From the late 1980’s and onward, the three Gulf carriers, Etihad (Abu Dhabi), Emirates (Dubai) and Qatar Airways (Doha) have been in existence. Since the 90’s they have been starting to order plane after plane, growing bigger by the day.
At the time of writing, in 2017, Emirates Airlines alone operates almost 100 Airbus 380 aircraft, the biggest passenger airliner in the world carrying up to 800 passengers, while having another 50 on order.
Huge networks and capacity
With a network stretching from every continent to up to 8 daily flights between London and Dubai this airline, and its counterparts from Abi Dhabi and Doha who are using the same tactic are becoming the largest operators of the world, taking away a large amount of valuable passengers from the European Legacy airlines such as KLM, British Airways and Lufthansa.
These airlines claim that the Middle Eastern 3, receive illegal state funding and subsidies, cheap fuel and can operate tax-free, therefore destabilizing the global air transport market.
There are different reasons why the European Airlines should stop claiming unfair competition especially using the information provided by Emirates Airlines from Dubai. This essay will make a fair comparison why the operating environments of both parties are close to equal.
The startup fees
Startup fees are nothing new to infrastructural providers and have happened in Europe also. Contrary to what Lufthansa might claim, the 1920’s initiated huge investments from national governments in European Airlines, supplying planes, staffing, education and most importantly, landing rights.
Emirates was founded in 1985, with an initial start-up capital of US$10 million. From here, the airline was run without government interference and has seen major backing from private investment companies, the same companies investing in European Airlines.
Lufthansa, KLM, and British Airways originate from several smaller privately owned companies, which were struggling for existence in the late 20’s (Shaw, 2011). In the period the “nationalization” of many of these airlines and forced merging has occurred many times. Investing public capital in these ventures, many airlines have grown to the size they are today.
Free fuel?
Now that the first myth has been cracked its time to look at another claim made by the European airlines regarding unfair competition from the Gulf region.
One of the most common beliefs held by European and American Airlines is that the Gulf Carriers get their jet fuel for free or for discounted prices (Emirates Airlines, 2011).
This claim is false as figures provided by Emirates show that they source fuel from exactly the same companies other airlines buy their fuel from, Chevron, BP, Shell, and others. Maybe a discount might apply, but every airline negotiates fuel contracts and no evidence exists of unfair practices (Emirates Airlines, 2011).
Actually, the costs of fuel take a higher part of the revenue made by Emirates then it does at Lufthansa. Based on both year reports, it has become clear that Lufthansa spends 28% of its revenue on fuel while Emirates has to pay 37% of its revenue to fuel (Lufthansa, 2013) (The Emirates Group, 2013).
Spending like crazy
And with one mystery has been solved, finally, we look into the different expenditures of both airlines to see how much they differ from each other.
The biggest costs for airlines are staff, in a very staff intensive industry, having efficient staffing numbers may mean survival or not. This is the first notion in which Emirates seems to profit more than Lufthansa and it has all to with tax.
Dubai is tax-free, corporate or income tax does not exist. In fact, Emirates pays lower wages to its employees but supports them with free healthcare, living, and transport in Dubai, something the German flight attendants have to arrange for themselves. Now, how much profit is there still to gain for Emirates? (Emirates Airlines, 2011).
Finally, now the “staff-myth” has been busted, its time to look at one of the other big expenses of airlines, fees.
Every airline pays fees, for use of infrastructure and landing rights. Those fees differ per country but normally, airlines do not get discounts on them (Lufthansa, 2013).
Based on Lufthansa’s claim it has to pay roughly 30% more fees compared to Emirates. Emirates reveals that the fees in Dubai are cheap, but are equally priced for every airline who uses it! (Emirates Airlines, 2011)
So, unfair competition or not?
While the Gulf Carriers are a lot younger then their European counterparts they know how to move quickly in the competitive playing field that is aviation.
Having both received start-up funds in the past to get the business going, both companies are privately owned and invested companies who operate in the same field.
Emirates shows to have some advantages on its side but the effects of these seem minimal compared to Lufthansa. It does not show that any subsidies are provided to them.
It does show that the Middle East has provided a very favorable climate for airlines, especially in Dubai. Little taxes, cheap labor and low fees make that Emirates can operate efficiently and keep costs down. But isn’t a tax-free haven like the Bahamas not essentially the same?