Why I Have ZERO Sympathy For U.S. Airlines Whining About Gulf Carriers

For over two years now, the “big three” U.S. carriers have been trying to stop the “big three” Gulf carriers. The basis of their claim is that Emirates, Etihad, and Qatar, have been violating the Open Skies agreement because they’re government subsidized, and therefore the playing field isn’t level.

Qatar-Airways-A350-02

They argue that it’s not fair that a reciprocal agreement causes them to have to compete head-to-head with airlines that are really big government vehicles.

I haven’t been very sympathetic towards the arguments the U.S. carriers make. Many people have assumed that it’s because I love the glitz and glam of the Gulf carriers, and don’t think of the impact it has on U.S. jobs, etc. That’s not the case. My main issue is that the U.S. carriers are making their case so poorly, to the point that it really feels to me like they’re targeting and bullying three airlines.

Etihad-Arrivals-Lounge-Abu-Dhabi - 1

For example, here’s the latest ad from the Partnership for Open & Fair Skies, which is the annoying lobbying group that the U.S. carriers use:

Let’s ignore for a moment that…

I want to stick to the core of my issue with their argument, so let’s forget that:

  • Emirates, Etihad, and Qatar are massive customers of Boeing, which unarguably helps the U.S. economy and generates lots of jobs
  • Emirates, Etihad, and Qatar are substantial employers in the U.S.
  • Emirates, Etihad, and Qatar bring a lot of people to the U.S., which boosts the U.S. economy
  • U.S. carriers argue that subsidies of all kinds are terrible, when in reality they’ve gotten these as well, ranging from profiting off of the Essential Air Service program, to unloading pensions when they went through bankruptcy
  • U.S. carriers argue that 1.2 million American aviation jobs are at risk, all while U.S. carriers are turning record profits in spite of these “evil” Gulf carriers
  • The real risk facing the U.S. carriers is the ultra low cost carriers like Norwegian, which in some cases have questionable business practices (when your company is based in Ireland, but you’re flying out of France and the UK with Thai crews)

I could go on and on, but that’s all besides the point…

The real problem: the U.S. carriers are running an unfair smear campaign

The U.S. carriers could try to make a legitimate argument that government owned and/or subsidized airlines shouldn’t be allowed to participate in the Open Skies agreement, which is intended to be a free market policy. I think that would be an argument worth hearing.

The problem is, that is not the argument they’ve been making in any way, shape, or form. Instead they’ve picked three airlines to bully the hell out of.

Is the problem that some “subsidized” airlines (which they define as airlines where the government has a big equity stake) are participating in the Open Skies agreement? If that’s the case, why are they bullying just three airlines? There are dozens and dozens of government owned airlines participating in this agreement.

What about Saudia? What about Kuwait Airways? What about Air China? What about Air India? What about Singapore Airlines?

Kuwait-777-Business-Class - 1

The further argument that’s made is that Emirates, Etihad, and Qatar are based in small markets, and a vast majority of their passengers are connecting onwards to further destinations. First of all, I’m not sure where in the Open Skies agreement that’s stated as something that’s not okay, but even so, isn’t the same true of Kuwait Airways and plenty of other airlines? And have you seen how low Kuwait Airways’ fares are? If that’s not considered to be capacity dumping, I don’t know what is…

What makes me really uncomfortable with all of this is that the U.S. carriers have picked three very easy, liked targets, and are trying to make a point about them, even though this is a much bigger issue. But U.S. carriers have never addressed the bigger issue, because it’s more than they can (or want to) handle. So instead they run a public smear campaign.

The hypocrisy of all of this

We’ve heard from the U.S. carriers that Emirates, Etihad, and Qatar threaten 1.2 million American aviation jobs. They’re lobbying the government to stop these airlines.

If that is in fact the case, how can American with a straight face partner with both Etihad and Qatar, the two airlines that are supposedly trying to destroy them.

How about Delta partnering with Saudia, which is similar? Heck, what about Delta buying a stake in China Eastern, a government owned airline? How can Delta argue that government subsidized/owned airlines are bad, and then invest in one?

