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Originally Posted by lighthand
(Post 24708441)
Seems like no one on team "scam", is giving an answer to my questions:
1. Where is the money coming from? 2. What's in it for Dubai gov? http://www.dof.gov.ae/en-us/media/ne...etfor2015.aspx Of course, the difficulty lies in the fact that 90% of EKs pax are transiting, and the government doesn't levy income or many corporate taxes - it generates most of its money through fees for government services (such establishing businesses in free zones, carrying out of trade, property transfer fees) - 74%, taxation (customs fees and foreign bank charges, and the "tourism tax" of 7-20AED a day, 5% sales tax on hotels etc., alcohol and luxuries tax), which contributes 21% of revenues, and oil, which contributes only 4% of government revenue. The remaining 1% I would say can be covered by dividends from the sovereign funds. Now the Government of Dubai is running in 2015 a surplus of 3.6 billion AED, which is a paltry 960 million USD. This leads us back to your unanswered question number 1 - how does a government with a 960 million USD surplus, which is only 1.16% of GDP (http://www.brookings.edu/research/re...-metro-monitor), end up subsidising an airline to the tune of "billions", every year? And for what purpose - if the government is going to have to borrow on capital markets at commercial rates to pay for the GDP growth it is stimulating and therefore levy fees/taxes on that GDP flow to pay back its loans, it seems rather a backhanded way to do things. It also has to access capital markets for the funding to build the infrastructure requirements for Expo 2020 - http://www.thenational.ae/uae/touris...-expo-projects, as total costs for that are about 8.7 billion USD - clearly the government doesn't have the cash to fund that out of revenue. Dubai is already leveraged significantly, and unlike the United States, doesn't benefit from being able to print a reserve currency: http://www.reuters.com/article/2013/...96T0Y320130730 - already up to 102% of GDP of Dubai and the northern emirates, leaving the economy quite exposed to macroeconomic factors (which already bit them before). It just doesn't make economic sense that the government of Dubai has the resources to subsidise its airline, given all the other activity that is going on by the government and that it can plausibly make money on its own. |
Good article here in The Economist,
http://www.economist.com/news/busine...ines-looks-set Some snippets... A decade ago Emirates, Qatar Airways and Etihad Airways, based in Abu Dhabi, were insignificant. But these three “super-connectors”, in recent years joined by Turkish Airlines, increasingly dominate long-haul routes between Europe and Asia. Whereas most other international airlines rely heavily on travellers to or from their home countries, the super-connectors’ passengers mostly just change planes at the carriers’ hub airports on their way to somewhere else. Last year the four carriers flew about 115m people into and out of their hubs in the Gulf or Istanbul, compared with 50m in 2008. Their combined fleet has swollen to more than 700 aircraft and they have a further 900 or so on order. Allegations of unfair advantages explain only so much, however. For one thing, the West’s legacy airlines have not lacked for state protection of their own. For another, the super-connectors’ rapid advance is in large part down to something out of policymakers’ control—location. The Gulf is handily placed between Europe, Asia, Africa and America: all are in range of modern long-haul jets. |
Thanks for your comprehensive answer eternaltransit.
Cheers! |
Originally Posted by lighthand
(Post 24708441)
Seems like no one on team "scam", is giving an answer to my questions:
1. Where is the money coming from? 2. What's in it for Dubai gov? Like Vladimir Putin just spend a lot of money in Sochi. Was it worth it? Most say "no," but that didn't stop him.
