Open

The public affairs journal of Issue 14 | October 2012 Sky 1 Welcome

2 Emirates and : A global partnership

3 Canada’s aviation leakage problem

4 Emirates’ impact on the Indian economy

5 China’s secondary cities take flight

6 Tim Clark at the International Aviation Club

7 ’s Passenger Movement Charge

7 BRICS connectivity

8 They said it best

9 New Silk Road – African traders put down roots in China

9 Infrastructure at Incheon

10 Sector Insight: Chris Tarry, CTAIRA

12 Emirates Airline Foundation in Bangladesh

12 Fast Facts

Welcome In this issue of Open Sky, we discuss the We also examine the increasing trend of partnership Emirates announced with border leakage in Canada, where millions Qantas last month. The deal will offer travel across the border each year to fly travellers increased choice and connectivity out of US airports. As numerous studies to and from Australia and the world. show, high airport fees do not fully explain this trend – instead, it is a lack of airline With such a significant partnership, the deal competition, including a scarcity of flights prompted questions whether Emirates was and options for travellers, and that helps to rethinking its approach to alliances. While keep airfares high – and forces travellers to Emirates will continue with its philosophy of seek cheaper prices from the US. not joining one of the big three alliances, we do evaluate and embrace specific bilateral Our guest analyst in this edition is Chris partnerships that add value to us and our Tarry of CTAIRA, an aviation consultancy, customers, and the Qantas partnership who looks at the state of UK infrastructure more than fulfils these criteria. policy and European airline strategies for China. Our philosophy is focussed on consumer interest, an ability to grow based on our own Finally, our regular look at the burgeoning business plan without seeking permission “New Silk Road” takes us to Guangzhou, from an alliance, and the economic value that where a resourceful group of African traders strategic geographical partnerships can add have established themselves in the city to each airline partner. Subject to regulatory known as the “factory to the world”, to the approval, we feel this is a perfect match – and benefit of the many African communities all without equity or takeovers. they serve. 1 Emirates and Qantas: A global partnership Last month, Emirates and Qantas announced a new global aviation partnership that will give customers a seamless international and Australian network.

agreement that constrains either carrier’s Benefit Transfer Commission Frequent Flyer 1 2 3 future network growth, with incentives Trunk Routes Non-Trunk Routes aligned to investment and market growth. • Allows Skywards Subcontinent members to earn/redeem LHR DXB points on Qantas’ Combined further the two carriers will Asia international services and DXB Middle operate 98 (84 Emirates / 14 Qantas) (KUL, BKK & SIN) East Asia redeem points on its Africa domestic network weekly services between Adelaide, Brisbane, AU Asia JQ Intra-Asia Melbourne, Perth and Sydney to Dubai and NZ • Qantas Frequent Flyer Trans-Tasman connecting to Emirates’ network of over 70 AUAU (QF/JQ) members to earn/redeem on the cities in Europe, the and Africa. Qantas metal Dom AU NZ Dom NZ (QF/JQ) (JQ) Emirates network Emirates metal Benefit Transfer Code share or interline commission For Emirates customers it will open up (i.e. incremental profits) payable on non-trunk routes Qantas’ Australian domestic network of more than 50 destinations and 5,000 flights Under the agreement, Qantas will move its per week. The carriers will also co-ordinate hub for European flights to Dubai with daily on their service between Australia and New A380 services from Melbourne and Sydney Zealand and Australia and South East Asia. connecting onwards to London-Heathrow and enter an extensive commercial Both carriers are focussed on improving relationship with Emirates. the consumer experience beyond the high standards both premium brands currently Subject to regulatory approval, the 10-year offer. Where there is a difference in product commercial partnership, commencing in the or service, the two airlines will align at the IATA Summer 2013 Schedule, will go beyond higher standard – one practical example is codesharing and includes integrated Qantas’ commitment to launch its chauffer network collaboration with co-ordinated drive service for premium travellers and pricing, sales and scheduling as well as a Emirates will soon announce major changes benefit-sharing model. Neither airline will to its Skywards product to align with Qantas take equity in the other. Frequent Flyer.