China-Eastern-Business-Class-777 - 103

And let’s talk about Alitalia, which hasn’t turned a profit in a long time, and won’t turn a profit any time soon. They’re an airline that absolutely lives in a fantasy world (their survival plan is that ove the next two years they’ll decrease their fleet by 20% and increase revenue by 30%… as one does), but they keep getting bailed out. As reader Leonardo explained, there’s a simple reason for that:

The banks which are supposed to lend money to Alitalia are Intesa SanPaolo and Unicredit, the 2 biggest banks in Italy with massive political implication and infiltration. Alitalia has survived so long because of political reasons (nobody in the parliament wants to be responsible for 12,000 job losses and leaving the country without a carrier), so they force the banks to keep the airline alive. Of course the banks know they will not have any ROI, but in exchange for saving Alitalia, they will benefit from favorable policies which they need in other situations and which the parliament will approve for them. Beside, most of the debts of Alitalia are towards other Italian suppliers, which won’t see a dime if Alitalia goes bankrupt. Therefore, the economic circle will keep spinning, for everybody’s benefit. For non-italian it might sound hard to understand, but unfortunately it makes quite sense here.

alitalia-777

Bottom line

The U.S. airlines could make a legitimate argument about how government owned or subsidized airlines shouldn’t be part of the Open Skies agreement. They’d have a really hard time making that point, given that this includes so many airlines, but the point could be made.

What I have no respect for, however, is that they’re instead trying to conveniently bully three airlines in the name of patriotism and protecting U.S. jobs. It’s hypocritical that they single out Emirates, Etihad, and Qatar, when Kuwait, Saudia, and many other airlines are also government owned and primarily connect passengers traveling between different countries.

Furthermore, if the real problem is subsidized airlines, let’s talk about China Eastern, which Delta bought a stake in, and Alitalia, which is a textbook example of an airline that’s subsidized and is unlikely to ever turn a profit.

The core of my issue with the argument made by U.S. carriers is that they haven’t actually made an argument — instead they’ve just run a patriotism campaign that’s lacking facts. If you have a legitimate problem with subsidized airlines, then make that point. But stop singling out and bullying three airlines because it’s convenient.

Comments

  1. well said Ben.

    my hunch is that the US airlines are threatened by the Gulf 3 not because they are subsidized but because the Gulf 3 have innovated and improved the quality of air travel radically over the last 10 years. that is the real threat to those US Airlines who increasingly see themselves as global companies and Asia is the battleground. the US airlines don’t really want to innovate. i’m sure United would’ve been fine not spending the money to develop Polaris but felt forced because of the increasing quality of the competition.

    while offering decent products, Alitalia and the Chinese airlines, aren’t industry leaders the way Etihad, Emirates, and Qatar are. also – Qatar and UAE are uniquely positioned as hubs into Asia, Africa, and even Eastern Europe giving them a huge advantage over the US carriers in those territories.

  2. Classic case of America economic policy…capitalism is only good when it solely benefits the US. If the electronics ban shows anything, we’ll see a lot more protectionist policies designed to destroy free markets under Trump.

  3. This is a great opportunity for Air India and Jet Airways to connect Middle East passengers with USA and take away the market from the ME3. They should infact start more non-stop flights out of Bangalore , Chennai , Hyderabad to US Cities

  4. Although I do think this is a poor strategy by the US airlines, I don’t think they have been very successful in their “smear” campaigns. The general public could care less and will likely fly the airline that gives them the best fares to wherever they want to go. Frequent Flyers will fly whoever gets them where they want to go in the most comfortable way possible and for the most EQM/D’s. In the end, I really don’t think anyone cares but this does put the US carriers in a poor light as it makes them look like poor/spoil sports in the competition.

  5. I feel like the arguments on this site in favor of the ME3 fail to take into account the perspective of the US3. Each of the US3 airlines is a publicly traded company with a responsibility to its shareholders to maximize returns. They are not a charity. They want to do what makes them the most money. Opposing the ME3 makes sense from that perspective. They pose a threat to the international market share of the US3, especially the lucrative markets of India and South East Asia. The fact the US3 have few flights to these destinations is unimportant, since they have joint venture agreements with other airlines that have extensive service (British Airways, Lufthansa, ANA, JAL, Air France, …). These are the main markets of the ME3. In reality is likely the US3 care very little about the abuses of the Open Skies agreements by the ME3, or the jobs lost to them, it is just an easy way to target them. Their argument is not hypocritical from their perspective, it is just smart business tactics.

