Airline CEOs Meet With President Trump This Week to Kiss The Ring, Conspire Against You

US airline CEOs will meet with the President on Thursday to beg for protection from those scary (much smaller) Etihad, Emirates and Qatar who already aren’t permitted to operate in the US domestic market.

Hopefully FedEx Chairman Fred Smith will be there to talk about how important OpenSkies treaties are for U.S. jobs.

The complaint by corporate welfare queens Delta, American, and United went nowhere under the last administration for good reason. The US airlines are highly subsidized, and subsidies do not in any way violate our treaties.

Delta’s CEO has been enthusiastically talking up Donald Trump — because he think he can play the President in order to screw consumers. Remember the goal — as spelled out by Delta — is “new rules on price-lowering” meaning higher prices for airline tickets.

Delta’s hypocrisy here knows no bounds — partnering with state airline Saudia (which is bigger than Etihad) while invoking 9/11 as a reason to crack down on Emirates, Etihad, and Qatar but not the airline of Saudi Arabia. Not to mention profiting from a joint venture across the Atlantic with Etihad-controlled Alitalia, though complaining about Emirates flights across the Atlantic and ownership in China’s most subsidized airline.


Banner for ‘9/11 Truth’ event at national mosque in Kuala Lumpur

Meanwhile Doug Parker runs American Airlines today as a direct result of government interventions.

Doug Parker personally made the successful case for federal government subsidized loans for American West Airlines when he ran that carrier. He argued that the airline wouldn’t survive without government backing.

America West was sound enough that Parker was able to merge it with US Airways (as US Airways came out of its second bankruptcy in two years) before going on to merge the US Airways operation with American.

When US Airways exited from its first bankruptcy of the last decade in 2003, it did so with $900 million in loans backed by the federal government. Not only that but the State of Alabama’s retirement fund became the largest owner of the airline, kicking in,

$500 million in interim financing, $240 million for an equity stake, $75 million in at-risk financing and a refinancing of $340 million in US Airways jet leases

US Airways even received free advertising on the chain of television stations owned by the State of Alabama. It was precisely the bad investments made by Alabama retirement chief David Bronner that put US Airways into Parker’s hands. (Ironically, the Alabama pension system would have made money on US Airways if they had gone in with Parker on it after the second bankruptcy but Bronner refused because he wouldn’t get to be in charge saying “They just want your money and don’t want you to have any control.”)

Moreover US Airways offloaded four pensions on the federal Pension Benefit Guaranty Corporation at a $2.8 billion loss to the agency.

And the federal Pension Benefit Guaranty Corporation actually played a direct role orchestrating who wound up in charge at American Airlines. They helped swing the American Airlines bankruptcy creditors committee to support a merger with US Airways — because the US Airways plan didn’t involve terminating more pensions while a standalone emergence from bankruptcy, with pension termination, would have made the Pension Benefit Guaranty Corporation the largest airline creditor swamping claims held by that committee.

American’s CEO is in that chair because the government put him there.

US airline employment is at an all-time high. US airlines are the most profitable in the world. Even if there could be a dubious case to protect certain types of infant industries, there is no credible economic theory in the world that recommends protectionism for mature and profitable industries.

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 »

More articles by Gary Leff »

Pingbacks

Comments

  1. Sadly Trump’s view of the airline industry is going to be colored not by what the current state of the airline industry is but what his experience with the airline industry was like in the late 80s and 90s. We know Trump isn’t very interested in learning about new things, so I think he will just rely on his own experience and just assume its the airline industry is pretty much the same as it was back then, which it most certainly is not. These airline CEOs are going to suck up to him and stroke his ego and he will give them whatever they want at the expense of passengers.

  2. Gary – still doing your Trump hate articles. Get over it, he is the President. You were the best miles and points blogger at one time. This political sthick gets really really old.

  3. with UAE and QATAR being key in the fight on terrorism, even the orange retard will not cave to the 3 stooges

  4. great article. expose what’s going on in the airline industry.
    i bet no ceo flies in shrinking economy seats!

  5. Thanks, Gary — higher ticket prices will directly affect me, my friends and family, and all who fly various U.S. airlines, and so it’s important to make sure these issues stay in the light.

  6. i am not sure that photoshopped picture of our president is appropriate. then again, it’s your blog, Gary.

  7. Gary… there’s no point trying to explain things to Mike. The chap clearly struggles with reading. Not hard to figure out who he voted for.

  8. I don’t think it it’s too late for me to get in to the bankruptcy restructuring business. I made my initial money off of patents, but seeing how profitable it is to buy up companies in bankruptcy and offload liabilities to the PBGC to restructure as a leaner company, I’m going to have go learn this field.

