Delta’s Chief Legal Officer Justifies Cutting Atlanta To Dubai Route

And the saga continues…

Earlier in the week I posted about how Delta will be discontinuing their Atlanta to Dubai flight as of Spring 2015, as part of the seemingly never-ending battle between the “big three” US carriers and “big three” Gulf carriers.

Emirates-A380

Anyway, Delta apparently disagrees so strongly with that piece that their Chief Legal Officer sent an email to Air Transport World, which they published in a press release.

RHOA

Here’s the letter, in its entirety:

To the editor,

Delta’s decision to cancel our Atlanta-Dubai service has been under the microscope in recent days, both by Karen Walker, the Editor-in-Chief of Air Transport World, and by Emirates, the heavily subsidized Gulf carrier that has driven competition out of the U.S.-Dubai market.

A column by Walker last week questioning our motives for canceling the Atlanta-Dubai service demonstrated a startling ignorance of how modern airline hubs operate.

Walker noted that none of the Big Three Gulf carriers – Emirates, Qatar or Etihad – operated flights from Atlanta to Dubai and concluded that Delta didn’t have any competition on that route.

As the editor of a respected airline trade publication, Walker should know better. Atlanta is Delta’s (and indeed the world’s) busiest hub, and is heavily reliant on connecting traffic to support its international service. Customers traveling from the U.S. to Dubai today have a choice of 16 daily departures from 12 U.S. cities – 14 of which are operated by Emirates. That airline’s extensive interline and code sharing agreements with U.S. carriers means most passengers traveling to Dubai can easily book one-stop service on Emirates through the gateway of their choice. Delta is competing with every one of those flights, all of which are heavily subsidized by the United Arab Emirates.

Unlike Delta, the Gulf carriers don’t have to worry about being profitable or operating under the normal constraints of a free market, making fair competition impossible. Indeed, Delta’s Atlanta-Dubai route lost money for two years before we made the difficult decision to cancel the service.

Walker also noted that the Gulf carriers are boosting U.S. service in part to connect American passengers to the Indian subcontinent through their Middle Eastern hubs. She correctly notes that “Delta does not have a sub-Indian continent network (nor do any of the U.S. carriers).”

There is a reason for that. In the past Delta had flown nonstop to Mumbai from both New York and Atlanta. Today the U.S. airlines operate almost no service to India because they have been driven out of the market by the subsidized Gulf airlines. The same phenomenon has occurred with European airlines, which have been driven out of the market by Gulf subsidies. It is shocking to realize that U.S. airlines have just a single flight to the second most populous country in the world.

The point that Walker omits is, of course, is the stunning level of subsidy enjoyed by the Gulf carriers. At $42 billion and growing, it is one of the largest trade-distorting subsidies on record, and without question violates the Open Skies agreements between the U.S. and Qatar and the United Arab Emirates. That is why Delta, United and American and airline labor unions continue to urge the U.S. government to open consultations with those nations to resolve the issue. The impact is real and growing fast – and thousands of U.S. airline jobs are at risk. A long-haul international flight like Atlanta-Dubai directly supports 800 airline jobs.

Emirates, meanwhile, touted an “analysis” claiming that our Atlanta-Dubai service was wildly profitable, and accused us of cancelling it to make a political point. That’s just nonsense. Airlines don’t cancel profitable routes, and Delta is no exception. Our Dubai service lost money for nearly two years, for the reasons stated above – we have been competing with heavily subsidized Gulf carriers that simply don’t have to worry about whether routes are profitable, since they are supported by their governments.

It’s not surprising to see Emirates making this type of argument, given that the airline is fighting to continue to dump subsidized capacity in the U.S. But it is disappointing to see the same deliberately misleading rhetoric in a respected publication like Air Transport World.

Sincerely,
Peter Carter
Executive Vice President and Chief Legal Officer
Delta Air Lines

As far as arguments from Delta go, this is actually one of the more well reasoned ones. I mean, at least their CEO didn’t link these airlines to 9/11, so it sort of only gets better from there.

Still, where do we even begin with Mr. Carter’s response?

  • He’s accusing the Gulf carriers of using rhetoric, when he used the term “subsidized” nine times in one letter? Pot. Kettle.
  • He claims “airlines don’t cancel profitable routes.” That’s certainly not true. Presumably an airline would cancel a profitable route if they thought they could utilize the plane better elsewhere. But there’s a big difference between that and claiming that airlines simply don’t cut profitable routes. Airlines presumably have route networks which maximize their profitability, which is different than not cutting profitable routes.
  • He makes it sound as if the US carriers have been “driven out” of the Middle East/India. Instead, these are markets they all consciously chose never to compete in. He’s claiming Delta used to have two flights to India, the second most populous country in the world, and goes on to say how they were “pushed out.” Did he really think consumers were well served by Delta’s two flights between the US and the second most populous country in the world? It’s sort of tough to fault an airline for taking over market share in a region where Delta never tried to compete.
  • He certainly does make a valid point about Delta having a lot of competition on the Atlanta to Dubai route, even though none of the Middle Eastern carriers served the route as well, given how much of the route was based on connecting traffic. That’s a valid point.

