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Gulf Airlines’ Expansion Sets Off a Row in the U.S. Gulf Airlines’ Expansion Sets Off a Row in the U.S.
(about 1 hour later)
Like many airports around the country, Orlando International in Florida has made efforts to attract foreign carriers in recent years. They have paid off; Orlando now gets more than 40 foreign flights a day from places like Germany, Brazil and Colombia.Like many airports around the country, Orlando International in Florida has made efforts to attract foreign carriers in recent years. They have paid off; Orlando now gets more than 40 foreign flights a day from places like Germany, Brazil and Colombia.
The next goal is to lure Emirates of Dubai or another of the Middle East carriers that have transformed global travel. But Phillip N. Brown, the airport’s director, worries that such an opportunity might be threatened by a push from three major American carriers to freeze new flights by the Persian Gulf airlines, saying they receive unfair government subsidies.The next goal is to lure Emirates of Dubai or another of the Middle East carriers that have transformed global travel. But Phillip N. Brown, the airport’s director, worries that such an opportunity might be threatened by a push from three major American carriers to freeze new flights by the Persian Gulf airlines, saying they receive unfair government subsidies.
It is the latest skirmish in the long-running battle that airlines around the world have waged against the fast-growing airlines from the gulf region.It is the latest skirmish in the long-running battle that airlines around the world have waged against the fast-growing airlines from the gulf region.
Now, that rift has extended to the domestic travel industry as well, pitting Delta Air Lines, United Airlines and American Airlines against airports, travelers and hotels that benefit from open skies agreements.Now, that rift has extended to the domestic travel industry as well, pitting Delta Air Lines, United Airlines and American Airlines against airports, travelers and hotels that benefit from open skies agreements.
Those groups worry that questioning open skies agreements with the United Arab Emirates and Qatar, where Emirates, Etihad and Qatar Airways are based, could turn the clock back to more protectionist policies.Those groups worry that questioning open skies agreements with the United Arab Emirates and Qatar, where Emirates, Etihad and Qatar Airways are based, could turn the clock back to more protectionist policies.
“Open skies have been a major boon for us,” said Mr. Brown, who has been trying to lure Emirates to Orlando for the last five years. “Trying to reverse the policy will be detrimental for us.”“Open skies have been a major boon for us,” said Mr. Brown, who has been trying to lure Emirates to Orlando for the last five years. “Trying to reverse the policy will be detrimental for us.”
Roger J. Dow, the head of the United States Travel Association, which represents airports, travel organizations and hotels, said that travelers had benefited tremendously from increased competition, particularly after domestic airlines consolidated their business through mergers.Roger J. Dow, the head of the United States Travel Association, which represents airports, travel organizations and hotels, said that travelers had benefited tremendously from increased competition, particularly after domestic airlines consolidated their business through mergers.
“This is one of many efforts where the big three U.S. carriers are trying to set the rules of who can do business here,” Mr. Dow said. “This is about stamping out competition, not about leveling the playing field.”“This is one of many efforts where the big three U.S. carriers are trying to set the rules of who can do business here,” Mr. Dow said. “This is about stamping out competition, not about leveling the playing field.”
Emirates flies to nine cities in the United States from Dubai; Qatar Airways serves seven cities and Etihad six. All plan to expand service to more United States cities.Emirates flies to nine cities in the United States from Dubai; Qatar Airways serves seven cities and Etihad six. All plan to expand service to more United States cities.
The major domestic carriers, joined by pilot and flight attendant unions, said they were not seeking to roll back open skies policies. Instead, they object to what they view as outsize financial support that the three Middle East carriers receive from their governments, distorting the rules of the game.The major domestic carriers, joined by pilot and flight attendant unions, said they were not seeking to roll back open skies policies. Instead, they object to what they view as outsize financial support that the three Middle East carriers receive from their governments, distorting the rules of the game.
