Italy: Emirates Granted "Fifth Freedom Rights" For Milan-New York Flights: A New Target On EU - U.S. Routes

A new scenario is taking shape in the airline industry with the rapid expansion of Emirates, the Persian Gulf-based airline, which in a recent development has begun offering services between the European Union and the U.S. through direct flights as well as under special partnerships with other airlines.

The Abu Dhabi-based Etihad Airways is all set to ferry passengers bound for the U.S. through Dublin, under a deal with Irish flag carrier Aer Lingus. Dubai's Emirates airline, Etihad and Qatar Airways have recently added flights to the Americas, before having significantly expanding into Asia and Europe.

The largest among the above, Emirates, is a subsidiary of the Emirates Group, which is wholly owned by the Dubai Government and a subsidiary of the Investment Corporation of Dubai. Founded only in 1985, by the early 1990s, it had made giant strides to become one of the world's fastest growing airlines. In October 2008, it opened the largest terminal in the world, handling over 27 million passengers.

Emirates has requested slots and traffic rights in order to be granted the right to extend one of its three daily flights from Dubai (DXB) to Milan Malpensa (MXP) onwards to New York's John F. Kennedy International (JFK) from the 1st of October 2013.

After an analysis of the relevant traffic flows, Emirates has affirmed the identification of a strong demand for both direct connections as well the Emirates brand name which is considered to stand out from the rest, being the only carrier in the region to offer a first class cabin.

On the 8th of April, the Italian Civil Aviation Authority (ENAC) has authorized the proposed services on an extra bilateral basis, thus granting the fast growing UAE carrier rights to land in Italian territory, and board passengers travelling on to a third state, the U.S., where the passengers disembark (also known as "beyond rights").

This long-haul route, which allows Emirates to operate scheduled flights to pick up passengers in Italy and take them to the U.S. can be defined as an expression of the "fifth freedom" provided by the Chicago Convention of 1944, which was firstly aimed at preparing a framework within which civil air transport could develop.

The route is thus enabled by the "open skies" agreement between the U.S. and EU, along with special authorization by Italian aviation regulators. Rules that govern such routes allow an airline to fly paying customers between two foreign cities, as long as the flight continues to or from its home country. In the Emirates' case, its Milan – New York route will continue to and from its main hub, Dubai.

After having abandoned a similar route via Hamburg Fuhlsbüttel (HAM) to New York JFK some years ago, this is going to be Emirates' long-haul flight between Europe and the Americas. Eventually, this would mean that from the coming autumn, Emirates will be operating three daily flights linking Dubai with New York. The one-stopper via Milan will complement Emirates' twice daily non-stop A380 services.

Currently, the three carriers plying the route are Alitalia, Delta and American Airlines. This new offering from the Emirates brand is likely to provide more choice for business people travelling the route.

As far as this sector is concerned, currently, Emirates is the only carrier to offer first class cabins amongst its range of products. Their service can accommodate 8 passengers in first class, 42 in business and 310 in the economy class, whereas its competitors, viz., Alitalia, Delta and American Airlines, have business class as their best onboard product.

Moreover, the new daily service will be operated by a three-class 360-seat Boeing 777-300ER jet, potentially the best aircraft available in the market. Alitalia plies the route with A330 while Delta and American Airlines operate versions of the B767.

In light of the above factors, Emirates sees a new and clear opening for its business since the route has been hitherto bereft of any strong premium product offerings. Also, similar one-stop services have proved to be quite popular on other routes of the UAE carrier, affording its passengers the opportunity to experience new destinations or to break up their journey on longer trips. The Middle East airline acknowledges that Malpensa is an interesting facility due to its proximity to the Swiss border and due to the fact that Lugano airport (LUG) cannot handle long-haul flights.

However, from a EU perspective, Emirates' foray into the EU-U.S. air transport market could represent a concern in terms of loss of traffic for its European competitors because trans-Atlantic routes are considered to be amongst the biggest profit centers for many European carriers.

In addition, it must be noted that the global financial crisis has put at a disadvantage companies like Alitalia that had already exhibited signs of financial weakness and economic vulnerability.

Nonetheless, in the case of Alitalia, the former Italian flag carrier could potentially cope with the aforementioned challenges, given the fact that the huge non-EU airline is today allowed to offer services, which until now, was a prerogative of flag airlines.

Alitalia's concerns could also compound due to its real financial situation, and an increasingly aggressive onslaught from low-cost carriers such as Ryanair and EasyJet, which have gained significant market shares.

On the other hand, Emirates has built up a strong brand name as a leader in the aviation industry, particularly in terms of service excellence and rapid expansion, coupled with consistent profitability. Now it has been granted the chance to target a significant route like the one linking Milan and New York.

In response to the aforementioned scenario, the European Union, through the Commission, and recently through the Parliament (draft report on the EU's External Aviation Policy – Addressing future challenges 2012/2299(INI) of the 1st of March 2013), has focused on the consolidation of the EU's aviation industry in the global market.

In particular, the European Parliament acknowledged that the global position of non-EU carriers has been reinforced through massive new investments in aircraft and infrastructure that have already been undertaken in various parts of the Middle East. The competitiveness of EU carriers has been further affected by factors such as state aid provided to its competitors that are not subject to EU competition laws, varying rates of taxes, airport congestion, high ATM and airport charges.

Taking all these into consideration, the Parliament has stressed the importance of fair and open competition, hoping for inclusion of standard fair-competition clauses in bilateral air service agreements, and calling on the Commission to define a minimum set of standard requirements to be included therein.

Strategically speaking, the European Union needs to preserve a competitive aviation industry, which must also be developed in external markets.

Again, in the case of Alitalia, aside of the concerns revealed by European Institutions, it remains to be seen whether Alitalia will be capable to implement effective commercial strategies in order to avoid loss of trans-Atlantic market shares.

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