Delta Air Lines has been the most vocal US Carrier in regards to the “Middle East 3” expansion in the North American market. While Delta claims to defend jobs for American citizens, its double-edged sword cuts both ME3 and their lobbying partner, American Airlines. For Delta, it’s win-win.
If you are considering booking travel or signing up for a new credit card please click here. Both support LiveAndLetsFly.com.
If you haven’t followed us on Facebook or Instagram, add us today.
American Airlines Had The Best Middle East Partnerships
American Airlines had just a single flight into Central Asia with their Chicago-Delhi flight years ago. They canceled it, strengthened their partnerships with joint business venture (JV) carriers across the Atlantic and left it at that for a few years.
Then, a flurry of activity made American Airlines the carrier to beat for Middle East and Central Asian destinations from US carriers. Partnerships and codeshare flights with Etihad and Qatar gave American Airlines unprecedented access to a market they had otherwise struggled to develop – a market that no other US carrier had truly mastered.
US Carriers Saw The Writing on the Wall, Unfortunately, They Can’t Read For Context
US Carriers witnessed the ME3 expansion into Europe before Etihad, Emirates and Qatar Airways grew their market share in North America and it frightened them. Why shouldn’t it? The Ultra-Low-Cost Carrier (ULCC) adapted from Southwest for Ryan Air that made the ULCC the fourth largest international airline in the world drastically eroded the marketplace for Delta, American and United’s European partners. With ME3 carriers expanding throughout Europe, throwing huge capacity, opulent products, and lower prices – there was good reason for concern.
Unfortunately, the writing that US Carriers saw on the wall didn’t really make sense for the US market. European flights east to Asia and south toward Australia pass by the Middle East without much of a diversion in their routing. If you live in Manchester, England, or Lisbon, Portugal and want to fly to Ho Chi Minh City, Vietnam, you’re going to take a connection somewhere. Why not make that connection en route, halfway to the destination in Abu Dhabi, Doha, or Dubai? But from the US, far east and Pacific destinations will be faster flying west and there are plenty of nonstop/one-stop options in the most developed air market in the world. No sensible passenger is flying from Dallas to Dubai to Hong Kong when they can instead fly the direct with American. The European markets needed to protect different route patterns than what makes sense for US passengers.
None of the US carriers have a significant presence in the Middle East or Central Asia so the market could not have been important enough directly to pursue in retaliation and even if they did, their product would not be competitive enough to win business away O&D traffic at the same price point.
Delta Enlisted Partners
Delta led the charge and enlisted American and United to lobby and fight against the ME3 and their subsidized carriers unfair expansion into the US. To some degree, the US carriers had a point. The ME3 could lose money every year because they were backed by government entities that would fund their losses at the expense of what Delta, American, and United as standalone companies could not. The points they made may have been in dispute, but the carriers are government-backed.
Delta, however, ignored their own subsidies from the US government to support their operation including tax breaks (all three have huge breaks at their hubs), financing deals and guaranteed traffic from the US government as a matter of law. They also ignored the Mexican government-backed Aeromexico of which Delta now owns 49% nor their partners in China which are also state-backed. Somehow, those carriers are not a threat to US jobs or sovereignty. American also has a financial interest in a state-backed Chinese carrier.
Despite these glaring omissions and exceptions, United and American Airlines went along for the ride.
Delta Had Less To Lose, More To Gain
If Delta could be successful in their blockade of ME3 carriers expanding into the US, they protect their own market for long-haul flights to the region. Sure. But they also revert American’s Middle East cooperation back to an even playing ground with United and, most importantly, Delta’s.
American was pressed to put their money where their mouth was and terminate their codeshare partnerships with Etihad (understandable) and Qatar Airways, a fellow oneworld carrier – an unfathomable move. Remarkably, perhaps even stupidly, American Airlines leadership has settled their disputes with the ME3, yet still has not resumed codeshare partnership with their own alliance member.
American had to risk their relationship with Qatar, an alliance member (in a smaller alliance) and a financial partner in Etihad to participate effectively in the effort, Delta had to risk none. If the lobby was fully successful, American’s potential gain would have been negligible, but Delta’s substantial.
