The U.S. airline industry was born in subsidy from the post office and American Airlines received a federal loan to pay for its first big aircraft order. The U.S. airline industry has more government involvement than most countries — the U.S. model where airports are owned and run by government agencies, and air traffic control is managed by the government is unusual.
Big U.S. airlines like Delta, American, and United have all benefited from major government subsidies, like moving pension obligations off their books and onto the federal Pension Benefit Guaranty Corporation in bankruptcy while retaining tax loss carry forwards so that they wouldn’t have to pay taxes once they started earning profits.
United Airlines even lost their last CEO to a federal investigation over bribing a government official for favorable action at their Newark hub.
And yet the CEOs of American, Delta, and United — ostensibly competitors — came together to publish a USA Today op-ed arguing that the Trump administration should take steps to keep Air Italy from flying to the U.S. because of subsidies from Qatar.
- This is an airline with 15 planes and only 4 routes to the U.S.
- No U.S. airline even serves two of those routes, Los Angeles – Milan and San Francisco – Milan
The U.S. carriers believe passenger business belongs to them by right. They want higher fares and fewer choices for customers.
Delta of course partners with — and even shares revenue with — Air Italy’s major competitor, Alitalia, so naturally they want the government to shut down their biggest competition. United and American do fly to Milan, but mostly seem to be playing Delta’s greater fool in this chase.
What’s so remarkable about the joint op-ed though is that every single paragraph is misleading. Here are the heads of the big 3 U.S. airlines:
For decades, the U.S. aviation industry has served as an economic engine in every state, creating jobs for millions of Americans and building business opportunities across a wide range of industries. We’re proud that the three airlines we lead are an integral part of this story.But in recent years, two foreign countries have thrown a wrench into this engine.
US airline employment is at a peak, and the country has reached the longest period of uninterrupted economic expansion in its history, so suggesting that Emirates, Etihad, and Qatar Airways have ‘thrown a monkey wrench’ in the economic engine of every state is on its face absurd — leaving aside that all three airlines have more Boeing aircraft on order than Delta (which prefers Europe’s Airbus and has zero).
Meanwhile Delta, United, and American (US Airways) have all shed pension obligations to their workers in bankruptcy.
For over a decade, the United Arab Emirates and Qatar have violated trade agreements with the United States by funneling over $50 billion in subsidies into their government-owned airlines — Emirates, Etihad Airways and Qatar Airways.
The $50 billion claim comes from a white paper funded by United, Delta, and American that played fast and loose, fabricating quotes to mean the opposite of what was claimed.
Meanwhile U.S. airlines have received more subsidies than Gulf carriers. It’s not apples-to-apples but the idea that one side is subsidized and the other isn’t is just absurd.
Delta, for instance, owns a stake in China Eastern which is the most subsidized Chinese airline. They have a lock on using government-owned slots and gates at New York LaGuardia and JFK as well as other airports and protection from foreign competition on U.S. domestic routes. Delta’s oil refinery in Pennsylvania is subsidized.
It takes a special kind of chutzpah for American Airlines CEO Doug Parker — who cites securing government subsidies for America West as a turning point in his career and linchpin of his legacy to make these claims.
Doug Parker testifying on the need for subsidies to the US airline industry in 2001
These state subsidies are destabilizing the global airline industry and threatening to undermine our nation’s entire system of trade enforcement. Left unchecked, they send a signal that other countries can ignore our trade deals and trample upon our workers without consequences.
This is a claim without a warrant, and indeed airline subsidies date back over 90 years, how can it be just now that subsidies create these issues?
In the early days of US civil aviation the largest airline customer was the federal government in the form of the US Postal Service.
The 1925 Kelly Act authorized the Postal Service to contract with private airlines to carry the mail. That led to airlines receiving most of their revenue carrying mail. Often priced to the customer by the piece regardless of weight, with the government charged for weight, airlines were known to mail bricks and other large objects to themselves in other cities to pump up their revenue.
