ATW Editor's Blog

In Open Skies war game, Gulf carriers 3: US carriers 0

by Karen Walker
Mar 05, 2015

Today, after two years of “investigation” and a largely behind-closed-doors campaign (apart from the Delta CEO’s unfortunate CNN interview), the three major US carriers finally made public the document that allegedly proves their Gulf carrier rivals are operating only because of more than $40 billion subsidies from their state owners.

Representatives of American Airlines, Delta Air Lines and United Airlines held a press conference jointly with representatives of major airline unions to defend their campaign, provide an outline of the document, and insist that they are taking action not because they don’t believe in Open Skies (they love the other 112 US agreements, they just don’t like those with the UAE and Qatar) or are against competition (“bring it on”, but it must be fair).

You can read our news summary of the press conference here, and responses from Emirates president Tim Clark and Qatar Group CEO Akbar Al Baker here.

But what was my quick take from today’s press conference? In my view, not a lot. It only raised more questions about the US carrier CEOs’ true motivations behind this strange campaign.

First, any time that the three biggest international US carriers join forces – backed solidly by their union groups – you have to wonder at the real story. Job protectionism is fine, but – like competition itself – must be done on a sound basis. I don’t see a case made.

Second, if the so-called “breakthrough” (their words) by the US carrier investigation into Gulf carrier financials was the simple discovery that they could access the numbers via countries like New Zealand and Singapore, why did it take two years to compile a report? And, if the evidence is so damaging, why was this not made public much earlier, rather than shuffling secret documents around White House and government rooms? Unfair competition is a serious allegation: if you have the proof, show it and take it to Justice.  The US carrier reps were posed that question today by a reporter. Their reply: “We just didn’t.”

The third question relates to Chapter 11, a uniquely US system that allows airlines in dire financial straits – for whatever reason – to hold off their creditors, wipe out debts and restructure. Outside the US, Chapter 11 is seen as a subsidy. The US carriers insisted today it was not a subsidy in the view of the US. That’s irrelevant in a global market. It’s what counts as a subsidy in global eyes that matters.

The US carriers also said today that Chapter 11 means you have to shrink your airline. So how come American Airlines, fresh out of bankruptcy protection, is now the world’s largest carrier and investing heavily in new aircraft and products?

I’ll leave the last word for now to a response to the press conference from US-UAE Business Council president Danny Sebright.

“Before claiming government support for international competitors, the Big 3 [US carriers] may first want to check their own balance sheets.  Since 2006, the Big 3 transferred billions of dollars of pension liabilities directly to Uncle Sam while leaving creditors holding the bag for billions more through multiple bankruptcies.  They received billions in cash payments and guaranteed loans in a direct government bailout while enjoying the advantages of antitrust immunity to fix transatlantic fares with their European partners,” Sebright said.

The US airlines should “stop complaining and start competing,” he added.

Unless and until American, Delta and United have a more compelling case that is not so clearly about closing the competitive door after they got what they wanted via Chapter 11, I suggest that’s good advice. By my count, they are already several points behind in this game and they now risk scoring home goals.

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