Emirates President Tells US Airlines To Grow Up

Emirates’ president, Tim Clark, is one of the brightest guys in the airline industry. It’s incredible the airline he has helped build, and if I had to guess, Emirates is the one Gulf carrier that might actually be profitable. Emirates is the airline with the greatest brand recognition in the world, and it’s also the only airline that has been able to scale the A380 in a way that makes sense.

For years the “big three” US carriers have been attacking the “big three” Gulf carriers in a smear campaign, arguing that they’re subsidized (like a countless number of other airlines), and therefore should be stopped. This battle is dying off a bit now, as the US and Qatar have “settled” in a way that’s a victory for Qatar. With this deal, Qatar Airways agreed to using different accounting standards, and also said that they don’t have plans to add any fifth freedom flights to the US as of now. Delta’s CEO has suggested that Qatar Airways is the worst offender of the Open Skies agreement, so if that’s the worst “punishment,” then Emirates and Etihad should have an even easier time.

In a Business Insider interview yesterday, Tim Clark had some interesting things to say to American, Delta, and United:

“They need to grow up and we need to have a mature way of going about our business,” Clark told Business Insider in a recent interview.

“They haven’t got a leg to stand on so they go after this theater, this noise,” he added. “They put big banners up at the Atlanta Airport.”

Clark went on to compare the tactics employed by his rivals to the antics of a “three-year-old at the playground.”

But there’s substance to what he’s saying, beyond the shade. Specifically, he wants to work with American, Delta, and United, pointing out that when one of Emirates’ A380s lands in the US, lots of people want connecting flights that they can’t book on the same ticket, and that’s a loss for those airlines:

“The beneficiaries of Open Skies driven by the likes of us has been the US economy and that’s kindly marginalized in the US3’s narrative,” Clark told us. “We asked them to show competitive harm, but they won’t because they can’t.”

“It seems to be lost on them that this can work and make everybody happy,” he said. “For goodness sake, all of the business we bring across (the ocean). Don’t you think they’d want to go other places than Chicago?”

“Think about the feed we do give to my friend Robin Hayes who runs JetBlue in Fort Lauderdale, Miami, New York, and Boston,” Clark added. “And on the other side, I’ve got Brad Tilden with Alaska on Seattle and all the points down there.”

“What they’ve done is cut the interline deal,” Clark told us. “Emirates can’t sell tickets on any of them. I mean talk about cutting off your nose to spite your face.”

Clark is onto something here. It would probably be mutually beneficial for them to work together. However, I think the US airlines will continue to avoid these partnerships, as it allows them to continue to make their point while having relatively limited downside. Why is the downside fairly limited?

  • The interline traffic they’d be getting would probably be pretty low yield
  • Nowadays US airlines make most of their money on domestic flights from fees (checked bags, basic economy, etc.), and their revenue potential there is limited when interlining with a Gulf carrier, since passengers would receive free checked bags and wouldn’t be booking basic economy

So while it would be nice to see Emirates and the “big three” US carriers work together, unfortunately I don’t see it happening anytime soon…

Comments

  1. “Think about the feed we do give to my friend Robin Hayes who runs JetBlue in Fort Lauderdale, Miami, New York, and Boston,” Clark added. “And on the other side, I’ve got Brad Tilden with Alaska on Seattle and all the points down there.”

    I don’t think JetBlue flies to Miami, does it?

  2. Interline yield depends upon the SPA you put in place. AA in particular was notorious for extracting SPAs above market yield at their hubs to take advantage of their market dominance. Delta was more market aligned but wanted volume commitments and pmCO (which has given current UA most of it’s management) was the most open to working with foreign interlines.

    JetBlue dominates the inbound interline market today, which is ironic since they didn’t even have interline capabilities till they switched to Sabre platform a few years ago. They took the risk of higher segment sale costs of Sabre versus Navitaire to boost interlines and it seems to have paid off in spades.

