(Plane Business Banter)- Which brings me to a money issue — closer to home.
I ask that when you read comments or reports concerning this subject that you keep in mind where those comments are coming from. Make no mistake about it. The Middle East carriers are running one very sophisticated and heavily financed campaign.
For example, even I was not aware that John Byerly, the former State Department official who was instrumental in crafting a number of Open Skies agreements, has been on the Emirates payroll for years.
I did know that John has been working with Norwegian.
But as a recent issue of Politico, Byerly “and aviation consultant Michael Korenshave both registered to lobby for Emirates, though Byerly has been consulting for the UAE-based airline for several years.”
Well, how about that.
Then there is Kevin Mitchell’s Business Travel Coalition. We’ve all known for years that Kevin’s coalition is a pay for play organization. Well, if you visit his website now, you’ll see there is a new OpenSkies.Travel section on his site.
If you look at who some of the founders of the site are, you’ll find Dubai Travel and Tour Group based in the UAE. That, in effect, is Emirates.
And this is just the start.
However, all is not lost.
Lee Moak, former President of the Air Line Pilots Association, and grizzled veteran of the Washington patronage pit that passes for reality–well, I guess it actually may be the reality — has started a non-profit organization to help get out the other side of the story. If you are in the U.S. airline industry — if you fly airplanes, work on an airplane, or even fly on a U.S. airplane — I’d highly suggest that you support Captain Moak’s new venture. In whatever way you feel comfortable.
Like I said, hopefully the report will be released next week, we can talk more about the details of the report, and then you’ll know more about why I believe the U.S. major airlines have more than enough justification to have a “consultation” opened up on the “fairness” of the current Open Skies agreements with Qatar and the UAE.
(The Street)- A report compiled for the big three U.S. airlines presents a chilling picture of efforts by some Mideast governments to establish airlines funded by massive subsidies which, according to the report, have been systematically covered up in order to mask violations of Open Skies agreements that have enabled the three Gulf airlines’ disproportionate growth.
The governments of Qatar, the United Arab Emirates, and Abu Dhabi and Dubai, the two largest emirates, have provided about $39 billion in subsidies to the airlines — Qatar Airways, the flag carrier of Qatar; and Etihad Airways and Emirates Airlines, flag carriers of the UAE — according to extensively researched report, compiled over two years for American (AAL – Get Report) , Delta (DAL – Get Report) and United (UAL – Get Report) and provided to TheStreet by an airline industry source who asked not to be identified.
The Gulf governments and airlines “have created vertically-integrated, wholly state-owned aviation sectors that include monopoly service providers and complex interrelationships between their government institutions, airlines, ground handlers, airports and state-owned banks,” said the report, which is titled: “Restoring Open Skies: The Need to Address Subsidized Competition From State-Owned Airlines in Qatar and the UAE.”
The subsidies come in forms including cash grants, interest-free loans and favorable contracts with airports, vendors and suppliers funded and generally owned by the governments, the report said. They inevitably reflect close relationships between governments and the airlines, which are often led by the same families and the same individuals.
The $39 billion is just the start. Governments in Dubai, Abu Dhabi and Qatar all plan to build huge new airports because they believe the large airports they already have are insufficient to accommodate the growth they expect.
Dubai is spending $7.8 billion to expand capacity at Dubai International Airport to 90 million passengers annually by 2018. It plans to spend $32 billion more to build the first phase of Dubai World Central Airport, 40 miles away, which could ultimate accommodate 240 million passengers annually.
Abu Dhabi is spending $7 billion to expand capacity at its airport to an annual capacity of 50 million passengers. Qatar is spending $17 billion on Hamad International Airport, which opened in May 2014 and also will have an annual capacity of 50 million passengers.
The report represents “the first time anyone has investigated these subsidies,” said an airline industry spokesperson who asked not to be named. “It took a couple of years for the report to be put together” by a team of forensic accountants and investigators.
“We’ve begun a discussion with the Obama administration about these subsidies and what remedies there are,” the spokesperson said. “The executive branch of government has the power to take a look at this. There is a process in place under Open Skies to address subsidies.”
