money is recouped through tourist tax. If EK didn't exist, the government of Dubai would offer the same things to all other operators just to get people through their hub.

One cannot ascribe pure for-profit motives to infrastructure projects like airports if they are sponsored by governments - and it is disingenuous to do so. If you class that as a subsidy, you might as well ask how much business is subsidised by the provision of toll-free roads. You can put an economic value to it, of course, but no reasonable person would call it an unfair subsidy - indeed it would called an expectation that governments provide it!

Once again - there is an assumption that EK and Dubai Airports acts in concert. One must start with the opposite and find a contradiction to prove that claim though...

In any case - this is the same train of thought as above. An easy commercial case can be made as to why you only levy fees to O&D: transit pax spend more money in Duty Free. In order to get transit pax, you know carriers need to offer lower fares - pax only care about headline price. So you offer discounts to transit pax in order to boost pax numbers (as you know there isn't much O&D demand) and make the money back from Duty Free sales/rental of space to concession operators. Why can you gouge O&D pax? Because you can. EK already does - just look at DXB originating fares. Many contributors on this forum can attest to that! :D

What is stopping a carrier from starting transit hub operations in DXB? Oh wait, QF is doing that right now. With additional capacity in D, you might start to see things in this regard in the future.

The final paragraph is unfair - he starts off with the assumption the carriers don't care about profits to bolster his assumption that the carriers and the airport are one entity profits and are happy to take "subsidies from foreign carriers." That would only be the case if the airline and airport are one entity and EK didn't operate an O&D operation (and indeed any other carrier doesn't operate a transit operation - like QF). What is actually happening is that O&D pax simply pay more to use the airport as they are captive users of the airport, whereas transit pax have many choices of transit location.
-
This would be a very interesting claim to see evidence for. I was under the impression that Emirates does not hedge fuel costs at all (as they state in their own reports). As of now, it is in an unsubstantiated statement that Lucky has made in his blog. It is a very serious claim which I think would change people's minds about the operation, but of course, no one can comment until they have seen the allegation.
-

All in all - Lucky strikes me as someone who has just started to open the Matryoshka dolls of airline and airport subsidies globally, and is writing down things that stand out at him, but with respect to him (as I do enjoy his travel reports), upon further inspection and research his claims are undermined by the facts, even though the facts take a bit more time and energy to unravel! Perhaps part of his research would be an entertaining diversion into this thread :D

Some quick googling leads me to the fact that EK did in fact hedge fuel costs before 2009 and got massively burnt after the financial crisis - they took a hit, on their reports and balance sheets, of 429M USD in financial year 2008-09. That nearly wiped out all profits the year, compressing margin to 1.5% from 10% the year before. They didn't then reinstitute the program.

It will be interesting to see how this 4 billion claim is derived, or if it comes from the same box as the 40 billion :D

Emphasis mine. The UAE counterpart of the FAA is the GCAA, not the DCAA. DCAA does not have the sort of regulatory authority that the GCAA does. This is not a "Tom Wheeler is a dingo" situation.


Second, some components of your ticket cost may already go to the airport in the form of landing fees paid by airlines to airports.

Airports may choose whether they charge the airlines, charge each passenger, or both. In Dubai [as well as Abu Dhabi and Qatar], transit passengers merely pass through a metal detector. Origin/Destination passengers, on the other hand, use immigration and customs facilities - those officers must be paid, and those Smart Gates must have cost money to develop. I don't see this being a meaningful comparison.
There is also the labor cost of keeping the airport clean, but labor is cheap in that region. Let's also not forget about transit passengers spending money in the airports, as eternaltransit brought up.


Finally, in the spirit of making unsubstantiated claims, let's all not forget about the $4 billion that Lucky was paid to write that post, or the $40 billion in total for all of his commentary on the issue :D

Real interest rates in parts of Scandinavia are negative or on the course to go negative. Where is the jingoistic crowd complaining about SAS? :D

About staffing of key positions, let's keep in mind the UAE is a small country whose resident citizens are a very small minority relative to the population of the country and the traffic the country serves. And so it's not possible to retain all key strategic positions for just citizens without running into "who you know matters" matters. And given the intra-family rivalries (especially in a context where there are legions of half-siblings, step relations and complex marital arrangements), sometimes keeping the peace for the family gatherings means a person has to be said to be the head even if their plate is occupied by other things.

Being "briefed" on a report when you aren't alowed to see all of the report and how its claims were built? That doesn't inspire confidence. And parroting lines on the basis of such a "briefing" where the underlying report is not provided for examination is for ....... uh ....... the parrots.

That only proves that people that fly more often than most tend to have an opinion, not that it's a smart one ;). It's easy to be smart in some things (drinking champagne and flying the world on the money you make from credit card applications is a nice example), but knowing your limitations is another. 95% of people cannot even read a balance sheet, but feel they are qualified to have an opinion about the financials of an airline.....a highly complicated business. And then there's all kinds of info on the internet that looks plausible, but isn't.

Glad your post has a bit more substance.

That's the problem with all the news about government spending and the financial crisis. People don't know what the numbers mean anymore, 400 million gets to be 4 billion gets to be 40 billion..... who cares or knows the difference :p

The bombshell being dropped here is similar to that of JC's at the end of a TG episode. No essence whatsoever. Lucky's writing is highly imaginative and completely lacking references wise. So for the OP to reference Lucky's blog post, that just shows how proof lacking are all these accusations.
But let's go with the flow and assume what Lucky drops from the rear end of his mind about the 4B hole being wiped out, is true. So what? Even if the blind/deaf monkey crowd finds it unfair, so what? Is it coming out of these monkeys' pockets? or muscled out of the US airlines?

