There’s an ongoing spat between United, Delta, and American Airlines on the one hand and Etihad, Emirates, and Qatar on the other.
The former US airlines don’t believe they should have to compete against the large aggressive Gulf carriers which they claim are substantially subsidized by their governments. They don’t think consumers should reap the connectivity advantages, service advantages, or low prices that their prices bring.
They released a report purporting to do the math on subsidies to the big Gulf carriers. I was not impressed.
And I believe that the US airlines can and should compete successfully without government protectionism.
A pretty big piece of research dropped that ought to play a signficant role in the debate – detailing just how subsidized the US airlines have been. While they’re throwing potshots at their competitors, they remain silent on the government benefits they received in their own startup eras and far beyond.
The US Airline Industry Has Been Excessively Subsidized
I’ve written in the past about subsidies that the US airline industry received.
For instance, the very start of the industry in the US was shaped by (corrupt) postal service contracts. The Postmaster General effectively dictated which airlines succeeded and which ones failed.
The very first large aircraft order by American Airlines was subsidized by the Reconstruction Financial Corporation. It was hardly a coincidence that future Democratic administration Secretary of Commerce C.R. Smith, then chairman of American Airlines, was best man in FDR’s son’s wedding.
Delta Airlines and United both have their substantial Tokyo operations as a result of the spoils of World War II.
In recent times airlines received big fuel tax breaks, and Delta has an oil refinery in Pennsylvania that received nine-figure tax breaks.
US Airlines Don’t Complain About Their Other Subsidized Partners
Delta is considering a hub operation in Shanghai the same way they operate at significant levels in Amsterdam. They have friendly relationships with Skyteam partners China Southern and Shanghai-based China Eastern. Both of these airlines were formed by the Chinese government, using government funds to acquire aircraft and develop operations. And they remain heavily promoted by and beholden to the state which continues to be a major investor.
American’s flight attendants may criticize Nicole Kidman for her relationship with Etihad, but they don’t really criticize their own employer’s codeshares with the airline — or Qatar’s membership in oneworld.
Delta may call out the Gulf carriers and try to tie them to 9/11, but they partner in SkyTeam with government-supported Saudia — a government that at some level was actually complicit in 9/11.
They call out the Middle East carriers because they’re fierce competitors and growing in US markets, though they really do not today compete head to head on many routes. There’s a fear that they could grow their transatlantic business (like Emirates’ New York JFK – Milan route).
They want government protection from competition, not “a level playing field.” You don’t hear the US carriers criticizing the subsidies of their other partners — or the ones they receive.
US Airlines Have Received More Subsidies than Middle East Carriers: Congressional Budget Office
In 1999 the Congressional Research Service put out a paper (.pdf, archived at Wikileaks) detailing government subsidies for US airlines.
Between 1918 and 1998 the federal government spend $150 billion in support of aviation.
In the 1940s and 1950s subsidies to US airlines were a huge political issue for the railroads.
The Civil Aeronautics Board set airfares and granted route authorities to maintain high prices and guarantee airline profits. It was only in 1976 and 1977 that they ‘experimented’ with price competition, allowing Texas International for instance to cut prices on intra-Texas routes and compete against then intra-state startup Southwest.
The US government has long promoted air service to remote communities. Local air service subsidies totaled nearly $2 billion dollars between 1954 and 1983. This doesn’t include the post-deregulation “Essential Air Service” program. Between 1958 and 1967 the US government guaranteed about a billion dollars in aircraft purchases by US airlines (nearly 20% of which defaulted).
To get to the $155 billion total, you include capital expenditures on airports and air traffic control. But remember that the US airlines are criticizing not just direct support of the big 3 Gulf carriers, but also the subsidies to their capital operations in the UAE and Qatar as well. That’s not how it’s usually portrayed but it’s part of how they get to the figure.
It’s not 100% apples to apples but this doesn’t include subsidies to US airlines over the past 20 years, structural subsidies (such as resulting from military conquest), or fuel tax rebates. Attributing $155 billion to US airlines through 1998 may not be the right exact number, we can debate methodology, but at the point that the US airlines stretch to attribute $40 billion to the Gulf carriers this is not an unreasonable comparison.
(HT: US Travel Association)