More on Why the US Airlines Can and Should Shut Up and Compete With Gulf Airlines: Emirates New Business Class Will Be Inferior

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.

In the mythology promoted by US airlines, the big Gulf carriers Emirates, Etihad, and Qatar don’t care about economics, they only care about winning market share and providing luxurious products in the sky that US airlines cannot match. So they irrationally throw planes one routes at low prices and lure US customers (that ‘belong’ to US airlines) with quality product that no ‘sane’ airline would offer.

Gulf carriers dispute they’re subsidized. Etihad claims to be profitable, Emirates really is profitable. Unquestionably the UAE and Qatar have strong pro-aviation policy biases that benefit their home carriers.

And US airlines are hugely subsidized, too. They constantly lobby for subsidies. Delta, which is cutting back its Tokyo hub, inherited the ‘beyond rights’ there with their acquisition of Northwest which gained a Tokyo hub as part of the spoils of World War II. US Airways, United, and Delta offloaded about $20 billion in pensions from their books and onto the government Pension Benefit Guaranty Corporation through the bankruptcy process. US Airways and America West got billions from the Air Transportation Stabilization Board. The Reconstruction Finance Corporation funded American’s first major aircraft order.

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.

But it’s actually because I love the US airlines that I don’t want them to become profitable through government protection, I want them to get better and compete successfully.

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.

American’s 777-300ER, retrofit 777-200s, 767s, and 787s are all four-across fully flat in business class. They offer direct aisle access from every seat. These are world-leading products (though I’m not a fan of business on the narrower 767).


American Boeing 787 Business Class Seat: US Airlines Have Generally Better Business Class Products Than Gulf Counterparts

Delta offers similar all-aisle access, though again I hate the 767. They’re retiring their 747s which have the best business seats in their fleet. But the 777s still offer a good product.

United is due to announce a new business class seat. But at least they’re fully flat on international flights to and from their hubs. The old dorm-style fully flat 777 from the legacy United operation notwithstanding, they have a decent albeit not world-leading product.

In contrast, Emirates has a fully flat business seat on their Airbus A380s but is angled on their 777s (and was an early adopter of 10-across seating in coach).

Emirates hardly invests in product irrationally. They have a top quality first class, but their suites are some of the tightest space-wise, squeezing in 14 into their A380 cabins. And their showers don’t trade off with space that would otherwise be able to hold more passengers.


US Airlines Believe Emirates Showers in the Sky are Unfair

Meanwhile, they move aircraft around to match demand. They pulled the A380 from Houston, temporarily from Dallas, and cancelled plans for Panama City service. That’s not the caricatured behavior the US carriers would have you expect.

Emirates will finally be unveiling a fully flat business class seat for their Boeing 777s. But far from ‘all aisle access’ 4-across seating they’ll be going with 7-across, two-three-two.

And while new Boeing 777-300ERs will get this seat, they won’t even be retrofitting existing 777s which they’ll start to retire in 2020.

As the late Fred Thompson said in Die Hard 2, “Stack ’em, pack ’em, and rack ’em.”

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.

It’s time for the US airlines to promote the investments they’re making. When they whine about unfair competition from the Gulf carriers, they promote the view that the Gulf carriers are better and they need protection. The Gulf carriers aren’t necessarily better, US airlines don’t need protection, and consumers shouldn’t take it on the chin to subsidize American carriers further.

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. More absurd arguments. Go start a business and compete against government-owned enterprises that are getting billions in annual subsidies. Yes, all airlines — including USA airlines — get SOME help from their governments in some way. But NOBODY gets these billions. That’s what this is all about — leveling the playing field.

    Note that you haven’t seen ANY cutbacks in expansion by the Mideast Three — and now Turkish — despite obvious economic and political problems in their home countries (things like terror and the 70% drop in oil prices).. It would be like if the USA airlines piled on new capacity in early 2009 at the height of the Great Recession. Had they been part of Obama’s stimulus program, they would have. But they are private enterprises, and had to take steps to conserve cash and survive.

    Until the Middle East airlines start behaving like real businesses, the USA airlines have every right to complain about them. And the USA gov’t should do everything it can to protect them and their American jobs from this absurd situation.

  2. @iahphx SOME help? $20 billion in pensions. A Tokyo hub thanks to US armed forces victory over Japan. Government-backed financing for AA’s first aircraft order. Billions from the ATSB. Subsidies for Delta’s oil refinery. Fuel tax abatements. Plus in much of the world airports are privately owned and financed, not in the US (well, Branson Missouri..). And air traffic control.

    Would that these were ‘private enterprises’ when the government was handing out all that cash!

    Delta is joint venture partners with Etihad. I mean Alitalia. So Etihad’s transatlantic flying is fine as long as Delta gets a piece.

    And Delta is part-owner of the most subsidized Chinese airline.

    And Saudia’s fleet was purchased by the government of Saudi Arabia, but no complaint there.

    The US airlines are heavily subsidized. They’re more profitable than any other airlines in the world. And they want MORE. MORE. MORE. Not just indirectly from people via the government, but directly from passengers because Delta has asked for limitations on flight options and to outlaw lowering of prices.

