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The chief executive of Air France KLM warned that Europe’s position as the world’s leading air travel hub is being threatened by Gulf airlines, as they receive government subsidies. The chief executive also blamed the Gulf for their no-tax regime, low pay for their workers and fuel subsidies as reasons for making European carriers appear less competitive. His remarks are thought to be aimed at Emirates, Etihad and Qatar Airways. Emirates chief executive sharply responded saying that his airline does not receive any government subsidies.

 

In a separate development, the Canadian government has refused to grant additional landing rights to UAE carriers Etihad and Emirates, leading to heightening of tensions between the two countries. Abu Dhabi-based Etihad and Dubai-based Emirates were hoping to get more landing rights in cities other than Toronto.

 

Tensions have been simmering between the UAE and Canada during the past several months. The UAE is Canada's largest export market in the region with an estimated C$1.3 billion (Dh4.7bn) in purchases annually, while its exports total $195.4 million. However, despite this, the UAE was absent from the region’s tour by Peter Van Loan, the Canadian trade minister.

 

Canada later announced that the Canadian military base in Dubai will be closed after the UAE refused to grant Canada’s defense minister landing rights at the camp. The UAE further announced that it has actively lobbied against Canada gaining a seat at the UN Security Council.

 

Canadian officials fear that by granting UAE carriers landing rights across Canada, business would be driven away from Air Canada. UAE carriers are amongst the fastest growing in the world and are pitching themselves as the world’s air travel hubs. However, some Canadians, including the premier of Alberta were supportive of granting the UAE further landing rights.

 

October 1-15, 2010

 

 

Analysis and Forecast: Increasing Risk


 

Gulf states, all of whom embarked on schemes to diversify their economies away from oil, have at the core of the diversification efforts, air travel. Emirates and Etihad in the UAE and Qatar Airways in Qatar have been competing between each other to attract travelers to transit in their hub airports in Dubai, Abu Dhabi and Doha. All have embarked on very ambitious feel and airport expansions. This has been key to their economic diversification.

 

Although all are government-owned, they say they receive no government subsidies. European carriers have found it difficult to compete with the Gulf’s modern fleet, no-tax regimes as well as their location between Europe and Asia.

 

Gulf states find it very threatening to their economic diversification efforts if their air travel plans are limited. If European and other Western countries decide to impost restrictions, such as through limiting landing rights, Gulf carriers’ plans of expansion may not become viable. This is because key to the business model is built around making the Gulf airports travel hubs, connecting Europe with South Asia, Africa and Australasia.

 

If such rights are no more granted or if European governments follow Canada’s example, the Gulf states’ plans are severely threatened.

 

Below is a figure of the projected capacities of key GCC airports after their current expansion: