August 15 - Big Three Place U.S. All-Cargo Airlines At Risk


Business Travel Coalition / OpenSkies.travel

INDUSTRY ANALYSIS


Why Are Delta, American and United So Intent on a Policy Change That 

Would Decimate the World-Leading U.S. All-Cargo Industry?


By Kevin Mitchell 

U.S. all-cargo airlines such as FedEx, UPS and Atlas Air are the envy of the global air cargo industry. Through vision, ingenuity and sweat they have built unrivaled global networks, which literally have changed the way the world works. In addition to employing hundreds of thousands of workers - several times more than Delta Air Lines, American Airlines and United Airlines (Big Three) employ combined - they are indispensable to moving U.S. export products around the globe and supporting countless U.S. jobs that depend on them. Simply put, their commercial health as well as maintaining the operational flexibility they have today, due to the U.S.’s wise Open Skies policy, is vital to the U.S. economy. 

In their obsessive campaign to restrict competitive choice offered by Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers), the Big Three are on a collision course with the U.S. all-cargo industry. The Big Three either are oblivious, or more likely, they selfishly do not care that the action they are demanding that the Trump Administration take would cause significant and irreparable damage to the U.S. all-cargo industry. The explanation boils down to three words: Fifth Freedom rights.

So what are they and why do they matter so much to all-cargo that the stakes are raised so high in the ongoing Open Skies debate? Fifth Freedom rights, also referred to as beyond rights, are a core element of U.S. Open Skies policy. For 25 years visionary U.S. negotiators have insisted every one of our more than 120 Open Skies agreements contain Fifth Freedom rights. They permit a carrier to fly to a second country, offload passengers and cargo, pick-up additional passengers and cargo, and then fly onward to a third country. They give carriers operational flexibility and, as described below, they have enabled U.S. all-cargo carriers to build unrivaled global networks.

The Big Three have demonized Fifth Freedom rights in their campaign to stamp-out Gulf Carrier competition. Hypocritically, Delta’s former CEO and Chairman Richard Anderson labeled them “anachronistic” - a vestige of bygone days when the limited range of aircraft required Fifth Freedom fuel stops. Conveniently not mentioned by Anderson is that Delta continues to operate a Fifth Freedom hub at Tokyo Narita and that Fifth Freedom hub was one of Northwest Airlines’ most valuable assets when Anderson headed the company.

The Big Three have yelled at the top of their lungs about Emirates’ two U.S.-specific Fifth Freedom flights – New York JFK-Milan Malpensa-Dubai and Newark-Athens-Dubai – tarring them as illegal and apocalyptic examples of the United Arab Emirates unfairly abusing its Open Skies agreement. As always with the Big Three, what they do not say is more important and accurate than what they do.

Emirates’ flights are merely two examples of Fifth Freedom flights operated to the U.S. by foreign carriers ranging from Singapore Airlines to Air New Zealand to South African Airways to Ethiopian Airlines to Cathay Pacific. It is telling that the Big Three do not complain about any of those Fifth Freedom passenger flights, most of them operated by United’s Star Alliance partners. Like Delta, United, which also operates Fifth Freedom flights in the Asia-Pacific market, has no credibility to complain.

While Fifth Freedoms are a sparingly used commercial option for passenger carriers, they are a bedrock of the business models of U.S. all-cargo carriers. The global networks U.S. all-cargo carriers have meticulously built are inextricably dependent on them. Unlike U.S. passenger carriers who outsource significant international flying opportunities and crew jobs to foreign carrier alliance and joint venture partners, U.S. all-cargo carriers largely fly international packages and freight themselves. Relying on Fifth Freedom rights, their aircraft hop-scotch the globe picking-up and dropping off cargo in an incredibly complex and well choreographed worldwide commercial transport dance. 

Anyone who follows all-cargo knows just how indispensable Fifth Freedom rights are to the sector. Accordingly, they understand any precedent that creates a scintilla of risk for Fifth Freedom rights is completely intolerable to the U.S. all-cargo industry. That is why I believe the Big Three know exactly the threat they are creating for the U.S. all-cargo sector, and they selfishly do not care about it or the hundreds of thousands of all-cargo employees who might be collateral damage. 

