How the Fallout From Charlottesville May Help US Airlines Crack Down on Middle East Competitors

Delta, American, and United have campaigned for two and a half years to get the US government to limit flights and low prices by Emirates, Etihad, and Qatar. Delta declared their hopes were with the Trump administration whose views of foreign competition matched their own.

Politico reported that Nationalists in the White House were the best hope that Delta, American, and United had of getting the Administration to do to their competitors what the Obama administration wouldn’t. Steve Bannon’s departure from the White House, then, made it much tougher for those airlines to take advantage of consumers by using the government to enforce higher international airfare prices.

But now White House economic advisor Gary Cohn — likely the most skeptical of the big US airline’s demands for protectionism and the primary opponent of the Bannon-Peter Navarro power axis in the White House — has publicly chastised the President over his remarks about Charlottesville.

Gary Cohn, Trump’s chief economic adviser, has given an interview to the Financial Times in which he in no uncertain terms criticizes the Trump administration’s response to the violence in Charlottesville at a white nationalist rally, which led to the death of a counterprotester and 19 injuries, after a car crashed into crowds.

..“Citizens standing up for equality and freedom can never be equated with white supremacists, neo-Nazis, and the KKK.”

It would be tough for the President to fire Cohn after his remark that “[a]s a Jewish American, I will not allow neo-Nazis ranting ‘Jews will not replace us’ to cause this Jew to leave his job” but publicly coming out against the President’s ‘both sides are to blame’ comments may severely reduce Cohn’s influence with the President.

But Cohn wasn’t really talking about neo-Nazis tempting him to quit; he was talking about the president doing that. And his comments amount to a pretty stunning rebuke of his boss.

We’ll see what his boss does about it, because we’re in pretty uncharted territory here.

Make no mistake, if Delta, American, and United get the Administration to abrogate its Open Skies treaty obligations and limit flights by Emirates, Etihad, and Qatar it’s because Chief Economic Advisor Gary Cohn is sidelined. They’ll have won because of Cohn’s pushback over the President’s statements after Charlottesville.

That would be a sad but fitting end to the jingoist campaign the airlines have run.

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. Obviously, any of us would be speculating on the political fallout of the Cohn’s remarks. As you may recall, the stock market fell sharply on rumors of Cohn’s resignation and a rising stock market is one of the few positive signs the President has been able to regularly tweet about. Therefore, it’s quite possible that in the aftermath of Charlottesville, Cohn’s influence has increased as the President fears the fallout of a resignation. Certainly, it’s not definitive that this is the case, but, in my opinion, it’s as likely as is argument of declining influence.

  2. I don’t know about your logic. Don’t think anyone in the building is thinking too deeply about this topic.

  3. @Jerry the way the US3 win is if Cohn’s influence diminishes. I’m not predicting that. I’m saying if they win it’s the result of diminished influence which would be traced to his speaking out against Trump’s remarks on Charlottesville.

  4. Not too clear whether Cohn has more leverage or less with POTUS as a result of his comments vs his staying on vs influence on stock market.

    What is clear is his spinning his decision to stay. It’s not the neo-Nazis chanting that are a reason for him to resign, it’s the POTUS he works for putting neo-Nazis on the same level as backers of equal rights. But it seems all his personal anguish is less important than a potential Fed chairmanship and tax cuts which will deliver the vast majority of their benefit to the very rich.

  5. I think Cohn is just against tinkering with the Open Skies agreement, but that isn’t really what the US carriers want, they just want enforcement of the fair competition part of the agreement so I don’t think Cohn would stand against that. I’m also not so sure Cohn is top 5 player in this issue. Ross, Chao and Tillerson are probably going to be the ones spearheading any action the administration may take, and they are far more likely to recommend some action.

  6. @Rob you are 100% mistaken.

    They do not want enforcement of the Open Skies agreement, because the Open Skies agreement does not in any way prohibit subsidies to airlines (and even contemplates government-owned airlines).

    The only mention of subsidies is that they cannot lead to airfares which are artificially low — something that the airlines have alleged only in the media and haven’t come close to demonstrating, certainly not by the dumping standards that the US airlines themselves have advocated for in front of DOT for decades.