Originally Posted by eightblack
(Post 24709609)
Good article here in The Economist,
http://www.economist.com/news/busine...ines-looks-set Some snippets... A decade ago Emirates, Qatar Airways and Etihad Airways, based in Abu Dhabi, were insignificant. But these three “super-connectors”, in recent years joined by Turkish Airlines, increasingly dominate long-haul routes between Europe and Asia. Whereas most other international airlines rely heavily on travellers to or from their home countries, the super-connectors’ passengers mostly just change planes at the carriers’ hub airports on their way to somewhere else. Last year the four carriers flew about 115m people into and out of their hubs in the Gulf or Istanbul, compared with 50m in 2008. Their combined fleet has swollen to more than 700 aircraft and they have a further 900 or so on order. Allegations of unfair advantages explain only so much, however. For one thing, the West’s legacy airlines have not lacked for state protection of their own. For another, the super-connectors’ rapid advance is in large part down to something out of policymakers’ control—location. The Gulf is handily placed between Europe, Asia, Africa and America: all are in range of modern long-haul jets. Here, it's clear that there are many reporters infatuated with the ME3's "success," and talk up how fantastic a business plan it is (there are also reported allegations that the ME3 curry favor with European journalists by giving them skybox seats and such, but that's another story). I follow the oil industry, too, and it reminds me of the daily stories written by reporters that pin the daily price movements to some event (aka "new tensions in the Middle East"). But these stories are usually meaningless; if the price had gone down instead of up that day, they would have used some other excuse to explain the move. Call it reactive journalism: it's insanely common in the business world. |
Originally Posted by iahphx
(Post 24712100)
It's pretty clear that the money is coming from the Government of Dubai
Originally Posted by iahphx
(Post 24712100)
Lots of media reports get the airline industry wrong.
Here, it's clear that there are many reporters infatuated with the ME3's "success," and talk up how fantastic a business plan it is (there are also reported allegations that the ME3 curry favor with European journalists by giving them skybox seats and such, but that's another story). Call it reactive journalism: it's insanely common in the business world. There certainly are lots of media reports that get the industry wrong (there are lots of "experts" that seemingly do so, too). We've seen lots of puff pieces talking up these elusive subsidies - you've posted several of them! The US3 also have their fanboys in the media, you know. |
Originally Posted by iahphx
(Post 24712100)
It's pretty clear that the money is coming from the Government of Dubai to foster economic development in the Kingdom and bring the Kingdom greater "glory" and prominence. Governments often spend money on such things. Whether they are good "investments" is often debatable.
Like Vladimir Putin just spend a lot of money in Sochi. Was it worth it? Most say "no," but that didn't stop him. Referring to the Kingdom in the ME generally refers to the Kingdom of Saudi Arabia, but that I suppose is a minor quibble: the point you are making is that subsidies for EK are there to increase Dubai's overall GDP. Let's take a look at that line of thought in more detail to see if that's even a viable plan for Dubai, given its financial situation. Dubai's GDP in 2014 was 82.869 billion USD, according to the Brookings Institution (http://www.brookings.edu/research/re...-metro-monitor). Total government revenue in 2014 was 37 billion AED, that is 10.073 billion USD. The government in fact, had a deficit that year. http://www.reuters.com/article/2013/...0JA1XB20131125. In 2015, revenue is expected to be 41 billion AED, with an operating surplus of 3.6 billion AED - that is, revenue of 11.16 billion USD and a surplus of 960 million USD.http://www.dof.gov.ae/en-us/media/ne...etfor2015.aspx. Let us take the number for 2015, because 2014 was a deficit, and that would introduce the sovereign borrowing costs that Dubai would have to take on the plug into EK. Let's say that the government of Dubai takes this 960 million USD and dumps it in to EK. Now, the total revenue take for the Dubai goverment is 11.1/82.869 - that is, government revenue is 13.47% of GDP. That means, for this subsidy to be profitable from the point of view of the government - that is, make this subsidy continually viable/funded in perpetuity, which is the allegation against the Government here - that means that the subsidy must result in net GDP gains and therefore net revenue gains for the government, otherwise eventually, a budget deficit will occur, or the subsidy has to stop. That means, that EK getting 960 million USD has to stimulate the local economy to the amount of 960/0.1347: 7.127 billion USD. Now that would mean that a hidden 960 million into EK increases GDP of the Dubai by 8.6%, on its own - absent any other economic growth independent of the airline. That would be an absolutely phenomenal