American Airlines joined Delta and United in a 5 year xenophobic effort to bash three big Middle Eastern airlines. They argued that Emirates, Etihad, and Qatar were subsidized by their governments and – despite treaty obligations – the U.S. should crack down on their ability to fly here. They wanted higher prices and fewer choices for consumers.
They were willing to say anything to make their case against government airline subsidies, even though U.S. airlines themselves were born in subsidy and remained subsidized even before the pandemic. Yet they got nowhere with the Obama administration, a fig leaf early in the Trump administration and then finally shut down.
American was losing money on its flying even before the pandemic while Emirates was actually profitable. And when American realized they’d finally lost their government effort to shut down flights by Qatar they actually agreed to codeshares.
Now that U.S. airlines have taken over $79 billion in subsidies themselves just in the past year, American’s Vice President and Head of Regulatory and International Government Affairs Molly Wilkinson is a bit on the defensive, trying to explain why these subsidies are different than the subsidies they’ve been lobbying against for so long.
You can’t even compare the two… it is an apples and oranges comparison…First of all, this a black swan event, once in 100 years and it affected the entire industry…In the US… well over 100 airlines applied to receive the aid… [and] there are strings attached to it, you have to provide essential air services, you have to meet other criteria, you have to give transparency to the US government and under certain circumstances you have to pay back that grant that you got..In addition, it was a straight out pass through, this was money that was to go to pay for salaries for your frontline employees… This was literally to keep your frontline employees there and to continue to have healthcare benefits.
Let’s take these arguments one-by-one.
- “First of all, this a black swan event, once in 100 years and it affected the entire industry.”
Airlines said this arguing for their first bailout as part of the CARES Act, and their second bailout in December, and argued that it’s a one time event arguing for their third bailout in a year.
But U.S. airlines never swore off future bailouts each time they asked for one, and still haven’t done so. In fact U.S. airlines have been subsidized from the beginning (similar stage to Gulf carriers today) when the Postal Service became their biggest customer and outlined which routes they’d fly. The U.S. is an anomaly in the world owning most airports, where airlines establish their dominant positions with governments, and in directly providing both security and air traffic management. Up through 1998 U.S. airlines received $150 billion in subsidies according to the Congressional Budget Office.
Today’s subsidies are larger because airline losses were larger, but they’re hardly unique. And of course Gulf carrier subsidies tracked their own losses throughout as well.
What American’s argument amounts to is ‘we have a good reason for subsidies and they don’t’ so it comes down to evaluating whether a government has a compelling interest or not.
Establishing a place in world commerce and tourism and projecting outsized infleunce is a compelling interest from the perspective of the governments of the U.A.E. and Qatar – and consistent with U.S. Open Skies Treaties.
- “In the US… well over 100 airlines applied to receive the aid… [and] there are strings attached to it, you have to provide essential air services, you have to meet other criteria, you have to give transparency to the US government and under certain circumstances you have to pay back that grant that you got.”
Money was offered by the federal government, and everyone who qualified wanted some. How does this distinguish subsidies in the U.S. from those of other countries exactly? She does not say, but apparently as long as every U.S. airline takes the money it’s o.k.
There are strings attached to funds for Gulf carriers as well. The U.S. required airlines to operate unprofitable flights to maintain what it considered vital connectivity for the country, which is exactly the reason other governments subsidize their own carriers.
- “In addition, it was a straight out pass through, this was money that was to go to pay for salaries for your frontline employees”
This is extremely deceptive. Let’s take the second bailout, ‘PSP2’ where American Airlines took $3 billion and says they’ve had to spend $100 million a month for four months paying workers they had furloughed and even figured out how to keep many workers they’d let go from collecting the money.
In other words the net to them was over $2.5 billion. It is true they ‘had to spend the money on payroll’ but the money simply covered payroll expenses they were incurring anyway, so went straight to creditors and shareholders.
Doug Parker Testifying Before Congress In Favor Of Airline Subsidies In 2001
By the way before the pandemic American agreed to Israel’s biggest-ever subsidy for their planned Dallas – Tel Aviv flight.
American Airlines CEO catapulted from securing Air Transportation Stabilization Board subsidies for America West, to taking over government-subsidized US Airways, to getting the federal Pension Benefit Guaranty Corporation on the side of acquiring American Airlines from within bankruptcy. Then he spent all his time in D.C. realizing there’s more revenue in taking money away from taxpayers than selling to customers.
As I put it about anti-Gulf carrier coalition member Delta, the U.S. airlines have always believed in subsidies for me, but not for thee.
In fairness, American Airlines wasn’t nearly as hypocritical in the campaign to limit flights by Emirates, Etihad and Qatar (but not other subsidized airlines they partnered with) than United Airlines which literally lost a CEO in a government influence peddling scandal during the campaign.