Why America’s Big Airlines—and MN’s Representatives in Congress—Are Crying Foul at their Gulf-based
Politics + Public Policy
Transportation + Logistics
Why America’s Big Airlines—and MN’s Representatives in Congress—Are Crying Foul at their Gulf-based Competitors
Qatar and United Arab Emirates based carriers are playing a growing role in the U.S. market. But are they playing fair?
Photo by calflier001 (CC)
September 08, 2017
The big U.S. airlines don’t get a lot of sympathy these days. Years of mega-mergers and corporate consolidation have led to fewer options and higher fares — the opposite of what the industry said would happen — while the actual experience of flying has, to put it generously,
But for the remaining “Big Three” U.S. carriers — Delta, United and American — things are good, and they have returned to big-time profits after a period marred with bankruptcies and recession.
To hear the airlines tell it, however, they are on the brink of a new disaster, at risk of being run out of business by emboldened foreign competitors. Keeping the Big Three up at night are three airlines from the other side of the world: Qatar Airways, and the United Arab Emirates’ Etihad and Emirates Airlines.
This trio has exploded on the global market in recent years, running increasingly more flights from their Persian Gulf hubs to Europe, Asia, Australia, and beyond. Now, they are flying from Europe to the United States — a development that deeply frightens America’s Big Three airlines.
Most people might say that some competition in the airline business is a good thing. But Delta, United and American argue that this competition from the Gulf carriers is unfair, and they’ve launched a years-long, multi-million dollar lobbying and publicity campaign to convince the public, and D.C. policymakers, of their point of view.
Minnesota lawmakers, rallying behind Delta Airlines, which has its second-largest operation at Minneapolis-St. Paul International Airport, are making the case that the administration of Donald Trump should take forceful action against the Gulf carriers, for the good of the country, and your pocketbook.
Competition in the open skies
The global air travel system has changed significantly in the last two decades, and a key development has been the rapid proliferation of Open Skies agreements. Under these compacts, two countries agree to not interfere in how airlines based in their countries operate, and give up influencing everything from an airline’s route network to its ticket pricing and capacity rules.
Before Open Skies, many governments tightly controlled international air travel, limiting destinations and frequency to give their own carriers an advantage. Now, if there’s demand for flights between international destinations, airlines are free to meet it if the countries involved have signed Open Skies agreements.
The U.S. currently has Open Skies agreements with 119 countries, including the U.A.E. and Qatar. Proponents of the system argue that it gives fliers more and cheaper options for air travel. “Open Skies agreements have vastly expanded international passenger and cargo flights to and from the United States, promoting increased travel and trade, enhancing productivity, and spurring high-quality job opportunities and economic growth,”
reads a fact sheet
from the U.S. State Department.
Recently, the three Gulf airlines have worked hard to make their own skies as open as possible. Thanks to strong support from their oil-rich governments, a willingness to invest in slick marketing and a highly-rated in-flight experience, and a favorable location for connections between Europe and Asia, the three Gulf carriers have developed into worldwide players in air travel.
In 1998, Emirates, the most successful of the three, carried 3.6 million passengers a year. In 2017, it carried 56 million people — 15 times more. Emirates now flies to 140 far-flung destinations around the world, from Sydney to Tokyo to Lagos, Nigeria. In a short amount of time, Emirates and its peers have eaten into the market share of carriers like Air France and Australia’s Qantas by competing with them on their routes with competitve fares, newer planes, and more amenities.
America’s Big Three are wary that their Gulf rivals now want to poach their routes, and they claim they are not playing fair. They accuse the governments of the U.A.E. and Qatar of propping up their airlines with cash, to the tune of $50 billion, in order to stanch the flow of red ink as they fly unprofitable routes in order to get a foothold in new markets.
The Big Three’s D.C. lobbying coalition, the Partnership for Open and Fair Skies, estimates a number of advantages the Gulf carriers receive, which they broadly classify as subsidies. These “subsidies” range from things like the U.A.E. and Qatar governments assuming losses on fuel costs and lowering airport use charges, to less quantifiable things, like the benefits the airlines get from operating in countries without unions and strong labor regulations.
Effectively subsidizing airlines like this, they argue, is a violation of Open Skies’ non-interference principles, and warrants retaliation from the U.S. government.
A ‘weed’ growing in the U.S.?
