US Air American Tails

U.S. Airlines Escalate Battle Against Their Gulf Rivals

US Air American Tails

Delta Air Lines, United Airlines, and American Airlines yesterday released evidence of what they call unfair subsidies given to their fastest-growing rivals, Emirates, Qatar Airways and Etihad Airways. The documents detail what the Big Three say is more than $42 billion in financial support the three Gulf airlines have received from their governments since 2004. The Gulf carriers have expanded rapidly over the past decade as the United Arab Emirates and Qatar work to make international air travel a dominant part of their economies.

“The subsidies are obvious and they’re massive,” said David Ross, a Washington trade attorney who represents the U.S. carriers. The airlines want the Obama administration to begin “consultations” with the Gulf states about fair-competition provisions in the Open Skies treaties the United States has signed with those governments. The U.S. has entered into such pacts, designed to promote trade and tourism by liberalizing air travel, with more than 110 nations.

The potential threat to Open Skies has some other big players, including Boeing, FedEx and JetBlue Airways, jumping up to say wait a minute. Emirates is one of Boeing’s largest customers for 777 jumbo jets and an important partner for JetBlue, which sells tickets and exchanges passengers with that airline. FedEx, the largest U.S. cargo airline, needs Open Skies access as a global hauler.

The passenger airlines “want the U.S. government to protect them from competition from able, attractive new entrants,” FedEx Express President and CEO David Bronczek wrote in a letter last month to the State, Commerce and Transportation departments. “The U.S. should not capitulate to the interest of a few carriers who stand ready to put their narrow, protectionist interests ahead of the economic benefits that Open Skies provides to the people of the United States.” FedEx Express is the airline operation within the Memphis-based freight shipper.

All three Gulf airlines have long denied receiving any subsidies from their governments.

It isn’t clear how much traction the U.S. airlines will find with the Obama administration or in Congress, which they also plan to lobby. The Gulf airlines offer consumers more flight options to places such as India, Asia and Australia, with on-board service that is generally superior to U.S. carriers’.

On Emirates A380s, passengers in first class can book a shower spa at 38,000 feet, while Etihad has used that plane’s enormous real estate for a three-room luxury suite it calls The Residence. Qatar Airways’ chief executive, Akbar Al Baker, told CNN last month that Delta CEO Richard Anderson “should be doing his job improving and competing with us instead of just crying wolf for his shortcomings in the way the airline is run.”

In other words, let the traveling public sort out which airlines succeed and which fail.

The U.S. airlines say their Gulf rivals lose billions of dollars a year and aren’t required to turn a profit, funding their amenities with financial aid from their home governments. “We’re not competing against air carriers,” said Mark Anderson, a United senior vice president. “We’re competing against government—we’re competing against government treasuries.”

If the Big Three carriers do find advocates for their position, and the U.S. pushes the Gulf governments to the wall, the most dramatic outcome could be the end of Open Skies treaties with those three states. Ross, the lawyer representing the U.S. carriers, said they aren’t pressing for that, and support Open Skies policies around the world—although they do want all three Gulf airlines to stop adding routes from the U.S.

“We want to work with them,” Ross said. “It’s a complex problem and we want to find a solution.”

Emirates President Tim Clark called the U.S. airlines’ allegations “bluster and flimflam” in an interview with Bloomberg News on Thursday in Berlin, before the airlines’ news conference. “They must be prepared for a very robust response from us,” said Clark, who plans to travel to Washington this month to present his side of the case to administration officials. Etihad told Bloomberg they would respond after reviewing the U.S. carriers’ evidence. Qatar Airways didn’t comment.

The issue has been building—and the U.S. airlines seething—for years. The Gulf airlines have radically enlarged their fleets and networks, taking market share from European and U.S. carriers as they strive to make the airports in Dubai, Doha and Abu Dhabi the global hub for air traffic. Emirates is now the world’s largest airline by international capacity, as well as the largest operator of Boeing 777s and Airbus A380s. By that same capacity measure, Qatar jumped to 10th last year, from 90th in 1998; Etihad is now 13th, according to the U.S. carriers’ data. A study commissioned by Emirates predicts that the aviation sector will contribute 32 percent of Dubai’s gross domestic product and 22 percent of its employment by 2020.

The Gulf airlines’ growth strategy has hurt major European carriers such as Air France-KLM and Lufthansa, and U.S. airlines are worried they’ll be next.

“If this situation is allowed to continue, it will threaten our entire industry,” said Rick Dominguez, a Delta 767 captain who is also an executive with the Air Line Pilots Association, the largest U.S. pilots union. ALPA and union representatives for American’s flight attendants participated in the event on Thursday.

The U.S. airlines, led by Delta, scoured financial documents the Persian Gulf carriers were required to file in nations where they fly, including Singapore, Australia, and New Zealand. That effort revealed steep losses at Etihad and Qatar, although not a full accounting for Emirates, Ross said Thursday.
Etihad has enjoyed nearly $11 billion in cash injections and interest-free loans from Abu Dhabi while losing nearly $4 billion through 2013, according to the U.S. airlines’ data. “If not for the subsidies, they wouldn’t be commercially viable,” Ross said.

Qatar Airways has gotten $7.8 billion in interest-free loans from its government and has avoided paying nearly $7 billion in interest on loans that were backed by the state, Ross said. Emirates moved $2.4 billion in losses from fuel hedge contracts off its books and to the government, the U.S. airlines said, and enjoys subsidized operating costs at its hub airport in Dubai, far below the rates at U.S. and European airports.


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