  6. I’m not arguing the point you’re trying to make but the attempt at making it was lackluster. This seemed more like an opinion piece directed at those with similar views than an attempt at trying to sway readers. Maybe this isn’t the place for in depth analysis but perhaps some linking to facts to back up your points so readers can make informed decisions. Americans as a whole are taking the easy way out with their information. Listening to what they believe and discounting what they don’t. At least if the detail is available we have a chance to dig deeper and become as passionate as the writer.

  7. This is a common practice. It’s much easier to select a subset of a population and make it represent the “problem”. They picked the competitors they thought they could impact and derive the most benefit from doing so. It’s what businesses and people do. They use the facts that support their position, exclude the others and exaggerate to sway opinion.

    You lost me at “bullying” honestly. The whole tone of this post is strident and dramatic. It’s normal corporate warfare.

  8. Its not only that, but every airline one way or another gets help from the government. That is why our government has bailed out United, Delta and American.

    The other thing is that, the Big 3 carriers want to live in this pseudo fantasy world where they should be the biggest dogs in the yard, but yet they do not have the incentive of actually giving a better product. They are only looking at profit and nothing else.

  9. Oh pish posh “facts” we now live in the post Fact Trump era. No one cares about the truth. Hell for that you’d actually have to read and think! No time for that!

    Well done Ben great article.

  10. I wish the ME3 would start their own ad campaign here to fight back. Something along the lines of “Come fly with us, you’ll understand why American carriers are so nervous”. Really drive home the quality of their product versus the crap we have to put up with when flying American carriers.

  11. Ok.

    I used to use AA a lot. Platinum Member for years until I flight on LAN airlines and Qatar. It takes just one flight to move away from American Airlines (United, Delta). Service on A3 is really poor. These airlines are lowering service at all cost which I guess will eventually translate into loosing customers.

    Totally agree on Boeing deals with EM3. And actually I would love to see all carriers moving away from Boeing as a retaliation of these bullying campaign.

  12. I think it’s simple and I can’t blame them for the strategy. They can’t compete with the product. So the solution is smear the other guy. I actually think it’s really smart marketing. Allthough I agree they might be targeting it at the wrong people.

  13. What makes Norwegian an ‘ultra’ low cost carrier? They offer free cabin bags, wifi etc. WOW is an ultra low cost carrier.

  14. Agree 100% Ben! Very well written article. The low cost airlines such as Norwegian and Level are a much bigger threat than the ME3.

  15. I agree, Ben. Rank hypocrisy.

    @Juan David
    If I were a Boeing exec I’d be looking nervously at Emirates, Qatar and Etihad, wondering if those firm orders are now as firm as I’d thought. The guys at Airbus and Rolls Royce must be feeling very buoyant today.

  16. I generally side against the Big 3 on this argument, but if you don’t see the difference between SIA and Etihad, you’ve lost credibility to discuss the issue.

  17. @ Justin — Of course I see the difference. I’m making the point to counter the argument the US carriers are making, that subsidies/government owned airlines=evil. I don’t see much of a difference between Emirates/Etihad/Qatar and Kuwait/Saudia, though.

  18. Great article. Really well articulated and I completely agree. US legacy carriers remind me of the Detroit auto industry in the 80’s complaining about Japanese imports. Maybe, just maybe, creating something people actually want to buy is a radical solution?

  19. Nicely stated, Ben. We can’t constantly preach about free markets but do otherwise. So after I received a semi-sad email from Etihad today about the onboard changes due to the new security rules I went ahead and confirmed a Royal Jordanian itinerary using AA miles. I do want to be supportive of these airlines this summer, even if it’s a non-revenue ticket. Anyhow, forget the iPad. I’ll read just stuff on my iPhone during the 11-hour flight home.

  20. Sorry Ben but I don’t agree with your argument. The ME3 are for all intents and purposes “chosen instruments” for their respective countries. Unlike the US carriers, the ME3 are not in business to make money. They are in business to “fly the flag”. Making a profit while doing so is secondary. There has never been a level playing field between the ME3 and the US carriers, and until ownership and government funding of these carriers is resolved there never will be. The US carriers are right to complain and demand changes.

  21. @ Gregg — Does the same not apply to Kuwait, Saudia, Alitalia, Air China, China Eastern, etc.? I’m not suggesting you agree with all of those, but do you think it also applies to at least some of those?

  22. As a Chinese citizen and US resident, I want to point out to express my agreement here

    Please look at how aggressively the Hainan Airlines is making to open US-China routes recently, and remember Hainan Airlines is also government financed.

