What Delta is really saying in its campaign against Ex-Im 2

Biting the hands that feed it 3

The impact of Emirates on the German economy 4

Emirates Airline results 2011/12 5

Alliance relationships in Canada hurt competition 6

Boeing’s 1,000th 777 delivered to Emirates 7

The New Silk Road 8

Chile: the ‘gold standard’ in liberalisation 8

Open Sky: they said it best 9

Sector insight 2012 from a Chinese perspective 10

Steeper, quieter landings for the A380 11

Our view on the subsidy debate 12

Last month, US President Barack Obama signed into law a bill renewing the US Export-Import Bank’s charter through to 2014 and raising its lending cap to US$140 billion. While reauthorising the bank’s charter is normally a rubber-stamp affair for the US Congress, this year the process was highly contentious due to a vocal campaign against the bank, led by Delta Air Lines.

In the end, cooler heads prevailed, because Ex-Im is not as controversial as Delta would like to suggest. The 78-year old bank is a huge asset for the US economy – its export financing helped support 290,000 jobs in all sectors last year, including many in the aerospace industry. But the issue is not over yet. Provisions to the bill mandate the US to work to reduce export credit funding with its European peers and give regular reports to Congress.

In this edition of Open Sky, Emirates explains why Delta is wrong to undermine Ex-Im, why its real intention is to stifle international competition, and the issues Delta conveniently ignores in this debate.

Last month, Emirates released its audited financial results for 2011/12. We were pleased with profits of US$409 million despite being saddled with a record fuel bill and continuing to invest strategically for the future. This included receiving Boeing’s 1,000th 777 in March (and our 102nd 777 in total), which underscores our commitment to US technology and jobs.

This month’s opinion piece is by Zou Jianjun of the Civil Aviation Management Institute of China, who explains his country’s “going out” aviation policy and Chinese carriers’ alliance strategies.

The country spotlight falls on Chile, which is leading the way in aviation liberalisation policy. We also focus on Germany, where a new study illustrates the economic impact of Emirates flights, as well as on Canada, where Lufthansa has terminated Calgary to the benefit of its Star Alliance partner, Air Canada, but not passengers.

We hope you enjoy reading this edition of Open Sky.

As always we welcome your comments.

Welcome

The public affairs journal of Emirates

Contents

Issue 13 | June 2012

Delta Air Lines’ recent attempt to derail the activities of the US Export-Import Bank (Ex-Im) has exposed the carrier’s ambition to stifle international competition.

The 78-year-old’s bank’s activities have come under intense scrutiny as Delta claimed US airlines were being put at a competitive disadvantage by its financing support for Boeing aircraft sales.

But most other major U.S. airlines have refused to join Delta’s legal assault on Ex-Im, including United, American, FedEx and UPS.

That’s because these airlines recognise the issue was not Ex-Im but rather the longstanding “home country rule” that denied airlines from the US and the four Airbus manufacturing countries the benefits of export credit agency (ECA) support.

Understandably, airlines in these countries have called for their ECAs to widen coverage to include support to locally based carriers. There have been some concessions to date, and a few European airlines have been allowed to finance A380 deals with ECA support.

In May, Air France closed its second ECA-backed A380 financing deal, while BA and Lufthansa are expected to follow with upcoming A380 deliveries. Emirates supports these attempts to widen access for ECA support.

Delta, on the other hand, is using misleading accusations to limit ECA funding. While ECA support is an important source of finance for carriers, it does not constitute an unseen hand that picks winners and losers in the airline world.

Fundamentally, Ex-Im’s activities are of a commercial nature and are not subsidies. Ex-Im Bank financing is not free and in fact customers pay significant interest payments and fees. Since its founding in 1934, Ex-Im’s default rate has remained below 2%.

As a result, more than US$1.9 billion was earned for US taxpayers in the past five years. Emirates, for example, has paid interest and fees to Ex-Im totaling more than US$92 million.

Overall, just 12% of our fleet was financed through Ex-Im and 13% from European ECAs. The majority of the financing has come from a variety of sources, including operating leases, commercially asset-backed debt, Islamic funding and equity from Japanese and German investors (tax-based cross-border leveraged leases).

In truth, ECAs play a countercyclical role in financing transactions in times of global economic and political uncertainty. When accessing credit for sales to emerging markets can be a challenge, Ex-Im steps in to fill the void left by traditional banks.

