Delta cuts Atlanta-Dubai route but publication questions the stated reasons
Delta Air Lines will cease operating its Atlanta-Dubai route in February 2016 (Photo: Delta Air Lines)
On Wednesday Delta Air Lines announced it would cease flying its Atlanta to Dubai route in February 2016. The airline noted that "between 2008 and 2014, about 11,000 daily seats were added between the U.S. and Dubai, Doha, and Abu Dhabi – more than 95 percent of which are flown by Gulf carriers Emirates, Qatar and Etihad airlines." Shortly after the announcement a Delta executive, in an interview with an Atlanta public radio station, reiterated the airline's concern over unfair competition in the market for flights between the U.S. and Gulf states:
“We would applaud and embrace the opportunity to compete with the Gulf carriers if in fact they were living consistent with the terms of the Open Skies agreements we’ve entered into,” Peter Carter, Delta’s E.V.P. and Chief Legal Officer, told Atlanta’s WABE public radio station. “The problem we have is with the subsidies they’re receiving.”
I think there is merit, in general, to the argument that private, for-profit companies are at an unfair disadvantage to competitors that are not merely not-for-profit but rather exist as a money-losing going-concern due government backstopping. I have no problem with an entity being organized to operate and simply cover its costs without generating profits if those operations are self-contained. However, when those competitors receive funding from sources other than their own operations and private financing, namely from governments which garner revenue not through the free market but via authority to levy and collect taxes by force of law, that enables unfair competition. Such a market structure allows certain competitors to price their products without profit constraints or to provide enhanced service offerings - which come at a higher cost - at similar prices to their for-profit competitors. To the degree that at least two of the three Gulf "Big Three" carriers operate under such an arrangement, Delta, American and United have legitimate complaints about unfair competitive practices. However, government subsidies notwithstanding, an industry publication wrote later on Wednesday about what they consider to be the real reason Delta pulled out of its Dubai service.
In an article titled "The real reason Delta is pulling out of Dubai," Air Transport World wrote that the Atlanta-based carrier is ceasing the service is due to network deficiencies versus that of Emirates in the Middle East and Indian sub-continent.
“Delta’s 777 will take you from Atlanta to Dubai, but from there (unless you transfer to Emirates), it’s a dead end. And, as Delta references in its statement today, the majority of people who fly from outside the Gulf states on one of three Gulf carriers are not going to Abu Dhabi, Doha or Dubai. They are transiting, and in ever larger numbers, their real destination is the sub-Indian continent: Bangladesh, India, Pakistan and so on, all places where, as the Emirates route map shows, the Dubai carrier offers multiple city destinations.”
I can't disagree with some of the premises behind ATW's conclusion that Delta is leveraging a decision based on operational realities as a vehicle to make a political statement by disingenuously attributing the cause of the decision to political issues that are not at play. There is no doubt that any Emirates, Etihad or Qatar flights into the Middle East, including the Atlanta-Doha route on Qatar scheduled for 2016, feed directly into a major international hub that also serves southern Asia. As Dubai is the end of a spoke for Delta with no network of their own or via a partner in Southern Asia, the route is not attractive to the majority of passengers who are merely transiting a Middle Eastern hub. While this reasoning cannot be discounted and a reasonable analysis would conclude that it is likely a significant, if not major, factor in Delta's announcement, the legitimate competitive disadvantage for Delta in serving the route for customers terminating in Dubai remains.
Except for passengers who live in Atlanta, all Delta customers have to make a connection in Atlanta. Once a connection is required, Emirates becomes a stronger option for customers that would have to similarly connect onto an Emirates flight. Since Atlanta alone likely cannot support such a large aircraft with high frequency on that route, Delta needs to out-compete Emirates for the connecting passengers. This is where the unfair advantages of government subsidy come into play for the Middle East Big Three.
There is little doubt that the on-board experience and service on Emirates surpasses that of Delta, especially when Delta only provides business class on its 777 versus the immaculate First Class on an Emirates A380 from multiple U.S. airports. Simply watching videos of the respective premium cabins confirm this.
Review of Delta 777 Business Elite Service (LAX-NRT)
Review of Emirates A380 First Class Service (Melbourne-Auckland)
If Emirates (or Etihad or Qatar) can use government subsidies to offer a superior product but remain price competitive with Delta's relatively lower quality premium service, Delta's competitive arguments take on greater authenticity. Even though I live in Atlanta and though I have been a loyal Delta customer for decades, the Emirates premium product was a huge reason I jumped into the points and miles community. Granted, I see commercial air travel as part of my travel experience and not merely transport from point A to point B. But given the choice of Emirates (or Etihad) First versus Delta Business Elite, at a reasonably similar price point, I would absolutely opt for Emirates, even though I would have to make a domestic connection. To the degree that the disparity is similar in Economy, that is precisely why Delta and its U.S.-based competitors have a legitimate point about unfair competition, even if that is not the root cause for the termination of their Atlanta-Dubai service.