Game Over? Justice Department Sides With Consumers in US Airline vs. Middle East Carrier Dispute

Back in February, the big US airlines — United, Delta, and American — began a campaign to get the federal government to limit flying to the US by the big Middle Eastern airlines Emirates, Etihad, and Qatar.


US Airlines Believe Emirates Showers in the Sky are Unfair

The major US airlines argued that these three competitors received significant subsidies from their governments, and that this is impermissible under US Open Skies agreements.

While I’m no fan of state-backed airlines, I’ve been a consistent critic of the US airlines for 3 main reasons.

  • This is really a call for protectionism that hurts US consumers. It limits their choices and would raise fares. Delta’s CEO was actually explicit that the goal was fewer flights and higher fares.

  • Open Skies agreements don’t obviously preclude the financial assistance that some of these airlines have received, just as they don’t preclude the financial assistance US airlines have received. The US airlines were born in subsidy and continue to receive subsidies themselves. The US airlines tortured the definition of subsidy to try to claim the Middle East carriers get government support while they don’t. They also fabricated quotes in their white paper purporting to detail subsidies received by Gulf carriers.

  • It’s completely hypocritical to call out the subsidies of some of your competitors, as a pretext for government crackdowns, while continuing to partner with other airlines that receive similar subsidies and benefit Open Skies agreements with the US. Saudia, for instance, is a Delta partner in SkyTeam and the US and Saudia Arabia have an Open Skies treaty. Saudia’s aircraft were gifted to them by the government. Indeed, Delta is now part-owner of China Eastern which is the most-subsidized Chinese airline (though the US and China do not have an Open Skies agreement).

In many ways, US airlines offer as good or better a hard product as the Middle East ones do. By focusing on getting government protection, the airlines are sealing their own fate. If they’d step up to the plate and compete, they could win.


Not Every Gulf Airline Aircraft Has an Onboard Bar

Meanwhile, cracking down on the Middle East carriers isn’t just bad for consumers, it’s bad for airlines like Federal Express, JetBlue, and Alaska who benefit from their partnership with these carriers or access to these markets.

The US Departments of State, Transportation, and Commerce agreed to take comments on United, Delta, and American’s position. We now learn that the Justice Department has weighed in on the case. The Justice Department has apparently offered the legal guidance that U.S. officials have to evaluate “the broader public interest” and not merely the private interests of the complaining US airlines.

The U.S. Justice Department has raised concern about demands by U.S. airlines that the government limit flights of three Middle Eastern rivals to the United States, three sources familiar with the matter have said.

Justice Department antitrust officials warned of higher fares and fewer choices for consumers if the Obama administration blocks new flights by Emirates, Etihad Airways and Qatar Airways, the sources told Reuters on condition of anonymity.

I’ve been critical of the Justice Department’s investigation of the major airlines for collusion, arguing they are working together to restrict capacity in order to raise prices — at a time when prices are falling, and when most attempts to raise prices fail. Here though the Justice Department seems right.

My own expectation from the very beginning was that this effort by United, American, and Delta to block competition and raise prices wouldn’t go anywhere because the US government has foreign policy goals with Qatar and the UAE that would trump these concerns. The Justice Department’s guidance would appear to allow that to happen.

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 InsideFlyer.com, 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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Comments

  1. Certainly not “game over.” The DOJ has no actual decision-making power here.

    More importantly, their rationale is horrific. They are basically saying that it doesn’t matter if the Mideast airlines massively subsidize their airlines to gain an unfair competitive advantage. As long as it reduces airfares, it’s OK with the DOJ.

    If that’s how this is going to be decided, we’re a pretty stupid nation.

  2. “By focusing on getting government protection, the airlines are sealing their own fate. If they’d step up to the plate and compete, they could win.”

    Spot on. As a matter of national pride, I’d rather fly Delta or American than Emirates or Etihad (I’d never fly Qatar regardless), but when I’m spending hard earned money or miles, and given the limited time off that I have, I’d prefer to make my travel part of the vacation if possible.

  3. You say “sides with consumers” but in the end, consumers will lose. If US carriers (and other major legacies) see smaller margins on their overseas routes where EK and the like are sucking up passengers, domestic fares will rise because these marginal or even money-losing routes are propped up by the higher margins available on long haul international routes. More US consumers fly domestically than internationally. So in the end, the only winner in the US will be Boeing selling more planes to the gulf airlines, but then it’ll be selling fewer planes to US airlines, and they’re the ones who employ and serve the most Americans. Wake up…it’s not about all the DOM and KRUG you guys swill down in EK/EY/QR F, it’s about the jobs your neighbours won’t have in 10 years time.

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