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Marko Fischer

Berlin, January 22

nd

2014

Factors that contribute to the rapid growth of airlines from the Gulf region. In addition, analyse why European airlines consider Gulf carriers privileged. Illustrate how the Gulf carriers are a threat to EU airlines like Lufthansa. Whilst European legacy carriers have adapted to the liberalisation of air travel in Europe in the 1990s, with the rise of state-owned gulf carriers new rivals emerged, which now severely distort the principles of fair competition. The gulf airlines, namely Emirates, Etihad Airways and Qatar Airways, benefit from a competitive advantage due to a number of factors: 1) The governmental ownership of the entire aviation value chain, from the airline to the airport and all operational services, is contrary to the principle of fair competition and a liberal market. 2) Governmental subsidies exempt the gulf carriers from the need to offer a competitive service, allowing them to pursue an economically advantageous ticket pricing. 3) The gulf carriers are relieved of special aviation levies or emissions trading schemes on most of their flights. 4) Night curfews and similar operational restrictions or extensive labour regulations are unknown in the Gulf States. 5) Fuel is exceptionally inexpensive in the gulf region, thus permitting the gulf carriers to keep the greatest constrain on European airlines’ budgets limited. Additionally, the European Union or Germany unilaterally introduced further regulation, which increases the difficulty for European carriers to successfully compete against airlines, which are based in a more dynamically developing economic environment. The special aviation tax or the inner-European emissions trading system burden European airlines and either make air travel more expensive for passengers or reduce the margin of profit, which is vital for airline investment in green technology. Comparing the operations of Lufthansa and Emirates between Frankfurt and Beijing, the legitimate doubt regarding the unilateral emissions trading scheme becomes visible: When operating a direct flight between Frankfurt and Beijing, a distance of 7.799 kilometres, a Lufthansa flight emits 193 tons of CO2. Whereas Emirates emits 265 tons of CO2 when flying from Frankfurt to Beijing via Dubai, a total of 10.700 kilometres. However, the EU emissions trading systems charges Lufthansa for the entire 7.799 kilometres, whilst Emirates merely ought to purchase allowances for the partial route from Frankfurt to Dubai. The EU system thus made routes with lower CO2 emissions more expensive than those with a higher level of pollution. This example clearly demonstrates the need for a global agreement instead of autarchic action, which fails its purpose of environment tal protection. Furthermore, the gulf carriers are experiencing enormous growth, hence increasing their market share and capacity. From 2000 to 2011, Emirates’ capacity grew by 700%, whilst Qatar rose its own by 2.100%. Dubai airport is set to quadruple its passenger capacity in the coming years and the long-haul fleet of Emirates, currently nearly on par with Lufthansa, is forecasted to grow by 87%, whilst Lufthansa invests in a 28% expansion. In the past, the Middle Eastern airports managed to increase its share in the North America– India travel by more than a sevenfold. Europe currently represents 53%, whilst it initially represented 76% in 2005.


Marko Fischer This aggressive expansion pairs with a relatively sluggish prospect in Europe. Although air travel increased by roughly 2 per cent annually, earnings fell, airlines, such as Spainair or Cirrus air filed for bankruptcy, and Scandinavian Airlines as well as LOT were forced to receive governmental aid. Nevertheless, should European and global decision-makers agree upon comprehensive measures, which do include a global emission trading system, fair competition regulations and a reconsideration of currently levied taxes, the European airline industry will be able to further contribute to economic development in Europe.


Competition between European airlines and emerging gulf carriers