Why the Big US Airlines are Losing their Fight Against the Middle East Carriers

A year ago Delta, American, and United started beating the drum that the US government ought to shut down our markets to Emirates, Etihad, and Qatar because of subsidies.


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The US airlines weren’t concerned with free markets and don’t hate subsidies, they hate competition. And their lobbyists are concerned only with their interests, and not those of travelers or consumers.

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, which is just wrong. 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 from 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). Delta is in a joint venture across the Atlantic with Alitalia, sharing revenue with the Italian carrier that’s controlled by…Etihad. And American is in a joint venture with British Airways and Iberia, part-owned by.. Qatar.

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.


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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 three biggest US airlines, though, have been losing steam in making their case.

  1. United has been fairly quiet on the issue since its CEO Jeff Smisek was ousted in September ironically for seeking improper government favors.

  2. Outside of a November Wall Street Journal op-ed by Doug Parker, American has mostly tried to tread a careful line suggesting it is a government matter.. wanting the government to crack down on Gulf carriers while continuing to build closer ties to them.

  3. Delta’s Richard Anderson, the worst cronyist among the airline CEOs, is retiring.

There are three reasons why the US airline case against the Gulf carriers is collapsing.

  • They didn’t have a strong legal argument. The DOJ weighed in against them. Open Skies didn’t say what the US airlines said it said anyway.

  • They didn’t have a strong public argument. US airlines are making record profits, nearly half the world’s airline profits even. The American public doesn’t have sympathy for claims that their having to compete is unfair, especially when they are asking the public to accept less choice and higher prices.

  • Their issue just isn’t important enough. As I said from the beginning the US has bigger foreign policy fish to fry. The priority is cooperation in the perpetual War on Terror generally and fighting ISIS specifically. The US government can’t afford to start a trade war with the Gulf states. (Incidentally this underscores why Donald Trump’s position on China trade is so absurd. Leaving aside the bad economics, he asserted in last night’s Republican debate that his strategy to deal with North Korea would rely on leveraging Chinese influence.)

Indeed Reuters is now reporting that the UAE will commit ground troops in Syria.

The United Arab Emirates (UAE) said on Sunday it was ready to supply ground troops to help support and train an international military coalition against Islamic State in Syria provided such efforts were led by the United States.

The US needs the support because while the anti-war movement in the US has died out or been co-opted by a President who mostly abandoned it, there’s little political appetite for committing large scale US troops. And because the Administration is committed not to be acting unilaterally and appearing to have the US waging war on Islam.

The US carriers could still eke out a face save. They still have powerful friends. But the game was over before it started.

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. Is it really appropriate to use a picture that looks like ISIS fighters to illustrate a blog post about the Middle East?

  2. @SH — the post is about ISIS, which is what I said from the very start is the reason the US airlines’ case for a trade war with Gulf states was doomed. The US needs and wants UAE cooperation against ISIS, and is getting it, and that trumps whining by US airlines.

  3. Good points, Gary. And, as you correctly pointed out on another article, “If They’d Step Up To The Plate, They’d Win”, it’s not as they’re making big investments in service, despite the recent big profits. The key word here os “IF” – and that doesn’t seem to be taking much traction, which makes your “take” even stronger.
    I fly mostly foreigner carriers when flying international, and what a difference in service they provide! The “attitude/posture” of the inflight crews is so much different than that of US carriers – there’s much more attention to detail and a genuine understanding that their jobs depend on the good service they are able to provide in each and every flight, for every passenger.
    So, US carriers would do well just by starting to focus on customer service…

  4. Gary…

    I kind of get your point, but when the large part of your article is dealing with AIRLINES (not terror), and you put a picture with gun-wielding men (the only pic that showed up in my blog reader attached to this article, I might add), it feels like click bait. Even if it’s not, it’s in poor taste. I genuinely love your blog, but this article was repetitive (so many have covered it), and many other pictures besides gun-wielding terrorists would have been more appropriate for the overall point you are trying to m hake. This article could have benefited from a second or third pair of eyes because I don’t see a lot of tact here. Do better, because I enjoy reading about points and miles. This feels awkwardly written.

  5. The first 40% is repetitive by way of background (that seemed necessary, for those not following the issue). I’ve covered this far more than most but I believe it’s important and feel pretty passionately about it.

    I don’t see how this is clickbait. I gave the 3 reasons why the US airlines are losing their fight, which exactly matches the title of the article. And I argued from the beginning last year that US foreign policy interests, and specifically dealing with ISIS, would trump US airline claims. The news yesterday was that the US government had gotten agreement from the UAE to put ground troops into Syria.

