This chart illustrates how quickly Gulf carriers have added US destinations compared to US carriers adding Gulf destinations
Just as Etihad announced that it would be flying its new three-room “residence” aboard an A380 to New York ($64K round trip) this year, US airlines American, Delta and United made their case today against Emirates Airline, Etihad Airways and Qatar Airways.
The US carriers contend that these Gulf carriers have received over $40 billion in subsidies from their governments, which has distorted the market and given them unfair advantage over US carriers. The subsidies include things like interest-free “loans” with no repayment obligation, free land or government assumption of fuel-hedging losses. US Airlines presentation
The US carriers say that these subsidies run counter to the spirit of “Open Skies” agreements formed in 1992, and they want the US government to re-open and modify these agreements to address the distortion brought on by these subsidies.
This ranking chart shows how quickly gulf carrier capacity has grown since 1998
Here’s a PDF of the US airlines argument. Since most TravelSkills readers are also business people, I would be very interested to hear reactions to this argument.
Related: How Emirates welcomes a new plane [photos]
Take a spin through the bullet points and charts laid out here (it’s a quick read) and leave your comments below!
Consider answering these questions: Are US airline justified with their position or are they just whining? Are Gulf carriers unfairly subsidized, asking US carriers to play in a distorted market and trying to cover that up? Have you flown a Gulf carrier? Would you? Do you even care? Why?
United Clubs upgrade food & renovate
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I make every effort to fly either a European/Asian carrier or one of the UAE carriers for any overseas trips. The US big 3 like to brag about their service, but there is no comparison. European and UAE carriers have nice meals, free cocktails, usually more leg room and wider seats. I’m in the process of using up my US airline FF miles since you can’t use them to upgrade or for free tickets since the US planes are over booked or too full. I notice that Delta has brought free cocktails back to their overseas flights as a nod to the competition.
From the Economist – thorough. It appears there is real substance particularly to Qatar and Etihad subsidies. It does not excuse UA/AA/DL from poor product or they can’t lower their own costs. http://www.economist.com/blogs/gulliver/2015/03/airline-subsidies-gulf
sounds to me like the US auto industry collapse happening all over again but in the air now. they do not want to compete because the greed at the top instead of upgrading their aircraft and services is the en vogue thing to do in the US, continued inequality. give up the premium product and zero creativity. how can the US continue to do the same thing over and over expecting a different result?
After looking at the grievence of the airlines I didn’t see where the issue was lower costs due to the subsidies. There was a lot if info but that didn’t seem to be the gist of the comments. Basically they don’t like the competition. I do get the possibility with the loans. Look at the 64k suites they are marketing and selling. Is there anyone on this blog that would pay half that for the same suite with AA, UA or DL? Hardly! If you want bus service then we (US CARRIERS) just about have the market cornered
We are enjoying the “magic carpet” rides. Stop whining, you U.S. airline laggards!
Dear US airlines, please learn to live with competition. Thank you.
I agree with most everyone else. I think the US carriers are “whinning”. Their product is sub-par and yet charge the highest fares. Their service is terrible and the attitude of the attendants is unacceptable. I too fly to Asia often and always prefer coach on an Asian Airline vs upgraded business class on a US Carrier. The US Carries act like we should be grateful they allow us on their flight. The opposite is true for Asian airlines, they are glad you are flying with them and act accordingly.
An interesting read – there are almost certainly real subsidies to Gulf carriers of many categories but not as many as actually shown. The U.S. has subsidized U.S. carriers for all of history starting with guaranteed mail contracts. In the modern era, at least $8B of direct subsidies after 9/11. Then relieving bankrupt carriers of pension plan obligations for $3B. Then more Ch. 11 debt relief. Then construction and operating subsidies for most airports totaling billions of $ per year – some estimate $1.4B for LAX carrier subsidies in the past decade. The legacy carriers already have options for low cost mega-hubs. DL uses low cost ATL. American dominates relatively low cost DFW. United could shift its hub from ORD to low cost DIA which has huge excess capacity and less weather events. It could similarly ditch its ultra high cost JFK hub and consolidate at lower cost EWR. Both moves would lower costs and allow more money to be put into product but UA apparently prefers direct competition. Choices, yes, choices.
There is an irony that some of the Gulf carrier loan guarantees may be from US government EXIM (Export / Import) Bank – sometimes known as the “Boeing Bank” which subsidizes foreign carrier purchases of US aircraft and equipment. That’s lower hanging fruit but because Boeing and its subcontractors P&W and GE have cleverly sited their facilities in all 50 states, Congress has always blinked when contemplating cutting its budget.
While the big 3 are griping about the Gulf carriers, low-cost international carrier Norwegian Air is coming up fast in the rear view mirror flying EXIM-bank subsidized Boeing 787s. So unless the Big 3 get on the ball, they will deservedly continue to shrink in overall market share.
And the winner is: The US consumer!
Thanks, Matt! Good analysis! –chris
Very correct especially on point 2. Example is SWA. It is one if the most unionize airlines and functions quite profitably and efficiently while not walking its customers at every turn. UA and AA have to up their game as they hub internationally at extremely competitive airports while DL not so much with ATL and DTW. My kingdom for a Middle Eastern carrier and a few more Asian carriers head to ATL. I don’t think it will happen unless an alliance is struck with SWA or some other discounter wants to make a play in Hotlanta.
