Saturday, April 18, 2015

Big US 3 Versus Big Gulf 3: The Airline Wars Continue

By Benét J. Wilson / Published April 17, 2015

As the battle between the Big Three U.S. carriers versus the Big Three Gulf carriers continues, analysis from AirInsight finds that it is starting to wear on industry observers. And the U.S. Departments of Transportation, Commerce and State have stepped into the fray, announcing that they are reviewing claims that three foreign airlines – Emirates Airline, Etihad Airways, and Qatar Airways – have received and are benefitting from subsidies from their respective governments of the United Arab Emirates (UAE) and Qatar that are distorting the global aviation market. 

Images: Courtesy of JDL Multmedia

Images: Courtesy of JDL Multmedia

A docket – DOT-OST-2015-0082-0001 – has been opened by the federal government that will allow individuals or groups to provide comments to the U.S. government on this subject. The claims, which are asserted in a publicly available report, are of significant interest to stakeholders and all three Federal agencies. The U.S. government takes seriously the concerns raised in the report and is interested in receiving insights and feedback from stakeholders before any decisions are made regarding what action, if any, should be taken.

The Battle Begins

The fight started on February 10 with Emirates Chairman Sheikh Ahmed Bin Saeed Al Maktoum, in response to U.S. carriers’ complaints about Middle Eastern carriers taking away passenger, told Bloomberg: “improve your offering and they’ll come back.”

EXTRA: The Passenger Experience on U.S. Airlines Versus the Big Three Gulf Carriers: Fair Fight?

Delta CEO Richard Anderson. Image Courtesy of Delta Air Lines

Delta CEO Richard Anderson. Image Courtesy of Delta Air Lines

In a February 8 interview with Richard Quest on CNN, Delta Air Lines CEO Richard Anderson said that Gulf carriers shouldn’t equate the bankruptcy protection given to U.S. carriers after 9/11, since the Gulf region was the source of the attacks. He also said Delta, United and American had found evidence of “tens of billions of dollars in direct government subsidies.”

Qatar Airways' Akbar Al Baker. Image: Courtesy of Qatar Airways

Qatar Airways’ Akbar Al Baker. Image: Courtesy of Qatar Airways

After Quest called on the heads of the Big Three Middle East carriers — Emirates, Etihad and Qatar Airways — for a response, Akbar Al Baker, the CEO of Qatar stepped up for an interview on February 17, saying that Anderson needed to discover the difference between equity and subsidy. “He should be ashamed to bring up the issue of terrorism in order to hide his inefficiency in running an airline. He should compete with us instead of cry wolf for his shortcomings,” he said.

Then Delta Air Lines issued an apology for Anderson’s remarks, according to an article in Mashable. “He didn’t mean to suggest the gulf carriers or their governments are linked to the 9/11 terrorists. We apologize if anyone was offended.”

But Emirates President and CEO Sir Tim Clark rejected the apology in a statement to Skift, accusing Anderson’s statement of being deliberately crafted. “This brings into question his credibility as a CEO of a U.S. public listed company, as well as the integrity of the submission which his airline has submitted to the US authorities,” he said in the statement.

The story escalated further after Emirates, in a statement issued to FlightGlobal, called subsidies claims made by American, Delta and United are “unfounded,” after the Dubai-based carrier received a copy of the document prepared by the Big Three U.S. carriers claiming $40 billion in state subsidies.

On March 5, the Big Three U.S. carriers released a 55-page white paper they the claim documents $42 billion in government subsidies and unfair benefits provided to Qatar Airways, Etihad Airways and Emirates Airline in direct violation of U.S. Open Skies policy. The white paper, published by the Partnership for Open & Fair Skies, also includes support from the Air Line Pilots Association, the Allied Pilots Association, the Association of Professional Flight Attendants and the airline division of the International Brotherhood of Teamsters.

Evidence gathered during a global two-year investigation and documented in the report shows that Qatar Airways, Etihad Airways and Emirates have received $42 billion in quantifiable subsidies and other unfair benefits from their respective governments since 2004. The white paper uses the globally accepted definition of subsidy as established by the World Trade Organization and agreed to by all 160 WTO members, including Qatar and the UAE.

Too Many Deals in Place

Fast forward to March 10, where at the ISTAT Americas conference, speakers on the lessor panel, which included people from the U.S. and abroad, seemed to be of the view that the U.S. led the charge in airline deregulation and then pushed for open skies, said the AirInsight report.

“The horse is gone – no use in trying to bolt the door. The U.S. has some 100 open skies deals in place,” it said. “If the U.S. even agrees with its airlines it has to be wary of tampering with these deals. Mess with one and the others are all in play. Unintended consequences create trouble every time.

The report questioned why the Big Three U.S. carriers — American Airlines, Delta Air Lines and United Airlines — could even open this can of worms. “After being given massive state support after 9/11 and then being allowed to consolidate into a few fortress airlines – all now among the world’s largest – they need more help?” it asked.

Who benefits from state support, if there is a lot or even if any at all, asked AirInsight. “If the Gulf carriers did once and continue to get support from their governments, so what? This is in essence a transfer of capital from shareholders to consumers. Who loses? The owners of the Gulf-based airlines do. Who wins? The air travel consumers,” it said. “State supported airlines are as old as the industry itself. Typically these airlines are poorly run (i.e. Air India) and no threat to anyone. But the Gulf carriers are well run, they have used whatever shareholder support they have been given and executed exceptionally well.”

Fearing competitors who are well capitalized and popular with consumers is a whole different matter. “But fearing and dealing with competitors is what capitalism is about. If the competitor has an advantage and plays to that strength it is completely rational,” said the AirInsight report. “The U.S. carriers have natural advantages too – and the Gulf carriers don’t whine about that to their governments.”

In summary – the benefits question seems to be simple, said AirInsight. “U.S. airlines are in a historically profitable position. The Gulf carriers are really not a threat. US airlines are whining and it sounds pathetic,” it said. To read the complete report, subscribers can click here.

Cover Image: Courtesy of Boeing

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The post Big US 3 Versus Big Gulf 3: The Airline Wars Continue appeared first on Airchive.

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