The issue highlights the transformation of global air travel. The 2000s were a lost decade for domestic carriers, punctuated by serial failures, bankruptcy restructurings and finally consolidations that reduced the number of carriers to just three major international carriers and a handful of domestic airlines. Today, these airlines are profitable and in good financial health; four of them control about 80 percent of the United States market.The issue highlights the transformation of global air travel. The 2000s were a lost decade for domestic carriers, punctuated by serial failures, bankruptcy restructurings and finally consolidations that reduced the number of carriers to just three major international carriers and a handful of domestic airlines. Today, these airlines are profitable and in good financial health; four of them control about 80 percent of the United States market.
Airlines in the Middle East, meanwhile, were busy buying new planes, building modern airports and establishing routes spanning the globe. Unencumbered by decades-old rules, they emphasized customer service and onboard amenities that have mostly disappeared from other airlines.Airlines in the Middle East, meanwhile, were busy buying new planes, building modern airports and establishing routes spanning the globe. Unencumbered by decades-old rules, they emphasized customer service and onboard amenities that have mostly disappeared from other airlines.
United States airlines face little direct competition from the Middle East carriers. They are shielded by geography — it wouldn’t make sense for passengers in the United States who are going to Europe, Latin America, China or Japan to fly through Dubai. Airlines also have a huge domestic market that is closed to foreign rivals.United States airlines face little direct competition from the Middle East carriers. They are shielded by geography — it wouldn’t make sense for passengers in the United States who are going to Europe, Latin America, China or Japan to fly through Dubai. Airlines also have a huge domestic market that is closed to foreign rivals.
But through their joint ventures with European carriers, and the prominent role taken by the three global airline alliances, United States airlines are affected by the rise of the Middle East giants. Delta and Air France-KLM, for instance, operate as a single airline on trans-Atlantic flights and share profits and losses on them.But through their joint ventures with European carriers, and the prominent role taken by the three global airline alliances, United States airlines are affected by the rise of the Middle East giants. Delta and Air France-KLM, for instance, operate as a single airline on trans-Atlantic flights and share profits and losses on them.
The issue has become so divisive within the American travel industry that the domestic airlines’ trade and lobbying group — Airlines for America — has been unable to take a position, since its members are split. The issue has become so divisive within the American travel industry that the domestic airlines’ trade and lobbying group, Airlines for America, has been unable to take a position, since its members are split.
JetBlue — which has a partnership with Emirates — has said it strongly supports the current open skies policy. So has FedEx, which has a major hub in Dubai that it uses as a staging point between the United States and Africa, India and Asia. JetBlue, which has a partnership with Emirates, has said it strongly supports the current open skies policy. So has FedEx, which has a major hub in Dubai that it uses as a staging point between the United States and Africa, India and Asia.
“The U.S. should not capitulate to the interests of a few carriers who stand ready to put their narrow, protectionist interests ahead of the economic benefits that open skies provides,” David J. Bronczek, the chief executive of FedEx Express, said in a letter to three cabinet officials last month.“The U.S. should not capitulate to the interests of a few carriers who stand ready to put their narrow, protectionist interests ahead of the economic benefits that open skies provides,” David J. Bronczek, the chief executive of FedEx Express, said in a letter to three cabinet officials last month.
Airports that have been courting Middle East carriers also have much to lose, though few have spoken publicly for fear of retribution by the American carriers.Airports that have been courting Middle East carriers also have much to lose, though few have spoken publicly for fear of retribution by the American carriers.
But the industry’s trade organization, the Airports Council International-North America, said that open skies were critical to attract foreign carriers even as domestic airlines cut back international service from many airports. Airports “should not be held hostage by U.S. airline decisions regarding which markets to serve,” the group said in its own letter to cabinet officials in February. “It’s true, a number of airport have benefited from open skies and we’ve been amongst them. But it is also true we need a strong domestic network of carriers,” said Thomas P. Glynn, the chief executive of the Massachusetts Port Authority, which owns Logan International Airport in Boston. “I think any trade agreement can provoke economic consequences we didn’t anticipate. The world has changed. It’s good this issue is on the table for re-examination.”
The industry’s trade organization, the Airports Council International-North America, said that open skies were critical to attract foreign carriers as domestic airlines cut back international service from many airports. Airports “should not be held hostage by U.S. airline decisions regarding which markets to serve,” the group said in its own letter to cabinet officials in February.
