Like U.S. Carriers, Etihad Partner Alitalia Isn't Happy About Emirates' Milan-JFK Flight
Comment Now Follow Comments
It’s not just the big three U.S. carriers who think that Emirates’ Milan-JFK flight is a problem.
Alitalia thinks so too, which is significant because Etihad Airways owns 49% of the Italian flag carrier.
“Alitalia does not support the allocation of fifth freedom rights,” said an Alitalia spokesman. “In such a case the market should be served by Alitalia – or any interested European carrier – in conjunction with its American partners.”
Fifth freedom rights enable an airline to offer flights that originate in its home country, continue to a second country, take on passengers, and then continue to a third country.
In a speech Tuesday at the Chamber of Commerce Foundation aviation summit in Washington, Etihad CEO James Hogan explained at least some of the thinking behind Alitalia’s statement. Discussing the three Gulf carriers, Hogan declared: “We are separate. We are very different. We each have our own business model, our own strategy and our own issues.
“We don’t work together,” Hogan said. “We don’t lobby together. My fiercest competitor is Emirates. Behind them is Qatar.”
Emirates started 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). One sign of Emirates’ out-sized ambitions: On June 1, it will put an Airbus A380, which seats nearly 500 passengers, on the route, replacing a Boeing BA -1.03% 777-300ER with 360 seats.
The flight from Milan’s Malpensa Airport (MXP) to New York’s Kennedy International Airport is at the heart of the battle between the big three U.S. carriers and the three Gulf carriers.
The flight is discussed in detail in the 55-page report, compiled by 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.
Emirates’ entry into the Milan-New York has stimulated demand as fares have dropped. An Emirates spokesman said the route had 100,000 more bookings in Oct. 2014 than it had a year earlier.
However, “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.”
The argument is that because Emirates is subsidized, it isn’t bothered by losses on the flight. Emirates’ spokesman says “The routing is commercially based, and in response to the strong demand we are seeing on the route.”
Emirates’ entry into the MXP-JFK is part of a complicated story that includes decades of problems at Alitalia. Those problems have led to gaps in service that have been filled by other carriers.
In March 2012, Singapore Airlines applied to Italian authorities to operate a Singapore-MXP-JFK flight. Singapore did not follow up. In August 2012 Emirates filed a similar application, which was approved in March 2013.
Alitalia appealed the decision in June 2013. Alitalia was supported by Skyteam alliance partners Delta and AirFrance/KLM, which owns a stake in Alitalia.
But in December 2014, the Italian Supreme Court ruled in favor of the flight.
Meanwhile Alitalia’s shaky financial condition led to a deal, announced in August 2014, where Etihad purchased 49% of a newly formed Alitalia CAI, which took over in January 2015.
On a conference call with reporters on Tuesday, Emirates President Tim Clark said “The Italian government made an approach to us, asking us to operate out of Malpensa. We set about looking at the route and went on to do that.”
Clark noted that fifth freedom flights “are not part of the main facet of our business model.” He said, “If we fly multiple fifth freedoms across the North Atlantic {the U.S. carriers} may have a concern or two, but we don’t do that.”
Travel writer Joe Brancatelli said Alitalia is an extremely troubled airline that made a mistake when it decided to focus on Rome, a leisure market, rather than Milan, Italy’s business center. Additionally, he said Etihad made a mistake buying into the Italian carrier.
“Alitalia cannot be fixed,” Brancatelli said. “I think Alitalia may be Etihad’s Waterloo. This may turn out to be one where even the governments of UAE and Abu Dhabi say ‘Are we really going to lose this much money?”
http://www.forbes.com/sites/tedreed...isnt-happy-about-emirates-milan-jfk-flight/3/