Chicago Biz Journal: UAL suddenly making headway reining in Middle East carriers
Jan 30, 2018, 10:05 am
#1
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Chicago Biz Journal: UAL suddenly making headway reining in Middle East carriers
https://www.bizjournals.com/chicago/...eining-in.html
By Lewis Lazare – Reporter, Chicago Business Journal
Jan 29, 2018, 10:29am
United Airlines executives could have reason to cheer — at least a little — this week. President Donald Trump's administration is expected to announce on Tuesday that it has reached a deal that will help level the playing field for U.S. carriers such as United and Qatar Airways.
The Doha, Qatar-based carrier has agreed — sources close to the developments confirm — not to initiate any indirect flights between the United States and other countries but instead fly only between the United States and its home base in Doha. The deal also calls for Qatar Airways to adopt international accounting standards that will make the carrier's finances less of a mystery than has been the case in the past.
By Lewis Lazare – Reporter, Chicago Business Journal
Jan 29, 2018, 10:29am
United Airlines executives could have reason to cheer — at least a little — this week. President Donald Trump's administration is expected to announce on Tuesday that it has reached a deal that will help level the playing field for U.S. carriers such as United and Qatar Airways.
The Doha, Qatar-based carrier has agreed — sources close to the developments confirm — not to initiate any indirect flights between the United States and other countries but instead fly only between the United States and its home base in Doha. The deal also calls for Qatar Airways to adopt international accounting standards that will make the carrier's finances less of a mystery than has been the case in the past.
You can't re-orient your economy from oil to dominating world air travel without pushback from the largest and most wealthy country on the planet. Tens of billions in government subsides, direct cash infusions, and zero-interest loans cannot be obfuscated by hiding behind your onboard product. Having the world's absolute worst worker benefits/protections only sealed the deal.
It's clear to me Qatar is [as always] being smart and prudent, however, and has larger ambitions beyond air travel - that is, to re-orient itself in some capacity with the Western economic order over the next 30 years. Watch.
Jan 30, 2018, 10:46 am
#2
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What is an ‘indirect’ flight, and what exactly is the impact.? My guess is nothing, unless they won’t be allowed to connect people through DOH.
So QR won’t fly, say IAD-BOM nonstop, which they probavly can’t do anyway. And they won’t fly IAD-DOH-BOM with the same aircraft and flight number. Are they saying they also won’t fly a pax IAD-DOH and DOH-BOM on connecting but different flights. If the latter, I only see thus limits their US business to way fewer flights than they currently have, and will probably backfire on the US by having fewer flights, fewer employees here (contract or otherwise, either way, fewer US jobs), less $ pumped into our economy, etc. and also likely lead to higher fares for US pax going to one of these destinations due to less competition. Am I missing something?
Lets not also forget that US carriers also pull in passengers connecting through the US flying to other countries, such as, say, YYZ-SYD, but flying on UA via SFO. If other country carriers are expected to stop ‘indirect’ flights, wouldn’t they presumably demand US carriers stop doing the same. This sounds like a lose proposition for everyone.
Also, not sure specifically why this is tied to UA - seems this would have about the same effect on the major US carriers that fly internationally.
So QR won’t fly, say IAD-BOM nonstop, which they probavly can’t do anyway. And they won’t fly IAD-DOH-BOM with the same aircraft and flight number. Are they saying they also won’t fly a pax IAD-DOH and DOH-BOM on connecting but different flights. If the latter, I only see thus limits their US business to way fewer flights than they currently have, and will probably backfire on the US by having fewer flights, fewer employees here (contract or otherwise, either way, fewer US jobs), less $ pumped into our economy, etc. and also likely lead to higher fares for US pax going to one of these destinations due to less competition. Am I missing something?
Lets not also forget that US carriers also pull in passengers connecting through the US flying to other countries, such as, say, YYZ-SYD, but flying on UA via SFO. If other country carriers are expected to stop ‘indirect’ flights, wouldn’t they presumably demand US carriers stop doing the same. This sounds like a lose proposition for everyone.
Also, not sure specifically why this is tied to UA - seems this would have about the same effect on the major US carriers that fly internationally.
Jan 30, 2018, 10:53 am
#3
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no - they're saying they wont operate USA-Europe-Doha routes.