“What some consider to be subsidies, others consider to be legitimate business practices,” it added.“What some consider to be subsidies, others consider to be legitimate business practices,” it added.
The rift — and the debate about open skies — has intensified in recent weeks.The rift — and the debate about open skies — has intensified in recent weeks.
According to a 55-page report made public this month, along with hundreds of pages of supporting documents, the three major domestic airlines claim the gulf carriers have received $42 billion in subsidies.According to a 55-page report made public this month, along with hundreds of pages of supporting documents, the three major domestic airlines claim the gulf carriers have received $42 billion in subsidies.
The domestic airlines called on the United States government to renegotiate agreements with the United Arab Emirates, where Emirates and Etihad are based, and Qatar.The domestic airlines called on the United States government to renegotiate agreements with the United Arab Emirates, where Emirates and Etihad are based, and Qatar.
Tim Clark, the president of Emirates, and James Hogan, the chief executive of Etihad, dispute the claims. They will both be in Washington on Tuesday to present their case to United States policy makers.Tim Clark, the president of Emirates, and James Hogan, the chief executive of Etihad, dispute the claims. They will both be in Washington on Tuesday to present their case to United States policy makers.
But the issue is not easily resolved. While government subsidies are banned under international trade rules, air travel is excluded from global trade agreements. Instead, air travel policy is set through direct deals between governments.But the issue is not easily resolved. While government subsidies are banned under international trade rules, air travel is excluded from global trade agreements. Instead, air travel policy is set through direct deals between governments.
The United States has signed open skies agreements with 114 countries since 1992. These allow domestic airlines to reach more foreign destinations and provide foreign carriers with unfettered access to American airports.The United States has signed open skies agreements with 114 countries since 1992. These allow domestic airlines to reach more foreign destinations and provide foreign carriers with unfettered access to American airports.
Under these agreements, subsidies are not a major concern. In fact, that word comes up only once in a 15-page agreement between the United States and the United Arab Emirates signed in March 2002.Under these agreements, subsidies are not a major concern. In fact, that word comes up only once in a 15-page agreement between the United States and the United Arab Emirates signed in March 2002.
Instead, according to John R. Byerly, a former official at the State Department who negotiated dozens of open skies agreements until he retired in 2010, airlines should have a “fair and equal opportunity” to compete anywhere they wish without hindrance, he said, “with a strong emphasis on compete.” (Mr. Byerly is now a consultant whose clients include Emirates, UPS and Norwegian Air Shuttle.)
A State Department official said the government took the allegations of unfair subsidies seriously and was reviewing the issue.A State Department official said the government took the allegations of unfair subsidies seriously and was reviewing the issue.
Few experts expect the administration to renegotiate the open skies deals with the United Arab Emirates and Qatar. At best, it might seek to discuss the subsidies issue with the two governments. But it seems unlikely, experts say, that the United States will push back against two of its closest allies in the region at a time of heightened political and military tensions in the Middle East.Few experts expect the administration to renegotiate the open skies deals with the United Arab Emirates and Qatar. At best, it might seek to discuss the subsidies issue with the two governments. But it seems unlikely, experts say, that the United States will push back against two of its closest allies in the region at a time of heightened political and military tensions in the Middle East.
“There is no way the U.S. government would put at risk over 100 open skies agreements,” said Brian F. Havel, the director of the International Aviation Law Institute at DePaul University, in Chicago. “It would not be prudent for the government to start picking them apart.”“There is no way the U.S. government would put at risk over 100 open skies agreements,” said Brian F. Havel, the director of the International Aviation Law Institute at DePaul University, in Chicago. “It would not be prudent for the government to start picking them apart.”
But Mr. Havel said the debate might provide a chance to review state subsidies in the business and maybe come up with general fairness rules.But Mr. Havel said the debate might provide a chance to review state subsidies in the business and maybe come up with general fairness rules.
“If you liberalize the industry,” he said, “you need to have safeguards in place.”“If you liberalize the industry,” he said, “you need to have safeguards in place.”