American Already Suffering, Delta’s New Feud Hurts American Again
With oneworld already on shaky ground, Delta presses again on Qatar Airways by way of an investment they have made in Meridiana Air (Air Italy). Qatar Airways has substantial investments in other carriers, many of which reside within oneworld. They own 20% of IAG (parent company of oneworld carriers British Airways, Aer Lingus, Iberia, and LCC Vueling), 10% of Cathay Pacific and have made an investment in boutique US carrier JetSuite.
After effectively crushing American’s Middle East partnerships, Delta has now taken aim in a misguided op-ed attacking Air Italy, suggesting that the carrier is nothing more than Qatar’s new attack on US carrier’s Atlantic sovereignty. Air Italy is a partner with five oneworld carriers and offers American a chance to rebuild their relationship with Qatar, but Delta’s new feud further strains their relationship and could cause American Airlines further harm to support their fellow Airlines for America member.
Delta’s attack is ironic in that they have mirrored investments like Qatar Airways but don’t want other airlines to be able to do the same. American Airlines continues to fall victim to Delta’s wily tactics with no end in sight.
What do you think? Is Delta using Nationist tactics to cause harm to American while benefiting themselves? Is Delta right to call attention to Qatar Airways substantial ownership of Air Italy?
If you haven’t followed us on Facebook or Instagram, add us today.
Good, American was very instrumental in putting Braniff under, in 1982, as a Braniff employee you made my day.
Thanks for the information. As an aa employee I need to read more insightful information about the future. As I’m sure you know Mr Stewart there is no employee confidence at as. And I really dont know what the next year or two years will bring us.
Paid for by the coffers of the ME3?
I wish! They can feel free to send a check any time they like, but until then, I would love to see a logical argument against what I have presented.
Great answer!!!
Tariffs and tax breaks no matter how large still aren’t in the same category as having the freedom to operate knowing that any losses that you would incur will be covered by the government indefinitely. The M3s ability to operate at a loss give them an almost Walmart like ability to move into a market an undercut the existing providers until they have been forced into whatever position is favorable for the M3s. Now, I don’t necessarily think that the M3s would do that for a lot of reasons that are outside the scope of this comment, but the very fact that they have that ability should and apparently is reason for United, American and Delta to have cause for concern.
Andrew, I think that’s a fair statement, tariffs and tax breaks are not the same as operating under the precursor of an endless bailout. However, the US bankruptcy system is such (and used in such a way that it acts as a) bailout device for US carriers that seem to file at will. American hadn’t done so in their entire history (United had a couple of times I believe, Delta too) until they essentially used their BK to break labor contracts that had become arduous. Banks in the US have been deemed “too big to fail” and operate with impunity. We call it something different, but I’m not convinced that it really is.
So, what do you think were the real reasons American stopped flying to Tel Aviv?
That happened before my time, but my understanding was that TWA had owed something to the Israeli government and that the fear was that their aircraft could be seized if they continued to fly to Tel Aviv.
It sounds like you may have a differing view, I welcome your perspective.
So AA would rather stop flying to Israel than pay their debts? Wow. Frankly, American is being run terribly on so many levels these days that I’m surprised that the board hasn’t been replaced for not firing Parker. Nobody is happy with American these days. Employees are unhappy, customers are increasingly miserable, and shareholders are losing out as well. Actually, as you point out, there is one party that has to be thrilled with American these days: Delta. When your enemy is happy with your actions, maybe it time to reevaluate things. Then again, what do I know?
Your attempt to illustrate hypocrisy by comparing state-owned Chinese carriers and the ME3 are apples to oranges comparisons.
Delta has no problem with the ME3 being state sponsored. You missed their whole argument. Its that they are state sponsored nlAND have an Open Skies agreement with the USA, The Chinese do not/cannot because they are openly subsidized. The whole issue is the ME3 claim they aren’t subsidized, yet it’s obvious that they are, or have been extensively. Delta wants them to be held to international accounting standards to prevent further subsidization or have their Open Skies agreement terminated.
Mr J, I am going to respectfully disagree. The emperor has no clothes. They can pretend it’s out of genuine interest in the sanctity of the capitalist system, but it’s not. They have no issues with their partner Alitalia receiving endless government support and I believe they operate under Open Skies too.
Besides, they settled their dispute with regards to these carriers and Open Skies, and remember, this Air Italy dispute is totally about Air Italy and not at all about holding a grudge against Qatar Airways.
