The Gulf Airline Trade Dispute: The Bad News Keeps on Coming

Recently, United Airlines announced that in January it will end its nonstop Washington-Dubai flights, a service it successfully flew for seven years. United’s news adds another proof point to the mass of evidence that the hugely-subsidized Gulf airlines, Emirates, Etihad Airways, and Qatar Airways, are harming the U.S. aviation industry and violating the terms of the “Open Skies” agreements. U.S. airlines can compete in the global marketplace, but not in markets distorted by billions of dollars in unfair subsidies and benefits that the Gulf trio have received from their government sponsors. This news should inspire the Obama administration to address the rigged playing field and open up talks with the United Arab Emirates (UAE) and Qatar.

Unfortunately, there’s much more to the United story. One of the key reasons for United’s withdrawal was their loss of a sizable contract to fly U.S. government employees and contractors to Dubai – more than 15,000 per year, including active duty military personnel. The winner? JetBlue, which operates no international long-haul service whatsoever, much less 7,000 miles across the Atlantic. They have no long-range aircraft. JetBlue has a “codesharing” partnership with Emirates, meaning that JetBlue sells Emirates-operated flights with the “B6” JetBlue code. This partnership allowed JetBlue to bid for the U.S. government’s business to Dubai, even though Emirates will do all of the Washington-Dubai flying and thus get virtually all the revenue. Although United also uses codeshare relationships for some of its government contract flying, it is a global carrier with an extensive international network and is capable of operating any of those routes on its own, that is, without codesharing. That is not the case with JetBlue, which must rely 100 percent on Emirates to meet its obligations to the U.S. government.

And it gets worse: the contract, awarded by the General Services Administration (GSA), the U.S. government’s procurement arm, is subject to a law called the Fly America Act, which expressly prevents the U.S. government from buying airline services directly from a non-U.S. carrier. So JetBlue will really just be the bag man, collecting the payments and remitting them to Dubai. Thus, GSA appears to have disregarded historical precedent that forbids such codeshare arrangements under the Fly America Act.

United’s Dubai cancellation comes just six weeks after Delta announced it was withdrawing from the Atlanta-Dubai market in February 2016. In its announcement, Delta also blamed the market distortion of the subsidized Emirates and the two other Gulf carriers, which are clearly “dumping” seat capacity in the U.S. market.

While the Gulf carriers continue to grow and threaten domestic carriers around the world with unfair competition, foreign governments are stepping up to ensure their domestic carriers are not left behind. Just two days before the United announcement, the European Commission, the executive arm of the EU, released a new aviation strategy that included a commitment to creating a level competitive playing field for EU carriers. The strategy paper recommends important mechanisms to address airline subsidies and unfair practices that have a “significant negative impact on the competitiveness of the EU aviation industry.” European Transport Commissioner Violeta Bulc specifically asked EU governments for authority to negotiate aviation agreements with the six countries of the Gulf Cooperation Council, with a goal of eliminating market-distorting aid to Emirates, Etihad, and Qatar Airways.

It’s time for action. And despite the arm-waving and mischaracterization by the Gulf carriers, the U.S. airlines’ “ask” has always been modest: the U.S. should open consultations with the UAE and Qatar to level the playing field for American workers, U.S. companies, and our aviation industry as a whole.

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americans4fairskies2015The Gulf Airline Trade Dispute: The Bad News Keeps on Coming
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Did The Administration Tip Its Hand On Open Skies?

Did the Obama administration just tip its hand as to where it is leaning in the Open Skies Agreement debate between the big three U.S. airlines and Middle East Gulf carriers?
It sure seems that way.

As both sides continue to await a decision on whether to open consultation between the U.S. and the governments of Qatar and the United Arab Emirates, the administration this week awarded a government travel contract between Washington and Dubai to JetBlue and its codeshare partner, Emirates.

Emirates and fellow Gulf airlines Etihad and Qatar have been accused by American, Delta and United airlines of accepting $42 billion in subsidies from their respective governments from 2004-2014 to help grow their airlines. The U.S. big three carriers say that has distorted the international marketplace and they want the Obama administration to open consultation on the Open Skies Agreement, the deal that allows airlines to enjoy landing rights in other countries without government interference.

