For three years Delta, United and American have been complaining that despite being heavily subsidized themselves, and protected from foreign competition in the U.S. market, that it’s not fair that they should have to compete against Emirates, Etihad, and Qatar.
- The US has signed ‘Open Skies’ agreements allowing the flights United, Delta, and American objected to. These agreements have benefited US airlines, and Fedex even operates a cargo hub in Dubai.
- They claimed subsidies were a violation of the agreements, even though no plausible reading of the treaty could support that. They just kept repeating it over and over and enough people believe what they’re told.
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While generally misguided, there’s a trade theory argument for protecting ‘infant industries’ until they can compete on the world stage. Ironically the Gulf carriers are the relative infants and the US airlines are much bigger and together more profitable.
The US airlines at times objected most to ‘fifth freedom flights’ – Emirates serves Milan and Athens from New York – even though they themselves have operated plenty of fifth freedom flights (both Delta and United have had hubs in Tokyo serving destinations in Asia) and do not object to fifth freedom flights of other airlines like Air China’s Houston to Panama City service.
This argument went nowhere under the Obama administration. The airlines hoped their case would resonated more with the protectionist leanings of President Trump. The nationalists in the administration lost a key ally when Steve Bannon was pushed out. That left Peter Navarro versus Gary Cohen. Cohen left, but was replaced by relative free trader Larry Kudlow.
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Qatar settled their dispute essentially giving up nothing. They agreed to greater financial transparency (but there are no limits on subsidies) and they said they do not currently plan to fly between the U.S. and Europe. They haven’t done so in a decade (back when they didn’t have aircraft capable of making the US-Doha journey non-stop) and they don’t need to in any case — owning 20% of British Airways parent IAG and 49% of ‘Air Italy’.
A month ago I wrote that Etihad and Emirates would come to a similar settlement. And that’s now happened. An agreement was signed on Friday.
- Emirates and Etihad agreed to open up their financial books and publish “annual financial statements ‘consistent with internationally recognized accounting standards.'”
- Emirates and Etihad agreed, in a side letter, to say they currently have no plans to add flights between the US and Europe. Etihad hasn’t ever offered such flights. Emirates has two. Both airlines have scaled back US flying, and Emirates reportedly has a crew shortage so of course they do not have plans to add more of these flights.
The letter also says that subsidies can hurt business, but that “government support in whatever form — including policies, practices, and rules — is neither uncommon nor necessarily problematic in the global aviation sector.” Indeed the very first major aircraft order American Airlines ever made was backed by the federal government’s Reconstruction Finance Corporation.
The US airlines are declaring victory, getting nothing of substance, and finally moving on from this fight.
The two juveniles on either side wearing the ridiculous socks actually make that buffoon in the middle look decent in a suit.
Your analysis on this issue has been biased and unsound from the beginning, and obviously that’s not going to change now regardless of the facts. As long as the UAE lives up to their promise, this settlement is a huge victory for the US airlines. The main thing they’ve been pushing for is transparency, because people like you have ridiculously asserted that the Middle East airlines are real businesses. They’re not. The audited financial statements will show that. We’re already seeing Qatar and Etihad retrench as their real financial situation becomes known, and changes will also now occur at Emirates. Some of these changes have more to do with economic necessity, but the US airlines have certainly given this process a push. The real question going forward is what happens to Emirates once its weaker competitors retrench, and the absurd level of over-capacity in the region diminishes. Is Emirates at least plausibly “a business,” or will it retrench too? We don’t know yet, but my guess is that Emirates will survive, albeit not as a revolutionary force in the industry.
@reality “As long as the UAE lives up to their promise, this settlement is a huge victory for the US airlines.”
What promise? Qatar only ever offered 5th freedom flights to the US a decade ago before they had aircraft to make the Doha-New York flight non-stop. Etihad hasn’t ever done so. Was this really all about two Emirates flights that are perfectly legal?
“The main thing they’ve been pushing for is transparency” if that were true the United/Delta/American white paper wouldn’t have fabricated quotes.
As far as the idea that it’s ridiculous “the Middle East airlines are real businesses” I don’t think anyone has ever credibly claimed that Emirates WASN’T a ‘real business’. Delta, American and United by the way have lost more money than any Gulf carrier ever has..
@Reality This was never about subsidies. It was always about Emirates’ 5th freedom flying. And on that score the US3 won nothing.
Ironically the TPP was the only treaty to discipline subsidies specific to state-owned enterprises. But because it was an Obama achievement it was suddenly a bad deal.
With this resolved, will one of the US carriers pursue a JV with one of the Gulf carriers?
@ Doug, Gary — There is more to this agreement than the actual text. As the AP has reported, there is a face-saving “understanding” that reportedly bars new Emirates 5th Freedom flights to the USA:
“In the side letter, the Emiratis do not explicitly promise never to add more such routes, but simply indicate none are planned. Still, the agreement rests on a tacit understanding between the U.S. and Emirati governments that more routes won’t be added, several individuals familiar with the negotiations said.”
As far as Emirates being “a business,” the audited financial statements will show what they show. They won’t show a profitable business, at least as that term is understood in the West. That’s because Emirates was never designed to be a profitable business. It was designed to bring additional commerce and glory to the Kingdom. It’s an economic development tool — like a global subway system (municipal subways don’t make money either). The question has always been whether Emirates should be allowed to “steal” passengers from other airlines that are for-profit enterprises (who obviously are hamstrung by real profit and loss considerations), when those passengers are merely connecting in Dubai. As has already happened with Qatar and Etihad, when the underlying economics are disclosed, Emirates business will change. Indeed, they’re already changing.
Eermmm…
https://www.marketwatch.com/story/emirates-airline-profit-jumps-on-cargo-recovery-2018-05-09
https://gulfnews.com/business/aviation/emirates-giving-away-bonuses-to-staff-1.2218709