An OpEd in the December 12, 2014 Houston Chronicle by a United Airlines employee really has me scratching my head. In it, Mark Segaloff posits that Emirates’s status as an airline hinges on them being state owned and that they are able to hurt U.S. airlines because of their use of the Import/Export bank to finance their aircraft. He continues, stating that state-owned airlines cause domestic U.S. carriers to lose business and suffer, costing jobs. While my heart is with Mr. Segaloff, my head is not.
Emirates A380 – Mark Harkin
It is true that there has been some concern about state-owned airlines coming into the U.S. and hurting domestic carriers. Even European carriers have stated that the Middle East carriers pose a serious risk to their business in the region. Here’s the kicker though, the European carriers are really the only ones with skin in the game. They are the ones with multiple flights to multiple destinations in the Middle East. U.S. carriers fall well behind when it comes to service to places like Dubai, Abu Dhabi, Doha, Kuwait City and others. In fact, United could not make their Washington-Dulles to Doha, Qatar (with a stop in Dubai) route work, so they pulled that service.
Mr. Segaloff’s key point is that the Emirates flight will cost Houston jobs. I fail to see any facts in the article as to why that would happen. United offers a once daily flight to Dubai from Dulles. If they want to compete directly for those dollars from potential customers out of Houston, maybe start non-stop service? Maybe offer a product that is not being degraded by installing slimline seats, reducing seat pitch, and generally making the travel experience sub-par. I know that Mr. Segaloff would probably retort, “But they are a state-owned airline with all the money in the world to make service improvements.” to which I would simply give him a link to United making a record profit in Q3 of 2014. There seems to be some money for improvement there, yet United offers 2-4-2 seating in business class on the Dubai flight. No thanks, I would rather take the non-stop from Houston (avoiding Dulles) in 1-2-1 seating on the A380. United does offer a number of one-stop options to a number of Emirates destinations via their antitrust immune joint venture with carriers such as ANA and Lufthansa. Granted, the service standards are not the same as Emirates but there are options that make money for United and their partners.
Something that Mr. Segaloff fails to mention is that the Emirates service to Houston is not new, it is simply bigger now. Truth be told, Emirates used to offer two daily flights to Houston from Dubai and with those two flights they actually had more seats (532) flying to Dubai than they do now with the A380 (489/517 depending on version). Where were the complaints when Emirates was running that second flight?
There have been a number of announcements of service to Houston by carriers that are not state-owned and not from the Middle East but these seem to do little to upset employees. But from an airline business perspective, these new routes are the worrisome ones. Korean has started non-stop service to Seoul, which I had heard was off to a rocky start but is doing better now. ANA announced service to Tokyo, EVA has schedules loaded to Taipei, and there are rumors that British Airways wants to bring an A380 to Houston for one of their two flights a day. ANA and EVA are Star Alliance partners with United, but Korean brings a good product and a fantastic network in Asia. Where is the uproar against that?
The Import/Export Bank is actually a valid concern, especially when the money is not spent the way it was meant to be spent, helping a foreign company grow by buying American goods. However, I do not think Emirates has any problem letting that money fall away. In fact, that money is specifically for Boeing jets, not for the Airbus A380 that Emirates is bringing to Houston.
I think one place where Mr. Segaloff could apply is argument is to the new Emirates flight linking New York City with Milan, Italy. This is a city pair that is served by two U.S. carriers, Delta from JFK and United from Newark. Now you have a third foreign carrier on the route who is trying to bring down the prices but not having much success. But I do not think it’s a question of letting foreign carriers operate routes from the U.S. to their respective hubs but whether or not those foreign carriers should be allowed to operate so called “Fifth Freedom” routes like New York-Milan ad infinitum. A number of carriers do this but use that fifth freedom flight to connect to their hub at the end. Out of Houston, Singapore Airlines flies to Moscow and then onward to Singapore. They are allowed to sell tickets to Moscow or Singapore out of Houston and they fill their plane. It’s a win/win. But when do those flights become anti-competitive? That’s for the FAA and DOT to sort out.
It is one thing to cry wolf when there is a valid concern but to say that Emirates and their A380 is going to hurt Houston is simply fiction. If anything, the Emirates service is helping strengthen the Houston economy by offering one-stop service to places that were previously unreachable without 2 or more stops. It will also continue to keep prices relatively competitive, which is good for the consumer. Sure, United may not like that, but how many passengers are they really flying a day to Dubai? How many are they flying to Europe for Middle East connections? United has a choice to make, they can up their game and focus on becoming a world class international carrier or they can relegate themselves to a middle-tier domestic focused carrier with a product that just barely keeps up with the competition. That decision will dictate the fate of those jobs that Mr. Segaloff is concerned about, not a single Emirates A380 flight a day to Houston.