Thursday, March 9, 2017

ANALYSIS: Two years on, US airlines' opposition to Gulf carriers rings hollow

The following article is an analysis of the opposition to three Persian Gulf airlines launched by the Big Three legacy U.S. airlines in 2015.

What has happened in the past 24 months?

By Kevin Mitchell
Chairman and founder, Business Travel Coalition

This week marks an unfortunate chapter in U.S. aviation history. It is the two-year anniversary of a dangerous and disappointing challenge to United States leadership in international aviation policy.

Two years ago Delta Air Lines (NYSE:DAL), American Airlines (NASDAQ:AAL), United Airlines (NYSE:UAL) and their partners (“Anti-Open Skies Partnership”) publicly launched their anti-Open Skies campaign, calling for the U.S. government to breach its fully liberalized air service agreements with the United Arab Emirates and Qatar by freezing Fifth Freedom* rights. They have sought to clip the wings of Emirates Airline, Etihad Airways and Qatar Airways (“Gulf Carriers”).

It is hard to forget the mysterious white paper the Anti-Open Skies Partnership secretly shared with U.S. government officials and select journalists. In Capitol Hill briefings they required staff to return copies of it at the end of meetings as if it were top-secret legislation. Seeming to lack confidence in the allegations in their white paper, they wrapped their accusations in it but refused to make it publicly available for more than one month.

Most troubling, and contrary to American principles, they refused to even give a copy to the accused Gulf Carriers whom they were tarring with it.

Finally, on March 5, 2015, the Anti-Open Skies Partnership partially released the white paper at a Washington news conference. However, when asked if they would also release the accompanying exhibits that contained purported financial records that formed the basis of the allegations in the white paper, they refused to do so, saying they would take that request under advisement. With pressure mounting for fairness, it was not until May 2015 that the exhibits were finally released giving the accused and general public a full picture of the white-paper accusations** for the first time.

While the Anti-Open Skies Partnership at first spun their campaign as being nothing more than a benign request for government-to-government consultations, over time they have candidly admitted in public the message they privately delivered to government officials: Their bottom line is that they want the U.S. government to block Gulf carrier competition in the U.S.-Europe market. In other words, all the anti-Gulf carrier rhetoric generated by this political and public relations campaign, which is rumored to have cost tens of millions of dollars, boils down to one thing.

BTC Chairman and founder Kevin Mitchell
With over 80 percent of the U.S.-Europe market controlled by the transatlantic oligopoly of the Anti-Open Skies Partnership and their European [joint venture] partners - shielded from government competition oversight by antitrust immunity grants - they are seeking to block competitive entry by Gulf carriers in what they regard to be “their” market containing “their” customers.

On this anniversary week, it is instructive to consider what has happened in the ensuing two years.

Have U.S. airline jobs been decimated by Gulf carrier competition as the Anti-Gulf Carrier Partnership claims? Are U.S. airline employees better or worse off than two years ago? Have Gulf carriers provided any benefit to the U.S. economy, including creating and supporting American jobs? Have consumers and communities benefited or been harmed by greater competitive choice?

Let’s examine what has happened since release of the white paper:

Competitive Harm To U.S. Airlines – NONE

➤ Profits at Delta, American and United have soared. Their combined 2015 and 2016 net profits were $28.8 billion.

➤ U.S. carriers have benefited from their code-share and interline partnerships with Gulf Carriers. American has earned millions of dollars from its commercial partnerships with Etihad and Qatar, and Emirates has successful and growing partnerships with jetBlue (NASDAQ:JBLU) and Alaska Airlines (NYSE:ALK) enabling them to compete more effectively with the Big Three in domestic markets. In the 12-month period up until November 2016, Emirates alone transferred almost 371,000 passengers onto its U.S. partner airlines.

Harm To U.S. Airline Employees – NONE

➤ U.S. airline employment has grown substantially. According to U.S. Department of Transportation data, between January 2015 and December 2016, 90,673 U.S. airline jobs were added, a 15.3 percent increase.

➤ U.S. airline employee wages and profit sharing have increased substantially. Over $59 billion was paid out in annual salaries, wages and benefits for all three carriers over the last two years. In 2016 alone employee profit sharing payouts at Delta were $1.1 billion (down from $1.5 billion in 2015, the largest payout in the history of corporate profit sharing programs), $628 million at United and $314 million at American.

Benefits For The U.S. Aerospace Jobs Market - SUBSTANTIAL

➤ In the two-year period U.S. aerospace manufacturing jobs have been created and sustained by delivery of wide-body Boeing (NYSE:BA) aircraft. Gulf Carriers have taken delivery of 59 wide-body Boeing aircraft (compared to 41 for the Big Three combined).

Emirates Boeing 777 departs SEA for DXB
➤ Emirates Airline alone has taken delivery of 28 GE (NYSE:GE) powered Boeing 777 aircraft with a list price of $10.8 billion since March 2015. According to the Department of Commerce jobs multiplier for aerospace exports, these Emirates Airline aircraft created or sustained 62,278 middle-class American jobs, including throughout Boeing’s nationwide supply chain of 13,600 medium and small sized businesses. As for the Big Three, American and United took delivery of a total of just six Boeing 777s. Delta took delivery of no 777s.

➤ Delta, with the highest profits of the Big Three, took delivery of no Boeing wide-body aircraft in the two years since the anti-Open Skies campaign began. Instead, Delta took delivery of nine Airbus A330 wide-bodies to replace older Boeing aircraft. In December 2016, Delta cancelled a pending order for 18 Boeing 787 Dreamliners worth $4 billion in list prices. Based on the Department of Commerce’s jobs multiplier, that Delta cancellation will cost around 23,000 middle-class American jobs.

Jobs And Economic Benefits For U.S Communities From Non-stop U.S.-Middle East Flights - SUBSTANTIAL

➤ According to U.S. airports, Emirates Airline’s U.S.-Dubai non-stop flights generate more than $3.2 billion in annual economic benefits and growing (excluding Washington Dulles for which airport-provided data is not available).

➤  Since March 2015, Emirates delivered 3,065,587 guests to the U.S. According to the U.S. Travel Association, those guests who were not U.S. citizens on average spent around $4,400 each during their U.S. visits.

➤ In early 2016, Delta and United both [cancelled] their only non-stop U.S.-Dubai flights. Delta redeployed the aircraft to the more profitable Big Three/foreign alliance/JV partner dominated and lucrative transatlantic market. Presumably United did the same.

The pro-competition, pro-consumer, pro-growth U.S. Open Skies policy is a Made-in-America success story, representing the Gold Standard for bilateral trade agreements.

Read more about the Business Travel Coalition and its mission at http://www.businesstravelcoalition.com/

* - Editor's note: The Open Skies agreements have nine "freedoms" specifically articulated. The fifth is "The right to fly between two foreign countries on a flight originating or ending in one's own country."

** - Editor's note: Emirates Airline, one of the three named Persian Gulf carriers, issued a strong refutation of the subsidy claims a short time after the exhibits were made public. Read more here.

Visit my main page at TheTravelPro.us for more news, reviews, and personal observations on the world of upmarket travel.



Photo by Carl Dombek
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