U.S. Airline Unions Do Support Subsidies… When It Benefits Them

We’ve seen a lot of hypocrisy from U.S. airlines when it comes to their condemnation of the Gulf carriers. For example, the lobbying group of the major U.S. legacy airlines shamed the U.S. Travel Association for working with the Gulf carriers, when one of their member airlines has a partnership with two of the three carriers themselves (American partners with both Etihad and Qatar).

Well, when it comes to hypocrisy regarding the Gulf carriers, I don’t think it gets more obvious than this:

President Trump wants to eliminate the Essential Air Service program

As I wrote about yesterday, President Trump’s proposed budget would eliminate the Essential Air Service program, which is a federal program that guarantees air service to small communities that are otherwise underserved, with subsidies reaching over $250 million per year.

Of course the U.S. airlines love these subsidies, since it means they can turn a profit on some of these routes even when the planes fly empty.

While many will agree that there’s value in this program existing in some markets, other markets are more questionable. As I talked about yesterday, Lancaster Airport has an EAS subsidy, even though it’s just a ~34 mile and ~35 minute drive from Harrisburg Airport. Should taxpayers really be subsidizing that?

The airline unions chime in on the Essential Air Service program

As noted by Live and Let’s Fly, the Association of Flight Attendants (representing flight attendants from major U.S. airlines) chimed in regarding the possibility of the EAS program being eliminated. Here’s what they had to say (bolding mine):

“We are extremely concerned that the [proposed Trump] budget guts the Essential Air Service (EAS) Program. These cuts would harm rural and underserved communities that lack access to a fully-mature transportation system, and rely on subsidized air transportation services or face further economic isolation.”

Meanwhile how do they feel about Emirates’ new flight between Athens and Newark, which is the only year-round nonstop flight between the two countries? Well, they feel a bit differently, as you might expect (bolding mine):

AFA Members, ALPA and other Unions, along with United Airlines management, rallied at Newark Airport to protest the launch of Emirates Airlines flight from Athens to Newark. This route is permissible under the U.S.-Gulf States Open Skies agreements. However, Emirates is only able to enter this obscure market due to enormous subsidies received from the United Arab Emirates (UAE) government, in violation of this same agreement.

So they protested to stop a route that’s only possible due to “enormous subsidies received from the government.” Meanwhile when enormous subsidies received from the government benefit U.S. carriers, that’s a good thing.

Emirates’ new flight between Athens and Newark is the only year-round service between the two countries. There’s no denying that it benefits the communities traveling between the two countries, and that the transportation system in Greece isn’t “fully mature” (they don’t have a longhaul airline, for example).

The Partnership For Open & Fair Skies recently wrote the following open letter to President Trump, which included the following:

“These subsidies allow carriers like Emirates to fly some of the biggest planes on the planet at the lowest fares, regardless of whether they have enough seats filled to make a profit. It hurts American customers, markets, and most importantly, middle-class workers”

If you take out the words “Emirates” and “biggest planes on the planet,” it sounds a whole lot like the EAS program, no?

Partnership-Fair-Open-Skies

Comments

  1. Excellent point! US airlines just simply can’t (or won’t) compete with ex-US airlines, and it isn’t just the Gulf carriers that blow US carriers away. They like to demonize the Gulf carriers because they are a relatively new and easy target. Way to call them out on their hypocrisy.

  2. Of course they do, just like every politician in the history of ever. Is this a surprise?

  3. The two cases are orders of magnitude different. EAS does not contribute to US airline profitability in any meaningful way, it just keeps alive a handful of otherwise unprofitable routes. It’s not even close to the same scale of benefits that the ME carriers enjoy, thanks to lower tax rates, government investment, subsidies, labor costs, favorable regulatory environment, and the ability to cherry pick lucrative international routes. Stop with the false equivalencies please, it’s intellectually dishonest and shows your obvious bias.