Settled Dispute against UAE: https://www.forbes.com/sites/dominicdudley/2018/05/21/us-airlines-victory-gulf-rivals/#3d535f7d3800
Delta lauds US deal requiring financial disclosures by Qatar Airways (that’s literally the title of the article): https://www.ajc.com/business/delta-lauds-deal-requiring-financial-disclosures-qatar-airways/Vfv7tkShoJRaMw6q6687pJ/
Delta settled these matters talking out of one side of their mouth and then started another proxy fight with the other. You can pretend their sentiment is genuine if you want, but I’m firmly convinced the emperor is just nude.
Nationality is just another reason to make up for more money. Just like american tobacco industries banning clove cigarettes, lost at WTO but still refuse to comply. They declared it was unhealthy cigarette, but Phillip-Morris ends up owning majority shares on Indonesian’s Sampoerna. Delta is playing the same game more or less. Crushing offshore competitors using onshore competitors. Tricky move by Delta, and they back it up by making service better than AA or United, so that US customers find another justifiable reason than just nationality.
“No sensible passenger is flying from Dallas to Dubai to Hong Kong when they can instead fly the direct with American.”
Not true at all. Ive seen countless times friends and families fly the cheapest way to Asia even if it takes more hours via ME route.
Yeah, I guess I also forgot about mileage runners. I should have mentioned, however, that no sensible business traveler (the traffic everyone is chasing) is flying that routing.
Apart from carry forward loss provisions of the US Federal tax code that enables/d USA-based airlines to reduce their income tax liabilities after emerging from Chapter 11 bankruptcy protection; the canceling of labor agreements during bankruptcy; the fobbing off to taxpayers via the US government managed/subsidized Pension Benefit Guarantee Corporation pension obligations for retirees, among other “tax preferences” (aka subsidies/corporate welfare) exploited by USA-based airlines, as noted by the author, Kyle Stewart, there are a great many state and local tax “incentives” (aka taxpayer subsidies) offered to airlines be they take-off/landing fee/facilities exemptions/reductions at airports seeking to attract new carriers and/or “incentivize” existing carriers to offer nonstops to new destinations; plus sales (and/or fuel & oil) tax exemptions; “tax-free” to investors/below market interest rate bond offerings he they straight up, “conventional” airport-operator bond financing and/or “special purpose”/other “economic development” entity, tax exempt/below market interest rate bond financing such as that widely used within New York State for large scale “public-private” (re)development infrastructure projects such as the current end-to-end terminal $8+ billion redevelopment project at LaGuardia Airport and/or past & planned redevelopment projects at JFK Airport that taken together (LGA & JFK past/planned) easily exceeds $20 billion that are “facilitated” by state & local economic development agencies/entities.
And that’s before whatever other major, publicly financed roadway, (pretend in NYC) rail connections; sewer, powerplant (e.g., JFK Airport has its own co-generation power plant, etc., etc.
Taken together, our USA-based airlines feed very generously, if not in fact gorge themselves very well (thank you very much) at taxpayer funded/government subsidized troughs – even if the byzantine structure they use to conceal how much they rely on the taxpayer does a very good job at hiding just how much corporate welfare our airlines vacuum up exceptionally efficiently all while whining like crybabies when others with better product offerings come ashore and begin to win market share by offering better products at competitive fares.
Please! Between the obscenely large multi-billion dollar share buybacks that are nothing more than huge conduits to transfer wealth from consumers and taxpayers to an exceptionally the few already exceptionally wealthiest among us AND last years blowout tax cut giveaway (corporate welfare and even more welfare/wealthcare for multi-millionaires and billionaires) our airlines benefit just as much, and perhaps even more, than any of the “government-owned”/government “subsidized” airlines they pay lobbyists like former House GOP Speaker Newt Gingrich, and many others in their well paid army of lawyers, consultants, public relations firms, and their generously funded industry advocacy groups tens of millions of dollars per year to promote anti-competitive, anti-consumer policies all designed to fatten the obscenely large, multi-billion dollar share buybacks to the ever higher demands made by the financial community – that has only worsened in an era of very limited (at best) “competition” in a handful of markets, and for most regions/cities, our airlines government facilitated/sanctioned oligopoly (which itself is another form of indirect subsidy our airlines now enjoy with seeming impunity).