  9. Delta and the Donald – two of the slickest bald-faced liars out there. How they can spew their outrageous “versions” of reality with straight faces continues to amaze.

  10. Are the 3 majors asking for open skies with the ME3 to end or what? Gary, you are not saying exactly what the 3 majors are wanting. The company that stands to lose the most is FedEx. But Dubai is a much smaller market, than for example Guangzhou. Trump is actually antagonizing the Chinese on a weekly basis, losing Guangzhou and/or Shenzen would be disastrous for both UPS and FedEx. The 3 majors have always advocated for open skies, but when the skies are truly open, US carriers have a tough time competing. While the 3 majors have considerably improved their business class products, they really don’t have a 1st class product to compete with. And, I think ME3 could use other retaliatory tactics as well.

    I don’t think this post is anti-Trump. Guessing what Trump will do is like a crap shoot.

  11. You just like the gulf airlines so you can fly in suites and dine on booze and treif to the concrete jungles of AUH/DOH/DXB, visit some silly museum, and stay at some likely state backed Hyatt or Starwood managed property on the cheap.

    You don’t want to pay what’s germane to your consumption you are always looking for ways to get something for nothing with the airlines and teach your flock to do the same.

  12. @josh g
    You stupid attack chihuahua, at least say which airline you work for
    None of tje us airlines can compete on service with any of the ME3, and besides how is it any if your business what gary eats or where he shits?
    Focus on the facts

  13. “there is nothing in this post critical of the President” just to piss off commenter “anon” I’m going to add (sic) to that. 🙂

    Except of course the photo with the fake photoshop of “no more competition”, which ironically is the opposite of Trump’s economic program.

    Well Gary, I’ve got bad news for you, and for all of the other Never-Trumpers out there.

    Rasmussen Poll is the most accurate US polling company, correctly calling the last 3 POTUS elections within the margin of error, including calling the last one for Hilary (popular vote) at 2%.

    Rasmussen is currently reporting that Trump’s favorable/unfavorable rating among ‘all likely voters’ is 54% favorable. And that 58% approve of the 3 month pause for travel from the 7 failed nations that was composed by the Obama administration. 😉

  14. @ robert hanson
    And?
    What is the point if your post?
    Also it doesnt matter hiw many rednecks support trump’s order, luckily the courts have the last word

  15. @Robert Hanson the photo describes what the airlines WANT and think they have a chance of getting, not any aviation policy that has been enacted.

    @Josh G you have clearly failed the ideological Turing test.

  16. Thanks, Gary, for pointing these things out. Let me add a few things. As an old Pan Amer, I remember when Pan Am was going bankrupt and Delta said it would buy our routes and leave enough money for Pan Am to survive with a few little routes in the Caribbean. Guess what? On the day of signing the contract they pulled out and got all of Pan Ams routes for NOTHING! Of course Pan Am died then! Great moral character they have. They haven’t merged with any airline recently, but around that time they merged with several airlines and all the F.A.’s made 30% less than Delta F.A.’s for 3 years. Don’t know about other employees and of course the seniority really sucked. When Pan Am bought National, we gave them our salary(big bump!) and good seniority. So I hoped they learned to treat all their F.A.’s equally when they bought NorthWest. They sneak around and help themselves.

  17. Richard Hanson…how did you turn this into a tirade on Never Trumpers? Gary has been making this point as long as I can remember; either you agree or disagree with him. And you lose credibility when you cherry pick your polls.

  18. Keep the good analysis coming, Gary. As others have noted, you were highlighting these important issues long before Trump become president.

    I write this as I contemplate a possible government-funded consultancy that will require me, under the Fly America Act, to use a U.S. airline to travel overseas even though it will cost U.S. taxpayers more than foreign airlines would.

  19. @Josh G – he was a big supporter of Clinton, as I’ve written (he donated heavily), however he was enthusiastic about what Trump and Bernie Sanders would do on trade, and the position they pushed Clinton into on that.

  20. At one time I believed this was the best travel site out there. Not any more. I’m sick of Liberal/Social Terrorism. Let Trump develop a policy AFTER his meeting before you trash the airlines or the president. No more View From The Wing for me, I’m done.

