Worst Practices Coming Home To Roost
The Business Travel Coalition (BTC) today placed recent airline industry developments in context for U.S. lawmakers as they move to reauthorize the Federal Aviation Administration (FAA).
In a letter this week to American Airlines CEO Doug Parker, his pilots called out a toxic, anti-customer culture stating, “Candidly, the new American Airlines product is outright embarrassing and we’re tired of apologizing to our passengers.” United Continental's boardroom is also in revolt this week over continued operational problems and is likely headed for a proxy fight. And Delta Air Lines disparages our Middle Eastern Open Skies partners with a deeply flawed and widely refuted White Paper concerning Emirates Airline, Etihad Airways and Qatar Airways (the "Gulf Carriers").
What’s going on?
American Airlines, United Airlines and Delta Air Lines (the “Big Three”) generated record profits in recent years. With such generally embarrassing products, service and employee relations the only conclusion that can be drawn is that the unparalleled profits have been generated through thousands of newly monopolized markets due to radical industry consolidation. In addition to tacit coordination on pricing, fees and policies - cited by the U.S. Department of Justice - buoying these profits is the blocking for 2 years of Norwegian Air International's application to serve the U.S. and the scorched earth campaign against the Gulf Carriers, which together have no doubt signaled to other foreign carriers not to attempt to offer new competitive choices and alternatives to U.S. consumers.
In stark contrast, International Airlines Group (IAG) had record profits in 2015 as well and is the largest trans-Atlantic airline group and has the most to protect. However, it rejects the Big Three's commercial protectionism. In blistering comments to the U.S. Department of Transportation about the Big Three's demand for protection, the group stated, "IAG disputes the evidence and conclusions that unfair subsidies are being provided by the Gulf States to the Gulf airlines contained in the White Paper prepared by American, Delta and United. IAG believes the evidence and therefore the conclusions to be unreliable and wholly inappropriate as a means of informing important government policy decisions. The White Paper’s arguments should be rejected as a return to international aviation policies that protect airlines from competitors instead of fostering competition." (http://btcnews.co/1UebcFv)
Now that the Big Three have their antitrust immunized alliances and joint ventures and have consolidated the domestic, U.S. industry they want to raise the "draw bridge" and block foreign carrier new entry putting Open Skies agreements at risk for U.S. consumers, cargo carriers, airports and numerous other stakeholders. Instead of seeking protection and harming competition and consumers, the Big Three should take their record profits and improve their products, service, employee relations and customer focus. Their frequent fliers could not agree more – see http://btcnews.co/1Duy9el. And so do most other Americans.
A consumer survey conducted by BTC in 2015 found that 67% of Americans agreed that, “the government should not give into U.S. airlines’ demands that foreign airline expansion into the U.S. be stopped.” And 61 percent agrees that U.S. airlines need more competition from foreign airlines and 76 percent agree that the Gulf airlines have increased travel opportunities from the United States to key markets in the Middle East, India and Southeast Asia.
In reauthorizing FAA in coming months, the U.S. Senate ought to consider the following amendments as structural remedies to a failing domestic airline industry:
1 - urge the Obama Administration to reject the Big Three’s protectionist demands;
2 - develop a policy that strongly supports domestic and foreign carrier new entry;
3 - formulate a policy that permits foreign carriers to transport passengers between U.S. cities;
4 - require regular open-docket reviews of grants of antitrust immunity;
5 - restore a private right of action;
6 - establish a new national commission to examine the state of competition.