A key component of our nation’s military preparedness and national security preparation is being threatened due to gross trade violations being perpetrated by two of our trading partners in the Middle East.
U.S. airline companies have long documented that the United Arab Emirates (UAE) and State of Qatar have subsidized their three respective airlines — Emirates, Etihad, and Qatar Airways — with more than $40 billion and are putting the U.S. Civil Reserve Air Fleet (CRAF) program at risk.
This program allows the Department of Defense to augment military aircraft capability during a national defense related crisis with equipment volunteered by U.S. air carriers. Today, the Civil Reserve Air Fleet is comprised of more than 450 mostly wide-body aircraft that allow for the transportation of thousands of troops and tons of cargo to destinations near and far at a moment’s notice during times of crisis.
However, the massive subsidies flowing to Emirates, Etihad, and Qatar Airways threaten the fleet by making fair competition impossible and putting U.S. airlines and their employees at a significant competitive disadvantage in the international marketplace on long-haul routes. U.S. airlines and their employees can compete against any airline in the world, but they can’t compete against governments.
As the governments of the UAE and Qatar flood their airlines with subsidies — predatorily expanding and dumping seats into markets that their airlines would not be able to serve if the playing field was level — U.S. airlines lose and forgo international routes, and thereby downsize their CRAF mission-capable aircraft fleets. This undercuts the U.S. military’s ability to call upon U.S. airlines for support for military and humanitarian missions.
The aviation trade agreements the U.S. holds with the UAE and Qatar, known as Open Skies agreements, represent two of the 119 Open Skies agreements the U.S. currently holds with countries around the world. These agreements have bolstered choice and access for consumers, increased economic opportunities for our aviation industry, and supported hundreds of thousands of jobs in the industry. They have also supported our military presence around the globe and expanded U.S. airlines’ fleets.
Therefore, as Qatar and the UAE’s massive violations of these agreements continue to negatively impact our commercial aviation industry, they also threaten our national security. It is time for the U.S. government to take action. We are asking President Trump to say “no more” to trade partners who violate their trade agreements and threaten American workers. We must stand up for Open Skies trade agreements and our national security, and end the UAE and Qatari airline subsidies.
Dan Carey is president of the Allied Pilots Association, which serves as the certified collective bargaining agent for the 15,000 professional pilots who fly for American Airlines and is the largest independent pilots’ union in the world. American Airlines, Delta Airlines, and United Continental havedocumented the subsidies written about in this column.
President Trump is set to visit the Middle East next week, and if early indicators are any guide, this will be no Obama-style “apology tour.” If anything, it’s more likely to be a tour that demands apologies from most of the countries being visited.
Yet, surprisingly, one particular offense seems to have slipped through the White House’s fingers in figuring out what to address: namely, the unrepentant abuse of America’s airline sector by its Middle Eastern competitors through rampant violations of America’s Open Skies pacts.
If you don’t know what Open Skies pacts are, fear not, explanation follows. Open Skies agreements are decades old multinational agreements created to encourage much-needed competition in the airline marketplace. They do this by providing expanded access to airways across the globe, which in turn lower costs for consumers. In essence, they amount to a series of rules that multiple countries agree to in order to foster travel and fair competition for their respective airline industries. And in theory, that should be the end of the story.
But it isn’t. Because when it comes to transparency and an open market, the reality is that the current system is being exploited, and has been exploited for more than a decade in some cases. In fact, as far back as 2004, the Qatari government and monarchs of the UAE have been subsidizing state-owned Qatar Airways, Etihad Airways and Emirates to the tune of $50 billion, in direct violation with our trade agreements – and that’s just what we can trace.
From a competitive standpoint, this is like outfitting an Olympic runner with a steroid pumping hidden IV drip, and it needs to stop. We need a leveling of the playing field – and true free market competition, which was the whole point of U.S. Open Skies agreements to begin with. Why should domestic U.S. air carriers be expected to go up against corrupt Persian Gulf competition that’s been juiced with subsidies, removed from shareholder accountability, and armored with a barrage of anti-competitive tactics? Not only is such a state of affairs ludicrously unfair, but it also costs consumers, since both Delta and United were forced to cancel their U.S. flights to Dubai last year, partially cutting off air commerce with the UAE and likely ruining millions of peoples’ spring break in the process.