  21. Great analysis, Gary! Explains the facts very well, and lays bare the reality that the “Big 3” US legacy airlines’ shameful hypocrisy know no limits. They love getting all sorts of goodies from taxpayers, be it in the form of sales tax exemptions, state and municipal funding (direct and indirect in the form of payments, guarantees, or landing fee exemptions to begin service in new cities and below market interest rates from municipal bonds, respectively), plus the vast array of tools from the tax code, bankruptcy protection and more offered at the federal level. On top of all that, as you noted, the airline industry went “hat in hand” to Congress and begged for substantial taxpayer funded bailouts in the months after the 9/11 terror attacks. So the notion that the playing field is unfair and they’re facing heavily subsidized foreign competitors, is, as you noted, total bs. They have no problem when they’re being subsidized, but cry foul when others with a much better product force them to step up their own game to remain competitive. So of course, they now believe they have a chance to present their version of “alternative facts” to a new administration that has already admitted through its principal spokespersons that facts be damned and it, too, will bend the truth to serve its own needs. As you noted, hopefully, representatives of FedEx, UPS, jetBlue and Alaska Airlines will have an opportunity to debunk the myths presented by the CEOs of the “Big 3” legacy carriers on Thursday’s upcoming meeting at the White House.

  22. If you think about it, you are essentially committing the same hypocrisy that you are criticizing the US carriers for. You want the low prices afforded by Gulf carrier subsidies, so you are lobbying against protections for U.S. carriers. They are just lobbying for what they feel is an unfair trade practice.

    You say it doesn’t violate trade agreements, but I don’t think that is correct. Subsidies violate a section of the Open Skies agreements that ban airlines from charging “prices that are artificially low due to direct or indirect government subsidiary or support.”

    And while you point out various forms of subsidies US carriers have received in the past, that is a disingenuous argument without putting the magnitude of subsidies in context. Emirates, Etihad, and Qatar combined have received more than $42 billion in government subsidies since 2004. That is an enormous amount of subsidy relative to any US government intervention. Saying the U.S. carriers can’t complain about the gulf subsidies because they too have been subsidized is like saying China was evenly matched with the Dream Team because they too had an NBA player in Yao Ming.

  23. @Rob you are mistaken, the Open Skies agreements (eg here’s the US-UAE egreement https://www.state.gov/documents/organization/125743.pdf) do not “ban” airlines from charging prices that are artificially low, they allow intervention if such prices are charged [article 12.1.c]. This is not grounds under the agreement for abrogating the Treaty.

    However even the US airlines’ white paper (which includes blatant fabrications) does not purport to demonstrate this is happening. US anti-trust law has standards for evaluating whether it’s going on, and if an airline would cover its marginal costs filling a plane at the prices charged then it is NOT charging prices that are “artificially low.”

    New flights are often priced inexpensively, and competitive routes are as well, we just saw $580ish fares on United and American to Australia over the weekend for instance.

  24. @Rob the magnitude of subsidies received by US airlines is at least as great — about a quarter of the figure you cite was offloaded by the major airlines onto the federal Pension Benefit Guaranty Corporation alone, the subsidies in the airline white paper cite airport costs that are subsidized in the US, Delta and United established hubs in Tokyo subsidized by the US military battles of World War II, there are plenty of ways to add up figures that are twice as large for US airlines.

  25. TTil, you may want to take a cue from what happened to the Democratic Party. Reasonable people get tired of the negativity and turn elsewhere. The gratuitous Trump bashing (quickly followed by a denial of same), is getting old.

    MAGA.

  26. @Gary, I appreciate the additional color on your views. I would say that we are not really in disagreement on the Open Skies interpretation. I think banning the practice of price dumping is the same thing as allowing intervention if such prices are charged. That is essentially what the US carriers want…some kind of intervention (tariff or other) that neutralizes the effect of gulf subsidies, but more importantly discourages such behavior from others in the future.

    As far as the white paper goes, fabrication or not, the mere fact that $42 billion has gone into the companies means it is coming out of something. It is kind of like the disparate impact argument used to prove discrimination. I.e. you can demonstrate all of the fair hiring practices you want but if at the end of the day you have no people of color working for you, you lose.

    Lastly, I don’t think your examples of US carrier subsidization are fair. The offload of underfunded pensions on PBGC was in exchange for equity and pursuant to a bankruptcy, meaning existing holders were wiped out…not subsidized. Furthermore, bankruptcy should start the tally of subsidy back at zero since pricing is going to be based on profitability demanded by current ownership, which turns over to new ownership coming out of bankruptcy.

    And if you are going to count the benefits from World War II as a kind of hidden subsidy to the US carriers, then let us be fair and also calculate what the hidden subsidy to the gulf carriers has been from the trillions the U.S. has spent on middle east security. One could argue Saddam would not have stopped at Kuwait if the U.S. hadn’t stepped in. This, I just think is a weak argument to make on either side and should not be considered at all in the final equation.

