There has been an awful lot of debate regarding major US carriers and the Gulf “ME3”. US airlines are simply trying to defend their home turf against an onslaught of new traffic. Why are they being derided by bloggers like Matthew and Lucky? They have a point and I can prove it.
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The Situation
International carriers based in the US (Delta, American and United) have formed a new alliance, one that defends the US market from unfair competition. Mathew suggests that Fair Skies, the group promoting the campaign and defending the US carriers, are doing the opposite of their campaign. Instead of free and open markets, he suggests (along with Lucky) that the US3 are trying to make the US market an oligopoly by excluding the ME3. The US3 primarily target the home governments of these state-owned airlines offering unlimited cash subsidies to support otherwise unprofitable expansion, something publicly-traded companies cannot match.
The Middle East 3 (Etihad, Emirates and Qatar) for their part dispute the claims by the US3 and Fair Skies, suggesting instead that the carriers simply don’t like the competition. It is their continued business model to become the great connection point in the world offering passengers from the US and Europe to Asia an extensive network and significant capacity.
US Airlines are Not Wrong
In the case of subsidies, the US3 have a valid point. The Middle Eastern carriers are breaking Open Skies agreements by using those subsidies to finance their expansion efforts. As stand alone carriers (though the true information is private and unavailable) the notion is widely held that these carriers lose billions all while selling tickets under market value and filling massive jets unsuitable for the mission.
That does have a demonstrable effect on not only the US3 but also their codeshare partners. Today, none of the US carriers fly directly to Doha, Abu Dhabi or Dubai but they did. United flew to Dubai as did Delta, both have shut down those flights and in the case of United, other flights that have likely become unprofitable (Bahrain and Kuwait).
There are less jobs for Americans as Delta and others who shut down routes to the region for which they cannot compete. While the job numbers provided by Fair Skies can be disputed (local American citizens will still need to man the checkin counters, baggage handlers, operate the lounges for US destinations, etc.) – a lot of the support personnel will switch to overseas bases.
It’s also true that the Middle East carriers have hundreds of wide-body planes on order, many more than the US carriers and Chinese carriers combined.
Alternative Facts
What makes the US3 difficult to defend is the Fair Skies carriers choose their facts carefully and avoid others which make their positions easy to tear apart.
For example, Fair Skies claim that 1500 jobs are lost by routes that American carriers for which are no longer able to compete. That’s true if you look at every job that may contribute to the support of a single route (phone support, checkin counters, baggage handlers, etc.) but it’s incomplete at best. If Emirates adds a new flight to San Diego they will employ local employees, pay taxes, and buy US goods (catering, supplies, fuel).
Fair Skies also focuses on the wide-body aircraft on order but not the current supply. Delta has 199 wide-bodies in their fleet excluding 116 757s which are operated as wide-body aircraft by the carrier (high-capacity and long-haul operations like from the East Coast to Europe). Combined, Delta has 449 high-capacity aircraft of which just 49 are on order – dozens of which are in storage. United has 371 (two of which are on order and 109 in storage). American has 374 including storage and orders. Hawaiian, the smallest of the group adds 48 to the number.
In sum, that’s 1,242 wide-bodies active, in storage, and on order.
Compare those figures to Qatar’s 148, Emirates’ 256, and Etihad’s 91 (495) and their starting point is not exactly the same as Delta, United and American. Add 539 wide-bodies on order and you end up at 1,034 in total (17% smaller across the board assuming all orders are delivered)… and that’s before you factor in the Chinese carriers that Fair Skies has lumped into their claims. (Airline fleet numbers provided by Fair Skies and Airfleets.net)
The ‘alternative facts’ also ignore the subsidies they receive on their own account. A Wikileaks data dump showed that $155bn in subsidies were given to US carriers distributed over much of the 20th century. However, that really doesn’t address the multiple bankruptcies and debt forgiveness given to Delta, United, American, and their merged companies that comprise them (Continental, TWA, US Airways, Northwest, and others). It also doesn’t speak to the Essential Air Service contracts doled out to serve markets that are not otherwise viable, US postal traffic, military deployments, tax concessions, etc.