And it’s not just the US that is subject to this kind of predatory behavior from Gulf state airlines. They’re violating pacts with other nations as well. Arabian Business reported just this week that Emirates has been accused of violating their air services pact with India by flying more passengers than they should be able to accommodate. Many countries in Europe, and our northern neighbor Canada, have stood firm in enforcing their agreements and penalized Gulf airlines for violations by placing restrictions on the number of round-trip passenger flights each week. This isn’t protectionism, it’s free market self-preservation. And it’s just the kind of thing President Trump was elected to fight against.
Gulf airline expansion comes at the expense of U.S. and European carriers, who operate within the norms of a free market, and if the Trump administration doesn’t hold these countries to account on Open Skies, things are set to get a lot worse. Trade Arabia reports that currently, there is $57.4 billion worth of active aviation projects taking place in the Middle East, no doubt to flood our airways with more half-empty planes.
These Open Skies violations are crippling. For every long-haul route lost or foregone by our domestic carriers as a result of subsidized Gulf carrier competition, more than 1,500 good American jobs are lost, and exploitation of these agreements directly impact the 11 million jobs and $1.5 trillion in nationwide economic activity U.S. airlines support. This is hardly an “America First” style outcome.
President Trump, on his first trip overseas, would do well to remember the kind of economic carnage these kinds of practices can produce for hard-working Americans, and how the actions of these Gulf airlines literally threaten our airline industries’ ability to keep planes in the air. It’s time for President Trump to send a clear message that there is a new sheriff in town: these countries may fly fairly, or they may face the turbulence and headwinds of U.S. sanctions.
As President Reagan’s former transportation secretary, it’s gratifying to see Washington is finally finding the gas pedal when it comes to infrastructure. We all have seen the cost of poor infrastructure, slowing down both us and U.S. businesses. But while we work ourselves out of a backlog of technology, concrete and steel problems, it’s also time for Congress and the administration to cast a critical eye toward the operational risks facing our infrastructure.
We cannot just rebuild America’s infrastructure and pat ourselves on the back — we have to strengthen how it operates and serves us for the future. I know there is no industry for which this rings truer than aviation. When President Trump met in February with America’s aviation industry leadership, everyone agreed that our aviation infrastructure needs to see upgrades, particularly with new technology. However, no matter how significant those investments could be in a new package, America’s airports may be left without sufficient operations if strategic industry risks are not addressed soon.
U.S. airlines are being sabotaged by unfair competition on global flights, putting at risk the hub-and-spoke system that supports their ability to connect small- and medium-sized airports to larger hubs and global destinations. What good is a shiny, new airport without planes to land at it?
America’s aviation market is experiencing what the steel industry went through — the dumping of cheap, subsidized goods meant to shut down the competition. The United Arab Emirates (UAE) and Qatar have poured more than $50 billion into their state-owned airlines, Emirates, Etihad Airways and Qatar Airways, which means they can expand anywhere and everywhere they like, regardless of profit or demand. Their seat capacity to the United States grew by 43 percent in just two years.
American, European, Asian and Australian airlines, which don’t have billions in government subsidies, don’t have a realistic chance to fight back. This has led to European carriers cutting routes and U.S. airlines foregoing even growing markets like India. When these airlines enter U.S. markets, they aren’t stimulating new demand, but are instead diverting existing customers from U.S. and other countries’ airlines to theirs. This has a very real, harmful impact on the United States — for every daily round-trip frequency lost or foregone to a subsidized Gulf carrier, 1,500 American jobs are lost.
So, while we’re upgrading America’s aviation infrastructure, we also need to protect the integrity of aviation operations by enforcing our Open Skies agreements. For decades, Open Skies have helped the American aviation industry flourish, letting U.S. airlines freely fly to 120 other countries without government interference and red tape. But these massive subsidies run completely counter to the core purpose of Open Skies — rather than remove government interference, the UAE and Qatar are heavily subsidizing their airlines. The point of having Open Skies is greater access, with a fair and equal opportunity to compete. Why should America accept heavy subsidies by our treaty partners that undermine competition?
