Battle for the Skies: American protectionism targets GCC carriers
Several US airline carriers, led by Delta, United, and American Airlines, have engaged in an orchestrated campaign, suggesting that GCC carriers, and in particular Emirates, Etihad, and Qatar Airways, have benefited unfairly from nearly USD 40 billion in subsidies from their respective governments over the past decade. The American carriers have established an organization called American for Fair Skies, lobbying the US government to curtail the GCC carriers’ direct flights into the United States, and alleging that the Gulf carriers are operating on an uneven playing field. “This unprecedented level of support allows the Gulf airlines to operate not as businesses, as US airlines do, but as arms of their well-heeled predatory governments,” the organization states on its website.
The GCC carriers, for their part, have retaliated, stating that consumers enjoy their award-winning premium service and benefit from their global connectivity all across Asia, Africa, and the Middle East.
The independent Skytrax airline ratings agency seems to agree: The Gulf Big Three made it to the top 10 list at the agency’s prestigious 2014 World Airline Awards, while the U.S. “Big Three” barely cracked the top 50: Delta came in at 49, United at 53, and American at 89.
The Gulf Big Three have achieved several milestones of late: in 2014, the Dubai International Airport surpassed London Heathrow to become the world’s busiest airport, measured in terms of international passengers. They have also emerged as major global carriers, capable of going toe to toe with the industry’s giants. Blessed with fortunate commercial geography, placed within a four-hour flight’s distance from one-third of the world’s population, and an eight-hour flight’s distance to two-thirds, the Gulf carriers strategically developed their airports as hubs to make use of their comparative geographic advantage.
Their rise has also coincided with the emergence of a new global middle class and
an attendant surge in global air travel. Unsurprisingly, the fastest-growing market in air travel comes from emerging economies – places that the Gulf carriers serve well. According to the Airbus’s Global Market Forecast, emerging markets will account for nearly two-thirds of all air travel by 2033.
Relatively recently, the Gulf carriers have begun direct flights to the US, encouraging Asian, African, Middle Eastern, and Australian travelers to use the GCC as the hub for all their North American travels. Over the past five years, the Gulf carriers have flooded the zone, with some 252 direct flights a week from their respective hubs to 10 U.S. cities, from Seattle to Chicago to New York.
This has unseated the large American carriers, and some European carriers, as the airlines of choice for all trans-Atlantic travel, some of the most lucrative in aviation. As an example, Lufthansa the German national carrier has had its market share slashed by nearly a third since 2005, as some 3 million Germans annually opt for the Gulf carriers to take them to Asia.
The Gulf carriers also cite an American refusal to invest in their own carriers as potential reasons for increased traffic through the GCC. Qatar Airways, for example, made headlines, when it ordered 50 Boeing aircraft at a list price of USD 37.7 billion, while it is estimated that the Big Three Gulf Carriers will increase their collective fleets by 534 aircraft by 2027. The US carriers, meanwhile, suffered record losses in 2008, and only recovered by raising their prices while refusing to expand capacity on domestic flights.
Ultimately, many cite the hypocrisy of the American carriers who, in times of plenty, were the ones to negotiate the original Open Skies agreements, having established 100 such agreements in 1992 alone. These agreements are widely credited with expanding the global footprint of the US carriers, and benefiting cities like Dallas-Fort Worth, Detroit, Las Vegas, Memphis, Minneapolis, Portland, and Salt Lake City, which had virtually no international flights prior to 1992. It also was a boon to US tourism, air cargo, airports, and the aviation industry at large.
“There is no olive branch on this issue,” said Qatar Airways Chief Executive Mr. Akbar al-Baker at the International Air Transport Association (IATA) annual meeting in Miami. Under the agreements, “we can deploy as much capacity as we want in the US and the US carriers can deploy as much capacity as they want in my country.”
Still others feel the allegation of subsidies by the GCC governments by the American carriers only draws attention to the many safety nets already provided to the US carriers. After the 9/11 attacks, US carriers received some USD 15 billion in direct cash payments and loan guarantees from Washington. What’s more, the Fly America Act demands that US government employees use US carriers for domestic and international travel – a boon to the industry, with a whopping USD 9 billion spent on travel by the US government, according to the General Services Administration.
The GCC carriers, for their part, have retaliated, stating that consumers enjoy their award-winning premium service and benefit from their global connectivity all across Asia, Africa, and the Middle East
Many, including US-based global cargo carrier FedEx Corp and Emirates code-share partner JetBlue Airways Corp, feel that the move by the Americans for Fair Skies is nothing short of harmful protectionism which will set a bad precedent while adversely affecting the international aviation market. “Any rollback of liberal market access and Open Skies policies will reverberate across the whole world and will lead to retaliatory protectionism affecting all aspects of trade,” said Mr. Al-Baker.