  4. we can argue about US airlines getting some subsidies in many ways and forms; but I am sorry, this is not the appropriate argument against possible middle east countries subsidies toward their airlines. The point of EAS is not to profit the airlines, but to support rural, remote, and/or underdeveloped region, which is rather necessary to trigger their local economy. bascially, I agree with what @WR posted above.

    heh, I’m not even American!

  5. @WR I couldn’t agree with you more. I love the blog Lucky, but it isn’t intellectually honest to pretend the word subsidy means the same thing in these situations. Without subsidy, the EAS routes would not exist because they couldn’t turn a profit for anyone, even with zero competition there just isn’t enough demand. Subsidy here is about a locality or a nation deciding it wants to have air service to hard to reach areas and deciding it is worth the nation’s resources as an investment in those communities.

    The gulf carrier subsidies are funding operations on competitive routes in an effort to give a competitive advantage against foreign run airlines. Having foreign governments subsidize their state controlled industry in an effort to undermine the competitiveness of our private sector companies is a matter of national security.

    I really encourage you to research the issue more. There are volumes and volumes of economic text devoted to the topic of international trade, treaties and price dumping, which this is. Gary’s blog constantly makes this same argument casting U.S. airlines as “cry babies” because he likes to pretend when the U.S. government bailed out pension plans to save pensioners from complete ruin, that that was somehow a subsidy that disqualifies U.S. carriers from complaining about subsidies. It’s completely wrong analysis that fundamentally misunderstands what a subsidy is.

  6. Chump’s budget is the best opportunity we have had in decades to kill off old and poor Americans. Usually republicans go after these democrats to kill off, but this time the chump wants to kill his own supporters. Not that it matters to him, he was always in it for the money.
    NY times had an article about trump supporters who are gonna get screwed. Loved reading about them.

    Let them eat cake!

  7. From a true free market perspective, all subsidies are horrible. If you favor government intervention in some circumstances and not others, that’s fine, I have no quarrel with you. But favoring some subsidies are good while others are bad “because capitalism” is stupid. If you’re really all-in on the free market… maybe those communities need to just deal with not having air travel any more. Maybe from a free market perspective those communities should just fade away.

  8. You can’t see it very well in the picture Lucky posted but you’ll see what looks like giant training wheels under the wings. It’s a lot more obvious in the print version because they aren’t covered up by the type.

  9. Don’t really need your political slant Lucky, it’s not why I receive this . I’ve just cancelled onemileatatime .

  10. @Lucky
    Just to point out one little thing rearding Athen to Newark flight.
    It used to be Pan Am that serviced that flight and there is a large greek population of over 1mio. in New York.

  11. Are you serious? Subsidizing air service to rural America is the same as millions in interest-free loans and having a Gulf carrier own and run their own airport with their shareholder government lobby foreign relations on behalf of them? This is comparing apples and oranges, and completely intellectually dishonest. I expect better of you, Lucky. This kind of nonsensical commentary is something I expect form somebody like Gary Leff, not you.

  12. For the amount of money the Big Three US carriers are paying lobbyists, PR Firms, Advertising, lawyers etc to fight the Big Three M/E (and now low cost Norwegian) you would think they would see that the money is served better elsewhere. New aircraft, better product, and better cabin crew training to start. As well, they would stop whining and suck up/sit back as Emirates/Etihad/Qatar all run into financial problems in 5 years for over capacity, dwindling subsidies, rising costs, and a workforce that will start to demand more in compensation as they age.

    Really, focus on your own model and stop the whining as the playing field is already starting to level on its own.

  13. I think people are not paying attention. Check out who all flies from Newark to Athens. Kayak couldn’t come up with any other airline non-stop, and no U.S. airline with one stop (well except the United Express to Toronto to hop on an Air Canada flight). I like competition. And why can’t folks in Lancaster, PA drive 35 minutes to Harrisburg? That’s a lot less time than most people take to get to ANY airport in the Los Angeles area.