The report suggested the Gulf airlines’ practices make a mockery of Open Skies policy, developed in the early 1990s in an effort “to enable U.S. carriers to compete in a global market undistorted by government actions that advantage foreign carriers.
“The UAE and Qatar have turned this policy on its head by pursuing aviation industrial policies that are designed to distort the global market in favor of their state-owned carriers,” said the report, which noted that Open Skies policy requires that “competition is fair and the playing field is level.”
In fact, Open Skies treaties have turned into lopsided deals where Emirates flies from Dubai to Boston, Chicago, Dallas, Houston, Los Angeles, New York, San Francisco, Seattle and Washington, and from Milan, Italy to New York; Etihad flies from Abu Dhabi to Chicago, Dallas, Los Angeles, New York, San Francisco and Washington; and Qatar flies from Doha, Qatar, to Chicago, Dallas, Houston, New York, Miami, Philadelphia and Washington.
What do U.S. airlines get? Only this: Delta flies from Atlanta to Dubai and United flies from Washington Dulles to Dubai.
The Gulf carriers already fly 363 wide-body aircraft and expect to add 130 by 2020, ensuring they will grow at a rate that substantially exceeds global GDP growth. “To fill this excess capacity, they must take passengers from other countries’ carriers,” the report said.
Here are brief analyses of each of the three Gulf carriers, based on the information in the report, as well as the carriers’ comments.
Etihad has received more $17 billion in subsidies since 2004, including “$13.5 billion in interest-free government loans, equity infusions, airport fee exemptions and other types of government funding that have enabled the airline to continue in operation despite its $4 billion in accumulated losses.” the report said, citing “company filings in certain third party jurisdictions.”
Abu Dhabi’s government committed to spend an additional $4.2 billion in subsidies in 2014 and beyond, the report said.
Without subsidies, “Etihad would not be commercially viable,” the report said. “The airline’s auditors have been unwilling to classify the company as a ‘going concern’ … without explicit commitments by the government to continue covering Etihad’s financial obligations.”
Etihad spokeswoman Katie Connell declared Thursday that “Etihad Airways operates with a clear commercial mandate — we do not receive government subsidies.
“In common with national airlines the world over, we have received equity and start-up investment from our shareholder during this early phase of our development,” Connell said. “Our 2014 revenues topped $7 billion, our third straight year of profitability. Our success has been built on bringing new competitive choice to consumers on many routes which other carriers choose not to operate.”
Qatar Airways has received more than $16 billion in subsidies since 2004 including $8.4 billion in subsidized loans and shareholder advances, which have been made in every year since 1998, the report said. The government also guarantees the airline’s term loans. “Without the subsidies, Qatar Airways would not be commercially viable,” the report said.
On Thursday, Qatar CEO Akbar Al Baker appeared on CNN International’s “Quest Knows Business” to refute subsidy claims made the previous night on the same show by Delta CEO Richard Anderson.
“Quite frankly Mr. Richard Anderson needs to study to find out the difference between equity and subsidy,” Al Baker said. He argued that the U.S. government provided $5 billion in aid and $10 billion in loan guarantees to U.S. airlines following the Sept. 11, 2001, terrorist attacks. “Was this a subsidy or just a donation?” he asked.
As for Emirates, the most successful of the Gulf carriers, it has received at least $5 billion in subsidies since 2004, the report said.
“Although a pervasive lack of transparency in Dubai’s aviation sector — in combination with Emirates’ failure to release its financial statements for the first 16 years of its existence — precludes anything near a full quantification, information from public and confidential sources indicates that Emirates has received at least $5 billion in subsidies in the last 10 years alone,” the report said.
Speaking Thursday on CNN, Emirates CEO Tim Clark declined to comment on the report saying he hasn’t seen it. “I would have thought if these airlines were going to make allegations the least they could have done is to supply us with that report,” he said.
Clark also challenged Anderson’s controversial reference to “the great irony” involved in Gulf carriers complaining about the Sept. 11 airline bailouts since the attacks “came from terrorists from the Arabian Peninsula.” Clark said Anderson “crossed the line with what he said in regard to 9/11, which has caused great offense in this part of the world.” Later Thursday, Anderson apologized for the remark.
