March 4, 2013
Middle East is new global travel crossroads
The Associated Press
Passengers walk in the new Concourse A of Dubai airport in Dubai, United Arab Emirates, Feb. 10.
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The Associated Press
Passengers wait to board an Emirates Airbus A380 aircraft at the new Concourse A of Dubai airport in Dubai, United Arab Emirates, Feb. 10.
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In Canada, the government has limited the number of planes that Etihad, Emirates and Qatar can land at its airports. The move protects Air Canada, and its partner Lufthansa, which have a good business flying Canadians to India, Africa and Asia.

Separately, Lufthansa has tried to block the Gulf carriers' access to German airports. Etihad responded by purchasing 29 percent of rival Air Berlin, gaining entry to key European cities. It also owns 40 percent of Air Seychelles and smaller stakes in Virgin Australia and Irish carrier Aer Lingus.

"Working against us or trying to isolate us will not succeed because there is a very clear vision behind these airlines and we will keep on expanding," said Qatar's CEO Akbar Al Baker.

There has been a recent thaw. Emirates struck a 10-year deal with Australian airline Qantas; Etihad partnered with Air France-KLM on some routes; and Qatar is joining a global airline marketing and frequent flier partnership headed up by American Airlines and British Airways.

Still, there is plenty of worry given the size of the Gulf airlines' jet orders and concerns that they are deeply subsidized by their governments.

European airlines have suggested that the Gulf carriers benefit from access to discounted oil, a favorable tax climate and non-union labor, particularly low-wage immigrant workers from India and Pakistan.

But the biggest perk comes from Middle East governments who are investing heavily in attractive, efficient airports.

The Qatari government is building a $15.5 billion airport in Doha, designed to handle 24 million people each year, nearly six times the capacity of the existing facility. In Abu Dhabi, the capital of the United Arab Emirates, the government is building a sprawling terminal twice the size of The Mall of America.

And construction was just completed in Dubai of a concourse designed exclusively for Emirates' fleet of Airbus A380s. The new building has entire floors dedicated to first and business class customers who board directly from lounges, never interacting with coach passengers.

"Governments here understand the power of connectivity to drive economies," said Tony Tyler, CEO of the International Air Transport Association, in a recent speech in Abu Dhabi.

The airlines deny getting special treatment.

Emirates got $10 million in startup cash from the government in 1985. The airline's president, Tim Clark, said his airline has had no assistance since and benefits from economies of scale. The airline reported a net profit of $628 million in its most recent fiscal year.

"People keep saying we're cheats," he said. "What they can't understand is that something could be as good and profitable as it has been without subsidies. You know why? Because they've all had subsidies themselves and they still can't make it."

Clark said the U.S. government subsidizes airlines by allowing them to wipe out debt in bankruptcy court. All three of the largest U.S. airlines -- American, Delta and United -- have used the courts in the past decade to restructure.

European airlines stand to lose the most business because of their geography, but that doesn't mean that U.S. carriers aren't watching closely.

The three Gulf airlines already fly to Chicago, Dallas, Houston, Los Angles, New York, San Francisco, Seattle and Washington and are adding flights at breakneck pace. The airlines aren't just dipping their toes into these markets; they are diving in, in some cases with giant double-deck Airbus A380s that can seat 489 passengers.

"I think they are a clear threat, much more so to our European and Asian colleagues, but nonetheless a threat to U.S. airlines as well," Jeff Smisek, CEO of United Continental Holdings Inc., said at an investor conference last March. "They have a very good product. And they have the total and absolute support of their governments."

The airlines are not household names yet, but they will be soon, analysts say.

United was a key sponsor of the U.S. Open tennis tournament for more than a decade. But last year, Emirates took over with a seven-year deal reported to have cost $90 million.

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