This is all a tempest in a teapot.

http://www.flightglobal.com/news/art...o-gulf-409259/

US carriers focus on alleged subsidies to Gulf carriers

American Airlines, Delta Air Lines and United Airlines are concerned about the magnitude of subsidies they believe Gulf carriers receive, as the US carriers push to limit open skies with Qatar and the UAE.

"We live in a world where there are benefits to the hometown carrier – that's OK," a senior airline official close to the open-skies issue tells Flightglobal. "But [for Gulf carriers] the subsidies appear to be bottomless, absolutely bottomless."

In evidence presented by the US carriers to government officials, subsidies since 2004 are alleged to total more than $40 billion, said to include $2.4 billion in hedge losses that Dubai's government assumed from Emirates, a $6.3 billion equity infusion by Abu Dhabi's government, and a $7.8 billion interest-free loan to Qatar Airways.

The Gulf carriers firmly deny that they receive any form of state support.

"Quite frankly, I think Mr Richard Anderson needs to go and study in a university to find out what the difference is between equity and subsidy," said Akbar Al Baker, Qatar Airways' chief executive, in an interview with CNN's Richard Quest on 17 February. "We don't receive any subsidy. What the government has given us is equity into an airline, which they own."

The US carriers claim that Qatar Airways benefitted from about $17.5 billion in subsidies and state benefits between 2004 and 2014, citing, in addition to the interest-free loan, $6.8 billion in savings from Qatari government loan guarantees and another $984 million from a ban on unionised labour. They say Emirates meanwhile received $6.8 billion and Etihad $18 billion.

"We are very interested to see how the figure of '$40 billion of government subsidies and benefits' was calculated," Emirates Airline president Tim Clark told Flightglobal earlier in February. "It is especially surprising because some of the complaining CEOs have publicly called for the US to emulate the pro-aviation growth policies of Dubai."

Richard Anderson, Delta's chief executive, told CNN on 16 February that evidence of the subsidies had been found through investigation of public documents available in third countries.

In January, the chief executives of American, Delta and United met with senior Obama administration officials, including secretary of transportation Anthony Foxx and secretary of commerce Penny Pritzker, to make their case on limiting Gulf carrier access to the USA. A second meeting was held during the week of 9 February.

The US carriers argue they are supportive of open skies given a level playing field, but claim that the dramatic expansion of Gulf airlines into the USA is siphoning demand away from them, at below-cost fares, and negatively impacting their ability to provide domestic service to their hubs that feed international flights.

The mainline carriers are pushing US regulators to invoke the "consultation provisions" under the two open-skies agreements in order to limit service, United chief executive Jeff Smisek said earlier in February.

Their hope is that Emirates, Etihad and Qatar will be limited to just the flights they operate now and that the open-skies arrangement will be rolled back to a bilateral air services agreement that does not include fifth-freedom rights for the three Gulf carriers, says the official.

This would block them from adding more flights in the lucrative US-European market, which they can access with the existing fifth-freedom rights, adds the official, who sees controversial remarks made by Anderson in his CNN interview as a diversion from the central issue.

In an exchange with network anchor Richard Quest, Anderson sought to counter the point that US airlines had benefited from huge government subsidies after the 9/11 terrorist attacks by citing "the great irony" that the terrorists originated from the same region as the Gulf carriers.

Delta issued an statement saying Anderson "didn't mean to suggest the Gulf carriers or their governments are linked to the 9/11 terrorists" and apologising to anyone who was offended.

Emirates rejected the apology and accused Anderson of deliberately crafting and delivering his statements for a "specific effect". The Dubai-based carrier added: "This brings into question his credibility as a CEO of a US public listed company, as well as the integrity of the submission which his airline has submitted to the US authorities."

NOIR, thank you so much for posting that article - especially as I am not registered on flightglobal!

Just a quick comment before I reply more thoroughly later (I can hear the sighs of relief all the way here :D) but:

- it is quite interesting that the report contents are being drip fed out into the public bit by bit, a classic PR move to sustain things in the public consciousness

- telling that only EY and QR seem to have the obvious cash injection subsidies of interest free loans: things that we have already conceded in this thread, but EK is only alleged to have a loss "absorbed" by the government, as if any kind of loss is now evidence of a subsidy, even though 2.4 billion USD is still able to be covered by 2-3 years of EK profits and cash on hand/commercial financing

- state benefits such as "a ban on unionised labor": it will be interesting to see the methodology and assumptions made to calculate that economic value, along with the economic values calculated of "state benefits". Of course, it doesn't mention which state is doing the subsidy (here's looking at you, ExIm bank) and I especially like the way that "Emirates received 6.8 billion" is stated without qualification, presumably for people to assume that's another direct cash injection from its owners...!

-"The US carriers argue they are supportive of open skies given a level playing field, but claim that the dramatic expansion of Gulf airlines into the USA is siphoning demand away from them, at below-cost fares, and negatively impacting their ability to provide domestic service to their hubs that feed international flights." - all airlines must justify their cost base on a comparison to a US cost base, of course :D And...negative impacting domestic service from their hubs? JetBlue must be crying...all the way to the bank... - plus, as I may have mentioned above, do non-US source pax even want to make another domestic hop? I would have thought most visitors to the US on international ULH service wanted to simply terminate at the hub.

As Tim Clark says: ""We are very interested to see how the figure of '$40 billion of government subsidies and benefits' was calculated".

I think that still holds true, from all of us :D