  14. Corporate America is no different than Public America. Both so wanted Trump but for different reasons. The Corporate America for all those great tax breaks and erosion of the EPA. Public America wanted Trump so bad because here he was saying all those nasty things they have been thinking for years: pick a subject, race, LGBT, Muslims, Welfare recipients, just pick one. But then they don’t think through the entire issue and cry about losing their subsidies, losing their insurance, loss of their Meals on Wheels, reductions in their Social Security and Medicare (coming soon to a senior near you), and on and on.

    Frankly, American’s just don’t have a capability to understand the whole big picture.

    (yes, I am American and not so impressed)

  15. The two scenarios are completely different: without EAS subsidies, remote US conmunities would have no air links AT ALL. Without Emirates subsidies, travelers between Newark and Athens simply have to take a connecting flight through a third city–a slight inconvenience.

  16. Not only that, but the AFA-CWA which unsuccessfully opposed the Norwegian application now is trying to organize their F/As, after rallying their “members” (err dues payers) at other carriers against and messaging them of the danger this presents to their careers.

  17. What’s the big deal about subsidies anyways, countries are in competition with each other for the limited resources of this planet so no one should be surprised that governments intervene in global markets to benefit their citizens.

  18. Seriously, anyone who thinks the US carriers are whining or wasting time/money fighting this issue I challenge you to launch a competing mail delivery service to the US Postal Service which runs billions of dollars in subsidized losses. Go ahead. Try even matching USPS’s 50 cent stamp price and let’s see how your return on investment pans out. There’s a reason UPS and Fedex don’t carry regular mail.

  19. @Stannis, That’s right nobody should be surprised, but governments are intervening in global markets competing against non-governments. That’s the point. Non-governments can’t win that fight, which is why either they need to knock it off, or our government needs to put it’s weight behind the US companies and teach foreign governments that if they intervene, so will we. Then it will stop. And it needs to stop, because this is the way foreign governments siphon jobs and market share from the U.S. and we drag our feet with no response. They knew Nafta was a bust after 2 years of job outflows but did nothing and that turned into 20 years and millions of jobs.

  20. @Rob – The USPS is not a great example. The government may subsidize its losses, but it is also the direct cause of much of these losses. Mandating delivery to all US addresses, government pension requirements, etc. impose substantial costs that profit-driven entities would never take on. Fedex and UPS, by the way, benefit from this, as they very frequently use USPS for the final delivery to many addresses that would be unprofitable to serve.

  21. @WR, @Rob, @Aditya, & @keitherson will you please address Lucky’s claim that Lancaster is less than an hour’s drive from Harrisburg? Lucky already acknowledged in an earlier post that the Alaska examples are probably different from Lancaster.

  22. All the people defending EAS seem to have the same talking points. I wonder if they are really separate people. My big question is why can’t they reevaluate the system and axe some routes that are clearly pork and keep some other ones that are more “essential”

  23. Does anyone know if Boutique air and Mokulele will be affected too? They are part of the EAS program here in California and fly mainly between Los Angeles and some of the cities that United used to fly with its Emb-120

  24. @Tom, valid point. the federal govt should re-evaluate it and keep the essentials, agree with you. (I don’t know about the others, but no I don’t post under different alias in a single thread! hehe).

    @Lucky’s reader, Lancaster/Harrisburg argument is valid – and I’m sure there’s other examples, but in the other hand I believe EAS should be refined, not to be completely abolished. and still, it’s principally different with MEA subsidies.

  25. I would also like knowledgeable individuals to add links to evidence and articles supporting their claims. It would help the less knowledgeable amongst us try to sift through everything. For example, I think I read a comment either here on omaat or elsewhere that Qatar purchases planes from Boeing which are financed by loans guaranteed by some US agency. Is this true? If so, how does that fit into this whole discussion about subsidies?

    @keitherson I would like a link evidencing your claim of any of the middle east carriers receiving interest-free loans. I am very curious about this (amounts, terms, relevant parties, etc.)

