You can cherry pick days all you want, and their prices might not always be the lowest, the 490 extra seats in the market definitely play a role in the supply/demand calculus.

I am not denying that an extra player increases competition and therefore drives down prices. That's obvious. Increase the supply, and until the demand picks up, the prices drop.

I didn't cherry-pick dates, by the way - the first dates I randomly picked showed all that I wanted. That indirect flights tend to be priced cheaper (at least, by those airlines that wish to compete in this market - some file fares that are not competitive, but not every airline is expected to wish to compete aggressively on every potential indirect route). And the price difference between Rome and Milan has nothing much to do with Emirates, and nothing to do with subsidies.

I'd be willing to bet that it does have something to do with EK, actually.

DL and AA typically don't cut fares on routes for charitable reasons. The one date pair I picked, by the way, DL was cheaper than EK in Y about $50, and EK was the cheapest nonstop in J. Much lower than NYC-FCO fares in across the board (as you already pointed out).

In any event, your comparison would be more telling if it surveyed historical NYC-FCO/MXP data over a similar time time periods (e.g. October/November) before and after EK entered the market.

I think the general gist of the argument is that EK competing on a JV duopoly route forces fares down whereas markets served by a monopoly (DL/AZ on FCO) sees fares relatively inflated. What that means in reality is margins are inflated, but we don't know costs on any individual route.

However, the more crucial point is, if you assume that additional capacity on a route depresses fares in and of itself, is that additional capacity being provided at below the provider's costs in order to drive other competitors out of the market (that is, classic predatory pricing complaints).

In order to bolster that argument, you can argue about the "proper" cost base and the "proper" margins on a particular route. I think we can all agree that from the point of view of the US3 carriers, "proper" margin is maximum possible margin, and "proper" cost base is their own cost base (as they believe themselves to be the most efficient airlines in the world).

YMMV as to how convinced you are by the morality of those views of "proper". :D

I think we're talking at crossed purposes. It's not that I disagree with your statements - I don't (as long as you are not saying that Emirates is acting differently than any other airline entering this market would act) - but they are not particularly relevant to the queries that I was originally replying to.

That poster seemed to expect that a ticket from JFK to MXP should cost the same as a ticket from JFK to FCO. [I guess, on that logic, all airlines flying from JFK to Europe should charge the same fare for most European destinations? At least for the destinations with a similar flying time/distance] They seemed to think that a €500/$500 difference was, apparently, an unusual and suspicious anomaly. They also did not seem to understand that one-stop itineraries are often offered at lower prices than the direct, non-stop options.

I'm not denying that a new entrant, with the consequent increase in direct seats, exerts a downward influence on prices. In fact, I'd take that as a given - and that does not really impinge on any of the questions the other poster raised.

However, that two "similar" routes can have a fare difference of $/€500 is not, of itself, indicative of fare dumping, or of price subsidies. Price differentials of a similar degree exist on other "similar" routes on the exact same dates: compare LH's fare of $1482 on the direct JFK-MUC-JFK as opposed to LH's fare of €844 on the direct JFK-FRA-JFK route; this $600+ difference is explained by the existence of another direct competitor on that route. And this is a route where Emirates cannot be blamed for having any impact on pricing.

http://i61.tinypic.com/50p34j.jpg

Therefore, the downward price pressure on JFK-MXP-JFK doesn't derive from the fact that Emirates is Emirates - a similar downward price pressure would exist if, instead of Emirates, any other brand-new (meaning: unaligned with any other incumbent on the route) airline started flying the route.

It just goes to show - any airline with a direct-route advantage will gouge the market (charge the absolute highest they can - as exemplified above by LH where they are the only direct player to MUC. But you will see that the indirect routings also tend to be much, much higher here - there's less competition on the route, so everyone can charge a bit more). Only the introduction of (additional) direct competitors will force them to drop their prices. This happens completely independently of the identity of the airline (so long as they are not a partner, in the sense of the immunised joint-ventures that operate across the Atlantic - then, it's not competition at all). If Air Berlin, or Delta, were to suddenly start flying MUC-JFK, you could expect to see huge decreases across the board on these ticket prices.