amount. Indeed, given Dubai's sovereign bonds are at 4-5% right now, there would be a case for Dubai to borrow all it can and dump it into the airline (until diminishing returns sets in of course). However, some bad news: Dubai's GDP only increased by 6.1% in 2014. So, clearly not enough to make this subsidy sustainable. If they want to carry on like this, they either have to have loads of government surpluses - which we see is not true - or run a deficit. Which means borrowing at 4-5%: http://www.bloomberg.com/news/articl...early-as-today. So that means GDP growth is going to have to be absolutely stellar to make "Dubai Inc." profitable if you want to go down the subsidy of EK route on a perpetual basis, since the allegation is that they lose billions of US dollars every year. Why would a government borrow at 4-5% if the GDP growth stimulated is barely going to cover cost of capital. It doesn't really make economic sense - and a government that is faced with minute surpluses or deficits really does have to make quite rational economic decisions, instead of trying to "look good" - after all, it's only been 6 years since the last bailout, and another so close would be utterly embarrassing. Now given that Dubai prefers to borrow money to invest in real estate - and that Dubai's public debt is approaching EU levels (87.4% of GDP in the EU), I think we can say that on the balance of probabilities, Dubai, given it has had to borrow money to fund deficits, it is not borrowing this to fund EK - and doesn't have the resources to start (or if indeed it was secretly, to continue) borrowing to do so. I, however, have advanced the argument that governments don't act to make money: they aren't in it to be profitable. However, they also can't risk sovereign default - especially for a net debtor like Dubai, which doesn't really have the option of devaluing its currency, and the fact it borrows in USD. That means borrowing has to be sustainable - and eventually pay for itself, or that the public debt has to be serviceable in perpetuity. Borrowing to subsidise EK just doesn't seem sustainable, given the poor returns to GDP growth and the GDP growth required to increase revenue given the low tax take on the economy Dubai levies, in order to be an attractive place to do business. It needs to provide a low cost investment climate. --- The Economist Whilst the you may have certain views about any biases inherent in the analysis, what cannot be disputed are certain facts that are laid out such as:
Originally Posted by The Economist
A decade ago Emirates, Qatar Airways and Etihad Airways, based in Abu Dhabi, were insignificant. But these three “super-connectors”, in recent years joined by Turkish Airlines, increasingly dominate long-haul routes between Europe and Asia. Whereas most other international airlines rely heavily on travellers to or from their home countries, the super-connectors’ passengers mostly just change planes at the carriers’ hub airports on their way to somewhere else. Last year the four carriers flew about 115m people into and out of their hubs in the Gulf or Istanbul, compared with 50m in 2008.
Originally Posted by The Economist
For another, the super-connectors’ rapid advance is in large part down to something out of policymakers’ control—location. The Gulf is handily placed between Europe, Asia, Africa and America: all are in range of modern long-haul jets. Istanbul, on the edge of Europe, is a short-haul flight from 55 capital cities. Both are ideal for consolidating traffic to and from many destinations. Fares can be kept low because of the efficiency of their long-haul-to-long-haul model.
Originally Posted by The Economist
The four super-connectors are spending huge sums expanding their fleets with the latest, most efficient jets. Their staff are young and keen, and the airlines spend lavishly on marketing their in-flight service and widening range of destinations. In 2001 Emirates and Qatar both flew from 17 destinations in Europe. Now both serve 32. Turkish sucks up passengers from 84 European airports.
... The super-connectors have likewise added lots of new destinations in Asia, whereas the European flag-carriers have expanded their route maps more cautiously. As a result, the super-connectors’ share of booming Europe-to-Asia travel has shot up. In similar fashion the super-connectors and their hubs have been siphoning off an increasing share of air traffic into and out of Africa—still a relatively small market for aviation, but one that has grown rapidly, especially given Asian economies’ interests in its natural resources.
Originally Posted by The Economist
The West’s legacy carriers put a lot of effort into letting politicians know about their concerns. But the chances that the American and European governments will roll back their open-skies commitments and halt the expansion of the super-connectors do not look good. American and European makers of aircraft and engines, which are benefiting hugely from the expansion of the super-connectors’ fleets, also form a powerful lobby. So do passengers, who have shown little sympathy for their struggling national airlines and plenty of interest in their rivals’ cheap fares.