  3. Neither Jetblue nor Emirates fly to Miami. However, they fly to the Miami metro area which is defined as all of South Florida. Although this is arguable, the code ZMA represents MIA, FLL, PBI. Many folks who are looking for deals and are in Miami go up to FLL to fly. Just look at some of the Spirit, Allegiant, JetBlue, Azul, and Emirates clientele. People in South Florida who are price sensitive (many leisure travelers) don’t mind driving an extra 45 minutes.

  4. ‘Nowadays US airlines make most of their money on domestic flights……’

    Exactly!!! Because they are utterly uncompetitive internationally nobody will fly them. So they just rip off the locals on domestic flights as thats the only thing left.

  5. A large majority of people who fly the ME3 travel to Indian subcontinent. Try looking up a flight from DTW/MSP/IND or other cities that don’t have direct service and you will realize how big of a boon it is for European based carriers.

    Emirates also forced Alaska to significantly devalue it’s mileage redemption and doesn’t offer redemptions through JetBlue. As has been pointed out some business is better then no business, so these airlines will gladly pick it up as it doesn’t compete on those routes.

  6. Well, Detla thinks that giving me a piece of white cardboard with a flight attendant signature welcoming me and giving me a glass of champagne or orange juice during boarding ( that I have to mix myself) is in par with Emirates, Quatar etc service… but not paying Gas tax is not subsidy… unfortunately lot of people believing this BS because all they watch is Atlanta airport CNN

  7. @ Endre

    “but not paying Gas tax is not subsidy”

    Of course it is. Economics 101. What one tax-payer gets as a discount has to be made up by another tax-payer paying more.

    If you pay less, I have to pay more.

    Or do you think it’s magically different if, say, the US3 paid full-price for the gas but then got the difference back as a cash rebate? It’s exactly the same as paying a cut-price.

    Stating otherwise is either economic illiteracy, or is trying to pretend that your US buddies are good-as-gold and it’s only them thar ME3 who are evil, yes sirree.

  8. Sean M mentioned SPAs. it’s all well and good having an interline agreement however if for example flying Dubai -LA – San Diego
    Delta may make $20 on the leg. Depending on the fare class it’s low yield and they are not giving the US3 much if anything. Delta wants to sell traffic to Dubai with Air France KLM
    Then if an inbound from San Diego was delayed and misconnected delta is liable to rebook and maybe offer assistance
    So they make $20 and have to pay for a hotel and meals , maybe even compensate the passenger
    Then again if emirates is offering a low fare for Dubai -San Diego for $600 in the first instance is delta going to ask for $500 for their sectors ?!
    Nowadays inrerline agreements with non partner / alliance members are really good for reprotecting customers
    Emirates is all smoke and mirrors anyhow
    Dubai isn’t a nice airport. Their premium product is tacky and blingy . They have delays and disruptions like anyone else

  9. Amazing. Emirates needs U.S. interline feed to support their network and apparently Alaska and JetBlue are not supplying all that they need. Tim Clark comes hat-in-hand to AA, UA, and DL seeking interline feed for Emirates flights but then insults them in the process. Sounds like a play from the Trump playbook.

    Emirates needs the U.S. carrier feed more than the U.S. carriers need Emirates. Publicly insulting them is not going to accomplish anything.

  10. Americans are lucky that they even have access to ME3.
    Canadians are forced to suffer Air Canada and their shitty product because they successfully lobbied the government to keep the ME3 out knowing that would cut into their profits and force them to offer a somewhat competitive intl product

  11. Quite agree that if the US airlines can’t compete, they should deploy their shareholders’ capital in another industry. Whatever advantages — whether natural or circumstantial — the Gulf carriers enjoy, flows directly to the benefit of consumers everywhere, and if it disadvantages the cronies running the US airlines, that’s tough.