Therefore, I stand by my earlier suggestion that the actual identity of the "new player" on MXP-JFK is rather irrelevant. Any other real newcomer (i.e. not just a partner of any of the airlines already on the route) would have resulted in a similar downward push on prices. It absolutely is nothing to do with unusual/unexpected/suspicious/unprecedented pricing actions on the part of Emirates.

Irishguy28:

Agreed with your posts, I was merely trying to point out that I believe the pricing on 2 markets that should be similar are different (same country, similar distance, similar markets). If you look at prices for similar distance and time, JFK-FRA, you also have flights in the region of the price of flights to MXP. Now the slightly higher charges one way or another can be attributed to a difference in charges and taxes and airline has to pay to different countries. Yet the prices are similar. Why? Competition.

Also as you point out that the flights to and from Munich and Rome seem to be sold at a premium by the dominant airline/alliance/JV at a cost that is far higher than the prices being charged on a route where there is actual competition from an airline outside of any of the alliances.

This airline could have been SQ or CX, it doesn't really matter. If it was one of these airlines I am sure we would not be having this discussion now as the battle would not have been against EK but against another airline that started this route. If the prices being charged by EK on the JFK-MXP flights were at a level that didn't allow them to be profitable I believe EK would have cut the route. They are not afraid to do that. So we can have a safe assumption the cost of the flight and the ticket prices are enough to fall in the 4% margin of EK, and not the 9% margin that Delta would like.

If EK realises it can fly profitably from Europe to USA using fifth freedom flights on routes where the current JVs enjoy a total monopoly/duopoly (remember, they have anti-trust immunity), why wouldn't they want a slice of the pie? They don't have to do much to still enjoy their margins, they may even have a higher margin due to the competition pricing themselves out of the market.

We have to remember that EK was asked by the Italian Government to investigate the MXP-JFK flights, to introduce some competition. They were aware that the airlines were fleecing the consumer. If you price your ticket at $1500 return, if there is only one competitor they will most likely not start their prices at $1000, they would go for the higher margins.

This is not taking into effect the better service standards that EK, EY and QR provide against the US and some of their partners either. Hence the comments of Tim Clark about upping their service to compete.

I do expect tickets in the same country to be of a similar level, especially if the flights aren't dramatically longer or further. A bit like saying it is okay to pay 100 euro for fuel on a trip to Dublin from Galway but to pay 250 euro for fuel to Sligo. It is a similar distance and within the same country, so no unexpected taxes to influence price. That is why the comparison is so intriguing between the direct flights to Rome and Milan. That is also why it is difficult to compare different countries as the tax regimes are different (don't we know when discussing the UAE;)) and the difference in income could be a factor as well. Within two major cities in Italy should negate those factors.

The ability of non-EU and non-US carriers to retain the right to use the Fifth Freedom rights to serve EU-US under Open Skies agreements is very important for consumers, more so when TATL competition has been undermined by the waivers and favors granted (by governments) to the US3 and the EU3 groupings.

Nice discussion.

Well, I think an important point is that the home hubs of EK/EY/QR are situated in a very strategic location. Almost in the 'center' of the world, in the middle of all well-populated continents. DXB is one of the very few airports serving all continents with nonstop flights, but that is not so important (JNB also belongs to this 'club'). More important is that it serves

North America
Europe


DXB


Africa (South and East)
India(n Ocean)
Other Gulf countries

SE Asia
Australia + NZ

That is not the case with the EU or US.
Another important reason:
And not only US but EU too. The link states that 40 years ago the auto industry had the same issue. Americans swapped their gas-guzzling Buicks and Fords for Hondas or Toyotas.
Now everyone in the US (and EU) is used to Japanese cars and now Chinese cars and Indian Tatas are coming.