Reporting by Lincoln Feast and Praveen Menon; Editing by Matt Driskill and Mark Potter
(Reuters) – Abu Dhabi-based Etihad Airways had access to an interest-free $3 billion loan from the Abu Dhabi ruling family, the Australian Financial Review said on Thursday, stoking criticism from rivals that have long complained of state support for the carrier.
Citing what it said were leaked documents prepared for prospective financiers in 2011, the newspaper said the loan for government-owned Etihad required no repayments until 2027.
The airline, which also has equity stakes in Air Berlin and Aer Lingus, has long rejected allegations from rivals in Europe and Asia that it receives unfair financial support or state subsidies.
In a slide headed “Equity and Shareholders Loan,” the document states: “The shareholder has provided significant loan facility for aircraft deposits and working capital – subordinated, interest free and no repayments until 2027.”
Etihad, which has been looking at a possible investment in loss-making Alitalia, said in a statement it had received financial support from its shareholder in the form of equity capital and shareholder loans, but gets no government subsidy.
It said the airline operated under a strict commercial mandate. It did not specifically comment on the $3 billion loan mentioned in the report.
Etihad, along with other state-backed regional carriers such as Emirates and Qatar Airways, have been rapidly expanding their global reach, sometimes through partnerships.
Etihad is already a major shareholder in Virgin Australia Holdings, which has been engaged in a brutal price and capacity war with flag carrier Qantas Airways Ltd.
Qantas has long complained that Etihad and by extension Virgin, have benefited from subsidies from the Gulf state, something Etihad management has repeatedly denied.
The newspaper said industry sources had provided the document, which had circulated among the management ranks of Etihad’s competitors, such as Qantas and Emirates.
The Australian and International Pilots Association said the claims of support from the royal family needed to be checked and action taken to level the playing field.
“Etihad’s contribution to Virgin’s A$350 million ($323 million) equity issue last year was critical to the issue’s success. We now know this contribution was backed by the interest-free generosity of the Abu Dhabi royal family,” said AIPA President Nathan Safe.
“Such an obviously unfair distortion of competition would never be allowed in any other sector of the Australian economy and it should not be allowed to continue in aviation.”
Virgin Australia did not comment on the report.
European airlines, including Deutsche Lufthansa, have often spoken out against Gulf carriers saying their state-owned status meant they do not compete on a level playing field with privatised carriers.
Air Berlin, in which Etihad has a near-30 percent stake, declined to comment.
I’ve written extensively about the battle going on between the “big three” US carriers (American, Delta, and United) and the “big three” Middle Eastern carriers (Emirates, Etihad, and Qatar) regarding the Open Skies agreement.
This debate might seem insignificant to some, but the liberalization of international air service is in consumers’ best interests, and this has the potential to change that trend.
I’ve been doing some research on the issue, and I finally understand the position of the US airlines, and even side with them. Previously I saw where the Gulf carriers were coming from, but the US airlines haven’t done a great job of communicating their position other than “crying foul.” Now that I have a bit more insight as to the stance of the US airlines, their grievances make perfect sense to me.
I think we’ll see a lot more information made public in the near future which puts this into perspective.
Here are my thoughts:
What are Open Skies agreements?
To figure out whether something needs to be changed, it first makes sense to understand what’s at stake.
For decades airlines have been working towards removing the “red tape” required to start new routes, by eliminating government intervention as much as possible. Here’s how the US Department of State describes Open Skies agreements (bolding mine):
“Open Skies agreements have vastly expanded international passenger and cargo flights to and from the United States, promoting increased travel and trade, enhancing productivity, and spurring high-quality job opportunities and economic growth. Open Skies agreements do this by eliminating government interference in the commercial decisions of air carriers about routes, capacity, and pricing, freeing carriers to provide more affordable, convenient, and efficient air service for consumers.
America’s Open Skies policy has gone hand-in-hand with airline globalization. By allowing air carriers unlimited market access to our partners’ markets and the right to fly to all intermediate and beyond points, Open Skies agreements provide maximum operational flexibility for airline alliances.”
