Mixed messages on the Middle East

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The Gulf carriers want greater access to the Australian and Canadian markets. Are they being blocked or encouraged?

Emirates and other Middle East carriers have asked Australia and Canada for more capacity, but the response from each has been dramatically different.

Australia has allowed Emirates and Etihad to operate 60 weekly non-stops into Sydney, Melbourne, Brisbane and Perth combined, plus another 31 weekly one-stop flights. By contrast, each carrier enjoys only three weekly flights to Canada - all to Toronto. One market has been generous, the other closely guarded.

National carriers in both countries have criticised what they claim are the aggressive expansion plans of Emirates. The latest volley in this squabble is from Alan Joyce, chief executive of Qantas, who urges Australia to show more restraint in handing out capacity to Middle East carriers. "The capacity that these guys have been hammering on the door [about] for some time is available and they're not utilising [it]," Joyce told national media. Even now, he complains, Emirates is routing some non-stop services through Bangkok because of inadequate demand for the direct Dubai flights.

Hubs become stubs

Calin Rovinescu, Air Canada chief executive, is more vocal, warning Canadian airports that Emirates' designs on Canada would turn their "hubs into stubs". The issue provoked lively debate between Rovinescu and leaders of the Middle East giants at June's IATA annual meeting in Berlin. Also, during the recent Routes Forum in Vancouver, Emirates senior vice-president for cargo Ram Menem joined the debate, calling "restrictive countries, such as Canada, pennywise and pound foolish".

With its current Airbus A380 loads to and from Toronto exceeding 90%, he says Emirates "would cherish the opportunity to operate more passenger flights into Canada". In an obvious attack on Canada, Menem added "some countries tend to protect the national carrier and miss out on greater opportunities".

Transport Canada will not publically enter a debate with any airline, but says the current bilateral grants sufficient rights to serve all origin and destination traffic between Canada and the United Arab Emirates. "UAE carriers transport a large number of passengers to third country markets," it notes. "This limits the number of seats available for people who want to travel between Canada and the UAE." Canada's regulator is in no hurry to grant more capacity to Emirates and Etihad.

A closer look at the Australian and Canadian markets offers clues as to why the two governments have such different attitudes. Emirates does not compete against any Australian carrier between Australia and Asia. It would make no sense for anyone flying between Australia and Asia to use Dubai as a connecting hub. In the first place, connecting is not necessary because of the number of direct Asia-Australia flights. And even if they did connect, Dubai is thousands of kilometres out of the way.

The real competition between Australian and UAE carriers is about Europe. Qantas only flies to London and Frankfurt in Europe, so passengers between Australia and any other European city must connect somewhere. Dubai and Abu Dhabi are just as well suited for this as London or Frankfurt.

The main threat UAE carriers pose for Qantas is in siphoning off Australia-Europe connecting traffic. Qantas carries enough O&D traffic between Australia and London and Frankfurt to allow both routes to survive even if every connecting passenger switched to Emirates or Etihad.

The plan by Qantas unit Jetstar to launch Singapore connections on some thinner routes into Europe and the Middle East does not change these realities. It is still a contest over who will carry the connecting traffic and where it will connect.

Canada's situation is both similar and different. As in the case of Australia-Asia, Emirates and Etihad are unlikely to divert Canada-Europe traffic because Dubai and Abu Dhabi are unnecessary connections too far out of the way.

The difference is that Air Canada operates 30 year-round routes between eight Canadian cities and 13 in Europe - even more in high season. Some, Air Canada says, are too thin to survive solely on O&D traffic. They are supported by traffic that continues beyond Europe - traffic that the Middle Eastern carriers might seek.

Route viability

Air Canada's Rovinescu cites Ottawa-Frankfurt as an example. "When you look at who travels on this flight, only 15% are people going between Ottawa and Frankfurt. The other 85% are connecting in Frankfurt to fly somewhere else. If another carrier siphons off even just the 15% headed for the Middle East, then the route is no longer viable."

So Canadian transport officials fear that if they grant the UAE more capacity than its airlines need for O&D traffic, those carriers would divert connecting traffic from Canada-Europe. That would jeopardise the future of some of those thinner routes. This is a different issue than favouring one hub over another when traffic must connect somewhere. That is the situation in Australia. In Canada, it is a question of preserving routes. New long-range aircraft like Boeing's 787 may change these dynamics, but for now terms like "liberal" or "protectionist" seem inadequate to explain the different national interests at play.

The intensity of these interests is revealed by the recent threat from the UAE to end Canadian use of a military base near Dubai unless Canada grants more rights to Emirates and Etihad. Canadian troops use the base as a staging area for operations in Afghanistan. UAE's move threatens to escalate rather than resolve this dispute.