    Hainan Airlines from time to time runs Business Class promotion on the US-China routes for less than $3k. I do not want to compliment over their service or delay records, but for $3k you could know where is the profit margin for Big Three, and I can say for sure that United’s BizFirst is far below bar.

  23. I fully agree with your assessment Ben, and I think it’s a sound, well grounded analysis. Much like GM complained of the cheap imports of cars, they (are) pretty heavily subsidized. Even Ford, who isn’t nearly as subsided as GM, is using geo-arbitrage for cheap labor in Mexico. And yes, I was one of the people who (used) to think you just sided with the Middle East carriers because of their glitz and glam. 😉

  24. Ya. What’s really scary is that the ME3 are now rebranded by our regime as “Flying while Muslim.” New security impediments, onerous visa requirements and an unfriendly border are just a few of the new tools to boost tourism and business travel. Yeah. #SlowClap

  25. The A3 are right and the ME3 are wrong – largely for the reasons that Gregg says above.

    Those of you who are saying, that the A3 don’t want to innovate and don’t want to provide the product that the ME3 provide are missing the point. Unlike the ME3, they have to be concerned about things like how much things cost. They’re not going to fly an A380 2/3rds empty and they can’t have employment policies that treat employees as indentured servants. US law doesn’t allow it.

    Are other subsidized carriers also a concern? Historically, the US airlines have consistently griped about this and have been backed by the US government. That said, in general, the subsidized carriers of the past have been of the Alitalia ilk — poor operators with high costs that still didn’t move the market much. If you were the A3 now, would you focus on the subsidies that Alitalia is getting or the ME3?

    Don’t get me wrong, the A3 can be hypocrites too. They would make ANY argument to try to improve their competitive position. That’s what companies do. That doesn’t make them wrong about just how market distorting the ME3 have behaved.

    But when I look at the arguments in support of the ME3, what I see are people who like the service and like the cost of the ME3, don’t want that to change, and are looking for specious reasons to justify the status quo.

  26. Great post Ben!

    The US carriers should just go “If we can’t beat them, join them” instead of whining and making travel worse for the customers.

  27. @Lucky – Air China and its predecessor CAAC were Government owned and funded to fly the flag. Alitalia was too until EU regulations prohibited government ownership of airlines. The Italian government doesn’t own Alitalia but nevertheless uses its considerable influence to make sure it doesn’t die.

    If government owned the US carriers, bought all of their planes, built world class airports for them and charged them below market rates to use then, allowed them to discriminate against female crew members in any number of ways, etc., and after all if that the US carriers still complained about the ME3 then you’d have an argument. But that’s not the case here. On a level playing field the US carriers can and do effectively compete with foreign air carriers like BA, LH, JL and the like.

    I too like the ME3 carriers and fly them when I can. And they do offer a superior product to the US carriers but they do so only because of the funding from their governments. If any of these carriers were publicly held with shareholders to report to the situation would be far different. Again, for a number of reasons it’s not a level playing field.

  28. Of course they will run a “patriotism campaign lacking facts”. It’s no secret that such a campaign has been a recipe for success in the US for decades… probably longer. And maybe more so in recent times

  29. Nothing new here, same old talking points of gulf carriers.

    China is not a open skies partner, it can subsidize all it wants. SkyTeam partners are not dumping capacity or trying to crash prices. USA airliners argument is perfectly valid and legal.

  30. @Desi, Well said. It is starting to get comical how much rationalizing folks will do to make sure their points will buy them a shower in the air. With the utmost respect to Lucky, who does a great job with his site, he is very misguided on this issue, as is Gary at VFTW. It is economics 101. A private company can never fairly compete with a government funded entity. Governments have the ability to fund their whims and objectives with the power to levy taxes. That is virtually limitless pool of weaponry to fight any competitive battle. It is not subjective at all. Private company in that fight will absolutely go bankrupt. It is only a matter of time and then we will be leaving the ME3 with Oligopoly power. And if you are wondering how bad that would be, read up on the history of OPEC and how the middle easy has used oil as an economic weapon and to coerce us to spend trillions on their defense.

  31. @Lucky : do you also have sympathy for Qatar being one of the most anti-gay nations and a state-sponsor of terrorism ?

