When airline alliances and countries collude to restrain free airline traffic

One of the least-understood areas of international airline operations is the granting of route authorization between various countries. Canada and the United Arab Emirates (UAE) are in the midst of airline route negotiations that have boiled over into the political realm.

These kinds of international agreements are going to be getting more difficult as joint ventures without with clear national affiliations are formed in the wake of antitrust immunity deals. Political kerfuffles are bound to increase as national control of their airlines wanes.

Basically, Canadian airline authorities have denied two UAE airlines, Emirates (based in Dubai) and Etihad (based in Abu Dhabi), to add more flights between the UAE and Canada. According to the Canadians, there is not enough demand for the service. From their point of view, they are saving both of these airlines from an economic disaster.

Evidently, the UAE doesn’t see the limitations placed on their airlines in quite the same way. They have resorted to several political moves to express their displeasure, including the closure of a military base in their country.

Dubai swiftly retaliated by ordering the evacuation of Canada’s Camp Mirage in the UAE, which has been part of a key supply route to Afghanistan. The existence of the base had also been a closely guarded secret until the row.

The stand-off became even more personal after the UAE forced a plane carrying Canada’s Defence Minister Peter MacKay back from Afghanistan to take a long detour by denying the aircraft permission to use its UAE airspace.

Representatives from UAE have been reported to say, “Either we’re friends, or we’re not.” They find the stonewalling by the Canadians maddening.

Of course there is more to this story than the purely altruistic actions of the Canadian authorities in registering their concern for the economic well-being of Emirates and Etihad Airlines.

Airline alliances, especially Star Alliance in the case of Canada, have been vocal in their opposition to any competition by UAE airlines. These three groups — Star Alliance, SkyTeam and OneWorld — have been encouraging their respective governments to stand firm against non-alliance airlines that may want to start international airline service. The alliances do this in their own interest as it limits competition to only the three main international alliances.

The UAE airlines are not members of any of the airline alliances, nor are them part of the cozy U.S./European Open Skies arrangements and are perceived as a threat. Making matters worse for the major alliances, Emirates and Etihad provide airline service at a higher level than most of the alliance participants.

I’m sure that the Canadians see increased flights into the UAE as feeders for further ongoing international air traffic to the Middle East, South Asia and Africa.

Air Canada’s connecting flights with Lufthansa, via Frankfurt, to the Middle East and onward to South Asia will be compromised should effective competition be applied by Emirates and Etihad. The same story can be told for Air France/KLM connections in Amsterdam and Paris. Looked at this way, these Canadian bureaucratic rulings are simple restrictions of trade designed to bolster Canada’s domestic carriers and the current transatlantic alliances.

These kinds of struggles are already straining European Union/UAE relationships as the giant European airlines such as Lufthansa, Air France/KLM and British Airways/Iberia keep lobbying to restrict airport access to their non-alliance competitors and limit landing and take-off rights to the UAE-based airlines.

However, as joint ventures effectively take over from national airlines vested with years of international route negotiations, new questions will be raised about route controls that no longer serve a strict national airline protectionist agenda.

These initial skirmishes between Canada and the UAE are only the beginning. This kind of benevolent restriction of trade will eventually collapse and even the U.S. ownership rules will be watered down as new corporate structures begin their control of international airline traffic under the poorly conceived antitrust immunity agreements now in effect.