Emirates A380 on short finals into YYZ by BriYYZ

When it comes to the UAE-Canada Air Transport Agreement, the UAE have been playing with fire for some time, making bellicose statements threatening to close Camp Mirage. Well, it’s happened. The kill order has come down and Canadian forces are poised to exit the UAE and set up shop elsewhere.

It’s not totally clear how this impasse was reached but indications are that the Canadian side of this mess felt that the UAE’s demands were ludicrous. Some reports have them asking for fifty frequencies a week as well as the right to establish a hub in Toronto. Both of those demands – if they are in fact real – are laughable. Were those demands just a ploy, asking for twice what was hoping to be granted?

The truth of the matter is that with this eviction the positions of either side don’t even matter anymore, this has become a purely political issue, and in politics opinion is everything. While Emirates – who I believe to be the main driver behind all this – have a very well oiled PR and Marketing arm they face a huge challenge in controlling the fallout of this latest incident amongst the Canadian public. While the UAE may view the use of a military base as just a bargaining chip, over here in Toronto the value of the base is tightly associated with the hot-button topic of Canada’s combat role in Afghanistan. A mission that has seen 152 Canadians give their lives in an attempt to quell terror on both a global and regional scale. With that sacrifice in mind it’s not hard to see why Canadians are not looking upon this action favourably.

As if the eviction itself wasn’t enough the UAE then went on to take the extraordinary step of denying Canadian Defence Minister Peter McKay and Chief of Defence Staff General Walt Natynczyk rights to overfly the UAE following the completion of a brief tour to Afghanistan. Incidentally, McKay had transited via Camp Mirage on his way to Afghanistan last week. If you want to know what this has done to Canadian public opinion I suggest you surf over to the Globe and Mail’s coverage of this story. The story was published at 6:15PM and in the four and a half hours since has generated 1174 comments! What’s more is that the majority of responses are staunchly anti-UAE all of a sudden, exhibiting a degree of jingoism that I don’t often see in my compatriots – generally we prefer to blast our own government and airlines. While it’s sad to see things degenerate in this manner I feel that this demonstrates how far offside the UAE has stepped – certainly in the public’s perception. While this is front page political firebrand over here the only mention of this fracas on the Khaleej Times website was a thinly worded piece buried in the depths of the business section, yes the business section. I think this placement clearly illustrates how differently this story has resonated in the two countries.

Canada’s graduated approach to expanding air travel agreements may not have sat well with the UAE from day one but because of their most recent actions, their chances of getting what they want have gone from slim to very slim. What’s worse – for Emirates and Etihad – is that other countries may now show a bit more backbone in negotiations which would certainly make their expansion a little more difficult than they would like. As for rumours and speculation that Canada will terminate (with one year’s notice) the existing bilateral with the UAE and close Canadian airspace to UAE carriers, I don’t think that that’s going to happen because, frankly, the Canadian government has better things to worry about and maintaining the status quo is simpler than taking such an action. Let’s hope for the sake of Emirates and Etihad that I’m right because DXB-IAH/SFO/LAX and AUH-ORD without the benefit of Canadian airspace will not be a simple exercise. They might even need to park a few planes – luckily there’s some ramp space opening up at Camp Mirage.

Great circle paths: AUH-ORD and DXB-IAH/LAX/SFO

Needless to say the existence of many routes operating in and out of Africa are steeped in historical ties – Air France for instance is very strong in West Africa. However, such historical ties are only a small factor in the broader picture. The formation of global airline alliances, armed conflicts, the discovery of natural resources and a host of other factors make the picture far more complex.

If we compare the footprints of the alliances side-by-side we can see that the Star Alliance has the broadest reach. Notice in particular how the major centers that dot the coast of the continent are well served.

Not far behind the Star Alliance is SkyTeam. Air France and KLM’s long history in Africa coupled with Kenya Airways’ growth and success are the major factors behind this second place.

This leaves OneWorld in third but not by much.