Delta conveniently ignores other issues. The US is fighting to maintain a thriving aerospace sector that is under constant challenge from competitors that benefit from extensive government support. Last year, the US’s aerospace industry trade surplus was US$7.25 billion. It is one of the most important export sectors in the US, and one of the few with a trade surplus. Export credits have evolved as a must-have element to support these export sales. Already, the US trails most G7 countries and China in export credit assistance as a percentage of GDP.

All this comes as the historic duopoly of Boeing and Airbus is eroding, with new-to-market single-aisle variants being produced in China, Russia, Brazil, and Canada - all of which intend to use export credits to advance their manufacturing interests.

It is the view of many experts that the US aerospace industry, and the millions of US jobs that rely on it, cannot afford for the US Government to unilaterally disarm Ex-Im aircraft financing. If it did so, Boeing would quickly lose billions of dollars in sales to Airbus and, potentially, to the new third-country competitors. Foreign airlines would buy Airbus aircraft - and continue to fly to the United States.

What Delta is really saying in its campaign against Ex-Im

2

1) Export credits are just one of many financing options for airlines – they do not determine winners and losers

2) It is untrue that American carriers are unable to access attractive financing rates – due to its strong position Continental raised US$892 million in March 2012 at an interest rate of 4.38%

3) Delta ignores the fact that any difficulty in raising commercial finance would have been mainly due to its low credit rating - having recently emerged from bankruptcy protection when it eliminated jobs, cut costs and restructured its fleet

4) Ex-Im is not to blame for Delta pulling out of India - United for example continues to compete in the US-India non-stop market

5) US jobs would benefit far more from expanding US carrier access to export credit financing – yet Delta’s focus is to restrict access and, as a result, harm US manufacturing jobs

6) Ex-Im is a net positive for the US economy – its export financing helped support 290,000 jobs in all sectors last year

7) If the US disarmed its export credit funding, it could fall behind to aircraft makers in Europe, Russia, China, Canada and Brazil

8) Ex-Im is not corporate welfare - it is run independently and is profitable, turning US$3 billion in earnings since 2005

9) Ex-Im does not make ‘subsidised’ loans to foreigners – it is required to be self-sustaining and is prohibited from competing with commercial lenders (to date Emirates has paid Ex-Im over US$92 million in interest and fees)

10) Ex-Im does not ignore the effects of its activities on US airlines – its charter requires it to assess domestic economic impacts

10 reasons why Delta is wrong on export credits

3

Delta’s hardline campaign against the US Ex-Im Bank is becoming increasingly disingenuous as it continues to benefit from export credit financing, yet refuses to reveal such financing.

The US airline has previously tapped a reported US$4 billion in export credit financing to purchase airplanes from Canada’s Bombardier and Brazil’s Embraer. Now, Delta’s maintenance division will begin carrying out a lucrative engine maintenance contract with GOL of Brazil - work made possible following a US$85 million Ex-Im credit guarantee to help the Brazilian airline purchase the American engines.

Their recent US$65 million investment to increase ownership in Aeromexico once again connects Delta to US Ex-Im financing due to the fact US$171 million worth of US Ex-Im financing for Aeromexico has been approved, which will support the export of Boeing

737 aircraft and other goods and services which Delta TechOps will supply.

A Delta regional jet from Bombardier – purchased using Canadian export credit assistance

Biting the hands that feed it

emirates.com/usa

As the world’s fastest-growing airline, Emirates is proud to invest

in 50 more Boeing 777-300ERs, powered by American-made

GE engines, with options for 20 more. This $26 billion order

doesn’t just help our passengers explore the world in comfort.

It helps support over 100,000 American jobs in more than 12 states*.

The plane generates over 100,000 lbs. of thrust.

The order generates over100,000 U.S. jobs.

SPECIA-16459-1 4C 3/4 PageEmirates Job Creation Ad 10”x10”

Politico

HK# 103863_AAA

*Figure calculated using US Government job creation estimates for US built aviation exports.

4

Germany’s pre-eminent aviation research institution took on one of the biggest questions for the German airline industry: to what extent is Emirates Airline affecting the operations of Lufthansa, and how does Emirates impact the German economy?

The think-tank that undertook the research was the Cologne-based German

Aerospace Centre - Germany’s national research centre for aeronautics and space (DLR). With an annual research budget of €745 million and a staff of 7,000 at 32 institutes and facilities across Germany, this government-affiliated agency was well-placed to dissect the numbers and come up with an independent and impartial analysis. As a sign of its expertise, DLR even manages Germany’s space program for the Government.

