Gulf Airlines Eat Into Traffic on American, Delta, United

Newly available statistics show that U.S. flights by Mideast carriers have a significant impact on the number of passengers carried by American, Delta, United, as well as their joint venture partners, to the Mideast, Africa, Indian and southeast Asia -- all destinations where international airline passengers generally rely on connecting flights.
 
In four U.S. gateway cities -- Boston, Dallas, Seattle and Washington, D.C. -- the combined decline in the year after Emirates began service to its Dubai hub ranged between 8% and 21%, according to the statistics, which were filed Monday with the U.S. departments of Commerce, State and Transportation by the Partnership for Fair and Open Skies, which represents the three global U.S. carriers and their unions as they seek to mitigate the impact of the subsidized Gulf carriers' rapidly expanding U.S. service.
 
In Boston, Seattle, and Washington, U.S. carriers lost between 23% and 25% of their defined international traffic since the initiation of service by Emirates. In Dallas, the combined impact on U.S. carriers was minimal, but joint venture partners -- led by British Airways -- suffered a 14% loss in passengers to the defined destinations.

The statistics exclude flights to Mideast destinations except for Israel, to Indian subcontinent countries India, Pakistan, Bangladesh, Nepal, Maldives and Sri Lanka and ASEAN countries Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

The statistics respond to a previous filing by Emirates, which suggested that its service to the U.S. stimulates traffic and does not harm the U.S. carriers and their partners.

 

"A closer look at the data shows that, despite their allegations, the legacy carriers and their joint venture partners suffer no loss at all," Emirates argued. "Far from harming the legacy carriers, in a large number of cases Emirates helped stimulate these emerging markets."
 
Jill Zuckman, spokeswoman for the partnership, responded in an interview: "Not only have the Gulf carriers failed to meaningfully stimulate new traffic, but the data clearly show losses -- that entry by a Gulf carrier into a U.S. gateway city is followed by an actual decline in U.S. carrier bookings.

"The subsidized Gulf carriers are distorting the global marketplace, harming the U.S. airline industry and threatening American jobs and airline service to communities across the U.S," Zuckman added.
 
The four U.S. gateway cities were selected for the study because they were cited in the Emirates filing. In three cases, Emirates was the first Gulf carrier to provide service. At Washington Dulles, Qatar Airways was first.

The exact number of passengers lost to U.S. carriers and their joint venture partners is not specifically quantified in the filing. However, the total number could be as high as a few hundred thousand passengers annually, a partnership spokeswoman said.

In the airline industry, obviously, lost passengers result in lost jobs. The partnership estimates the impact of a lost international flight at about 800 jobs, including 267 airline jobs for each wide-body aircraft and 62 jobs at connecting flights. The remaining job losses involve non-airline employees.

The partnership's filing looks particularly closely at Seattle, where Delta is building an international hub. In the year following Emirates' first Seattle flight in March 2012, U.S. airlines lost 12% of their passengers to select African, Asian and Mideast destinations, while joint venture partners lost 29%. The combined loss was 21%. At the time, Delta served Beijing, Paris, Osaka and Tokyo Narita from Seattle; it now serves nine international cities.

The impact is likely mounting. Since 2012, Etihad Airways and Qatar have added daily flights to their hubs in Abu Dhabi and Doha, respectively, while Emirates added a second daily flight to Dubai in July.

During Delta's second-quarter earnings call in July, CEO Richard Anderson said the carrier connects more than 700 passengers per day (each way) between domestic and international flights.

 

"On the surface, that appears to be a healthy level of flow traffic," Deutsche Bank analyst Mike Linenberg wrote afterward. However, Linenberg said, the number does not appear to have increased much since 2012, when Delta began its Seattle buildup.

 The limited number of connecting passengers underscores "the inroads being made by Middle Eastern carriers," he wrote, noting that Emirates now offers 626 daily seats between Seattle and Dubai and "will capture a portion of the connecting traffic flows currently being carried by the incumbent airlines {meaning that} Delta (and others) may find it harder to achieve their PRASM targets." Passenger revenue per available seat mile is a key industry metric.

Breaking out the top 10 destinations from Seattle where U.S. carriers and their partners have lost bookings, the filing lists Hyderabad, with a 63% loss; Madras, 43%; Dubai, 38%; Bangalore, 36%; Mumbai, 26%; Johannesburg, 22%; Tehran 19%; Delhi, 19%; Nairobi, 15%; and Istanbul, 3%.

In Washington, after Emirates began service in September 2012, U.S. carriers led by hub carrier United lost 25% of bookings to the select destinations; partners led by Lufthansa lost 4% and the combined loss was 14%. Today, Emirates, Qatar and Etihad all fly daily to Washington Dulles. Qatar began Washington service in 2007. The statistics include Baltimore flights.

In Boston, American and Delta lost a combined 23% of bookings to the affected destinations, joint venture partners lost 7% and the combined loss was 11%. Today, Emirates, Qatar and Etihad all fly daily to Boston.

In Dallas, U.S. carriers, primarily hub carrier American, lost 0.2%, joint venture partners lost 14% and the combined loss was 8%. Today, Emirates and Qatar fly daily to Dallas and Etihad flies thrice weekly.

(Ted Reed - The Street)