Let’s not ignore non-alliance players. The collective presence Emirates, Qatar Airways and Etihad put forward is no longer negligible. You might argue that the gulf trio only affords three non-stop destinations outside Africa – Dubai, Doha and Abu Dhabi – but I would argue that one-stops at the right price are just as good or better than direct services.

With Ethiopian set to join the Star Alliance shortly, the list of African carriers ready to be rolled into major alliances drops to zero – either for lack of quality or lack of size. A lack of carriers however does not mean a lack a opportunities. The difference now is that anyone who wants a piece of the action will have to really put some skin in the game, not simply agree to a codeshare. Brussels Airlines is already doing this by setting up an operation in Lubumbashi (to be called Korongo) but they will not be the last. Numerous European and Middle Eastern carriers have half an eye on such joint ventures as do the new darlings of African politicians - the Chinese and the Indians.

While I’m on the subject of tails, if anyone knows what that thing Sri Lankan uses on its tails is I would love to know. At least the old bird was intelligible. That new thing is simply awful. Is it a jalapeno?

Emirates A380 coming into YYZ by BriYYZ on Flickr

Let’s be honest 58 A380s was never going to be enough for Dubai’s ambitions. In case you think I’m being sarcastic, I’m not. Once you get over the shock of such a massive order and start to think about it, 58 is not that many. Currently the ten strong A380 fleet serves London (LHR x2 daily), Paris (CDG), Bangkok, Toronto (x3 weekly), Sydney, Auckland (via SYD), Incheon as well as doing some intra-gulf flying mainly to Jeddah. Assuming that the current complement is well utilized that would leave (only!) 48 frames. Placing these 48 across EK’s currently served destinations will not be that difficult. Many of these destinations already enjoy multiple daily frequencies from DXB. Examining that list would be a good starting point.

Cape Town, Dhaka, Düsseldorf, Frankfurt, Gatwick, Hong Kong, Johannesburg, Karachi, Kuala Lumpur, Male, Manchester, Manila, Mauritius, Melbourne, Moscow, Singapore and Shanghai are all strong candidates to become A380 destinations. Whether all of these spots are A380-ready and whether the authorities/treaties that govern these airports will just take this lying down remains to be seen but EK’s intentions should be clear. At this point it’s just a case of guessing in what order these will come online. Add the additional 32 frames into the mix and only then will you start to struggle to find routes for EK to put them on, but even then not really. At the current dismal delivery rate natural fleet renewal will mean that older 77W frames will be finding new homes and being replaced by A380s.

Beyond the additional 32 A380s the rumored/sort-of-announced intention to order more frames at Farnborough makes things interesting. In all likelihood it will be a modest (by EK standards) 777 renewal order (yes even they acknowledge not every city on earth can support a daily A380) and/or an additional 10 A380s to bring the fleet count there to 100. Say what you will about EK they understand PR!

This “better to have it and not need it” philosophy will work for EK. After all any spares can find homes with EK’s cousin organization DAE and even Senegal Airlines (aka Sri Lankan: the sequel) could probably take one or two for flights to Paris and Marseille in a pinch. Perhaps most importantly by jamming up the order books at Toulouse. EK’s competitors will not be able to get a meaningful A380 fleet put together any time soon.

To me EK’s biggest problem is not going to be finding places to fly the A380, it’s going to be getting foreign governments to yield to their will. I have no doubt that some governments will force addendums to existing bilaterals – replacing frequencies with seat capacities – or at the very least refuse to change existing agreements. If that happens things will get very messy indeed. The UAE-India bilateral is already restricted in this way but more countries will follow suit. Already in battles of attrition with Australia, Canada, Germany and India, Emirates might have to hire as many PR and lobbyist hands as they do pilots to get all those A380s in the air.

An Emirates A380 seconds away from touching down at YYZ – photo by Rafal Kiermacz

Last year I blogged about Emirates’ displeasure at not being given unlimited access to the Canadian market. In the time that has passed their stance has not changed. They remain adamant that they are being treated unfairly and that there are adequate reasons for Transport Canada to comply with their requests demands for greater access.

In an attempt to strengthen their case Emirates commissioned a study to detail the economic impact of further flights between the Canadian market and Dubai. That study was released earlier this week by InterVISTAS Consulting who curiously do not list Emirates amongst their airline clients.

