Italian Court Cancels Emirates New York-Milan Route – Are Freedom of the Air Routes in Danger?

Apr 15, 2014

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The airline industry is pretty competitive and there are a lot of routes that have seen increased competition in the past few years, including New York and Milan Malpensa. Last year, Emirates muscled in on it with a flight of its own and entered into direct competition with incumbents Delta and Alitalia (both of whom I have flown on this route) as well as American Airlines and United from Newark. Unfortunately, looks like the route is about to get a lot less competitive now that an Italian court has barred Emirates from flying it in response to a complaint brought by Assaereo (and backed by Delta), a trade group that represents Alitalia and other Italian airlines.

Emirates Airlines and Virgin America announced their new partnership today.
You won’t be flying Emirates to Milan anytime soon if Alitalia has anything to say about it.

The complaint alleged that Emirates‘ new service on the route – which is the only one offering first class service from JFK, as well – violated international aviation laws, and it looks like a court in Rome has agreed based on Assaero’s case that the flight broke the bi-lateral air service agreement between Italy and the UAE because a non-European airline and one that isn’t from the country of departure or destination has no right to use Milan as a stopover point.

Emirates has appealed and a higher court, the Council of State, has temporarily suspended the lower Lazio district court’s ruling, so the flight will continue to operate until a final decision is reached.

According to the Wall Street Journal, when Emirates launched its service, it eventually increased traffic on this route by 62% and became the busiest carrier on it with over 50% more seats than Alitalia was operating on it, and pulling ahead of Delta, Alitalia and American Airlines. As a result, fares dropped dramatically and hurt an already financially ailing Alitalia – which, interestingly enough, is in talks to sell as much as a 49% stake to Emirates‘ competitor, Etihad. The plot thickens!

My Thoughts

This is an interesting turn of events for a lot of reasons. First, Emirates launching the new route was an example of how the rapidly growing airline – one of three expanding premium carriers based in the Gulf – was strategizing its expansion beyond its Middle East hub in Dubai. Emirates is considering extending its routes to include stopovers in Europe en route from Dubai to new North and South American gateways, and if this ruling stands, it could put the brakes on those plans indefinitely. However, Emirates apparently has been approached by other airports in other European countries including in Germany, Spain, the UK and in Scandinavia, to launch flights from North America like its Milan route, so it sounds like the airline has other options on the back burner.

In a way, this suit is unsurprising given the protectionist nature of EU air traffic rules and the seemingly never-ending poor financial situation of Alitalia, but it’s distressing on a number of levels as well. First, the US isn’t much of a different case. For the most part, foreign airlines are barred from operating domestically in the US – and as a result, the passenger experience suffers even as airfares rise and carriers consolidate into even bigger monopolies.

Countries take an aggressively protective stance when it comes to regulating their airline industries, even if they have deregulated like the US did, and that means less competition, fewer choices, and higher airfares.

It might also mean that these freedom routes (there are 9″Freedoms of the Air” – I won’t get into the technicalities of what each is here, but you can read more on Wikipedia), as they’re sometimes called, might dry up in other parts of the world, like that Air France flight from LAX to Tahiti or Korean Air’s flight from LAX to Sao Paulo, Air New Zealand’s LAX-London flight just for a couple off the top of my head. And that’s not even counting US carriers that operate flights between cities on other continents such as the Untied flight that I took from SFO to Sydney that continued on to Melbourne, or the variety of continuing flights Delta operates from Tokyo Narita to other Asian destinations, or Delta’s Amsterdam-Mumbai flight.

You can transfer Chase Ultimate Rewards to Korean Air.
Could this ruling mean other flights like KE’s LAX-GRU route might come into question?

However, these routes can accomplish a lot of good when it comes to consumers. They offer more options and competition, which keeps airlines on their toes by going head to head with their onboard products, new airplanes and decent airfares. These routes usually come under fire by local and national airlines who cannot face competition from large international carriers with newer products, services, visibility and fare flexibility – and that means passengers have to settle for outdated airplanes and lower quality service.

After all, it’s on the busiest routes that airlines try to do their best to woo the high-value customers. Look at the competition on that lucrative New York-London route. All the airlines operating there have introduced their newest business class products and most up-to-date planes including American’s new 777-300ER, Virgin Atlantic’s new Upper Class, BA’s (now not-so-new) first class, and Delta’s BusinessElite. Likewise, Korean Air operating its LAX-GRU flight has probably meant that American put its new 777-300’s into service on its route from JFK to GRU as has TAM to stay competitive and attract flyers to their US hubs rather than seeing them flock to LA for the top-shelf Asian carrier’s flight to Brazil.

I doubt we’ll see foreign carriers operating flights freely within the US anytime soon – though how fun would it be to take an Emirates A380 transcontinentally, or hop on TAM’s 777-300 from Miami to New York? – but I also hope that this ruling doesn’t have a ripple effect and prompt more lawsuits by ossified national carriers to prevent top-tier airlines like Emirates and others from operating lucrative routes in otherwise underserved markets and thus making the options and airfares less palatable to most flyers.

In fact, I’d love to see more of these flights all over the globe – more competition is great on a lot of levels. Airlines stay up-to-date and have more revenue opportunities, consumers get more options and better service, and we all win. I know that’s whitewashing it and that airlines will see it another way, but relying on calcified domestic routes and point-to-point international routes rather than a more round-the-world approach is simply not keeping up with the times.

What are your thoughts? Should airlines be able to operate between countries where they are not based?

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