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.