Emirates Airline comments on the 2017 Netherlands-UAE market monitor report

General observations:

- In 2015, the Dutch Ministry of Infrastructure commissioned SEO Economic Research (“SEO”) to
produce a monitor report in response to the request by Emirates to upgauge an existing Boeing
777 service to an Airbus A380 service on the route between Amsterdam and Dubai. This monitor
report was finalised in November 2015 and published in February 2016. The monitor’s sole
purpose was to assess if the airlines of the UAE complied with the provisions of the bilateral Air
Services Agreement (“the ASA”) between the Netherlands and the UAE (ref.: letter from the then
State Secretary Sharon Dijksma of 18 February 2016 to the Dutch Lower House). In that monitor
report, SEO concluded that UAE airlines did indeed comply with the ASA provisions and State
Secretary Dijksma confirmed this to the Lower House.
- Later in 2016, the ministry announced it was going to commission SEO to produce a new monitor
report, to analyse capacity, demand and ticket price developments on the Netherlands-UAE
market as far as passenger traffic is concerned. In the introduction, SEO states that the monitor
report will look at those elements in the context of articles 6 and 9 in the ASA. This second
monitor report was finalised in November 2017 and released for selected stakeholder comments
on 7 March 2018.
- With regard to this contextual basis of the report, Emirates would query why SEO does not make
reference to the UAE/Netherlands Confidential Memorandum of Understanding signed on 10
April 2000, which allows the designated airline(s) the right to operate any number of
frequencies, and the use of any aircraft type.
- In general, Emirates agrees with SEO’s conclusions in its second monitor report. While SEO does
not explicitly confirm – like it did in 2016 in the first monitor report – that the Netherlands–UAE
ASA provisions are complied with, the conclusions suggest there would be no basis for the
Ministry to use articles 6 and 9 of the ASA to selectively interfere in the Netherlands-UAE
aviation market.
- Considering the precedent established by the 2015 monitor report, and in light of the
conclusions drawn by SEO in its second monitor report, Emirates would argue it would be
reasonable and logical that a similar statement regarding ASA compliance is included.
- Moreover, as the Netherlands-UAE air service arrangements are based on the principles of free
and open markets, any interference would do harm to the most fundamental objective of those
arrangements, namely, to foster airline competition in the interest of consumers, economic
growth, and prosperity.
- Emirates would also – in light of the conclusions drawn by SEO in its second monitor report –
question the need for the ministry to commission a monitor for the Netherlands-UAE market
again.

Section-by-section comments:

