American for Fair Skies thanks the Trump Administration for their courageous action that puts U.S. airline workers first and takes on the bad actors that are violating our trade agreements and depriving Americans for equal and fair competition.
Three Points On Open Skies
Another week is coming to an end, which means it’s been another week of mistruths and false equvalencies from those benefiting from the illegal trade practices of the State of Qatar and the United Arab Emirates and their three state-owned airlines, Emirates, Etihad, and Qatar Airways.
As always, A4FS is here to set the record straight. So let’s get to it:
1. Dismal Load Factors But Above Average Growth?
IATA’s recent “Air Passenger Market Analysis” for October 2017 shed an interesting light on the continued capacity dumping of Middle Eastern airlines, particularly Etihad, Emirates, and Qatar Airways, which are by far the largest of the Middle Eastern air carriers. For October, the airlines’ capacity increased by another 1%, again outpacing worldwide capacity trends. This has been the norm for these state-subsidized airlines, which have grown without regard for market demand or economics.
What is even more illuminating, however, is the dismal load factor (the percentage of seats filled on flights) for the Middle Eastern airlines in October: 69.6%. This means that for every flight, more than 30% of the seats are unsold. This load factor is 10% lower than the average in October for all international airlines (79.4%) and is further evidence of the Middle Eastern airlines’ capacity dumping. They are unconcerned about making a profit – a sub-70% load factor is not competitive or profitable – and instead are engaged in predatory expansion, resulting in a distortion of the international marketplace. This has, in turn, deprived U.S. passenger air carriers of their ability to compete equally and fairly, which is a violation of Open Skies.
2. Market Place Distortions Violate Open Skies
In a story published this week in The National, the head of the US-UAE Business Council attempted to muddy our push for Open Skies enforcement by suggesting that the subsidies (more than $52 billion) to Emirates, Etihad, and Qatar Airways are not relevant to fair trade. This is important because he did not dispute the facts regarding the subsidies, instead arguing: “The bottom line is that Open Skies doesn’t have anything to do with subsidies. There is no provision in Open Skies anywhere that deals with subsidies.” What Mr. Sebright (deliberately) misses, however, is that subsidies distort the international marketplace, allowing capacity dumping from Emirates, Etihad and Qatar Airways (see point 1 above), which deprives U.S. passenger air carriers of their ability to compete equally and fairly. And that, Mr. Sebright, is a violation of Open Skies.
3. Pro-Subsidies Is Anti-Fair Competition
Politico Influence reported that a coalition of airlines that profit from the subsidization of Emirates, Etihad and Qatar Airways, calling themselves “U.S. Airlines for Open Skies,” launched an ad campaign this week stating that because American Airlines, Delta and United are seeking enforcement of Open Skies trade agreements, they are “on the naughty list.” Setting aside clichéd messaging that seems to be targeted to elementary school children, the coalition has the message backwards. United, American, and Delta and their employees are pro-Open Skies. They have made this abundantly clear. Those who seek to protect the narrow interests of three Middle Eastern airlines – Emirates, Etihad, and Qatar Airways – that have grown unsustainably (see point 1 again) and have therefore distorted the marketplace in violation of Open Skies (see point 2), are the true protectionists.
Every day the size of the subsidies being used to distort competition through predatory practices grows- the number is so big now (more than $52 billion in 10 years) that it’s difficult for many people to fully comprehend. What is easy for people to understand? The direct threat these practices pose to American aviation workers. This cannot continue.
To learn how you can get involved by donating or taking action, visit us online at fairskies.wpengine.com, on Facebook or on Twitter.
Thanks for your support of fair competition.
Newt Gingrich: Trump should enforce our free trade agreement on air travel
Experience shows that letting markets, rather than politics, dictate economic activity creates more value for consumers and frees up capital that ultimately leads to more jobs.
This is why I have actively supported free trade and other agreements that remove government barriers and entanglements to international commerce throughout my career.
For open markets to work as intended, however, all parties need to be operating on the same, level playing field. One of the biggest challenges advocates of free trade must confront in the 21st century is the growing number of countries using nation-state resources – often in violation of trade deals – to give their state-owned companies huge advantages.