  32. Pretty sure Delta, AA and UA where part of the team that wrote the electronics ban. That was simply a very low move from the US side but I am still surprised that UK followed with a similar one.

  33. @Rob and @ Desi +1
    And the incessant negative commentary of AlItalia’s problems is getting old. We can all agree they’re troubled not unlike many other carriers but you have spent the past week trashing them and their lounge. Now you feel the need to further pile on by draging them into this discussion of the ME3. We get the point, you hate AlItalia. Time to move on……

  34. @Gregg
    “On a level playing field the US carriers can and do effectively compete with foreign air carriers like BA, LH, JL and the like.”

    Hahahaha!

    The US legacy carriers have all been through bankruptcy and shed billions of dollars of their deadweight for their past crappy decisions. The 3 foreign airlines you quote have not dumped debt and pensions liability in government-created bankruptcy programs, and are true private sector entities.

    The US legacy carriers have a proven track record of failing to compete with other private sector airlines.

  35. @Paul Unions are the only reason US carriers have gone bankrupt, the only “past crappy decisions” they made were obeying the law and not moving to a Middle Eastern country where Unions are outlawed, like Qatar. Maybe we should give Delta a taxpayer check for $40 billion, let them import 90% of their workforce from the Philippines, then allow them to ban unionization of those workers while holding their passports as leverage over them, the way Qatar does… and then we would really be able to tell whether they are just whiners or whether they can actually compete. I’m willing to bet within 6 months of doing all of that, Delta would have free flowing champagne and sky showers all for the same bargain price of 120k points.

  36. US Airlines is sure the best in…shrinking legrooms, cutting back on frequent flier benefits, adding ‘basic economy’ and terrible customer service. I took a 15 hours flight to Asia on ANA economy. The flight was fantastic. I’m 6’ft tall and there were ample leg room even in economy. The FAs were fantastic, the check-in and boarding process were efficient.

    The big 3 US airlines just want more profits. I avoid flying with them at all cost. Even when flying domestically, rather pay a little more to fly with more regional airlines like JetBlue and Alaska.

  37. The issue with this new “electronics ban” policy is that it should be universally implemented or not at all. To single out specific airports or airlines won’t stop terrorists from flying in from other regions of the world or other airlines instead using these same means. This does reek of American protectionism now that Trump is President and nothing more than that. United Airlines has a partner program with Air Canada through Star Alliance, yet Air Canada is also subsidized by Government funds. The only other conclusion that I can gather from this asinine policy is that it is a roundabout way for Trump to still impose his Muslim ban since his direct approach keeps getting rejects by the American court system as “unconstitutional.”

  38. @Ben, I’m no aviation expert but won’t putting all those Lithium-Ion batteries in the cargo hold (from all the electronic devices) be a bad idea? I know they’re not in as close proximity as they would be if a ton of batteries alone were shipped together, but this might still be a worry.

  39. Good article.

    Nobody likes a handout when they are not getting it. Didn’t Boeing bitch enough to the politicians about “Buy American” until they got the USAF to reconsider purchasing the KC-30? Odd, I don’t hear Boeing bitching about the KC-135s and AWACs in the French Air Force.

  40. @Paul – You conveniently forget that BA, LH, JL, were themselves once Goverment owned. And JL itself did go bankrupt and was reorganized. The fact that they are not Goverment owned at this time levels the field considerably. And as far as BA is concerned, I’ll fly DL any day over BA’s ridiculous 8-abreast seating in Business.

  41. Let’s try and focus on the facts here guys. It seems like a bunch of mis-information.

    Emirates airlines has turned a profit for a long time now. US3 have also turned out high profits for the last few years.

    I agree there are subsidies going on but I also think if you see the information out there is it clear there are government funded benefits on both sides

    For example the 119B subsidized to the US3 in the past century, tax benefits, bankruptcy benefits etc etc etc.

    https://www.google.nl/amp/s/skift.com/2015/04/09/wikileaks-disclosure-shows-u-s-airlines-received-billions-in-subsidies/amp/

    It’s kinda sad to me that it takes Wikileaks to bring this stuff out.

    I’m not saying there isn’t some funny business going on with the ME3 but it seems to me if you can’t compete on product or price you fall back on religion or patriotism. That to me is almost what marx said “the opiate of the people”.

    I don’t mind fact sharing or bringing out valid points on both sides, I also agree with lucky though that by the US3 dragging the argument through the mud it’s impossible to believe it is anything but dirty.

