Maybe Bob Crandall sounded like a crank 23 years ago when he argued, in vain, against the creation of an international “Open Skies” regime governing how airlines may serve foreign nations. But history is showing that Crandall was, at least on one cogent point, right.
Back in 1992 Crandall, the legendary and legendarily opinionated former CEO of Fort Worth-based American Airlines, argued vociferously that the United States was giving away the keys to the kingdom by inking its very first Open Skies deal with that postage-stamp of a country known as the Netherlands (population 17 million, or 10 million fewer people than there are in American’s home state, Texas)
In exchange for allowing Dutch carrier KLM to fly from Amsterdam to any and all of America’s many large and economically enticing destinations that it wished to serve, U.S. carriers would get, effectively, a big ol’ bag o’ nothin’. Specifically, U.S. carriers got rights to fly to any and all airports in the Netherlands. Given the Netherlands’ small population and the existence of only one middling international airport in all of the Netherlands – Amsterdam’s Schiphol, today the world’s 15th-busiest – Crandall warned that U.S. airlines and the policy wonks who pushed the Open Skies approach one day would regret deals with nations that lack the population, physical size and/or economic vitality required for the U.S. to make a relatively even trade of aviation rights.
Well, that day has arrived, at least for the nation’s Big Three international Airlines (American, Delta and United) though not necessarily for Washington policy makers.
Today America’s Big Three, along with their European counterparts British Airways, Air France and Germany’s Lufthansa, are up in arms not about KLM and the Netherlands, but Qatar and the United Arab Emirates (combined population 11.4 million), and aggressive young airlines based there – Qatar Airways, Emirates, and Etihad. According to the big Western carriers, the upstart Persian Gulf carriers have exploited Open Skies treaties with the U.S. and the European Union exactly the way Crandall feared carriers from small nations with Open Skies deals someday would.
Additionally, the U.S. and European giants allege that Qatar and the UAE have provided subsidies of between $30 billion and $40 billion to their state-owned airlines. That has allowed Qatar Airways and the UAE’s Emirates and Etihad to earn double-digit percentage increases in international passenger market share. And their gains in market share have come largely out of the shares previously held by the big U.S. and European carriers.
For a while the Gulf carriers’ expansion drew only modest complaints from European airlines, and almost none from U.S. airlines (they were busy going through massive restructuring after the 9-11 terrorist attacks and the series of deep, long economic upheavals that followed). For the first decade of the 21st Century, the Gulf carriers were viewed almost like small experiments in the petri dish of global airline competition. Emirates was a very small operation when the U.S. and the UAE agreed to an Open Skies treaty in 1999 and Etihad didn’t even exist (it was launched in June 2003). Qatar Airways was similarly miniscule when its government signed an Open Skies deal with the U.S. in 2001.
But in the last five years the Gulf carriers’ rapid expansion has become very noticeable. They are now serious competitive threats to every major international airline on earth. And they’ve made it abundantly clear through their massive orders for more international wide body jets that they intend to keep growing at a breakneck pace for years to come.
They’re winning big chunks of market share on routes between the West and Asia – especially south and southeast Asia, and the Asian subcontinent – by offering a combination of low fares, extraordinary luxury, world class customer service and service to most of the world’s major cities. And they’re moving nearly all of that passenger traffic via their brand-spanking-new hub airports in Doha, Qatar, and Dubai and Abu Dhabi in the UAE. As it happens, those locations are excellent connecting points for travel between the West (especially Europe, the Eastern United States and South America) and Asia. That’s in part because carriers want to avoid flying over war-torn, mountainous Southwestern Asia, or over Russia and China, and in part because in many cases international routes via connections in the Persian Gulf actually are the shortest and most fuel-efficient routes.
But the Western carriers complain that as government-owned enterprises the Gulf carriers are getting huge subsidies that make it possible for them to operate hundreds of luxurious wide-body jets each week at below-cost average fare prices. The Western carriers, with their higher, unsubsidized costs can’t compete and are struggling to remain relevant in markets that only a few years ago showed great promise as long-term profit centers. For example, U.S. airline service to India, once viewed as a golden path to profits, has all-but dried up.
The Gulf carriers reject the notion they’re being subsidized by their government owners, and fire back that the U.S. airlines themselves were kept alive in the post 9-11 period by what amounted to U.S. government subsidies.
An ugly rhetorical battle now rages. A couple of weeks ago Delta CEO Richard Anderson took offense at the suggestion that U.S. airlines were subsidized after the 9-11 attacks. In public comments he said it was ironic to hear such charges from carriers based the part of the world from which the 9-11 terrorists came. Predictably, a firestorm erupted and Anderson quickly apologized. But feelings remain raw on both sides.
Qatar CEO Akbar al-Baker, speaking at an arts conference in Doha on Monday, promoted Emirates’ young fleet (average age: 4 years and one month) that produces significantly less carbon emissions than what he, with some exaggeration, called Delta’s “crap airplanes that are 35 years old.”
On Tuesday, current American CEO Doug Parker, seeking to nudge the argument back on more gentlemanly turf, warned that if the Gulf Carriers continue to take big chunks of international passenger traffic from U.S. carriers there eventually will be a big shift in jobs from U.S. to Gulf carriers, to the detriment of this nation and its workers. But the Gulf Carriers quickly fired back that they too are contributing to the creation and maintenance of lots of U.S. jobs; they’re buying lots of Boeing 787s and 777s, made in South Carolina and Washington state.
The real problem is that even if – and that’s a challenging but plausible “if” – the U.S. and European carriers’ win the moral and/or public relations arguments, they still have very little chance of getting any substantive changes made in the global Open Skies regime.
First, proving in any legal venue that the state-owned Gulf carriers, whose true finances are state secrets, are being subsidized illegally will be almost impossible. What court or tribunal would hear such a case? And how many years would it take, even if successful?
Continues at…. http://www.forbes.com/sites/danielreed/2015/03/18/in-debate-vs-persian-gulf-carriers-u-s-s-big-three-airlines-cant-win-even-if-they-win/