Fuel subsidies are not enough

24 November 2007

The price paid for fuel is a thorny subject for Middle East airlines. It is the issue that separates them from the rest of the global industry.

Some, such as Saudi Arabian Airlines (Saudia), are known to receive fuel subsidies. Others, such as Emirates, stress their strictly commercial mandate.

All are viewed with envy by their international peers, who see Middle East carriers as operating outside the parameters imposed on everyone else, notwithstanding the number of US airlines sheltered by Chapter 11 bankruptcy protection, and the habit of some European governments to give handouts to their struggling flag carriers.

Even the shoddiest national airline is seen as a source of pride, and most governments find ways to assist theirs.

Tim Clark, president of Emirates Airline, vigorously insists his firm receives no subsidy from the Dubai government.

By contrast, Taher Agueel, president of one of Saudi Arabia's newest carriers, National Air Services (NAS), argues just as passionately that his airline should be granted the same subsidy given to Saudia.

Saudia pays $0.06 a gallon for its fuel, a fifth of the price paid by its commercial rivals, yet its fortunes and reputation lag behind those of Emirates. But subsidies alone do not make an airline.
Though it must be galling to pay five times Saudia's rates for fuel, NAS has performed strongly in its first year of business and is expanding rapidly, while Saudia is losing money on every one of its 26 domestic routes.

Emirates has blossomed because of the wider commitment by Sheikh Mohammed to use Dubai's geographic position to create a modern commercial centre, with the airline as its spearhead. The airline's financial results are all the more impressive for having been achieved with fuel costs at record levels.

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