The group also ignores service-level deficiencies of the US carriers, though some would argue that investments into their hard products (Delta One, United Polaris and American’s business class offering) are on par with all three carriers in the Middle East corresponding product.
Fair Skies Marketing Draws Fire
The documentary-style infomercials they are putting out ignore their own issues and focus solely on the Evil ME3 and denigrating your enemy when you have a valid position only draws fire. This is not a group of concerned citizens – this is the marketing arm of the major carriers trying to fight against the heavy influx of new flights from the Middle East airlines.
They lump China into their own marketing despite the fact that several Chinese carriers are similarly heavily-subsidized, some of which also have direct investment from American and Delta.
They go after Lucky, which was clickbait at best, foolhardy at worst.
Their proposal excludes other airlines that are also government backed such as Saudi, Singapore and others.
But None Of That Matters
How could that be? Because the law. Open Skies Agreement states the following:
“Open Skies agreements do this by eliminating government interference in the commercial decisions of air carriers about routes, capacity, and pricing, freeing carriers to provide more affordable, convenient, and efficient air service for consumers.”
The agreement (contractually binding) states that airlines should be free of governmental interference and that is certainly what is going on at least in the case of Emirates. While the assumption by Open Skies is that they can end collusion by omitting government intervention to reduce prices, in this case it is because of Government interference that unsustainably low prices are available.
If the intention of the law were to be considered then by Fair Skies own admission they would have to agree that the goal of affordable, convenient air service for consumers is being provided.
However, if the agreement is followed to the letter of the law the evidence is sufficient to discontinue rights to carriers violating the agreement. But that can be a double-edged sword. US carriers would have to prove that they are not in violation of the agreement for the aforementioned reasons. Joint venture partners would have to do the same which would damage relationships with a broad number of carriers.
Matthew Is Wrong
All of the rhetoric aside, Emirates, Qatar and Etihad are just plain cheating. Matthew derides the US carriers for their own subsidies, but they pale in comparison to the ME3.
“The point of these efforts are to protect the bottom line of three airlines by limiting choice and raising prices for the traveling public.”
There’s taking a few pennies out of the take-a-penny, leave-a-penny kind of subsidies, and there is robbing a bank kind of subsidies.
He also states that “The idea that U.S. carriers will ever go out of business is laughable.” I would venture to guess that Republic, Frontier, US Airways/American, TWA, Northwest, and dozens of other airlines that have gone out of business or come close would disagree.
Matthew says that the true purpose of the campaign is “to destroy healthy competition” but this is not healthy competition. That would be more along the lines of Delta, Japan Airlines, American, United, and ANA competing for Japanese traffic (though Delta has cried foul there too in regards to slots). This is flooding a market with a bottomless pit of money, practically free fuel (a huge cost for airlines), and virtually zero airport costs.
The Middle East carriers follow a different set of rules than the rest of the world. Their governments are directly funding the exposure, passing passengers through their airports at a loss and running any airline they can out of markets they serve. If the US3 were truly waging a war on airlines that are affecting fares and hurting their bottom line, Norwegian, and WOW! would be targeted as well. But those two carriers are playing by the rules and the US3 are competing with them market by market and have been for three years.
What do you think? Does the US3 have a valid claim or do you think Matthew is right?
In an alternate universe, AA would feed as many passengers as possible on AA codeshares into QR as there is simply absolutely no market to end a flight from anywhere in the US into Doha without connecting to somewhere else in the world. ME3 subsidies are a false argument perpetuated by small minded CEO’s with their eyes focused on their bonuses to the detriment of virtually everyone else in the world.
I would agree. I think it’ a dangerous precedent to set and full of peril for both sides to truly enforce the law as it is written.