The 1930 Air Mail Act changed how mail was priced and gave broad contracting powers to the Postmaster General. The Postmaster used this power to consolidate contracts under three major airlines, forcing many airlines out of business. This came to fruition out of a 1930 meeting that became known as the ‘Spoils Conference’.
The government had dictated which airlines would survive and prosper, and awarded contracts to airlines that hadn’t been the lowest bidder.
Thankfully, last year President Donald Trump negotiated new agreements designed to end these trade violations, mandate financial transparency and restore fair competition. But before the ink was even dry, these countries that are meant to be our partners were looking for loopholes.
Qatar, Emirates, and Etihad had every legal right to fly between Europe and the U.S. under treaties between the US and UAE and US and Qatar. Indeed, there’s nothing in those Open Skies agreements that prohibit subsidies and it’s a deliberate obfuscation to suggest otherwise.
However to put the issue that US airlines were complaining about to bed they committed,
- To publish transparent financial statements (Emirates already did this)
- That they didn’t currently have plans to add new routes between the US and Europe
At the time I wrote that this was silly. Published financials? That was a way for US airlines to declare victory without costing the Gulf carriers anything. The Obama administration refused to act on the US carriers’ complaints, and this was all they could get.
There wasn’t even a promise not to add new transatlantic routes, just a claim that there weren’t plans at that moment in time to do so — despite their legal right to do so under treaty.
At the time of the agreement I pointed out that Etihad was retrenching its route network and Qatar Airways had no need to fly ‘fifth freedom’ routes between Europe and the U.S. They stopped doing so a decade ago once they obtained aircraft capable of flying non-stop between the U.S. and Doha. Plus,
- They’re the largest owner of IAG, parent company of British Airways, Iberia, and Aer Lingus. Indeed their roughly 20% stake pockets profits from the joint venture BA and Iberia have sharing money with American on transatlantic routes.
- They already were taking a 49% stake in Air Italy and plans for Air Italy were well known.
Qatar is perhaps most blatantly disrespecting its January 2018 agreement. The country pledged that its airline would not launch any flights directly between the United States and Europe. It quickly shrugged off the commitment by investing in a failing regional Italian airline and rebranding it as Air Italy, which is now being used as a proxy for new subsidy-backed routes between the U.S. and Italy.
Qatar pledged they had no plans to fly fifth freedom routes at the time of the agreement even though the US-Qatar Open Skies treaty allowed them to do so. Their plans, however, for investing in Air Italy were well enough known that I covered them here on this blog and pointed it out when the agreement was made. It was no secret and part of the public dialogue. It’s utterly disingenuous to claim to be ‘shocked’ now.
To be clear, U.S. airlines are not opposed to competition. We compete each day for the business of millions of travelers, whether our rivals are large, small, private or government-owned. But what’s happening with the Qatar and UAE airlines is not fair competition.
Here they admit that they compete with (and indeed partner with and codeshare with) government-owned and subsidized airlines all over the world — whether it’s Saudia, Air India, or China Eastern.
But wait — why are we talking about the “UAE airlines” again? Etihad has reduced its US flying and operates no routes between the US and Europe. Emirates is consistently profitable on its own merits and hasn’t added fifth freedom routes.
Parker, Bastian and Munoz are conflating their argument here, which was just that Qatar:
- Has the right to fly between the US and Europe
- But agreed not to (really, they just said they had no current plans to) because Parker, Bastian, and Munoz wouldn’t stop complaining
- Is breaking its agreement because they own 49% of a European airline that flies between the U.S. and Europe
That has nothing at all to do with “UAE Airlines.” Nor does it have anything to do with the reality of the airline industry. Delta owns 49% of Virgin Atlantic, and together with stakes from Air France KLM and China Eastern (which Delta owns a piece of) it has supermajority control. It owns large stakes in Aeromexico, Gol, and others.
Subsidies allow these carriers to fly money-losing flights in a way no rational commercial airline could afford. It is an advantage that no airline — no matter how big — can reasonably overcome. Ultimately, it’s U.S. airline workers who pay the price.