The Emirates + Qantas partnership is pro- Trans-Tasman services are an important growth on every level – network, customer part of this partnership, and Emirates and base and business. There is nothing in the Qantas will include a capacity commitment on the Tasman - maintaining a baseline of

The Hon Martin Ferguson – Minister for capacity over the course of the agreement, What others have said: Resource, Energy & Tourism: while allowing both carriers to innovate on “I very much hope that the proposed working scheduling with reduced wing-tip flying and Anthony Albanese – Minister for Infrastructure arrangement between Qantas and Emirates is more services across the peak, launch new & Transport: agreed to by the ACCC [Australian Competition city-pairs and better connectivity across the and Consumer Commission]. From an ”… this is a very good deal for the travelling Australian perspective, looking at tourism joint-network. public. These are two great airlines. Qantas bringing together that range of opportunities clearly, in the way that aviation’s organised from Europe and the marketing capacity of The Kangaroo Route is one of the most globally, needs to have partnerships. Emirates Emirates in partnership with Qantas, I think is a strong partner. It gives it one-stop access that is exceptionally important and that will competitive sectors in aviation, with more into a whole range of European destinations for create . . . jobs in Australia.” than 25 carriers already operating on the Australian travellers. It means the Qantas route route. The response from competitors can continue on to London. Emirates is also a Business Spectator: company that has an interest in Australia. It’s across the pricing and marketing spectrum not just flying in and flying out…..” “If Australia is to hope to retain a national has been instantaneous which includes an flag carrier of any substance Qantas has to expanded alliance relationship on European The Department of Infrastructure & Transport: be able to complete a deal with Emirates that, while it will improve Qantas’ competitiveness services from Airlines and Virgin “On balance, the Department sees the and financial position, doesn’t appear to Australia, the entrance of proposed alliance as a positive and as being have meaningful implications for the overall into oneworld and Etihad’s code-share consistent with the Australian Government’s competitive intensity of the international aviation policy settings” dimension of the Australian aviation market.” agreement with Air France-KLM with an emphasis on Australasia. 2 Canada’s aviation leakage problem Three quarters of the Canadian population live within 90 minutes’ drive of the US border, and cross-border retail shopping has long been a competitive reality.

Due to high airline fares and limited choice in Canada, that trend has been extended to air travel. In 2011, up to 4.8 million Canadians drove to the US to catch flights at dramatically lower prices, according to the Canadian Airports Council - just one of the several industry and academic groups that have been studying this issue.

The economic consequences of this leakage are significant: airlines serving Canada lose out on an estimated C$1 billion in revenue each year.

The blame for higher fares in Canada has traditionally been put on fees and taxes imposed by the Canadian Government, called Crown rents. However, several recent independent research projects have confirmed other factors are also at play.

Researchers at the University of Maryland found that higher fees and taxes in Canada could only account for between 17% to 37% competiveness. Foreign arrivals dropped of the fare differential. A lack of competition from 20.1 million in 2002 to 16.1 million was also an important factor. in 2010, while Canada fell from the 8th top tourism destination in 2002, to 18th The authors argued that reductions in in 2011. In fact, Canada is one of only five taxes and fees will have a limited impact countries to experience a drop in visitor on fares and what is really needed are arrivals in the last 10 years. “policies that promote greater competition on air routes.” A study by Canada’s Fraser Institute also revealed the extent of the higher Ambarish Chandra, an economics professor The study recommended the Canadian ticket prices from Canadian airports. at the University of Toronto, also sees a lack Government re-evaluate its stance on Within Europe, fares between city pairs of of competition influencing the border leakage carrier antitrust immunity, which “leads approximate distance averaged $690, while trends. In a recent newspaper editorial in the Toronto Star, Chandra discounted the focus on airlines into alliances to share costs and comparable routes in the US cost $840 fees and taxes and said that the real driver of agree on prices.” and routes in Canada were even higher, price reductions in air fares is competition, and averaging $1,815. that “this is something that we have very little of” in Canadian aviation. “Simply,” the report said, “they don’t compete.” Comparing flights across borders in Europe Chandra pointed out that when Canadians The study also suggested that many sections versus those between Canada and the US want to fly abroad, “it is often difficult to do so on anything other than Air Canada or one of its of the travelling public were being left out resulted in similar trends: $1,277 in Europe Star Alliance partners.” The only way to drive while incumbent carriers served the highest- versus $2,266 between Canada and the US. fares lower in Canada is to open the market to yielding fares. foreign competition, he argued. The institute found that Europe has better “Air Canada appears committed to serving deals despite higher taxes and fees. time-sensitive business travellers at the “Europe’s pro-consumer ticket prices are expense of price-sensitive leisure or non- explained by one word: competition,” the business travellers,” the study said. report said. Canada should “drop the barriers against competition and become A rise in border leakage comes as part of a larger North American market and Canada is declining in terms of tourism do the same vis-à-vis the EU”, it added. 3 Emirates’ impact on the Indian economy Emirates is known as one of the biggest foreign airlines serving India, but an unappreciated point has been the value of its services on the Indian economy.