    Thank you very much.

  26. That is genuinely hilariously hypocritical.

    I bet that their calculations for 1500 American jobs being lost for every route lost by US airlines to a subsidised airline (as stated in the open letter to Trump), are just as ridiculous.

    Lucky – weren’t you tempted to delay posting this article so that you could interview the union spokesperson beforehand? Imagine the fun you could have had! Now that would have been even more entertaining!

  27. EAS and the subsidies received by the ME3 are very very very different. True, the way the EAS model works is that the airline gets paid for flying the route regardless of ridership, but in most markets they still need to have decent loads to make the route make sense (otherwise every EAS route would have all airlines flocking to them, which is obviously not the case). Also, while you can make the argument that its unnecessary to support Lancaster Airport with EAS subsidies when Harrisburg is 35 miles away, that ignores the fact that Harrisburg likely relies on EAS services as well. Certainly, there is fat to be trimmed, but that doesn’t negate the necessity of the program itself.

    At the end of the day, however, the EAS program is a government subsidy for domestic flights, to make sure rural Americans have access to air travel. The ME3 subsidies are designed to allow a government owned carrier undercut competitors on routes to foreign countries. It’s not designed to benefit the people of the UAE or Qatar in terms of services, its designed to benefit them financially (which given their political/economic system is kind of the same thing, but still).

    Finally, Lucky, I really appreciate your willingness to broach political issues when they involve travel and I really hope you continue doing it. My comment is designed more as constructive criticism than anything else. Even if you are against the US government subsidizing the EAS or are merely trying to point out the “hypocrisy” of critiquing the ME3 government subsidies while supporting the EAS, you just have to understand that they are radically different in scope, goal and impact. Conflating the two does no one any good.

  28. @ Bernardo Ng — They are part of the EAS program, though we don’t yet know if there will be any cuts.

  29. My partner and I have flown many times between the uk and Australia on the MI3 and we have regularity gotten amazing service on empty planes at crazy prices which for example British airways could not get close too (on average less than 50% cost). On a recent return trip to Perth I had four seats to myself on each of the four legs of the journey!

    In short we are enjoying seriously cheap tickets on empty planes, no way are they making money. To add to this they have huge commitments for American and European airframes. With the oil value remaining low many commentators predict these airlines are heading for oblivion (especially emirates, where Dubai which has no oil has already had to borrow from Abu Dhabi).

    Without external intervention I think two things could occur automatically:
    1) Subsidies will drain away over the next ten years forcing pricing and route choice to be more sustainable.
    2) fleets will need to right size (especially emirates) meaning that a fair number of lightly used airframes will drop into the market as they accelerate them out of the fleets.

  30. those who think ME3 are unfairly subsided should always remember that they are the main buyers of Boeing planes too… these subsidies are also sponsoring the American manufacturing. Trump’s priority is always supporting the manufacturing side of economy, not how the money-losing airlines should charge us passengers more

  31. I’m not sure you understand the history or the function of the EAS with this story. This is a false equivalence. The EAS is an infrastructure program and has established very important routes in the US, serving communities that would have no choice based on free-market forces. Allowing a foreign competitor to the States under cabotage rules is nothing like investing in our own country. If the free-market forces were really at work either the US carriers would be promoted and subsidized for international travel or the international carriers coming to the States wouldn’t get the benefit of their government subsidizing their routes. Please keep this an apples for apples argument.

  32. Thanks for being objective and doing actual journalism, Lucky. The crybabies here are potentially part of the David Brock ShareBlue PAC that has as its mission to slander everything Trump does, or if not, aren’t mature enough to view the matter separated from Trump.

    Don’t listen to them. Their minds are filled with hatred.

  33. Although I agree that criticism of the ME3 by US airlines is hypocritical and goes against the interests of the flying public, there appears to be some confusion in this post.