After months of research, DLR recently released its report entitled “The Impact of Emirates Airline on the German Economy”. It estimates:

- Since 2003, the aviation market between the Eastern Hemisphere and Germany has grown by 60%, enhancing connectivity, and spurring growth in German airlines and airports.

- Passengers travelling on Emirates have not defected from other airlines or hubs, but to a large extent represent Emirates stimulating additional demand.

- Emirates adds €1.6 billion to the German economy, and supports more than 18,000 German jobs annually.

- In markets where Emirates and Lufthansa have directly competed, Lufthansa has continued to “grow substantially in terms of seat capacities and destinations offered.”

- The success of both Emirates and Lufthansa reflects the fact that the two airlines offer slightly different offerings and therefore the two airlines serve different market segments, namely time-sensitivity.

- Introducing double-daily services to Berlin and Stuttgart would lead to 2,000 new jobs and €109 million across the air transport and tourism industries and wider German economy.

The UAE and Germany enjoy a positive bilateral Air Services Agreement and currently Emirates operates 63 passenger flights per week to Frankfurt, Munich, Hamburg and Dusseldorf. Emirates would like to expand further by opening routes to Berlin and Stuttgart. However, it is unable to do so under the current agreement, as it is limited to serving a total of four points in Germany.

The report asserts that the relocation of services from any of the current four points to new airports would not create any additional benefits for the German economy. However, introducing new double-daily services to Berlin and Stuttgart would result in 144,000 overnight stays from incoming passengers at each destination.

To meet this growth, 440 additional jobs in the air transport sector would be generated, with a further stimulus of 730 additional jobs at each destination due to the impact of tourism.

DLR concluded that Germany would strongly benefit from further air transport liberalisation. Enhancements in connectivity would lead to an increase in overall global competitiveness for business relations, exports, job creation, expenditure and incoming tourism, not to mention the added benefit to the passenger with reduced travelling times, more choice and competitive pricing.

The impact of Emirates on the German economy

Airbus workers in Hamburg celebrate the handover of Emirates’ first A380 in 2008.

5

Emirates overcame difficult financial conditions and ultra-high oil prices to post its 24th consecutive year of profitability in 2011/12.

The airline managed a profit of US$409 million, a drop of 72% from the year before as Emirates endured a record fuel bill of US$6.6 billion and increasing competition at its hub in Dubai. The financial results were independently audited by top four accounting firm PwC, as they do each year for all our accounts.

Emirates is committed to a long-term growth plan to expand its global route network and continue investing in new markets and aircraft. The positive results, achieved during difficult conditions, underscores the airline’s status as a stable and sustainable business.

During the year Emirates took delivery of 22 new A380 and B777 wide-body aircraft, launched 11 new destinations and increased capacity to another 34 cities.

Emirates increased seating capacity by 9% but still enjoyed

continued high seat factors of 80% and a record 34 million passengers carried.

“Successful business growth is not a matter of luck, it is the result of sustained and calculated investment,” said Sheikh Ahmed bin Saeed Al Maktoum, the chairman and chief executive of Emirates. “Every dirham we earn is strategically ploughed back into the business.”

There are now more than 150 other airlines operating from Dubai International Airport, as well as younger Middle East airlines seeking to aggressively grow passenger volumes.

Despite this, Emirates remains the most profitable, transparent and sustainable airline business in the Middle East, and the only one to issue independently audited half-yearly and yearly financial statements.

Emirates’ financial results can be viewed at :http://www.theemiratesgroup.com/english/facts-figures/annual-report.aspx

Emirates Airline results 2011/12

Emirates releases second annual environment report

US$409 million in profits 72%34 million passengers 8%

1.8 million tonnes of cargo carried 8%

US$3.8 billion invested in new products

9% Increase in capacity (available seat KM’s)

US$6.6 billion fuel bill 44%

228 wide-bodied aircraft on order

US$17 billion in revenues 15%

Emirates this month released its second annual environment report, which measured the airline’s key environmental performance indicators including fuel efficiency, carbon emissions, energy usage and recycling activities. The report revealed that with an average fleet age of only 6.4 years versus the global IATA wide-body average of 11.3 years, Emirates’ fuel efficiency results are 22.5% better than the IATA average and CO2 emissions (per passenger kilometre) are 18.1% better than the IATA average.

The full report can be viewed at :http://www.emirates.com/english/environment/environment.aspx.