It’s clear that a cornerstone of these Open Skies agreements is the “elimination of government interference in the commercial decisions” of airlines.
But lots of airlines are government owned — why single out three airlines?
The next logical question here is “why single out Emirates, Etihad, and Qatar?” If the problem comes as a result of airlines being government owned, then why not go after the smaller government owned airlines, like Oman Air, etc.?
This is the area that’s challenging, because I do think it’s tough to figure out where to draw the line. And in general I’m opposed to making regulations centered around arbitrary metrics.
But there are many things that make Gulf carriers especially unique, including:
Of government owned airlines, Emirates, Etihad, and Qatar are growing disproportionately compared to their respective populations and GDP growth. In a few years these carriers will have more widebody aircraft than all US airlines combined, despite the fact that the UAE and Qatar have a population that’s less than 4% that of the US.
Emirates, Etihad, and Qatar airlines aren’t playing fair. It’s one thing to have a government owned airline that’s losing money, but the behavior of the Middle Eastern airlines is destructive. Their long term business model is basically to run competing airlines out of markets as much as possible, and at any cost, even if they lose billions of dollars doing it.
What dirty tricks do Middle Eastern airlines use?
Let’s be clear about what makes the advantage of the Middle Eastern carriers “unfair.” It’s not that they have lower staffing costs because of where they’re located. Or that they have lower oil costs because of where they’re located.
Rather it’s that they have access to virtually unlimited interest-free capital, and that every aspect of the Gulf carriers operations and supply chain is interconnected. Collusion between the Middle Eastern carriers and their governments allows for zero transparency, which has the result, if not the intention, of giving Etihad, Emirates, and Qatar an unfair advantage.
For example, Emirates Airline’s President, Sheikh Ahmed bin Saeed Al Maktoum, is also President of Dubai Civil Aviation Authority, Chairman of Dubai Airports, and President of dnata. That would be like Doug Parker being CEO of American Airlines, head of the FAA, and President of DFW, ORD, LAX, JFK, and MIA Airports.
If that doesn’t present a conflict of interest — especially for a company that isn’t financially motivated — then I don’t know what does. It’s my understanding that Dubai Airport’s landing fees are less than the cost of providing them. How can an airport justify losing money with every plane that lands?
Because Dubai Airports knows subsidizing landing fees benefits Emirates most. And when you’re in charge of the airline, the airport, and even the civil aviation authority, it’s all just an accounting exercise anyway, right?
Here’s another one. Whenever you fly through an airport there’s a passenger facility surcharge. Basically some component of the ticket cost goes to the airport for having used the terminal.
Virtually all airports charge this to both passengers originating and connecting at an airport (they can differ based on whether you’re originating or connecting, but every passenger is charged at least something).
However, at the airports in Abu Dhabi, Doha, and Dubai, that’s not the case. Only passengers originating or terminating in those cities are charged a facility fee.
Why? Because a vast majority of passengers traveling on Emirates, Etihad, and Qatar are connecting, while a vast majority of passengers on other airlines flying to those airports are originating or terminating there (in other words, you’re not flying Lufthansa in order to connect in Dubai, much like you’re not flying Emirates to connect in Frankfurt).
For example, between Singapore and New York (via Dubai) you don’t pay any sort of Dubai passenger service charges:
While if originating/terminating in Dubai, you pay ~$20 in passenger service charges:
Even though they don’t care about making a profit, Emirates, Etihad, and Qatar are literally having foreign carriers subsidize operations at their own hubs.
And then there’s the $4 billion fuel hedge loss that Emirates faced, which suddenly “disappeared” and was taken care of by the government. But we’ll save that for another time.
The two sides need to pick representatives to argue this
It’s actually sort of refreshing to see the “big three” US carriers and “big three” Middle Eastern carriers collaborating with one another for once. It’s a nice change of pace from the usual bickering that usually happens amongst the respective sides.
