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Sun 24 Apr 2011 12:00 AM

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Europe should fear the rise of Gulf carriers

State-backed carriers are free to undercut their European rivals, says AEA boss

Europe should fear the rise of Gulf carriers
(Getty Images)
Europe should fear the rise of Gulf carriers
Akbar Al Baker

I would like to respond to the comments of Akbar Al Baker, CEO of Qatar Airways, in the last issue of Aviation Business magazine, which referenced my speech at the International Aviation Club in Washington earlier this year. During this event, I was addressing a predominantly US audience on European perspectives for aviation in the coming year.

It would be foolish for me to pretend that the Gulf carriers are not a concern to AEA members, and I tailored my speech accordingly. The fact that it has provoked a strong response from Mr Al Baker does not surprise me. The other two of the Gulf ‘Big 3’ – Emirates and Etihad – have been launching ‘pre-emptive strikes’ against the European carriers for some months now, protesting in the loudest of terms their unblemished competitive character. Now the Qatar CEO has joined in the chorus of indignation and I find his arguments unconvincing, just as I have found the arguments of the UAE carriers unconvincing.

The Gulf is a booming region, of that there is no doubt, and the governments recognise the importance of aviation to their economic and social development. But the present and more importantly the future capacity on routes between the Gulf and Europe far exceeds the needs of the local market. Akbar Al Baker will never persuade me that his country of 1.7 million ‘needs’ an airline with the long-haul capability of British Airways, Air France or Lufthansa, yet this is precisely what Qatar’s orderbook amounts to. I am even less persuaded when just down the highway, two other carriers have equal or even more grandiose ambitions.

Of course, the Gulf Big 3 argue that they are merely leveraging their geographical position astride the major trade routes, and targeting transfer traffic in the same way that European and South East Asian carriers have traditionally done. This is fine, so long as the playing-field is level. The problem is that we do not believe that there is a level playing-field between the European and the Gulf carriers.

How can we believe that, when our competitors are institutionally linked with their governments and regulatory bodies, their airports and service providers?  When there are no meaningful competition rules, no consumer-protection rules, as we have in Europe? When we have no choice of ground handler, or catering supplier, where we can only conduct business through an appointed sales agent, where we may not recruit from the local airlines?

Mr Al Baker asks how I can maintain that his airline, along with Etihad, has never made a profit, when I cannot possibly know since they don’t publish their accounts. I cordially invite him to open his books and prove me wrong. But this is beside the point; the order commitments of all three airlines represent a mountain of debt liabilities which, when measured against the companies’ net worth, are incompatible with the rational investor principles which underpin the competition rules that European airlines are expected to observe.

Contrary to his recent assertions, we Europeans are not afraid of competition. Our sector was liberalised in 1993, so we have close to 20 years’ experience of operating as commercial enterprises rather than national institutions. We find no such corresponding rules in the Middle East region with which we can build a common framework.

We have now heard all three CEOs of the Gulf mega-carriers, or mega-carriers-to-be, telling us Europeans that the problem is entirely on our side, and that if our governments really understood the importance of aviation, they would support us in the same way. Indeed, those are sentiments with which I can readily identify. However, we have no wish to turn the clocks back 20 years. Instead, we struggle to convince our politicians that the benefits of aviation to their citizens will best be preserved by an insistence on an international level playing-field.

Ulrich Schulte-Strathaus is secretary general, Association of European Airlines (AEA).

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Keempoy 9 years ago

it's very pity that EU Airlines are looking ME Airlines as threat instead of opportunities on their own back yard. Why don't you review your Company's strategy instead of looking for the others advantages. You have to accept that business a like has ups and downs, may be for the past few decades, your business are flourishing because there are no competitions but now that there are airlines willing to take the risk of competing with you. it's all about the products you are providing to your Customers, may be your products are not fit now since the life style of traveling public are changing, you have to change your marketing and products to compete with the others.

Nazih Mauge 9 years ago

Mr. Ulrich Schulte-Strathaus, I am realy surprised of ur statment, i do agree with mr keempoy:
it's all about the products you are providing to your Customers, may be your products are not fit now since the life style of traveling public are changing, you have to change your marketing and products to compete with the others.

John 9 years ago

I enjoyed reading Mr. Schulte-Strathaus' very eloquent letter.

Although I am an employee of a major Middle Eastern air carrier and, in general, a very pro-business minded person, I agree with his points and understand the recent move by various national governments to deny additional traffic rights to certain countries in the region.

My problem with certain GCC air carriers is that they appear not to be behaving in accordance with rational business principles and protected from normal market disciplines. This results in a markedly unbalanced playing field vis-à-vis foreign airlines.

Furthermore, the carriers of certain GCC countries would be reasonably expected to offer a level of service to such an extent that competition in some markets/routes would be significantly reduced or effectively eliminated resulting in a net loss for the other country. We are talking about the "dumping" of seats on certain markets.

I appreciate Arabian Business for allowing both views to be aired.

Romesh 9 years ago

Ulrich Schulte-Strathaus you will never understand business. We do not agree with your points - even Europe has a limited choice of Ground handlers and Caters who being the same company float subsidary companies. People prefer flying with the so called big 3 because of the unbiased service they offer .

Peter Avis 9 years ago

And how competitive was it for Lufthansa to recieve a 500million Euro hand out from the state to buy Austrian?.

Emirates has only ever recieved a 10million dollar start up cosy back in 1985 (repayed in 1986).

EU Carriers do not provide consumers with good value..If Gulf carriers can fill up their planes...good luck to them