If nothing else, American, Delta, and United are experts on money losing flights. That’s why Warren Buffet famously said “if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”
According to American Airlines executives they may have lost $100 million just flying between Chicago and China and their financials show that even today they lose money flying and all of their profit comes from selling frequent flyer miles to banks.
The money losing flights by Gulf carriers bring travelers to the U.S. who spend money. The Gulf carriers buy Boeing planes. And free and open skies allows Fedex to operate a hub in Dubai.
Meanwhile the European Union has warned of a trade war if the U.S. acts against its treaty commitments by limiting the ability of Air Italy to fly between Italy and America.
President Trump campaigned on a platform of defending American workers from bad deals and unfair trade practices. By violating their Open Skies agreements, Qatar and the UAE are putting over 1.2 million American jobs in jeopardy. It isn’t just the hard-working pilots, flight attendants and ground crews whose livelihoods are at risk; it is everyone who depends on the economic engine that the aviation industry creates for our country.
Now we’re once again conflating. There’s no violation of Open Skies agreements. That much has been shown. The current claim is that Qatar violates its agreement not to exercise its rights under the Open Skies treaty the U.S. signed with its country.
And it’s limiting flights that hurts the economy and jobs. It’s trade wars — with Europe over Air Italy, with the UAE potentially retaliating against Feedex — that hurts jobs. It’s driving up the cost of flights for U.S. consumers, transferring wealth from U.S. passengers to big airline shareholders that’s bad for the economy.
If the U.S. airlines are concerned for U.S. workers why not cover the pensions they walked away from instead of buying back shares?
An economic analysis we submitted to the government shows that for every long-haul international route a U.S. carrier loses or forgoes due to subsidized Gulf carrier expansion,1,500 American jobs are lost.
The math in this self-serving analysis doesn’t add up. Delta has fewer than 90,000 employees yet flies to 60 countries and has more than 60 international destinations. If Delta dropped all of its international routes, would they really have negative employees while still operating their full domestic route network?
Obviously each international route then, if the analysis has any meaning, includes jobs from tourism and at airports — which are equally supported by Air Italy’s flying. And maybe even better supported by an Emirates Boeing 777 than a Delta Airbus A330?
Meanwhile American Airlines is in a vicious contract dispute with its mechanics precisely because it proposes to offshore maintenance work.
It also raises questions about how the United States should deal with partners that openly undermine trade agreements. In any business, you wouldn’t stand by and do nothing while the other side refuses to comply.
It’s Delta, American and United that are asking the U.S. government to renege on its Open Skies treaties — with the UAE, Qatar, and the EU.
In light of actions by Qatar and the UAE over the past year, the Trump administration likely now sees that they have no intention of complying with their longstanding Open Skies agreements or last year’s deals.
Wait a minute, we know that the claim against Qatar that Air Italy is doing something untoward is bogus, but we’re reaching the end of the op-ed and they still haven’t even told us what the United Arab Emirates has supposedly done over the past year. I’ve quoted every word in the piece, and nothing.
Aside from Qatar’s blatant actions regarding Air Italy, we’re also seeing obvious inaction on the part of both countries when it comes to financial transparency. In fact, the Gulf carriers are less transparent today than before the UAE and Qatar signed their respective agreements.
Ok, finally an argument of substance. Except their support for the indirect suggestion that Emirates, Etihad, and Qatar aren’t holding up their end of the bargain in terms of financial transparency is a 2015 Wall Street Journal article which talks about the same debunked white paper the airlines commissioned themselves and offers nothing at all about activities over the past year.
Failure to enforce these agreements sends a message to other countries that they can take advantage of the United States without consequences. That can’t be our position. If Qatar and the UAE aren’t willing to uphold their side of the deals, the United States should consider removing itself from these two Open Skies treaties altogether.
Now they’re begging the question. They haven’t shown any violation of a trade agreement, and repeating it lots of times isn’t an argument.
- They still haven’t even told us why they think the UAE hasn’t lived up to its ‘side of the deal’
- There wasn’t even two sides here, the UAE agreed that it had no current intention to add flights that it had every right under the U.S. agreement to add.
