Delta: We've Lost $5 Million Flying Atlanta-Dubai and Nobody Subsidizes Us
In the debate over Delta's (DAL) - Get Report decision to cease flying Atlanta-Dubai, Emirates has reached for the sky in a pseudo-analysis of Delta's motive.
In a statement released Friday, Emirates charged that Delta will pull down a profitable route in order to make a political point. "We can only conclude that this is a political move to position Delta as a 'victim' of the Gulf carriers," Emirates said.
That seems ludicrous. A better explanation might be that with the three subsidized Gulf carriers rapidly adding non-stop capacity to the U.S., Delta can no longer make money offering one-stop service from Atlanta.
In its statement, Emirates said that its studies "indicate that Delta's Atlanta-Dubai route was a highly profitable one, with an estimated route profitability of over U.S. $10 million per annum, or a route net margin of 7%."
The math is wrong, Delta spokesman Trebor Banstetter said Tuesday.
Delta lost about $5 million on Atlanta-Dubai in the first 10 months of 2015, Banstetter said. The losses came at a time when fuel prices were at one of their lowest points in a decade.
"It's not surprising that the Gulf carriers would have trouble calculating estimated margins based on the actual costs of operating a route, since government subsidy is so fundamental to their business structure," he added.
In its statement, Emirates charged that Delta benefits because it "can carry 'Fly America' traffic that is protected from non-U.S. carriers," as if Americans are so dumb they eschew non-stops aboard new Boeing 777s with good inflight service for similarly priced one-stops.
Banstetter's comments represent the latest round in a public battle between Delta and Emirates over the Atlanta-Dubai route.
Delta said on Oct. 28 it would discontinue Atlanta-Dubai service in February because it is losing money on the route as the Gulf carriers rapidly expand non-stop service to multiple U.S. cities. "Between 2008 and 2014, about 11,000 daily seats were added between the U.S. and Dubai, Doha and Abu Dhabi," Delta declared.
That day, Air Transport World published a column accusing Delta of "route shenanigans" and of "grand-standing on its favorite political campaign: those terrible, passenger-stealing Gulf carriers! "
On Oct. 30, Emirates issued a statement -- "Why is Delta pulling out of the highly profitable Atlanta-Dubai route?" -- and Emirates argued that, according to its analysis, Delta makes money on the route. Emirates said it might even step in once Delta pulls out.
On Monday, Delta responded on its Web site, posting a letter from Peter Carter, a Delta executive vice president, to Air Transport World. Carter disputed the column, charging that it "demonstrated a startling ignorance of how modern airline hubs operate."
It is worth noting that United plans to halt Dulles-Kuwait service in January. Daily service on a Boeing 777, which continued on to Bahrain after the Kuwait stop, had operated since the mid-2000s. United said it was halted for financial reasons.
Additionally, American said in August it will discontinue Philadelphia-Tel Aviv service in January. Some on the far-out fringes of journalism sought to ascribe political motives, but American said it lost money for six years and has lost $20 million this year.
The U.S. carriers are publicly traded, disclose a lot of financial information, and generally need to make money. They cancel flights that don't make money.
The rules are different for Emirates, Etihad and Qatar. They only need to make sure their countries build airline industries. Government subsidies mean their costs are lower and they can fly routes that U.S. airlines cannot.
Canceling an unprofitable route is not about playing politics. It's about trying to survive in a world where you cannot price goods below their actual cost. Gulf carriers should try it sometime.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.