That is what we call 'emerging markets'.
Gone are the days of world hegemony with Panam or TWA in the 1960s-70s just like the days of Ford and GM.

And the same fate ad Ford and GM will be with AA, DL and UA and in the EU with LH, AF, BA. Not the same fate as PA and TW so most will survive, but more in an agreement with these Gulf carriers and even Asian carriers such as MH, SQ, TG.
Like Ford now coexists with Ssangyong or Hyundai.

The US is no more the worlds leading economy. That is China and India will soon surpass the US too. Times are changing.
The only market the US is still leading is in the computer and internet business. Apple, Amazon, Facebook, Google, Microsoft, Cisco are all American. But I guess this will change in the coming years as well.

So newcomers as EK are welcome. Last month I preferred EK above KL despite a direct AMS-CPT service. Via DXB costs 3 hours longer flying and 3 hours waiting in DXB. But: $220 cheaper ticket ($880 instead of $1100 return), more convenient arrival and departure times which eliminates hotel booking at departure in AMS and waiting times in CPT before departure at 00:25 and late arrival in CPT when flying KLM.

And US airlines making more profit ? Well why don't they invest it in newer planes. I think that is the real reason US airlines are not interested in the A380. Asian airlines have the 380 as well (SQ, TG, MH) and legacy EU airlines : AF, BA, LH. So there is nothing wrong with the A380 (apart from its four engines instead of two which all modern long haul aircraft have, but that is another discussion).
Except for UA, no US airline has a 787 (DL has ordered) while many EU, Middle East, African and Asian airlines have it.

In the 1970 US airlines were boasting with the 747 for many long-haul flights, so why not with A380, B777-300ER, B787 and A350s (and later the 777X) in the 2010s instead of the clunky 757 and 767s ?

True, but AA is less than 2 months away from putting its 787s into service.

I don't think the absence of Australia/NZ really distinguishes the ME3 carriers that much from a strategic perspective. After all, Australia isn't that well-populated a continent (although it is a comparatively wealthy continent per capita).
Yes, the Arabian peninsula is well-placed, but Europe is also well-placed.
So for the European carriers, I would look for other reasons why the ME3 business model is different from the EU3 business model.


While I agree that the US's dominant role is diminishing, China still has a long way to go before it surpasses the US as the leading economy. China GDP = 9.24 trillion, US GDP = 16.77 trillion.

I agree with your conclusion that the era of US domination is ending, but don't overplay your hand.

And in other news, EK will start flights to Orlando on Sep.1
Now the whole world can come see mickey without having to suffer US domestic airlines "service"

Must be a scam ;)

With the new LAX lounge, the new MCO service, and the second daily to SEA, Emirates is giving the impression that they are completely unfazed by the US3's campaign.

it won't be so good for US3 when growing % of ordinary Americans ride with EK/ME3, who are likely to have good 1st impression! After some exposures, who in their right mind would shell out $$$ for international trips (outside of some no-choice options, such as corp travel) with US3. Bring the competition and battleships to our shore, it's nothing but boon for consumers.

+1
The same competition that has lowered fares TPAC needs to go after the TATL market.

This is already the the case from a non-US (in my case SE Asia/Australia) perspective, most people I know follow a couple of rules when travelling to the US:
1) Avoid US carriers wherever possible, particularly in economy, but also to a certain extent in business (if you have to pay a premium to do so, sobeit)
2) Try and get into the US as close as possible to your final destination to minimise the duration and number of domestic US flights, particularly in economy.

No 2) is one reason (the other being a general dislike for LAX) I think people like QF's SYD-DFW, which by all accounts has worked well for them, despite currently being the longest commercial flight globally, and also no doubt why EK are trying to develop an extensive network of destinations in the US (like BA too) . I am sure many in the burgeoning Indian middle class would much prefer to do a single stop via DXB than having to do a dom/intl transfer within in India and another dom/intl within the US.