Consolidation not the answer, says Emirates

DUBAI – In the latest edition of its corporate newsletter, Open Sky, Emirates examines airline competition – the forgotten ‘C’ of the global credit crisis.

The airline asks the question: has the importance of competition in our industry been lost in the smoke of a global economic firestorm? The article goes on:

Over the past 12 months we have witnessed consolidation of airlines on an unprecedented scale: the airline map of Europe and the world is being re-made.

The speed and nature of this consolidation forces us to ask if the consequences have been fully thought through.

We (Emirates) are not opposed to consolidation in our industry and these are undoubtedly extraordinary times. The historic low entry-point for establishing a new airline created many distorted market anomalies.

The political passion some governments had, and still often have, for a national flag carrier is another distortion.

Failing airlines should not be propped up further. As Steve Ridgway, CEO of Virgin Atlantic, aptly said: “Airlines are not banks. Nobody puts their life savings into an airline ticket or borrows their mortgage from a low-cost carrier.”

And cutting unwanted, unprofitable capacity will make us a more efficient sector with a younger fleet age.

However we argue that politicians and competition regulators must maintain a more vigilant watch to ensure a balance is struck between consolidation, necessary clean-out and the creation of 21st century monopolies.

We must ensure that this current crisis is not a smoke screen used to secure anti-competitive outcomes against the consumer interest.

And we believe policy makers in aviation need to assess the
long-term impact of consolidating and, importantly, expanding airline alliances on the competitive landscape.

Simply put, special protection should not be granted to ease the immediate challenges of this very difficult economic cycle.

Emirates has never belonged to, nor has any plans to join an alliance. We see them as having significant anti-competitive elements and believe that our membership in one would be an artificial speed brake on our own business plans.

Unless you are the lead participant in an alliance, such as Lufthansa in Star Alliance or Air France in SkyTeam, individual airline members are compromised by their implicit or implied collective decision making.

Others like former American Airlines CEO, Robert Crandall, have questioned whether consolidation is the panacea for the industry which many suggest.

He said: “If consolidation were really the answer, it is conceivable that the system could be run by a single efficient operator. However, consumers clearly benefit from the existence of multiple airlines, the absence of alternatives does not encourage good customer service.

Thus, our goal should be to harness competition and regulation to create a system responsive to both the imperative of efficiency and the desirability of decent service.”

Let’s consider Lufthansa. They are a highly successful, very profitable airline, having grown dramatically to be now possibly the world’s largest aviation group. This success deserves recognition.

They are also the airline most aggressively pursuing mass consolidation.

In the past few years they have added large or majority shareholdings to their stable to include Swiss, Brussels Airlines, Jet Blue, Eurowings, bmi, LuxAir, Air Dolomiti, Condor and now Austrian Airlines.

They are also the lead carrier in Star Alliance.

We do not deny Lufthansa their right to expand and grow as they see fit, but we do challenge policy makers to more seriously analyse the outcomes of recent consolidation and the impact of alliances on the competitive environment in 2009 and beyond.

The entry level for new airlines, for example, is many rungs higher on the ladder now given so many countries and regions face the prospect of consolidated carriers dominating their markets – irrespective of the so-called ‘remedies’ agreed to as part of regulatory approvals.

Consolidation like we are witnessing in 2008 and 2009 also presents a threat to the future of regional or secondary airports.

The great hubs of the world – Frankfurt, Heathrow, JFK – will always prosper, but the thinner economics of markets like say Brisbane, Nice, Newcastle or Stuttgart can be exposed and negatively impacted by consolidation.

We also find it disingenuous that some leading alliance airlines remain determined to thwart other non-alliance carriers like Emirates from providing fair and reasonable competition through their lobbying for state protection via air traffic rights.

Emirates believes competition is the forgotten story of the economic maelstrom of 2008 and now, 2009.

We ask media, policy makers, airlines and competition authorities to not overlook this point, particularly as we witness more stories on consolidation each and every month.

Some in Brussels have told Emirates that there is only room for two or three airline groupings in Europe. We disagree with this statement – but even if it becomes a fact, competition from other quarters will be more important than ever.

Of course this is self-interest on our behalf, but we think the arguments are sound.

Fair market access and open competition is good for Emirates, consumers and the global economy.

In the midst of an unparalleled consolidation of our industry and extraordinary economic times, we argue the merits of competition are more important than ever.