Before getting to the content of the study it is important to understand that there is a fundamental disconnect here. Emirates does not accept that Transport Canada reevaluates existing agreements based on whether they satisfy current demand between Canada and the other signatory country – in this case the UAE. This mindset flatly snubs Emirates’ desire to transport passengers between Canada and third party states using its Dubai hub. For this reason there is a total impasse.

I held high hopes that the study was more than just a public relations stunt. By the time I got to the end of the executive summary my hopes were totally dashed. The document was littered with conveniently favorable assumptions, vague extrapolations and specious reasoning.

Let’s examine the Base Case:

Three times weekly service to Toronto
• 99,288 existing passengers annually on the route
• 515 direct full-time jobs (951 total full-time jobs in Canada including spin-off impacts)
• $17.2M in direct economic activity at Toronto Pearson International Airport ($41.3M in total
economic activity in Canada including spin-off impacts associated with economic activity at the
airport)
• $37.8M in direct tourism spending annually from non-resident visitors ($76.3M in total
economic activity in Canada including spin-off impacts associated with non-resident visitor
spending)
• $10.7M in direct annual tax revenues to Government

“99,288 existing passengers” caught my eye right away. [Update/Correction] Based on information provided to me by Andrew Parker (see comments)  this represented an 89% load factor in 2008 using 77W equipment and a whopping 91% in 2009, the year in which the change from 77w to A380 was made. With numbers like that it’s not hard to see why EK wants more access. [The executive summary of the study did not articulate that the data was from 2008 causing my erroneous calculation.] Given that EK operates a 489 seat A380 on the route that offers a total capacity of 76284 seats (489x3x52). As this number is smaller than the stated traffic this leads the reader to believe that this total accounts for traffic in both directions. If that is the case capacity then is 152568 seats (76284×2). 99288/152568 demonstrates a rough load factor of about 65%. This hardly demonstrates a lack of capacity. To be fair Emirates did not put the A380 on the route till mid last year so the actual load factor is likely marginally higher. Let’s move on.

Scenario 1: Daily service to Toronto
• 61,027 stimulated incremental passengers on the route annually over the base case

I find the language of this point to be (intentionally) misleading. It suggests that these additional passengers would not travel to and from Canada unless Emirates were to be given additional frequencies. That is to say that these passengers would not be poached from other carriers however this goes against a statement made in the methodology section:

InterVISTAS based its analysis on the premise that new air services will stimulate travel because
the product offered is an improvement over what is currently available and consumers choose to fly because of that enhanced air travel product.

This assertion is completely unsupported by any data leading me to believe it is simply not true or at the very least lacking in sufficient detail to be deemed true. Let’s settle on non-true for now. If we accept this figure – 61,027 – that would demonstrate a near linear growth in seats sold against new capacity, 61.46% (61027/99288) more seats with a 57.14% (4/7) increase in capacity. This would suggest a 45.03% load factor – not exactly anything to write to the emir about. Here’s where it gets interesting.

Scenario 2: Double Daily service to Toronto
• 154,818 stimulated incremental passengers on the route annually over the base case

I’m confused. With a daily YYZ-DXB run sitting at 45.03% LF where would the additional 93,791 passenger justifying the second daily frequency come from? I don’t know either.

Emirates have enjoyed a lot of success with cargo to and from Toronto. The document states that Emirates’ “cargo space on its Canadian flights is currently sold out months – even years – in advance.” Considering that Emirates only started flying to Toronto in October of 2007 I have a very hard time believing that. Even if that “fact” was accurate the same impasse exists. Dubai is mainly a re-export market. Goods going from Canada to say Sri Lanka could travel any number of ways without ever touching the ground in Dubai.

I could go on endlessly discrediting discussing the study but it’s easier for me to keep quiet and let UAE politicians make my point for me with their bellicose statements. The latest being a threat to close a Canadian military base. Sad. From the very beginning of this saga Emirates have claimed that the Canadian Government was overstepping their bounds and unfairly going to bat for Air Canada. I really hope that those in the Emirates corner can appreciate the irony of the situation we now find ourselves in.

