Range and competition

In 1999, when Boeing “was messing” with tweaking the 777‑200/300 to try to extract more range, Clark insisted on a more powerful engine. Thus the GE90-115B was born. But none of this should be a surprise to anyone who has followed the industry over the last 50 years.

In the 1950s and 1960s Pan Am and TWA dominated the North Atlantic and the world as the economic range of aircraft only just allowed New York/Chicago to Paris and London. Dallas to Warsaw was off the radar.

With longer-range capability and the emergence of 90 and 120-minute ETOPS, airlines could bypass fortress New York and London. Thus the demise of Pan Am and TWA was virtually guaranteed.

And while neither of these two airlines enjoyed government subsidies – both were beneficiaries of government-controlled traffic rights that stifled competition.

Through the 1970s another dynamic emerged in the form of Asia-based carriers that snubbed their noses at IATA and started to serve free drinks and provide free entertainment.

In the 1950s it was Pan Am that shocked the air travel world by introducing economy class much to the horror of European airlines.

IATA was in such a flap over this development it insisted on controlling the number of vegetables that could be served to economy passengers and there was even a definition for the humble sandwich.

So it would seem there is something that doesn’t change – European hostility to competition.

The European argument about unfair subsidies to Emirates is ill-founded and the fact is that European airlines have had numerous bailouts.

Air France received €300 million and €580 million government capital injections in 1991 and 1992 and another €3 billion in 1994. Iberia picked up €560 million from the Spanish government in 1996 and Swiss US$1. 5 billion in state aid in 2002, while Alitalia is one continuous bailout.

On Emirates, according to UBS, “the audited financial accounts contain no material surprises once one gets used to seeing consistent profits at an airline”, while JP Morgan says “we cannot find anything in Emirates’ accounts that indicates the business is subsidised directly or indirectly or given any undue preferences”. So what drives the incredible Emirates phenomenon? Simple really – and the same dynamics that have always driven commercial aviation – longer-ranged aircraft, first to market with innovations that matter like seat back videos, and governments that understand and support aviation.

Emirates, Etihad and Qatar now have aircraft that can bypass Europe to the west coast of the US and bypass Singapore to the east coast of Australia.

However, even as Qantas and Emirates toast their “born-again seismic not to mention game-changing relationship”, winds of further change are blowing in the form of China. This time the weapon will be price.

Already we have seen fare sales at 50 per cent less than the traditional airlines, while the product is improving on an almost daily basis. China Southern has even coined the “Canton Route” as its new route from Australia to Europe.

For many years Chinese airlines had been held back by their safety record – but that has all changed. Not one fatality in 10 years for the majors and the government regulator scores among the highest in the ICAO audit.

The Chinese airlines are also employing Aussie and European flight attendants to cater for global cultures.

Sooner than later China will do away with entry visas opening the floodgates for tourists who want to break their journey. And if India ever gets its act together, even more challengers will emerge.

For Qantas the Emirates deal is a saviour, but it must not rest for China is the new force in aviation.

The European argument about unfair competition is ill-founded.