Global Airlines – Is It a Fair Playing Ground?

The US-UAE Open Skies Agreement, and Some of the Airlines Involved

An Open Skies Agreement between two countries allows the airlines of both countries to more freely serve the other country’s airports without having to get individual permission for each and every airport. The United States of America and The United Arab Emirates have such an agreement; however, some of the U.S. carriers, particularly the Big Three (American, Delta, and United), claim that UAE carriers like Emirates and Etihad violate a section of the agreement which “ban[s] airlines from charging ‘prices that are artificially low due to direct or indirect government subsidiary or support’” (Sumers, 2016). The Big Three have argued that “Emirates, Etihad, and Qatar combined have received more than $42 billion in government subsidies since 2004” (Sumers, 2016) and, as such, requested a ban on these airline adding new U.S. routes. Such a ban as not been enacted however.

Emirates and Etihad, on the other hand, have denied receiving any unfair subsidies; instead focusing on a claim by the Big Three which stated that “bookings from Orlando, San Francisco and Chicago to the region and beyond were down by as much as 13.3 percent following the entry of Emirates, Etihad Airways and Qatar Airways on those routes” (Kane, 2016) Emirates responded to this claim by stating, “the latest rhetoric by the Big Three American airlines once again demonstrates how they are only concerned with their narrow interests, at the expense of consumers and the broader economic interest” (Kane, 2016). Emirates claimed “they [the Big Three] don’t make a corresponding effort to improve their service and product proposition to win consumers’ hearts and wallets” (Kane, 2016), further adding that:

Instead of splurging on lobbying campaigns to lock out competition, instead of blaming Gulf airlines for loss of bookings or market share, the Big Three should rather consider how they can redirect some of their record profit to improve the services they provide to consumers (Kane, 2016)

Not all the U.S. airlines stand with the Big Three. In 2015, “FedEx Express…, Atlas Air Worldwide Holdings, Hawaiian Airlines, and JetBlue Airways” wrote to the government stating “The Big 3 claim to support Open Skies but their demands, if implemented, would endanger this network of more than 100 U.S. aviation agreements” (Sumers, 2016).

Do any Long-Haul U.S. Carriers Receive Government Subsidies?

Government subsidies are what this whole conversation revolves around, and are what the Big Three are accusing the UAE carriers of receiving. But, have the Big Three received subsidies themselves? Emirates has claimed that “the Legacy Carriers have received more than $100 billion in government support since 2002 and, with other U.S. carriers, receive annual benefits potentially exceeding $24 billion” (“Emirates’ response”, 2015), adding that “The Legacy Carriers come to this debate with unclean hands” (“Emirates’ response”, 2015). The U.S. carriers, of course, deny receiving any subsidies (Sumers, 2016).

This trend endures as both sides are unable to agree what constitutes a subsidy (Sumers, 2016), with both sides constantly pointing at their counterpart whilst rejecting any accusation against themselves, and thus, the cycle of accuse/deny continues.

What is the Export-Import Bank?

The Export-Import Bank describe themselves as “the official export credit agency of the United States…. with a mission of supporting American jobs by facilitating the export of U.S. goods and services” (“About Us | EXIM”, n.d.). In simple terms, EXIM provides loans to foreign companies (like Emirates), to buy U.S. produced goods (like Boeing jets). The problem U.S. carriers have with this arrangement is that they do not have access to the same loan options (instead having to pay a higher interest rate), and airlines such as Delta have claimed that “rivals like Air India and Emirates have used Ex-Im guarantees to lower their borrowing costs, then used the savings to cut ticket prices on international routes that compete with Delta or buy still more new jets” (Weisman & Lipton, 2015). This claim has been contested however, and “Judge Rudolph Contreras of Federal District Court, in a 72-page ruling…scoffed that $12 million in interest savings over 12 years would have that kind of power” (Weisman & Lipton, 2015). When you consider that Delta itself has “spent nearly $10 million on lobbying since 2012” against EXIM, and Boeing’s “$69 million over that same period” in support of EXIM, it makes the 12 million saved by foreign carriers seem not very significant (Weisman & Lipton, 2015).

Is the Global “Playing Field” for Long-Haul Carriers Fair?

I kind of feel this topic is not one which can be adequately answered in one “overview” blog post, and instead would require more in-depth research of the “facts” presented by both sides. But, I will say that from the information I found, I would say no, the playing field is not “fair”; however, that does not necessarily mean it needs to be. The world of business itself is not “fair”, and government action does not really need to be enforced when one company has an advantage over another. But, with that being said, if the companies involved have come to an agreement (e.g. Open Skies), then yes, both companies should definitely abide by the agreement set forth, and if not, government involvement may be required.

The problem in this case, is it would seem neither side can agree what the rules of the agreement mean. -.-

   

References:

About Us | EXIM.gov. (n.d.). Retrieved from http://www.exim.gov/about/
Emirates’ response to claims raised about state-owned airlines in Qatar and the United Arab
            Emirates. (2015, June 29). Retrieved from http://content.emirates.com/downloads
            /ek/pdfs/openskies_rebuttal/EK_Response_Main.pdf
Kane, F. (2016, January 30). Open skies dispute between US and Gulf airlines escalates.
            Retrieved from http://www.thenational.ae/business/aviation/open-skies-dispute-between-
            us-and-gulf-airlines-escalates
Sumers, B. (2016, June 28). U.S. Airlines Set to Lose Major Battle Against Gulf Carriers in
            Open Skies Debate. Retrieved from https://skift.com/2016/06/28/u-s-airlines-set-to-lose-
            major-battle-against-gulf-carriers-in-open-skies-debate/
Weisman, J., & Lipton, E. (2015, April 6). Boeing and Delta Spend Millions in Fight Over
            Export-Import Bank’s Existence. Retrieved from
            http://www.nytimes.com/2015/04/07/business/boeing-delta-air-lines-export-import-
            bank.html