    PS. Personally I have travelled to the ME region almost 20 times for work in the past 2-3 years. I can see the sometimes less secure aspects of Cairo airport for example, but after many flights to/from DXB or AUH I would argue their security is on par with any of the USA airports. Also maybe worth noting that the ME3 do not have the same record of terrorist attacks or hijakings our US3 seem to have had in the past….. sorry but the arguments are welcome but maybe it’s good to stick to the facts….

  42. @Gregg
    “On a level playing field the US carriers can and do effectively compete with foreign air carriers like BA, LH, JL and the like.”

    Level playing? All your examples are wrong. American is not competing with BA, or JL. Delta is not competing with AF-KLM and United is not competing with LH. In case you are living in a bubble, airline joint ventures after securing anti-trust immunity are no longer level playing. And those are just a few.. basically three alliances are creating virtual monopolies in many market segments, all in agreement with their governments.

    Boo hoo, cry me a river A3.

  43. @Paul – But DL competes with BA, and AA competed with LH, and so on and so on. You mention alliances yet you once again conveniently forget that Qatar is a full member of oneworld.

  44. @Gregg
    Sorry, are you arguing that any airline that was ever government owned or in receipt of a subsidy is evil – unless they’re the US3, in which case they are angels and need protection from all the playground bullies?

    Taking BA, since you seem to hate it most, they were privatised 3 decades ago. Since then it hasn’t had a penny in government subsidy, and – unlike the US weaklings – has never dumped debt and liabilities worth billions through bankruptcy proceedings.

    Can you really not see a difference between your beloved US3 and BA?

    The fact that the UK has issued a directive which damaged the business of several of its own airlines (BA, easyJet, Monarch, TUI, etc) – while not targeting the home hubs of Emirates, Etihad and Qatar – should surely give you pause for thought?

    As events in London today should demonstrate, the U.K. is under attack too. The U.K. Government is not renowned for being soft on terrorism (I think you’ll find it was the US government which insisted on giving visas to IRA terrorist fund-raisers in the 1970s, despite the UK government begging them not to. But of course, the Irish are cute and cuddly, aren’t they?).

  45. @Rob
    Gregg was comparing the US3 with BA LH and JL.

    None of them pay slave wages, the European carriers have much more onerous social costs than the US ones (what’s the average paid holiday in the US? How much paid maternity leave is there?).

    And you think all those strikes at Lufthansa are because it has weak unions??

    Get a grip. Stop seeing the world through spectacles shaded with Stars and Stripes.

  46. @Lucky

    “The real risk facing the U.S. carriers is the ultra low cost carriers like Norwegian, which in some cases have questionable business practices (when your company is based in Ireland, but you’re flying out of France and the UK with Thai crews)”

    So Lucky what is the difference between a Delaware corporation and running part of your operation out of Ireland?

    Beside Norwegian probably paying more in corporate taxes of course?

    I will admit that Norwegian’s labor practices leaves a bit to be desired, the trend these days are that the seems to be hiring US workers since they are cheaper than western EU workers.

    Europe (including Norway) is after all considered one region under the Open Skies agreement when it comes to running an airlines, same the US is considered one region.

    The big problem is the name Norwegian, people is making noise about it because it’s the same as one of the most expensive countries in Europe.

    Doubt that they would have this much problems if Norwegian were called Pan European Airways or Trans Atlantic Airways.

  47. Tax isn’t my subject, but isn’t corporation tax in Delaware set at 8.7%?

    In Ireland – notorious in the EU for trying to attract multinationals with low tax rates – it’s 12.5%

    The U.K., as a comparator, is 20%.

  48. I also think that the US3 (prob led by Delta) are tee-ing up a new “Bring Electronics into the Cabin” fee. They are running out of upsell.

  49. Come on, Lucky. Even neoliberal rags like Bloomberg Businessweek know that the competition is unfair. Look at the front page of the Bloomberg special on Emirates: https://assets.bwbx.io/images/users/iqjWHBFdfxIU/ieCbKD_WcfAk/v0/600x-1.jpg

    Do you think US carriers are really unfairly complaining, given the complete stark differences with the operating environments of the ME3?

    The love for luxury for your readers really blinds their judgement completely. The reason the US3 doesn’t complain about Asian carriers is because they are competitors and there is huge bilateral trade and markets.

