European airlines call for rule change to fight Gulf carriers' growth

European airlines are believed to be preparing for a massive push to constrain Gulf Carriers from their mission to create super-hubs in Dubai, Abu Dhabi and Doha.

Air France Chief Executive Officer Pierre-Henri Gourgeon, British Airways Plc CEO Willie Walsh and Deutsche Lufthansa AG’s Wolfgang Mayrhuber are among executives scheduled to attend a meeting of the Association of European Airlines on Oct. 15 in London. They will discuss a joint push with American rivals for a change to the export-guarantee regime and the trans-Atlantic trade agreement that enshrines it, said Christian de Barrin, a spokesman of the Brussels-based industry group in an interview today.

According to Bloonburg, for the past two decades, the U.S. and Europe have agreed to withhold export credit guarantees from airlines registered in five countries where Airbus SAS and Boeing Co. airliners are built: Britain, France, Germany, Spain and the U.S. This means many European and all American carriers are denied cheaper government-backed plane financing available to rivals from countries including Gulf states.

Earlier today Gourgeon warned that Europe needs to fight against the Gulf Carriers who are gradually eroding European margins on key routes.

“Europe is at the crossroads of international air travel, and this is a role we need to value and defend,” Gourgeon said. “What we’re telling the authorities is that we need a strategy that gives us a chance to resist.”

In a policy paper published on its website last week, Lufthansa called for an end to “market imbalances” resulting from export-credit financing, saying “basic rules of regulatory policy are being disregarded.”

Emirates, the biggest Gulf carrier, already pays very little in the way of airport charges or fuel tax at its Dubai hub, as well as escaping many of the social charges that weigh on European companies, Air France’s Gourgeon said.

Those benefits could generate $4.2 billion US of operating income if applied to Air France-KLM, he said.

"When you're supported in this way, you can offer the end product at very low prices," the CEO said. "They don't pay tax -- they don't even have a word for it."

Emirates overtook Lufthansa last year as the biggest carrier on international flights, thanks to a six-fold increase in traffic since 2000, when it ranked 24th. British Airways, top in 2000, now stands fourth in the IATA ranking, which treats Air France and KLM as separate airlines.

European airlines say they may struggle to maintain efficient connections as Middle Eastern carriers lure more passengers away with new destinations, Gourgeon said. He cited Emirates’ introduction of an Airbus A380 superjumbo flying between Dubai and Manchester, northern England, since last month.

“It will progressively become more difficult for British Airways to have enough passengers to offer the same frequency of flights to Hong Kong,” the CEO said. Traffic through Paris, Milan and Munich would also suffer, he said.

Emirates maintain that it continues to operate as a commercial competitive business.

“Emirates is run as a fully commercial business, unlike many European carriers,” the company said in a statement. The carrier pays landing charges in Dubai, and “although differently structured, our employee cost base is comparable to other airlines.” Airbus and Boeing together have outstanding orders for 102 widebody planes from Qatar Airways, 59 from Etihad Airways and 175 from Emirates, which has already taken delivery of 13 of the 90 Airbus A380 super-jumbos it has ordered in total.