Monday, September 24, 2018Canada's Leading Online Business Magazine

Up in the Air

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Canada and the UAE fail to reach commercial landing rights agreement

About 24 kilometres south of Dubai in the United Arab Emirates, the Canadian Armed Forces are scrambling to relocate the “secret” military base Camp Mirage. The UAE had granted Canada access to the land in the wake of 9/11 to facilitate Canadian operations in nearby Afghanistan, and the camp has been running successfully ever since.

Yet, this month, where once they were welcomed allies, the Canadian Forces have been given an unceremonious boot from the airbase. According to CTV News Canada, Canada now has until mid-November to evacuate the camp. Behind the abrupt removal is not a political or military disagreement, as might be expected, but a disagreement behind Canada and the UAE over commercial landing rights for the UAE’s two commercial airlines, Emirates Airlines and Etihad Airways. Whether there was an agreement to extend Camp Mirage in its location is unclear. Canadian Forces say that there were plans to keep the camp for another year. According to the UAE, there was no such contract.

The dispute grew in acrimony after a plane carrying Canada’s Defence Minister, Peter MacKay, was denied permission to fly over UAE airspace when it was returning from Afghanistan, forcing it to reroute.

Traditionally, Canada and the UAE have enjoyed friendly relations and healthy trade; the UAE was the largest export market for Canada in the Middle East region with $1.5 billion of bilateral trade taking place last year—29 per cent more than the previous year. With over 130 Canadian companies operating in the UAE and over 27,000 Canadians residing there, an intercontinental neighbourly friendship  has suddenly cooled.

A 1999 agreement between Canada and the UAE gave Emirates Airlines permission to operate three round-trip flights a week between Toronto and Dubai and Etihad Airways rights to fly three times a week between Toronto and Abu Dhabi. Currently, Emirates Airlines wants to offer daily flights from Toronto to Dubai with the option to double the flights to twice daily according to demand and open new routes to and from other large Canadian cities such as Vancouver and Calgary.

Profit and passengers

The UAE airlines are perceived as a force in the global aviation industry. The airlines equal serious competition for Canada’s domestic airlines. Emirates Airlines is the world’s third most profitable airline and currently among the 20 largest international carriers, it is also one of the fastest-growing. The airline now provides routes to over 100 cities worldwide with one of the world’s largest and most decadent fleets, with 145 wide-bodied aircraft that are equipped with industry-leading comforts.

Few countries are under the allusion that they can compete with the state-owned airline of one of the world’s most oil-wealthy countries, which boasts a bottomless coffer and tax-free fuel. The airlines also have an enormous fleet of 200 supersized jets and another 350 jets  on order, with a total price tag  of over US$50 billion.

As things stand now, to fly to the UAE from Canada travellers must connect in Frankfurt or London. This standard route is offered by Lufthansa, Air Canada’s Star Alliance partner.

Emirates has never belonged to, nor has any plans to join an alliance. “We see [alliances] as having significant anti-competitive elements and believe that our membership in one would be an artificial brake on our own business plans.”1

Canada’s national airline’s current revenue strategy has smaller domestic routes subsidized by more profitable, international flights. So while no one contested that a direct flight from Toronto to Dubai would be very convenient for the 99,288 existing passengers who fly the route annually, it is not in interest of the great majority of domestic flyers travelling from smaller cities such as Ottawa to Fredericton, according to Air Canada. By allowing the Emirate airlines to siphon off high-value, international routes, revenue from Canadian airlines are left with little recourse than to drop low-profit domestic routes to stay competitive. The inexpensive flight from Halifax to Ottawa, for instance, essentially piggy back on the profits of the international routes, and without those, domestic flights will become unaffordable for the average family.

Calin Rovinescu, CEO of Air Canada, says “it is well known in the industry” that Emirates is trying to divert  as much global flow traffic via Dubai, but that increased commercial landing rights would be “severely damaging” to both Canadian airlines and airports. He added that statistics last year shows that the number of travelers to Dubai was barely filling a mid-sized, 213-seat Boeing.

While Air Canada insists that its aviation policy is in the national interest, that might not be accurate. The present system of the Canadian market being served by a single alliance (Star) is obvious in its restrictiveness. To access Europe, India or the Middle East, Canadian travellers have no option but to rely on Lufthansa. Given, this, the real objective behind restricting commercial rights is enabling ongoing protectionism of the domestic market, which flies in the face of the Canadian trade policies.

Economic impact according to the Emirates

That is not good enough, say the Emirates. A statement released by Emirates Airline states that Canada is well positioned to benefit from the increased traffic, going so far as to suggest those benefits would come at “no cost” and “no risk”.
“New Emirates flights into Toronto, Vancouver and Calgary would bring $480 million of economic benefits and over 2,800 jobs to Canada, new research shows,” says the statement.

“Emirates Airline is seeking federal government approval to progressively increase connections between Canada, the Middle East and Asia,” said Andrew Parker, Senior Vice President of International Affairs at Emirates. “By growing leisure and business traffic, we can help to strengthen Canada’s tourism, trade and investment sectors—as well as increase traffic for domestic airlines.”

The study done by independent transportation and tourism consultants InterVISTAS showed that expanding Emirates’ services would produce multiple economic benefits for Canada, including the creation of 2,800 new full-time jobs and $115.4 million in new economic activity at airports in Toronto, Calgary and Vancouver annually. The study also predicts a further $82.6 million in new tourism spending annually and $38.1 million in new tax revenue.2

Up in the air

Canadians appear divided on the issue. Canadian transport Minister Chuck Strahl stated that he has come upon an equal amount of citizens in favour for the landing rights as against them, adding even premiers have not reached on consensus—Alberta Premier Ed Stelmach is notably quoted in Emirates brochures in favour for the expansion.

On the one hand, it does make sense that landing rights that were established 11 years ago be reconsidered and altered according to growing needs. On the other hand, it should not bend to the UAE’s ostensible blackmailing of a military base. Linking a dispute over commercial airlines and the imperative military strategic zone is reckless and a poor negotiation tactic.

If, as the UAE ambassador to Canada, Mohammed Abdullah Al-Ghafli wrote, “the UAE is disappointed that…the UAE and Canada have been unable to arrive at an agreement on expanding the number of flights between the two countries,” the UAE might want to reconsider such bold tactics.

But Canada must not act in contradiction to its own free trade policies. If Canada is to benefit from free trade with other countries, it cannot restrain trade when it represents a form of competition. While the UAE should use economic tools to deal with economic issues (and not confuse these with military issues), it was not wrong to perceive Canada’s dismissal as also unfair.

http://www.emirates.com/ca/English/about/public_affairs/competition.aspx
http://www.emirates.com/ca/english/images/press_release_tcm302-545900.pdf

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