    To think that Emirates might possibly be turning a profit though is a laughable proposition. Emirates’ hidden liabilities makes its real balance sheet a raging dumpster fire that would make Lehman Brothers look like a paragon of propriety in comparison, with billions and billions of dollars in fake asset valuations waiting to be written down . . . some day. In the meantime, we can all enjoy the kindness of ICD and its bankers who subsidize us every time we fly Emirates.

  12. @the nice paul, i think the comment reads…

    ‘delta thinks that … [first statement].. [but that] not paying Gas tax is not subsidy’

    I don’t think @endre is stating ‘Gas tax is not subsidy’

    ..but the analogies are useful anyway to explain gas subsidies.

  13. @ Mak

    “To think that Emirates might possibly be turning a profit though is a laughable proposition. Emirates’ hidden liabilities makes its real balance sheet a raging dumpster fire”

    Yes, a bit like the US3 dumping *their* liabilities through Chapter 11. In no meaningful sense are they “profitable” when you take that plus all the subsidies into account.

    Pot, kettle, black, etc

  14. @Jane I live in the US and I almost always fly Air Canada from the US to Asia. I think their hard product in business is better than Emirates, and it’s always cheaper. It’s a 1-2-1 or 1-1-1 configuration with high sides for good privacy. Compare that to Lucky’s post earlier today about how Emirates is finally shifting their 777 business class from 2-3-2 to 2-2-2.

    Now I realize AC offers pretty good fares in J from US destinations to Asia because they need the US pax feed to fill the planes, but I’ve had nothing but good experiences on such flights.

  15. @The nice Paul Of course, I wouldn’t disagree that the US3 are quite full of crap and cynically and demagogically trying to feather their own beds, but I think Emirates’ situation stands alone. Of course the US3 have benefitted from the bankruptcy laws (as any company can) and more importantly from archaic protectionist laws which protect them entirely from domestic competition which would probably end their existence whilst benefitting their customers tremendously — this is their largest point of subsidy by far.

    But what Emirates is doing is more akin to the balance sheet shenanigans employed before the financial crisis by the likes of Lehman, Northern Rock, WaMu, AIG, etc. Like Emirates, these companies overvalued the assets on their Balance Sheets beyond their marketable value, and gave the appearance of fiscal health through continued access to liquidity even though they were actually insolvent. Like these failed financial institutions, Emirates carries inflated (and quickly depreciating) assets on its balance sheet in the form of unmarketable aircraft for which it is the dominant market participant (and essentially the only bidder) and for which it purports to essentially sets the price. The fact is that if it needed to sell these assets, they are worth a tiny fraction of the value they are carried at, and if they needed to “mark them to market” they would not be able to remotely pay their liabilities. Then this happened to the financial institutions, they had to be bailed out. When this happened to the US carriers, they were cut off from funding and they went bankrupt.

    For Emirates, they have access to continued funding through related entities, for now, and while that is the case I’m grateful for the benefits they bring consumers . . . but I wouldn’t want to be holding the bag when the charade ends.

  16. Unlike government subsidies, bankruptcy is not the “gift that keeps on giving”. A lot of people lose when a company declares bankruptcy. Employees lose their jobs, suppliers lose contracts, lenders lose their money, and shareholders lose their equity. Yes, AA, DL, and UA all declared bankruptcy but it wasn’t without significant pain and sacrifice for the parties involved. Many companies never survive the process, including many airlines over the years.

    The ME3 are not successful in the marketplace because of their ability to turn a profit on their operations. They are successful because of their ability to keep going back to the “trough” every time they need to be bailed out or need additional funding. They can and do lose millions of dollars every year without much consequence. At the end of the day, the airline will still exist. While that may be somewhat changing, it remains sole reason why they can continue to offer the level of service that they do, without those pesky shareholders demanding dividends or some other return on their investment. U.S. carriers are not government owned. They need to raise money in the marketplace, and their investors expect to be paid.

