October 23 - Fred Smith, the Big Three US Airlines and Open Skies Policy: Credibility Matters


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INDUSTRY ANALYSIS


Fred Smith of FedEx, the Big Three US Airlines and Open Skies Policy: Credibility Matters


By Kevin Mitchell 

Delta Air Lines, American Airlines and United Airlines (Big Three) are desperate.  Their sputtering anti-Open Skies political campaign is nearing its third anniversary of failure. That sense of desperation is obviously clouding their judgment. Astonishingly, Jill Zuckman, their paid spokesperson, publicly lectured Fred Smith, the founder, Chairman and CEO of FedEx, admonishing him to “get his facts straight” on US military readiness as well as advising him on how critical Open Skies is to the world-leading US all-cargo sector.

“Fred Smith needs to get his facts straight” on US military readiness and Open Skies? Did Ms. Zuckman really say that about one of the most respected and admired entrepreneurs and business leaders in US history, not to mention a Marine veteran who proudly served our country in Vietnam for two tours of duty? 

The context is the Big Three’s anti-competitive and protectionist campaign against the US-UAE and US-Qatar Open Skies agreements. For almost three years the Big Three have tried but failed to convince either the Obama or Trump Administrations that there is even a scintilla of merit to their pleas for government protection from competition from Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers). Yet, they continue to concoct and launch political arguments in the hope that one might eventually get traction. 

The feeble and meritless argument du jour is the Big Three’s nonsensical claim that somehow Gulf Carrier competition puts US military readiness at risk by harming the Civil Reserve Air Fleet program. This politically contrived argument begs the question if the Big Three were half as concerned about US national security and US military readiness as they obviously are about increasing their record profits through government protectionism, then why would they be demanding that the Trump Administration breach Open Skies agreements with the UAE and Qatar, two of the United States’ most important military allies and readiness assets in the unstable Middle East?

Last week Mr. Smith spoke at the National Defense Transportation Association’s (NDTA) fall meeting. FedEx has worked with NDTA for more than 40 years. In his remarks, Mr. Smith demolished the Big Three’s argument in a few highly credible words. He noted that FedEx has “unparalleled air cargo service across the Middle East, an area with sizeable US military operations. And our CRAF-committed aircraft are specifically capable of accommodating military equipment.”  He added that FedEx is opposed to the Big Three’s call for the US-UAE and US-Qatar Open Skies agreements to be renounced, abrogated by imposing a unilateral freeze or renegotiated. Mr. Smith concluded that “[w]ithout these Open Skies agreements in full force, the U.S. military would face longer transit times for getting their defense supplies to critical locations, thereby impairing the military’s readiness levels and potentially our country’s national security.”

Ms. Zuckman stridently objected to Mr. Smith’s view that Open Skies is inextricably linked with military readiness in the Middle East. In addition to telling Mr. Smith to “get his facts straight,” Ms. Zuckman argued in a tweet that “[t]he Gulf Carriers have already harmed our military readiness by forcing all US carriers off of routes to the Middle East, and almost entirely out of India.” 

Actually, the Big Three have chosen to serve Middle East and India-bound passengers on a one or two-stop inconvenient basis via their European and Indian code-share, alliance and joint venture partners. In applying Ms. Zuckman’s argument to the real facts, does this mean that the Big Three have put their commercial interest ahead of US military readiness by choosing not to directly serve the Middle East flying? Does it further mean that FedEx, in contrast to the Big Three, has put the US national interest first by operating a hub in Dubai?

So who should we believe – Mr. Smith who says the Big Three’s anti-Open Skies demands would put US military readiness at risk or Ms. Zuckman who says the exact opposite? Let’s consider the expertise and standing of each. Mr. Smith has built an incredible global logistics business. He is a Marine veteran who helped lead fundraising for the World War II memorial. He is also one of the most admired and respected leaders in US business and aviation history. 

In contrast, Ms. Zuckman is a spokesperson for the Big Three that claims to be suffering commercial injury from Gulf Carrier competition even while simultaneously banking record-setting profits. Her prior aviation experience was a journalist for the Chicago Tribune and her reporting included pieces such as a September 23, 2001 9/11-related article entitled “Congress OKs Airline Bailout.” In that article, Ms. Zuckman describes, as she put it, the “controversial $15 billion aid package to keep the struggling (US) airlines in business.” Now that Ms. Zuckman is employed by the Big Three, she apparently suffers from amnesia claiming Delta, American and United did not receive a 9/11-related state aid bailout despite her reporting to the contrary. Something tells me Ms. Zuckman likely would pivot again and again depending on which way client winds were blowing. Putting their credentials and credibility side-by-side, the answer is obvious. When Fred Smith speaks, policymakers should listen, and listen intently. Credibility matters. Mr. Smith personifies it.

Ms. Zuckman was not finished lecturing Mr. Smith for purportedly misguided views. Her tweet also condescendingly sought to “remind” Mr. Smith that were the Trump Administration to accede to the Big Three’s demand it would not impact US all-cargo carriers. Let’s see if I have that straight: FedEx operates a substantial Fifth Freedom hub in Dubai but if the US Government abrogates UAE Fifth Freedom rights as the Big Three have demanded then that would have no potential to create commercial harm for FedEx? Laughable. Passenger and all-cargo Fifth Freedom rights are not segregable as Ms. Zuckman and the Big Three misleadingly claim. Mr. Smith does not need reminders from Ms. Zuckman. He knows FedEx’s global network needs and that the networks of other leading US all-cargo carriers such as UPS and Atlas Air Cargo also depend upon Fifth Freedom rights. That is why the US all-cargo industry vigorously opposes any precedent-setting action by the US Government that restricts, limits or freezes Fifth Freedom rights.

In testimony before the US House Transportation and Infrastructure Committee earlier this year, Mr. Smith was asked about the Big Three’s concerns. His answer tells you all you need to know about this issue:

“I don’t dismiss the concerns of the three major passenger carriers at all. I would simply point out, as I have over and over again, there is a specific process and a provision in existing law that requires them to file a complaint. The reason they won’t file that complaint is because they will not be able to demonstrate harm. Why won’t they be able to demonstrate harm? Because they don’t fly to the Middle East. And what they are trying to do through their opposition of open skies is to force travelers from Southeast Asia, India, and Africa to go over their code partners, or on their systems through Western Europe, as opposed to going through the hubs in the Middle East. So, if they want to have this fight, there is a provision to do that. They won’t file under the existing provision to let everything see the light of day. So we don’t support their position, because of their refusal to do that.”

Of course, just as with his conclusion that the US-UAE and US-Qatar Open Skies agreements are essential to US military readiness, Mr. Smith is right. If the Big Three are as confident as they trumpet that they have an ironclad legal case supported by irrefutable facts, then they should have the confidence and courage to file an International Air Transportation Fair Competitive Practices Act complaint with the US Department of Transportation. Their failure to do so speaks volumes about their specious allegations and underscores why the Trump Administration should swiftly reject them.

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