    And the reference in the Open Skies treaty to ‘fair competition’ is specifically about removing government barriers to flights, not imposing them. Read the treaties..

  7. @ Gary
    Are you sure? Sounds to me like they want enforcement of the Open Skies agreement. This is from the horse’s mouth:

    The Partnership asserts that a specific breach exists, and points to article 11 of the Open Skies bilateral agreement between the U.S. and the UAE, which states that, “each Party shall allow a fair and equal opportunity to compete.”… “The United States government has long recognized that a fair competition provision is relevant for subsidies.”

  8. Because I respect Gary, I read the article three times to see if I can see the logic.

    One. It seems like a stretch. Trump is not a tabula rasa being run by his advisors. He is collecting the advisors to help him with his agenda, not the other way around. Back when Trump was running in New Hampshire, and I thought he was a left wing plot to hijack the conservative movement, I read Trump’s book written in 2011 well before the election “Time To Get Tough Make America Great Again”. It is a short 2 hour read (if that) (Yea, Trump is not sophisticated). I realize that liberals do not read anything they do not agree with. However, reading this book is less time than seeing a Harry Potter movie for the third time (which I have done, Harry Potter is great). Within reason, Trump’s agenda more or less follows his book. Gary Cohn or Steven Bannon or Sebastian Gorka are important, but to think they determine what Trump says or does is overreach. LOL, the whole stock market is not going to crash because of Gary Cohn which I have been reading everywhere right now.

    Second. Nothing wrong with conjecture, however, Gary’s conjecture seems to be based on the opinion of Politico. As a student of history, I believe in relying on primary sources, not secondary sources. Trump makes speeches every day. Bannon had a long interview before he left. Gorka talked on Fox every day. Cohn also had an interview. I am sure these things are accessible on the internet. Gary please base your comments on actual primary sources, rather than opinion pieces on Politico dressed up as news.

    Third, I am totally against the Trump administration acting against the Emirates, Etihad, and Qatar. To be honest, I have no idea whether or not such action is justified. I do know which side my bread is buttered on. Once the AA, DL, and UA get that, they will use it as a weapon against every other international airline. Get rid of Asia competition in LAX, threaten CX, NH, JL and so forth with action. We will end up with the same crappy service from USA worldwide, that we have in the USA. Prices for international travel, which are somewhat reasonable right now, will skyrocket.

    Fourth. Before I get some ad hominem attacks from the left wing commentators here, I will cite something I learned in second grade: “I am rubber and you are glue, whatever you say bounces off me and sticks on you. PERIOD.” Not go at it. Call me every name in the book. I won’t respond.

    Fifth. Due in part to Gary’s execellent blog, I flew First Class on ANA/Thai to JFK-BKK. It is great here. I cannot imagine anyplace I would rather be at the moment. Land of Smiles. And again, I will fly First Class on CX on the way back partially do to this blog. I think even Greg’s comments on travel here have been useful despite his left wing leanings.

  9. @Rob — that’s my point exactly.

    They are misconstruing article 11. Article 11 is clear that fair competition means ALLOWING airlines from each country to fly more or less as they wish. Article 11 doesn’t mention subsidies. Article 12 does, and says subsidies are an issue only when they lead to unsustainably low pricing.

    Read the treaty yourself, don’t read Delta/United/American’s self-serving misconstrual of the treaty.

  10. @Gary, I get the point you are making. But…the text I posted is the argument the US3 are actually making, in their own words. I suspect the reason they are focusing on article 11 instead of 12 is because they view it as more of a fair trade issue than a pricing issue that they can prove on definitively exact products.

    The mideast carriers are smart enough to know that if they started being obvious about price dumping, like selling business class tickets for $200, for example, everyone would flip out and penalize them under article 12. It would be easy to show with that massive price differential being the smoking gun.

    But, they are smart, so they charge the same $3,000 everyone else is charging, except with their tickets, you also get to sit in a throne, have a few hundred dollars worth of champagne and caviar, a few hundred dollars of limousine rides and catering/spa services in their lounges far beyond what the competition is offering. There’s a reason their product is so much noticeably better than everyone else’s…they are losing money to provide these differentiating perks…lots and lots of it. Even with their ability to hire slave labor from southeast asia and their ability to discriminate against “grandmothers” as flight attendants, which U.S. carriers will legally never be able to match either. Thus, why it really is exactly what the Big3 says it is…a fair competition issue. It is not fair competition if your competition is allowed to lose money and ignore laws you are beholden to.