Bottom line

I realize it’s not going to happen, but if Delta really wants to prove their point, they should release the numbers. Not that I think Emirates’ “independent data” is necessarily 100% accurate, but I have been monitoring the flight for a while. Fares are high and the flight seems to be pretty consistently full.

Not that this is a perfect indicator of profitability, but if that combo can’t make allow the world’s most profitable airline to turn a profit on the route, I do have to wonder what I’m missing.

It’s also interesting that Delta claims they haven’t turned a profit on the route in two years. Crude oil is less than half the price now than it was two years ago. That was around the time that the price of oil really started to plummet.

Doesn’t that suggest the reason Delta is canceling the route is due to reduced activity in the oil industry, as opposed to added competition from Gulf carriers? In other words, if crude were still over $100 per barrel would the route be profitable, regardless of competition from the Gulf carriers?

That’s not really any different than Delta reducing capacity to Brazil and Europe due to the strong US Dollar, which is decreasing demand for travel to the US.

I’m guessing this isn’t over, and that Emirates/Air Transport World will have a response. Get your popcorn ready, folks! Am I the only one who would love Akbar Al Baker to chime in right about now?

Who do you side with in this saga?

Comments

  1. They cancelled the route because no one is flying to just Dubai. Passenger traffic has grown in Dubai as they use it for connections. You can make a similar argument about DLs service to AMS. They fly way too many flights to AMS had they not happened to be partnered (in a government sectioned anti-trust agreement) with KLM.

  2. I’ve flown United’s DXB/IAD route several times and it has been fairly full, but I didn’t realize how many people were connections. On DXB-IAD today, over 10% of the plane was connecting from a single partner flight (and I understand it may not happen every time, but it is probably not uncommon). Delta has no regional partners over there, so while United’s planes may not always be full of connecting passengers, all those connections certainly give UA a financial leg up over DL.

  3. Ben,

    I’ll pick on the parts that you didn’t: “That airline’s extensive interline and code sharing agreements with U.S. carriers means most passengers traveling to Dubai can easily book one-stop service on Emirates through the gateway of their choice. Delta is competing with every one of those flights, all of which are heavily subsidized by the United Arab Emirates.”

    He’s playing real loose with his words here. “One stop service to Dubai” isn’t on Emirates, but Emirates + a US code share partner. “Delta is competing with every one of those flights” because Delta doesn’t have a partner in the ME dance.

    Any time you see a hard number, it’s likely to be calculated with the most liberal definitions available. $42 billion in subsidies? Define subsidies, and over what time period?

    And that single long haul international flight that “directly supports” 800 *airline* jobs? Hm. How so? Assume you’ve got a cabin crew of 20 and a flight crew of 4. You could have a brand new crew every day for a month and still only get to 750 jobs. Considering a number like he threw out covers in some way shape or form ground staff, he’d be remiss if he didn’t mention that ground staff at the overseas station is either provided by another airline or a servicing agent that isn’t an airline at all.

  4. Ben,

    Also, one reason US airlines don’t fly much further than Europe is that ultra long haul flying is expensive to operate, and until recently, there really hasn’t been aircraft to do more than hub-hub flying. EWR-DEL clocks in at 15 hours. Anything else just gets more expensive from there. Look at the success of other flights that long. The only carrier able to sustain it with any substance is Cathay Pacific. Thai pulled out of the JFK/LAX-BKK markets a long time ago. SQ doesn’t operate any n/s service from SIN to the US.

  5. Delta Airlines is shady and cannot be trusted. Just look at the way they treated members of their FF program! Pulling the award chart killed any loyalty and goodwill towards them.

  6. I’ve got to believe emirates numbers were probably right. Shoot, watch Emirates just release the data they can pull via the airline ticket clearing house (forget the name). All airlines have access to the prices paid through the clearing house so this should be pretty easy for them to prove in solid numbers.

  7. Delta is playing a stupid trick, in all their communications they bundle all 3 ME carriers into 1. Reality, is that those airlines compete with each other. Also, subsidies or not Emirates portion is quite small. For India, they gave up even before Emirates had strong presence in the US.

  8. Delta has to grow up and assume they are the best US airline but that US airlines are far behind than most European, Asian and ME airlines. They offer the basics and that is not enough to compete against airlines that offer something else. Just flew Delta One from CDG to MSP. Very decent service but again very basic. The wine list was Ok, food was edible and entertainment system was dead for the entire duration of the 10 hours of a daily flight. Again, for over $8k for the ticket I would expect way more and would definitely fly another non US airline if I had the option to fly non-stop from my home airport.