- And neither Emirates nor Etihad have done so, indeed UAE airlines fly fewer flights to the U.S. than before this brouhaha started.
This administration knows a trade violation when it sees one. The United States must act decisively to hold Qatar and the UAE accountable. Failure to do so would reward bad behavior and signal to other countries that they too are free to exploit American workers. That is a dangerous precedent that our airline workers and our country cannot afford.
Hold them accountable how and for what, exactly? If Parker, Bastiat and Munoz are going to go through the trouble of spending millions on this campaign and coordinating an op-ed I’d at least expect something less mealy mouthed. The concluding paragraph doesn’t even say what their ask is here, they’d rather do that in smoked-filled back rooms with their lobbyists, where U.S. consumers won’t see their pockets getting picked.
There is one thing in the op-ed that’s true at least: the byline, “Doug Parker is the CEO of American Airlines. Ed Bastian is the CEO of Delta Air Lines. Oscar Munoz is the CEO of United Airlines.”
Well done Gary! Great piece.
Wow, well written and researched article.
Feed it to 60 minutes and we’ll see which of the politicians resign next week.
Time to see who is receiving campaign donations from the airlines.
THIS! “..If the U.S. airlines are concerned for U.S. workers why not cover the pensions they walked away from instead of buying back shares?..”
Great piece. Thank you, Mr. Gary!
Thanks for this informative and thorough debunking of the arguments by the US airlines. I agree with the suggestion that this be shown to 60 Minutes, or also The NY Times, etc., as I’m not seeing this story covered by big media.
Great piece Gary! Your analysis is spot on. Just three US airlines looking to put their hands deeper into their customers’ pockets to grab even more money while providing an inferior product. Heck, as some of your other pieces recently have shown, American can’t even operate 70% of their flights on time and has approximately 60 aircraft out of operation so perhaps American should get their house in order before asking to tear up an open skies agreement that provides benefits to all consumers.
Agree with others that you should try to have this picked up by the mainstream media.
Well done. Told it as it is.
I find it laughable that the catalyst for the op-ed piece is Qatar Airlines’s 49% investment in tiny Air Italy. Somebody needs to be reminded how disastrous Etihad’s investment in Alitalia was and, before that, the one by Air France in 2009 (Eur 300 million investment written off four years later).
The amount of hypocrisy of the op-ed piece is mind boggling.
Gary, you should submit this the the USA Today editorial page.
Great peice. Consider the reality that since none of the US airlines fly to DOH/DXB/AUH now, they would lose nothing from the destruction of the Open Skies agreement, while it would be devastating to EK/QR/EY. This is a low-risk potentially huge reward fight for them. They probably won’t win, but they can’t really lose. The only ones potentially losing are customers who will pay higher fares for fewer options.
The gulf carriers are a major problem. There is a difference between receiving subsidies in Bankruptcy and receiving subsidies all the time. The writers of these blogs know absolutely nothing about what they are writing about other than where to book miles tickets and who serves caviar in first class. The ME3 could seriously damage the US aviation industry in the long run. They are taking advantage of the Open Skies act. I’m not saying that CEOs of the US3 are decent people by any means but I do believe the ME3 should be limited to their US routes. And yes they are fully susidized and NO, US airlines have not received more subsidies than the ME3. This ain’t about your caviar and champagne.
@Ryan “There is a difference between receiving subsidies in Bankruptcy and receiving subsidies all the time” you don’t say what that difference is, but US airlines receive subsidies all the time, you ignore that they were born in subsidy as I discuss in this piece and continue to receive subsidies every day.
“The writers of these blogs know absolutely nothing about what they are writing about other than where to book miles tickets and who serves caviar in first class.” Due respect but I think the substance of this piece demonstrates otherwise.
“The ME3 could seriously damage the US aviation industry in the long run.” Competition’s a bitch although the size and scale of that competition suggests otherwise.
“They are taking advantage of the Open Skies act.” It’s a treaty not an act (and indeed, two separate treaties one with the UAE and the other with Qatar – and now complaints about Air Italy implicate the treaty with the EU) but in what way are they ‘taking advantage’? The way that Chinese subsidized United partner Air China flies Houston – Panama City?