This is such a serious issue, yet unfortunately it seems we’ve heard the most from the two least eloquent people on both sides:
Delta’s CEO, Richard Anderson, somehow managed to make this a debate on Islamaphobia by bringing up 9/11, which is just preposterous and counter-productive
Qatar’s CEO, Akbar Al Baker, has zero credibility, and unless he’s chiming in on Bravo’s new “Real Housewives of Doha” show, really shouldn’t be given a mic
If the two sides knew what was best for them, they’d let Doug Parker make the argument for the US carriers (he’s well spoken and relatable), and Tim Clark make the argument for the Middle Eastern carriers (he’s one of the brightest guys in the industry).
“The US airlines should just compete”
The Middle Eastern carriers love telling the US carriers that they should just compete and shut up. But what does that even mean? “Hey, you guys should get with the program and lose as much money as we do?”
The truth is that other airlines simply can’t compete with Gulf carriers under this system.
This isn’t about service. This isn’t about airplanes. This isn’t about routes. This isn’t specifically about the fact that the airlines are government owned.
This is about the fact that Emirates, Etihad, and Qatar are not at all motivated by profits.
So to those agreeing the US airlines should “just compete,” how?! It’s one thing if the Middle Eastern carriers were making money and saying “try competing.” But when these airlines are losing billions of dollars and saying “compete with us,” what does that even really mean? Compete with the service at the expense of your shareholders?
What’s the solution?
This is the tricky part. I don’t know what the solution is. Where do you draw the line and what should be done? Should the “big three” Middle Eastern carriers just be excluded from Open Skies? Should they be forced to “unbundle” their cost structure so that they’re actually paying “fair” amounts for the services they’re receiving?
I don’t know the answer, but I do know that what they’re doing is quite the opposite of the “elimination of government interference,” which is the very purpose of Open Skies.
Open Skies is intended to eliminate government intervention and “free” markets. And there’s no arguing that the Middle Eastern airlines aren’t operating within the spirit of the agreement.
To be clear, life isn’t fair.
We’ll never be able to reconcile the differences in staffing costs, passenger facility costs, etc. And that’s something I think the US airlines are fine with.
But when every aspect of an operation is being run in order to generate a loss and increase market share for the purposes of developing a country rather than an airline, then Emirates, Etihad, and Qatar really aren’t playing within the spirit of Open Skies.
Adam Minter’s post, “U.S. Airlines Should Quit Whining” completely and utterly misses the point of what is at stake in the effort to bring attention to and ultimately action against the United Arab Emirates and Qatar for heavily subsidizing their airlines.
Minter got one thing right: It is true that in most cases, Open Skies agreements have been a positive for the U.S. economy, airlines, airline employees, and travelers alike. What he completely fails to address, however, is that the entire Open Skies policy is turned on its head when two countries – in this case, ones from the Arabian Peninsula – decide to pour more than $40 billion into their airlines, propelling them into growth unsubstantiated by the marketplace, thereby taking market-share (and jobs) from U.S. airlines.
Minter whines that U.S. airlines should up their service and compete – that is exactly what they are trying to do. U.S. airlines and their employees welcome competition when the playing field is level. However, $40 billion in subsides, directly undercut the competition Open Skies aims to create and distorts the playing field to such a degree that only one side – in this case the United Arab Emirates and Qatar – can benefit. They have made the playing field so un-level the U.S. airlines operating in the open marketplace can’t possibly compete with the government money flowing in from the Gulf States. That isn’t Open Skies. That isn’t fair competition. And corrective action needs to be taken immediately.
Lee Moak President Americans for Fair Skies
In response to:”U.S. Airlines Should Quit Whining” Article on Bloomberg.com
americans4fairskies2015Lee Moak’s Response to Bloomberg
While I’ve always been an American-made car guy myself, like any motor enthusiast, I can appreciate the German engineering of a Porsche or the sleek profile of an Italian Maserati. I bought my American-made car based on preference, not necessarily an obligation to buy a U.S. made vehicle (though that was a factor, but a personal one), and I agree with Mr. Thomaselli that Americans should have the right, and are smart enough to make their own choices.
