An Italian Court handed Dubai-based Emirates a stinging defeat yesterday, holding that the carrier could not operate its Fifth Freedom Route between New York and Milan.
It all boils down to this–there is a very real (and valid) fear amongst U.S. and European carriers that the Gulf carriers will eat up yields on profitable routes, adding excess capacity and driving down prices while offering a superior product and greater ease of connectivity in fortress hubs. With low labor costs and seemingly unlimited capital, carriers like Emirates and Etihad are mulling over an aggressive Fifth Freedom expansion (flying between two foreign countries during flights while the flight originates or ends in one’s own country, such as New York to Dubai with a stop in Milan). Airports in Germany, Spain, Great Britain, Sweden and Denmark have all approached Emirates about stopovers on North America – Dubai routes.
Perpetually cash-strapped Alitalia and even healthy profiteers like Delta Air Lines don’t want the competition. Delta, avoiding being honest, masks the issue as a plight for the workers of Italy and America, saying Emirates continued presence on the New York – Milan route “could significantly harm U.S. and Italian airline employees by adding unneeded capacity on an already-competitive market.”
Unneeded according to who? I think consumers like the cheaper prices and increased options between JFK and MXP. I think consumers like having a better business class product than Delta and a true first class product. I think consumers might prefer even coach service on Emirates to that of American, Delta, and Alitalia, which also offer non-stop service on this route.
Not surprisingly, Alitalia has been quiet on this. Alitalia is bleeding red ink and Abu Dhabi-based Etihad has stepped forward to purchase a 49% stake in the Italian airline.
Ironic, isn’t it? The very carriers that are charged with destroying jobs might be the savior of Alitalia, even if it means some FAs and pilots will lose their jobs to lower-paid workers from the UAE.
Emirates does have redress options. The likely course of action is appealing yetserday’s decision to Italy’s Supreme Administrative Court. It is not clear whether Emirates must immediately suspend the route or can continue to operate it while the appeal is pending.
I am not yet an expert in EU Aviation law, but what seems odd to me is that Emirates did not just start operating this route in the middle of night. Rather, they obtained permission from the Italian government to run it–
On the 8th of April [2013], the Italian Civil Aviation Authority (ENAC) has authorized the proposed services on an extra bilateral basis, thus granting the fast growing UAE carrier rights to land in Italian territory, and board passengers travelling on to a third state, the U.S., where the passengers disembark (also known as “beyond rights”).
The Italian Civil Aviation Authority has the statutory power, as far as I can tell, to do what it did last April in granting permission to Emirates to operate the New York to Milan route. So, the court’s reasoning doesn’t make it sense–not that I can read Italian. But the court seemed to agree with a purely protectionist argument that–
“These authorizations, technically “free air ” are in fact reserved to national carriers by international treaties, EU and the countries of destination. In no state is even conceivable concession to the non-EU companies…In Italy this was done without any consideration for national carriers and in addition on routes, such as between Malpensa and New York, already abundantly served by Italian and U.S. airlines.”
So Emirates expansion plans may be stalled and the people of Milan might soon face one fewer choice and more expensive airfare between the U.S. and Italy. And who is going to want to do business with a country that encourages infrastructure investment then kicks the investors out?
Fifth freedom flights can be controversial, but the benefits of greater competition and service to the countries often outweighs the threat to their own carriers.
Emirates have three A380’s a day flying the trans-tasman route and both Australia & NZ welcome the extra capacity on these busy routes.
Nice article, some comments
The Italian court TAR ruled that the route is incompatible with European law, but has NOT forced Emirates to drop the MXP-JFK route yet — it’s still bookable on Emirates.com.
Agreed 100% on Delta being cagey about the whole situation. I’m kind of over this whole passive aggressive nature the carrier exudes on a public front. Like, everyone knows you’re trying to act in your best interests, yet you state other intentions under a thin veil, at best.
Alitalia has indeed been quiet, but they did raise the legal challenge. I do agree it is ironic given their possible relationship with EY and how Etihad will naturally side with EK on the situation.
To be honest, this is all just another form of protectionism and double-standard behavior on behalf of the EU and the dissatisfaction with their current situation. Ironically, they are rallying against newer, leaner airlines that have developed business models that largely replicate what they (the EU carriers) initially created back in the 1980’s and 1990s: massive transportation hubs designed to connect long and short-haul markets at major cross-road airports in the world.
Unfortunately, what happened over time is that European airlines failed to work closely with their respective governments to insure that balances were kept in check. Whereas the Middle Eastern governments are largely hands-off, pro-airline entities, granting autonomy to their local airlines, the European ones have allowed their airlines to become saddled with inefficiencies, pertaining to labor and airport costs, among other things.
Maybe they will just buy Alitalia and use it to create “hubs” in Europe. Seems silly but I know why they fight it.
Nice post. Thanks.
Thanks all for your comments.
@Rohan–Good points. Living in Frankfurt, I see the two-edged sword of FRA–I see the issue of industrial action, bloated pensions, and a system with high legacy costs versus an airport that is still world-class, though not as much as it once was. Lufthansa is so 2000s to me–it needs to catch up but now it cannot afford it. It seems to me that many European legacies are in the same boat.
I am surprised that in Open Skies, EU agreed to let U.S. carriers operate “domestically” within Europe with no reciprocal benefit to EU carriers in the USA.