  3. In my opinion there’s a difference though….and I’m Portuguese, so I have no reason to be deffending the American carriers. Sure…the big US airlines got huge help here and there but the Middle East ones get it on a daily basis. Nobody is paying for AA or United or Delta fuel…I think.

  4. @Mauricio – the US airlines got it in the startup phase (the government through the postal service was their primary customer). the government protected their profits all the way from startup through the late 70s prohibiting competition of lowering fares that would threaten those profits. the government doled out billions 15 years ago. america west and us airways, now part of american, got billions. the government provides the airports. and air traffic control. and if you think the airlines haven’t been getting fuel tax subsidies then you’d be mistaken (although last i looked last year the georgia state subsidies to delta had just expired).

  5. @Gray

    Alright. I have no arguments because I don’t have nearly as much information about it as you do. Here in Europe (European Union) the governments can’t even help the airlines, even the ones that are still owned by them. Still, it is clear that Emirates and others have grown the way they did thanks to the many many billions coming from their governments.

    Cheers.

  6. Are you sure AA/US unloaded it’s defined benefit pension plans to PBGC? I don’t think so. It was the PBGC contention that AA had so underfunded their pension plans, if AA shagged the pensions to PBGC, PBGC would become the largest creditor, owed $10 billion by AA.

  7. @Mauricio European airlines, of course, ARE helped by governments… such as the German government protecting Lufthansa from competition (airberlin codeshares) and of course airberlin and Alitalia are getting massive subsidies from…Etihad! 😉 And the single largest owner of British Airways and Iberia is… Qatar!

  8. @Bill that’s why I wrote, “The old dorm-style fully flat 777 from the legacy United operation notwithstanding, they have a decent albeit not world-leading product.”

  9. As far as the seating arrangement goes, I bet its going to be the 2-3-2 set up currently in use by Japan Airlines and Oman Air. They are using the same manufacturer and they seem to have similar dimensions. If that is the case, they would be putting in an industry leading product where every seat has aisle access.

  10. There are several excellent news articles about why the “pension bailout is the same thing” argument is wrong. See, for example:

    http://www.forbes.com/sites/tedreed/2015/04/24/gulf-carriers-get-it-wrong-pension-benefit-guaranty-corp-doesnt-subsidize-it-insures/#70ca87a52ec5

    There is no doubt that USA laws help our businesses. If they didn’t, we would be the world’s economic superpower. The nature of commercial aviation requires particular cooperation between private enterprise and gov’t. Somebody needs to build the airports and ATC systems, and somebody needs to regulate safety and the myriad of other public interests involved in aviation. This happens in just about every country in the world. What has not happened before is government handing out billions and billions of dollars to create mega airlines where — were free enterprise left to its own devices — none would exist. The idea that Emirates, Etihad and Qatar are “airlines just like every other airline” is, frankly, nuts. For this reason, our gov’t needs to carefully consider whether open skies is appropriate with countries that will literally spend to the sky to build airlines that make no traditional economic sense.

  11. Can I get an Amen!!!! I always love reading your points on this matter and they’re always spot on.

    I’ve lost so much respect for my countries airlines after they started their bitch fits and have said the same things as you have here, some of the hard products are way better than Emirates 777 hard product, as far as seating config go. But FYI, the Boeing 777 seats have been flatbeds for some time. Only the older 777 are still at that awkward angle

    Keep up the good work

  12. Can I get an Amen!!!! I always love reading your points on this matter and they’re always spot on.

    I’ve lost so much respect for my country’s airlines after they started their bitch fits and have said the same things as you have here, some of the hard products are way better than Emirates 777 hard product, as far as seating config go. But FYI, the Boeing 777 seats have been flatbeds for some time. Only the older 777 are still at that awkward angle

    Keep up the good work

  13. If the ME3 were subject to the same labor laws of all US companies, they wouldn’t be doing so well.

  14. You are aware that this business class is industry leading, and has just been called most favorite business seat by one mile at a time, and is the product of JAL, KAL, Oman? Or are you just an uninformed, trump-ish, “thought leader”?

  15. I’m generally on the ‘US airlines need to get a life’ argument. However, he labor law differences do make a HUGE diffference. If the US airlines kept their workforce a un-unionized, never had to worry about FA pensions b/c they aged out at 35 and could fire at will, the scene would be a lot different.

    The government sets the rules, and actually makes it tougher here for US airlines to compete. The airlines have a point on this, but by their government making it harder to compete.

    That said, that’s never changing. The ME3 aren’t allowing unions, and union protections aren’t going away in the US.

  16. Contra @chasgoose who wrote, “I bet its going to be the 2-3-2 set up currently in use by Japan Airlines and Oman Air. They are using the same manufacturer and they seem to have similar dimensions. If that is the case, they would be putting in an industry leading product where every seat has aisle access.”

    I didn’t expect this because if they were offering direct aisle access they would have included it in their announcement.

    And in fact now that we’ve seen the seat we know there’s no direct aisle access. Pathetic product, really.

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