If anything, matters can only get worse for the legacy carriers. If Norwegian makes a go of low-cost transatlantic flights, Ryanair and others will pile in. China’s huge, state-backed airlines are surely planning to boost their market share on Pacific routes. And the high profits that America’s airlines have recently been enjoying at home are likely to encourage the expansion of low-cost carriers there. In all, the future looks poor for investors in the legacy airlines. For travellers, however, the age of cheap flying is set to go on and on. It is cheaper to run 2 6hr flights instead of 1 12hr flight, so super connectors can offer lower fares not just because of the premium on non-stop and still make money, as part of that premium is there to pay for the penalty on fuel efficiency (conversely, the cheaper flights can still make money as the planes are running at max fuel efficiency). https://www.gov.uk/government/upload...efficiency.pdf - at 4000-6000km stage lengths, according to UK government research, fuel effiency is 14% higher than at 9000-10000km stage lengths (that corresponds to EU-DXB, and EU-Far East). As for the 2000-3000km stage lengths of DXB-India, those are about 5-6% more fuel efficient than long hauls of 9000-10000km+. When comparing a 777, the gap for 4000-6000km stage lengths decreases to about 7-8%. That is still a lot of money, if you consider that EK spent 30.6 billion AED on fuel in 2013-14, 8.33 billion USD. If they weren't situated where they were and didn't have modern fleets and had to buy 7% more fuel, that would be an extra 580 million USD to spend. Compare that to EKs published 2013-14 profits: 3.3 billion AED, or 898 million USD. That's 2/3 of their net margin provided for, arguably, by their fuel efficiency. Perhaps their geography and thus route network/fuel efficiency really is the subsidising factor here. The insistent question about "why has no one copied them" - has already been answered: out of all the carriers who are lucky enough to be based in locations with the natural resource of geography to take advantage of aircraft design (6hr ranges) there are now 4(!) carriers employing the same strategy: which is great for consumers as fares are dropping out of many more ports. To say no one has copied them is to be deliberately obtuse: one carrier started it from the ME, Emirates, and then 3 more copied them. Emirates copied SQ, CX and KL. No one copied them because if we go back any further we are going to reach the industrial revolution and pre-invention of aviation. |
Originally Posted by lighthand
(Post 24705361)
The ponzi scam suggested does not hold water, cause EK is dealing with international creditors for fuel, parts, planes, technical services, airport catering, etc. Unless all the creditors are also in on the scam, I just don't see the benefit.
Maybe someone can throw light on this. |
Originally Posted by iahphx
(Post 24712100)
Whether they are good "investments" is often debatable.
Like Vladimir Putin just spend a lot of money in Sochi. Was it worth it? Most say "no," but that didn't stop him. Vladimir 'Tim' Putin invested only about $10 million into the Olympic Games, the games made a huge profit from operations despite selling only about 60% of all available tickets. Luckily, the break even load factor for the games in Sotchi was in the high 50's. |
Originally Posted by lighthand
(Post 24708441)
Seems like no one on team "scam", is giving an answer to my questions:
1. Where is the money coming from? 2. What's in it for Dubai gov? EK horded a lot of cash... resulting from super low yields and load factors in the low 60's. :D This fact alone is an all-time primer and makes all the apologists look like fools (I am really sorry for being so blunt, what this one is really too good) Additionally, there are desperately trying to get on the map, Qatar has a $30 billion plan for the time period until 2030 and costs (aka losses from operating a fleet) for the airline are part of it. |
Originally Posted by irishguy28
(Post 24708080)
In 2010/11 the average load factor was 80% Where is this number coming from? :p |
Originally Posted by FD1971
(Post 24713565)
Are you sure? ;)
Where is this number coming from? :p Until you do - you have already seen my source; prove me wrong by showing me your credible alternate source. |
We discussed the fact that EK's financial publications are a bit short and lack substantial information about all side-business' and financing. ;) There is absolutely no doubt however that the information they publish is rock-solid, reminds of the GDR somehow... For more information, I suggest reading the material the US3 published over the last couple of weeks. ^ |
Originally Posted by irishguy28
(Post 24713586)
Please, feel free to show your evidence that the number is wrong.
Until you do - you have already seen my source; prove me wrong by showing me your credible alternate source. I was reading the wrong column (Sorry, I was still laughing at the BELF of 59.9..., cannot stop laughing, started already yesterday. :D) |
Wer andere Leute zitiert, hat selbst nicht viel zu sagen
Perhaps I've figured out your reluctance to cite your data? :D |
Originally Posted by FD1971
(Post 24713592)
For more information, I suggest reading the material the US3 published over the last couple of weeks. ^
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