April 21 Why Are The U.S. BIG 3 Airlines Silent On Consumer Harm From Gulf Carriers?


What’s really going on here? What should the U.S. government do?

U.S. legacy airline CEOs are urging the U.S. Government to implement an immediate freeze on further expansion of flights to the U.S. by Gulf carriers and to request formal consultations to renegotiate the United Arab Emirates and Qatar Open Skies agreements with the purpose of introducing a cap on flights to the U.S. Likewise, it has been reported that if Qatar and the United Arab Emirates are unwilling to renegotiate, then these U.S. airline CEOs would have the U.S. Government terminate the two 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. 

U.S. airlines claim in a 55-page white paper that the Gulf carriers were subsidized by their governments over ten years in the amount of $42 billion dollars, but are silent on U.S. Government subsidies - which are orders-of-magnitude greater than $42B - that the U.S. airlines received to become established and continue to receive today. As is often the case, U.S. carriers decry government intervention in the marketplace, until they push for it when it benefits them.

Importantly, the Gulf carriers, in entering U.S. markets, stimulate demand, offer consumers more choice, lower fares and pressure U.S. airlines to improve their product and service offerings. These are all telltale signs of a functioning competition and an Open Skies policy delivering anticipated outcomes. A just-published academic report from the University of Maryland by independent academic researchers concluded in the Abstract section of its report:

“Gulf carriers, such as Emirates Airline, Etihad Airways, and Qatar Airways, have expanded aggressively and are creating an increasingly dense global network... Based on data obtained from the U.S. Department of Transportation, the empirical results suggest that greater competition by Gulf carriers in U.S. international markets is associated with (1) significant growth in U.S.–Middle East traffic volumes and (2) small but statistically significant traffic losses and fare reductions for U.S. carriers in route markets connecting the U.S. with Africa, Asia, Australia and Europe.” (Find the full report at http://btcnews.co/1F97feH.)

Now that airlines have secured antitrust immunized global alliances and domestic U.S. consolidation, their disregard for the free market and their customers’ and other stakeholders’ interests has reached an unprecedented level as evidenced by refusing to provide ancillary fee information to consumers (e.g., for premium seating); undermining their regulator’s consumer protection authority (H.R. 4156); endeavoring to kill the EX-IM Bank; blocking the Norwegian Air International application to serve the U.S.; attacking the Gulf carriers; and bullying journalists who dare to write anything negative about them.

Delta Air Lines is leading a US/EU fight for action against Gulf carriers’ alleged predatory pricing and capacity dumping practices (http://btcnews.co/1FO29AG), a practice used and perfected by U.S. major network airlines over decades in their domestic market against low-cost new entrant airlines. Some U.S. airlines want to freeze Gulf carriers’ access to U.S. markets and limit consumer choice and access to foreign business and leisure destinations. With no sense of irony-in-the-extreme, while slamming the Gulf carriers and the global connectivity that they provide, Delta Air Lines recently announced reductions in international service to include 15 to 20 percent reductions in service from Japan, 15 percent to Brazil and 15 to 20 percent to Africa, India and the Middle East (http://btcnews.co/1aA8U0j). No doubt lost market share from these reductions will be included in the next version of their white paper.

What’s really going on here?

In addition to closing down the U.S. market to additional competition, in a report published on April 10, 2015 entitled “Gulf airlines under fire. Aside from the rhetoric and dust flying, what’s the underlying agenda?” the independent and influential CAPA research organization concluded: “It is these European partners – at least Lufthansa and Air France whose shared interests the 55-page white paper looks to protect.” (http://btcnews.co/1HnTs4D)

To their credit, British Airways, Iberia and Air Berlin quit the Association of European Airlines over that trade group’s support of proposed EU commercial-protectionism policy vis-à-vis the Gulf carriers. British Airways, in particular, has been a long-time proponent of market liberalization (http://btcnews.co/1FO1Y8t) and, like the vast majority of Open Skies stakeholders, knows that the reason the U.S. BIG 3 and their immunized alliance partners in the EU cannot add consumer harm to their case against the Gulf carriers is because consumers are benefiting from more choice and better products, in the short term. In the longer term, EU and U.S. carriers will have to improve their offerings across the board in response to market forces, further benefiting consumers.

The consumer is the “North Star” when considering the efficacy of competition, antitrust and Open Skies policies. In a consolidated U.S. market environment, combined with a dramatic decrease in competitors via immunized global alliances, disciplined maintenance of low capacity growth generally and international service reductions by U.S. carriers specifically, shine a bright light on the bedrock principle that new entry is the only available antidote to carrier-imposed capacity constraints and service reductions. When U.S. carriers leap further and endeavor to keep foreign carriers out of U.S. markets altogether, such as Norwegian Air International, that’s when the U.S. Department of Transportation (DOT) should reconsider grants of antitrust immunity.

What should the U.S. government do?

DOT needs to see these hyper-aggressive airline behaviors and strategies for the anti-consumer activity that they represent and a) approve the Norwegian Air International application; b) initiate consultations with U.S. State Attorneys General with the most at risk from this anti-Open Skies, anti-competitive, anti-consumer airline behavior to include AZ, CA, CO, FL, HI, IN, IL, KS, KY, MA, MI, MN, MO, NV, OH, OR, PA, TN, TX, WA, WI; and c) begin a review of the appropriateness of antitrust immunized global alliances.

Why is there reason for hope?

There is reason for hope that the U.S. Government will preserve the integrity of its Open Skies policy and safeguard consumer interests that are under siege because the benefits to the U.S. from Open Skies agreements have been and continue to be massive; some 90% of Open Skies stakeholders find these airline strategies and behaviors repulsive and are letting the U.S. Government know it; and in the current antitrust immunized alliance-controlled environment, new entry is critically import.


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