  27. @Gary “@Robert Hanson the photo describes what the airlines WANT and think they have a chance of getting, not any aviation policy that has been enacted.”

    The problem is you have put up a photoshop that makes it look like Trump is promoting this policy, which we all know is false. If it’s what the airlines want, then put it on a picture of an airline exec that you are sure is promoting that, not a picture of Trump, who so far as you actually know, is not.

    As DJT would tweet: ‘So dishonest; Bad’….

  28. @Rob I think we go back BEFORE world war II… because you compare like periods in the development of the airlines in question. American Airlines had its first big aircraft order subsidized by the Roosevelt Administration’s Reconstruction Finance Corporation (American’s CEO had been best man in Roosevelt’s son’s wedding by the way).

    And offloading obligations in bankruptcy, even aside from the PBGC, amounts to a subsidy in this context when liabilities are removed from a company’s balance sheet by government fiat. I totally get what you’re saying that they aren’t a subsidy TO INCUMBENT SHAREHOLDERS [although remember that shareholders DID get payout in the American bankruptcy for instance after making unsecured creditors whole] but in terms of the kind of international competition that the US airlines are talking about — government advantaging the airline against other carriers — it sure seems to qualify.

  29. @Michael T “Richard Hanson…how did you turn this into a tirade on Never Trumpers? Gary has been making this point as long as I can remember; either you agree or disagree with him. And you lose credibility when you cherry pick your polls.”

    My point should have been quite clear. Gary has been posting post after post for the past week that are implicitly anti-Trump. And that’s getting quite tiresome. For people like me who would like Trump to have some time to either prove him can make things better, or fail. And probably also for folks who detest Trump, and would just like to read posts about travel, and not be reminded that Trump is indeed the POTUS.

    I fail to se the point of just trying to delegitimize him before his cabinet has even been approved. Especially on a travel blog.

    Unlike the mass media, I am not “cherry picking” my polls. The media keeps quoting the failed polling groups that predicted a Hillary landslide. I quoted the only polling company that correctly called the last 3 POTUS elections in a row, including the popular vote from 2016 within one percent. You can keep on believing the Pew and Gallup polls if you wish, which produce their fake results by polling 10% more Democrats than Republicans, but it will only make you less informed. Hillary believed them, and it added to her loss. Her followers believed the fake polls and so were far more devastated then they ought to have been.

  30. @ Gary…interesting history, I did not know that (before WWII is definitely not my wheelhouse LOL). Fair enough, points taken. I would argue the US discharges you describe aren’t subsidies, because the fact that the government would ultimately discharge certain obligations in bankruptcy was not something that was factored into their thinking when they were pricing their product since that same event would ultimately wipe out their equity ownership. So there would be no incentive for them to underprice in expectation of the amounts you are labeling subsidy after the fact.

    But don’t get me wrong…I am really not defending Delta by any means, I can’t stand them. I’m just saying they have a legitimate gripe.

  31. For a more objective (and factual) analysis of these issues, Google reporter Ted Fred’s work in Forbes and thestreet.com. Ted isn’t on anyone’s payroll and hasn’t been bought.

  32. @lahphx
    1: which one the big three’s bosses you brownose for money?
    2: has gary been bought?
    3: what facts in gary’s blog are not true?
    4 open skies does allow for fifth freedom

  33. @Gary — “Fake news” has nothing on the facts contained here. Like the smear that Ted Reed “was an executive speechwriter at US Airways.” He’s actually been an aviation reporter for almost 30 years. After being let go by one newspaper (tough business) he worked for US Airways for less than a year — leaving when Doug Parker showed up! As you know, he’s one of the most knowledgeable reporters covering the industry. And he’s written several articles that show — with real facts — that your view on this issue is wrong

    Your reference to America West’s gov’t loan is similarly Pravda-like. Unlike the billions annually received by the Middle East airlines from their government, America West borrowed money from the Feds after the 9/11 terrorists crashed airplanes into the World Trade Center and no bank would provide lines of credit to the industry. Parker MADE the US government $112 million on that loan. Some subsidy!

  34. @iahphx are you really suggesting that when government makes money on a subsidized loan it’s not a subsidy? [what about opportunity cost?] was the government bailout of the auto industry not a bailout? #WarIsPeace [and separately all US airlines got direct cash payouts – not loans – in the aftermath of 9/11…. Midway Airlines even re-started operations even though it had previously shut down, since the formula used meant they got money too… didn’t last long!]

  35. A Subsidy is a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive. By definition if it is paid back, it isn’t granted…and most of the examples being cited happened after pricing decisions were made…bailouts are not subsidies.

Leave a Reply

Your email address will not be published. Required fields are marked *