    Qatar and Etihad may never be profitable, but that’s OK because they’re not in business to make a profit. They’re in business to “fly the flag” of their respective countries, much like most of the European carriers were prior to the establishment of the EU. If by chance or skillful management they do make a profit, well that’s just icing on the cake, but it’s not the reason why they were set up in the first place. Emirates may be profitable on pure economies of scale if nothing else, but they are so closely woven into the Dubai government that its pretty much impossible to tell if their operations alone are profitable without the gifts, favors, special perks and other benefits afforded to them by the Emirate of Dubai.

  17. @Gregg is exactly right. That is what drives me crazy about this topic. The bloggers are all 100% on board with their made-up armchair economics tenet that goes something like this…US airlines have had a subsidy of some magnitude at some point in time, therefore they can’t complain that these foreign airlines are price dumping for the past 2 decades by orders of enormous magnitude.

    These are not publicly traded companies, so they have no obligation to disclose any numbers, and they don’t have any shareholders to report to other than their government, whose objective is to diversify their economy away from oil, and are more than happy to lose money for decades in order to bankrupt established airlines so their airlines will eventually take over the industry.

    Emirates tickets should probably cost about double what they are charging, given the amenities they are providing. U.S. airlines are removing trays and replacing glasses with plastic cups to save a smidge on weight and fuel consumption and these gulf carriers are installing apartments with doors, bedrooms and showers. I wonder what carrying enough water for 10 showers costs in weight and fuel consumption?

    I get that everyone likes getting subsidized by arab sheiks so they can have a shower in the air, but at least admit that’s what it is. This promotion of the US3 as whiners narrative is completely wrong.

  18. @Rob I get that everyone likes getting subsidized by arab sheiks so they can have a shower in the air, but at least admit that’s what it is. This promotion of the US3 as whiners narrative is completely wrong.

    The promotion of the US3 as whiner narrative is completely correct. The short of it is that they want all of us to pay more, so that they can turn a profit despite supposedly disadvantageous conditions. Well, nobody owes them anything, and it is well past time that we all consider why they enjoy the unique privilege of protection from foreign carriers who are ready, willing, and able to provide US consumers with a better product at a lower price.

  19. Mak, why on Earth do you think the U.S. carriers are in business? As any Econ 101 professor will tell you, they’re not in business to make a profit; they’re in business to MAXIMIZE their profit. Yes, that means they want customers to pay them more, but continue to try and lower costs in order to maximize their shareholders return on their investment. That’s the way capitalism works. Is the world aviation market a level playing field? Of course not, and it never will be. Every country, the U.S., the UAE, the UK, China, etc., all have their own self interests to protect, and that includes their aviation markets. If and when the ME3 and other government-owned airlines become wholly publicly owned and answerable to shareholders then we will see whose operations are profitable, and whose are not. The customers of the U.S. carriers, and other publicly held airlines, have demonstrated not by their words, but rather by their pocketbooks, the level of service they want. People continue to piss and moan about Ryanair, Spirit, and the like, but damn do they continue to buy tickets from them. A “love/hate” relationship if there ever was one.

  20. @Gregg, how very confused you are about both economics and morality. All of us are hard wired to look out for our own self-interests, but that does not mean that we pick other people’s pockets to enrich ourselves. Businesses make money by providing products and services of quality and price sufficient to coax people to voluntarily pay them, and this makes everybody better off — so called consumer surplus since you want to bring Economics 101 into this. But that does not in any way imply that economics permits corporations to coerce consumers to purchase products at prices that they would not choose to pay so that they can fill their pockets without providing value. . . that is not free market capitalism, but command economy fascism. US airlines, steel and aluminum companies (or their unions) moaning about foreign competition are just looking to pick our pockets, no matter how high minded the rhetoric. There is nothing legitimate about it.

  21. I know if I had a choice between flying ME3 or US3, it would be hands down ME3. The US carriers have no clue about service in premium cabins along with the service in the majority of their lounges or the product of their lounges. I could go on. US carriers are poor.