    How many people do you think flying to Dubai, Doha, and Abu Dhabi actually are going there? The vast majority of people are connecting to other places. It’s an abuse of open skies. Asian carriers are not abusing open skies. And at least in Asia, they have somewhat of a legal system, instead of ruling by the words of oil-rich sheiks.

  50. Ultimately I have a modicum of sympathy for US carriers as publicly traded companies, but only that because they have traditionally behaved in an oligopolistic manner whenever they can, through “fortress hubs” and such. I live in San Francisco, so choose to be a UA customer because that is where most capacity is offered across the widest range of routes. Service levels and fares are much more competitive in the US now that LCCs have increased market share, so I’m all for high service level, even state supported foreign flags doing the same to up the game of US carriers. Ultimately the airline industry is “government heavy” because it involves bilateral air service agreements internationally and is a strategic industry, which the US carriers milk for all that it’s worth. You could work also out the actual annual international pax numbers that are being fought over here as a % of total US international – it is probably material, but when compared to major region-pairs like Western Europe and East Asia the ME3 can’t feature much. I once flew UA on IAD-DXB, it was horrible, and talk about a state-supported route.

  51. When writing it’s important to know the facts. ME3 does not pay slave wages. Look up wages on Indeed, etc. How many times does the President of Norwegian have to say he doesn’t put or will not put Thai personel on US flights. US and European alliances have been offering extremely cheap fares to Europe especially Iceland and Scandinavian cities for now until next year$200 to $400 round trip. Some people must not know the sites to use. Be knowledgeable. Thanks Lucky for a well written article.

  52. The problem is not only the US based airlines but the major shareholders and the CEOs. Airlines made so much profit every quarter and every year but they still not happy and trying to squeeze every penny they could from people because of greed. They want to push up the stock price and benefit from their stock options. They are the ones to blame for.

  53. So let’s consider this hypothetical scenario…I’m a retired wealthy man in the US. I have lots of money — loads of it actually. I also have hobbies and a great interest in coffee. I decide that I will open an amazing coffee shop on the street corner in my neighborhood. I spent time and money figuring out exactly what people want. I assemble a team and they brew the best coffee in town and people love it. I name the coffee shop after myself because at the end of the day I want to be remembered in the neighborhood. I’m not really out to make a profit. It’s a hobby and I don’t need the money. Let’s say I decide to sell at cost and on top of that I decide to give a 25% discount to regular customers. I operate at a loss….but it’s a hobby. I enjoy it. The coffee is amazing. Did I mention people love it too?! Now kitty corner from me there is a Starbucks. They start to get really upset that I have the audacity to take on this operation because they lose customers. Would Starbucks be able to shut me down or throw me out of the neighborhood? Should local taxpayers subsidize Starbucks? Whatever happened to free market? Either the Starbucks can shut down or they can develop an even better product than what I have to offer.

    This in a nutshell is what’s happening with the ME3 versus the A3.

  54. @keitherson. Thank you. That is an excellent point. Dubai and Doha are not destinations. The governments are bankrolling a strategic initiative to siphon traffic. It is exactly what happened with Nafta. 1 year after Nafta passed, U.S. trade balances with Europe went negative and all of the sudden Mexico’s trade balances with Europe went wildly positive. It wasn’t because of superior competition, it was because Europe was trading into the U.S. via Mexico to benefit from Nafta’s lax rules. Mexico essentially siphoned our market share, and we just let them.

    @BenO. So, just to be clear, you are saying 119B of subsidies went to the U.S. carriers because you are counting liabilities discharged in bankruptcy and which were created prior to deregulation, when the government was dictating the price they had to charge?

  55. @trex. In your example are you a government with the ability to levy taxes and operate at a loss until infinity? And are you actually making the case that the ME3 are offering lower prices for superior product out of their love of aviation, goodness of their hearts and desire to be remembered?

  56. Spot on analysis, Ben. Instead of focusing on thuggery, the US Big 3 should be looking hard at their own products and innovating to improve. This is the only way they can prosper in the long run. Moreover, its not as if the Gulf Big 3 are without means to retaliate. Incidentally, the Trumpers have really devalued the fight against terrorism by rolling out this protectionist nonsense in the guise of an anti-terrorism measure.

  57. Hmmm….how about the A3 actually try to COMPETE? That’d be a novel idea….lately it seems all they do is imitate each other (especially FF programs).

