US & Gulf Carriers Resolve Open Skies Dispute

For a few years now, the “big three” US carriers, led by Delta, have been running a massive smear campaign against the Gulf carriers, which I find to be laughable. I actually think they could have a case, but instead they’re running a campaign based on faux-patriotism, suggesting that if the Gulf carriers aren’t stopped then airline employees in the US will lose their jobs, and that we don’t be able to get our military where they need to be. Yes, unfortunately I realize campaigns like this often work, and that’s why they took such a disingenuous approach.

The US carriers didn’t have any luck pleading their case with the Obama administration, and they haven’t had much luck with the Trump administration either (which is surprising, given the “America First” agenda). Of course they (especially Delta) want to save face, so they don’t want to come out of this looking like they lost.

For years Delta had no problem grouping all of the Gulf carriers together, though in a recent Business Insider interview, Delta’s CEO said the opposite:

Even though Bastian said he doesn’t believe they are profit-minded enterprises, the Delta CEO, Ed Bastian, is quick to note that the Emirates, Etihad, and Qatar Airways are anything but a monolith.

“I’m not sure they’re all the same,” Bastian told Business Insider in a recent interview. “I think there are three different business models between the three. We have to be careful we don’t to group them together.”

The way he views it:

  • Etihad’s investments have failed, and the airline is regrouping
  • Emirates’ expansion doesn’t make any sense, and isn’t sustainable
  • Qatar is a government agency that’s bleeding money, and the third worst performing airline financially, after airberlin (RIP) and Alitalia

Bastian had hinted at how there was a resolution coming soon, and it looks like we now know what that is. Bloomberg notes that tomorrow (January 30, 2018), Secretary of State Rex Tillerson is expected to announce an arrangement that should put the Open Skies disagreement to rest. As part of this agreement, Qatar Airways will commit to greater financial transparency and to not run any indirect (fifth freedom) flights between the US and other countries to Qatar 

Under this agreement, Qatar Airways would have to adopt internationally recognized accounting standards and issue annual reports and audit results. As part of this, Qatar Airways has also announced that they have “no intention, for now, of conducting ‘fifth freedom’ flights to the US.”

Of course Delta is claiming this is a huge victory for them:

“This would be a landmark milestone for the American airline industry that will protect our workers and ensure that our foreign competitors play by the rules and do not undermine our international agreements,” said Peter Carter, chief legal officer of Delta Air Lines. “We all support the administration as it holds their feet to the fire to ensure they live up to their commitments.”

Goodness gracious. Way to pretend this has saved tens of thousands of jobs, despite the fact that US airlines are more profitable and employing more people than ever before.

Bottom line

As much as Delta wants to claim that this is a “landmark milestone” for them, in reality this is a big win for consumers, as it will be business as usual. This allows Delta to save (some) face while not changing anything else. What’s interesting here is that:

  • Qatar Airways agrees to using different accounting standards, though the agreement says nothing as to what happens if they lose a lot of money; Qatar Airways openly admits that they lost a lot of money in 2017
  • Qatar Airways agrees not to add any fifth freedom flights between the US and Qatar, though it didn’t seem like they planned on doing that anyway; however, they own stakes in IAG (Aer Lingus, British Airways, Iberia, etc.), and Meridiana, and those airlines operate transatlantic flights, so they can still provide feed to those airlines for the purposes of operating transatlantic flights.

Personally I’m really happy about this resolution. Have the Gulf carriers historically been vehicles of their governments? Absolutely. But as time goes on, and as oil revenue declines, the airlines are becoming more sustainable. Just look at the services and routes they’re cutting.

What do you make of this resolution between the US and Gulf carriers?

(Tip of the hat to View from the Wing)

Comments

  1. Qatar has natural gas not oil for gods sake. Natural gas is growing in demand and the price is increasing- and unlike oil it will be needed for a very long time.

  2. When it comes to Trump and America First.

    Keep in mind that Trump has run a airline at one point, not a very successful one. But still a airline.