6

Air Canada and Lufthansa have long resorted to fear-mongering in their effort to stifle competition for international travel to and from Canada. Both are keen to threaten that they will cut routes if Emirates and others are allowed greater access. However, what is the explanation for Lufthansa cancelling its Calgary-Frankfurt flight in February 2012? The Emirates bogeyman cannot be blamed because we have been restricted to three flights per week to all of Canada since service to Toronto was launched in 2007. While Emirates wants to service Calgary, we do not have that opportunity.

The Lufthansa decision cannot be blamed on Emirates or competition from any other carrier. Instead, it has its roots in a lack of competition brought on by alliance relationships. When Lufthansa made its plans public, fellow Star Alliance member Air Canada announced that it would add capacity on the Calgary-Frankfurt route.

This was despite the fact that Calgary and Alberta have a rapidly growing population and forecasts show the province will lead economic growth in Canada for the foreseeable future. Alberta has clearly emerged on the world stage as an economic force. Unfortunately, a combination of outdated policy and alliance politics is preventing Alberta from opening new air routes to connect the province – and its booming economy and population – to the rest of the world.

The alliance threat for cities like Calgary extends beyond getting together to decide which member will serve a particular market. Their strategy also seeks to aggressively block non-aligned airlines – like Emirates – from entering the market.

Fortunately, there may be some relief on the horizon. Last summer, Canada’s Competition Commissioner surprised most with a decision that has some potential to shake up

competition in Canada and have wider implications for the travelling public, global alliances and access to one of the world’s more restrictive international aviation markets. The Commissioner sought to block closer cooperation between Air Canada and United-Continental on Canada-US routes.

The Commissioner used her authority to thwart two dominant carriers that sought to further consolidate air services on routes that were unencumbered with meaningful competition. Or, in the words of the Commissioner, she acted to stop a relationship that would “prohibit or lessen competition and, in some cases, give this combined entity a monopoly.”

The wider, strategic point in this case is the newfound willingness by a Canadian government agency to more passionately pursue consumer interests in the Canadian aviation market place. Until now, the fight for domestic and (more limited) international consumer interest has come from the persistent and

resourceful entrepreneurs at WestJet and Porter, champions like the Consumers Association of Canada, and forward-thinking governments such as Alberta and British Columbia.

The provincial governments get it. Consider the words of British Columbia MLA and open skies champion Rob Howard to the federal Senate Transport Committee in March: “I am hopeful that we can all recognize the importance of enhanced air access to the provincial and national economies, both as a major sector in aviation on its own and as a vital enabler to a long list of economic activities. Of course the converse is true. If we do not move while the rest of the world is moving, we will restrict our growth, discourage the creation of new jobs and limit our ability to diversify our economy.”

Alliance relationships in Canada hurt competition

7

Emirates was the recipient of Boeing’s 1,000th 777 at a ceremony in Seattle in March, marking yet another example of Emirates’ investment in US aerospace technology and jobs.

Boeing is the largest US exporter and its 777 represents one of the most successful commercial aerospace products in history, supporting an industry that employs hundreds of thousands of high-value manufacturing and technical jobs in America.

Last year, the US aerospace industry’s balance of trade was US$7.25 billion - one of the few sectors with a trade surplus.

Emirates has supported US aerospace technology and jobs for three decades and currently operates 108 Boeing wide-body aircraft. Every time an Emirates 777 lands in Dubai or anywhere else in the world, it lands with about four million parts reflecting the workmanship of some 11,000 small, medium and large suppliers – the vast majority are based in the US.

In addition, the airline’s current backlog of orders for the long-haul aircraft will support the US aerospace industry for many years to come.

Emirates’ November 2011 order for an additional 50 Boeing 777-300ERs and options for 20 more, worth a total of US$26 billion at list prices, together with the supply of American-made GE90 engines, will sustain over 100,000 skilled American jobs, when applying US Government job creation estimates for US-built aviation exports. According to Boeing, Emirates’ airplane-backlog represents more than

one year (13.3 months) of 777 production.Emirates also remains committed to purchasing the 777 for its environmental benefits. Every pound of fuel that Emirates saves prevents three pounds of carbon dioxide (CO2) from being released into the atmosphere.