    I used the photo of ISIS since the argument most powerful reason why the US airlines can’t flex their muscle too successfully here is ISIS.

    To those who either didn’t read the article to get that connection, or were bothered by the photo, hope that context makes sense and of course welcome to disagree with me as always!

  6. Back in the days when South Africa was perceived to be run by ‘bad’ people, we tripped over each other to the hurt the SA regime, mainly through withholding any economic dealings with SA companies/Govt. and not traveling to SA. Now the UAE more or less tortures their slave labor from overseas at their construction sites. The only moral thing for me to do is to take a shower before my flight and take a non-UAE flight. The governments may have different compulsions on accommodating each other but we as consumers don’t have to fly their airlines for little more comfort and/or luxury – subsidies or no subsidies.

  7. ISIS fighters for clickbait… get outta here Gary. If ISIS was your “most powerful reason” that US airlines can’t “flex their muscle,” it wouldn’t be mentioned toward the end of the entire article.

    This blog is going downhill faster than Hilary’s campaign……

  8. @JJ it was the WHOLE POINT OF THE PIECE. It’s what was different yesterday (UAE committing ground troops), and what led me to write about the article. But… go on goin’ on if you so enjoy doing so. 😉

  9. Subsidies? Railroads build their own tracks. Did US airlines pay to build the airports they use and and pay to build the streets to the airports and pay to create the public transportation and utilities to the airports and pay to create the air traffic control system that keeps them safe and on schedule?

  10. Kuwait Air has preferred to withdraw from the NYC-London market because compliance with US law requires it to (O Horror!!!) actually transport Israeli citizens who have paid for tickets. I say Good Riddance to Kuwait Air and to that brand of competition with US Airlines.

  11. I always maintain that it is your blog and you’ll post what you want to. With that said the picture of ISIS and the headline of “Why the US Airlines are Losing their Fight Against Middle East Carriers” makes it look as if those carriers are somehow aligned with ISIS. Your points on ISIS are not event mentioned until the tail end of the article. Fighting ISIS is just one of the points as to why the case is collapsing. Finally, the airlines don’t set policy regarding fighting ISIS, the government does. So, your explanation seems a bit misplaced.

  12. I see no evidence that the USA airlines are “losing their fight” against the Middle East Airlines. But a few things are obviously happening. One, it’s hard to get the Obama administration to care — this is not exactly a pressing national interest. Second — and this plays into that — the USA airlines are currently making a mind-boggling large amount of money. It would be like the oil industry complaining about unfair competition when gas was $4/gallon.

    Finally, the problem will eventually self-correct. Every idiotic business plan eventually runs out of money. The Middle Eastern airlines will run out of money, especially given the current funding problems their countries face.

    None of this diminishes the argument that what the Middle East airlines are doing — being subsidized to the tune of tens of billions of dollars — is wrong. I do think more action will occur in Europe, when their anti-competitive actions are more pressing to the local aviation industry.

  13. @iahphx – Etihad was subsidized, it’s probably breaking even though not earning much of a return on capital. Emirates is profitable. Qatar is not. I think we’ll see fewer acquisitions of airlines by Etihad with lower oil prices. They’re clearly concerned with strong business operations or you wouldn’t see Emirates scale back A380 service to Dallas and Houston, for instance.

    Emirates has a real business plan. Etihad seems to have a plan to not lose too much money while building up Abu Dhabi as an important world city. Not totally sure what Qatar’s plan is, but then Akbar al-Baker is just kind cra cra.

    However, none of that suggests that the US should respond in kind with protectionism. The US airlines are plenty subsidized, and enacting trade barriers to further subsidize them only hurts US consumers.

    The reasons you describe for why this isn’t happening are precisely the reasons I argue for in the post.

  14. @Michael Krauss – I covered that issue extensively, though don’t follow what Kuwait Airways has to do with the dispute between United/Delta/American on the one hand and Emirates/Etihad/Qatar on the other?

  15. @Ram I’m not suggesting that the UAE is a bastion of workers rights, or that there aren’t incidents of abuse. You said “the UAE more or less tortures their slave labor from overseas at their construction sites” and I said “I don’t think that’s quite a fair take” which is different than saying the inverse of your claim is true.

  16. Clickbaiting at is worse – even for you; gross stupidy.
    It doesn’t matter how good the article is,how can you justify using such an offensive photo to ‘support’ your piece?
    In the 19th century you would have been strung-up from the nearest tree.
    Social media permits stupid people to do and say stupid things, don’t follow the herd.
    Keep your fingers crossed that DoJ, DHS, NSA, et al haven’t marked your card

  17. Gary,

    Come on with that picture, Gary. That is not an appropriate visual representation of the point of the story. Inappropriate at best and potentially worst.

