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Gulf airlines take on ‘subsidy’ claim

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Airlines in the US and Europe complain that the Big Three Gulf carriers benefit from unfair state support from oil-rich governments.

When asked this week at the World Route Development Forum in Chicago for his advice to US airlines concerned about the rise of Middle East carriers, Emirates Airline president Tim Clark said, “Don’t worry about us. Get on with the job. Focus on what you’re doing.”

But airlines in the US and Europe are indeed worried about Dubai-based Emirates, Abu Dhabi-based Etihad Airways and Doha-based Qatar Airways, and complain that all three benefit from unfair state support from oil-rich governments. The “Big Three” Gulf airlines are aggressively expanding, adding more US and European destinations and trying to convince Americans and Europeans they can fly anywhere in the world one-stop via lavish Middle East hub airports on shiny, comfortable new aircraft with top amenities.

During a visit to Washington DC earlier this month, American Airlines chairman and CEO Doug Parker said, “The Gulf carriers … are encouraged by their governments to grow and are given everything they need to grow—perhaps by subsidies, but nevertheless, we have these regions with no home markets and relatively small economies and their airlines are buying the most airplanes in the world and flying over cities to connect people.”

Emirates currently serves nine US airports and “there are more coming,” Clark said. The US routes generate about 7% of the airline’s revenue. Etihad, meanwhile, flies to six US airports and will operate 45 weekly flights to the US by the end of 2014. Dallas/Fort Worth became Qatar’s seventh US destination over the summer. (Earlier this year, the airline celebrated the inauguration of Miami service with a gala dinner featuring a performance by the singer Gloria Estefan.)

Etihad chief strategy and planning officer Kevin Knight, also speaking at the Chicago conference, decried “a resurgence of protectionist sentiment, particularly here in the US and Europe.”

Clark asked, “Why would [US airlines] be concerned about something that’s good for consumers, good for the industry, good for the cities being served?”

He said US and European airlines’ contention that United Arab Emirates carriers Emirates and Etihad are heavily subsidized is “so far from the truth.” Yes, Clark acknowledged, the Dubai government gave Emirates startup capital in 1985, but he said it told the airline’s management, “You must compete like everyone else.”

Emirates operates “without any state government involvement at all expect that the government of Dubai is very proud of Emirates” and “recognizes the criticalities of what we do,” Clark said. And there, of course, is the crux of the dispute over whether Emirates is subsidized. “If there is any subsidy, if you call it that, it’s because the [Dubai] government does the right thing by aviation,” Clark said. That means significant investments in infrastructure such as the $33 billion expansion planned for Dubai’s Al Maktoum International Airport. The expansion was approved this month—less than a year after Dubai’s second multi-billion dollar airport opened for passenger traffic.

Dubai believes nearly one-third of its entire GDP will be made up of aviation and aviation-related activities by 2020.

Airlines in the US and Europe, which often fight for space at capacity-constrained airports and battle government regulations they believe hurt their profitability, are flabbergasted by the backing Emirates receives from Dubai, even if, as Clark contends, it doesn’t come in the form of direct “subsidies.”

“Government support comes in many ways,” Clark said. “The government of Dubai and the government of Abu Dhabi and the government of Qatar understand what aviation can do” for an economy.

“Our industry is ferociously competitive,” United Airlines vice chairman Jim Compton said in Chicago, adding that Middle East carriers “benefit from positive rather than detrimental national aviation policies.”

Knight said that, beyond favorable aviation policies, Etihad gets no direct benefits from being owned by the Abu Dhabi government. “We get no free fuel,” he said. “We pay for fuel at market rates just like everyone else.”

Brian Havel, the director of the International Aviation Law Institute at Chicago’s DePaul University, said “open skies seems to have reached a peak and a lot of the European carriers” are pushing the European Union to limit Gulf airlines’ market access. “If airlines want to ask for less regulation, then why are they also asking for the government to intervene when they see competition from certain regions?” he asked. “It’s no wonder governments think they’re getting mixed signals from airlines.”

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