Well written, Gary. The “Big 3” have no problem with shafting the American public, and scream bloody murder should anyone try to offer alternatives. They were are all bailed out by the Feds post-9/11 (especially AA, once again!). Their corporate greed has no limits.
Should there be any doubt, I’d recommend reading “The Skies Belong to Us” by Brendan Koerner, about the airline highjackings of the ’60’s and ’70’s. The US airlines made a corporate decision then to pay off highjackers rather than pay for more expensive airline security measures. We know how that turned out. Not much has changed in the US airline industry in the ensuing 50 years.
Great piece!
If you wanted to pull this dumb argument to question open skies through all the way, would it not also mean that British Airways, Iberia, Lufthansa, Air France, Finnair, Alitalia (talk about subsidized, BTW), KLM, etc, i.e. all European partners in Sky Team, One World and Star Alliance would have to forfeit their open skies access to the US? Meaning UA, AA and DL would should themselves mightily in the foot?
I guess JetBlue, Spirit, Alaska and Frontier can look forward to a lot more interline and code-share agreements with the European carriers!
Great article Gary and pretty much on point. As with others we know that nothing is going to change until there is a sea change in how the US3 do business.
They can only reduce the size of the seats, leg room, service and size of bathrooms so much until people say the hell with it. I am almost there now. No longer look forward to getting on almost any airline now. Even though I fly alot of AA, their service leaves a lot to be desired.
As long as the majors keep tweaking the benefits, service and fly under the radar (hence the lobbyists in DC) money will keep rolling in and service all all levels will decline.
Do submit your piece to papers and media, will see if any of them have enough backbone to do a even larger story. I would like to think they would be interested, but most media lost their journalism credentials a long, long time ago.
Thanks again keep up the good work and great blog.
Exceptionally done, Gary. Though there are those who complain about the knowledge level and value of “the bloggers” (including a commenter here), this piece offers a crucial perspective that traditional media isn’t offering. Thank you.
Kudos Gary, well put.
@Ryan must work for management at one of the 3 majors, a poor corporate shill sort of response if there ever was. Great rebuttal to his/her arguments.
One government subsidy that has not really been given a lot of attention is all the recent share buybacks due to the Trump tax cut. Those tax savings aren’t exactly buying new planes or creating new jobs at UA/AA/DL. That has to be considered as a direct government subsidy.
The sad thing is that in the current political environment in DC, it is perfectly acceptable to lie, whine, and bully your big corporate way into getting what you want.
Incredibly well written. Every false argument de-bunked and all political agendas exposed.
I would love to see this picked up for the larger population to see how truly backwards our US airline leaders really are.
But wait! I thought Gary WAS the mainstream media.
Great piece, quite informative.
I’d like to find one person who actually KNOWS the situation say great article Gary. I’m a pilot for one of the US3 and I can promise you what they are doing is bad for our industry. I’m not defending the awful decisions our airlines make or the crap product you all complain about but I do know what the future brings if Open skies gets taken advantage of. The US3 provide a mediocre product that gets you SAFELY all over the country. I do wish there was more completion but not in the form of airlines like Qatar taking advantage of a program that was suppose to provide fair competition. If any of you understood the politics of the UAE or Qatar even remotely you wouldn’t defend these airlines. You have no clue what you support when you fly them whether it’s with miles or money. That’s your choice though and you are free to do so but please so not go out there saying they deserve to fly their 100% subsidized product into the US at free will without any restrictions
Excellent analysis, Gary. You could even take it a step further in at least two respects:
1. Unless I missed it, you didn’t mention the fact that anyone flying internationally on U.S. government business or U.S. government-funded travel must fly a U.S. carrier, even if the price is higher or the service worse. That’s a big subsidy in and of itself.
2. I realize this is not the point of your piece, but there’s a great case to be made for foreign carriers being allowed to launch domestic services in the U.S. market, so as to increase competition, lower prices, improve quality, etc.
Regardless, I agree with others that what you have here is the makings of a great op-ed piece for a major outlet.
