After Qatar Airways placed an order for up to 100 Boeing planes on Friday, Delta CEO Ed Bastian returned to his soap box crusading against having to compete against smaller and less successful airlines that he claims are as subsidized as Delta is.
Etihad Airways and Emirates airline had received $50 billion in illegal subsidies, financing that allows the carriers to offer some 30 flights a day to the United States at fares substantially below what U.S. airlines can offer.
Copyright: idealphotographer
Of course some of those subsidies have come from the US government’s Export-Import Bank and the US-Qatar and US-UAE Open Skies agreements don’t actually have a clause in them disallowing subsidies (or else the US itself would be very much in violation). And the US airlines’ white paper asserting these subsidies fabricated quotes.
Here’s the US-UAE Open Skies Treaty (.pdf) The closest it comes is to require each government to permit ‘fair competition’ — but there’s no reference to subsidies, instead this means that a nation’s airlines are permitted to operate unencumbered.
What Delta, American, and United airlines asked for — and received — was ‘consultations’ under Article 13 of the treaty, but those consultations don’t allege violations of the treaty itself.
Indeed Delta received subsidies from Pennsylvania for its oil refinery and received fuel tax subsidies from Georgia for years. The federal government assumed billions in pension liabilities off Delta’s balance sheet. And though bankruptcy shed obligations, the airline still got to keep its net operating losses to avoid paying income tax on profits for years (in other words, the losses were wiped clean but they still got to use them for tax purposes, a la Donald Trump).
US airline employment is at an all-time high, Delta is off of its busiest summer ever, and US airline have been making greater profits than any airlines in the history of the world. Yet we’re supposed to feel sorry for them. And here’s what they’re asking for: limits of flights that US consumers can choose from, and higher airfares that US passengers have to pay.
Delta’s CEO has no problem with subsidies. They own a stake in China’s most subsidized airline, they share revenue through a transatlantic joint venture with Alitalia which is bankrolled by Etihad — one of the very airlines the US carriers complain about being subsidized. What Delta really mean is they only like subsidies that benefit them.
Though their previous CEO invoked 9/11 as a reason to go after Emirates, Etihad, and Qatar they continue to partner with government-sponsored Saudia… a government at certain levels which appears to have actually been complicit in 9/11.
They simply want to use the government towards their own ends. They see government as a competitive tool. Bastian gives away the store when he explains that the Gulf airlines are too successful:
The United Arab Emirates and Qatar together have a population the size of the U.S. state of Ohio, but “they have more widebodies on order than all the Chinese airlines and U.S. airlines combined,” Bastian said at an event in New York. “That doesn’t sound fair, that doesn’t sound free,” he said.
Bastian says these airlines are too big and too successful and he wants the US government to do something about it. He used to complain that the Gulf carriers’ product was simply too good, it had to be subsidized, but soon Delta will have the only business class suites with doors.
But is he just making up claims about his competitors here? Bastian seems to think that if he just repeats false claims enough times people will think it’s true and his side will win. Let’s look at total aircraft orders:
- Emirates has about 250 planes on firm order and about that same amount in service. Qatar has about 220 on order and a current fleet around 150 planes. The entire current fleet and order books of Emirates and Qatar total only the mainline fleet size of Delta (without any of Delta’s own aircraft orders) and without accounting for Emirates and Qatar aircraft retirements.
- Since Air China has 175 planes on order; China Eastern (which Delta partly owns) has about 230; China Southern has 80 on order; Hainan Airlines has 50 on order; and Xiamin has 65 Chinese airlines have demonstrably more aircraft on order than Emirates and Qatar and this doesn’t count any other Chinese carriers. And it doesn’t count the aircraft orders of US airlines, either.
- In fact Delta has more planes on order than either Qatar or Emirates. And Delta and American have more planes on order than Qatar and Emirates combined, without even adding in other US airlines like United.
But what are facts when you’re on a quest to use the government to rob the pocketbooks of your customers? Remember Delta has said the whole point of the exercise is to limit their customers’ flight options and raise prices.
