The three amigos vs. Air Canada
Emirates Airlines have intensified their lobby campaign to gain greater access to the Canadian market. Peter Harbison, the executive chairman of the Centre for Asia Pacific Aviation, had his article reprinted in the Financial Post on March 20. The gist of his article can be summarized by its sub-heading: Air Canada’s protectionist response to Emirate’s expansion plans does more harm than good.
There is reality, and there is theory; and events of the past couple of years should have made it very clear that most of the time theory has nothing to do with reality.
If air transportation services were covered by the GATT, Air Canada would have had the Canadian Government launch a countervailing duty case against Emirates and Etihad. And most likely they would have won the case since both of these airlines (and the third amigo, Qatar) are subsidized by their respective governments. There isn’t a level playing field in this industry. However, this industry is not covered by the GATT.
The governments backing the three amigos (they are all owned by their respective governments) continue to invest heavily in building up their airports. Abu Dhabi is investing 32-40 billion Euros in its airport; Qatar is investing 9 billion Euros in the airport in Doha; and Dubai, assuming they can get the financing, plan to invest up to 26 billion Euros in the Dubai World Central Airport. I doubt their airlines will be picking up much of the tab on these investments.
There are several lessons here, all of which have been conveniently ignored by the apologists for Emirates et al.
As the airline industry continues to evolve, we will move towards a global network consisting of 8-12 gateway airports, 20 or so regional hub airports, a number of local hub airports, and hundreds of stub airports (end points of spokes from one of the hub airports). The gateway airports will dominate the system, and the dominant airline at each of these airports will offer non-stop and one-stop service to most of the world.
A number of studies have shown how these gateway airports will give their cities an enormous advantage in competing for talent and money in the global economy.
In a 2003 report, the U.K. Civil Aviation Authority pointed out: “Air transport links are vital to many businesses, whether for transporting goods or for business travel…Good air transport links have the potential to contribute to national productivity and aviation is of particular importance to the City of London and to tourism, our two largest exporters of invisibles. Air transport links also support foreign direct investment into and out of the U.K., often accompanied by improved technology and innovation…The development of a successful airport may also encourage the formation of clusters of industries.”
A classic study of the economic effects of deregulation in the U.S. found that most of the benefits came from the time savings for travelers resulting from the restructuring of the networks by the airlines to offer more frequencies and more non-stop and one-stop flights through their hubs. It will matter to Canadians whether they connect through Toronto or Vancouver, or they have to make an additional stop and change planes and airlines in order to travel through Atlanta, Los Angeles, London, Dubai or elsewhere.
An examination of the leading airports in the world, as measured by total number of passengers or cargo volumes, shows that with a few exceptions, the major airports serve as the hub for an airline. Without a major airline developing an airport as its hub with increasing global connectivity, an airport will not join the ranks of the gateway airports or the regional hub airports.
In Canada, Toronto and possibly Vancouver, because of their locations, have the potential to become a gateway airport, or at least a regional hub, but only as long as Air Canada survives and grows. Air Canada will not have the opportunity to deploy their Boeing 787s (currently on order) to expand the number of spokes into these two hubs and the reach of their network if the three amigos are able to dump capacity into Canada.
Finally, while each of the three amigos has ambitious expansion plans, only one of their hubs will end up as a gateway airport. There will not be three in the Gulf region. Consequently, they will fight it out among themselves to dominate, and the fight might be quite prolonged and bloody.
If the fight were limited to these three, there would be less concern for Air Canada and other airlines. Unfortunately, the battle will spill over into the global marketplace with considerable collateral damage to those airlines lacking deep pockets (built on oil and gas revenues). The Competition Bureau in Canada will not recognize or will not respond to the predatory actions, and so Air Canada, and the prospects for Toronto and Vancouver, will be severely impacted with survival in jeopardy.
Should we be concerned that Calin Rovinescu, the CEO of Air Canada, might have his company’s self interest in mind in attacking Emirates? No, we should be concerned instead about the Canadian Government caving into the demands of three amigos, and the significant negative fallout for Toronto, Vancouver and all Canadian travelers and companies.
The views expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.
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