U.S. Airlines Face Uphill Struggle Against Mideast Rivals


For the past year, the nation’s three largest airlines — Delta, United and American — have waged a relentless campaign to convince the Obama administration that their business is threatened by Persian Gulf-based carriers who receive billions of dollars in state subsidies.

The airlines have pressed the administration to freeze all new flights from their three foreign rivals — Emirates, Etihad and Qatar Airways — and would ultimately like to change the pacts, known as open skies agreements, that allow unlimited flights between the United States and the United Arab Emirates and Qatar.

“We recognize how it is a difficult issue for our government to tackle right now,” said Doug Parker, the chairman and chief executive of American Airlines. “But our country will end up with no global service from U.S. airlines if nothing is done. That’s the threat.”

But after months of arguments and quiet lobbying, accusations and rebuttals, and millions spent to sway public opinion, the airlines have managed to attract some support, including from their unions. But they have also galvanized their opponents, angered other airlines, airports and consumer advocates who say open skies are good for travelers and business.

Photo

The cabin of a Qatar Airways flight. Three major American airlines have sought to freeze flights to the United States by three Persian Gulf carriers and would ultimately like changes to be made in open skies agreements with gulf nations.

Credit
Andrew Winning/Reuters

The campaign has raised questions about the state of the domestic airline industry, which is earning record profits: Have the airlines gained too much power after their mergers and are they now trying to change the rules of the game? More fundamentally, should the nation’s air service policy favor the interests of a few major domestic carriers or should it preserve open competition for the benefit of the flying public?

“People are getting very polarized about this,” said David Scowsill, the president and chief executive of the World Travel and Tourism Council, a London-based trade and research group. “It’s a commercial battle between airlines focusing on customers, and airlines whose focus is on profits.”

Meanwhile, the gulf carriers have added more flights to the United States and increased seat capacity, even as domestic airlines have cut back some of their international service.

Since the beginning of the year, Emirates has started a new daily flight to Orlando, Fla., and added second daily flights to Boston and Seattle. The airline now connects 10 cities with its hub in Dubai, and operates a direct flight between New York and Milan.

Etihad, which flies six or seven daily flights to the United States, depending on the day, has introduced the Airbus A380 double-decker on one of its two daily flights between Abu Dhabi and New York. And Qatar Airways, which has seven daily flights to Doha, plans to add three new destinations next year — Atlanta, Boston and Los Angeles — as well as a second daily flight to New York.

The American carriers, for their part, said the competition from the gulf carriers has forced them to abandon most flights to the Middle East or India, because they cannot compete with the lower fares offered.

Delta said in October that it would drop its only daily flight between Atlanta and Dubai in February, blaming distorted competition from its gulf rivals. United said Wednesday that it would stop flying to Dubai in January. Its announcement came after the General Services Administration chose to award the government contract on flights between Washington and Dubai to JetBlue. The flights, though, will be operated by Emirates, the carrier’s code-share partner, because JetBlue does not fly to the Middle East.

American carriers have also abandoned direct flights to India. United is the only carrier with a nonstop flight between Newark and Mumbai. American Airlines dropped its direct flight between Chicago and New Delhi in 2012, and said it flies only about 20 passengers a day to India from the United States through London. Delta ended its direct flights years ago.

Critics warn that meddling with open skies agreements, a mainstay of aviation policy for more than two decades, could lead to reprisals, and produce unintended consequences for airlines that have commercial ties with the gulf carriers or cargo companies that use places like Dubai as global trading hubs.

“Breaking up open skies would be so harmful and so shortsighted,” said Roger J. Dow, the president of the U.S. Travel Association. “If we cut off growth from the three Middle East carriers, we cut off growth to parts of Asia, India and Africa. It would be the biggest mistake we’d be making.”

A rival group of smaller airlines and major air cargo companies came together recently to oppose any attempt to review open skies agreements.

“It’s important to realize this isn’t the United States against the U.A.E. and Qatar, it is three U.S. airlines who favor protectionism over competition,” the top executives of JetBlue, Hawaiian Airlines, FedEx and Atlas Air wrote in a recent opinion column for The Hill.

The gulf carriers dispute that the backing they get from their state-owned shareholders amounts to illegal subsidies, or that they have failed to provide fair and equal opportunity for carriers of each country to compete, as is called for under the agreements.

Instead, they described the campaign against them as an attempt by United States airlines to protect their lucrative trans-Atlantic routes, which they operate under joint-venture deals with European airlines.

“We’ve been very clear we don’t damage the U.S. airlines,” said James Hogan, the chief executive of Etihad Airways. “We create access to parts of the world where you don’t see American carriers.”

The administration has said it is examining the case seriously, and could still rule either way.

Government officials face a tricky decision that goes well beyond the legal definition of what constitutes a subsidy. They must weigh the economic benefits of trade and tourism generated by the gulf carriers, as well as cargo operations in the gulf, and figure out whether domestic carriers have been harmed by their rivals.

Many airlines around the world receive subsidies or backing from their governments, including all of the major Chinese state-owned carriers, for instance.

Still, the American carriers are not without their own strengths. Through joint ventures with European airlines they have established routes to Europe that are nearly impregnable, and have been granted antitrust immunity to do so.

Also, they face no competition on flights between the United States and China, much of Africa, and South America. And no foreign airline can operate flights within the United States.

Any decision is bound to leave some bitterness. Since it involves treaties with foreign countries, the matter is a complex affair involving the secretaries of state, transportation and commerce, as well as trade officials, antitrust officials and White House economic policy officials.

Adding to the difficulty, the Department of Justice, which has been investigating whether the big United States airlines have engaged in price collusion, recently suggested that the demands from the big three carriers would result in less choice for consumers.

While there are signs that a resolution may be near, a decision could still be pushed down the road. A separate application by Norwegian Air Shuttle to expand low-cost service out of Ireland to the United States has been delayed for two years by the Department of Transportation, a delay that suggests the administration is unwilling to shake up the current airline status quo.

Brian F. Havel, the director of the International Aviation Law Institute at DePaul University in Chicago, said that in the end, the administration may favor a compromise, like limiting the number of cities that gulf carriers can fly to.

“I think the gulf carriers have read the open skies agreement correctly when they say there is no specific provision with respect to subsidies, but there is a section on predatory pricing,” Professor Havel said. “This has to be sliced and diced cautiously.”

Correction: December 14, 2015
An earlier version of this article gave an incorrect name for the Persian Gulf airline headed by James Hogan as chief executive. It is Etihad Airways, not Etihad Airlines.



Source link

About admin

Check Also

How to Be a Better Traveler: Tips From 2017

Photo Credit Andy Rash This year, we covered a variety of topics to help you ...

Leave a Reply

Your email address will not be published. Required fields are marked *