Emirates flies nonstop from JFK to Milan and from Newark to Athens. Those flights then continue on to Dubai. This is in addition to nonstop JFK and Newark to Dubai flights. Qatar is simply saying they wont do anythign like that. They will only fly nonstop to Doha. Then from Doha offer connections to wherever else in teh world they fly (mostly, people from the US are going to destinations in India, Pakistan, Bangladesh and other places that US carriers and their partners dont go to). That part is not changing.
Emirates flies nonstop from JFK to Milan and from Newark to Athens. Those flights then continue on to Dubai. This is in addition to nonstop JFK and Newark to Dubai flights. Qatar is simply saying they wont do anythign like that. They will only fly nonstop to Doha. Then from Doha offer connections to wherever else in teh world they fly (mostly, people from the US are going to destinations in India, Pakistan, Bangladesh and other places that US carriers and their partners dont go to). That part is not changing.
What is an ‘indirect’ flight, and what exactly is the impact.? My guess is nothing, unless they won’t be allowed to connect people through DOH.
So QR won’t fly, say IAD-BOM nonstop, which they probavly can’t do anyway. And they won’t fly IAD-DOH-BOM with the same aircraft and flight number. Are they saying they also won’t fly a pax IAD-DOH and DOH-BOM on connecting but different flights. If the latter, I only see thus limits their US business to way fewer flights than they currently have, and will probably backfire on the US by having fewer flights, fewer employees here (contract or otherwise, either way, fewer US jobs), less $ pumped into our economy, etc. and also likely lead to higher fares for US pax going to one of these destinations due to less competition. Am I missing something?
Lets not also forget that US carriers also pull in passengers connecting through the US flying to other countries, such as, say, YYZ-SYD, but flying on UA via SFO. If other country carriers are expected to stop ‘indirect’ flights, wouldn’t they presumably demand US carriers stop doing the same. This sounds like a lose proposition for everyone.
Also, not sure specifically why this is tied to UA - seems this would have about the same effect on the major US carriers that fly internationally.
So QR won’t fly, say IAD-BOM nonstop, which they probavly can’t do anyway. And they won’t fly IAD-DOH-BOM with the same aircraft and flight number. Are they saying they also won’t fly a pax IAD-DOH and DOH-BOM on connecting but different flights. If the latter, I only see thus limits their US business to way fewer flights than they currently have, and will probably backfire on the US by having fewer flights, fewer employees here (contract or otherwise, either way, fewer US jobs), less $ pumped into our economy, etc. and also likely lead to higher fares for US pax going to one of these destinations due to less competition. Am I missing something?
Lets not also forget that US carriers also pull in passengers connecting through the US flying to other countries, such as, say, YYZ-SYD, but flying on UA via SFO. If other country carriers are expected to stop ‘indirect’ flights, wouldn’t they presumably demand US carriers stop doing the same. This sounds like a lose proposition for everyone.
Also, not sure specifically why this is tied to UA - seems this would have about the same effect on the major US carriers that fly internationally.
Jan 30, 2018, 11:09 am
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They do mention EK in the end:
Sources said Tillerson and his team, with a deal with Qatar in hand, are turning their attention to getting a similar agreement with both Emirates and Etihad. But given Emirates' aggressive stance on operating flights from the United States with intermediate stops, such a deal may prove much harder to get.
Right now, however, sources within the partnership are loudly applauding the progress Tillerson and the Trump administration have made on reining in the Middle East carriers.
Right now, however, sources within the partnership are loudly applauding the progress Tillerson and the Trump administration have made on reining in the Middle East carriers.
Jan 30, 2018, 11:47 am
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While this is more industry and US aviation policy-related than strictly a UAL matter, I think QR clearly is in a vulnerable position given the ongoing Qatar-GCC crisis and is perhaps most motivated to 'play nice' with the US.
I am less optimistic about the prospects of EK agreeing to such a deal.
I am less optimistic about the prospects of EK agreeing to such a deal.
Jan 30, 2018, 2:08 pm
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While this is more industry and US aviation policy-related than strictly a UAL matter, I think QR clearly is in a vulnerable position given the ongoing Qatar-GCC crisis and is perhaps most motivated to 'play nice' with the US.
I am less optimistic about the prospects of EK agreeing to such a deal.
I am less optimistic about the prospects of EK agreeing to such a deal.