  11. @Rob “I get the point you are making. But…the text I posted is the argument the US3 are actually making, in their own words.”

    Yes, they are lying because the text of the treaty doesn’t support their argument. Go actually read article 11. It’s literally about letting any airline from a signatory country fly wherever and whenever they want. THAT is what the treaty is talking about as ‘fair competition’ as in ‘no barriers to flying’.

  12. @rob I really don’t get what slave labour you are talking about. The employees of these airlines (and a few are my friends) are hugely thrilled with the way they get treated. Yes, there are rules for how you should look, but then how’s that different from SQ?
    Are there labour contractors who abuse their labour? Yes. However most of the companies supplying labour are fair to their employees in the Middle East. Please get over this slave labour “argument”

  13. @Gary
    Just because they interpret the agreement differently than you do doesn’t mean they are lying. Are they trying to expand the application of article 11 to suit their agenda? Sure they are. You know, kind of like what the democrats tried to do with expanding the application of the emoluments clause. Were they lying too?

    @747always
    The labor abuses are well known. Just google it.

  14. @Rob – it’s not merely a difference in interpretation. It’s not ‘expanding the application to suit their agenda’ it is taking article 11 which has nothing whatsoever to do with what they say it does and fabricating a claim. Did you go read the treaty?

  15. “Fair Competition” in Open Skies Treaties means not standing in the way of flights, allowing flights by airlines from treaty countries on an equal basis as flights from one’s own country. It means nothing else.

    Article 11

    Fair Competition

    1. Each Party shall allow a fair and equal opportunity for the designated airlines of both Parties to compete in providing the international air transportation governed by this Agreement.

    2. Each Party shall allow each designated airline to determine the frequency and capacity of the international air transportation it offers based upon commercial considerations in the marketplace. Consistent with this right, neither Party shall unilaterally limit the volume of traffic, frequency or regularity of service, or the aircraft type or types operated by the designated airlines of the other Party, except as may be required for customs, technical, operational, or environmental reasons under uniform conditions consistent with Article 15 of the Convention .

    3. Neither Party shall impose on the other Party’s designated airlines a first-refusal requirement, uplift ratio, no-objection fee, or any other requirement with respect to capacity, frequency or traffic that would be inconsistent with the purposes of this Agreement .

    4. Neither Party shall require the filing of schedules, programs for charter flights, or operational plans by airlines of the other Party for approval, except as may be required on a non-discriminatory basis to enforce the uniform conditions foreseen by paragraph 2 of this Article or as may be specifically authorized in an Annex to this Agreement. If a Party requires filings for information purposes, it shall minimize the administrative burdens of filing requirements and procedures on air transportation intermediaries and on designated airlines of the other Party .

  16. @ Gary,
    I think this is the problem with non-lawyers arguing over interpretation of the law. Because it looks very obvious to me that they are asserting a violation of section 1 where it says “fair and equal opportunity.” I know you are interpreting “Fair Competition” as not standing in the way of flights….etc. but the text you posted shows the heading of “Fair Competition” with 4 points below it, one of which is “each party shall allow a fair and equal opportunity …to compete.”

    I mean, I get what you are saying, but they clearly think they have a leg to stand on. More importantly, the very expensive attorneys they have hired to advise them are clearly telling them they have a case…or they would have picked a different attack or dropped it. I just think it is naive to think they’re just dumb or lying when there are millions of dollars of legal time logged on this issue.

    We will see what ultimately happens. But I would be very surprised if this administration doesn’t take some action, regardless of Cohn’s star rising or falling.

  17. @Rob – it’s not about “non lawyers” the lawyer-lobbyists for US airlines are simply making shit up. Anyone with a background in aviation knows exactly what this section refers to.

    They do not CARE that they do not have a ‘legal’ leg to stand on. They are playing a purely political game. One that the Obama administration rejected, but that they hope for another bite at the apple on given the economic nationalists in the Trump administration.

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