US Airlines Are More Subsidized than the Gulf Carriers, and British Airways Weighs in Against American

Right or wrong, the US airlines’ beef against the big 3 Gulf carriers — they want the US government to impose restrictions on Emirates, Etihad, and Qatar — won’t go anywhere because o matter what overcharged rhetoric comes from US carriers,

  1. The government acting to give consumers fewer flights and higher fares isn’t going to be politically popular as election season heats up precisely around the time the issue would become ripe for action.

  2. The US government has bigger fish to fry with the UAE and Qatar — security interests, centered around terrorism and ISIS — that the juice won’t be worth the squeeze to prioritize US airline interests.

Of course, the claims being made by the US carriers are completely disingenuous (and even contain faked quotes in their white paper). State-owned airlines are common in the world, including partners of US airlines which are hugely subsidized as well. And the US airlines continue their close cooperation with Gulf carriers even as they sharpen their knives. It’s an incestuous, tangled web indeed — rivaling that classic Soap.

Two recent updates in the ongoing saga.

British Airways and IAG filed its response to the US Department of Transportation, Department of Commerce and Department of State about the US airlines’ request for government action against Emirates, Etihad, and Qatar.

The consumer benefits brought to the US traveling public by the Gulf carriers are hard to ignore. New flights have opened up an array of new destinations and direct city-pairs, added to the choice of airlines available on existing destinations, and introduced levels of customer service rarely seen in this market. Not only do Gulf carriers bring competitive service and prices, they also stimulate the market, so that much of the increase in their own passenger traffic is incremental, not taken from existing operators.

The White Paper makes much of the Gulf carrier impacts in relation to passengers travelling indirectly e.g. between India and the US, as if consumers should be denied this choice. Passengers travelling between two points on the globe do not “belong” to any particular airline or group of airlines. Airlines must compete to offer passengers what they want. The outdated concept of “ownership” of passenger traffic must be rejected by all governments.”

British Airways of course is joint venture partner of American, and so this is ultimately an attack on their partner. (Qatar recently acquired a ~ 10% stake in BA parent IAG.)

Meanwhile, Etihad responded to the study by US airlines about subsidies provided to the big 3 Gulf airlines with a study detailing the even greater subsidies received by the big 3 legacy US airlines.

These figures do not count the subsidies (like government-backed financing for American’s first major aircraft order, and collusive Postal Service mail contracts that culminated in the Air Mail scandal and the banning of airline executives from the industry) from the US’ own ‘startup era’ which is where complaints focus for the Gulf carriers.

US airlines would be better off if they were forced to compete instead of running to the government for protection.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Cue statement from iahphx ignoring the points made and accusing everyone of ignorance in the name of saving money in 3…2…1… 😉

  2. Great post, Gary. Yet another way in which US carriers are subsidized is that US Government employees and contractors must fly US carriers on at least the transoceanic/intercontinental legs of international trips, even if other carriers are cheaper, better or more convenient. So we get the double whammy of taxpayer money subsidizing US airlines and helping them to continue offering substandard, uncompetitive products.

  3. All this whining by the US airlines is pathetic. If they had better service, better planes and didn’t nickel and dime their customers they might get some sympathy. If US airlines provided the same level of service they would be getting the business. I just happen to read the United Hemispheres Magazine today while flying. I found it laughable that Jeff Smisek writes an article asking for people to write in and complain about the unfair advantage middle east carriers have. When he gives me my full mileage credit back for a flight and stops degrading the Mileage Plus program maybe i’ll send in a letter.

  4. Thanks for the bash, baqa. If you — and Gary (who we know is a businessman) want to ignore basic economics and accounting principles, it’s silly to engage in a discussion of this. Equating a bankruptcy filing — which is nothing more than a wealth transfer from one group of private individuals to another (shareholders, creditors, employees) — with a gov’t subsidy is just absurd. There’s no “free money” in bankruptcy, and airlines typically shrink during those troubled times. Indeed, if you get a gov’t subsidy, you typically don’t wind up in bankruptcy!

    Whatever you may think of the sometimes lackluster US inflight service — and the better inflight experience of the Arabian carriers — this doesn’t make this situation right. As any trade expert will tell you, no private company can compete against a company receiving billions of gov’t subsidies. It’s not right, and your comfy subsidized seat to Asia isn’t worth the loss of American jobs.

