Delta, American and United for three years have argued that the US government needed to take a protectionist stance against Emirates, Etihad, and Qatar. They’ve argued it’s unfair, they shouldn’t have to ‘compete against governments’ which is a rather strange position. Because if they can’t even compete against government airlines what good are they?
They doctored a white paper arguing the 3 Mideast airlines have gotten $50 billion in subsidies, while conveniently ignoring their own massive subsidies like moving nearly $20 billion in pension liabilities off their books onto the federal Pension Benefit Guaranty Corporation, subsidies for Delta’s oil refinery and on myriad routes, fuel tax subsidies and more. The very first major aircraft order by American Airlines was backed by the federal Reconstruction Finance Corporation.
Supposedly the Gulf carriers offer such a good product at such a great price that it’s uneconomic. However Emirates has a business class on the bulk of their fleet that lags Delta, American, and even United (since their seats are angled on the Boeing 777).
Emirates Boeing 777
Etihad and Emirates cut back unprofitable flying to the U.S. Etihad has unwound money losing investments in foreign carriers, including Alitalia which Delta shares revenue with across the Atlantic. In other words they respond to economic challenges, exactly the opposite of what the largest US airlines have claimed.
The Gulf carriers buy Boeing planes while Delta doesn’t yet Delta claims US jobs are being threatened — when US airline employment is at a peak and US airlines are earning a plurality of the world’s airline industry profits.
Attempts by United, American, and Delta to get the government to abrogate Open Skies obligations with the UAE and Qatar failed completely in the Obama administration. Delta have flattered President Trump and lowered themselves to racism trying to resurrect their case. And started hiring Republican lobbyists after discovering that their ex-Obama administration advocates weren’t helping their cause.
Now Delta CEO Ed Bastian offers a glimpse into their strategy going forward: stop complaining about Emirates, Etihad, and Qatar and instead just focus on Qatar, recognizing that their argument is simply unpersuasive when grouping the carriers together. Plus, spite.
Even though Bastian said he doesn’t believe they are profit-minded enterprises, the Delta CEO is quick to note that the Emirates, Etihad, and Qatar Airways are anything but a monolith.
“I’m not sure they’re all the same,” Bastian told Business Insider in a recent interview. “I think there are three different business models between the three. We have to be careful we don’t to group them together.”
After three years of grouping them together, Bastian is now trying to separate them. He acknowledges that his arguments don’t really quite work with Emirates and Etihad.
“Etihad is in a very difficult spot,” Bastian said. “Their investments in Air Berlin, Alitalia, and a few others have turned out to be dismal failures.” ..”I think they are regrouping and reassessing,” Bastian added.
…”Emirates just purchased and acquired their 100th Airbus A380 and they are building an airport in Dubai that’s four-time or five times the size of Chicago O’Hare,” Bastian said incredulously.
“At some point, the economics just don’t make sense and they’ll need to evaluate for themselves how much growth they can add through Dubai to build the world’s super-connector airport.”
And he seems to be focused just on Qatar:
“And Qatar Airways is just a government agency that bleeds money,” Bastian told us. “If you look at their financial results, they weren’t the worst performing airline in the world, Alitalia and Air Berlin were worse than them. Qatar was third.”
According to Bastian, the only reason Qatar Airways avoided finding themselves at atop the list of the worst financial performers was due to subsidies like cost-free ownership of duty-free licenses and the hotel franchises in Qatar.
“It’s a ruse,” he added.
He says he still thinks he’s going to win with the government, of course. But he acknowledges he may not, and Delta has to compete with a better product. Which by the way makes clear that Delta wouldn’t need a better product if they were protected from competition, just like domestic airlines don’t have to much compete on product after consolidation since they’re protection from new market entrants.
“We can’t put our competition solely in the hands of Washington, we have to compete in the marketplace,” the Delta CEO said. “That’s why we are continuing to invest in our international fleet with the new Airbus A350s while working hard with our partners to invest and to improve the quality of service together.”
I’m genuinely floored Bastian acknowledges that lack of protection by the government is the reason we’re seeing product improvements. That as much as anything makes the case against government intervention. Since market competition forces US airlines to become better to win the business of passengers.