If its bad to fully enforce the law, then the law itself is not good. Since it was human made law, human can always change it.
Its a dangerous thought not to enforce the law for fearing a consequences.
Agreed 100%. I think that’s really what the US3 think they are asking for, though if it was enforced to the full extent of the law as written, they might not like the corresponding consequences.
Um..
What do you mean?
Us3 wants to change the law?
Or
US3 wants the law to be fully enforced?
The US3 (thinks) they want the law fully enforced. But if the government is not going to enforce the law or don’t feel like it’s just any longer, than it should be changed.
Afaik, US3 already appealed this case in times of obama administration. Which in your terms ‘to enforce’ the law. The administration thought that they already enforce what is written, and the interpretation of US3 is not correct. Therefore nothing is done.
I’m not saying Matthew is right or you are wrong. I’m not going to state that he can write whatever he wants in his blog also.
But Matthew presented his articles with facts and data, along with clickable links. While you, at best wrote “I would venture to guess…”
The difference of maturity level make it seems not an apple to apple comparison.
James, respectfully, I think I articulated both sides of the argument and where I feel like he was wrong. The most important fact I included is that the US3 are well within their rights to expect the governments of both countries to honor their agreement. Matthew and I are very friendly regarding this topic though on some points we disagree. He doesn’t dispute that the subsidies the ME3 receive far outweigh counter-claimed benefits by the US3. But that doesn’t change the fact that the US3 should be able to have a fair playing field and both governments should support that. Alternatively, they could both just shut down open skies and trade slot pairs – though I could argue that result in a second post would be as damaging to US consumers as it would be to the ME3.
I’m not sure, however, that making a statement, “I venture to guess” qualifies for a difference in maturity.
Both of you presented your own side of argument. Matthew back it up with data or clickable links. Whereas you base it on guess. Unless you are a fortune teller both argument doesn’t have the same merit.
Pointing another blog (omaat) and saying its article is merely a click bait, based on your guess-argument, is not a person with mature mindset would wrote.
I also linked to Fair Skies, Airlinefleets, and the Open Skies agreement among others.
I saw them. Tough its a very long strectch to connect them with your argument, not to mention potential bias along the way.
Simply said, you need more concrete black and white to support your argument.
What would you say is ambiguous? The ME3 acknowledge massive government subsidies and are structured by governments both in violation of the agreement. Then I included a link to the agreement showing the requirements. That seems black and white by both of our definitions.
Yes, you put link to the agreement. But none whatsoever for the acknowledgement part. That’s why its a really long stretch of argument. If not just an assumption…..
I disagree with this article. I am from sub-continent and now an US citizen. I don’t travel in business class when I go back to my home country with a family of four. I had traveled both US carriers and ME3 and can compare economy class between them. US carriers are horrible in service. They can’t even come close to ME3 in terms of service and price. Ask anyone who travels economy class between US and sub-continent.
I wouldn’t disagree that the ME3 have better service, I loved my experience on Qatar. However, service quality doesn’t change the written law.
Agreed that service quality doesn’t change the law.
If ME3 has violated the law, why they haven’t been banned yet? And US3, even tough the smear and badmouthing is childish at best, under the ‘freedom of speech’ principle of law may not have violated the law either.
That’s why no claims been made. No court in sessions. And the bloggers, as you pointed out having fun with clickbaits. I’m not saying your article is, but others may have different opinion on that matters….
I think you need to use the word fewer in place of less.
Noted.
A better way to move forward is to require ME3 carriers to provide citizenship to their crews along with guaranteed pension benefits and education grants to those employed short-term. It’s a loosing proposition to compare airlines that do not have same working conditions and legal protections.
Lol. Are you trying to impose a set of obligation on a foreign legal entity? On what base? Imagination?
I would agree with James on this one. If the market conditions cause the airlines to no longer secure their workforce because they demand more, they will get paid more. I also don’t think that you can demand that their workers come to US standards or European ones, even US FAs and pilots don’t broadly receive educational grants – I can’t see that working.