  22. @mak
    I’m very sorry to appear to be disparaging you, I mean no disrespect, but I am a lifelong professional economist and your posts make no absolutely no sense.

  23. I understand that you side with Middle Eastern carriers over American ones because you enjoy the upper-class products they offer. As someone who has worked in management at multiple airlines in the Middle East, Asia and America for over two decades, it’s sad to see how dismissive you are of American claims. If you can look past the fact that Emirates, Etihad and Qatar Airways all offer very non-glamorous and crazy work intensive schedules to their crew while hiring their flight attendants are “Serving Models” so they can monitor their weight and physical appearance, then yes, they are great airlines. Anyone who does significant research will find it doesn’t take much endurance to realize how much money Qatar and Emirates receive in illegal subsidies to remain the cheapest option on fifth freedom routes and run competitors out of the area. There’s a reason Emirates operates to a 2 digit number of American cities while no U.S. carrier flys anywhere in the United Arab Emirates. They also countless violate the Open Skies agreement and have manipulated countless airlines. I know you love these airlines because of their premium products but it amazes me how much knowledge you lack on the subject for someone who breathes aviation.

  24. Shitty US3 carriers…. imma fly air canada instead from NY….. I have a relative base in India and air canada gets me there quicker as well.
    Also, I’d hands down fly ME3 too…their prices are high tho and I fly air canada business flex at such prices!

  25. Shitty US3 carriers…. imma fly air canada instead from NY….. I have a relative base in India and air canada gets me there quicker as well.
    Also, I’d hands down fly ME3 too…their prices are high tho and I fly air canada business flex at such prices!

  26. Excellent post and on-point commentary Ben. I come to this site for precisely articles like these. And of course the excellent reviews by you. This, to me is travel journalism. Keep it up.

  27. @mak
    I’m very sorry to appear to be disparaging you, I mean no disrespect, but I am a lifelong professional economist and your posts make no absolutely no sense.

    +1 to that. Mak sounds intelligent but is really clueless…and I only have a BS in economics.

  28. Doesn’t this just highlight why the big 3 American carriers hate gulf carriers?

    Delta, AA and United suck at international services and they know it. Which is why they hate the gulf carriers because they wish they’d get international traffic at their levels.

    Due to the nature of the USA (most Americans only ever travel along the vast country) airlines make almost all their money domestically so they’d hate to have an interline agreement. Wouldn’t this just be admitting that they’re terrible at international travel.

    It’s why airlines like Jetblue, southwest or Virgin America etc don’t run hate campaigns against gulf carriers. Because they don’t compete for international traffic.

    They are just acting like 3 year olds and it’s funny how Delta defended bombardier over their subsidiary case (Which was proved to not effect competition at all) but goes all out over Gulf carriers.

    Imagine if the gulf carriers were able to compete domestically in the USAs totalitarian airspace. They’d be screwed.

  29. @Peter Niklas
    No, I don’t know Gregg. Sorry to blow your mind that there are actually 2 people that understand economics. I have posted on this issue before over at Gary’s blog but resigned myself to quit posting anymore, given that folks seemed more interested in basking in their bias rather than supporting their arguments. I only came out to post again because I was refreshed to read Gregg’s comments were on point. This is the exchange I had on VFTW on this topic last year:

    https://viewfromthewing.boardingarea.com/2017/08/12/delta-emails-self-serving-disinformation-open-skies/

  30. banners, genitalia hats, chanting, posters, hustling, vacant smiles— americans DO need to grow up. How about true and visceral quality? How about action instead of slogans and PR propaganda nonsense?

  31. The US cannot compete with international carriers period. They are embarrassingly poor. All the show boating and slick campaigns cannot fix their ‘square tire’ of a joke product. Pouring honey on a US turd. They want massive profits and yes, the domestic market with cattle calls, preying mantis type seating, and peanuts is their product. Go US! a bad joke.

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