US airlines urged to compete rather than complain
Washington - The three biggest US airlines are crying foul in the face of the rapid growth of Gulf carriers, but many say the US airlines just need to compete better.
The latest escalation in the row between US airlines and their Gulf competitors came in Washington on May 15th when the chief executive officers (CEOs) of the top US carriers — United, Delta and American – held a rare joint news conference during which they appealed to patriotism and made accusations of an “invasion” by aggressive Gulf airlines. Emirates, Etihad Airways and Qatar Airways have all rapidly expanded into the US market.
“It’s an invasion here, using [airline expansion] as arms of the state. It is so damaging to our employees, our airlines, the United States and the economy of the United States,” said United Airlines CEO Jeff Smisek. “We’re here together because this is such a serious and important issue,” he added, referring to his colleagues from Delta and American, with whom United is normally in fierce competition.
The three US carriers have been lobbying the Obama administration to cancel the Open Skies agreement with their Gulf competitors.
In March, the US airlines submitted to the US government details of “obvious and massive” state subsidies to Gulf carriers totalling $42 billion since 2004. The findings, presented in a 55-page report, argued that the Gulf carriers should enjoy unfettered access to America’s airports only if they operate on a level playing field. Government subsidies, if proven, would violate the Open Skies agreement. According to statistics from the Australia-based CAPA Centre for Aviation, Gulf carriers offered 2.7 million seats to the United States in 2014, a number that is forecast to grow to 4.3 million in 2016. US carriers have asked the government to freeze the capacity at January 2015 levels.
“The Gulf carriers are [planning] to add 25% more flights…. and that’s a serious issue because the harm is current… and you can’t compete against a national treasure, an infinite supply of oil,” said Smisek.
But critics, including many airline analysts, say the US airlines should learn to compete better rather than try to prohibit competition.
Charlie Leocha, chairman of Travelers United, a Washington-based advocacy group for travellers, said US airlines are missing opportunities in a changing world. The fastest growing middle-class markets are in south Asia and southern Africa, markets that the US airlines are not pursuing as aggressively as they could.
“What we’re seeing is a shift for the centre of commerce. It used to be firmly over New York City and now it’s moved and sitting above the Middle East, above Abu Dhabi, Dubai and Qatar. Instead of pushing to cancel Open Skies, the US airlines should open a base in Dubai,” Leocha told The Arab Weekly.
The White House has not responded to the pressure to cancel Open Skies, an issue that touches upon many sensitivities. At stake is America’s reputation as a bastion of free-market competition, as well as a delicate relationship with important Middle East allies during a time of crisis in the Arab region.
Complicating matters is the fact that the three Gulf airlines have placed more than $100 billion in orders with US plane-manufacturer Boeing. The Gulf carriers have denied receiving government subsidies, saying the infusions of capital have been consistent with free-market competition and the behaviour of shareholders, which in their case happens to be the government.
“The Abu Dhabi government, like any rational shareholder in the world, has made a commitment to us because it expects a return,” said Etihad President James Hogan, in a recent address to the US Chamber of Commerce. “Etihad is a David, a David who’s been facing Goliaths since 2003, when we started.”
Besides, the Gulf carriers counter, US carriers have themselves been the beneficiaries of government subsidies.
“US airlines have received benefits valued at $71.48 billion, more than $70 billion of which has been since 2000, enabling the nation’s three largest carriers to transition from the verge of bankruptcy to today’s industry leaders,” a May 15th statement from Etihad said, citing a report that Etihad commissioned.
US carriers have received Chapter 11 protection under US bankruptcy laws and continue to receive millions of dollars worth of tax caps on jet fuel and sales taxes. Several US senators have called for rolling back those tax breaks.
All three US airline executives denied their carriers received government subsidies. But Rick Dominguez, a pilot for Delta Airlines, told The Arab Weekly that the issue was more a matter of scale. He said that the cash infusions enjoyed by the Gulf airlines are far more significant than the subsidies US carriers have received. “Tax caps on fuel, those subsidies pale in comparison. You’re talking orders of magnitude difference,” he said.
All details aside, the airline executives are determined to take their fight to the White House, perhaps beyond the Obama administration.
“We’re not giving up on this issue… not necessarily for me but for the next generation of leaders of United Airlines,” said Smisek.