Uh, what exactly have you “proven”?
That while the US3 are not blameless, they do have a legal case and like any law, it should be enforced or changed. The US3 have a reasonable expectation for the law under which they operate to be upheld.
Really don’t think you’ve “proven” any of this. You’re simply making observations based on your legal assumptions (I assume you’re not a lawyer?).
Matthew is the only JD on this blog. What did I miss? Do you think the US shouldn’t enforce the agreement legally? Is the agreement invalid?
Actually, you don’t need a legal degree in this argument (tough you may need one to fully understand an agreement). You simply need to present a hard-black and white-concrete-evidence, and build your arguments based on the said evidence. Avoid assuming, bias sentences, or an understanding where you’re not qualified to gave one.
Then the conclusion of your article should be along the lines of, “based on the abovementioned elaboration, therefore, US3 are only trying to enforce the agreement in full. Nothing is wrong with that.”
I kind of that that’s what I said. Under the section (None of that matters) where I explain that regardless of their motives, the ME3 are in violation, I wrote: “However, if the agreement is followed to the letter of the law the evidence is sufficient to discontinue rights to carriers violating the agreement.”
Lol. Let’s not jump to conclusion before reviewing any facts. Problem is, you didn’t present any facts in your argumentation/article.
Potreroflyr has stated it in a very simple query. What have you proved?
It wasn’t a question. It was sarcasm tough….
So how much did AA pay in taxes this year? A massive debt carry-forward FROM BANKRUPTCY just isn’t called a subsidy but if it quacks like a duck… US3 want to keep competition out because their model has shifted to less for more. We need to raise prices for the exact same thing so let’s make flying in basic economy so miserable that they are forced to pay more. What a business model. How many widebody aircraft did Delta buy from Boeing vs. aiding the French economy instead by the way?
I agree with all of that, and currently Delta doesn’t have any Boeing wide bodies on order that I could find. That’s why I stated that I think this will cut both ways, but if the US3 have a legal claim they should be able to rely on its enforcement. That’s not happening now.
If a foreign government wants to subsidize US consumer in the form of a much lower fare – which will in turn have a strong positive multiplier effect for the US economy – I say : let them do precisely that!
I think there is merit in that argument.
In utopia, off course let them do that. Unfortunately, this kind of subsidy, even tough beneficial for US consumer in general, is not profitable for US airline industry. Not profitable = less money. Thus the protest.
That I agree with 100%. Their motive is something neither Matthew nor I disagree on. It’s just that I feel the law should be enforced as it’s written, which may also hurt the US companies that think they will benefit.
What makes you think the law wasn’t enforced?
Because an opinion said so?
Did the Big 3 receive huge bailouts after 9/11? Ridiculous big ones, even airlines such as freight ones open handed, some laughing to the bank? Did the rest of worlds airline’s some equally affected bitch and moan? Ummmmm.
I’m an airline pilot and was over the Atlantic enroute SFO when the horrific tragedy struck in 2001, so I know what happened only too well to my airline and others. But I guess you slick haired young lawyer wannabes know all about the world with a fresh MBA, or whatever you think makes you a “superior thinker”
I also guess it’s ‘Murica first for you, huh dude?
I don’t really understand your complaint. My argument is that if there is a law on the books, those affected shouldn’t have to lobby for its enforcement. Defense of the ME3 argument is being made loud and clear almost everywhere you look, is it a problem to defend the US3 when they are on the correct side of the law?
Also, I don’t have slicked hair.
As you already admitted previously you are not in a position to give legal argument (you wrote Matt is the only JD), I would suggest you to refrain on this issue or at least paraphrase your response.
In layman terms, “how do you even know US3 is right?”
>> “If the US3 were truly waging a war on airlines that are affecting fares and hurting their bottom line, Norwegian, and WOW! would be targeted as well. But those two carriers are playing by the rules and the US3 are competing with them market by market and have been for three years.”