However, the reductive, rhetorical questions that Mr. Thomaselli asks throughout his article display his clear lack of understanding in regards to the fundamental structure of Open Skies agreements and how the governments of the United Arab Emirates and Qatar have strategically sought to distort the international aviation marketplace by violating Open Skies agreements to benefit their state-subsidized air carriers. As I said, I own an American car because I had the luxury of purchasing a car based on choice. But my American-made car was designed and manufactured by a company that had to compete in the open marketplace with all other car manufacturers. Toyota competes against Cadillac just like it competes against Audi and Hyundai. Regardless of where a car is coming from, it’s produced by a company who has to make a profit in order to continue to fund the development and distribution of it’s products, as well as meet the fiduciary obligations it has to its shareholders. If it costs BMW $20,000 to produce a car, BMW can’t then turn around and continuously sell that car for $15,000 (taking a loss each time) and expect to stay in business. A loss on every vehicle sold would result in the company going bankrupt if that company is operating in the private, open market place.
This is where we meet a fundamental difference between what is happening with car companies (or any other company competing in an open market) and what is happening with the subsidization of the Gulf airlines. Etihad, Emirates, and Qatar Airways can all “afford” to lose money on routes they fly, because their operations are massively subsidized by their governments. Every time they sell a ticket far below the actual cost per seat of the flight, or have one of their new A380s leave Dallas at 38% capacity as recently reported, these airlines are taking a immense loss that privately owned U.S. airlines could never afford. Given many their flights operate this way, these add up to result in massive losses that can’t be covered by the profitable routes they do have. But, when the governments of the UAE and Qatar continuously make up these losses through subsidies and other benefits directly supporting their expansion, these airlines can continue to buy new planes and sell tickets far below their actual cost to the airline. Because the government owns the airline, the airport, all aspects of tourism in their respective nations, and most of the suppliers to their airlines, these “airlines” can operate at a massive deficit, shifting the airline’s loses to other parts of the government-controlled enterprise, hiding the subsidies, while continuing to expand at an unprecedented rate.
The implication that other carriers, not only in the U.S., but abroad in places like Europe and Australia, could possibly hope to compete with this unprecedented level of subsidization when expected to operate themselves within a competitive marketplace as private entities as dictated by Open Skies agreements, is completely misguided. What Mr. Thomaselli doesn’t seem to comprehend is that US. airlines are strong supporters of Open Skies agreements – however, the Gulf government subsidies have turned the concept of Open Skies on its head with a totally un-level playing field for airlines as a result of the subsidization of the Gulf airlines. Indeed, it’s the worst sort of protectionism when nations like Qatar and the UAE operate their airlines as arms of their government through massive subsidizations.
So yes, Mr. Thomaselli. This is America, land of the free, bastion of capitalism, and home to the greatest economic system in the world. Let’s support those ideals and values, shall we? Let’s do this by restoring fairness to our skies and leveling the playing field for U.S. aviation workers and by ending the subsidization by the UAE and Qatar of their airlines.
In response to: “You Can Buy A Ford, But Not A BMW” Article on Travelpulse.com
americans4fairskies2015Lee Moak’s Response to Travel Pulse
(Reuters) – U.S. airlines have lost at least five percentage points of their share of flight bookings from the United States to the Indian subcontinent and Southeast Asia since 2008, due to fierce competition from Gulf carriers, according to data seen by Reuters.
More recently, U.S. carriers have seen an erosion in their share of bookings to Milan, according to a report the U.S. airlines sent to the White House and the departments of State, Transportation and Commerce. The 55-page white paper is not yet public.
The report says the combined share of bookings between the United States and the Indian subcontinent for Delta Air Lines (DAL.N), United Airlines (UAL.N) and American Airlines (AAL.O) has fallen to 34 percent in 2014 from 39 percent in 2008. The drop includes bookings on the airlines’ joint-venture partners, such as British Airways (ICAG.L) and Air France (AIRF.PA).
In the same time, Emirates Airline, Qatar Airways and Etihad Airways have surpassed them. The Gulf airlines’ share of that market has jumped to 40 percent from only 12 percent seven years ago, according to the report.
The report sheds light on the intensifying battle between the U.S. carriers and their rivals from Qatar and the United Arab Emirates since “Open Skies” agreements authorized commercial flights between those countries and the United States more than a decade ago.
The data shows that the Gulf carriers have eroded U.S. airlines’ market share even beyond the subcontinent, although bookings to the region resulted in the largest revenue hit so far, Delta Chief Legal Officer Ben Hirst said in a telephone interview.