In early September, the National Council of the Indian economy by US$106 million and Benefits of Emirates services in India Applied Economic Research (NCAER), India’s generate 13,000 jobs. premier economic institution specialising in Rest of the policy research, released the findings of its Contrary to recent statements made by economy Air Transport 24% 46% study quantifying the effects of Emirates’ Lufthansa claiming that Gulf carriers such services to 10 Indian airports and assessing as Emirates have taken over most of the growth implications if existing seat capacity international traffic at the expense of Indian was increased and new points were served. carriers, NCAER maintains that “Emirates’ Trade, Banking & 6th freedom passenger traffic from points Insurance 7% From transporting more than 530,000 where Indian carriers operate is very low. tourists each year into India and carrying This implies that Emirates’ 6th freedom Manufacturing 10% critical air freight cargo out of the country, traffic poses little threat or competition to Petroleum & Emirates’ role is significant. The study Indian carriers.” Chemicals 13% shows Emirates generates more than US$596 million of Indian economic activity NCAER concluded that these benefits Distribution of the multiplier effect and supports 72,300 jobs, as well as would fall heavily on India’s smaller,

Sector-wise Distribution of Multiplier Impact (%) providing important connectivity to points secondary cities served by Emirates. not directly served by other carriers. Three cities with less than two million residents - Thiruvananthapuram, Kochi and The study also looked at the impact of Kozhikode – already receive around US$40 additional seats and destination points. million in economic activity annually due to The current realised benefits would further Emirates’ services. be extended to additional points should the requested increase in seat capacity “As these are small cities with relatively be agreed. The increase in allocation from limited economic opportunities compared to the current 54,200 seats per week to Hyderabad, Bengaluru or even Ahmedabad, 80,000 seats per week would generate an Emirates’ impact represents an important impact of US$790 million. An expansion factor in their overall economic growth,” to four additional points – Amritsar, Pune, NCAER said. 10 Indian airports Mangalore and Tiruchirapally would benefit served by Emirates

530,000 tourists carried each year on Emirates flights into India

US$596 million contribued to Indian GDP due to Emirates services

72,300 Indian jobs supported by Emirates services

US$40 million in economic activity generated by Emirates in three Indian cities: Kochi, Kozhikode and Thiruvananthapuram

4 China’s secondary cities take flight China’s secondary cities, once in the shadow of the economic powerhouses of Beijing and Shanghai, are beginning to reshape China’s aviation map.

Emerging urban centres such as Chengdu and Hangzhou are benefiting from a large influx of targeted investments in strategic industries and workers from the hinterlands. These secondary cities are quickly becoming the economic engines for China with above- average growth in GDP, foreign investment, and innovation.

As these cities grow, domestic and People’s Republic international air connectivity is playing a of China leading role in shaping these economies. Chengdu, a regional centre with a population Hangzhou of 8 million, saw real GDP expansion of Chengdu 15% in 2011, propelled by foreign direct investment in IT and manufacturing. 8 million population of Chengdu Air freight in particular plays an important role in Chengdu: in the logistic-sensitive areas of electronics production, more than 7.3 million population of Hangzhou half of all iPads and a third of all laptop metropolitan area computers now touch the ground in Chengdu China’s secondary cities are witnessing high rates of at some point in their assembly process. growth in passenger and cargo traffic 15 percent Hangzhou, towards China’s prosperous east Feeding the booming passenger and Chengdu’s GDP growth in 2011 coast, has to date been well-known as a major cargo demand of the Yangtze River Delta tourism market for Chinese citizens. But the Economic Zone, which also encompasses idyllic calm of its many pagodas and temples neighbouring Shanghai, Hangzhou Xiaoshan 25 million belies a thriving culture of entrepreneurialism has outlined expansion annual throughput capacity for that makes local businessmen some of the plans to be able to handle over 25 million Hangzhou airport by 2015 most travelled in the world. passengers annually from 2015.

5 Tim Clark at the International Aviation Club China’s middle class, the ‘App economy’ and boosting US exports: excerpts from a speech by Tim Clark, Emirates President at the launch of flights to Washington, D.C.

Bangalore that are one to six hours faster than what is available on airlines operating over European hubs.

Our challenge, and our commitment, is to connect the expanding middle classes in developing countries with the world around them – one that is being remade by new information technology.