    Fortunately, just as you are misunderstanding the economic principles here, you are misreading the likely US gov’t response to this problem. There is extraordinary bipartisan support for the US airline position in Congress — there’s already a letter signed by more than 260 congressmen and the House Judiciary Committee is putting enormous pressure on the Obama administration to act immediately. When it does, I’m sure you’ll be “outraged” by this decision. No one will care.

  5. @Mark — Your comments are typical of many we see on this issue, but also quite easy to address. You are correct: the US airlines cannot provide “the same level of service” as the Mideast carriers. That is because, in the USA, we have a free enterprise system and these carriers need to (at least try) to make money. That is not the case of the Mideast carriers. As is unrebutted, they continually lose billions of dollars, that is then paid for by their governments. As an individual, I guess it’s nice to fly on somebody else’s dime. Most of the people reading this blog (including me!) love to get travel we don’t really pay for. But to think that it’s a good thing to have a trade policy that puts US companies (and their employees) at an impossible disadvantage, well, that’s just bad public policy.

  6. thank you IAHPHX for reminding everybody that a bankruptcy is not a government subsidy/bailout.
    And even the bailouts happened at a time when the companies were extremely troubled, and then they recovered, cut costs etc and now US airlines are all profitable. The ME3 are not, at the end of each year they get a check to cover their extensive losses.
    Compared to European carriers, haven’t US airlines actually invested a lot in the “hard product” – all aisle access in business class for example? That lackluster service you talk about is mainly in international First Class.
    It’s the job of the US congress to protect the interests of US companies and labor, and that’s what I expect them to do. Oh no, you won’t be able to fly & shower to as many places when you’re traveling on your award tickets!

  7. @iahphx Nowhere suggesting US airlines provide ‘the same level of service’ as Middle Eastern ones, given different customers and markets.

  8. @iahphx How can you ignore the transfer of obligations from airlines to a government agency (Pension Benefit Guarantee Corporation)? And the jet fuel subsidies? And the tax credits? And the United and Delta beyond rights in Tokyo gained through the spoils of war?

  9. i wonder if the BA comments are also a first salvo in an ongoing attempt for IAG to gain a decent-size ownership share in AA (or someone else, AS maybe?)

  10. @JoshUK – BA has long been pretty pro-competition, unusual for an airline in Europe. Their position is consistent with where they’ve been for years (though some will dismiss it as somehow related to Qatar’s recently taking a 10% stake in IAG, though it’s hard to imagine Willie Walsh taking this view over the recent minority stake).

  11. @iahphx – I wasn’t bashing anyone (especially not when you then make my prophecy precisely true on all points). Nor was I arguing for either the ME3 or the US3. Just observing the natural order of things 🙂

  12. Recently, I read somewhere that the 3ME airlines are so profitable that they are adding $$$ billions to their respective national treasuries. So this is basically debunks the argument that they are subsidized by their national governments.

  13. 1) You must realize the bankruptcy piece is total garbage, right? That’s like saying US retailers get a “subsidy” from the US criminal justice system because it prevents rampant theft and robbery. There’s no government subsidies involved in that – it’s purely a transfer of funds from one private party to another. And indeed, the free market adjusts for bankruptcies going forward in how it prices things like availability of debt, etc.

    2) PBGC isn’t government-funded. It’s funded by premiums paid by all companies in the US that have pension plans – essentially it’s a risk-sharing/insurance mechanism set up with private dollars.

    Also it’s particularly rich to see gulf carriers – where unions, which are what give rise to these elevated costs and pensions in the first place, are banned by law – arguing that pension/union-restructuring moves are a “subsidy” that US firms are getting.

    No idea on the validity of the fuel subsidy piece, but 90%+ of the claims here are pretty ridiculous on their face.

    May not all be answer-changing here from the consumer perspective – the US isn’t going to ramp up subsidies to ME carrier levels, so the consumer risk long-term would be that the ME carriers displace US carriers on lots of routes by using advantaged cost structures, then later raise prices once competition is out. But that’s not a real concern given the low barriers to entry in commercial airlines, so not something I’d be too worried about.

    But let’s at least try to be rational here and focus on facts…

  14. How long before this site just turns into a 2016 libertarian Scott Walker fanboy fest?

  15. Gary, to willfully ignore the ties between the Koch bros, Walker, and libertarian parties and philosophies is quite disingenuous–especially for you. Unfortunately this kind of shady behavior is part and parcel of libertarians across the US.

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