Spectacular article. I knew about it, but just couldn’t put it in words. Gary explained the facts with great clarity. I am NO fan of U.S carriers in any way. The only acceptable U.S. carriers are Southwest and Jet Blue in my opinion.
However, my family has a plan to do our part to get even. ANYTIME…we fly overseas we have this policy. And that policy is to fly on a foreign flagged carrier. Emirates, Japan Airlines, Aeroflot, Singapore Air are all golden in our book. This policy is my families way of giving our hard earned cash to airlines that show us respect, and a decent meal during the flight.
“… there’s a great case to be made for foreign carriers being allowed to launch domestic services in the U.S. market, so as to increase competition, lower prices, improve quality, etc.”
I would love for this to happen.
@Steve – I have made point #2 myself, however the way slots and gates are distributed needs to change to make this matter
https://viewfromthewing.com/2019/06/29/free-the-slots-stop-subsidizing-airlines-and-protecting-them-from-competition/
@Ryan I am no fan of either regime. However responding with crony capitalism moves us away from what the US should be. I have no beef with the safety of large US airlines, but the safety record of many of the world’s airlines including those you criticize is excellent as well so that’s a non sequitur.
Well done Gary! I am an American and the American carriers are garbage!
@Ryan all you’ve said is if we knew the facts then We’d feel differently, but have made no effort to inform us. What exactly is it that justifies reducing competition? We don’t bar Japanese cars or Chinese made iPhones? Maybe you think we ought to and maybe we should but you need to make the case for what you believe and not just say that you are informed and we’re not if you want to change anyone’s mind.
Great work by the OG! He is kind though to call the op ed misleading. The piece is full of lies. Bastian, Munoz, Parker and others in high places know that lying is easy and fact checking is hard. People are easily conned. Truth becomes fake news.
If Duggie Parker is so concerned with US worker jobs, why the fuck is he looking to outsource the mechanics outside the country causing his stalemate with his own US workforce???? Total hypocrite!
Nice analysis, Gary. While Bastian and Parker are obviously weasels, I’m a bit disappointed in Munoz. It seems like his lips only move in tandem with Scott Kirby’s hand. I’d rather hoped for better.
@Ryan,
Stick to flying planes.
PS: I hope you fly better than you do at trying to make a point.
Look, these allegedly great businesses moguls who were weaned on full subsidies–federal for Air Traffic Control and runways; states offering marketing incentives and take-off subsidies, need to understand it’s a new world. Either they learn to compete with comfort, customer experience, and on-board services, or, they can just focus on shaking down places like Youngstown to subsidize their schedules.
Although I am not a fan of the ME3, if that what it takes to goose the US3 to join the 21st century, fine. Why would anybody jump on AA or UA given the option of far better foreign carriers?
This scenario is so familiar in the U.S. with how Amtrak has created its self described protectionist monopoly to insulate itself from any possible private competitor. Interestingly, the U.S. airlines tanked our private U.S. railroads when they took away there USPO contracts for enroute and end point mail services in 1967. Now, we must rid ourselves of all these direct and indirect subsidized forms of transportation.
Great piece Gary.
As I read the op-ed and the absolute nonsense in it, one sentence jumps out: “If Qatar and the UAE aren’t willing to uphold their side of the deals, the United States should consider removing itself from these two Open Skies treaties altogether.” You rightly pick up on that one.
When the US3 started their bogus campaign in early 2015, they had one thing in mind. Take down Emirates. Back then, their “ask” was that the US government terminates the Open Skies agreements with Qatar and the UAE. 4,5 years and give-or-take USD 60 million later, they have achieved nothing but public recognition that the US government stands fully behind its +120 Open Skies agreements with third countries (including Open Skies agreements with Qatar and the UAE) and all the rights they contain (plus public recognition by the US government that Emirates is financially transparent and has been for many years).