Due to its aerodynamic wing design, a more efficient engine and use of lightweight materials, the 777 produces 22% lower emissions per passenger seat than competing aircraft. The 777-300ER, for example, can carry 365 passengers a distance of 14,690km, allowing travellers to fly non-stop on one Emirates flight rather than multiple stops on other airlines, with higher associated emissions.As a result, the 777 has helped Emirates achieve some of the lowest CO2 emissions rates in the industry. In 2011/12 Emirates’ passenger flights were responsible for 18.1% fewer CO2 emissions per passenger-kilometre than the IATA industry average.

Boeing’s 1,000th 777 delivered to Emirates

Daily B777 Daily B777 and A380

Emirates’ US passenger destinations

HoustonDallas/Fort Worth

New York

Los Angeles

San Francisco

Seattle

Washington, DC

8

Chile has long been a leader in the liberalisation of air transport. It has been pursuing an open skies policy for over two decades and in that period has concluded many liberal agreements.

Subsequent to several traditional open skies deals, in 2001 Chile was part of the group of APEC Economies that signed the Multilateral Agreement on the Liberalisation of International Transportation (MALIAT), which exchanged full third, fourth, fifth and sixth freedom rights with seventh freedom rights for cargo between signatories, as well as modernising many of the ‘doing business’ aspects of traditional agreements.

Notably, the MALIAT also moved to a new ‘principal place of business’ criteria for the designation of carriers, a crucial step in allowing airlines to operate in a cross-border environment in a manner similar to other international

industries that face no such restrictions on ownership and control. In order to promote competition within the Chilean air transport market, Chile has for many years offered access to domestic carriage, known as ‘cabotage’, on a bilateral basis. It also permits 100% ownership of domestic carriers, provided only that any such airline have its principal place of business in Chile.

According to an InterVISTAS study in 2009, the results of such liberal policies have clearly been positive for Chilean industry and travellers alike. The study pointed to an average fare reduction of 18% and an increase to Chilean GDP of CLP432 billion (US$850m). Chilean carriers seem to be prospering, with the flag carrier LAN expanding and regarded as one of the most consistently profitable airlines in the world.

Now Chile has taken a position of global leadership in further liberalisation, by offering cabotage to international airlines for both passenger and cargo flights, without requiring reciprocal treatment from other countries. This was one of 50 initiatives identified by Chile’s Ministry of Economy under a programme created to stimulate economic competitiveness and growth in Chile.

Reports indicate that a Uruguayan carrier will be the first to take advantage of the new rights and even though Uruguay has a bilateral agreement with Chile, this is no longer a requirement for access to the Chilean market. Chile has demonstrated that it is the ‘gold standard’ for air transport liberalisation and it is hoped this will encourage other nations to accelerate their own progression towards that goal.

Chile: the ‘gold standard’ in liberalisation

Texas is famous for its super-sized status and this is also true of its international trade. In 2011, its exports grew by 20.1% to US$249 billion, representing 16.9% of US exports.

The UAE represents the second largest US export market in the Middle East and purchases of Texan goods grew by 14.5% in 2011, to US$2.06 billion.

Emirates was the first Middle East airline to invest in services to the Lone Star State, launching daily direct services to Houston in 2007 and then Dallas Fort-Worth in February. Both flights are operated with US-built and powered Boeing 777s.

With the new services Emirates has helped to pioneer another “New Silk Road” to link suppliers and buyers all across the globe. Cargo volumes on Emirates’ Texas flights have grown by 29% in 2011/12 to 16,500 tonnes. The bulk of exports went to the UAE then beyond to India, Saudi Arabia, Oman and Kuwait. Leading products included construction equipment as well as aircraft, automotive and ship parts.

New Silk Road - the Lone Star becomes export super star

Thiruvananthapuram

Houston

Dallas/Fort Worth

KochiChennai

HyderabadMumbai

Dubai

KozhikodeBengaluru

Kolkata

DelhiKarachi

Doha Muscat

KuwaitBasra

DammamBahrain

IslamabadPeshawar

Ahmedabad

Dubai

Open Sky: they said it best…Each issue of Open Sky brings you the best quotes from our perspective on

liberalisation, alliances, aeropolitical protection, free and fair trade, economic policy and global business.

‘‘The common enemy does not sit here but in the Middle East.” – Dr. Stefan Schulte, CEO of Fraport Group.

“The exact conditions vary from country to country, but around the world we see ill-conceived policy initiatives that over-regulate, excessively tax or otherwise restrain the aviation industry.” - Tony Tyler, Director General and CEO of IATA.