President Trump is making it clear by his words and deeds that he expects American companies to be treated fairly under international trade agreements. He has also aggressively acted to protect U.S. jobs. No U.S. airline can be expected to compete with an entire nation’s oil-rich treasury. As we make sure our aviation infrastructure is able to support economic growth, we should also make sure our Open Skies agreements are working as intended.
Less than a decade ago, there was only one flight a day from the United States to the UAE and Qatar—a New York to Dubai route operated by Emirates. Today, the three Gulf mega-carriers, Emirates, Etihad and Qatar Airways, operate 25 daily nonstop flights from the U.S. to the Gulf. These new routes are just one way these three heavily-subsidized companies have expanded rapidly in recent years. For example, the Gulf carriers have grown their combined seat capacity to the U.S. by over 1,500% since the U.S. negotiated Open Skies agreements with their governments. In just the past year, their daily departures have shot up 32%. Such rapid growth has raised eyebrows among aviation analysts. The Gulf airlines assert that their expansion is the result of burgeoning market demand, fueled by rising incomes in Asia and elsewhere. But evidence suggests that their expansion, made possible by their massive subsidization, is instead about flooding markets and crowding out U.S. competitors. The Gulf carriers are not growing the market—they are diverting traffic from U.S. airlines and their European allies by violating Open Skies policies.
(Disclaimer: Mr. Britton is an independent consultant to a number of clients, including American Airlines, Inc.)
Understanding the market
To make sense of what’s going on, it’s important to understand basic airline geography and what government experts and economists call “relevant markets.” Emirates, Etihad and Qatar Airways fly nonstop from 11 cities in the U.S. to their home hubs in Dubai, Abu Dhabi and Doha, respectively. But demand for these nonstop flights, called local markets, is relatively small because the respective populations of these places are only about 2.3 million, 2.1 million and 900,000. Further, a large portion of these populations consists of expatriates, including laborers who lack the means to fly, except when returning home.
With such small traveling populations, demand for flights to and from these local markets isn’t significant enough to prompt expansion. Rather, what the three Gulf mega-carriers have captured is the market for connecting traffic from the U.S., Europe, South America and many other regions via their three hubs to much of the other side of the world. Emirates alone links the U.S., via Dubai, with 17 cities in the Middle East; 21 in Africa; 36 in South, Southeast and East Asia; and 7 in Australia and New Zealand. These Gulf mega-airlines benefit from a completely fair—and strategic—geographic advantage of central location. As they frequently remind us, about 60% of the world’s population lives within six flying hours of the Gulf.
Many people looking at the issue get this basic geography wrong—for example, an academic paper soon to be published in Transportation Research Part A: Policy and Practice defines the relevant market as solely U.S.-Middle East. Although the paper is cited approvingly by the three Gulf carriers, the true market is far bigger than that.
From the U.S., for example, India is the largest “beyond” market for Emirates, Etihad and Qatar, and their shares of bookings through travel agents and other intermediaries more than quadrupled from 2008 to 2014, from 8.3% to 34.9%. The following table shows the impact of this growth on U.S. airlines and their European partners on typical routes from 2008 to 2014:
With this additional context, one can see a more accurate picture: Gulf airline expansion has clearly come at the expense of U.S. and European partners (as well as other carriers). The Gulf carriers tell us that they are simply offering a better product than their competitors to a growing market. As I have written, however, they are not competing on a level playing field. And virtue of the subsidies and other unfair benefits they receive, these three airlines have expanded far faster than market forces could possibly account for.
Contrary to their assertions, Emirates, Etihad and Qatar Airways are expanding at rates that are clearly divorced from economic pressures. While their competitors are restrained by the demands of shareholders, these carriers are free to undercut the market through subsidized growth. Economic data makes it clear that Gulf carrier claims about market demand simply don’t add up.