By 2025 China’s middle class will make up half of its population – that’s 700 million people with expanding appetites for travel and leisure, more than the size of all of Europe today.

Emirates’ most recent route launches show In Brazil - the home of the next Olympics, our global approach to network growth - the burgeoning middle class is already an along with Washington we have recently unheralded force in international tourism, added or announced plans for Adelaide, spending an average of $43 million per day, Erbil, Lyon, Warsaw, Phuket and Algiers. more per capita than any other nationality. So between the first quarters of 2012 and More than 1.5 million Brazilians visited the 2013, Emirates will have opened 14 new US last year, injecting US$8.5 billion into destinations across the planet. the American economy.

Today, our network is our greatest asset. In Consumer behaviour in all nations is India we operate an unparalleled 185 weekly being reshaped by technology. Think what flights to 10 cities. In Africa, Emirates serves has emerged in the US and globally in 21 destinations across a continent that is the previous decade but now taken for burgeoning with economic growth To the granted - SMS, GPS, hybrid vehicles, social new economic drivers of the 21st century - networking. It was five years ago that Apple the BRICS nations of Brazil, Russia, India, introduced the iPhone - now there are more China and South Africa - Emirates offers 300 than one billion smartphones around the weekly flights - more than Lufthansa, United, world. The value of the “App economy” is Delta or any other airline. estimated at $17.5 billion, supporting more than 450,000 jobs. Every day Apple receives In America, we provide critical uplift to 50 million App downloads on its website. a host of firms across many industries - totalling nearly 800 tonnes per week of Just imagine where we will be in another 10 capacity out of the US. We carry auto parts years, and the rewards for companies that from JFK, apples and cherries from Seattle, can identify emerging needs and markets. and oil and gas equipment from Houston. The 360 degree visibility and convenience brought about by Apps and smartphones is Our new service to Dulles opens up new destined to play a huge role in changing how options for US passengers and exporters. we book, and indeed whole travel patterns. Not only will we introduce competition into the non-stop market to Dubai, we will We have only scratched the surface for the be highly competitive for connections to Internet’s true potential, yet the technology points beyond. In India, for example, the has already allowed small and medium diversity and frequency of flights there will sized businesses to stand toe-to-toe with the offer Washington travellers travel times mega-corporations. This is what drives our to destinations like , Mumbai and optimism about the global economy.

6 Australia’s Passenger Movement Charge Following a 17% increase that took effect in July, passengers flying the Kangaroo Route between Australia and the UK now face A$210 in taxes in economy class.

The rising costs for travellers due to the 25 Years of the Passenger Movement Charge (PMC) Passenger Movement Charge (PMC) could $60 Full cost recovery forcustoms, National aviation No reason provided negatively impact local industries, with immigration, quarantine security measures 5

and visa processing 5 research from IATA suggesting that an $ $50 increase of as little as 10% of the cost of Tourism promotion Foot-and-mouth disease levy e g $4 7 r a

travel can lead up to a 15% reduction in h

C $40

t Response Sydney Olympics levy n travel demand. IATA has estimated the PMC e to pilots' strike $3 8 m e v could directly result in the reduction of $45 o $30 M

r $3 0 e million to Australia’s national GDP and result 7 g 2 5 n $ 2 $ in the loss of 500 jobs over the next year. ss e a $20 P $2 0

The PMC is forecast to collect A$794 million $10 0 1 in 2012-13 with A$231 million allocated $ for customs, quarantine and immigration $0

services for international visitors. The Tourism and Transport Forum Tourism and Transport Forum remainder will flow directly into the Australia’s PMC has risen steadily since the 1980s Government’s purse.

The Australian tax is part of a concerning taxes are now being used to shore up Government acknowledges it now uses trend where some governments see national budgets. the funds purely as a source of aviation as a source of tax revenue rather government revenue. than an economic catalyst that should be In March, the UK Government raised its encouraged to the greatest possible extent. Air Passenger Duty (APD) by 8% despite In Australia the Labour party’s recent concerted opposition from travel and decision is the fourth time successive Rather than adopting modest taxes (or trade groups, as well as many members governments have increased the PMC since none) to cover the cost of providing aviation of Parliament. APD was originally planned 1995, which has produced an increase in infrastructure and services, some aviation as an environmental tax, although the UK the tax of 104%.