Norwegian has been targeted by the US3 – approval for their application for Norwegian Intl to operate US flights was dragged out for a very long time. What will be interesting to see if they will now begin to target other carriers like SAS, who is beginning to establish bases outside of Scandinavia to make use of lower labor costs.
I would say they have targeted Norwegian in a limited fashion, but they haven’t been included in this sort of attack to date.
Well, according to article from this very blog, Norwegian already attacked. Not exactly same as ME3, since every attack needs to be customised.
http://liveandletsfly.boardingarea.com/2017/07/28/united-union-attacks-norwegian/
Hopefully you were not offended since I’m not implying that you didn’t even read what your colleagues wrote. Just a simple reference.
Bottom line is this. I love Emirates. I fly Emirate NYC to Milan. But Emirates is owned by The Emirates Group. The Emirates Group is owned by The Investment Corporation of Dubai
The mission of the Investment Corporation of Dubai is : The Investment Corporation of Dubai (ICD) is a state-owned holding company that can be characterized as a National Wealth Fund owned by the government of Dubai, United Arab Emirates. Established in May 2006 with the transfer of the government’s portfolio of investments from The Department of Finance’s Investment Division, its role is to supervise the government’s investment portfolio while adding value.
It’s all online. You can google it to verifiable websites.
At the end of the day they can place shell companies in between Emirates and the government – but the bottom line is the government owns Emirates and funds it with the government investment portfolio.
This model is no different that the 1950’s national flag carriers: Pan Am, Alitalia, Air France, BOAC, KLM et al being propped up by their governments as if they were the USS United States, Europa, Queen Elizabeth or Queen Mary ships carrying the flags of their nations.
According to the Open Skies website that you linked, “Open Skies agreements do this by eliminating government interference in the commercial decisions of air carriers about routes, capacity, and pricing, freeing carriers to provide more affordable, convenient, and efficient air service for consumers.” If we the US government were to enforce this to the letter of the law, US3 airlines would be in big trouble. Whether we call it subsidies, tax loopholes, etc., the US government has been giving US3 airlines preferential treatment.
Also, the Open Skies Fact Sheet says “Open Skies agreements are bilateral air service agreements the U.S. Government negotiates with other countries to provide rights for airlines to offer international passenger and cargo services. They are pro-consumer, pro-competition, and pro-growth.” I don’t think what US3 airlines want is “pro-consumer or pro-competition.”
Based on this, it is very possible that the US3 airlines (and the US government) have not kept their end of the bargain, both in the letter and spirit of the agreement.
I think this is a case of the kettle calling the pot black.
Kyle doesn’t seem eager to stand up for his article anymore it seems.
To the contrary. Not all comments need a reply. If I have something to contribute then I will, if not I’ll leave them on their own. The last two offered interesting perspective and I’m happy to leave them as they are.
And we appreciate all comments on LiveAndLetsFly, but there is a line.
On this post there have been 45 comments of which 15 were from you and 8 were replies from me to you. Without considering the rest of the responses to other commenters you have consumed more than half of the conversation around the post. I’m not sure how many times and ways I can make my case. If you disagree (which you’ve made abundantly clear) then fine, please feel free to leave your dissent. But I’m not going to comment on your every thought.
So… your article which mainly said that US3 have legal grounds on their smear campaign against ME3, you gonna leave it as it is?
Without any data or evidence in your argument?
While at the same time you were badmouthing Matt’s and Lucky’s respective views?
You say:
“In the case of subsidies, the US3 have a valid point. The Middle Eastern carriers are breaking Open Skies agreements by using those subsidies to finance their expansion efforts. As stand alone carriers (though the true information is private and unavailable) the notion is widely held that these carriers lose billions all while selling tickets under market value and filling massive jets unsuitable for the mission.”