Aviation analysts often use GDP growth as a proxy for overall growth in air transport demand. However, the Gulf carriers are growing their capacity at rates that far exceed global GDP growth:
With world GDP growth at 3%, it is not surprising to see the U.S. carriers and the rest of the world within a percentage point of that level. In contrast, the three Gulf carriers are expanding at nearly four times the rate of global economic growth. They are adding massive amounts of seat capacity in markets that aren’t growing fast enough to support the influx. In manufacturing industries, this practice is called dumping. One veteran of several decades in the airline industry recently characterized Gulf market expansion as “Gee, Boeing (or Airbus) has delivered another new airplane. We have to find a place to put it.”
Commercial aviation is a textbook example of supply, demand and price
What does all this overcapacity do? In short, it drives down yields for all airlines, not just some. Commercial aviation is a textbook example of the relationship between supply, demand and price: grow capacity enormously in a slow-growing market and prices will fall. If you’re subsidized, losing pots of money doesn’t matter. If investors own the airline, it matters greatly.
In the short term, lower prices may appear to benefit consumers, but in the medium- and long-term the damage to U.S. carriers will hurt us all in at least two ways. First, U.S. airlines and their European allies will be forced to reduce long-haul flying. We are already seeing this effect. American Airlines and Delta both withdrew from the enormous India market because they could not operate profitably in the face of massively subsidized competition from the Gulf megacarriers. Second, this decline in international flying will affect the U.S. domestic network. More than half of passengers on a typical American, Delta or United overseas flight make a connection from or to a domestic flight. So as the international network is squeezed by unfair competition, the domestic network will shrink, too. And because network decline is exponential and not linear (simple example: shrinking from 10 flights to 7 drives an overall network decrease much greater than 30%), the impact will be large and damaging. Small and medium-sized U.S. cities, already worried about reduced service, should be even more concerned.
Governments of Abu Dhabi, Dubai and Qatar are simultaneously competing with each other
It gets worse going forward. For one thing, the governments of Abu Dhabi, Dubai and Qatar are simultaneously competing with each other, not just with their airlines, but with essentially identical economic development strategies aimed at diversifying their economies. This means Emirates, Etihad and Qatar must always match each other’s increases in capacity—chasing the same slow-growing pools of passengers. And they’re doing that with gusto: by 2020, their combined widebody (big planes with two aisles) capacity will exceed the entire U.S. fleet of widebody aircraft. As of 2014, Emirates had 217 aircraft in their fleet, with orders and options for 349 more, including 83 500-passenger A380s. Etihad has ordered and optioned 253 planes in addition to their existing 98. And Qatar will add 319 to its existing 134 planes.
After looking at the data that U.S. airlines gathered on these three airlines, an economist colleague said, “The revelation was how well the U.S. carriers have empirically established lack of stimulation. Contrary to the Gulf airlines’ contentions, they are not growing the market, but taking traffic from existing airlines.” And Emirates, Etihad, and Qatar are able to do that because they receive massive subsidies and other unfair benefits from their government owners, $42 billion in the last decade alone. We cannot expect U.S. airlines to compete against backers with such deep pockets.
As Delta Air Lines and several other major U.S. carriers continue a years-long fight over what they call unfair competition from Middle East carriers, Gov. Nathan Deal and other Georgia officials are pushing for action on the issue by the Trump administration.
Deal sent a letter to Secretary of State Rex Tillerson and Transportation Secretary Elaine Chao dated April 28 urging them to “take action” to enforce Open Skies agreements that govern competition between airlines from different countries “and enforce a level playing field for our U.S. international carriers.”
Echoing an argument by Delta, American and United airlines, the governor wrote in his letter that Qatar and the United Arab Emirates give “massive subsidies” to their state-owned airlines that allow Qatar Airways, Etihad Airways and Emirates Airlines to “dramatically increase capacity and lower prices, forcing U.S. carriers to abandon international routes and putting U.S. aviation jobs at risk.”Others contend Delta, United and American are afraid of foreign competition. In 2015, Qatar Airways CEO Akbar Al Baker called the opposition by U.S. carriers to state-owned Gulf carriers’ growth “a real example of the bullying tactic that is being taken against us.” He also said then that U.S. carriers provide “crap service.”
Qatar Airways launched flights to Atlanta last year, sparking a row with Atlanta-based Delta that resulted in a dispute over gate space and a decision by Delta to pull its sponsorship of the Fox Theatre after the venue hosted a Qatar Airways launch party with a performance by singer Jennifer Lopez.
