US major, Delta Air Lines is to close its long-haul route between its Hartsfield–Jackson Atlanta International Airport hub and Dubai International Airport early next year citing an overcapacity on US routes to the Middle East due to the rapid growth of the big three Gulf carriers – Emirates Airline, Etihad Airways and Qatar Airways – in the US market.
After Delta recently reduced service between the world’s busiest airport and the largest international airport, the carrier has now confirmed it will end the route from February 11, 2016. It said the Boeing 777 used on this city pair will be redeployed to other Transatlantic markets where it can “compete on a level playing field that’s not distorted by subsidised state-owned airlines”.
Delta has been the most vociferous of the US major carriers in a campaign against the Gulf carriers, which it claims are being illegally subsidised
Delta, along with American and United through the Partnership for Open & Fair Skies have asked the US government to open consultations with Qatar and the UAE to address the issue of $42 billion in government subsidies given to the Gulf carriers, which violate the Open Skies agreements between the US and those nations.
According to OAG data, about 12,000 daily seats have been added between the US and Dubai, Doha, and Abu Dhabi over the past five years – more than 90 per cent of which are flown by Gulf carriers Emirates, Qatar and Etihad. Of the 14 daily flights between the US and Dubai, only two are currently operated by US carriers (Delta from Atlanta and United from Washington).
“Emirates has been flooding the market with capacity,” Peter Carter, Executive Vice President and Chief Legal Officer, Delta Air Lines, told an Atlanta radio station after revealing the closure of the Atlanta – Dubai route. “We know this is not the first route we’ve had to cancel as a result of the subsidised Mideast carriers.”
According to Sabre demand data around 4.6 million passengers a year are flying between the US and the Gulf nations of Qatar and the United Arab Emirates. This has grown from just 175,000 in 2005 thanks to a significant 3,386.7 per cent rise in direct seats over the past ten years as annual capacity has risen from just 106,000 seats to over 3.6 million in each direction.
Despite the increase in passengers travelling on these flights, the number whose journeys actually originate or end in the Gulf has essentially remained flat as the routes are mainly sustained by back and beyond traffic flows at each destination. That is why despite being the only carrier to serve the Gulf nations from Atlanta, Delta has been unable to generate sufficient traffic levels to support the market due to its reliance on its home market to support the service.
Emirates has rejected Delta's claim that competition from Gulf carriers is forcing it out of the market. In a statement it said: "It has no head-to-head competition on the route. Industry data shows that average seat loads on Atlanta-Dubai has been consistently over 85 per cent, which clearly indicates that demand or overcapacity is not the issue."
"Considering that over 55 per cent of the traffic that Delta carried on the route connects in Dubai to or from destinations in India, Afghanistan, Iraq, and other cities in the Gulf, it is also disingenuous for Delta to point the finger at Gulf airlines for carrying traffic to the USA that does not originate in their hub city,” said the airline's statement, noting its own studies indicate that Delta’s Atlanta-Dubai route was a highly profitable one, with an estimated route profitability of over $10 million per annum, or a route net margin of around seven per cent.
“These are conservative estimates based on a combination of Delta’s published fares, and simulated operating costs to fly a Boeing 777-200LR – the aircraft Delta uses on the route, based on Emirates’ own experience of operating the aircraft type between Dubai and the USA. As a yardstick, IATA’s forecast for global airline profit margin in 2015 is 4%. This means Delta's route was generating a return way above that of the global airline industry,” the statement added.
The Delta route closure is believed to have been partly driven by the arrival of Qatar Airways into Atlanta from next year. The Gulf carrier is introducing a daily service from Doha’s Hamad International Airport from June 1, 2016 and through its oneworld membership and strong network across Asia and the Indian sub-continent, will have feed from each destination.
Analysis of Sabre demand data for the first six months of this year shows that around 83 per cent of passengers currently flying on the non-stop routes from Abu Dhabi, Doha and Dubai to the US are commencing their journeys at points outside of Qatar and the United Arab Emirates (UAE), with local traffic accountring for just 17 per cent of the six month demand. The analysis shows that the Gulf carriers' flights to the US are highly supported by the Indian market which accounts for seven of the top eight source markets and the wider Indian sub-continent.
Meanwhile, Delta has also notified the Airlines for America (A4A) trade group that it plans to leave its membership next year. The airline said “the $5 million that Delta pays in annual dues to A4A can be better used to invest in employees and products to further enhance the Delta experience, and to support what we believe is a more efficient way of communicating in Washington on issues that are important to Delta customers and employees.”
In recent years, the trade group and Delta have shared different views on a number of topics including the government-subsidised carriers in the Middle East, the role of the Export-Import Bank and discussions on the nation’s air traffic control being separated from the FAA and put into a private organisation. A4A acknowledged in a statement that Delta has not been aligned with the group on key industry issues.
United also ends own Gulf link to Kuwait and Bahrain
Elsewhere in the US, United Airlines has also recently announced the closure of a route into the Middle East with the suspension of its service from Washington to Kuwait and Bahrain after almost ten years of operation. The four times weekly route, served using a Boeing 777-200ER, will end from January 13, 2016. The US major has cited financial considerations as the reason for the network cut although there are suggestions that local authorities may have revoked its rights following a disagreement relating to Kuwait Airways.
This rumour was further ignited by the wording of the carrier’s initial suspension press release. “We have taken steps to cease service to Kuwait and Bahrain... We will continue to maintain an open dialogue with both governments and others who may be affected by this decision,” it said.
According to Sabre demand data, an estimated 41,000 passengers flew on the segment between Washington and Kuwait in the first half of the year with United reporting average monthly segment loads ranging between 66.0 per cent and 81.3 per cent. The airline has served the Washington – Kuwait market since October 2006 and added the Bahrain tag in April 2010.
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