Cornerstone Global

by Ghanem Nuseibeh (Founder of Cornerstone Global Associates) and Lucian Hudson (Managing Director of Cornerstone Global Associates). 

on 20 October 2010

A storm is brewing, and it is between European and Gulf airlines. Air France KLM recently criticised Emirates, Etihad and Qatar for allegedly receiving government subsidies, warning that this is leading to eroding Europe's role in being the world's international hub. Tim Clark, CEO, Emirates, has strongly denied that they received any subsidies. Meanwhile, Canada has declined to grant the UAE more flight rights to land in Canada (hitting Etihad and Emirates), saying that this would negatively affect Canadian carriers. Last year, the German Chancellor, Angela Merkel blocked Emirates being granted the rights to land in Berlin.

Now the GCC carriers, led by the UAE Civil Aviation Authority, have come out to defend their position. Although the three main carriers are in competition, especially in face of European and Canadian pressure, they are fast realising that the Gulf states' investments in planes and airports are at stake. Unusually, they appear united to combat an external threat. If Gulf carriers can align their interests with those of international travellers, they can build a stronger case, and get the EU and European carriers to tackle the real underlying reasons for their challenge of Gulf airlines. For the consumer, Emirates or Etihad or Qatar, cost less. Some business colleagues insist that Gulf carriers also offer better value. Maybe governments in the EU should help national carriers by removing or reducing taxes on them. It is a complex issue for the EU: with so many stakeholders, it needs a holistic assessment of its industry policies, as it is not simply a matter of airlines competing against other airlines. Some observers see this tension between European and Gulf airlines as bringing to the surface the contrasting operating environments. Gulf carriers have brand new planes; their staff are expatriates, and are cheaper to hire; unions are not an issue; staff live in purpose-built accommodation (for instance, in Dubai or Abu Dhabi), and come from as many as 100 nationalities. By contrast, European carriers have unions, taxes, ageing fleets, and more expensive crews.   Now is a time for the airlines to develop strategies which are both competitive and collaborative to help the airline industry survive and better serve consumers. Governments and business need to recognise the potential of a cross-continental initiative, based on this five-point plan:

1. Promote the case for clear and transparent collaboration for Gulf carriers. They need this to survive.

2. Encourage European carriers to see the current situation not as a threat but as an opportunity to collaborate with Gulf carriers and generate business.

3. Conduct research to assess the emerging possibilities. For example, the position of the Gulf may be better as a hub for travel between Europe and Australia, but Europe is better for travel between Asia and North America.

4. Engage in a wider stakeholder and public debate about the opportunities for Western carriers to change the way the airline industry operates, with the advent of new major players.

5. Build the evidence base to show that Gulf carriers also bring a lot of indirect business to Western economies - planes are either European Airbuses or US Boeing. The biggest deals in airline history for both Boeing and Airbus are from Gulf carriers. Ever since the Global Financial Crisis of 2008, we have argued that collaboration is so much more than coordination, and provides a way of being more strategic about managing risk. This seems a strong example of how we could turn threat into opportunity and grow business, while meeting growing concerns about needlessly competitive and defensive behaviour.