The Big Three have made no secret that they want the U.S. Government to violate the U.S.-UAE and U.S.-Qatar Open Skies agreements by restricting Fifth Freedom rights. They made that demand in an April 17, 2015 letter to the Obama Administration and numerous other times. No one should take seriously, nor take solace from, their claim they seek a “voluntary” freeze. The Big Three know the UAE and Qatar governments will not, and should not, voluntarily relinquish core Open Skies rights. So, that is no more than a semantic smoke screen for what the Big Three really want – an involuntary, unilateral freeze in violation of the agreements which would gut long-standing Open Skies policy. 

However, don’t take my word for it. Doug Parker, the CEO of American, and Ed Bastian, the CEO of Delta, have both admitted this. In September 2016, Doug Parker gave an interview in which he described Fifth Freedom flights between the U.S. and Europe as the Big Three’s “biggest concern.” Based on that interview, the reporter subtitled his article “For American, Delta and United, the bottom line in the dispute with the big three Gulf carriers is an end to 'fifth freedom' Europe-U.S. flying.” When asked during an October 2016 earnings call to comment on the statement by Parker that the goal is to “eliminate Fifth Freedom flights,” Bastian responded “freezing and/or eliminating Fifths would be a great start.”

How do the Big Three respond when asked about all-cargo’s Fifth Freedom concerns? They tell a whopper. They falsely claim passenger and all-cargo Fifth Freedom rights are segregable – you can breach passenger Fifth Freedom rights without impacting or setting a dangerous precedent for all-cargo Fifths. Recently, Delta has gone so far as to say it magnanimously would support excluding cargo from any negotiations it wants the U.S. to have with the UAE and Qatar. Although apparently news to Delta, it does not control the scope of the talks nor can it unilaterally immunize U.S. all-cargo carriers from the dangerous Fifth Freedom precedent the Big Three are demanding that the Trump Administration set. 

FedEx, UPS and Atlas Air collectively have a market cap of over $152 billion, more than four times Delta. Should they put that market value at risk because Delta has given them assurances even though it has no control over the scope of talks it demands? That’s silly. 

FedEx has a robust and growing hub in Dubai that relies on Fifth Freedom operations but it need not worry about possible adverse impacts from the U.S. unlawfully terminating the UAE’s Fifth Freedom rights because Delta says so? Ridiculous. 

As to Delta’s additional assertion that the U.S. all-cargo sector has no reason to be concerned because Canada has chosen to limit Gulf Carrier access without consequences. Canada - whose protectionist Blue Skies policy Delta has said it favors over Open Skies - never breached an existing agreement by denying rights already granted as the Big Three are demanding.

The reality is that the U.S. all-cargo industry has good reason to be concerned. Competitors and countries around the world are envious of the unparalleled global networks they have creatively constructed. No doubt some are licking their chops hoping the Trump Administration would be foolish enough to set a restrictive Fifth Freedom precedent in the Gulf Carrier matter so, in turn, they could wield that sword to restrict Fifth Freedom rights similarly guaranteed to U.S. all-cargo carriers by Open Skies agreements. 

Do we really want to give U.S. all-cargo’s global competitors a gilded invitation to curtail U.S. Fifth Freedom rights, and hand them the argument that they are only demanding the same restrictions on U.S. all-cargo carriers that the U.S.  Government imposed on UAE and Qatar airlines? 

Understandably, FedEx, Atlas Air and the Cargo Airline Association have stepped-up in a big way to oppose the Big Three’s effort to dismantle Open Skies by targeting Fifth Freedom rights. As a country, we cannot and should not sacrifice the global competitive advantage that the U.S. has in the all-cargo air transport sector because the Big Three are afraid of competition and greedy to add to their already record setting profits. 

If the Big Three are as confident in their case as they claim to be, they should have the courage to file an International Air Transportation Fair Competitive Practices Act complaint with the U.S. Department of Transportation. If they continue to refuse to do so because they know they cannot show commercial harm, and therefore have no case, the Trump Administration should tell them enough is enough, time to move on. Under no circumstances should the Trump Administration entertain the Big Three’s demand to start a chain reaction that could decimate the U.S. all-cargo air transport sector.   

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Mitchell is founder of Business Travel Coalition and OpenSkies.travel.

This public-policy analysis was distributed to some 60,000 press, government and industry officials.

 





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