Emirates' New Athens Flights: A Sharp Poke in the Eye

Emirates' New Athens Flights: A Sharp Poke in the Eye
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Emirates' recent announcement that they would begin nonstop flights from Newark to Athens on March 12 struck many Washington aviation experts as remarkably bold, something like an "in your face" to the Trump administration, which has promised to put U.S. companies and their workers first. I don't know much about Washington political strategy, but I do know airlines, and Emirates' Athens route is yet another example of how that massively subsidized carrier is breaking the rules and distorting airline competition.

As has been amply demonstrated, these subsidies and unfair benefits -- totaling $6.8 billion for Emirates since 2004 -- violate the Open Skies agreement that gives the Dubai-based airline unlimited access to the U.S. market, damaging U.S. carriers, their employees, the communities they serve and their European joint-venture partners.

Nearly all of Emirates service from the U.S. is to their megahub in Dubai. Newark-Athens will be Emirates' second U.S.-Europe route -- its New York-Milan flights began in October 2013 -- using what are called "Fifth Freedom" traffic rights. A little background will help: unlike the deregulated domestic markets of the U.S., Canada, or the European Union, international flying is still regulated by country-to-country agreements that are similar to treaties. These so-called bilaterals have been around since 1944, when nations agreed to a set of principles that are called "freedoms of the air." The Fifth Freedom principle enables airlines to carry passengers between two foreign countries, provided that the flight begins in or continues on to the carrier's home country -- technically, the new Emirates service will be Dubai-Athens-Newark. The intermediate country, in this case Greece, must also approve the route.

Seven decades ago, airplane range was limited, fuel stops were needed, and airlines could not economically operate a long, multi-stop route without the right to carry "local" customers between countries. But as longer-range jets took to the sky, most carriers began reducing the number of Fifth Freedom flights. By contrast, Emirates is increasing the number of these flights. (Last spring, Hungary considered granting Emirates rights to operate Budapest-New York, but no formal announcement was made and the service has not begun.)

The U.S.-Athens airline market is not large. From metropolitan New York, Athens ranks 46th in international market size, about 1/10 the size of London. Unlike Emirates, with their wheelbarrows of government cash, Delta and United are real airlines with profit-seeking investors, bank debt, and other commercial realities, and only fly Athens in the summer (nonstop from JFK and Newark respectively).

Emirates' new Athens service thus follows the familiar pattern of all three Gulf mega-airlines. Instead of prudent network expansion, Gulf route planning becomes a question of where they strategically want to fly, rather than economic demand. Much of this is driven by their huge, unreal aircraft orders. As noted in the recent Bloomberg Businessweek feature, Emirates has commitments for 50 more A380s and 174 Boeing 777s beyond the 92 and 148, respectively, it currently flies. The short- - less than two months -- window between announcement and inaugural flight, and launching the route in late winter, well before the start of spring and summer tourist travel, add to the unreality. No profit-seeking airline would make such a move. Emirates route decisions seem based on little more analysis than "Boeing has just delivered another 777; where should we fly it?"

One of the myths about Emirates, repeated so often it's taken as fact, is that when they start a new route they actually stimulate demand, growing the market. But as veteran airline journalist Ted Reed noted last year in Forbes, "The Gulf carriers divert increasingly large numbers of passengers from U.S. carriers and European partners because massive subsidies have enabled them to build vast international route systems that increasingly are focused on growth in U.S. markets." When Emirates entered New York-Milan, even before they upsized from a 777 to 500-seat A380 in June 2015, U.S. carriers lost 13 points of market share directly to Emirates.

Writing in The Street last week, Mr. Reed was direct: "Subsidies violate Open Skies policy. Additionally, Open Skies agreements were generally intended to assure that U.S. carriers could fly to foreign countries and the foreign countries' airlines could serve the U.S. so that commercial air traffic could flow freely between two countries." Ted gets it.

It's pretty strange that Emirates would announce this new Athens route -- yet another, and certainly flagrant, violation of the U.S.-UAE Open Skies Agreement -- just as President Trump takes office. It almost seems like a dare; Emirates and the UAE may come to regret it.

It's time for the new administration to act.

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