The German Federal Office for Transport has written to Emirates to request that they increase their Business Class fares on some routes from Germany to destinations in Asia and Africa. Emirates say this will mean they have to increase some fares by 20% and intend to complain to the European Commission.
We have all become so used to open competition that it is easy to forget that many air services beyond Europe are still subject to restrictive bilateral agreements between the countries involved. Emirates is allowed to operate from Germany on the basis that it does not engage in “price leadership”.
This is where the argument might become complicated. It is to be expected that Emirates will undercut Lufthansa and other direct carriers on flights to Asia and Africa – no one is going to choose to fly via Dubai in preference to a direct flight unless there is a definite price advantage. But how big should this be before it becomes a question of an airline dumping capacity at any price?
It could be that the strength of the Euro is making Germany a rather tempting target for Emirates at the moment. Depending on how they handle their internal accounting, they might be able to reduce their fares ex-Germany by 20% from what they were in 2008 and still make more money – as well as increasing their passenger numbers and total yield.
The other slightly intriguing issue is that we have never seen Emirates as a particularly aggressive airline on pricing in the UK. They tend to stress their service and availability of regional departures, over price.
In itself, this is a fairly small issue – one airline’s Business Class fares on a handful of routes from one country. However, if the same line is followed by other countries, including those outside Europe, it could have some very interesting effects.