Consumers lose when airlines resort to protectionism
Last week, airlines from across the Middle East gathered in Cairo for the annual general meeting of the Arab Air Carriers Organisation. Aviation executives in the region, myself included, all expressed a determination to play a part in intensifying the dynamism, innovation and customer focus of the global airline business. So what has really struck me is the paucity of fair-mindedness being applied by some of our competitors in the debate about European air rights and aircraft financing regulations.
The previous week, in advance of a meeting of the Association of European Airlines, the head of Air France-KLM, Pierre-Henri Gourgeon, created a misleading perception of our industry's competitive environment, particularly in relation to his Gulf-based competitors. European airline chiefs have been united in condemning the export credit guarantee regime operated by Europe's credit agencies and by the US's Export-Import Bank, which places limits on access to financing. But this does not justify the protectionist measures that some heads of European airlines are proposing.
Frankly, I agree with their objections to certain rules that make financing for airlines more difficult. The home country rule, in particular, which prevents British, French, German and Spanish airlines from accessing the export-credit guaranteed financing market for aircraft that are manufactured in the US and vice versa, ought to be removed. For our part, Etihad would be very happy to see this rule go, since that would level the playing field and encourage competition, to the benefit of consumers.
But it is a leap to use limits to financing as an excuse for new limits that protect national carriers from competition. These do nothing to change the problematic rules. And besides, export credit guarantees represent just one instrument used by prudent airlines as part of a diverse portfolio of financing sources. By the end of 2010, for example, just 14 per cent of Etihad's aircraft financing will have been supplied by export credit guarantees, with the remainder financed by the commercial, leasing and Islamic lending markets.
Export credit financing has been an invaluable tool for aircraft manufacturers and their many suppliers, helping to create and protect thousands of jobs. But Mr Gourgeon's claims that Gulf carriers are "trying to buy our jobs", and that they need a strategy "that gives them a chance to resist", ultimately fail to consider the big picture. There is an irony in the indifference of the usually patriotic Air France, among others, towards the fortunes of Airbus, its partners and suppliers. Where would Europe's aviation manufacturing and financing industries be without support from non-European and non-legacy carriers?
How many French, German and British jobs would be lost by the cancellation of 10, 20 or even 50 Airbus wide-bodies? What of its suppliers and component manufacturers and future maintenance providers? But the protestations coming from European airlines are not really about financing. Instead, they reflect a determination to cling to expired oligopolies.
They now want more regulation to protect them. But do they need or deserve it? They are businesses built upon years of bilateral agreements designed specifically to protect them as national "flag-carriers". They are members of the major airline alliances that collectively control 70 per cent of all global international air traffic. So why the current protests? Perhaps it is because the consumer's expectations have permanently shifted regarding the convenience of their networks and on the quality of the flying experience. Consumers have had enough of tired, congested airports and lack-lustre in-flight service. They have had enough of brands that, perhaps, take them for granted. And, through circumstances mostly beyond their control, European airlines are unable to adjust to these expectations. Many people would say the combination of hefty debt obligations, antiquated and inefficient fleet and an inflated cost structure, particularly legacy labour and systems arrangements, means that they cannot offer the best and most efficient fleet and service.
Secondly, their geographic location precludes them from being "at the crossroads" they still believe is in their backyard. Once, all economic activity and innovation emanated from the US and Europe, and therefore all roads led there. But much of today's growth is within the BRIC bloc. To most of the world in 2010, Europe is no longer a hub, but an endpoint.
Then, take a look at Gulf carriers. We are new businesses with employees who are passionate about building world-class airlines. We are equipped with new fleets that have lower operating costs. We are at the new centre of the world, both an increasingly relevant endpoint ourselves but also perfectly placed to transfer passenger flows between South America and Asia; Europe and Australasia; North America and the subcontinent. We also open up new markets, flying east from Dublin, Milan and a host of other European cities.
We make no apologies for our product being far superior. We have had our own challenges. We have had to build infrastructure and systems and brand identity from scratch. We have had to source and train staff. We operate in an open skies regime in our home country.
But instead of complaining about the other guys and insisting the world was still flat, we got on with the job of building agile, smart airline businesses that could offer the consumer real choice. So why should European air travel be re-regulated? So that, as in years past, fares can be higher, schedules can be less convenient and the product and service can be described as moribund rather than innovative? By all means, let's look at removing the home country rule. But let us not allow it to be a Trojan horse for an attack on competition - for the consumer's sake, if for nothing else.
James Hogan is the chief executive of Etihad Airways
Published: October 25, 2010 04:00 AM