Section 3 - Market context

- On page 5, SEO writes that “increasing competition has led to shrinking market shares of
European hub carriers and a smaller margin per passenger flown. If European hub carriers are to
remain competitive, significant cost reductions are required. However, this is not easy: the
European hub carriers have a legacy of high labour costs and generous working conditions, which
are not easy to adjust due to the strong position of trade unions” (paragraph 3.1, p. 5). Emirates
believes this observation is important and should be taken into account in any wider assessment
of the degree to which Air France-KLM is affected by competition.
Section 4 - Market between the Netherlands and the UAE
- The monitor states that Emirates currently is the largest operator in the Netherlands-UAE
market. This trend reflects the increasing demand for Emirates services on the Amsterdam-Dubai
route.
- In this context, it should be noted that Emirates is the only carrier that offers a premium plus
product (first class). Therefore, the monitor report should ideally also have taken into account
that whilst a competitive overlap exists on the Amsterdam-Dubai route in terms of capacity
provided, the products offered have considerable differences.
- It is also stated there are four active players in the Netherlands-UAE market performing direct
flights between points in the Netherlands and points in the UAE.
- While for analytical purposes it may be more conducive to narrow the report scope to the fewest
possible number of active stakeholders in a market, we would emphasise there is a considerable
amount of airlines offering passenger carriage between points between the Netherlands and the
UAE, albeit with an intermediate stop.
- In fact, more than 20,000 passengers (based on MIDT bookings which excludes online bookings
and travel agent bookings, hence the actual number is likely to be higher) were carried by non-
UAE and non-Dutch airlines between the Netherlands and UAE in 2016. Ideally, the monitor
should also have encompassed all these other competitors as well. This factor is particularly
important when looking at the ticket prices offered (paragraph 4.4, pp. 14-15) and in relation to
the stated focus on fares and predatory pricing (Introduction, p. 1). It is also relevant in the
context of how “passengers are inclined towards paying less for an indirect flight because the
longer travel time and the inconvenience of a stopover” (paragraph 5.4, p. 21).
- It is also relevant in the context of how this monitor report looks at “markets beyond UAE” in
isolation and without taking into account other airlines active in those beyond markets, where
those airlines offer connectivity from Amsterdam but with a stopover in a hub different to Dubai
and Abu Dhabi.
- All this said, Emirates notes that this indicates that the Netherlands-UAE market is extremely
competitive and would stress that it is testament to the attractiveness of Amsterdam and the
Netherlands as a market. The “substantial growth” in origin/destination passengers between the
Netherlands and the UAE in the period 2011-2016 (41%; as mentioned in table 4.10, p. 18)
referenced in the report is a factual and precise indicator of this attractiveness.
- Finally, Emirates notes the monitor report’s findings (paragraph 4.4, p. 15) that there is no proof
that increased capacity by Emirates on the Amsterdam-Dubai route has led to “substantially
lower ticket prices”.

Section 5 - Markets beyond the UAE

- Emirates believes that generally, “important beyond markets” should not be looked at in
isolation, but as part of a qualitative evaluation of network contribution and quality. Whilst there
may be some degree of destination overlap between Emirates and KLM on some beyond
markets, there are also beyond market destinations served by Emirates that are not served at all,
or served to a minimal degree by Dutch-designated carriers or their JV/alliance partners.
- We note that SEO concludes Emirates is not a price leader, save for some routes that require a
stopover. Price leadership on routes requiring a stopover is a normal trend in the aviation
industry, per the reference in section 5.4.
- Finally, it is also worthwhile asking to which extent the monitor report’s findings may be linked to
the fact that KLM has chosen not to increase seat capacity to a number of markets it serves
directly and as a result of that, the demand has spilled over to carriers that do offer similar
connectivity but with a stopover?
Section 6 - Econometric analysis
- Emirates finds the econometric analysis robust and notes the conclusion that there is no precise
indication of how an increase in Emirates’ market share shows an effect on ticket prices. In terms
of the analysed beyond markets specifically, and how increased competition may have a
downwards effect on ticket prices here, Emirates would argue that generally, when competition
increases, an expected fall in prices may occur.

Section 7 - Conclusions
- Emirates notes and agrees with the conclusions in the monitor report and would argue that the
findings underscore that the Netherlands-UAE market is extremely competitive and that there
are no indications that Emirates’ presence or growth in the market (and on the beyond markets
analysed) leads to negative effects or pressures on other airlines in the market.
- Considering that the monitor report is carried out having in mind the specific ASA provisions
mentioned in the introduction, Emirates would again (as mentioned in our general observations)
query the reason(s) behind the absence of any such ASA references in the monitor report’s
conclusions.
- As a general concluding remark, it is worthwhile emphasising that between 1986 and 2010 KLM,
enjoyed a virtual monopoly on services between Amsterdam and Dubai on the basis of a very
liberal ASA - the terms of which were originally proposed by the Netherlands to the UAE. When
Emirates commenced services in 2010, the total passenger numbers on the Dubai-Amsterdam
route grew by 50%, and the number of passengers on KLM grew too. Hence, Emirates’ presence
in Amsterdam not only creates additional market growth, it also enhances connectivity, increases
trade opportunities and generates tourism for Amsterdam and the Netherlands as a whole.