US airline execs remain tone-deaf to consumers

Welcome to 2019!

Back from hiatus, TheTravelPro is starting off the new year by calling out misguided leaders of U.S. airlines.

This commentary was occasioned by an Op-Ed piece I was pitched by a P.R. agency representing Ed Bastian, CEO of Delta Air Lines (NYSE:DAL).  Bastian's piece purportedly pointed out that subsidiaries from the Persian Gulf state of Qatar, "(F)low to an obscure Italian airline, circumventing a key agreement with the U.S. and putting thousands of American jobs at risk."

Here's the piece:

Air Italy's mysterious benefactor
By Ed Bastian
CEO, Delta Air Lines

A Deutsche Bank airline analyst asked a question recently: "Who is funding Air Italy's losses?"

In a Dec. 7 report, the firm noted the obscure Italian carrier produced a negative pretax margin - i.e., a loss - of 18.4 percent last year, on top of a negative margin of 9.2 percent in 2016, representing losses of hundreds of millions of euros. Yet despite its financial hemorrhaging, the airline suddenly has a fleet of brand new jets, and has announced a major global expansion of flights between Milan and North American cities including New York, Miami, Chicago, Los Angeles, San Francisco and Toronto.

Delta CEO Bastian
It doesn't take Sherlock Holmes to solve this particular mystery. The airline's benefactor is Qatar Airways, the government-owned airline of Qatar, which recently acquired 49 percent of Air Italy. Even though Qatar’s recent financial statements (which remain opaque) show that it is one of the worst performing airlines in the history of the airline industry with over $2 billion of operating losses over the past three years, Qatar has been giving its new acquisition billions of dollars’ worth of new airplanes, including Boeing 787 and 737 jets, with plans to deploy larger Boeing 777 and A350s as well. Qatar is using the tiny, close-to-defunct Air Italy to skirt its promise to the U.S. to not add so-called "Fifth Freedom" flights to the U.S., which are routes that operate outside of a carrier's home country - such as nonstop flights between the U.S. and Europe.

Qatar’s promise was part of an agreement with the U.S. in which Qatar said it would finally take steps toward fair competition in aviation, after it had enjoyed the benefits of billions of dollars in government subsidies. These subsidies drove U.S airlines out of the Mideast and India, and threatened thousands of airline jobs in the U.S.

Only months later, Qatar is back to their old tricks, thumbing its nose at the Trump Administration with its clumsy scheme to get around its promises. These Italian routes, already highly competitive and well-served by existing carriers, are simply not economically viable without Qatari subsidies. By flooding these markets with subsidized capacity and dropping prices far below cost, Qatar is launching another assault on U.S. airline employees and travelers, and disrespecting the Administration.

We shouldn't be surprised, given that if it played by the same rules as everyone else, Qatar Airways simply wouldn't exist. It's remarkable that in an era when global aviation is thriving, Qatar must keep its state-owned airline aloft with a massive infusion of subsidy dollars. The airline lost $1.3 billion in its most recent fiscal year, flew fewer passengers, and has said it may ask its government for another capital injection.

Thankfully, these concerns have gotten the attention of Congress. More than a dozen U.S. senators recently sent letters to the administration raising their concerns about the Air Italy-Qatar connection and its impact on U.S. jobs.

As the CEO of Delta, my No. 1 job is taking care of our 80,000 employees, who are the best in the business and work hard every day to ensure all of our flights are safe and reliable. On their behalf, I join those Senators in asking the Trump Administration to examine this situation and send a strong message to the Qatari government that these actions simply won't be tolerated.

We should demand an answer to the Deutsche Bank question: Who is funding Air Italy’s losses?

I called bullshit on Bastian's bloviating and told his flack as much in this response:

As a frequent traveler and publisher of a travel website, I submit that Bastain’s position is a red herring. If U.S. carriers – Delta included – would take care of their passengers as well as the Persian Gulf carriers do, they wouldn’t feel threatened by competition, nor would they have to rely on arcane laws to protect their market shares, which many argue are already unfairly protected.

Further, I disagree with his closing statement. His No. 1 priority SHOULD BE taking care of his airline’s passengers; their safety and security, certainly, but making them feel like valued customers instead of cattle. If his people keep the customers happy (which Delta does better than most U.S. carriers) it would solidify and even grow its market share, and employee welfare and well-being would be a natural outgrowth.

While I understand the point about "fifth freedom" flights and their impact on other carriers, the greater point is that the U.S. airline industry long ago ceased caring about its customers, and other countries' carriers are stepping in.

Finally, although I have vigorously opposed the airline industry's go-to position to "let the market decide" in cases where there really is no meaningful difference in the marketplace (such as seat width and pitch among U.S. carriers), this is a case where the market should be allowed to decide. If Air Italy, Qatar, Emirates, or any other carrier eats into U.S. carriers' business, they should be asking themselves what they can do to win those customers back, not whining to Uncle Sam that it's unfair.

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Photo provided by Delta Air Lines

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