US Airlines Seek Freeze on Gulf Growth Ahead of Opens Skies Discussions

While publicly the big three US carriers say they are calling for a “modest” government review of the Open Skies treaties between the country and Qatar and the United Arab Emirates (UAE) through a series of “consultations”, in private they seem to be taking a much stronger stance, including the introduction of a freeze by US lawmakers on any new routes from Emirates Airline, Etihad Airways and Qatar Airways into the US.

As we reported at the end of last month, it is Delta Air Lines that appears to be leading the US discussions alongside both American Airlines and United Airlines. In an email to legislative directors of the US Congress last week, its managing director for Washington, Robert Letteney, outlined how American, Delta and United - along with their largest unions representing hundreds of thousands of employees – have announced a partnership to encourage the US government to level the playing field for fair competition with the what are described as “government-subsidized, state-owned airlines” of the UAE and Qatar.

According to Letteney, previously deputy assistant secretary for aviation and international affairs at the US Department of Transportation, one of the highest ranking pure aviation individuals in the US government, these “three heavily subsidized carriers” have been expanding at a pace never before seen in aviation and are now equal to all US airlines in terms of international size and scope, with far more aggressive expansion planned for the next several years.

His correspondence reinforces the viewpoint that US-based airlines and their employees face “unfair competition” from the Gulf carriers, which “collectively received billions of dollars in government subsidies and other unfair advantages,” according to the Delta executive.

This further escalates the efforts of the US carriers to attempt to block the development of the likes of Emirates Airline, Etihad Airways and Qatar Airways in their home market through the submission of a 55-page document the Obama administration, urging a review of US open skies air treaties with both Qatar and the United Arab Emirates (UAE). News of the submission to US Secretary of Transportation, Anthony Foxx, was first revealed at this year’s Routes Americas forum in Denver last month, when former US deputy assistant secretary of state, John Byerly, outlined details of the meeting between airline and government representatives you can read our report here ‘US Airlines Make Call to Restrict Gulf Carrier Growth in US Market’.

According to Letteney, the US majors “support maintaining strong Open Skies agreements with foreign governments to preserve market fairness”, but claims the policies that are being pursued by the governments of the Gulf nations are “directly contrary to Open Skies”, which is predicated on fair competition, undistorted by government actions, including subsidies.

While urging the US government to engage in consultations with the UAE and Qatar to address the capacity of the Gulf carriers into the United States, there is a call from Letteney for the US government to immediately call on these countries to halt the creation of any new routes into US market until the consultations are complete.

The coalition of US carriers and employee unions has released a white paper that details what they perceive as the threats US carriers face as a result of what they describe as this unfair competition. You can view the report here: Partnership for Open and Fair Skies; but the key arguments from the US side are:

* The UAE and Qatar are pursuing aviation industrial policies that are designed to distort the global market in favour of their state-owned carriers;

* Collectively, the three Gulf carriers have received over $40 billion in thoroughly documented subsidies and unfair advantages since 2004;

* The subsidies are contributing to excess capacity, which is drawing passengers and revenue from US airlines. As US-based airlines lose market share, it will lead to service cuts and ultimately American job loss.

Meanwhile, the US–UAE Business Council has said the big three US airlines should “stop complaining and start competing.” The Council’s president Danny Sebright said that with a $19 billion trade surplus at stake, US officials should stand with virtually every single stakeholder in US commercial aviation, such as US airports, travel and hospitality companies, business travellers and cargo airlines, and resist any efforts to limit free trade or restrict Open Skies agreements with the UAE.

“UAE airlines are the biggest international buyers of US-manufactured commercial aircraft and engines, with over 400 airplane deliveries and orders in the last 15 years,” said Sebright. “And with 252 non-stop flights a week to the US, UAE airlines are bringing millions of visitors a year to cities across America, filling local airports, hotels, attractions, and restaurants. Emirates and Etihad also feed hundreds of thousands of connecting passengers a year to US airlines.”

A 2014 Business Council report on the US-UAE commercial aviation relationship, US-UAE Commercial Aviation Update: Flying Higher, details over $130 billion in sales of Boeing aircraft at the 2013 Dubai Air Show by UAE carriers. This White Paper was an update to the 2013 report, US-UAE Commercial Aviation: Taking Flight, which identified more than $16 billion in annual benefits to the US, supporting more than 100,000 jobs and generating over $1.6 billion in tax revenue. Both reports reflect that the UAE has been the largest US export destination in the broader Middle East for the last six years.

“Before claiming government support for international competitors, the Big 3 may first want to check their own balance sheets. Since 2006, the Big 3 transferred billions of dollars of pension liabilities directly to Uncle Sam while leaving creditors holding the bag for billions more through multiple bankruptcies,” said Sebright.

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, according to Sebright.

“If that weren’t enough, as a result of Fly America, the Big 3 also benefit from the exclusion of any international competition in the U.S. government market - the world’s largest,” Sebright noted. “The Big 3 missed the biggest shift in global travel trends with the rapid growth of travel to, in, and between emerging markets in Asia, Africa, and the Middle East, and now, on account of mistakes of their own doing, the Big 3 are looking to blame Gulf carriers.”