“To be perfectly frank, governments in Canada have shown an unfortunate tendency to side with the airline industry against the interests of Canadian consumers. The choice is clear: If we continue to design public policy to favour this industry, we should not be surprised by higher airline prices in Canada, lower rates of travel by Canadian residents and, ultimately, more Canadians going south across the border to fly from U.S. airports.” – Dr. Ambarish Chandra, Rotman School of Management, University of Toronto.

“The Qantas - Air Canada comparison is a tale of two cultures. A free market is people making choices as consumers. Qantas is responding to consumer choice. Air Canada is angry that people are not choosing it.” - Ken Phillips, Executive Director, Independent Contractors of Australia.

“I am actually somewhat different from my counterparts around Europe. I have no problem with what Middle East carriers are doing. Rather than be critical I think we should look to them as an example of what can be done. I personally believe the industry has matured to a point where we’ll see Middle East carriers joining the alliances this year.” – Willie Walsh, CEO of IAG.

“I am pleased to announce we are pursuing the creation of a Canada-U.A.E. business council. This is a welcome step forward in boosting exchanges of all types and a sure-fire sign that our bilateral relations are getting even stronger.” – Canadian Foreign Affairs Minister John Baird.

“According to Lufthansa CEO Christoph Franz, Emirates, Etihad and Qatar Airways are extremely subsidized … Franz sits in a glasshouse when talking about state aid. The restart of Swiss - his former employer and today’s Lufthansa subsidiary - was only possible since the Swiss government helped a lot. And when Lufthansa bought Austrian Airways in 2009, the Austrian Government assumed the airline’s existing debts, amounting to about €500 million.” - Neue Zürcher Zeitung (Swiss newspaper).

“Air Canada is a private corporation that has to be competitive with other corporations. I do not have any preference as far as airlines are concerned. I think that what’s important is that we serve the Canadian territory as well as possible. The best way to increase competition is to sign agreements, and those open skies agreements let airlines come to Toronto, and those agreements specify the number of flights. The challenge is to negotiate more agreements so that more transporters can come to Canada. And if transporters want to come to Canada there’s more people who come, tourism will increase, and that’s going to be positive for Canada. That’s the challenge we want to meet.” – Maxime Bernier, Canadian Minister of State (Small Business and Tourism).

“The time of airline alliances is drawing to a close.” - Matias Campiani, President and Chief Executive, Pluna Airlines.

“Given the same circumstances, if a different company with a different name had been involved, it would have been the same result. We don’t pick winners and losers. Our mission is to create jobs.” – Ex-Im Bank spokesman, on a financing deal with GOL that will benefit Delta, which has campaigned to curtail Ex-Im activities.

“Let’s imagine a country, in which nothing exists besides sand and a box of money. What do you have to do to develop this country economically? You have to build a runway and establish a national carrier – just to bring this country on the world map and to support trade, the tourism sector and to settle industry. The Gulf countries understood that aviation is a motor for economic development. In contrast to this position we in Europe see this motor more and more only as a source for taxes.” – Christoph Franz, CEO of Lufthansa.

Zou is a respected independent analyst and media commentator specialising in Chinese and global aviation.

We asked him about the current trends in the Chinese aviation industry and China’s aviation ambition.

The 12th five year plan has ambitious goals for China’s international aviation development centered on the “going out” strategy. What are your views on the plan’s progress, successes, and challenges?

China’s “going out” strategy for civil aviation first made its appearance at the beginning of 2010. Through more than two years of hard work, domestic carriers have opened new international routes and made a special effort to cooperate with international partners and alliances. They have seen some success, such as China Southern’s “Australian strategy.” However, as they undergo this process, the domestic airlines have come under considerable pressure. From one side, they face problems with raising profitability, while on another side they must build out their hub and network system. Finally, carriers are facing growing policy gaps and different management approaches as they begin to cooperate in international markets, which has had a strong impact on the “going out” process.

Which markets are driving the next five years of growth in Chinese aviation?

From the perspective of China’s economic development and foreign trade, the traditional markets of the Yangtze River delta (centered on Shanghai and Hangzhou), the Pearl River delta (centered on Guangzhou, Shenzhen, and Hong Kong), and the Beijing-Tianjin corridor are still the powerful centers driving the future growth of Chinese aviation, especially in the rapid development of the high-

end business market. Closely behind these three is the rapidly developing Cheng-Yu economic area, including the Chengdu and Chongqing markets, which will quickly become a competitive focus for both domestic and foreign airlines. Other than these areas, there is also the possibility for new growth markets surrounding the Bay of Bohai, including coastal cities in the provinces of Liaoning and Shandong.