Considering their campaign has been a miserable failure, it seems like the US3 has gone back to square one and that original 2015 ask. It’s now-or-never time. Open Skies agreement termination is the only way to take down the biggest perceived threat. Never mind that it is a tiny Italian carrier with a handful of US flights – carried out on the basis of the EU-US Open Skies agreement – which is the chosen mechanism to help achieve the US3 goal. In the eyes of Delta, it is particularly helpful if Air Italy is collateral damage, as a Delta stake in perennially-government subsidized Alitalia is about to be formalized. Win-win. That American and United go along with this is baffling. May sense and cool heads prevail here.
It’s almost as if the US3 execs were aiming the article at a certain politician who has little knowledge of facts but a visceral dislike of foreign businesses. They should have run it on Fox & Friends if they were hoping for an Executive Order banning the ME3 from US airspace on “national security” grounds.
One thing to keep in mind. Some here seem to express the opinion the ME3 are far superior to the US3. And some of the some who make that argument say this is the case due to subsidies. The “better service argument” is perhaps true when you look at their first class long haul product. With regards to business class long haul, the new UA Polaris and newest AA biz seats are very competitive. On food and service, none of the US3 can compete, but they are also not completely awful.
When it comes to long haul economy, there really isn’t much between US3 and ME3. It just depends on what you value and where you are going. The reality is that a flight on a 777 from American vs Emirates in economy for 9 hours is not going to be a life altering experience on either.
@Gary amazing piece and thank you for breaking it all down.
@Ryan I’m curious as to what you feel most of us don’t know. I’m not attacking but I’m generally curious. My main issue with the whole US3 approach is there are only a couple of routes that fly between the US and Europe anyway. Air Italy shouldn’t even be a blip on the radar. Emirate’s Fifth Freedom to JFK…that’s one to chew on. Outside of that I feel like the US3 don’t event compete with them on any routes. Add in the fact that none of these mentioned above violates the Open Skies treaties between the countries. Let us know the facts/details we are overlooking. How are they so greatly damaging the US airline business?
They account for a crap load of Boeing plans…that’s for sure! Thanks for the info in advance.
Great job Gary! This should be published in the Wall Street Journal. You did an exceptional job of pointing out the facts.
The CEO’s are unconscionable. But consistent with how they treat their customers and employees.
Lots of rah-rah cheerleaders for Gary and the ME3 carriers, but his analysis remains 100% wrong.and completely misguided. These 3 airlines operate a business model — built on multi-billion dollar annual autocratic subsidies — that exists nowhere else in the world. Which explains how they do business — flying hundreds of giant aircraft to their tiny, not-particularly-well-located cities — when NO ONE else in the world does this (the A380 is/was the poster boy for this insanity). This blatant seat-dumping increases the glory of these desert kingdoms, but costs Americans jobs and profits. It’s no different than if these countries were building cars and sending them to America with $20,000 subsidies. Air Italy is a tiny and largely inconsequential portion of the dumping, but it should still not be tolerated. The ability to fly for free to the Maldives with champagne and caviar does not justify the unfair damage being done to other Americans.
@chopsticks What did I write – specifically – that is inaccurate? Your reference to the Airbus A380 and Maldives and caviar is silly, the backbone of the Emirates fleet is the Boeing 777 and the primary business class is angled. They cram 10-abreast in economy on those planes while Delta puts just nine.
There’s nothing whatsoever in the Open Skies treaties with either country that forbids subsidies, and Emirates is profitable on its own merits while the US airlines themselves have lit billions of dollars on fire. The US airline CEOs are completely full of self-serving hot air, and their interest here is not even close to US jobs.
Ryan – So, if the U.S. airline jobs are at stake, what about the code share partners of the passenger carriers? Delta used to operate nonstop between Seattle and London-Heathrow with a Delta aircraft and crew. Then, Delta took a 49% stake in Virgin Atlantic and presto, the flight was changed to a Virgin Atlantic aircraft and crew. The Delta aircraft and crew were taken off the route. I could name many more of these examples. Funny, but we don’t hear anything about losing 1500 jobs if the foreign airline flight is operated by an alliance or code share partner.
And what about the U.S. cargo airline pilots, like FedEx, UPS and Atlas? Guess you’re not too worried about your cargo brethren so long as you can eliminate all of the passenger competition.
