There has been an awful lot of debate regarding major US carriers and the Gulf “ME3”. US airlines are simply trying to defend their home turf against an onslaught of new traffic. Why are they being derided by bloggers like Matthew and Lucky? They have a point and I can prove it.
International carriers based in the US (Delta, American and United) have formed a new alliance, one that defends the US market from unfair competition. Mathew suggests that Fair Skies, the group promoting the campaign and defending the US carriers, are doing the opposite of their campaign. Instead of free and open markets, he suggests (along with Lucky) that the US3 are trying to make the US market an oligopoly by excluding the ME3. The US3 primarily target the home governments of these state-owned airlines offering unlimited cash subsidies to support otherwise unprofitable expansion, something publicly-traded companies cannot match.
The Middle East 3 (Etihad, Emirates and Qatar) for their part dispute the claims by the US3 and Fair Skies, suggesting instead that the carriers simply don’t like the competition. It is their continued business model to become the great connection point in the world offering passengers from the US and Europe to Asia an extensive network and significant capacity.
US Airlines are Not Wrong
In the case of subsidies, the US3 have a valid point. The Middle Eastern carriers are breaking Open Skies agreements by using those subsidies to finance their expansion efforts. As stand alone carriers (though the true information is private and unavailable) the notion is widely held that these carriers lose billions all while selling tickets under market value and filling massive jets unsuitable for the mission.
That does have a demonstrable effect on not only the US3 but also their codeshare partners. Today, none of the US carriers fly directly to Doha, Abu Dhabi or Dubai but they did. United flew to Dubai as did Delta, both have shut down those flights and in the case of United, other flights that have likely become unprofitable (Bahrain and Kuwait).
There are less jobs for Americans as Delta and others who shut down routes to the region for which they cannot compete. While the job numbers provided by Fair Skies can be disputed (local American citizens will still need to man the checkin counters, baggage handlers, operate the lounges for US destinations, etc.) – a lot of the support personnel will switch to overseas bases.
It’s also true that the Middle East carriers have hundreds of wide-body planes on order, many more than the US carriers and Chinese carriers combined.
What makes the US3 difficult to defend is the Fair Skies carriers choose their facts carefully and avoid others which make their positions easy to tear apart.
For example, Fair Skies claim that 1500 jobs are lost by routes that American carriers for which are no longer able to compete. That’s true if you look at every job that may contribute to the support of a single route (phone support, checkin counters, baggage handlers, etc.) but it’s incomplete at best. If Emirates adds a new flight to San Diego they will employ local employees, pay taxes, and buy US goods (catering, supplies, fuel).
Fair Skies also focuses on the wide-body aircraft on order but not the current supply. Delta has 199 wide-bodies in their fleet excluding 116 757s which are operated as wide-body aircraft by the carrier (high-capacity and long-haul operations like from the East Coast to Europe). Combined, Delta has 449 high-capacity aircraft of which just 49 are on order – dozens of which are in storage. United has 371 (two of which are on order and 109 in storage). American has 374 including storage and orders. Hawaiian, the smallest of the group adds 48 to the number.
In sum, that’s 1,242 wide-bodies active, in storage, and on order.
Compare those figures to Qatar’s 148, Emirates’ 256, and Etihad’s 91 (495) and their starting point is not exactly the same as Delta, United and American. Add 539 wide-bodies on order and you end up at 1,034 in total (17% smaller across the board assuming all orders are delivered)… and that’s before you factor in the Chinese carriers that Fair Skies has lumped into their claims. (Airline fleet numbers provided by Fair Skies and Airfleets.net)
The ‘alternative facts’ also ignore the subsidies they receive on their own account. A Wikileaks data dump showed that $155bn in subsidies were given to US carriers distributed over much of the 20th century. However, that really doesn’t address the multiple bankruptcies and debt forgiveness given to Delta, United, American, and their merged companies that comprise them (Continental, TWA, US Airways, Northwest, and others). It also doesn’t speak to the Essential Air Service contracts doled out to serve markets that are not otherwise viable, US postal traffic, military deployments, tax concessions, etc.
The group also ignores service-level deficiencies of the US carriers, though some would argue that investments into their hard products (Delta One, United Polaris and American’s business class offering) are on par with all three carriers in the Middle East corresponding product.
Fair Skies Marketing Draws Fire
The documentary-style infomercials they are putting out ignore their own issues and focus solely on the Evil ME3 and denigrating your enemy when you have a valid position only draws fire. This is not a group of concerned citizens – this is the marketing arm of the major carriers trying to fight against the heavy influx of new flights from the Middle East airlines.
They lump China into their own marketing despite the fact that several Chinese carriers are similarly heavily-subsidized, some of which also have direct investment from American and Delta.
They go after Lucky, which was clickbait at best, foolhardy at worst.
Their proposal excludes other airlines that are also government backed such as Saudi, Singapore and others.
But None Of That Matters
How could that be? Because the law. Open Skies Agreement states the following:
“Open Skies agreements do this by eliminating government interference in the commercial decisions of air carriers about routes, capacity, and pricing, freeing carriers to provide more affordable, convenient, and efficient air service for consumers.”
The agreement (contractually binding) states that airlines should be free of governmental interference and that is certainly what is going on at least in the case of Emirates. While the assumption by Open Skies is that they can end collusion by omitting government intervention to reduce prices, in this case it is because of Government interference that unsustainably low prices are available.
If the intention of the law were to be considered then by Fair Skies own admission they would have to agree that the goal of affordable, convenient air service for consumers is being provided.
However, if the agreement is followed to the letter of the law the evidence is sufficient to discontinue rights to carriers violating the agreement. But that can be a double-edged sword. US carriers would have to prove that they are not in violation of the agreement for the aforementioned reasons. Joint venture partners would have to do the same which would damage relationships with a broad number of carriers.
Matthew Is Wrong
All of the rhetoric aside, Emirates, Qatar and Etihad are just plain cheating. Matthew derides the US carriers for their own subsidies, but they pale in comparison to the ME3.
“The point of these efforts are to protect the bottom line of three airlines by limiting choice and raising prices for the traveling public.”
There’s taking a few pennies out of the take-a-penny, leave-a-penny kind of subsidies, and there is robbing a bank kind of subsidies.
He also states that “The idea that U.S. carriers will ever go out of business is laughable.” I would venture to guess that Republic, Frontier, US Airways/American, TWA, Northwest, and dozens of other airlines that have gone out of business or come close would disagree.
Matthew says that the true purpose of the campaign is “to destroy healthy competition” but this is not healthy competition. That would be more along the lines of Delta, Japan Airlines, American, United, and ANA competing for Japanese traffic (though Delta has cried foul there too in regards to slots). This is flooding a market with a bottomless pit of money, practically free fuel (a huge cost for airlines), and virtually zero airport costs.
The Middle East carriers follow a different set of rules than the rest of the world. Their governments are directly funding the exposure, passing passengers through their airports at a loss and running any airline they can out of markets they serve. If the US3 were truly waging a war on airlines that are affecting fares and hurting their bottom line, Norwegian, and WOW! would be targeted as well. But those two carriers are playing by the rules and the US3 are competing with them market by market and have been for three years.
What do you think? Does the US3 have a valid claim or do you think Matthew is right?