How do the alliance strategies engaged by the Chinese carriers facilitate or constrain their network development?

In recent years, the three domestic airline giants, Air China, China Southern, and China Eastern, have one after another joined the Star Alliance and SkyTeam alliances, to some degree improving their service and operations management capabilities, and lending support to their development and operation of international routes. However, in terms of deepening cooperation and improving profitability, due to their comparatively low international competitiveness, and the different regulatory regimes of China and the West, Chinese airlines haven’t been able to achieve operational “metal neutrality” with European and American airlines, and have a limited voice to influence alliance decisions.

What impact is global connectivity having on secondary markets in China?

The increase in global connectivity is effectively promoting the economic vitality of secondary cities across China, and is offering more opportunities for industrial upgrading. Especially in the cities of Chengdu and Chongqing, high investment in new technologies such as computers and personal electronic devices is driving the rapid development of air transport needs. The other side of this equation is that as the number of international flights into these two cities has grown, it has increased the opportunity and ability for them to communicate with the world, and has led to even more companies entering the local market. This has become the pattern for aviation growth and economic development in China’s secondary markets.

What effect do you see of the EU ETS on EU-China relations, and what will be the knock-on effect on Chinese international aviation?

The European Union Emissions Trading Scheme will to a large degree affect the trade relationship

Sector Insight 2012

10

 

Zou JianjunAssociate Professor at the Civil Aviation Management Institute of China

11

.... from a Chinese perspectivebetween the EU and China, perhaps first starting with aviation services, and then extending into aircraft manufacturing and aviation technologies, with consequences possibly even in other sectors. Trade friction aside, the implementation of the ETS will undoubtedly increase the operating costs of flights between China and the EU, and may even result in some airlines in this market taking a flanking strategy for some flights, looking for a hub outside of the EU to limit the total cost of the ETS.

How is the emergence of the global south, including Africa, the Middle East, and Asia changing the dynamics of the global aviation market?

Africa, the Middle East, and Asia have great potential for air transport growth, and are rapidly changing the traditional air transport market structures. At the same time as European, American, and other developed-market carriers are cutting back on their domestic

routes, they are devoting ever more resources into the emerging markets. If you look at the airport passenger numbers for the past ten years, there is a clear downward trend among European and American airports, while there is a corresponding growth in the Asian and Middle Eastern markets, with the two patterns matching almost exactly. This is especially apparent in the rapid growth of airlines in the Middle East, where they have taken full advantage of their geographic situation, especially with the growth of the Dubai hub, which has added comparatively more pressure on traditional Asian and European hubs. The rapid growth of Middle Eastern airlines has also brought more competitive pressure on most carriers, but from an overall market development perspective, the rise of the Middle Eastern region efficiently stimulates market demand and offers more selection to the market, while it also reinvigorates traditional patterns of aviation competition, with new route networks and the layout of hub airports.

As airports and governments around the world strive to relieve capacity bottlenecks and unlock their economies for continued growth, Emirates proposes a new way to make night-time and early morning A380 flights more feasible.

The A380 is already known as a quiet aircraft and offers the best noise footprint for very large aircraft. Tests at Sydney Airport reveal that the A380 is more than six decibels quieter on departure than Boeing’s 747-400.

And with recent proposals and policy debates in cities around the world regarding the best use of existing and possible new airport infrastructure, Emirates is engaging in dialogue with aircraft manufacturers, airports and regulators to alter the normal flight path of A380s and reduce its noise footprint even further during sensitive flying times.

Emirates is examining ways to fly the aircraft on steeper-than-normal descents, and landing them further down an airport’s runways. This could reduce the number of homes within the A380’s noise contour by up to 20%, depending on the population densities of surrounding areas of an airport.

The noise reduction would be achieved by increasing the descent angle from 3 degrees to 5.5 degrees and landing 1km further down the runway.

The proposal comes as many airports – such as London Heathrow – have reached the limit of their operational capacity.