The big U.S. airlines had regarded the Gulf airlines as a potential threat for years, says Seth Kaplan, an airline industry expert who runs Airline Weekly, an industry publication. But they didn’t sound the alarm bells, even as U.S. service to destinations in places like India were cancelled after stiff competition from the likes of Emirates.
“If all they had to worry about was traffic to India, they wouldn’t say it quite like this, but they might be willing to concede that,” Kaplan says. “It’s a market they’d like to have, but it’s not a huge market.”
The first real shot across the bow, Kaplan explains, came when Emirates began operating a direct flight from Milan, Italy, to New York City in 2013. “I think that’s when the U.S. airlines kind of woke up and said, whoa, this is maybe more of a threat than we ever imagined.”
Trans-Atlantic flights are huge money-makers for the U.S. Big Three, and to see competition from the Gulf carriers on these routes is a scary sight. Since 2015, the Gulf carriers have increased flights to the U.S. by 50 percent.
This year, Emirates added a direct flight from Athens, Greece, to Newark, New Jersey — a move so inflammatory that two dozen U.S. House members from New York and New Jersey
signed a letter to Trump asking him to shut down the route.
(The Big Three
cite a report
that finds the Gulf carriers losing money on all but four of the 23 routes they operate to the U.S.)
“If these airlines run out of opportunities to fly from their hubs, and they fly from Europe to the U.S., that’s not a market [they] can do without,” Kaplan adds. “There’s no way that Emirates is making money flying between Milan and JFK. The point of argument that the Big Three are making is, they don’t have to make money, and we do.”
To push the U.S. government to take action against the Gulf carriers, the Partnership for Open and Fair Skies, which also includes several major aviation labor unions, has furiously lobbied in D.C., spending $6.1 million in 2015.
But the Barack Obama administration did not take the action the Big Three were hoping for. (In another case,
Obama’s Department of Transportation ruled in favor of a European rival
, Norwegian Air, who U.S. airlines believed was violating Open Skies with its bargain fares.)
The Big Three see a fresh opportunity with the presidency of Donald Trump, whose protectionist, America First-outlook on international economic issues gives them some hope that he might push back against unfair competition.
In a slick, 15-minute-long documentary — featuring B-roll of Emirates planes landing and an ominous-sounding narrator — Delta outlined the essence of the U.S. airlines’ case, aiming to educate their employees on the issue and encourage them to contact their elected officials.
Delta’s video says three countries “the size of South Carolina are trying to take over international commercial aviation,” by illegally pouring billions of government dollars into their airlines, taking over routes once held by other countries’ airlines.
If unchecked, concerned Delta brass and former U.S. government officials explain, the Gulf carriers will spread like a “weed.” Delta CEO Ed Bastian warns that if U.S. airlines “don’t wake up, we’ll be overrun by them… One of the Big Three U.S. airlines will be in jeopardy.”
The competition from the Gulf airlines, they explain, has serious, concrete effects: Delta estimates that each long-haul flight out of the U.S. that is cancelled leads to a loss of 1,500 jobs in the airline industry.
Advocacy in Washington
“Jobs” is the first word off Rep. Tom Emmer’s tongue when asked about the Open Skies issue. Emmer, the GOP representative from the 6th District, has been vocal in criticizing the Gulf carriers’ business practices, and he appeared alongside Sen. Amy Klobuchar and Delta employees at a rally last month at MSP Airport.
“It’s all about jobs, right?” Emmer said. “Especially when you’re talking about an international hub. It’s huge what it does to our state.”
Delta employs 8,000 people in Minnesota — roughly on par with Best Buy and Medtronic — and it flies to over 120 destinations from MSP, including Amsterdam, London, and Paris. MSP is one of the few major U.S. airports that is not serviced by one of the Gulf carriers.
At the MSP rally, Delta urged its employees to call their elected officials and ask them to put pressure on the administration to act. The airline says more than 25,000 employees have contacted federal lawmakers about the issue.
Minnesotans will find receptive ears in the state’s congressional delegation: in May,
all eight of Minnesota’s U.S. House members
signed on to a letter to Secretary of State Rex Tillerson and Secretary of Transportation Elaine Chao asking them to take action.
The Big Three and their D.C. allies are hoping to put pressure on the Trump administration to initiate a sit-down with the U.A.E. and Qatar. Under Open Skies agreements, a party can request a consultation to examine any alleged violations of the agreement.