U.S. airlines and their joint-venture partners’ share has fallen to 36 percent from 43 percent of the market between the eastern United States and Southeast Asia, according to the report. The region includes Vietnam, Thailand, Indonesia, Malaysia and the Philippines.
Gulf carriers, meanwhile, expanded their share of bookings to 13 percent from just 1 percent.
The U.S. airlines are stepping up efforts to persuade the American government to alter or terminate the Open Skies pacts.
The white paper, citing confidential financial statements from the Gulf airlines, alleged that their rivals have received subsidies from their home governments contrary to U.S. trade policy. The report says loans, tax exemptions and other support totaled more than $40 billion since 2004, which the Gulf carriers used to pay expenses that airlines typically must cover themselves, such as aircraft acquisitions.
“We fully expect the government to act on the evidence,” Delta’s Hirst said, adding, “From the U.S. airlines’ standpoint, we’re competing with (foreign) governments, not private businesses.”
An official from the U.S. State Department said the agency was carefully reviewing the claims and coordinating with other agencies.
“The U.S. government takes seriously the competition concerns raised by our airlines,” the official said in an email on condition of anonymity. “However, we remain committed to the Open Skies policy, which has greatly benefited the traveling public, the U.S. aviation industry, American cities, and the broader U.S. economy.”
The report says the Gulf carriers could drive ticket prices down to a point where U.S. airlines could not afford to stay in certain markets, costing hundreds of jobs. They say government subsidies enable the Gulf carriers to buy planes and add capacity in excess of demand, forcing industrywide price cuts on certain routes.
But advocates for travelers say that slashing prices and improving service is precisely what Open Skies agreements are intended to do.
“From the passengers’ point of view, they want as many choices as possible,” said Erik Hansen, a senior director at the U.S. Travel Association, a non-profit industry group based in Washington.
Hansen said he had not seen the report and could not comment in detail on its findings, but added that Open Skies pacts have improved the U.S. balance of trade. He said a change would “send a message that the U.S. is willing to implement protectionist policies if just a few airlines protest.”
Executives of the Gulf carriers dispute the U.S. carriers’ charges that they have received unfair subsidies and bailouts.
“We have no problem with competition. In fact, we relish it,” Emirates Airline President Tim Clark said in a statement last week.
The Gulf airlines are pushing to expand their reach. U.S. carriers have lost their share of bookings from New York to Milan since Emirates announced service there in 2013 as a stopover on the way to Dubai. Emirates’ share has jumped to 19 percent since then, while the share held by U.S. airlines and their partners has fallen to 78 percent from 85 percent.
(Wall Street Journal)- The chief executives of the three largest U.S. airlines said they are pressing the government to modify or—lacking substantive remedies—annul air treaties with two Persian Gulf nations. The CEOs cited what they claim are subsidies and government industrial policies that favor three of the Gulf region’s fast-growing carriers, distorting global air transportation.
The heads of American Airlines Group Inc., United Continental Holdings Inc. and Delta Air Lines Inc. said in a joint interview Thursday that the three state-owned Gulf airlines have received $42.3 billion in “quantifiable” subsidies since 2004, accompanied by other benefits including breaks on local airport infrastructure and services, exemptions from corporate taxes and advantages from “opaque” related-party transactions.
The U.S. executives said the policies are giving a big leg up to Emirates Airline, Etihad Airways and Qatar Airways, helping them expand globally by stimulating low-fare traffic through their hubs. More recently, the three Gulf carriers have targeted growth to U.S. airports, where they can fly freely and set prices without restriction due to “open skies” treaties between the U.S. and the United Arab Emirates and Qatar.
The routes from the Gulf region to the U.S. haven’t produced a meaningful increase in passenger traffic, the U.S. carriers said in a 55-page briefing paper being circulated to officials of the departments of Transportation, State and Commerce, among others. Instead, the new routes “serve to displace the market share of U.S. airlines and to shift good aviation jobs overseas.”
