Getting in bed with and cutting deals with politicians brought down former United CEO Jeff Smisek.
It’s ironic of course that Smisek had – alongside the CEOs of Delta and American – been complaining that Emirates, Etihad, and Qatar get sweetheart deals from their own governments.
The chorus of complaints continue, and US airline CEOs continue to maintain that they aren’t subsidized even though Delta, United, and US Airways moved billions of dollars of pensions off their balance sheets and onto the government-backed Pension Benefit Guaranty Corporation and even as Delta buys a stake in the most subsidized Chinese airline.
Pay no attention to the man behind the curtain. Some subsidies are ok, others are not ok, and the airline industry will tell you which are which. (Hint: Delta’s CEO wants to make lowering airfares illegal.)
So I’m struck by the gall of United, in their news that they’ll be ending service to Dubai on January 23, they’re blaming the decision on the loss of subsidies from the US government.
The US government awarded its 2016 contract for Washington Dulles to Dubai to JetBlue, which codeshares with Emirates, rather than to United. And United complains that US government business is intended to go to a US airline under the Fly America Act.
“We believe this decision violates the intent of the Fly America Act, which expressly limits the U.S. government from procuring commercial airline services directly from a non-U.S. carrier. For the Washington to Dubai route, JetBlue merely serves as a booking agent for Emirates.”
The requirement that US government dollars go to US airlines, rather than foreign airlines, is a cronyist subsidy of the first order. United is complaining that they’ve lost their subsidy, so they’re cutting the route. That may make financial sense, but when your business relies on the government to be profitable you really ought not throw stones in the form of subsidy accusations at your competitors.
This is one where I fully agree with UA. As a private citizen booking vacation travel it’s one thing to CHOOSE an ME3 carrier, because hey, it’s my money. When it comes to public money however, there is no excuse to be handing it over to a foreign airline/government. Don’t mince words Gary, the money is not going to JetBlue, it is going to Emirates.
Not to mention the fact that the Fly America Act does in fact permit codeshares marketed by U.S. airlines but operated by foreign carriers.
There are tons of codeshares routes for US government employees who have to travel to far-flung destinations for work purposes. Usual cherry-picking attacks by US3 on ME3… But I would prefer E+ seats on United if I’m an UA elite over EK’s cramped 3-4-3 77W seats.
Of course there is no complaint when United is awarded the US Government’s business on its IAD-VIE codeshare, operated by Austrian, or any number of US-IST flights, operated by Turkish Airlines on United codeshares. Those are ok, right?
Hi Gary, this raises a good point. The comment from Chase is correct and as a private citizen he has a choice. The US Government however has an obligation to get the best value for the public purse. I’m quite sure United was probably given an opportunity to match the bid by JetBlue but didn’t see it as being in their best interest for whatever reason. Let’s not cry for United as they won’t be going to the poor house anytime soon. What I do find interesting is the point raised by Chris and the codeshares United currently has with Turkish Airlines. How many more of these exist and are the US 3 only interested in bashing the ME 3 to solidify their position and thwart competition? This will further enhance their ability to control prices to the detriment of consumers. I hope you follow up on this Gary and shed some light on other US 3/ foreign carrier relationships. It seems like the US 3 only point out the ones that are not benefiting themselves.
And I’m sure United also doesn’t outsource any of its software engineering or call center jobs overseas either. Not that the legislation requires that, but there are many layers of hypocrisy with all of this.
Your judgment on this issue remains very odd.
The facts here are incredibly simple: due to the billions in subsidizes (and it’s absurd to compare USA-style tax breaks to the billions being directly pumped into the Mideast carriers by their gov’t owners), Emirates can offer a lower price to the USA gov’t than United can. That’s because United has to make a profit on this route to operate it and Emirates doesn’t.
Now whether Emirates is even allowed to “bid” for this service is another question, for which I don’t have the answer. Logic would suggest the Fly AMERICA Act is designed to put US gov’t personnel on US airplanes, something I personally don’t have a problem with, but perhaps something that others would quarrel at (especially when they want to draw attention away from the BILLIONS in subsidies going to the Mideast carriers). If indeed the purpose of the Fly America Act is to, um, “fly America,” this codeshare deal (or whatever it is) through Jetblue seems like a load of bull. So I think UA has a perfectly good reason to complain about it. And it also explains why JetBlue is NOT supporting the position of the USA global carriers; it all comes down to making a buck by getting into bed with the Mideast airlines.
Oh the hypocrisy, even in the comment. It’OK for individuals to choose an ME3 because “it’s my money”, but not for the government to do so? Whose money do you think the government’s money is, if not the taxpayers?
The Fly America Act is nothing but crony corporatism that should be striken off the books. America was founded to decent the notion that all men are created equal!
Now we just need to get some EK 5th freedom codeshares within the continental US; then I’d fly “Jetblue” all day long 😉
+1 to Jay
The USG’s first obligation should be to get the best value for the taxpayers’ money and competition among all carriers would be the best means to achieve that. The Fly America Act constitutes protectionism and a de facto subsidy of US carriers, even with code shares on foreign carriers. The cost to the taxpayers was much higher before code shares were allowed and the Fly America Act gave US carriers even more monopoly power.
In addition to the codes are flights to Vienna and Istanbul, note that AA has the lucrative GSA City Pair contract between IAD and LHR, even though it does not operate the route (it’s a code share on BA), but other US carriers do fly their own metal.
Lets introduce free trade to the airline industry, lift trade blocks and repeal Fly America Act. In fact this should be taken up with the NAFTA courts and repealed through judicial means if Congress or the President don’t have the guts to take on the Airlines for America lobbyist directly.
Fly America needs to fall just like all the other illogical trade barriers.
For those of us who get stuck flying in coach, I’ll take UA E+ over any of the ME3 anytime. I must say I wasn’t too shocked with the announcement though especially since there was quite a few seats open on my last flight on the route 2 weeks ago. It is sad as I flew this route and the IAD-KWI-BAH route pretty regularly and now they are both going going gone.
Well, one of the three biggest liars in the industry is gone. Hope the other two go quickly, but that’s probably just a pipedream. Too bad the US big three cannot compete on merit alone.
@Larry — Your position is interesting. Say you were a US beef producer. Australia decides to spend tens of billions of dollars to subsidize beef production: heck, they’re buying the cows for their ranchers. The contract for beef for the US Army goes out to bid. You lose the bid because there’s no way you can compete with the Aussie gov’t’s billions.
You think that’s a good outcome because it “saved US taxpayers money”? If you do, you obviously will have no problems with the Mideast airline subsidies. Because it’s the exact same thing. The rest of us more rational folks might disagree, however.