    I’m fairly certain that he picked some experience dealing with some of the airlines that eventually became the US3, hell he might even carry a grudge too some of them.

    It’s not just the ME3, Norwegian’s UK and Irish licenses was approved as well.

  3. It levels the playing field a little bit. The CEO’s take on the Gulf three seems accurate – none have a realistic and sustainable model. I’m on the Gulf carrier’s side of this whole thing though (if I had to choose a “side”), but only because I enjoy their F’s and am disenchanted with the US big 3. Basically, it’s not fair but it not being fair benefits the members of this aviation community and does not actually damage the US economy by the magnitude claimed in the US3 marketing propaganda.

  4. As long as the ME3 carriers are partnering with US carriers so we may redeem J/F on ME3 operated flights, I’m all good! 😉

  5. @Nicola:

    This has nothing to do with codeshares being reinstated or started, or being able to redeem your US3 miles on ME3 flights. This was a commercial dispute.

  6. Maybe, just maybe, this will free up resources at the US3 to invest in product/service/etc, rather than waging a PR campaign…one can hope.

  7. In my opinion, in the minds of the US3, this has never really been about flights from the US to Dubai, Doha, and Abu Dhabi and connections beyond those airports. US airlines are not well placed geographically to serve India or Africa and the ME3 are. Even without the massive subsidies that the ME3 received from their governments, the US3 wouldn’t be competing against them for flights to India or Africa.

    Rather, the US3 are upset about how the subsidies could be used for two things: (1) the 5th Freedom flights (New York-Milan, New York-Athens); and (2) investments in airlines that would’ve failed (Air Berlin, Alitalia, etc.,). Both of these could depress transatlantic airfares.

    Why the settlement now: (1) US3 realize that Wow, Norwegian, etc., are a bigger threat on Transatlantic than the ME3; because (2) the money flow has been cut back by the ME3 governments (witness, service cutbacks and letting Air Berlin and Alitalia fail).

  8. @Brian: there is truth to your comment. However, US airlines can connect to India and Africa via European hubs.

    I think older flyers are more comfortable with this routing, as it breaks the journey into nearly equal 8-10 hour segments, instead of the usual 12-14 hour slog from US to the Middle East followed by a 4-5 hour flight. ME3 fly from very specific cities, but DL has far more flights to CDG, as an example.

  9. An important clarification: This agreement resolves only the dispute with Qatar, and not the dispute with the UAE airlines (Emirates/Ethiad). The headline suggests that it was a full resolution, which is not the case. Per Reuters:

    “The voluntary agreement does not to apply to Etihad or Emirates, both based in the United Arab Emirates. The State Department plans new talks with UAE as early as next week, U.S. officials said.”

    https://www.reuters.com/article/us-usa-qatar-airlines/qatar-to-agree-to-new-financial-disclosures-for-state-owned-airline-u-s-officials-idUSKBN1FI00W

  10. Lucky – I think you need to expand your point that “I actually think they (US carriers) could have a case”. You have been super critical of US airlines in the past. Have you changed your position somewhat?

  11. One of the main reasons Qatar suffered so much financially in 2017 is it’s inability to carry passengers in the GCC. This was a large percentage of its revenue base and is not currently open to them.

  12. hi

    I think US3 utilizing the easiest way to stop the growing competition wz ME3 carrier by involving us government to assist them to at least slow the competition wz ME3 carrier . they could not compete wz services provided by ME3 especially the first nd business class services or inflight /ground services. open sky policy required a strong airlines so they can get their share by developing nd offering new product . i think US3 not welling to offer similar premium product/services for their clients . the big loser is the customer .??? . pls compare the ground nd inflight services for premium pax between US3 nd ME3 carrier ?

    * Regarding subsidy ME3 carrier received from their government , its a part of long term plan to make sure ME3 are leading airlines in the region nd the world . they invested huge money nd they have the right to protect their investment if ME3 carrier need any help . in the long run , ME3 will establish the target position in the market .

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