Air Italy’s USA expansion has caused a stir amongst U.S. legacy carriers. But Delta CEO Ed Bastian’s op-ed response is riddled with deception and outright mistruth.
Feel free to start by reading Ed Bastian’s op-ed without my commentary. I’m going to jump right into his op-ed and provide a line-by-line deconstruction and analysis. In doing so, I will explain the context of this issue if you are not previously familiar with it.
A Deutsche Bank airline analyst asked a question recently: “Who is funding Air Italy’s losses?”
Bastian starts with the premise that Air Italy is not a viable airline. He notes that the carrier has lost money the last two years:
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.
Think about that for a moment. Isn’t an airline that is losing money ripe for acquisition and restructure? With flag-carrier Alitalia performing even more poorly, Air Italy did not look too bad in context.
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.
For good reason, right? Etihad failed to cultivate Alitalia, leaving a bankrupt airline propped up by government bailouts. Qatar wisely saw an opportunity to capitalize on the Italian market, where air travel remains a necessity. That’s what investors do.
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.
First, Bastian fails to point out that Qatar has suffered from a blockade form its Arab neighbors, severely harming traffic and leading to higher-than-expected loss. Geopolitics matters greatly and they matter here. Second, Bastian outright lies: Qatar Airways has no specific plans to give Air Italy any Boeing 777s or Airbus A350s – the idea was merely spitballed by Qatar’s CEO in April. Why mischaracterize unless your position is weak?
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.
No it is not. Does Basitan even know what a Fifth Freedom flight is? Air Italy is an Italian carrier. Flights to/from Italy are by definition not Fifth Freedom.
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.
No, these Gulf subsidies bring jobs to Americans. Qatar buys Boeing jets. Qatar hires staff at its U.S. stations. Qatar and Air Italy bring airline and airport jobs to the USA.
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.
What a pathetic attempt to pander to the egocentric president.
These Italian routes, already highly competitive and well-served by existing carriers, are simply not economically viable without Qatari subsidies.
Already highly competitive? Who else will offer nonstop service from Milan to Chicago, Los Angeles, and San Francisco? Who is Bastian to say whether a route is well-served or not? Let’s not forget his interests: put competition in retreat so that Delta can raise prices.
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.
Let me rephrase: By adding capacity to these markets and offering attractive introductory fares, Air Italy is creating U.S. jobs and offering consumers more choice and competition. Consumers win. Boeing wins. Airports win. Local governments win. The economy wins. And therefore, even the Administration wins.
We shouldn’t be surprised, given that if it played by the same rules as everyone else, Qatar Airways simply wouldn’t exist.
Says the airline that has been bailed out by the U.S government and shed all of its pensions onto U.S. taxpayers…
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.
Just like Delta once did. A successful business thinks long-term, not short-term.
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.
Yes, 12 lackeys in the U.S. Senate composed an equally nonsensical letter to the Administration, probably provided by Delta in the first place. It’s nice to know whose interests those members of Congress are looking out for.
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.
The only sentence I can agree with.
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.
Open Skies, it’s a wonderful thing.
We should demand an answer to the Deutsche Bank question: Who is funding Air Italy’s losses?
Air Italy’s owners, just like any other business.
I hope you can appreciate the utter absurdity of Bastian’s arguments. The man is smart: I’ve met him. I cannot believe he would pen this letter of his own volition.
Meanwhile, Bastian says nothing about Alitalia, JET Airways, or China Eastern. Or even about the Air India problem I wrote about earlier today.
Talk about a double standard…