Last updated: 11:43 AM ET, Mon June 27 2016

Why Are US Legacy Carriers So Worried About Air Serbia's New York Flight?

Airlines & Airports | Josh Lew | June 27, 2016

Why Are US Legacy Carriers So Worried About Air Serbia's New York Flight?

Balkan airline Air Serbia made an historic flight last Thursday, flying from Belgrade to New York JFK. The reason this flight belongs in the history books is that it marked the first direct flight between the two cities on a local carrier in more than two decades. 

Air Serbia and the Belgrade route are, in and of themselves, not cause for concern for U.S. legacy carriers. This is a small market and a small airline. 

So why does this flight have American, Delta and United so worried? 

The flight means that the powerful Gulf carriers have found another way to penetrate the U.S. market. One of Air Serbia’s main owners is Abu Dhabi-based Etihad, who, along with Emirates and Qatar, has its sights set on the American market. 

Covering the world with proxy airlines

Etihad bought a 49 percent stake in former Serbian carrier JAT as it was teetering on the edge of bankruptcy. It then rebranded the airline as Air Serbia and has been growing it ever since. Most of Air Serbia’s routes are in Europe and to the Middle East, but the foray into the transatlantic market shows that Etihad is also willing to compete using what are basically proxy airlines to get a bigger share of the lucrative intercontinental market. 

Etihad has minority ownership in several major airlines including Alitalia, Virgin Australia and Air Berlin. It has a financial stake in these carriers, but it is also heavily involved in their branding and operations. For example, Etihad provided staff and ground crews in the United States to service the Air Serbia flight. And the pilots for the flight trained with Alitalia, which also has a close relationship with Etihad. The Airbus A330 used for the intercontinental trip was leased from Indian carrier Jet Airways, which is also partially owned by Etihad. 

READ MORE: Are Gulf Carriers Worried about The Next US President?

Etihad is reportedly trying to create uniform technology and airplane layouts across all its partners so that all crews can receive the same training and airplanes can be shifted between partners depending on demand. 

No grounds for complaint

U.S. carriers have long complained that Gulf airlines like Etihad get unfair subsidies from their oil-rich governments. They contend that this extra funding goes against current air travel agreements that call for fair competition. 

It will be more difficult for them to complain about Air Serbia, which is essentially a flag carrier, flying to New York from its own capital city. Etihad is certainly exerting control over Air Serbia, but on paper it remains a minority partner. 

A Serbian brand

And Serbia isn’t hesitating to take advantage of this new partnership to put itself on the map. The country’s Prime Minister, Aleksandar Vucic, said that the flight was a major step for his country.  

"This is the first flight operated by a Serbian carrier to the United States since 1992, and it shows the huge steps we have taken to develop our economy and reposition our country and capital Belgrade on the world map. Re-establishing this air bridge will give an enormous push to the flow of tourism and trade between Serbia, the wider Balkans region and the United States…” 

So one of Etihad’s closest partners has landed in the United States, further extending the Gulf carrier’s reach (by proxy), and there is really no way that U.S. carriers can complain without also criticizing Serbia. 

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