The document in question is available for download from Emirates’ website in the “Emirates and Canada” section. My gut feeling tells me it won’t be up there for very long.

Qatar Airways 77L (A7-BBD) at Boeing Field by Andrew W. Sieber

Effective May 30th, 2010 Qatar Airways will begin service to South America offering a daily Doha – São Paulo – Buenos Aires service to be operated with a 77L. They will become only the third airline ever to offer non-stop service to six continents from a single hub. The current members of the Six Continent Club are South African Airways and Emirates who serve six continents from their Johannesburg and Dubai hubs respectively.

Qatar Airways is often accused of aping Emirates. In this instance I think they have one-upped them. Unlike their Gulf cousins QR’s service will continue on to EZE from GRU with full 5th freedom traffic rights. A smart move considering it tests the market for EZE-DOH direct (which the ridiculously capable 77L can handle) and maximizes utilization of the 77L fleet. Indications are that EK did not pursue the GRU-EZE leg as it would have meant a less desirable departure time. This type of paired expansion is not new to QR. When getting their feet wet in Africa they took a similar approach initially serving Cape Town via Johannesburg. After establishing themselves in those markets and proving demand existed both cities were upgraded. A certain Emirati carrier followed suit

This all begs the question, who will be the next member of this elite club? A number of other airlines already serve six continents but from different hubs and with stops. Off the top of my head British Airways, United, Malaysia Airlines and Air France are in the mix but for reasons of equipment, bilateral agreements and other complications I don’t believe any of these four will be the next. My pick is Etihad. The reasons are simple. They have a similar business model to EK and QR, they have capable aircraft on order and they have a strong desire to not be an also-ran in the arena of Gulf aviation. Time will tell.

Emirates 777 at YUL. Photograph courtesy of Youri Thonon – Contrails Photography

It must be ever so inconvenient for Emirates to have to deal with Transport Canada in trying to secure additional landing rights to Canadian airports. At its home base in Dubai most anything the carrier needs is quickly afforded to it by the government of Dubai, often by royal decree. The capacity the carrier currently enjoys between YYZ and DXB – 1467 seats per week in each direction – is more than adequate to serve the needs of passengers originating in the two cities. Though they would tell you otherwise, EK wants access to Canada to capture traffic that would connect via Dubai to its broader network. Of particular interest to EK is traffic destined for South Asia, East Africa and the Middle East.

The Canada-U.A.E. Air Transport Agreement allows Emirati carriers six flights a week into Canada. Instead of capitalizing on these frequencies at the time that agreement was signed, Emirates presumptuously opted to wait until daily landing rights were made available. Contemporaneously Emirates’ enterprising compatriots at Etihad launched a thrice weekly service between Abu Dhabi and Toronto, carving out their niche in the Canadian aviation landscape. If EK now find themselves locked out of the lucrative Toronto market with only half the capacity they seek, they really have only themselves to blame.

As many of you know EK does not take things lying down and this will be no exception. They are now applying pressure to get Transport Canada to see the(ir) light. On their own website they have a section detailing the importance of trade relations between Canada and the U.A.E. and also have a section stressing that AC will not be impacted by further EK frequencies. Hopefully some enterprising Canadian employee at EK will let Tim Clark know that the Government of Canada is known to drag its heels. Best look elsewhere in the interim Tim.

Emirates 777 at DME. Photograph by Konstantin Tyurpeko – RuSpotters Team

Today Emirates surpassed Singapore Airlines as the world’s largest Boeing 777 operator. A 78th 777 (A6-ECS) joined the fleet today. Number 78 is a 300ER variant. The breakdown of EK 777s is as follows:

EK have a further 27 777-300ERs and 2 777-200Fs to be delivered. This would bring the 777 fleet size up to 107 frames. However, the arrival of additional lift in the form of A380s and new 777-300ERs likely means the 200 series variants are in the twilight of their Emirates careers. It is widely speculated that the 777 fleet will be capped at 97 frames.