Feds may step in as airlines, travel groups battle over state subsidies
Tuesday, May 05, 2015
Domestic airlines have been waging a war with travel groups and Middle East airlines over the latter's use of state-funded subsidies, bringing into the question the free-market equality promoted by the Open Skies agreements.
At issue is whether the United Arab Emirates and Qatar should be allowed to provide funding to their countries' airlines. These subsidies cover revenue losses as the airlines expand rapidly across the globe and offer low fares to travelers.
In a recent poll conducted by an airline industry group, it was found that approximately 80 percent of U.S. voters want the White House to step in and settle the conflict. Meanwhile, U.S. travel groups fear such meddling will only serve to negatively affect international airlines' relationships with the U.S. travel industry.
Airlines take a stand
According to the Americans for Fair Skies — a nonprofit established to represent U.S. airlines and persuade the U.S. government to investigate and address government-subsidized international airlines — the conflict begins and ends with foreign airline subsidies and their effects on the U.S. aviation industry.
A recent poll, which was released the week of April 20, shows that a majority of Americans appear to agree.
"To be clear: We support Open Skies 100 percent. Any suggestion to the contrary is an attempt to distract from the true narrative," Captain Lee Moak, president of Americans for Fair Skies, said in a statement. "Our call for government action is directed only to two cases where foreign governments are engaged in predatory practices to distort the marketplace in favor of their state-owned airlines, which runs counter to Open Skies. These are not allegations. These are facts. And the subsidies by the United Arab Emirates and Qatar to their state-subsidized airlines are the worst form of protectionism."
According to Americans for Fair Skies, Middle Eastern carriers — Qatar Airways, Etihad Airways and Emirates Airlines — have received more than $42 billion in subsidies since 2004.
"With subsidies in hand, the state supported airlines ... need not worry about recouping the cost of capital. They can continue to fly unprofitable routes, and purchase hundreds of wide-body aircraft regardless of market demand," Moak explained. "When the Gulf state-owned airlines suffer debilitating losses these airlines can — and do — remove the loss from their balance sheets, transfer it to their governments and continue on with a global expansion that is not, as the spin coming from their public relationships would have you believe, stimulating passenger demand."
According to the poll, over 79 percent of American voters believe the U.S. government should address trade violations of Open Skies agreements. The poll results are derived from 2,409 responses from registered voters in San Francisco, Chicago, Atlanta, Dallas and Washington, D.C. The nonpartisan, issue-based poll was conducted by Premiere Political Communications of Austin, Texas.
Travel groups, airlines clash
The Open Skies debate has exposed a conflict of interest between airlines and travel groups that, prior to these circumstances, may have gone unnoticed.
After all, domestic airlines feed U.S travel groups, and vice versa. Therefore, it's surprising (as well as a bit unfortunate) that the Open Skies concept could ultimately bring two mutually benefiting parties to bare teeth and claws at one another's doorstep.
According to a statement made by U.S. Travel Association President and CEO Roger Dow: "The U.S. travel community is alarmed and disappointed that anyone would give serious thought to tampering with Open Skies, which has both made it easier and cheaper for American citizens to travel abroad and helped expand the lucrative inbound international travel market to the U.S."
Dow went so far as labeling opposition as crazy, saying, "No sane person would ever argue that U.S. businesses should not be as healthy and profitable as possible."
Dow was not alone. Kevin Mitchell, founder of OpenSkies.travel, and chairman of Business Travel Coalition, called the airlines' actions "draconian."
"If Qatar and the UAE are unwilling to renegotiate [the Open Skies agreement], these U.S. airline CEOs would have the U.S. government terminate [the agreements] and introduce a rule that the Gulf carriers may increase flights to the U.S. only if a U.S. carrier wishes to increase or introduce operations to their territory," Mitchell said.
"Despite the undeniable benefits to consumers and communities across America as well as U.S. economic output and growth, these requests seek to rekindle the debunked practice of overregulation in international aviation markets and turn back the clock on decades of successful international aviation policy."
Terms such as insane and “draconian” are reserved for the types of conflicts that require third party arbitration. Recently, the U.S. government found the need to step in, as the Open Skies conflict seemed to be getting out of hand, developing a mind of its own.
On April 29, more than 260 members of the U.S. House of Representatives sided with domestic airlines and delivered notice to Transportation Secretary Anthony Foxx, as well as Secretary of State John Kerry, asking that the Obama administration investigate the governments of Qatar and the United Arab Emirates.
U.S Congressmen Steve Israel, Robert Dold, Dan Lipinski, Frank Pallone, Tom Emmer and Paul Cook announced they are leading a bipartisan congressional group in an effort to highlight and address the issue of illegal government subsidies.
"Our nation's economic success depends on a robust and healthy commercial airline industry. The governments of Qatar and UAE should play by the global rules in the Open Skies agreement," said Rep. Steve Israel. "Unfair subsidies tip the scales against the economic success of our country and the aviation industry. This bipartisan letter seeks to ensure that all parties are following both the letter and spirit of these agreements."
This move has not gone over well with the CEOs of international airlines.
Sir Tim Clark, president of Dubai's Emirates Airline, in a stern statement says he believes that the airline's success has made it a scapegoat.
"The U.S. carriers allegedly took two years, and goodness knows how much shareholder money, to assemble a stack of allegations which included wrong assumptions and leaps of logic," Clark said. "We are currently working on our point-by-point rebuttal."
He added: "For the record, Emirates does not receive and never has received any form of subsidy from the UAE government."
The claim that Emirates benefited from $2.7 billion in subsidies from the government's assumption of fuel hedging losses and that the government also provided the airline $1.6 billion in letters of credit are untrue, he said.
"The real issue at hand is that the three biggest U.S. carriers, who together with their joint venture partners already control about two-thirds of international flights from the U.S., want to further limit the international air transport choices available to American consumers, airports, local and regional economies," Clark said.
Recently, Qatar Airways has said it still plans to expand its services to the U.S.
Despite recent tensions, Qatar plans to fly two-aisle Boeing 777 aircraft to Los Angeles and Atlanta. The airline would fly a two-aisle Airbus Group NV 350-900 XWB aircraft on its Boston route and for its second New York flight.
Such a move is guaranteed to inspire backlash from domestic airlines. Until the federal government steps in and addresses the issues surrounding Open Skies agreements, the back-and-forth rhetoric and hostility between the two sides will continue to escalate.
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