The three Gulf carriers have boosted the number of daily seats between their hubs and the U.S. by 11,000 since 2008, the document says. But the number of daily bookings between those airports and the U.S., in both directions, which were 2,500 a day in 2008, were up just 85 a day by 2014. The bulk of the U.S. passengers using the Gulf carriers are traveling beyond Dubai, Doha or Abu Dhabi to destinations such as India and Southeast Asia.
And that hits the U.S. airlines and their Asian and European partners right where it hurts. Doug Parker , American’s chief executive, said his team wants to begin flights to India. But the routes won’t justify themselves, he said, because the fares are so low. And Richard Anderson , Delta’s CEO, said his airline is leaving the Indian market altogether for the same reason.
Kevin Mitchell of OpenSkies.travel, a grouping of tourism and airline interests, wrote to the three U.S. departments last week, expressing “deep concerns” about the U.S. airline CEOs’ lobbying efforts. He said that after the mergers of six U.S. carriers into three and a situation where the top four airlines control 80% of the U.S. market, “some…shamelessly seek to close off U.S. markets to competition from foreign carriers.”
In a recent interview, Emirates President Tim Clark said the U.S. airlines’ claims are “outrageous, unsubstantiated [and] incorrect.” He said that his company isn’t dumping capacity or selling below cost and is profitable on every route it operates from the U.S. “Tell us where the subsidies are,” he added. Etihad and Qatar declined to comment.
Emirates, now the No. 1 international airline by capacity, said it files public financial statements annually that are audited by PricewaterhouseCoopers. Etihad and Qatar have repeatedly denied they are subsidized.
U.S. carriers have been worried about the Gulf carriers since at least 2012, concerned about losing some of their most lucrative international passengers and alarmed by their rivals’ big buildup of U.S. routes. In 2013, United, Delta, the U.S. trade association Airlines for America, and the largest U.S. pilot union, Air Line Pilots Association, International launched legal and political challenges, and Delta suggested that the U.S. revisit some of its air treaties.
But this latest effort by the U.S. airlines is the loudest and most direct response to what they see as a growing threat.
Jeff Smisek, United’s CEO, said the three Gulf carriers “are not normal airlines. They’re arms of the state.” The premise of open-skies treaties, of which the U.S. has signed more than 110 since 1992, is that airlines on both sides receive access, but on a level playing field and free of subsidies, he said.
European airlines have already been devastated by the Gulf airlines’ rapid growth into their natural markets, said American’s Mr. Parker. “We don’t want to see it get to the point [in the U.S.] where it is in Europe.”
Richard Anderson, Delta’s CEO, said that the airlines’ efforts are like those of steelmakers or agricultural firms trying to stop imports of deeply subsidized products, and that the airlines’ problem demands a “tried-and-true” trade-policy remedy.
The three U.S. CEOs said they met last week with representatives of the Departments of Transportation, State and Commerce, the Office of the U.S. Trade Representative and others. The DOT said it is carefully reviewing the U.S. claims and is closely coordinating with its governmental partners. “However, no decisions have been made,” said a spokeswoman, noting that the DOT is committed to the ‘open skies.’ The other agencies couldn’t immediately be reached for comment.
United’s Mr. Smisek said it has taken a couple of years for the three U.S. airlines to “scour the planet” with forensic accounting to document the three Gulf airlines’ financial records. The U.S. carriers say they identified breaks including free land, forgiven hedging contracts and nonunion rules that help the foreign airlines keep costs down, surmount big accumulated losses and still order huge numbers of new widebody jetliners.
The information in the briefing paper “is new…and compelling and clearly shows there has been subsidization of these carriers,” said American’s Mr. Parker.
He added that American won’t terminate its several-year-old code-sharing agreement with Etihad, which helps American passengers get to destinations the U.S. airline doesn’t serve. But American, as a company that needs to cover its cost of capital, wants to compete fairly, he said.
The carriers hope to persuade the U.S. to enter “consultations” with the Gulf countries and negotiate new rules. Barring that, they would like the U.S. to freeze the Gulf airlines’ expansion into the U.S.
In the absence of new accords, they would like want to see the air treaties terminated with the requisite year’s notice, the briefing paper said, even though the U.S. airlines fundamentally favor open skies agreements.