Russia

Lufthansa (230) 119 21 32 United 12 46 64 BuildingAirlines BRICS connectivity 18 56 Turkish Airlines (105) 4 14 14 (107) 7 China 35 Emirates 21 (290) 35 14 35 185 India

5 70 55 3 7 (140)

Weekly frequenciesEK LH QR AF toSQ BRICS UA TK countriesDL AC Brazil Brazil 14 21 7 28 3 35 4 35 7 Russia 21 119 10 42 5 0 64 7 0 India 185 46 95 20 55 14 14 7 0 South Africa China 35 32 22 30 70 56 18 31 26 BRICS South Africa 35 12 7 10 7 0 7 7 0 Grand Total 290 230 141 130 140 105 107 87 33 connectivity Source: OAG Analyser, w/c 29 October 2012 With economic growth in developed economics slowing, many countries have looked to forge new links with the five fast-growing BRICS nations to spur additional trade and economic growth. Emirates has been steadily growing its network to Brazil, Russia, India, China and South Africa and currently has the most connections to these countries - nearly 300 per week - more than Lufthansa, Delta, Air France or any other carrier. 7 They said it best…..

Open Sky brings you the best quotes on liberalisation, alliances, aeropolitical protection, free and fair trade, economic policy and global business.

“In aviation, liberalisation tends to be viewed revenues, particularly with iniquitous, as a threat not an opportunity.” – damaging policies in Europe. Air Passenger Willie Walsh, CEO and President, IAG Duty (APD) in UK, Germany and Austria started as an environmental tax. No longer. It “There is another underlying trend that must is straight revenue income to the treasuries.” have all the alliances worried: Most carriers – David Scowsill, President & CEO, World seem to prefer strong bilateral ties over Travel and Tourism Council (WTTC) the global groups that are sometimes too restrictive in allowing their members other “UK government policy ignores aviation partnerships and too demanding in terms of completely. We have no policy and we’re integration of sales tools.” – Aviation Week suffering considerably because of this.” – Willie Walsh, CEO and President, IAG “My theory of why oneworld and Star Alliance, then Sky Team, were invented was “Travel and tourism is a key generator of more to do with inhibiting competition than employment across the European Union increasing customer convenience.” – directly generating 10 million jobs across Clive Dorman, The Age newspaper Europe, substantially more than the automotive manufacturing (3.2 million), mining (3.6 million) and financial services sectors (8.5 million).” – Dr Michael Frenzel, chairman of TUI AG and WTTC

“We are currently implementing air space reform. The Civil Aviation Administration measures are first to optimize air routes; second to coordinate the opening of parallel air routes or adding new routes; third to open some temporary air routes, as was done last year when over 100 temporary routes were opened; fourth is to clean up unnecessary and under-used air routes; fifth is to establish a linked flight release mechanism [between civil and military air traffic control].” – CAAC Minister Li Jiaxiang “Emirates and Singapore Airlines…not only have large, young fleets of widebody “The airline industry collects R$5.3 billion aircraft, they also have considerably more annually in taxes. We are not asking for widebody aircraft on order than U.S. airlines. any incentive or subsidy to anyone, only In fact, only one U.S. airline is on the list conditions to become more competitive.” – of the 15 airlines with the largest widebody Eduardo Sanovicz, President of the orders. With the greatest amount of growth recently created Brazilian Association of forecast to be in the emerging economies, Airline Companies foreign airlines, not U.S. airlines, are poised to succeed…The foreign airlines that are “Despite the recent dents to the global buying the majority of new widebody aircraft economy, air transport will grow in the next today are providing the connectivity their few decades. Especially in Asia, Eastern governments envisioned – and driving Europe and South America, the demand economic growth in the process.” – will grow and the cake is getting bigger Nick Caleo, CEO and President of Airlines overall. Therefore, there will be no battle for America for passengers between European and Arabic airlines – all carriers will get their fair “The aviation sector in particular has share.” – Michael Kerkloh, CEO, become a real target for raising taxation Munich Airport 8 New Silk Road – African traders put down roots in China China’s economic growth is creating new business connections all across the globe, particularly in the emerging economies.

Arriving from countries like the Congo, Nigeria, Guinea and Liberia, traders are linking the fastest-growing major economy in the world with their home continent, purchasing and exporting textiles, consumer goods, and electronic parts.