In these cases, international competition does not create the greater efficiencies, innovation, and new demand for services that leads to a growing economy for all. Instead, since the unsubsidized competition cannot possibly compete, it leads to a hemorrhaging of jobs and wealth in the countries that do not cheat, as well as fewer options for consumers.
The emergence of this highly aggressive form of state-sponsored capitalism provides a test for the United States and for advocates of unencumbered international economic activity: Are we willing to stand up for American workers? Are we willing to enforce our trade deals?
The United States faces a perfect test case when it comes to our Open Skies agreements with the United Arab Emirates and Qatar.
Open Skies agreements allow airlines, rather than governments, to make decisions about international routes, pricing, and capacity. The goal is to allow market demand rather than politics to drive these decisions, which saves customers money.
The United States has more than 100 of these agreements, and they have been a huge success. Estimates show that Open Skies agreements save passengers approximately $4 billion per year on U.S.-international routes.
However, for these agreements to be mutually beneficial, the airlines in all participating countries must be operating under the same rules. In the case of the United Arab Emirates and Qatar, this is clearly not the case.
A report submitted to the U.S. government by a coalition of the three major U.S. airlines and several airline worker unions shows that between 2004 and 2014, the governments of the UAE and Qatar have provided over $40 billion in subsidies and benefits to their state-owned airlines: Emirates, Etihad Airways, and Qatar Airways. Updated analysis by the coalition shows that since 2014, the total subsidy has passed $50 billion.
U.S. airlines have competed against state-owned airlines for decades, but these massive subsidies are unprecedented. The Gulf carriers are using this almost limitless government funding to open new routes without considering consumer demand, and thanks to the subsidies they receive, can afford to hemorrhage money until their unsubsidized competitors have no choice but to end their service. The coalition’s analysis shows that every route closure leads to a net loss of 1,500 U.S. jobs.
Why would the Gulf governments do this? Because the two nations’ larger economic development strategies depend on making themselves major airline hubs. Therefore, they are willing to let their state-owned airlines lose money to serve their broader, long-term goals.
This is a direct violation of our Open Skies agreements, which require parties to ensure “fair and equal” opportunities to compete. As the report shows, the Gulf carriers are operating hundreds of millions of dollars in the red every year, while at the same time rapidly expanding routes and capacity. They are not creating new demand for routes. They are only driving out the competition who cannot afford to operate at a loss. The Gulf carriers couldn’t do this without the more than $50 billion in subsidies they have received over the past decade. This is the opposite of fair competition.
One might be tempted to dismiss the findings of this study because it was funded by the United States’ three major legacy carriers, but other developed nations such as Canada, Japan, and China – as well as the EU – have come to the same conclusion and have already taken steps to equalize the economic playing field with the Gulf carriers. It is clearly time for the United States to follow suit.
Our Open Skies agreements allow the State Department to request immediate consultations with partner countries to address grievances. We should do so immediately. If we are refused, the Trump administration should announce it is freezing the addition of new routes from the Gulf carriers to the United States until UAE and Qatar come to the table.
Those opposed to enforcing our Open Skies agreements with Qatar and UAE argue that doing so would invite scrutiny of alleged subsidies that U.S. carriers receive, and undermine Open Skies agreements with other countries.
This is a smokescreen. There is no comparison between the tens of billions of dollars in subsidies that the Gulf carriers receive with the small advantages U.S. carriers have, such as relatively liberal bankruptcy laws and the partial reimbursements they received from the government after it decided to ground flights in response to the 9/11 attacks.
If free and fair trade is to continue to expand in the 21st century, those of us who advocate robust international commerce free of government interference must be willing to stand up for U.S. workers when other countries are not playing by the rules.
In short, supporting free trade requires enforcing free trade agreements. All Americans should demand that the U.S. government acts to enforce its Open Skies agreement with UAE and Qatar.
Newt Gingrich is former Republican speaker of the U.S. House and a former candidate for president.