@ Chopsticks- I assume that when you say “These 3 airlines operate a business model — built on multi-billion dollar annual autocratic subsidies — that exists nowhere else in the world”, you are referring to AA/UA/DL? The reality is that those words pretty much sum up the US3 business model. If one adds up the amount of direct and indirect subsidies (bankruptcies, tax credits, etc.) these 3 US carriers have received at our taxpayer expense over the past 15-20 years, the dollar amount probably far overtakes the amounts the ME3 Government’s have plowed into their carriers. I would like to see those exact numbers. What were the stock/salary bonus amounts that Ed, Doug, and Oscar got last year that were directly related to share buybacks using tax cut $?
The big US3 have created an oligopoly with market dominance and lousy service. Now their execs don’t like an competition and want regulatory protection. If you don’t want free and competitive markets, move to Cuba or go work for an electric utility. @Gary seems pretty objective, @Ryan and @ Chopsticks appear to be biased employees of UA, DL or AA.
As a customer, I am all for full, free, and open competition, as it will give me the customer better service and better fares. Let the markets decide the winners in our capitalist world. I’ve flown Cubana, its pretty much the same as flying UA, DL, or AA these days.
And…..Delta Air Lines pensions for current employees is underfunded by almost $10 Billion. Next downturn they will play the same old card and shed those pension liabilities as well. Meanwhile, pay raises for management!
Great article, Gary. @Lew and @Gary, how can DL legally underfund its pension plan by $10 billion during this historical time of all time best profits? How can that be legal? I second the motion to go to 60 Minutes with your data. Finally, the anti-trust immunity the US airlines still have for price fixing with their “partners” is inexcusable now that they are all profitable. Why is this still in place? It is price fixing, no other word to describe it, and is illegal, but for the immunity from the government. Why?
The 2006 Pension Protection Act created a carveout that permitted airline underfunding and airlines have lobbied to keep it.
I contend that pensions should be given higher priority in bankruptcy, either treated as secured debt similar to recent unpaid payroll or converted to equity upon exit in some fashion.
Competition lets the cream go to the top. There is no competition in the US. The big 3 do not compete with each other, each has their protected hubs, DFW, Houston, Atlanta. Just check the fares. As a side bar, all members of any government agency including Congress should be required to fly commercial in coach. Currently they are ushered into premium classes and treated like potentates.
Doug Parker has now taken two bad airlines and merged them into one humungous pile of do-do. American unions demanded Parker be the new CEO of the combined airline or they wouldn’t approve it. Now they are engaged in a slow-down that, when combined with incompetence has made them the worst on-time airline you can find. However, we know AA has no interest in actually providing transportation only in selling potential transportation to suckers.
An excellent and well balanced article exposing the blatant silliness and anti-competitive posturing of airline executives. The real reason they are so worried about these particular airlines flying routes into the US is that they are successful in marketing and delivering a quality product to the flying public at several different price points. American carriers struggle to market a quality product, much less deliver it. A prime example is American Airlines poorly thought-out and executed China flights – AA took delivery on some of the first 787 Dreamliners, advertised widely flights to Beijing but did not equip the plane with a First Class!! There was nothing but an enormous spread of 2016/2017 Business Class and Economy to fly to China’s capital city. Foolish!! No wonder they lost millions of dollars.
Excellent article. Competition? Ha! Why not let the three US Biggie Airlines merge
and one crooked CEO run it? Parker has merged American, USAir and America West
into one airline! Over the years lobbyists and airline CEOs have drained the US Govt
(taxpayers) out of billions to cover losses, depleted pension funds and their
excessive bonuses. Abolish the lobbyists and expose their crooked politicians!
Thank you for a very informative, though ultimately depressing article. And a special thank you for being one of the few writers in general media for knowing and using “begging the question” correctly.
Sounds like a lot of the usual billionaire rhetoric in this country, “give us more money or the workers will be the ones to pay!” Makes me truly afraid for the future of many of us employed by the airlines 🙁 Thanks for the eye-opener.