China is also forging new links with Latin America. In 2009, China overtook the US to become Brazil’s most important trade partner. According to China’s Ministry of Commerce, bilateral trade between the two BRICS nations grew 35% in 2011 over 2010 reaching US$84 billion, with the value of two-way trade value growing 12% in the first half of 2012. Emirates currently serves the growing Today more than a quarter million Africans The traditional sights and sounds of travel market between China and Brazil, live in Guangzhou, a coastal metropolis in this bustling Chinese city now mix with carrying more than 6 tonnes of cargo per China’s manufacturing heartland. Much like languages from across the African continent. day. Brazil’s exports to China include edible the enterprising merchants that travelled the Introducing distinct religious and business live fish, electronics, textiles, foodstuff and original Silk Road, African settlers in Guangzhou practices, Africans are putting a new face on pharmaceuticals, while the top products are blazing trails along the ‘New Silk Road’– global trade, and changing attitudes on what exported from China to Brazil include albeit this time by plane rather than foot. it means to do business in China. jewellery, handbags and chemicals.

Infrastructure investments at Incheon Seoul’s new aviation gateway, at Incheon, opened in 2001 and quickly became recognised as one of the globe’s premier international airports. From 2005 to 2012, it was rated the world’s best in the Airport Service Quality passenger survey conducted annually by Airports Council International.

This achievement reflected the considerable efforts of Incheon International Airport and expense by the South Korean Government in creating and developing a world-class LG and Hyundai-Kia, and is an economic the enormous investment the government airport. The government has committed powerhouse of industry and innovation. has made in Incheon Airport. to spending US$3.5 billion to add a second passenger terminal, increase cargo Despite this, Seoul lags behind many Other regional hubs developed with handling facilities and improve intra-airport other Asia-Pacific cities in terms of air government assistance have done so transportation. Targeted for completion connectivity. Emirates currently operates by allowing increased access to foreign in 2017, this will increase passenger a daily A380, its largest available aircraft, carriers. Singapore, Hong Kong, Kuala handling capability to 62 million and cargo between Dubai and Seoul, a route that Lumpur and Auckland all offer more open throughput to 5.8 million tonnes per year. experiences an average seat factor of over access to international carriers. In Auckland, 83%. Emirates continues to seek permission a city of little over one-tenth the size of With a population of over 10 million, Seoul from the Korean authorities to add a second Seoul, Emirates operates three services a is the largest city in the OECD developed daily flight to Seoul, which would contribute day, providing consumer choice and crucial world. It is home to global brands Samsung, to the Korean economy and also help offset cargo space for high-value shippers. 9 Sector Insight

Chris is a respected independent analyst and consultant specialising in aviation strategy and finance. We asked him about current trends in Europe and elsewhere.

What will come out of the various What strategies are European airlines consultations on UK Infrastructure policy pursuing to capture Asian growth in and when? particular China?

There is a deep divide amongst factions in As a group the European airlines serve most the Conservative Party. This does little to of what are currently regarded to be the shorten the likely timing of any decision, let principal Asian destinations although not alone the availability of additional capacity every airline serves each destination. Daily resulting from whatever solution is selected. direct services are clearly always the goal. Insufficient local traffic even to some of the Chris Tarry The outcome is likely to focus on the capital cities means that there is a “need to Principal constraints to development (particularly in feed” for mix and volume and as a result it CTAIRA Consulting London and the South East of England). As is not only about serving a particular Asian a result the policy will deal more with what destination but also the network behind cannot be done rather than what will be the home hub that is important. Given the done by when. importance of aggregating traffic to even the principal Asian destinations, and more The risk is that the government won’t want so for the secondary cities those airlines the details to get in the way of what might which have the greatest reach and intensity be seen as an outcome that fits with a of frequency will be best placed. Geography political agenda rather than one meeting will continue to be a key factor. an economic need. We have already seen an attempt to exclude any developments Within Europe Lufthansa and Air France/ at Heathrow (as a third runway is explicitly KLM have wide-spread and well-developed ruled out in the Coalition agreement) as an networks; for them transfer passengers option that should be considered (which represent between 60% and 70% of their almost by definition is particularly short total traffic. Whilst (BA) sighted not least if the Coalition does not benefits from London being the strongest continue at the latest until 2015). Origin and Destination (O&D) market in Europe, if not the world, the UK’s location Inevitably promoters of various projects and the constraints at Heathrow mean BA’s to solve the “capacity crunch” in London feeder network is less effective. and the South East and at Heathrow in particular, are now throwing their hats into Asia is not a homogenous market and is also the ring, including plans for greenfield geographically huge. Geography and the fact airports to the east of London. Although that great circles are the shortest routes they have headline costs attached to them, between two points also bring potential the inevitability is that these estimates competitive advantage. Finnair is well placed appear to be optimistic, unclear in respect to serve North Asia and has developed the of what they actually include and give “Helsinki Hub” concept over the last 20 little confidence over the associated years although its challenge is to provide, or funding plans. have somebody else provide, a sufficiently dense short and medium haul connecting There is a fundamental need for rapid and network to supply or take the long haul appropriate action to secure Heathrow as traffic. Finnair serves more destinations in the London hub whilst longer term options North Asia than BA. AF/KLM and Lufthansa are deliberated. The regional airports believe have the widest coverage in terms of that they may offer the solution. However, destinations across all of Asia. providing solutions to secure Heathrow’s position either in the short or medium term The larger European airlines (plus would appear to require more local options Finnair) collectively offer a wider range of to be developed. destinations in China than Emirates. This