The us3 all have substandard J product (UA being the most substandard) and not so hot Y product either (with DL having the best, AA having PE rolled out more, and UA now the worst by far, with AA trying to catch up). They are getting bitten on the low end by the Norweigans of the world, and on the top end by quality airlines like the ME3, and QR deciding not to add a few USA-Europe flights is not going to change the fundamental equation. For the us3 to be competitive they are going to have to go back to their now gutted loyalty programs, and make it worth while to fly (improved) J/Y on them vs the ME3. Unfortunately they are all trying to run 12-14-16% margins (with UA then failing at it...) and trying to run that level of profitability, in the face of competitors wiling to invest more of the $$$ into passanger experience, and take a lesser profit margin, is a dead end.
Jan 30, 2018, 2:59 pm
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This is 110% what is going on. Qataris were quoted saying that the biggest mistake they ever made was not giving Kushner the $500M loan that he wanted, but they turned down on business grounds. Ever since Trump lined up with the UAE/Saudis against them, they have been hosting stuff at the trump hotel, and now this. Giving up a flight or two to get the UAE/Saudis off their back is an easy decision. Its all politics.
The us3 all have substandard J product (UA being the most substandard) and not so hot Y product either (with DL having the best, AA having PE rolled out more, and UA now the worst by far, with AA trying to catch up). They are getting bitten on the low end by the Norweigans of the world, and on the top end by quality airlines like the ME3, and QR deciding not to add a few USA-Europe flights is not going to change the fundamental equation. For the us3 to be competitive they are going to have to go back to their now gutted loyalty programs, and make it worth while to fly (improved) J/Y on them vs the ME3. Unfortunately they are all trying to run 12-14-16% margins (with UA then failing at it...) and trying to run that level of profitability, in the face of competitors wiling to invest more of the $$$ into passanger experience, and take a lesser profit margin, is a dead end.
The us3 all have substandard J product (UA being the most substandard) and not so hot Y product either (with DL having the best, AA having PE rolled out more, and UA now the worst by far, with AA trying to catch up). They are getting bitten on the low end by the Norweigans of the world, and on the top end by quality airlines like the ME3, and QR deciding not to add a few USA-Europe flights is not going to change the fundamental equation. For the us3 to be competitive they are going to have to go back to their now gutted loyalty programs, and make it worth while to fly (improved) J/Y on them vs the ME3. Unfortunately they are all trying to run 12-14-16% margins (with UA then failing at it...) and trying to run that level of profitability, in the face of competitors wiling to invest more of the $$$ into passanger experience, and take a lesser profit margin, is a dead end.
Last edited by lotemblizej; Jan 30, 2018 at 3:09 pm
Jan 30, 2018, 5:47 pm
#9
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The heady growth days for the ME3 are behind them. This is an interesting discussion in 2007.
Qatar, Etihad, and Emirates grew capacity 1%, 2%, and 3% respectively in the last year, versus 11% - 16.2% annually 2011 - 2016.
https://www.ft.com/content/c8334df6-...2-e46f43c5825d
Etihad is the most financially unsound, in part due to its overextension via minority stakes in struggling airlines, and has already made serious cuts to its product, from charging for limo rides, to food and beverage.
It's already retrenched from San Francisco - leaving the hottest air travel market in the U.S. right now. If they can't make that work with subsidies and their 'superior' product, then it's a really tough road ahead.
https://www.bloomberg.com/news/artic...-s-competition
Emirates now charges for an advance seat assignment in Economy, something that's vital if you're flying on the backbone of its fleet - 777s with 10 abreast in Y. Meanwhile the new J product on those planes is an incredibly uncompetitive 2x3x2 configuration, one that will stick around for years to come.
And Qatar as noted above revealed its weaker position.
The more destabilizing new trend is the long haul LCCs in rapid growth mode - that's a new challenge for both the US3 and the ME3 - siphoning Europe origin vacation travelers to the Americas and Asia. The ME3s best hope is a march upward in crude that hurts the European LCCs and replenishes the coffers of their backing states.
I'm not calling for their ultimate demise, but consolidation is a real possibility, and with much slower growth they are not nearly as destabilizing as they were for the last 10 or 15 years.