To date Delta’s complaints have gone nowhere but their CEO is hopeful that Donald Trump’s anti-foreigner rhetoric on trade will help his cause once the election is over.
(HT: Point Me to the Plane)
The rich and well managed are doing well because they are well managed! Success breeds success, for the most part, and the savvy business owner/manager will look for any loophole it can to help the business. I’d say it’s like a homeowner not claiming the mortgage interest deduction on taxes…does it benefit every person in America that this deduction exists? I don’t know and I don’t really care, it benefits me and of course I’m going to use it! I’d fight to get rid of any CEO that didn’t scrap and fight for everything he/she could get for the company. And that fight is partly why Delta is as successful as it is right now.
While Delta does use subsidies and tax breaks to its advantage I can also understand why they feel the Gulf carriers have an unfair advantage. But that’s market politics…
The Big three have all received the best subsidy there is in the United States – Bankruptcy. Delta forgets to mention that little fact. Just ask Donald Trump how well it worked for him.
Typical management style of losers. If you cannot win by being better than others just blame the others for your failures. This mentality was embedded in Delta by their former CEO and it seems all top executives were brain washed by him and now keep telling lies.
In the gulf countries the overall tax burden is non-existent (UAE) or very very low (rest). In addition, the airlines are owned by the government stuffed with endless oil/gas money and apparent determination to have the most biggest shiniest airline on the block whatever it takes.
I avoid Delta like the plague.
The ME3 have a couple of advantages, one of which is stated above: taxes. The other big one is labor. No union negotiations, no pension issues, ability to hire/fire at will makes for much lower labor cost and labor administration.
The also have newer fleets, which should lower upkeep, though everyone and their mother is going through a buying spree at the moment.
The labor and tax advantages are huge, but that’s a state/regulation issue. That’s not the ME3’s fault, it’s the US’s choice that makes it less competitive (but might be worth it to some potentially large portion of Americans). It’s all about trade offs.
Gary, you appear to suffer from the same bending of the truths (perhaps inadvertently, /: as your article is very informative in all other respects) as the parties you accuse of doing so. Bastian’s quote is qualified to wide-bodies only but your fact checking in the article isnt.
I avoid Delta & Trump like the plague.
@Roman R – I am looking at total aircraft orders, and it might warrant greater explanation as to why.
First, Bastian is parsing a category which he likely knows his audiences won’t. The message is more plane orders for these few carriers.
Second, their business is different, flying lots of people long distances, eg from small cities in India and cities in Pakistan, having them connecting and reach destinations around the world.
But third, because total aicraft orders is precisely the point. Bastian is suggesting they’re growing more than could be supported without government help and to do that he’s offering a ‘shocking’ comparison, they’re ordering more planes than anyone else. So I take a look at that and compare plane orders.
It’s pretty meaningless in this context — just a difference in business models — that Emirates orders lots of widebodies to get low unit costs and an airline like Delta orders lots of small jets.
Your naivete on this issue still astounds me. And now you criticize Bastain for making a TRUTHFUL statement because it doesn’t help YOUR argument on behalf of these subsidized Middle East airlines? Sheesh.
If you’re a believer in free markets and free enterprise, there’s obviously something very wrong and very fishy about these tiny Middle East airlines being the epicenter of the commercial aviation world. It makes no logical or financial sense. And the now two-year collapse in oil prices and strong dollar (both of which crush the UAE economy) has no impact on Mideast Airline growth plans! They truly operate in their own fantasyland. Even Tim Clark just admitted that his “profits” (he-he) are down. When these things happen, every company in every industry slows down growth. But not Mideast airlines. They apparently have their own economic system, which only they and you understand.
Actually, the oil price makes he airline growth more urgent. They’re trying to use oil money to build industries and give themselves alternative revenue sources.
We have consistently subsidized our airlines at startup (and infrastructure beyond), and they have too. We are all even other than tax and labor. Advantage them in long haul. Advantage US in gross number of passengers.