10 ... from a British perspective

reflects a combination of geography and this is not only an issue of market reach What were the most important impacts of the current direction of the traffic flows. but also product. The main international the purchase of bmi by BA/IAG? Geographically Emirates is particularly airlines in China are members of either well placed to link China over Dubai with Star or Skyteam. Alliance membership, For BA/IAG the most significant gain is the Africa and Latin America and it is these that whilst offering benefit in theory, provides no acquisition of 56 slot pairs at Heathrow perhaps represent the new trade routes. guarantee of increased market penetration which will provide BA with the opportunity to at the other end of the route and grow without cannibalising existing services. The position that Emirates has in the particularly for the higher fare segments of Even before this, and despite capacity Indian market, combined with the direct the market. constraints, BA has been able to increase services from primary and secondary its presence at Heathrow. Between summer cities in Europe to Dubai, means that the Will the 787 have any effect on long-haul 2004 and 2012 the number of weekly slots competitive position for most Europeans has markets? If so, where and when? that BA operates at Heathrow has increased changed; amongst them Lufthansa offers by 454 (enough for 32 new daily services); six destinations in India and British Airways Technological developments have Despite this new services have usually five. Looking further afield Emirates also has fundamentally impacted the structure of required a reduction in frequency elsewhere. better coverage in Australasia; however for international air travel. Whilst it is now not the Europeans the Australasian market has necessarily an issue of flying faster as the A key issue for BA is how quickly they are always been a financial challenge. key issues are range, size and operating able to turn the business around and how cost, for airlines it is matching the “best” quickly they get incremental capacity to use For the Europeans their Asian market aircraft available to their current and future some of the slots acquired for long haul strategies are not only about gaining the network. In recent years this has been most services. The public statements suggest route rights and flying to a destination but clearly demonstrated by Emirates and its that it will add to earnings in 2014 and are as much about ensuring that there is competitors with ’s 777 offering the also add €100m EBIT in 2015. Whilst there sufficient traffic to feed from the widest appropriate combination of range, capacity have been some network changes and the catchment area against a background and attractive operating costs. announcement of a service to Seoul from where their previous competitive advantages the 2012 winter season, the majority of bmi continue to be eroded. Whilst at least initially, with the A380 is a short haul business making significant and Boeing with the 787 seemed to embark losses and operating from a different How do you see the expansion of Chinese on marketing campaigns that focused on terminal to BA. carriers unfolding? an airline either having a hub strategy or a point to point strategy, life isn’t quite like The plans are to use a third of the acquired Although Chinese airlines have continued that. Indeed 11 of the 19 airline customers slots for long haul services which represent to increase their international presence, it for the A380 have also ordered the 787 the best and greatest opportunities for is the domestic market that continues to (including both Etihad and Qatar). profit; the distribution of the acquired slots display the greatest growth. In 2011 some broadly keeps the one third-long haul to two- 81% of the Chinese airlines’ passenger To date the 787 has been seen as an aircraft thirds short haul slot split that BA has. traffic (measured in RPKs) was domestic - for longer, thinner routes and as a point to the corresponding figure for the US airlines point and “hub by-pass” aircraft which may Having the slots is one thing, having the was 69%. have an impact on some routes served by necessary and appropriate equipment is the Gulf hubs; this depends on the actual another. BA’s current fleet plans, which The development of the domestic market deployment of the aircraft. It doesn’t mean envisage 48 aircraft deliveries to 2017, were in China is now at a similar stage as the US that the aircraft cannot be used to feed a established a long time before bmi became was 2-3 years after the start of the jet age. hub and indeed a number of the customers an option. If the route to delivering real In 2011 there were some 271m domestic are recognised “demand aggregators”. value from the acquired business comes passengers, compared with 248m in 2010. With the right operating costs and range it from operating long haul routes, the key It is reasonable to expect that within 20 extends the hub’s viable catchment area. questions are where else will they fly, and years the number of domestic passenger when and where the additional long haul journeys in China will exceed one billion. Although the 787 has been in service less aircraft will come from. than a year attention is already focussed There are a number of issues around air on subsequent developments and in For BA the acquisition of bmi gives an traffic control and reducing delays will be particular how Boeing will address what is opportunity to grow without cutting a fundamental requirement if the potential seen as the 777 replacement market. Not into the existing network but there is a demand is to be realised. There is no all new aircraft are “game changers” but considerable amount to be done to ensure shortage of ambition in the international the 787 (as the A380 and A350) do have that there is value from the acquisition; for market place; in 2011 there were 21m the potential to accomplish this – the issue airlines including Virgin Atlantic, greater passengers flying to or from China. One for the airlines however is how much of the concentration and a loss of feed pose some significant challenge for Chinese carriers is benefit that these new aircraft offer and have additional challenges. to become the airline of choice at the other the potential to deliver is held on to and how end of the route for higher yield passengers; much goes to the traveller? 11 Emirates Airline Foundation in Bangladesh

