US Investigates Gulf Airline Subsidy Claim but US Majors want More Action

The US Transportation, Commerce and State departments agreed earlier this month to investigate allegations by the three biggest US airlines that three state-owned Persian Gulf carriers get unfair subsidies from their governments, but the US majors continue to push for tougher action against its fast growing rivals.

The US departments have said the allegations from American Airlines, Delta Air Lines and United Airlines through its ‘Partnership for Open and Fair Skies’ coalition of around $42 billion in unfair state subsidies to Emirates Airline, Etihad Airways and Qatar Airways deserves a public hearing, so arguments from both sides will be collected in a public forum, on a regulatory website.

“With the U.S. government now investigating the Gulf carriers’ massive subsidies, Qatar Airways, Etihad Airways and Emirates must open their books and offer the same level of financial transparency that US airlines provide”

Jill Zuckman
Chief Spokesperson, Partnership for Open & Fair Skies

"The claims, which are asserted in a publicly available report, are of significant interest to stakeholders and all three federal agencies," the departments said in a statement. "The US 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."

Despite the proposed action, the bosses of the three US majors are understood to remain disappointed at the level and speed of this reaction. It had previously called for an immediate freeze on the expansion of the Gulf carriers in the US market while the situation was properly debated and are disappointed the government has not frozen their expansion.

According to reports, American Airlines CEO, Doug Parker, Delta Air Lines CEO, Richard Anderson and United Airlines CEO, Jeff Smisek have jointly written to the secretaries of State, Commerce and Transportation, expressing alarm that the Gulf carriers have been permitted to add new flights to the US in the ten weeks since they first asked the government to investigate the subsidies case.

“In recent weeks, Emirates has announced new service from Dubai to Orlando (effective September 1), added a second daily flight from Dubai to Boston (effective October 1) and from Dubai to Seattle (effective July 7), and announced that it will upgauge its Milan-New York flight to a massive A380 (effective June 1),” said the correspondence.

“Beyond the announced new service, we understand that one or more Gulf carriers have contacted three additional US airports about starting new flights from the Gulf. These aggressive actions make requesting a freeze pending resolution even more urgent, because with every new US flight, the Gulf carriers not only harm US airlines and workers but also make reaching a negotiated solution more difficult,” the letter stated.

According to the executives the recent growth of the Gulf carriers in the US is a clear sign of them “taking advantage” in the delayed action from the government to “gain even more market share” before there is a reaction.

This debate erupted at the start of February after it emerged that the US majors had submitted 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). Details of this were revealed at our Routes Americas Strategy Summit in Denver, USA, when former US deputy assistant secretary of state, John Byerly, outlined details of a meeting between airline and government representatives on the subject (You can read our report here: ‘US Airlines Make Call to Restrict Gulf Carrier Growth in US Market’ and follow-up here: 'US Airlines Seek Freeze on Gulf Growth Ahead of Opens Skies Discussions' ).

In the past few days The Partnership for Open & Fair Skies released a massive cache of Gulf carrier financial documents obtained during a global two-year investigation into what it claims are the multi-billion dollar subsidies provided by Qatar and the United Arab Emirates (UAE) to Qatar Airways, Etihad Airways and Emirates.

Although this voluminous record that is over 1,000 pages in length offers what the body described as “clear evidence of those state-owned carriers’ violations of Open Skies policy”, the three Gulf airlines have strongly resisted calls to provide a full accounting of their subsidisation. Here is the full report: ‘Roadmap to the Financial Statements of Qatar Airways and Etihad Airways’.

“With the U.S. government now investigating the Gulf carriers’ massive subsidies, Qatar Airways, Etihad Airways and Emirates must open their books and offer the same level of financial transparency that US airlines provide,” said Jill Zuckman, chief spokesperson for the Partnership for Open & Fair Skies.

The financial records form the basis for the Partnership’s white paper, ‘Restoring Open Skies: The Need to Address Subsidized Competition from State-Owned Airlines in Qatar and the UAE’. According to Zuckman they provide “indisputable proof that Qatar and the UAE are funnelling massive amounts of money into their state-owned airlines in a calculated effort to undermine Open Skies policy and any semblance of fair competition” and suggests the $42 billion figure the investigation calculated “understates the true numbers”.

The bosses of Emirates, Etihad Airways and Qatar Airways continue to vehemently deny receiving government subsidies from the United Arab Emirates and Qatar. They claim they are not breaking any subsidy rules and insist they operate as normal businesses calling on the US carriers to simply do a better job of competing with them in what they describe as a fair and open market.