MIAMI — In part one of this column, I covered the legal dynamics of the battle, the US carriers’ financial interests via joint ventures, and the threat of fifth freedom routes. Now with those dynamics out of the way, I cannot pass without commenting on one of the more laughable salvos in this war of words. With the US3 and MEB3 firing back and forth through the press, Emirates CEO Shaikh Ahmad Bin Saeed Al Maktoum threw the following jab at his (more profitable) US competitors, “Offer the best to the passengers and people will fly with you.” His implication, of course, is a variation on the usual boilerplate line about US airlines offering poor service quality while international carriers offer the sun , the moon, and the Mona Lisa; all for the low, low price of $1.99.
Reality of course is much more nuanced than that. For the moment, let’s set aside the fact that airline products are about more than just service quality. But to start there, Emirates, Etihad, and Qatar Airways do certainly surpass the US3 in that area of the product. The gap is closer than most people think (how comfortable is the 7-abreast business class on many of Emirates’ US flights or the 10-abreast economy class on their Boeing 777-300ER?), but it undeniably exists. There’s a very good reason for that. Unlike the MEB3, US carriers usually have to get some sort of return on their product investment, and accordingly, they weight their investment dollars heavily towards the kinds of improvements that people will actually pay for. US carriers have spent a lot of money on upgrading their business class seats to flatbeds, and commensurately not as much on building palatial lounges at their hubs.
More importantly, airline products encompass a lot more than just onboard service quality; in particular route. At the end of the day, customers do care about getting from point A to point B, in particular with nonstop flights. And unlike the MEB3 (who funnel absolutely everyone through their central hubs), the US3 provide a ton of different nonstop international from several different hubs. So when Al Maktoum asks US carriers to compete on product, the answer is that they already are, merely by offering nonstop flights.
Consumers Better Off with MEB3 Presence
Despite that defense, consumers are undoubtedly better off for the MEB3’s presence in this country. On a visceral level, they represent additional competition on international routes, driving down prices. This effect has become particularly important in recent years as previously robust competitive environments have been eroded by the spread of antitrust immunity and joint ventures between US airlines and foreign *competitors.* The entrance of Emirates onto fifth freedom routes (such as Milan – New York JFK) could potentially play an important role in offsetting the pricing power the US3 now hold on trans-Atlantic and trans-Pacific routes.
Moreover, the MEB3 substantially increase indirect customer choice. While they don’t offer a lot of nonstop options beyond their central hubs, the MEB3 (in particular Emirates) offer convenient one-stop service to secondary destinations across South and Central Asia, the Middle East, and North Africa. Consumers love these options (not in the least because they allow them to avoid frequently bottlenecked primary hub airports in these countries) and by and large these destinations were double connects from anywhere but New York prior to the rise of the MEB3.
Ultimately, customers are made better off by the MEB3’s existence. The competitive impact on the US3 is limited (even in a world where the MEB3 offer more fifth freedom flights), and while a direct economic impact on jobs at US carriers may arise, those costs are more than offset by the aggregation of customer benefits.
To give a back of the envelope example, let’s assume that the MEB3 cause the loss of 1,000 jobs (their international footprint in the US would have to be ten times its current size for this to ever happen, but lets roll with the example). At 70,000 per job, the economic *harm* caused by this job loss amounts to $70 million. But if through their own service and their pricing effect on competing airlines, they save 2 million customers an average of $50 per ticket, the economic benefits amount to $100 million. The overall US economy comes out ahead. Of course lost jobs have an effect in the additional spending that is lost from those employees, but that is offset by a mass of consumers having an extra $100 million to spend. The problem is that the lost jobs are highly visible, whereas the consumers saving money form something of a “silent majority.”
But if the legal question is decided against the MEB3, political expediency might force US political officials to act against the interests of US consumers, regardless of the long run harm that would be caused.