Earlier this week, Middle Eastern airline giant Emirates announced that it will launch a nonstop route from Newark Airport, just outside New York City, to Athens in March. The aircraft will continue on from Athens to Emirates' hub in Dubai. This will make it the only airline to provide year-round nonstop service to Athens from the United States.
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Emirates is starting another nonstop route from the U.S. to Europe. Image source: Emirates.
Not surprisingly, U.S. legacy carriers Delta Air Lines (NYSE: DAL), United Continental (NYSE: UAL), and American Airlines (NASDAQ: AAL) all protested this move. Right now, the three carriers -- along with their European joint venture partners -- control a massive share of the U.S.-Europe air travel market. They don't want any extra competition from Emirates.
A long-running feud
For years, Delta, United, and American have lobbied the U.S. government to put limits on the growth of Emirates, as well as its smaller rivals Qatar Airways and Etihad Airways. The U.S. carriers argue that their Middle Eastern rivals are competing unfairly by using state subsidies to fund their growth.
The evidence that Qatar Airways and Etihad Airways rely on government subsidies is fairly strong. Seeing the success of Emirates in creating jobs and driving economic growth in Dubai, the governments of Qatar and Abu Dhabi have spent huge sums of money in an effort to build up their own airlines. By contrast, Emirates is probably a self-sufficient business.
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However, Emirates actually irks Delta Air Lines, United Continental, and American Airlines more than its smaller rivals. That's because it has encroached even further onto U.S. airlines' territory by toying with so-called "fifth-freedom" routes that connect the U.S. and Europe directly, rather than routing all flights through its Dubai hub.
In late 2013, Emirates began flying between New York's JFK Airport and Milan, competing directly with American, Delta, and Alitalia -- and indirectly with United, which flies to Milan from Newark. Emirates was allowed to operate this route because the flight continues on from Milan to Dubai.
A big ruse?
Fifth-freedom flights such as Emirates' New York-Milan route are controversial. Typically, an airline is not allowed to carry passengers between two foreign countries without a stop in its home country. However, decades ago, airplanes had much less range than they do today. As a result, airlines had to make stops on longer routes. Fifth-freedom rights made these routes feasible by allowing the airlines to pick up additional passengers at those stops.
Today, plenty of airplanes are capable of flying nonstop from Dubai to New York. The only real reason for the stop in Milan is to carry New York-Milan traffic.
Thus, while this route may not violate the letter of the law, it does seem to violate the spirit of fifth-freedom rights. Each of the other four airlines flying from New York to Milan is based in the U.S. or Italy.
Not surprisingly, Delta Air Lines, United Continental, and American Airlines cried foul -- but their protests have gone nowhere. Consumer advocates welcome the additional competition that Emirates provides, viewing the U.S. carriers as forming a tacit oligopoly. Furthermore, Emirates is Boeing's biggest customer, providing another reason for the U.S. to not intervene.
Another fifth-freedom route
Emirates will take advantage of fifth-freedom rights again with its new Newark-Athens route. (The plane will continue on from Athens to Dubai.) The route announcement drew a quick condemnation from the Partnership for Open and Fair Skies, a lobbying group formed by Delta, United, and American to fight the Middle Eastern airlines' expansion.
Delta and its peers want the government to block Emirates' new Athens-Newark route. Image source: The Motley Fool.
However, while the U.S. carriers may be justified in their ire regarding Emirates' Milan-JFK route, they are much less sympathetic figures in this dispute. After all, none of them operate year-round service on this route.
In fact, no airline operates year-round from Greece to any U.S. airport. United Airlines flies the Newark-Athens route during the summer season. Delta and American also operate seasonal service to Athens, from New York and Philadelphia, respectively.
Emirates' new route will offer travelers the option of a nonstop flight to get between Athens and New York outside of the summer peak season. In doing so, it will probably steal some customers who would otherwise fly from the U.S. to a European hub on Delta, United, American, or one of their joint venture partners and connect onward from there.
Nevertheless, the benefit in terms of consumer convenience would seem to far outweigh any harm related to cannibalizing U.S. carriers' connecting traffic. The new flights might also stimulate additional economic activity, by making it easier to travel between the U.S. and Greece.
If U.S. carriers can't make year-round nonstop flights to Athens work, they aren't obligated to operate those routes. But they shouldn't try to stop other airlines from giving it a shot.
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