In his letter last month, Deal wrote: “If the Gulf carriers are allowed to continue their subsidy-fueled expansion unchecked, more hardworking Americans in Georgia could lose their jobs.”
Lt. Gov. Casey Cagle and members of the Georgia Legislature including House speaker David Ralston, R-Blue Ridge, and Senate majority leader Bill Cowsert, R-Athens, wrote similar letters.
Georgia’s Congressional representatives also signed a letter to TIllerson and Chao asking them to review potential violations of Open Skies agreements with Qatar and the United Arab Emirates. U.S. Sen. Johnny Isakson signed a similar letter earlier this year.
Georgia economic development commissioner Pat Wilson, who also wrote a letter, said “the Gulf carriers are not playing by the rules with their massive subsidies,” according to a written statement. And Georgia Chamber CEO Chris Clark, Metro Atlanta Chamber CEO Hala Moddelmog and Georgia Transportation Alliance executive director Seth Millican also sent letters to Tillerson and Chao with a comparable message.
Atlanta-based Delta is highly influential in the state, and is a major contributor to Deal, Cagle, members of Congress and members of the Georgia Legislature. Delta is also on the board of the Metro Atlanta Chamber and the Georgia Chamber.
The letters are part of a broader, years-long campaign spearheaded by a group called the Partnership for Open & Fair Skies, a group formed by Delta, United, American and airline unions. Similar letters were sent two years ago by the Georgia Chamber, Isakson and others to the Obama administration on the issue.
The group’s aim is to push the U.S. government to start consultations under Open Skies agreements with Qatar and the United Arab Emirates on the competition issue and to push for a freeze on new passenger service in those markets during consultations.
President Trump’s recent executive action calling for a federal investigation into foreign steel arriving into the United States is the kind of decisive action needed to ensure that American jobs and our robust economy are not at risk or being taken advantage of by our trade partners. We need the same action from President Trump to address an analogous problem in international aviation.
America’s all-important airline industry faces tremendous risk. Airline seat dumping is currently being practiced by three Gulf airlines: Emirates and Etihad of the United Arab Emirates, and Qatar Airways of the State of Qatar. These airlines are able to pursue such predatory practices because they receive massive, illegal subsidies from their governments. Indeed, in the past decade alone, they have received more than $50 billion from their government owners in direct violation of the aviation trade agreements held between the United States and the UAE and Qatar.
President Trump campaigned on ending such harmful trade violations, and given the high level of concern about this situation, it is critical that he take action and stand up to these foreign governments and state-owned airlines who are artificially distorting the aviation market and hurting American jobs in the process.
For each daily international airline route lost or forgone by U.S. airlines to unfair competition, over 1,500 U.S. jobs are lost. These are good paying, middle class jobs that support hundreds of thousands of American families. Just as President Trump has taken action through executive order on steel dumping, we need that same strength to be shown in regards to aviation seat dumping.
There are, however, entities that are combatting our efforts for fair competition through pay-for-play special interests and dark money. The spread of fake news by entities such as the for-profit Business Travel Coalition (BTC), the misrepresentation of the facts by the U.S. Travel Association (which is financially supported by Emirates and Etihad), and incomplete information taken as fact has muddied the waters on this issue. If we are to do nothing to stand up to these bad actors, our economy, and even our national security remains under threat.
This issue has been debated in the public eye for over two years now, and while the Obama administration failed to act, the Trump administration has a golden opportunity to ensure that American workers and our Open Skies Agreements are not being used to undermine our vital aviation industry or its workers. U.S. aviation jobs are a critical piece of the American economy, so we must act steadfastly to safeguard against unfair competition from foreign carriers who seek to distort the market to their advantage.
There are a lot of forces working against us. From $50 billion in illegal subsidies, to fake media and pay-for-play advocacy, and the inaction of the past administration, U.S. airlines and their employees are operating on an unlevel playing field. That is why we are asking President Trump to rise to the occasion and hold the Gulf carriers accountable. It is time to put American jobs first.
Jon Weaks is president of the Southwest Airlines Pilots Association, the sole bargaining unit for the more than 8,500 pilots of Southwest Airlines.