Last updated: 01:00 PM ET, Fri May 15 2015

Open Skies Combatants Continue to Take Shots

Airlines & Airports | Rich Thomaselli | May 15, 2015

Open Skies Combatants Continue to Take Shots

Photo courtesy of Thinkstock

Day by day, the level of vitriol gets higher, the rhetoric more vicious, in the debate between the big three U.S. airlines and the three major Persian Gulf carriers over the integrity of the Open Skies Agreement.

Why should today be any exception?

The Partnership for Open & Fair Skies released a new economic study showing that the state-owned Emirates, Etihad and Qatar airlines are actually diverting passengers away from U.S. airlines, and not stimulating new passenger demand as they claim.

By contrast, Etihad Airways released a report today by The Risk Advisory Group that details some $71 billion in financial support and benefits since 1999 in, among other areas, bankruptcy debt relief, pension termination and fuel subsidies. Whether bankruptcy relief provided by the U.S. government in the wake of the 2001 terrorist attacks equates to financial subsidies is open to interpretation, but backers of the Gulf airlines say it is a form of aid – just as American, Delta and United airlines claim the Gulf carriers receive from their respective governments.

“This report confirms that the United States has found numerous ways to financially help its airline industry become established and profoundly advantage it in ways to enable the most powerful and profitable airlines in the world,” Business Travel Coalition and founder Kevin Mitchell said in a statement. “At a time when the Big 3’s profits are being driven to record highs by the benefits of antitrust immunized alliances, customer service cost cutting and avoidance of ticket taxes on billions of dollars of revenue from ancillary services, it represents arrogance-in-the-extreme to demand protection from competition. Freezing Gulf carrier access to U.S. markets would be the ‘Mother of all Subsidies’ and stick American consumers with vastly higher fares and much diminished travel options.”

But the Partnership for Open & Fair Skies, the umbrella group representing the big three domestic airlines and several aviation unions, said the Gulf carriers are being disingenuous about their intent.

A 27-page study by recognized airline economists from the leading economic consulting firm Compass Lexecon claims the Gulf airlines are not creating new demand, but siphoning off passengers from existing airlines.

“The Gulf carriers assert that their service stimulates new traffic in key U.S. markets, bringing substantial numbers of new passengers to the United States. We find little – if any – evidence that this claim is true,” said Dr. Darin Lee, one of the authors of the report and an Executive Vice President at Compass Lexecon, who has published numerous studies on the economics of the airline industry in leading academic journals. “An analysis of the data shows that the Gulf carriers do not meaningfully stimulate new traffic. Instead, they are using their subsidized capacity to grow their networks at the expense of U.S. and other carriers.”

In one passage of the report, it is noted that “The presence of a single Gulf carrier on a city-pair between the United States and an international destination with as little as a three percent share reduces the number of passengers carried by U.S. airlines by approximately eight percent, on average; where all three Gulf carriers serve the city-pair, the number of U.S. airlines’ passengers is approximately 24 percent lower. On city-pairs where each of the Gulf carriers has at least a 10 percent share, U.S. airlines’ passengers have been reduced by 50 percent, on average.”

The Obama Administration is currently considering the Partnership’s request to initiate consultations with the governments of Qatar and the United Arab Emirates to address their state-owned airlines’ subsidies, the Gulf carriers.

“The Gulf carriers’ accelerated expansion into the U.S. market makes it even more urgent for the U.S. government to enforce the Open Skies agreements, and seek a freeze on new flights until consultations can take place,” said Jill Zuckman, chief spokesman for the Partnership for Open & Fair Skies. “That’s because the billions of dollars of subsidies to the Gulf carriers cause immediate harm to the U.S. airlines and threaten important international routes and the livelihoods of our pilots, flight attendants and other employees.”


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