Qatar, Etihad, and Emirates grew capacity 1%, 2%, and 3% respectively in the last year, versus 11% - 16.2% annually 2011 - 2016.
https://www.ft.com/content/c8334df6-...2-e46f43c5825d
Etihad is the most financially unsound, in part due to its overextension via minority stakes in struggling airlines, and has already made serious cuts to its product, from charging for limo rides, to food and beverage.
It's already retrenched from San Francisco - leaving the hottest air travel market in the U.S. right now. If they can't make that work with subsidies and their 'superior' product, then it's a really tough road ahead.
https://www.bloomberg.com/news/artic...-s-competition
Emirates now charges for an advance seat assignment in Economy, something that's vital if you're flying on the backbone of its fleet - 777s with 10 abreast in Y. Meanwhile the new J product on those planes is an incredibly uncompetitive 2x3x2 configuration, one that will stick around for years to come.
And Qatar as noted above revealed its weaker position.
The more destabilizing new trend is the long haul LCCs in rapid growth mode - that's a new challenge for both the US3 and the ME3 - siphoning Europe origin vacation travelers to the Americas and Asia. The ME3s best hope is a march upward in crude that hurts the European LCCs and replenishes the coffers of their backing states.
I'm not calling for their ultimate demise, but consolidation is a real possibility, and with much slower growth they are not nearly as destabilizing as they were for the last 10 or 15 years.
Jan 30, 2018, 7:57 pm
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Jan 30, 2018, 9:48 pm
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We'll see if D8's less than daily BFS-Newburgh works but that's hardly an apples to apples comparison with EWR.
Jan 30, 2018, 10:29 pm
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I thought I would post the key numbers, using EK as the e.g.:EK: $340m profit, on $23.2B in revenue = 1.5% profit. Invested $3.7B. 8% growth in passagner miles, 10% growth in capacity. https://www.emirates.com/media-centr...16-17-results# [Note they recorded a ($572M) currency impact, so their actual profit margin – absent exchange rates – was more like 5%] UA: $3B profit on $37.7B in revenue = 7. 9% margin. Invested $3.9B. 2% growth in passenger miles, 3% growth in capacity DL: $5.5B in profit on $41.2B in revenue = 13.3% margin. Invested: $850M. 2.2% growth in passenger miles, 1% growth in capacity. Big difference in total profitability, but also in investment.
I am not surprised that EK is now charging for seat assignments, its quite the rage. But UA - with its new bone crushing 3-4-3 777 configuration, which only gives 31" pitch and a slim line seat in Y - gives less, EK at least gives you 32" of pitch. And as I keep saying, the average EK passanger probably only weighs 70% of what the average UA passagner weighs, so its tight, but not as tight as it is next to Bob from Alabama with his 40" waist and 230lbs of fat... OTOH, the EK A380 is a wonderful bird, per seat width is 2.4" wider in the lower deck, and a fully 4.4" wider on the upper deck (than UA's 777s), and this is with standard aisles, unlike the 1" narrower ones on the 77W. And oh, EK offers 32-34" pitch. And if I fly EK, well I am going to get the A380 from SFO.
United (and AA, and to a lesser extend Delta) simply have nothing to compete at the higher end with, and can't compete on price at the low end.
I really think that this is where the us3 gutting the value of their FF programs has really been short sighted. I personally used to concentrate my flying on one airline, for status and to have usable reward miles, no more, our most recent trips were on airlines other than DL, and UA, airlines where I got little (or less) in the way of reward miles. And its not just me. My mom/step-dad used to concentrate their flying on United, they collected miles and were happy to be silver/gold. But with UA going downhill and not being able to use 75K to get a J reward, they gave up. Most recent trips were BA (in J), AA (in J), JAL (in J). My dad/step-mom did the same on DL, where my step-mom was gold/Plt for a number of years. But Skypesos are rather worthless, and most recent trips were EK (to J-berg) in Y, VS in PE, and LH in PE. They are not necessary unhappy with DL, but they are simply not tied in anymore.
Emirates now charges for an advance seat assignment in Economy, something that's vital if you're flying on the backbone of its fleet - 777s with 10 abreast in Y. Meanwhile the new J product on those planes is an incredibly uncompetitive 2x3x2 configuration, one that will stick around for years to come.
The more destabilizing new trend is the long haul LCCs in rapid growth mode - that's a new challenge for both the US3 and the ME3 - siphoning Europe origin vacation travelers to the Americas and Asia. .
