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