    US airlines do not care about – let alone support – Essential Air Services. The unions do. The purpose of EAS was to serve cities the airlines have chosen to ignore. They have no intention of offering service to these cities now. The unions would like to protect those jobs.

    Both unions and airlines oppose the ME3, but for vastly different reasons. The unions see them as undermining the terms of the labor agreements they’ve brokered with airlines. The airlines see them as impediments to offering inferior service at higher prices and greater profit. They see the federal government’s ability to assign rights as a public good that they would like to control.

    It may seem like splitting hairs, but the interests of unions and those of the airlines are very different. They coincide on the ME3 but are miles apart on EAS.

    IMO, some EAS services must be maintained. Cutting them undermines the economic and social viability of hundreds of communities. Maintaining EAS will have no impact on major US air carriers. As with other proposals from this administration, this one shows little evidence of forethought or an understanding g of potential consequences, notably the impending economic damage to the very people who voted for Trump.

  34. @checklist, could you please clarify your sentence that “If the free-market forces were really at work either the US carriers would be promoted and subsidized for international travel or the international carriers coming to the States wouldn’t get the benefit of their government subsidizing their routes,” as I am unclear on your use of the term free-market.

    @Credit, I’ve heard of the Export Import Bank before, but how do I find out what specific loans they have guaranteed and for how much? Would the middle-eastern carriers have been able to purchase the aircraft without the loan guarantees? Has the Export Import Bank ever had to pay on a loan it guaranteed that went into default and if so, what were the details? If they didn’t guarantee the loans, would the ME3 have been able to obtain other financing and if so, how much more expensive would that have been?

    @Patrick L, thank you for alerting us to union interests as being another factor with both intersecting and dissimilar interests with the airlines themselves. This was helpful to help increase understanding.

    @chasgoose, how do we find out if Harrisburg “likely also relies” on EAS subsidies? Is there a way to find this out for sure? Your comment made me wonder if some airports have a combination of subsidized AND unsubsidized flights. If they did, how would this affect the discussion?

    @checklist I was also intrigued by your statement that “allowing a foreign competitor to the States under cabotage rules is nothing like investing in our own country.” What is the difference between subsidies and investments–could you explain this for us?

    @checklist’s comment also made me think of some other comments on this blog and elsewhere claiming UAE residents were disadvantaged by Emirates and Etihad because they charged so much more for nonstops originating from UAE, compared to onestops on other carriers and itineraries originating outside the UAE. If these carriers are indeed being subsidized to “our” (US) detriment, shouldn’t UAE residents also be against the same subsidies since their fares are higher? If anyone could illuminate further on this, it would be fantastic. Thank you.

  35. I find it very weird that all the points bloggers — who take lots of free “luxury” trips on the Middle East airlines — are so vehement in their support of those carriers. These are people who, logic would suggest, would be smart enough to see what’s problematic about their current strategy. Instead, they make absurd Pravda-like arguments, like the idea that there’s anything remotely similar about the often-stupid-but-modest EAS subsidies and the billions being pumped into the Middle East government-owned airlines by their authoritarian rulers.

    I’m happy to have my travel subsidized by Emirates, Qatar and Etihad, but I know this isn’t free fair market competition, and I understand that US airlines and their employees are being harmed when their competitors get to operate economically-insane flights (year-round EWR-ATH will alone lose $25 million/year). Why we keep getting these insanely vehement, ignorant and biased articles by people who should know better astounds me.

  36. @iahphx: You don’t bite the hand that feeds you. Do you see any articles complaining about the limitation clauses to credit card churning, coverage on manufactured spending, or the disastrous Avianca Lifemiles IT for award tickets? Instead, you get Gary Leff complaining about American Airlines cookies and how the luxurious ME3 need to expand into US domestic markets.

  37. @iahphx this is isn’t an “ignorant and biased article” , it’s a blog post.Lucky can say whatever he likes you nut job, and you are choosing to read and interact with it.We’re not reading the NY Times or the Washington Post here.

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