    Quite disappointed.

  18. First, focusing on and complaining about the picture that accompanies summary text and isn’t even in the post just seems … strangely misplaced, even for commenters here who are among the harshest critics (“strung-up from the nearest tree” .. really?).

    Second, ISIS is central to the argument. So when I was thinking, “what would represent the idea of the post” I went looking for a public domain image of ISIS.

    Third, it’s not actually clickbait, this isn’t something that drives clicks.

  19. I will fly nearly any Asian airline and also a few European carriers in order to avoid flying on US airlines. Attention to detail, polite and efficient service, good food served properly and comfortable aircraft. UA, as an example, has gone so down market they don’t even want to let us have a proper before dinner drink. Instead they just want to dump our food and drink together and then disappear for the rest of the flight. A pox on them all!

  20. After flying Emirates, Qatar and Gulf Air, there services are more than world-class. As an Executive Platinum Status with American Airlines , I will never fly American, Delta or even United if I have to cross the ocean to my final destination overseas. Services of three local major airlines are worst and I can wait these gulf carriers could fly locally within United States.

  21. I’ll echo a few comments already made about the inappropriateness of the ISIS photo used in the newsletter.

    I live neither in North America or the Middle East so I’ve no vested interest – reducing your story about US & Middle East Airlines to a photo of ISIS just looks so weak.

    You could also write a similar story about US vs Asian airlines where the likes of Cathay eat US Airline’s service for lunch every day.

    US Airlines are a utility, that’s all. It’s a job they do well but service lets them down a lot compared to others.

  22. I agree with the others. the ISIS picture does not gel with the blog. I do not see a correlation between the guys those men are holding and the airlines that are being discussed.

    Poor choice

  23. @Ram, while visiting the UAE, I took every opportunity to question every worker with whom I could strike up a conversation about the amount of money workers earned. Every worker I encountered was an expat, usually from Pakistan or India. The conversations evolved into working conditions and benefits. While I thought that the long work week was something that I could not tolerate, the workers that I spoke to, without exception, felt that they were treated well and were well compensated. On occasion I asked why they did not go elsewhere where working conditions were better. The responses that I got were that they would be unable to obtain work and improve their lives in Europe nor the US. I felt that they were being taken advantage of, much like illegals from Mexico or South America are in the US. Those workers that I spoke to were happy and thankful for the opportunity to provide for themselves and their families, They could, of course, have read the biased articles that you buy into, and stayed home, but then they would have missed out on the opportunity to improve their lives and find happiness. Their lives would not make me happy, but then neither would the lives of many of US residents.

  24. Gary,
    It’s very good article content wise, and I appreciate the links to your earlier posts, especially the one about how the US carriers can compete against the ME3 (I may post a belated comment on that one). Pity about the photo though. Not the best choice. By bringing the T word into your article you’ve done a “Richard Anderson” in reverse.

  25. Obviously you do not know or care how repulsive ISIS is, and what it is doing in the Middle East. So yes, people are rightly upset you’ve used such a photo to promote your blogs.

    ‘First, focusing on and complaining about the picture that accompanies summary text and isn’t even in the post just seems … strangely misplaced”. Then why did you use the picture if it’s not in the blog?

    ‘Second, ISIS is central to the argument.’ Really? Clicking on the ” priority is cooperation in the perpetual War on Terror generally and fighting ISIS specifically.” tag in this blog takes you to another one paragraph section in another long article. ‘Central’, really?

    Just because something is in the public domain doesn’t mean it is right.

  26. As someone who has been reading this blog for nearly a decade and respects you as a blogger and travel expert, I am very disappointed by your choice of picture. Regardless of you mentioning the US needing cooperation in the region, pairing photos of terrorists and any article about the middle east only reinforces backwards Americans who excited by the idea of Donald Trump-branded xenophobia.

  27. @ Gary Yeah I’ll keep “goin on.” A lot of people are seeing the same thing regarding your recent clickbait articles, and this is a new low using ISIS fighters. Really?? You could mention ISIS, obviously… seeing that they are a hot topic across the globe right now. But to use ISIS fighters as your image and somehow connecting them to the ME3 airlines?? Come on.

    “Thought leader” hahahaha what the hell man. Selling out.

  28. Gary,

    Surprised to see you responding to the trolling, especially since there are clearly multiple posts by the same person, just changing their login name, thus the back to back similar comments.

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