“Delta Air Lines lost billions of dollars in the mid 2000s and filed for bankruptcy protection. It now makes billions of dollars in profit, but does not pay federal income tax because of “net operating loss carry-forwards.”
http://www.ajc.com/business/trump-taxes-delta-also-pays-federal-income-tax-due-past-losses/cT0Dd9MiI9dsRMR0wKP3rJ/
I have no sympathy for Delta or the other major U.S. carriers. They provide poor service, they mislead consumers and they refuse to compete honestly. They used to have a lot of loyal customers but they’ve lost that loyalty through all of their dishonest shenanigans and devaluations in their loyalty programs. They can keep their crappy slim line seats and lousy service.
Having not flown Delta for years, but have flown on both AA and United, as well as Emirates I can honestly say that the reason I chose Emirates is service, quality, and overall just a much better product. Where do I start? Well (1) last time I was on AA (in ECO as had to re-route because of yet more delays) the stewardess really didn’t seem interested in serving, and (2) having flown United BusinessFirst (there is a misnomer if ever there was one) a number of times recently it just seems that the cabin staff are completely disinterested in actually being nice (most of them anyway), (3) call those lounges??? The only semi-decent US lounge I frequent is the United Club at Heathrow, all the others and especially those in the US, are just awful – why do they insist on letting people pay to access? , and (4) the product is just not consistent and you have no idea whether you will end up with good seat or a really awful one – especially as so often you end up being re-routed or re-booked because of schedule failures.
So no it is not a a surprise that the ME3 are doing so well when they actually offer a good product, I just wish there were better options between the UK and Europe because BA is nearly as bad, and anything else takes you the wrong way – I just might try KLM next time because they at least offer good service.
I have no sympathy for Delta, United or American.
We all have to deal with their less than inadequate services, dirty and unsafe aircrafts, shitty, rude, overweight and abusive waiters and waitresses.
They have had enough aid from the government. The mergers should have never been approved.
Who says that there is competition? The fares are much higher than before. Let’s say before the merger I could have used the 30k on US airways to go to Europe and still use my $99 dollar companion fare on US airways. But now that is gone. Applicants had more options for jobs with more airlines to apply with, that is gone as well. You can apply to work only for 3 airlines. They do have to provide food service and they all sell horrible wilted nasty sandwiches for 10 bucks. The last time I got the United Chicken sandwich on a 6 hour flight from LGA to Denver my buddy and I got deathly ill.
United lied about their mechanical and said it was weather and they had all of us stranded at the airport with no food and no place to sleep.
Now, if there was more competition in the US, none of this would have happened.
The open skies should let Emirates, Etihad and Qatar to fly routes in the US, such as NYC-LA.
I guarantee when this happens, we will get full credit for the miles flown, we will get meals on flights and instead of the nasty rude fat waiters and waitresses on UA,DL, and AA with gravy on their uniform denying us a can of Tomato juice we would have beautiful polite fit kind Flight Attendants in designer uniform having respectful conversations with us as their guest and actually would serve us on flights instead of harassing us, getting us kicked off flights, exercising their false sense of authority!
Maybe Delta needs to take lessons from Donald Trump on how to make up stories to support their case.
@David Gonzalez: You forgot the third advantage – geography. The ME3 are optimally positioned for connecting passengers among Africa, Europe, Asia, and the South Pacific. North America is very much the opposite. No one would logically connect here even if the US allowed sterile transit. That’s what makes this feud so strange – the US carriers and ME3 actually compete very little with each other at present.
Of course, this isn’t really about the relatively unimportant US-Africa/India/Middle East traffic. The ME3 are scheming to expand their presence in the lucrative Europe-US market, either through fifth-freedom flights (like EK’s MXP-JFK) or acquisition/partnering with EU carriers (AZ+EY, BA+QR). This is all posturing by the US and EU carriers to protect their trans-Atlantic business.
@Alan: I actually don’t think allowing foreign carriers to operate domestically would solve the service problem. Asian and Middle Eastern carriers have great service because they hire from regions like Southeast Asia where service is an important part of the culture. Domestic flights would probably have to be operated by US-based crews, and the US is actually renowned for its lack of service. It’s almost as bad as France, the only difference being Americans may try harder if you tip them well. So yes, domestic flights on EK would be better than what we’re used to, but they still wouldn’t be up to international standards.