Gets To Fly: An Airbus A380 Between Milan And New York

KONFRONTASI-Among the unusual arrangements that have enabled the three Gulf carriers to ramp up service to the United States, the most unusual may be this: Dubai-based Emirates flies daily between Milan Italy and JFK.

Such routes, which do not involve a carrier’s home country, but rather provide service between a second country and a third country, are known as “fifth freedom” routes. They are not common in the airline industry, but occasionally some airlines utilize them: Singapore, for instance, flies Singapore-Frankfurt-New York.

What is different here, as in the entire debate over what the Gulf carriers are trying to do, is the magnitude. The Gulf carriers divert increasingly large numbers of passengers from U.S. carriers and European partners because massive subsidies have enabled them to build vast international route systems that increasingly are focused on growth in U.S. markets.

The high subsidies appear to violate terms of Open Skies treaties that enable the three carriers – Emirates, Etihad Airways and Qatar Airways – to fly not only from their home countries to the U.S. but also, in this case, from Italy to the U.S.

One sign of Emirates’ out-sized ambitions: On June 1, it will put an Airbus A380, which seats 489 passengers, on the route, replacing aBoeing BA -0.31% 777-300ER, which seats 427.

“Milan is the future” said Lee Moak, president of Americans for Fair Skies, which is lobbying for fair treatment on open skies for U.S. carriers. “Nobody envisioned that the Gulf Carriers would engage in such predatory behavior. It was assumed that {Open Skies flights} would be operated on the basis of rational business decisions that they would have to be profitable.”

Emirates’ entry into the Milan-New York market has stimulated demand, said an Emirates spokesman, who noted: “There were 100,000 more bookings on the route comparing Oct. 2014 to Oct. 2013.” Additionally, Emirates is the only carrier providing First Class service on the route, “a further proof point that we’re giving customers what they want.”

As for placing an A380 on the route, “The decision is commercially based, and in response to the strong demand that we are seeing on the route,” the carrier said.

The Milan-New York flight is discussed in detail in the 55-page report by the three global U.S. airlines, American, Delta and United, which describes how the governments of Qatar, the United Arab Emirates, and Abu Dhabi and Dubai, the two largest emirates, have provided about $39 billion in subsidies to Qatar, the flag carrier of Qatar and to Etihad and Emirates, flag carriers of the UAE.

The report notes that Emirates launched daily Milan-JFK service on Oct. 1, 2013. At the time, the route already had four daily non-stop flights by Alitalia, American, Delta and United (to Newark).

Total average bookings for the route increased after Emirates’ entry, as fares fell. Still, “U.S. carriers have lost 13 points of market share directly to Emirates,” the report says. “The excess capacity on the route has driven U.S. carriers’ margins to a level that is well below the industry cost of capital. (This) will eventually force one or more U.S. carrier to exit the route.

“As the Gulf carriers introduce similar services on other Trans-Atlantic and Trans-Pacific routes, the problem will continue to recur,” the report said.

The rest of this story is for airline geeks only. It concerns a section of the U.S. airlines’ 55-page report which raises the possibility that Emirates is not exercising fifth freedom rights on the Dubai-Milan-JFK route, but rather is exercising seventh freedom rights.

Seventh freedom is the right to carry traffic between third countries without a stop in the home country. According to the report, service on the route has “only an incidental connection to the UAE (and) is targeted at capturing seventh freedom traffic.

The route “is purely opportunistic, since the carrier was already offering two daily non-stop services between Dubai and New York before it launched the Milan-New York City service,” the report said. “The route does nothing to further the government of Dubai’s strategy of flowing traffic through Dubai; it is purely about finding opportunistic uses for an ever-expanding fleet. (It) is targeted at capturing seventh freedom traffic.”

If true, would constitute a wholly unacceptable treaty violation. because seventh freedom is not provided for in the Open Skies treaty.(AP)