The Emirates Friendship Hospital Ship in The increase in patients was due to the Dhaka provides vital medical assistance ship anchoring in a new location just off to more than two million people living the island of East Montolar in Chilmari in communities isolated by the annual Kurigram, attracting patients who have no monsoon flooding in the most deprived access to medical care. Consequently. the region of Bangladesh. February 2012 was ship now aims to move more frequently to the busiest month since its inception in serve a greater number of people who have 2003, treating a total of 6,466 patients. no access to medical care. Fast Facts Aircraft in fleet 188 Number of destinations 126 Passengers (2011/12) 34 million Cargo (2011/12) 1.8 million tonnes Passenger Seat Factor (2011/12) 80% Employees (Airline) 38,390 Nationalities (Airline) 162 Emirates dedicated lounges 31 Number of on-board meals a day 80,000 Emirates flights daily 390 (arrivals and departures) Recycling at our Dubai offices (2011/12) 5,340,000 kgs Financial Auditor PwC Financials (Airline - 2011/12) Revenue US$17 billion, Profit US$409 million Fuel Costs (Airline - 2011/12) US$6.6 billion First flight October 25, 1985 Longest flight Dubai - Los Angeles (16 hours 20 minutes) New passenger routes (2012/13) Adelaide, Algiers, Barcelona, Erbil, Ho Chi Minh City, Lisbon, Lyon, Phuket, Warsaw and Washington DC A380 fleet 26 (on order 64)

St. Petersburg

Gothenburg Glasgow Copenhagen Moscow Newcastle Dublin Hamburg Manchester Amsterdam Warsaw Birmingham London Dusseldorf Liege Prague Frankfurt Seattle Zurich Vienna Geneva Munich Lyon Toronto MilanVenice Almaty Nice Zaragoza Rome Istanbul New York Madrid Barcelona Beijing Washington, DC San Francisco Lisbon Algiers Tunis Seoul Tokyo Malta Larnaca Peshawar Los Angeles Dallas/Fort Worth Casablanca Islamabad Osaka Tripoli Kabul Lahore Shanghai Cairo Houston Dubai Delhi Taipei Dhaka Ahmedabad Guangzhou Hong Kong Mumbai Hyderabad Dakar Khartoum Manila Bengaluru Chennai Kozhikode Ho Chi Minh City Addis Ababa Kochi Thiruvananthapuram Abidjan Lagos Colombo Phuket Accra Malé Kuala Lumpur Entebbe Eldoret Singapore Nairobi Jakarta Dar es Salaam Seychelles Luanda

Lilongwe Lusaka Harare Mauritius Viracopos Rio de Janeiro São Paulo Johannesburg Brisbane Durban Perth Middle East Network Cape Town Adelaide Sydney Buenos Aires Auckland Melbourne Erbil Tehran Beirut Christchurch Amman Damascus Basra Dammam Dubai Route Map Medina Riyadh Doha Jeddah Muscat October 2012

Passenger Routes Sana’a Freighter Routes Passenger & Freighter Routes

Graphic illustration only, not a complete representation or to scale. © 2012. Emirates. All rights reserved. not a complete representation or to scale. © 2012. Emirates. Graphic illustration only, Proposed Routes for 2013

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