Exclusive - Opening of Domestic Markets, Key to Genuine Competition, AAPA Executive Claims

While U.S. and European airlines continue to battle Emirates, Etihad Airways and Qatar Airways about alleged unfair competition through subsidies and violation of Open Skies agreements, one would be tempted to believe that Asian airlines are not affected by the growing competition from the Gulf. A recent report from Singapore's leading bank, OCBC, proves otherwise.

Andrew Herdman, director general AAPA
Andrew Herdman, director general AAPA

Under the headline "Aggressive Gulf carriers chasing SIA from lucrative European airspace", the report stated that: "SIA is being chased out of its lucrative European market by the aggressive expansion of Middle Eastern carriers, with Gulf carriers looking to clinch a larger share of the Singapore market in 2015."

The report also said: “With Emirates gaining better connectivity as it also increases its market share for flights between Singapore and New York (dropped by SIA in Nov-13), we believe competition is definitely intensifying for SIA.”

Mounting competition
In an exclusive interview with CargoForwarder Global, the director general of the Association of Asia Pacific Airlines (AAPA), Andrew Herdman acknowledges the intensifying competition from the Gulf carriers, but adds that: "In Asia that competition already has been very evident in the last ten years or so, and it includes the three Gulf carriers plus Turkish Airlines."

Asked whether his member airlines would be in favour of revisiting or even abolishing the existing Open Skies agreements with the U.S., Herdman says that "Open Skies agreements between Asian countries and the U.S. are somewhat self-serving, because the U.S. domestic market is still contained to U.S. operators, so the Open Skies agreement obviously benefitted U.S. carriers in terms of opening up flights around the world. If you want to revisit the agreements, you've got to ask yourself whether or not the benefits outweigh the concerns."

Polarization of opinions
In addition, he says he doesn't believe that most Asian carriers would see it as productive to ask their respective governments to intervene, because liberalization has resulted in new opportunities for them. "Overall, the U.S. has benefitted from the Open Skies agreements and it is a bit of a reversal to now say can we look at these pacts on a selective basis," referring to the demands from the U.S. airlines to Washington to review the Open Skies pacts with the UAE and Qatar.

He also points to "a polarization of opinion" in the U.S., where FedEx, Boeing and other cargo carriers and tourist organizations are taking a completely different view to the Open Skies agreements than the three U.S. carriers.

U.S. airlines are doing well
Responding to the argument that the perceived government subsidies have created unfair competition and as a result U.S. jobs and the entire aviation industry in North America are at stake, Herdman says: "The last time I checked the balance sheets of U.S. carriers they seemed to be doing extremely well. Their domestic market is stable, consolidated and they are expanding internationally, investing in their products and opening up additional routes."

Asked if the Asian carriers are suffering as much as the U.S. and European carriers claim to be suffering from the Gulf competition, Herdman says that "If you look at the products and services offered by the Gulf airlines, they are competing with the best of what Asia has to offer and certainly with the Europeans for their premium traffic."

One-stop service vs. non-stop flights
In fact, as far as Asia is concerned, he notes that Gulf carriers have a disadvantage because "they have a one-stop service on their routes between Asia and Europe, so they have to compete with the non-stop services and products from Asian carriers. However, they are very adept in serving secondary cities through their hubs into other secondary cities."

As for the U.S. claims that the three Gulf carriers are expanding to capture far more passenger traffic and cargo shipments than their home populations strictly need, Herdman describes the claims as a "Machiavellian" argument, which he likens to complaining that Nokia has sold far more mobile phones than Finland needed, "which is nonsense."

It’s product quality that counts at the end of the day
He adds that "essentially we are involved in a global network competition and everyone is trying to serve the same markets. The Americans are only confronting this situation now, because the three Gulf carriers are starting to put in additional points and frequencies into the U.S. But in Asia this already took place ten years ago."

While the three U.S. carriers and their partners are trying to frighten the U.S. politicians and populace with their often repeated claims that "U.S. jobs are at stake", Herdman says he doesn't hear U.S. consumers, passengers and shippers, complaining about having more choice. "They don't have to use these foreign carriers, but they do, because they offer a superior product at a competitive price."

A revised Open Skies treaty would affect cargo, too
Although the focus of the U.S. claims is on passenger transport, Herdman points out that demands for a revision of Open Skies pacts could also affect domestic and, in particular, international cargo services.

"The bulk of cargo transport in the U.S. is dominated by carriers such as FedEx and UPS, because most of the narrow-body domestic fleets of the majors operate in day-time only, so there is limited appetite for cargo among the U.S. majors when it comes to competing domestically.

"And internationally, they only compete with belly-hold capacity, whereas the big Asian operators have huge freighter fleets. Now the Middle East carriers are doing the same thing, they have big wide-body freighter fleets, which complement the belly-hold capacities of their passenger planes. Again, you've got to ask yourself whether you really want to cancel Open Skies pacts."

Labor cost differences are a ‘laughable’ argument, Herdman
He describes U.S. and European claims that operators in Asia and the Middle East enjoy lower labor costs and lower operational efficiencies at their hubs and therefore competitors have a cost advantage, as "laughable", which would be like Detroit, twenty years ago, complaining about lower labor costs in Japan, or Motorola arguing that Apple shouldn't be allowed to manufacture their products in China."

U.S. should liberalize their domestic passenger and cargo market
He argues that the Americans "have a peculiar situation where their domestic market is protected, which is being treated as a "natural thing", which is very antagonistic in any other business sector, because we now accept that all sorts of industries have opened up, car manufacturing, pharmaceuticals, banking and so on, where competition and foreign ownership have fully been accepted."

"However, in our particular industry domestic markets are still protected, so the opening up of domestic markets is the key to getting genuine competition overall. It really boils down to a philosophy of how the industry should be structured and what direction liberalization should take."

Nol van Fenema

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Comments: 1
  • #1

    chris de graaf (Tuesday, 07 April 2015 10:48)

    more evidence of a lost battle for the us carriers