“If additional subsidized routes continue to be added it will negatively impact air service and employment in Minnesota,” the lawmakers wrote. “Subsidized flights into hubs like Minneapolis/St. Paul International Airport and other regional domestic hubs will shift passengers away from U.S. carriers and hurt service to U.S. hubs as well as the small and medium-sized communities they serve.”
Open skies is effectively a trade agreement, Emmer says. “We’re giving them access in return for them giving us access. It’s supposed to be fair competition,” he says. “This is unfair competition at its finest.”
Gulf carriers: good for the U.S.?
The Gulf carriers, and some sympathizers in D.C., disagree. Executives from the airlines have denied that they receive any subsidies, and claim that the Big Three’s $50 billion number is based on faulty accounting. Travel blogger Gary Leff, in a
comprehensive rebuttal to Delta's documentary video
, makes the point that the Big Three have benefitted enormously over the years from U.S. government policies designed to protect them.
The Gulf trio of airlines is also
experiencing a slow-down in growth
: Emirates reported a 75 percent decline in profitability last year, and Qatar gave up plans to launch a regional subsidiary in Saudi Arabia. (Bloomberg Businessweek
asked in a recent cover story
if Emirates is “running out of sky.”)
They also make the case that their expansion has been a good thing for the U.S. economy: Emirates
CEO Sir Timothy Clark argues
the airlines have increased tourism to the U.S. and given U.S. travelers more, and more affordable, international travel options.
Allies of the Gulf carriers have
watched with barely-contained glee
as Congress raked United Airlines for when it forcibly removed a passenger from a plane in April. It was one more data point in their argument that Gulf competition is healthy, even necessary, to shake up the U.S. legacy carriers’ service and business practices.
Jennifer Aniston has appeared in Emirates advertising campaigns touting their superior amenities and service; a
, in which Aniston is mocked by flight attendants for looking for the on-board shower on an unspecified big U.S. airline, was slammed by Delta in its newly-released documentary video. (Emirates has planes with
and private apartments — in first class.)
Moreover, the Gulf carriers argue that their expansion has been a net benefit for U.S. aviation interests on the whole. Emirates is the world’s top purchaser of U.S.-made Boeing aircraft; it’s reportedly close to a deal to
acquire up to 100 brand-new Boeing wide-body aircraft
. Many new Boeings run on engines made in the U.S. by General Electric.
Smaller U.S. airlines, such as JetBlue and Hawaiian, have benefited from code-share agreements with the Gulf carriers, which allow customers to fly with them domestically and connect to an international flight with only one booking. (Eagan-based Sun Country Airlines is a codeshare partner with Emirates and Etihad Airlines.)
A group of U.S. carriers have formed a lobbying coalition, U.S. Airlines for Open Skies, to counter the Big Three. They
argue that Open Skies agreements are fine the way that they are
, and that opening up negotiation with the U.A.E. and Qatar over theirs might prompt other countries to challenge alleged violations on behalf of U.S. airlines. Instead, they argue that the U.S. Department of Transportation should investigate any unfair competitive practices in the airline industry.
The public opinion and lobbying battle will continue to play out as each side tries to influence the administration. Kaplan, the aviation expert, says the Big Three’s case boils down to two things: that the Gulf carriers are being unfair, and that they’re hurting America.
He says the airlines could make a good case on that first part. “You can make an argument that basically, this is unfair trade,” he says. But he admits the national interest argument is perhaps a bit overblown.
“These airlines buy billions and billions of dollars worth of Boeings and G.E. engines, which employs countless people,” he said. “They do provide low-cost, high-quality air travel to American consumers and businesses.”
“Maybe in the long term, if that destabilized the U.S. airline industry, maybe the argument would be true that the short-term gain wasn’t worth the long-term pain,” Kaplan explains. Even then, he has a hard time foreseeing a day when the red and blue tails of Delta planes at MSP are replaced replaced with the purple and white tails of Qatar.
“It’s difficult to imagine Qatar being the dominant airline between London and Minneapolis.”
Why the Riverview Corridor Streetcar is Still a Ways Away from Being Built
October 13, 2017
How the Met Council Managed to Make Southwest LRT's Wall a Big Deal
October 05, 2017
Twin Cities Transit Funding Board to Attempt a Break-Up...Again
June 01, 2017
Newsletter Sign Up