THanks, Jeff! Coach on KAL is the BEST! More space than any other transpac carrier. –chris
I don’t see the problem. Not many US airlines fly to the Middle and Far East so how are they affected. The US Airlines just can’t compete on efficiency or luxury and they like keeping fares artificially high and that is why they don’t want the competition. They have all got to write off their debts through the many trips through the chapter 11 process, which is an indirect subsidy.
Just to give you my take, I fly KAL from ATL to ICN. I fly coach. I could fly DL from ATL-DTW-ICN in business elite (with certificate upgrade) but choose a coach seat on KAL I do this even if it is a destination further the DL serves in Asia which are very few. I’m not knocking DL but the service is so superior on any Asian or Middle Eastern carrier it is shocking even in coach. If I could wave my magic wand (and I would side with the U.S. carriers) let the forein carriers fly inside the U.S.so then if there is anti-competitiveness the court can sort it out. As a note, I do about 250-300k a year (but in the seat) and a 3M. I also own my own company and compete internationally with subsidized competitors. We have to compete on service and quality of that service.
Chris, great post and very interesting to dig into the presentation and the background info therein. i think that the US carriers’ objections fall into 3 major buckets:
1. Cheap interest on loans. While I won’t bother to see if Emirates borrows in local currency, USD or EUR, that doesn’t really matter. Since 2008, US airlines (and all companies here in fact) have benefited greatly from Quantitative Easing. (Economists will tell you it’s probably the single largest reason we’re much better off than Europe using 2008 as a benchmark.) So that one isn’t convincing.
2. Cheap labor. This is actually a bit of a cheap shot on unions. Companies like Virgin Atlantic, Norwegian, Alaska and Southwest demonstrate that they are able to fly cost-effective routes, provide a high-quality soft and hard product, and turn a profit – all while unionized. I’m not going to defend the below-par performance of UA and AA in particular (DL is spared and in fact gets my award for “most improved” mainline airline).
3. Cheap facilities. There is no true comp in the table on slide 7. Give me an airport with endless land and cheap labor imported from the 3rd world. Best one in the table is perhaps BOM, but using their own numbers that’s only around $100mm a year in subsidy to Emirates – not the average of LHR, NYC, FRA, IAD, etc.
The real issue is that these guys are executing far better than the legacy US carriers. Wah wah, guys. Grow up and learn to run a global airline business in the 21st century.
I have spent most of my career flying internationally…warming airline seats from all the major carriers. Since the cost of business or first seats on most airlines is very similar, I usually choose quality of service over the relatively small price differences. And almost all airlines receive subsidies in some form or another.
I choose not to fly the UAE airlines because I don’t like their policies towards their employees and their citizens. Specificaly their treatment of people who don’t comply with their norms is disgusting. So I won’t be flying them anytime soon, regardless of the number $64K suites they are offering. To me, these airlines represent the perfect example of the excesses of too much wealth without the brains to use it wisely. I hope they go out of business soon, so the rest of world can have a decent life.
i dont understand the US argument. The UAE carriers have a premium service for a premium cost. you can fly united in coach for 13 hours and pay less. You will be miserable. Even in so called Global First, its a joke. The food is barely passable, not enough of it, and the flight attendants even in the premium cabin and the premium routes are almost as miserable as the service.
apparently by attempt to be clever with an industry play on words wasn’t so clever after all.
The US airlines already enjoy lavish subsides from the taxpayer. (Link will not post see hill.com Report 215921). They are just whining because the competition is not to their advantage, having focused on consolidation and cost cutting. They should focus on offering a competitive product rather than trying to tilt the market.
Have flown Qatar Air and it’s the greatest. The service, what you get. I flew it once in coach and three times in business. If U.S. carriers want to be better, they have to be like these airlines. I hate to say this but I am willing to give up United frequent flyer points in order to fly these airlines. Wish they went from Washington to London, the route I most travel.
I hear what the airlines are saying about government subsideies and all I can say is that the government did bail out some of the airlines five, six years ago. They also allowed the airlines to fly while in chapter 11, isn’t that considered some form of government subsidies???
I feel that they are whining because their profit margins aren’t as great if they had to do the same service as other airlines.
I have heard folks talk about the importance of cheapness in flying. That we all want to fly New York to L.A. for $300. Sorry but there is enough of us, mostly older that are willing to pay between $700 to $1,000 for something that is more humane than what we have today.
Does anyone listen and agree with me on this????
“route for” => “root for”.
US carriers have given consumers no reason to route for them. If the Gulf carriers can leverage the wealth accumulated in the region to invest in a superior product at a fair price, that’s what I’ll continue to choose. Let’s put it this way: If the US were to punish the Gulf carriers and restrict their routes to the US, I’d go out of my way to fly them to places like Africa from the US by doing this: I’d fly a European carrier to Europe and then add an extra flight to Doha before my onward to Johannesburg. In fact, I’ve done this several times from SF in the past – including this week! I feel so strongly for the quality of the experience from these guys – especially at the front of the plane.
Well then! Maybe the Gulf carriers should complain that US carriers are so spartan that they have unfair cost advantage.