For two and a half years the major US airlines American, Delta, and United have been arguing through their lobbying group Partnership for Fair & Open Skies for greater protectionism against rival airlines Emirates, Etihad, and Qatar because it’s somehow unfair for the most profitable airlines in the world to have to compete against much smaller airlines because they contend those arriers they contend are too subsidized. I’ve pointed out several inconvenient facts.
- The US airlines are themselves heavily subsidized. Their losses are greater than even the most inflated subsidy claim, and they continue to receive significant support from state and local government.
- These subsidies aren’t against US treaties. While not what I like to see, subsidies have existed across the world in aviation since the beginning of the industry both here and abroad. Our treaties simply require that airlines can set schedules and pricing on the same terms as local carriers.
- The US airlines don’t mind it when foreign airlines are subsidized — when it benefits them. Delta owns a stake in the most heavily subsidized Chinese airline, China Eastern. Delta has a joint business venture with Alitalia which shared revenue across the Atlantic and was subsidized and controlled by Etihad. American shares revenue across the Atlantic with British Airways and Iberia whose largest owner is Qatar.
- Any crackdown is really a move against US consumers. Without as many flights and low fares offered by Gulf competitors, Americans would have to pay more for air travel and buy their air travel from these US airlines. They’re calling for a direct tax on the American people, not the UAE or Qatar.
With their best ally — Steve Bannon — gone from the White House, Delta along with American and United have enlisted Newt Gingrich to push for their cause.
Newt Gingrich leads with his historical support for free trade, hoping you won’t realize this is blatant protectionism, using the government to take money from consumers and give it to Delta, United, and American Airlines shareholders (by limiting the flights passengers can choose, and outlawing low prices). Here, Newt, fixed it for you:
Of course Gingrich is not in fact a small government guy he wanted government to install mirrors in space to light highways and expose criminals while warning that the country is being taken over by “gay and secular fascism.”
Let’s look at what Newt has to say here.
For open markets to work as intended, however, all parties need to be operating on the same, level playing field.
As a matter of economics that’s not even true, but let’s assume that it is. Newt might then be making an argument to end US government subsidies to air traffic control (government-run), airports (government-run) and fuel (big tax subsidies to American, Delta, and United at the state level). In much of the world too there’s no equivalent of US bankruptcy, where obligations to creditors are shed and where the government (in the case of Delta, United, and US Airways) picks up billions in pension obligations as well.
One of the biggest challenges advocates of free trade must confront in the 21st century is the growing number of countries using nation-state resources – often in violation of trade deals – to give their state-owned companies huge advantages.
Note the slippery game he plays here, ‘often’ in violation of trade deals because subsidies aren’t a violation of US Open Skies treaties. That’s because airlines all over the world, from the U.S. to Pakistan and Saudi Arabia (none the subject of US airline lobbying campaigns) are subsidized.
The model Open Skies agreement, in force between the US and Qatar and between the US and the UAE, says that subsidies are only a problem when they lead to dumping, something that US airlines have long argued means pricing at a level where the carrier would lose money even at a 100% load factor. (Are these fares from U.S. airlines artificially low?)
In these cases, international competition does not create the greater efficiencies, innovation, and new demand for services that leads to a growing economy for all. Instead, since the unsubsidized competition cannot possibly compete, it leads to a hemorrhaging of jobs and wealth in the countries that do not cheat, as well as fewer options for consumers.
Except that airline jobs are at a peak. Boeing is more successful than ever in part on the backs of large orders from the Gulf airlines (notably Delta does not buy new Boeing aircraft). And the United, Delta, and American are making massive profits, indeed American’s CEO says they will never lose money again.
Open Skies agreements allow airlines, rather than governments, to make decisions about international routes, pricing, and capacity. The goal is to allow market demand rather than politics to drive these decisions, which saves customers money.
Open Skies agreements are all about limiting government interference in who can fly where and at what price. Delta, United, and American are arguing that the federal government should abrogate this agreement and place limits on Etihad, Emirates, and Qatar flying to the U.S. and the prices they can charge.
They want the Trump administration, rather than consumers, to drive these decisions which will cost consumers more money.
Of course Emirates substantially shifted its flying in the face of falling U.S. demand resulting from the US travel and laptop bans. Etihad announced the end of San Francisco service, followed by a reduction in Los Angeles frequency, and an end to Dallas Fort-Worth service. Etihad’s inflight service has seen substantial cuts as revenue has dried up and they’ve tried to stem losses from their investments in air berlin and Alitalia. And Emirates refuses to upgrade most existing Boeing 777 angled business seats and even their new luxe first class suites are set to go on only 9 planes.
Emirates Boeing 777
Qatar meanwhile is forced to maintain its flying via subsidy in the face of a massive economic blockade by the UAE, Saudi Arabia, and other neighbors which US foreign policy emboldened. Cracking down further on Qatar, the site of a major US military installation, could further destabilize the region.
— gary leff (@garyleff) May 21, 2017
And let’s not forget that Alaska Airlines and jetBlue benefit significantly from codesharing with Emirates, and that Fedex is able to operate its Dubai hub thanks to Open Skies.
And by the way US airlines continued to operate routes while losing over $50 billion themselves in the decade between 2000 and 2009 — more money than the white paper claims Emirates, Etihad, and Qatar were subsidized.
U.S. airlines have competed against state-owned airlines for decades, but these massive subsidies are unprecedented.
When US airlines were in their own infancy the single largest customer was the US Postal Service (which awarded contracts through a corrupt process that became known as the Air Mail Scandal). American’s first major aircraft order was subsidized by the federal government’s Reconstruction Finance Corporation. Pan Am became known as The Chosen Instrument of US foreign policy and was so intertwined with the government that it was also accused of manipulating — not mere domestic policy but — US policy around the globe.
The coalition’s analysis shows that every route closure leads to a net loss of 1,500 U.S. jobs.
The math on this is ridiculous. It ignores the jobs created by routes flown by the Gulf carriers, jobs at Alaska, jetBlue, and Fedex, and that airline employment is at a peak not a trough.
This is a direct violation of our Open Skies agreements, which require parties to ensure “fair and equal” opportunities to compete.
Either Gingich is lying or he hasn’t read the treaties. There is a section called ‘fair competition’ but it doesn’t say what Delta wants it to say. The section is clear that fair competition means each airline determining the frequency and capacity of the flights it chooses to offer. The section on fair competition does not mention subsidies at all.
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.
Note that the imposition of a unilateral limit on flights is exactly what Delta, American, and United are asking the US government to impose – a direct abrogation of the Open Skies treaty.
One might be tempted to dismiss the findings of this study because it was funded by the United States’ three major legacy carriers…
Or because it’s been thoroughly debunked.
…but other developed nations such as Canada, Japan, and China – as well as the EU – have come to the same conclusion and have already taken steps to equalize the economic playing field with the Gulf carriers.
Everyone else is being protectionist in order to subsidize their home carriers, so why don’t we, while telling ourselves in 1984 fashion we’re doing it for open competition.
Airline consumers can take solace, I suppose, that when you’re left enlisting Newt Gingrich for your cause — who didn’t even receive an appointment in the Trump administration after defenestrating himself daily during the campaign — all is probably already lost. Hiring on Gingrich should be indication alone that American, Delta, and United are not your friends. We need more competition in air travel not less even if competition is not good for Delta, American and United.
Who’s next for the Partnership for Fair & Open Skies, Chris Christie whose own Port Authority chair took bribes for state action from United Airlines? United really shouldn’t be a part of any coalition arguing that other airlines are receiving improper government favors…