    Show us a differentiated product (looks like that’s shaping up to be Alaska’s strategy–bravo!), real loyalty and sincere customer service and these U.S. carriers might win some business. Until then, my money will go to the best product at the best price–and for now the A3 are a joke compared to virtually EVERY other overseas carrier–Wait a minute–isn’t that what capitalism is all about!?

  58. Lucky – one of your main arguments is don’t just pick on the big 3 ME government-owned carriers, what about other government owned carriers? This isn’t the point – the shareholder in the equation is irrelevant – who owns the airline essentially doesn’t matter, and doesn’t provide the airline with any benefit.

    The issue people had/have with Emirates/Qatar/Etihad was the argument that they received interest-free loans, free land for buildings, perhaps oil and related services. These, if proven, are very real, and have very serious consequences on the airline market. And, importantly, it has been revealed that Etihad did in fact receive these benefits. Etihad has access to a secret, interest-free $US3 billion loan from the Abu Dhabi ruling family that required no repayments until 2027. So their shiny new fleet, which you very much appreciate, was basically gifted to them. And it is reported that Etihad benefit from substantial free sponsorship (Etihad is the major sponsor of English Premier League team Manchester City) cost of which was covered by Abu Dhabi Govt. The report also mentions Emiratisation subsidies and PSO routes, which appears to correspond to the Essential Air Service program. Arguably, the chiefs of US airlines are responding to these types of issues which may also affect Qatar and Emirates (probably to a lesser extent as it was quite well established. However, perhaps it too benefited in the 80’s, 90’s when it was finding its feet).

    So I firmly believe competition is a great thing and it does raise the bar. But this shouldn’t discount any valid concerns companies have with respect to their competitors.

  59. This is very simple: if you are Qatar, so 99% of the country is Doha, you have big interests in having your airport becoming a global hub. An airport makes money and creates employment, plus having many people connecting flights implies having many of them, soon or later, making a stopover, forced or not. That means, bringing more money to the country. So, if you are Qatar, subsidizing your airline is a way to make the country grow, because you are just capitalizing your country’s position at the center of the World.

    All this fuss about competition, in my opinion, is ridicolous. There are so many sectors where competition, on a global scale, is compromised. How about US farmers getting subsidized to grow and sell underpriced corn, so that some countries prefer to import it rather than producing it locally?
    I think airlines are a country’s shop window. I am Italian, and I am forced to see the national airline becoming a joke (ok, here you are a little too harsh, AZ business plan is basically to get rid of some expensive old contracts and unprofitable routes, which is a ballast that won’t allow the company to grow. You also failed to explain how the agreement with Air France and Delta basically limited the long range routes of the company, which are the only cash sources): in my opinion, it should get as much government money as deemed necessary: if we are a country with immense tourism potential, then it makes sense to turn the national airline into a showcase of the national excellence fields. Losing 1bn per year, who cares when you feed the national economy with tourists, and give an easier time to national businessmen to travel abroad and promote the export products?
    It seems that the sectors are subsidized only when certain countries have something to earn, otherwise the fair competition is summoned.

  60. Let’s not forget that the US3 have benefitted greatly with government assistance in the form of bailouts, tax breaks, and subsidies. I believe United and Delta still enjoy great tax breaks, not sure about American.

  61. I’m sure many others have said the same thing. But here it goes…

    No one enjoys flying U.S. based carriers because their customer service sucks. Truly and completely their customer service SUCKS!

    I’ve been an international traveler for many years and U S carriers are a joke. They hire these flight attendants who believe that we the customer should be greatful to be flying on their plane. They loook down on us and treat us, the passenger, with contempt. F- them!!!

    Meanwhile middle eastern and European airlines hire professsionls who view the customer as an asset and someone to be held in high esteem. They know that the customer is the one who makes or breaks the company and ultimately their livelyhood.

    TDLR — American and North American Airlines view passengers as annoyances while European and Middle Eastern airlines view customers as people to be treated with respect and dignity. The levels of service are indisputable.

    If American Airlines have trouble with any perceived subsidies the middle eastern airlines are getting, they should first look at their own horrific levels of customer service first. Peace out.

  62. Lucky, I just posted a fairly length comment. However it may come across, just know that I am with whatever you say. U S carrieirs are crap and I’m sick of their complaining.

    Chris

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