To really argue this point, we need to know how much subsidy ME3 airlines are receiving, and compare that the best we can to what US3 airlines have received/are receiving from the US government. Without that kind of information, your argument is very weak.
I would agree that the argument would be stronger if we knew just how much the subsidies are from those government bodies. Another commenter pointed out the clear relationship from the government of the UAE to Emirates (and subsequently Etihad). Unfortunately, inclusion of those numbers are a slippery slope. Using one figure that Fair Skies mentioned, the number could be as high as $52bn – though that seems impossibly high to me. Etihad just showed a $1.8bn loss for last year (which we know was covered by the government) so perhaps it is much smaller than the US3 have portrayed. Further, those operating losses are not unlike Delta, American, or United’s own losses during expansion periods as well as major market shifts. Due to the oil price depression (40 year low and record slow price recovery 2014-current), their market conditions would warrant a reasonable loss during that period given how dependent their business is on oil and regional connections (also major oil producing nations).
On one hand, I could include the number Fair Skies claimed just because they named one ($52bn) and the ME3 governments don’t disclose their financial support of the airlines. On the other hand I could choose to leave it unnamed because it is likely wildly out of range and accounts for things that probably shouldn’t be included. I felt that it would be weaker to use the Fair Skies number because (as I showed with their alternative facts) they selectively include everything that benefits them and exclude things that counter their position which strays from the true facts of the situation. I felt it was more responsible to agree that the subsidies are likely very large, but not try to pick a value point based on the Fir Skies number. I have nothing to include from the ME3 for firm support figures.
We can all agree (I think) that the ME3 are getting substantial subsidies from the government to fund their operations, and that the government has a large role in the operation of their airlines. In essence, that itself is the violation. As it’s written, that should be sufficient to challenge the ME3’s compliance with the Open Skies agreement.
But I don’t think that the argument should be invalidated simply because those states do not release the information. The US carriers are publicly traded so their financials are available to anyone. State financial support of the ME3 is not publicly available. This also demonstrates the unequal playing field in which the US3 find themselves.
“…it was more responsible to agree that the subsidies are likely very large, but not try to pick a value point based on the Fir Skies number. I have nothing to include from the ME3 for firm support figures.
We can all agree (I think) that the ME3 are getting substantial subsidies from…”
You just admitted that your whole point of view was based on assumption. You are bashing Matt’s view and another blogger’s view (Lucky of OMAAT) based on pure assumption.
Further you have also admitted you have no legal education or experience, thus your understanding of Open Sky Agreement are bogus.
Please just stick to review next time. You clearly not qualified to write these things.
All you can say is that US3 airlines and ME3 airlines (and most likely other airlines around the globe) receive some sort of assistance from their respective governments to cover their losses. That’s the part you should have included in your piece if you want to be more “responsible.”
He seems doesn’t even understand what he wrote. But a sensational title were needed for a click bait. Maybe he needs to fulfill certain target of clicks or views…..
Any subsidy given by a government is a preferrence of one possible outcome among many others. Allocating or eschewing public funds from their alternative uses is something a government decides and has consequences that the said government has to live with. If UAE and QT are subsidising their airlines they are giving up alternative uses of the said funds (be it present or future) for an outcome they find more desirable. The same can be said of the US government, in their choosing to increase defence spending, or welfare spending or whatever, instead of subsidising airlines they are giving up one thing for another. Having said that…..
If the US3 have an issue with the implementation of open skies agreement they can very well take the US government to court for failing to protect the legitimate interests of US corporations and failing to uphold the law. I am sure that the airliners have enough lawyers, if they have a legit case.
The electronics ban itself was an unfair subsidy provided to US3, which they failed to take advantage of. Even during the worst year of Turkish aviation for at least the past decade, with the electronics ban targetin TK, no US carrier had the balls to restart direct IST flights. Instead what the US3 are suing for is pure, unadultrated protectionism. Heck why not ban foreign competition altogether in any industry where the US is uncompetitive.