travel

Av i At i o n

AviAtion

Blockades on the new silk road

Gulf airlines are struggling to free themselves from a web of protectionism

by Martin Rivers thegulf@tradearabia.net

hen the United Arab emirates ambassador to Canada says that negotiating new air links between the two countries has been a protracted and frustrating process, he isnt kidding. half a decade of quarrelling reached boiling point last autumn in the form of a full-scale diplomatic crisis, with Canadas military being booted off emirati soil, and its citizens being hit by visa entry fees of up to C$1,000 (US$1,013). On the surface, the dispute hinges on UAe demands that two of its carriers emirates and etihad be allowed to increase flight frequencies to Toronto, as well as add new links to Calgary and Vancouver. But at stake is far more than the competitive threat such expansion poses to flag carrier Air Canada. The web of protectionism blocking a deal actually stretches beyond north America, spanning the Atlantic and ensconcing aviations former masters, the european legacy carriers. Under the terms of a 1999 agreement, the UAe can operate six weekly flights to Canada, all of which presently head for its largest city, Toronto. emirates and etihad argue these existing links are inadequate for the 27,000 Canadians living in the UAe, and so they have both been calling for daily connections. Rejecting their request, Canadas government says the UAe in reality has its heart set on capacity dumping
54

the closure of Camp Mirage, a staging post for Canadian military operations in Afghanistan, opened a Pandoras Box of political vitriol from which neither side has yet fully recovered
laying on surplus flights in order to drive down fares, thereby making it more difficult for competitors such as Air Canada to run profitable services. Once rival carriers ditch the routes, so the argument goes, emirates and etihad will ratchet up their ticket prices. Rumours of a possible deal surfaced last August, but any optimism was quickly stubbed out when it became clear that Toronto was to be ring-fenced from frequency increases. After that, the mood soured. A last-ditch attempt at compromise ended acrimoniously in September, with the UAes foreign minister reportedly describing it as the worst meeting of his professional life. Days later, the decision was taken not to renew the lease on Canadas secret air base in Dubai. The closure of Camp Mirage, a staging post for Canadian military operations in Afghanistan, opened a Pandoras Box of political vitriol from which neither side has yet fully recovered. Thats not how you treat allies, Canadian prime minister Stephen harper complained to the media. Could you imagine if after 9/11 the Americans had come to the Canadian government and said, We need help ... with security, [and we responded], Well only if you do something on [protectionist legislation] Buy America? I mean, give me a break. The Canadian press followed in kind, with The Calgary Herald running an editorial that accused the UAe of behaving like a two-year-old in the grocery store cookie aisle. For emiratis, with their predilection for closed-door diplomacy and public displays of allegiance, the rhetoric was a step too far. negotiations collapsed, and sources now say the issue of landing rights is effectively dead and buried. In its place, attention has turned to the economic cost of the disintegration of political relations. even setting aside the C$90 million bill
March 2011 | the gulf

Av i At i o n

travel

According to some analysts, accusations of foul play are merely a smokescreen for the real issue of hub protectionism
Gulf airlines enjoy unfair commercial advantages such as fuel subsidies, low airport charges and cheap finance for aircraft purchases. In the case of financing, many experts agree. The discount loans available to Gulf airlines via export credit agencies do indeed handicap France and Germany both of whom pay full market rates and the OeCD has begun remedying this imbalance through a phased overhaul of regulations. But the legacy carriers other objections seem tenuous. emirates is audited by PricewaterhouseCoopers every year, and no evidence has ever emerged that it relies on state support. According to some analysts, accusations of foul play are merely a smokescreen for the real issue of hub protectionism. After decades of funnelling international passengers through their bases in London, Frankfurt and Paris, legacy carriers have arguably come to regard themselves as the rightful beneficiaries of all connecting feeder traffic. But when offered the choice, Canadian travellers bound for South Asia typically prefer to stop over in Dubai rather than Frankfurt, as the overall flight time is shorter. This not only dampens demand for Air Canada services to Germany, it also impacts negatively on Lufthansa traffic to India. With passenger growth in the Middle east outpacing europe by 17.8 per cent to 5.1 per cent in 2010, the UAes geographical advantage as a pinch-point between east and West is beginning to bear fruit. Their full order books show that the Gulf airlines are well prepared for this sea-change in travel patterns, but planes can only be deployed with bilateral consent. If recent events are anything to go by, legacy carriers and their symbiotic alliance partners will be working overtime to stop such deals from happening. <
55

Going nowhere: the issue of Canadian landing rights for UAE airlines is dead for now

for relocating its troops to Germany, the fallout for Canada will be huge. Almost all of the C$1.5 billion in annual bilateral trade is in Ottawas favour, with the UAe spending lavishly on infrastructure projects that Canadian firms are primed to deliver. On a microcosmic level, Canadian attendance at trade shows is expected to fall as new visa charges of between C$250 and C$1,000 ward off business travellers. Indeed while Canadas government claims that adding more flights would cost the economy tens of thousands of jobs, there is strong evidence that the opposite may be true. emirates estimates some C$480 million in economic activity would be generated by flights from Dubai alone, and on average the UAes wealthy jetsetters spend C$10,000 per head, per week while on vacation. With public unease growing over the closed-skies policy, many observers have begun to draw parallels between Air Canadas stance and that of its Star
the gulf | March 2011

Alliance partners. Globally, the UAes General Civil Aviation Authority is re-negotiating air links with more than two dozen foreign governments. In France and Germany, home to two of europes busiest aviation hubs, the talks have not gone well. Paris did reluctantly agree to boost flights by 60 per cent in January, but only after the UAe put on ice plans to buy 60 French Rafale fighter jets. The situation is even more volatile in Germany. Flag carrier Lufthansa is embroiled in a war of words with emirates over its bid to start flights to Berlin and Stuttgart, which would bring to six the number of German cities on its route network. Despite Berlins mayor voicing support for direct flights, the federal government has so far blocked the move. When lobbying against emirates plans, Lufthansa sings from the same song sheet as the other european legacy carriers. They complain that