Emirates forced to raise fare prices

A German decision to force carriers including Emirates Airline to raise fees on certain business class seats constitutes a return to protectionism, aviation analysts said.

A German decision to force carriers including Emirates Airline to raise fees on certain business class seats constitutes a return to the "bad old days" of 1970s protectionism, aviation analysts said. Emirates is being forced by the German Federal Office for Goods and Transport to raise some business class fares to the same level as Lufthansa's, which are being maintained at "artificially high levels", the Dubai airline said in its inflight magazine this month.

Some observers said the move was an outdated response to competition. "In policy terms it is inexcusable in today's world," said Peter Harbison, the executive chairman of the Centre for Asia Pacific Aviation in Sydney. The fares in question include business class seats on flights from Frankfurt to Johannesburg, from Hamburg to Singapore and from Berlin to Singapore, which Emirates operates via its hub in Dubai.

The German government said that it was illegal for non-EU airlines such as Emirates to undercut the prices of other carriers on routes from Germany to non-EU destinations, citing its international bilateral air transport agreements and European Parliament rules. This means that "in effect, Lufthansa is able to set fares unilaterally on the Johannesburg route", Mr Harbison said. "It just may be relevant that the South African market is a very valuable one for Lufthansa and the carrier may be planning to use its [superjumbo] A380 on the route around the time of next year's World Cup."

"We believe not only is this anti-competitive, but that this selective and non-transparent tariff matching policy is not in the interests of German consumers," said Emirates. Airlines including British Airways and Air France-KLM were undercutting its fares on the routes, it added. Although Lufthansa has denied any involvement in the governmental order, analysts say they are sceptical of the claims.

"This seems to be a state protectionist move to curb losses and falling premium traffic at Lufthansa," said Saj Ahmad, an analyst at FleetBuzz Editorial.com. "Emirates could well respond by cancelling Airbus A350/380 orders [whose components are made in Germany], but in reality they can certainly seek and likely get concessions or other financial compensation." Mr Harbison said Lufthansa was "very concerned" about Emirates, the largest Arab carrier and one of the most profitable airlines in the world. "Lufthansa is one of the most vociferous opponents of the 'government-funded' Emirates, [a claim] without evidence," he said.

The new revelations add another twist in Emirates's long-standing efforts to expand its network and make its Dubai base the new centre for long-haul travel between Asia and the West. Emirates is taking on greater market share from its Asian and European rivals amid a recession that will force airlines to lose an expected US$11 billion (Dh40.4bn) worldwide this year. While the UAE has an open skies policy and allows any airline access to its airports, Germany and Canada - in tandem with their flag carriers Lufthansa and Air Canada - have opposed Emirates's requests for more access. Canada, for example, limits both Emirates and Etihad to just three flights per week each.

Emirates, meanwhile, has begun to fight back against its detractors, particularly airlines that are members of airline alliances such as Star and SkyTeam, which it calls anti-competitive. Andrew Parker, the top governmental affairs executive at Emirates, took issue with the German decision and described it as "the equivalent of Mercedes complaining about the prices of Lexus". Emirates faced fines and diplomatic action if it refused to raise fares.

"Given the scale of fines being threatened, Emirates had no choice but to adjust the tariffs in question," the airline said. * with wire services @Email:[e-mail]