Open Skies: Invite to Complain or Compete!

Openskies-1024x682 Today, we welcome Nadine Itani, a new guest contributor who writes an opinion post about open skies. 

Gulf carriers, such as Emirates Airline, Etihad Airways, and Qatar Airways, have expanded enormously and have established an intense global competitive network. These carriers’ future growth prospects depend on their ability to gain access to markets in Europe and America. Existing bilateral air agreements and the US incumbent carriers lobby hamper the Gulf carriers' expansion plans through restricting market access.

US Carriers to US Government: Reform Open Skies

Competition between Gulf carriers and the ageing big international US carriers has broken out in the open again in recent months, with US carriers filing a claim to the US administration that the Gulf airlines are not playing fair and are endangering US air carriers’ sustainability and threatening US aviation employment opportunities.

In March of this year, the three major US carriers American Airlines, Delta Air Lines and United Airlines made public the document that supposedly claims their Gulf competitors are operating successfully due to more than $40 billion subsidies from their governments.

Related article by Greg Principato: Open Skies: What U.S. Airlines Really Want

The big three US carriers confirm that they support “open skies” but they simply believe that the competition with Gulf carriers is not being “fair”.

A Compelling Argument?

Reading between the lines of the US carrier CEOs press conference reveals the real incentive behind this peculiar campaign. When the three biggest international US carriers unite and get the support of their union groups, then one should look up for the true story.

First, protecting jobs is a sound case to defend, but isn’t it the same as competition, and shall be defended reasonably through a solid argument?

Second, why did the US carriers spend too much time (2 years) to produce the document that contains the super “breakthrough” financial data of the Gulf carriers? Unfair competition is a crucial accusation, when a party owns evidence against its rivals; it shall be promptly taken to court. And, if the findings were so harmful, why was this report not announced publicly earlier, instead of exchanging confidential papers around the White House and US Government agencies?

Third is on the perspective of subsidy. It is generally known that subsidy is a sum of money granted by the state to help an industry or business keeps the price of a commodity or service low. The problem is that what US carriers fight against under the name of subsidies is being practiced in the US under Chapter 11. Chapter 11 is a “one of a kind” exit plan that allows US airlines passing through critical financial situations to hold off its credit payments, get rid of debts and embark in a restructuring process. International observers define Chapter 11 as a subsidy, while US carriers insist that it is not. As a personal opinion, how you explain subsidy is insignificant, and allowing it when it suits the US context while suing international competitors for it is a huge sin. If Chapter 11 and antitrust immunity systems are not to be considered facilitating any form of subsidy, then what explains the huge investments of American Airlines (the world’s largest carrier) in new fleet and products while the carrier has just came out fresh of “bankruptcy protection”.

Gulf Carriers Defend Position

The leaders of the big three Gulf carriers Emirates, Etihad and Qatar Airways already responded to these allegations. Tim Clark, president of Emirates Group said:

We are not here to take down other airlines, and Emirates contributes to the U.S. economy, through the aircraft orders.

referring to the 150 jets from Boeing in 2013, which represents the most valuable aircraft order ever made. While Danny Sebright the US-UAE Business Council president stated:

The Big 3 US carriers may first want to check their own balance sheets. Since 2006, they transferred billions of dollars of pension liabilities directly to US government while leaving creditors holding the bag for billions more through multiple bankruptcies. They received billions in cash payments and guaranteed loans in a direct government bailout while enjoying the advantages of antitrust immunity to fix transatlantic fares with their European partners.

As Tim Clark promised a “robust, fact based, point-by-point rebuttal” of the charges, he delivered on 30 June in Washington, a hard-hitting document to answer the claims laid against his airline (and against Etihad Airways and Qatar Airways) by the US carriers. The document – entitled “Emirates’ response to claims raised about state-owned airlines in Qatar and the United Arab Emirates” – runs to nearly 400 pages and it has been prepared by an in-house team at Emirates led by Clark himself and advised by lawyers, financial consultants and industry experts.

Until today, US airlines don’t seem to have a compelling case, and it is unclear whether their claims are real about subsidies threatening their ability to compete vigorously and fairly on the international stage.

US airlines should simply “stop complaining and start competing!”

More Related Articles Rebuttal of the Emirates to US accusations Emirates’ response to US open skies claims – allegation by allegation Emirates CEO Tim Clark Blasts Big Three U.S. Airlines, Especially Delta -- Since 'Delta is Delta' Competition from Middle Eastern carriers may mean lower fares to Europe, Middle East

Image credit: Vitor Azevedo

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