Combined, the three Gulf carriers have more than 200 flights to more than a dozen U.S. cities, even though their U.S. counterparts have alleged that the majority of the routes are unprofitable.
The debate has been going on since January, when American, Delta and United presented the administration with a 55-page report detailing the alleged subsidies. The respective Gulf airlines have denied the charges, saying their governments have merely taken an ownership stake in the airlines and all investments must be paid back as if it were a loan.

Both sides were hoping to have a decision before the calendar year, but now it seems as if a decision will not be made until early next year. But as far as United is concerned, the awarding of the government travel contract to JetBlue/Emirates might as well be an early indicator of which way the administration is leaning – a day after the contract was awarded, United canceled its flight from Washington to Dubai.

United’s last flight on that route will be on Jan. 25.

“It is unfortunate that the [General Services Administration] awarded this route to an airline that has no service to the Middle East and will rely entirely on a subsidized foreign carrier to transport U.S. government employees, military personnel and contractors,” Steve Morrissey, the airline’s regulatory and policy vice president, said in a statement. “We believe this decision violates the intent of the Fly America Act, which expressly limits the U.S. government from procuring commercial airline services directly from a non-U.S. carrier. For the Washington to Dubai route, JetBlue merely serves as a booking agent for Emirates.”

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Open Skies, Maybe, but Hardly Level Skies

You’ve published letters, including one from Emirates Airline on Dec. 4, in response to an op-ed by American Airlines’ CEO Doug Parker and Captain Keith Wilson “Rigging the Game on Open Skies” (Nov. 11). These letters disregard the fact that the massive subsidies the governments of the United Arab Emirates (U.A.E.) and Qatar provide to their state-owned carriers violate the open-skies agreements between our nations. The U.S. has 117 open-skies agreements with countries around the world, and 115 of them are working. We’re asking the Obama administration to enforce the open-skies agreements with Qatar and the U.A.E. just as they would with any other trade agreement and level the playing field so American businesses and workers can compete.

There is a lack of understanding of the significant harm that subsidies exact on the U.S. aviation industry. The airlines we fly for are being forced off international routes by the Gulf carriers, and this will continue if the Obama administration fails to act. When a U.S. airline cuts international frequency, economists estimate that the result is a loss of more than 800 jobs and cuts to domestic service that communities rely on.

We can compete with airlines from across the world when everyone is playing by the same rules, but it isn’t fair competition when we are forced to go up against the treasuries of wealthy nations. The Obama administration must act swiftly to address the Gulf carrier subsidization because the jobs of hundreds of thousands of hardworking pilots, flight attendants, ground crew and many others are at stake.

Capt. Tim Canoll
Air Line Pilots Association, Intl.

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americans4fairskies2015Open Skies, Maybe, but Hardly Level Skies
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United Airlines to stop flying to Dubai

United Airlines on Wednesday said it will cancel flight service between Washington and Dubai starting in late January, meaning no U.S. passenger carrier will fly direct to the Gulf states.

The move comes after the U.S. government awarded a government contract for travel on the route in 2016 to rival JetBlue Airways Corp (JBLU.O) and its codeshare partner Emirates, which will operate the Washington-Dubai flights, parent United Continental Holdings Inc (UAL.N) said in an Internet posting.

Dubai-based Emirates will carry an estimated 15,000 U.S. government employees, United said, adding, “We formally protested this decision but were ultimately unsuccessful.”

United, along with Delta Air Lines Inc (DAL.N) and American Airlines Group Inc (AAL.O), have accused Emirates and two other Middle Eastern carriers of receiving subsidies from their governments that let them buy more aircraft and drive down ticket prices. The Gulf airlines have denied the allegations.

Delta has planned to end all flights between Atlanta and Dubai starting in February 2016. It cited what it claims is “overcapacity” on routes to the region following the expansion of Emirates, Etihad Airways and Qatar Airways, which now serve a dozen U.S. cities with around 200 flights per week.

The Obama administration is considering whether to start talks with the United Arab Emirates and Qatar to address the subsidy allegations, per the U.S. airlines’ requests.

United said its customers will still be able to book travel to the region via its partners Deutsche Lufthansa AG (LHAG.DE) and Air Canada (AC.TO).

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