The more destabilizing new trend is the long haul LCCs in rapid growth mode - that's a new challenge for both the US3 and the ME3 - siphoning Europe origin vacation travelers to the Americas and Asia. .
United (and AA, and to a lesser extend Delta) simply have nothing to compete at the higher end with, and can't compete on price at the low end.
I really think that this is where the us3 gutting the value of their FF programs has really been short sighted. I personally used to concentrate my flying on one airline, for status and to have usable reward miles, no more, our most recent trips were on airlines other than DL, and UA, airlines where I got little (or less) in the way of reward miles. And its not just me. My mom/step-dad used to concentrate their flying on United, they collected miles and were happy to be silver/gold. But with UA going downhill and not being able to use 75K to get a J reward, they gave up. Most recent trips were BA (in J), AA (in J), JAL (in J). My dad/step-mom did the same on DL, where my step-mom was gold/Plt for a number of years. But Skypesos are rather worthless, and most recent trips were EK (to J-berg) in Y, VS in PE, and LH in PE. They are not necessary unhappy with DL, but they are simply not tied in anymore.
Jan 30, 2018, 10:46 pm
#14
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I am not sure the ME3 is the main concern of the US3 these days. If the stats cerealmarketer states on ME3 capacity growth, then the US3 has won that battle. And although US cariers used to use their fifth freedom rights in Asia and Europe ala PA/TW/NW/DL/UA that has died with technology that allows nonstop flights to the farthest points US carriers fly - i.e. USA-SIN and USA-India. I would guess that a third EK DXB-XXX-USA would meet with opposition from the US and EK must be reading the Qatari concession carefully. To be transparent, I am not a fan of EK and IMHO MXP-JFK and ATH-EWR are routes that are not needed to be served by a ME carrier - although ATH-NYC in winter is not a route served by anyone else so for whatever EK is suffering on the route I suppose it is fulfilling a need for those who have no other nonstop options. The ME3 deserve a lot of credit for finding their market niche, sort of in the way Donald Trump became President of the USA (sorry to politicize), but I suspect in the longterm they will not be the main threat to the US aviation lines.
The real question is what will the be the impact of the long haul LCC's be on the financial statements of the US3. Can the likes of Norwegian really be another threat to the US3. Can the likes of the long haul LCC's be a threat to the US3? I'm not sure we have enough historical data to know? Time will tell.
Adam
The real question is what will the be the impact of the long haul LCC's be on the financial statements of the US3. Can the likes of Norwegian really be another threat to the US3. Can the likes of the long haul LCC's be a threat to the US3? I'm not sure we have enough historical data to know? Time will tell.
Adam
Last edited by adambrau; Jan 30, 2018 at 11:21 pm
Jan 31, 2018, 8:56 am
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I am not sure the ME3 is the main concern of the US3 these days. If the stats cerealmarketer states on ME3 capacity growth, then the US3 has won that battle. And although US cariers used to use their fifth freedom rights in Asia and Europe ala PA/TW/NW/DL/UA that has died with technology that allows nonstop flights to the farthest points US carriers fly - i.e. USA-SIN and USA-India. I would guess that a third EK DXB-XXX-USA would meet with opposition from the US and EK must be reading the Qatari concession carefully. To be transparent, I am not a fan of EK and IMHO MXP-JFK and ATH-EWR are routes that are not needed to be served by a ME carrier - although ATH-NYC in winter is not a route served by anyone else so for whatever EK is suffering on the route I suppose it is fulfilling a need for those who have no other nonstop options. The ME3 deserve a lot of credit for finding their market niche, sort of in the way Donald Trump became President of the USA (sorry to politicize), but I suspect in the longterm they will not be the main threat to the US aviation lines.
The real question is what will the be the impact of the long haul LCC's be on the financial statements of the US3. Can the likes of Norwegian really be another threat to the US3. Can the likes of the long haul LCC's be a threat to the US3? I'm not sure we have enough historical data to know? Time will tell.
Adam
The real question is what will the be the impact of the long haul LCC's be on the financial statements of the US3. Can the likes of Norwegian really be another threat to the US3. Can the likes of the long haul LCC's be a threat to the US3? I'm not sure we have enough historical data to know? Time will tell.
Adam