  9. Punchline: Delta made a business decision to shift equipment to a different route to enhance profitability.
    That’s what business logic is comprised of– aggregate decisions to maximize their profit potential.

    Anything DL says beyond that is just words. Meaningless words. Meaningless words like “we always have your back here at Delta”.

  10. @Santastico

    Curious what equipment DL has on that route, given the IFE problem. That’s one of the running debates around here– whether DL’s insistence on flying older equipment reflects itself into worse performing inflight equipment and amenities?

    I just flew home to LAX->OGG this afternoon on AA and was pleasantly surprised to see that American has upgraded all the MCE seats to in-seat power on even the old 752s. A nice touch, but helpful on a 5:45 hour overwater leg.

  11. Dear Delta,

    How many IT jobs have you sent offshore? Guess what, competition on an uneven playing field sucks. You’ve benefitted from this arbitrage in other parts of your business, and yes, when you’re competing in that type of environment in other areas, it’s hard. Boo Hoo.

    So, stop your whining and compete. This means that you need to face the facts that you hard product sucks, and you’ve lost loyalty because you’ve ditched your FF program. You are accountable for this direction. Stop whining and own it.

    Look at premium economy on ANY of your non-US competitors. I fly them ANY day over your 2″ of extra legroom because it’s simply a better product. Service is always better on foreign carriers over Delta.

    If you don’t invest in the customer experience, well, hang on for the continued downward spiral.
    God help you when oil prices stabilize.

    R

  12. hahaha.. lame rhetotic by their ‘chief legal’.

    wow.. no wonder Delta is losing money.. they are getting their legal to run their business!

    hmm.. so… he is saying Gulf countries has endless supply of money, and they are just throwing money away and not caring… right… right… so the gulf countries are so stupid they are happy throwing billions and trilions of dollars away on loss-making flights… right right… yup.. with the crashing oil prices, world economy in turmoil, the Gulf countries are still throwing billions of dollars away, just so the can “push out” the american airlines of their “2 flight a week” route….. yup yup.. so they can have the loss making routes alllllll for themselves… yes.. yes…

    did delta or other US airlines wonder.. if americans are so racist and prejudiced against arabs and muslims, wouldnt it make sense that thet just take their own national carriers that has a crew that treat their customers with respect rather than with suspect?

  13. While this doesn’t concern Delta, I’m surprised United hasn’t used Air India’s joining Star Alliance to their benefit. Instead of canceling their few flight to the Middle East, why don’t they set up a code share system with Air India and offer flights together to India from the US via the GCC? You’d fly from the US to the GCC on United and then transfer to Air India for the GCC to India leg of the route. Air India flies to all the major GCC airports except Doha, and the fact that United didn’t capitalize on that is a shame.

  14. I travel between Atlanta-Mumbai 5x a year on business. Delta’s direct flight (which I flew twice) would have been an ideal choice due to time savings and a desire to support an Atlanta based business. However, Delta lost my business after cancellation of that route and especially after KLM cancelled the Amsterdam-Mumbai route. Delta has no competitive advantage since every route has 1-2 connections. Several airlines offer better service and AA offers a far superior FF program. I currently fly with either UA or AA/BA combination.

  15. It is amazing to me that all the free-market Austrian types around here keep cheering on the largely government owned and run ME3 airlines. Lets face it, these airlines are pretty much closely held extension’s of the UAE and Qatari governments. When EU rules pretty much wiped out government ownership of the European carriers forced many EU airlines to downsize or sell off, I didn’t see people rushing to their defense.

    People can go back and forth about amount of subsidies that US airlines have received, and how it is hypocritical for them to protest. But the question remains, is it in the US’s interest to help the business interests of the ME3 governments when those same governments are run by largely despotic oligarchs who have a track record of funding and supporting some of the world’s worst criminal and terrorist organizations.

    BTW, answering that the US has supported bad people too is not a valid argument. It is a red herring and tu quoque logical fallacy.

  16. @Tachyon_OGG-SBA-IAD: They fly A330 from MSP to Europe and back. The entire plane was without any entertainment system but the screens were on for 10 ours showing ads and could not be turned off. Very annoying. I was surprised that couple hours after we landed I had an email from Delta on my inbox apologizing for the problem and crediting 10,000 miles. I found their pro-activeness amazing since I had not written to them but only 10,000 miles for being without any movies for 10 hours after paying close to $8k for the tickets was ridiculous.

  17. @Santastico

    Whoa. That’s bad… the onboard “content server” (most are Linux based, in one form or another, these days) was down, but the “ad server” was alive!?!? That’s really aggravating.