Steeper, quieter landings for the A380

A6-EXX

A380

Distance from runway in Nautical Miles

Normal flight pathSteeper Approach4,520 ft

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Fast facts

Please visit our website for more information on our public affairs and environment activitieswww.emirates.com or write to us pea@emirates.com Printed on 100%

recycled paper

Muscat

DammamBahrain

Riyadh Doha

Sana’a

Jeddah

Medina

Basra

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Kuwait

Tehran

Dubai

AmmanDamascusBeirut

ErbilZaragoza

Gothenburg

Liege

Lilongwe

Viracopos

Taipei

Almaty

Bagram

Kabul

Lomé

Eldoret

Venice

Newcastle

Toronto

Casablanca

Lisbon

Paris

Nice

Athens

Rome

Moscow

St. Petersburg

Copenhagen

SeoulBeijing

OsakaTokyo

Glasgow

ManchesterBirminghamLondon

Geneva MunichVienna

Milan

LarnacaTripoli

TunisMalta

Zurich

HamburgAmsterdam

Istanbul

Dusseldorf

Frankfurt

Shanghai

SingaporeKuala Lumpur

ManilaBangkok

Jakarta

Addis Ababa

Entebbe

Dar es Salaam

Johannesburg

Cape Town

Nairobi

LagosAccraAbidjan

Dakar Khartoum

Cairo

DubaiKolkata Hong Kong

Dhaka Guangzhou

Melbourne

Sydney

Brisbane

Perth

Auckland

Christchurch

Thiruvananthapuram

ChennaiBengaluruKozhikode

LahoreIslamabad

Peshawar

HyderabadMumbai

Delhi

KarachiAhmedabad

Malé

KochiColombo

Mauritius

Seychelles

LusakaHarare

São PauloRio de Janeiro

Buenos Aires

New YorkWashington, DC

Los Angeles

San Francisco

Seattle

Houston

Dallas/Fort Worth

Luanda

Durban

Madrid Barcelona

Prague

Dublin

Ho Chi Minh City

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Route MapApril 2012

Passenger Routes

Freighter Routes

Passenger & Freighter Routes

Baghdad

2012

• Financial Auditor PwC • Financials Airline (2011/12) Revenue US$17 billion, profit US$409 million• Fuel costs (2011/12) US$6.6 billion• First flight 25 October 1985• New routes (2012) Barcelona, Buenos Aires, Dallas, Dublin, Erbil, Harare, Ho Chi Minh City, Lisbon, Lusaka, Rio de Janeiro, Seattle and Washington• A380 fleet 21 (on order 69)• A380 routes Auckland, Bangkok, Beijing, Hong Kong, Jeddah, Johannesburg, Kuala Lumpur, London Heathrow, Manchester, Munich, New York JFK, Paris, Rome, Seoul, Shanghai, Sydney and Toronto

• Aircraft in fleet 175• Number of destinations 123• Passengers (FY2011/12) 34 million• Cargo (FY2011/12) 1.8 million tonnes• Employees (Airline) 42,422• Passenger Seat Factor (FY2011/12) 80%• Nationalities in workforce 163• Emirates dedicated lounges 31• Emirates flights daily (arrivals and departures) 323• Number of on-board meals a day 80,000• Aircraft on order 228• Recycling at our Dubai offices (FY2011/12) 5.34 million kgs

Emirates welcomes a robust, fact-based debate on the issue of subsidy. Our longstanding position is that Emirates is opposed to state aid and we campaign against airline subsidies. However, we understand that in the case of Emirates, despite no evidence, an oft repeated myth can ultimately be accepted as conventional wisdom.

Emirates has therefore just released a report entitled Airlines and subsidy: our position, which explains our views on subsidy in the airline industry, explanations about Emirates’ business model and our response to misrepresentations that have been levelled against us – from claims about subsidised fuel, financial support and staff conditions to environmental regulation and airport charges. Some of the myths - and corresponding facts - include:

Emirates’ view on the subsidy debate

Myth Emirates is subsidisedFACT Completely unsubsidised. We campaign against airline subsidies

Myth Emirates receives financial support from the Dubai GovernmentFACT False. We have raised US$26 billion over the last 15 years from international financing institutions and banks with no capital infusions from the UAE Government

Myth Emirates accesses cheap or free fuelFACT False. We buy fuel from BP, Shell and Chevron in Dubai and worldwide at market rates

Myth Airline subsidies are a “Gulf” problemFACT Market-distorting subsidies and government support are sadly present in every world region

Myth US and European airlines received support decades ago but are now subsidy-freeFACT Bankruptcy protection and government bailouts continue to exist

Myth Emirates’ lower labour costs and landing fees help it undercut the marketFACT We price all our tickets commercially. Our costs are fully in line with our regional and international counterparts