    Yeah, the automated “hey, we are so sorry we hosed you but here are some free, worthless miles for your trouble” thing must be a new wrinkle. Over the last couple of years they’ve added that link on the website “Click here to beech-n-moan about how we messed up your flight” where you enter the details and you get an automated, somewhat ‘friendly’ sounding reply (“here at Delta we strive to make your journey pleasant, so we are sorry to hear that you were gang-raped by nomadic marauders in the Delta galley on your flight yesterday. Your concerns have been forwarded to our VP for Mongol Tribal Affairs. In the meantime your SkyDrachma account has been credited with 7500 non-MQM and utterly worthless miles. Thanks for flying Delta.”) and a few token miles.

    After that last time they stranded me in Atlanta, without a hotel (on my way to my daughter’s graduation pre-function in CA, no less) due to a lousy Delta day kicked off by a morning mechanical on my favorite Delta obsolete metal (MD-88, Hades knows thy name)… well I just kept submitting different Delta miscue-calamities that finally left me stranded sleeping on the floor at ATL that night. The first time they sent 7500 miles, the next time another 5000, the third time another 5000… and then the system cut me off.

    So, I’m figuring that 17,500 miles is close to a coast-coast roundtrip on Alaska… but then I look at the Delta mileage award chart (now outlawed by Tricky Dick Anderson in 57 countries) to find that 17,500 miles is pretty much useless. It’s a melting ice cube they stuffed in my pocket on a hot Phoenix afternoon.

    Again, unless you are Diamond on Delta, any of their screw-ups means you’re hosed and the compensation offered is laughable. You ought to click the link on the site just to see if they’ll give you another 10,000 SkyDrachmas.

  18. I am a lurker, I never give a comment, but just had to do it this time because of the comment above. Mr. Tachyon, that was funny writen!!

  19. @Tachyon_OGG-SBA-IAD: There was one great advantage in not having entertainment system: I didn’t have to listen to their obnoxious CEO introducing the safety video while wearing those 1920 beige suits that he wears all the time. Unfortunately I have no option other than flying Delta since I am a hub hostage. 🙁

  20. @Santastico

    Sorry for the hub-handcuff thing. That will put you in the category of folks who have no choice but to *love* Delta– One does what they have to in order to survive.

    I obviously feel like Delta is run by satanic sociopaths with sadistic tendencies, but most of my long-routes are from either DC (4 plausible-to-use airports with lots of competition), LA (the same) and Maui (which is the same, but adds Hawaiian and Alaska as substitutes). So, I’m one of probably 8 guys in the country that have actually benefitted from the consolidation wave… Most days it’s cheaper to fly from LAX to DC than it is DC to PHX or SLC. Like I say, not the norm. And, given habitual mis-treatment under IRROPS conditions by Delta’s kiosks-and-humanoids, there are a bunch of airlines above them on my preference list.

    Funny you should mention Tricky Dick’s suits– with the suits and that obnoxious nasally tone he always reminds me of the grating opposing prosecutor in the trials depicted in the Perry Mason series of the late 1950s. He is, in real life (before becoming an airline mogul) an attorney, acts-and-talks like one and his garb would be perfect for a 1950s TV show.

    Thanks for making my evening.

    Tachyon From Maui

  21. We fly on the nonstop DXB-ATL flight twice a year. It was always full. I think that one of the reasons was that the military contractors had to use an American carrier. That is why United went thru Kuwait City.

    Maybe this is a bad comment but there are some Delta flight attendents that, IMO, are too old to be flying. I know, most senior flight attendents can take any flight they want. I cannot wait for Emirates to fly non-stop to Atlanta. Hurry up.

  22. Many here just assume why Delta made their move. Is that possible? Sure and based on the original ATW article it makes a lot of sense re: network beyond Dubai. At the same time, Delta has a valid point about unfair competition. Not saying that they are right in that claim but it has some merit as well. I know most people here prefer the service offering of Emirates and that is fine. I sure want to try it and I am a big Delta fan living in Atlanta. However, all competition should be fair and equitable and competitors should be under the same market constraints without backstopping from deep pocketed governments.

    As for the blog post, I think you are being a bit literal when the CLO says airlines don’t cancel routes. You are right about optimization, but I think the point Carter was making is, if the route is as popular as EK claims, Delta would not be cancelling just to make a point. In fact, the alleged margin on that route falls about 400+ basis point short of the corporate net profit margin. Also, I don’t think there is enough support for DL’s claims about why there is no Indian network. If Delta has a legitimate claim here, they need to further develop it as they have with their case for subsidies in general. Until they do so, I too can’t give much credence to their claim.

    http://www.debriantravels.com/blog/2015/11/3/delta-emirates-in-a-war-of-words-over-atl-dxb-route

  23. @Tachyon_OGG-SBA-IAD: I didn’t know he was an attorney but he definitely reminds me of Saul the lawyer at Breaking Bad. LOL!!!!

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