September 22 - The Big Three would Decimate the US All-Cargo Sector


Business Travel Coalition

INDUSTRY ANALYSIS

 

The Big Three Would Decimate the World-Leading US All-Cargo Sector 

 

By Kevin Mitchell – September 22, 2017

Delta Air Lines, American Airlines and United Airlines (Big Three) suffer from extreme myopia. They are so narrowly focused on their mission to eliminate competitive choice for passengers and shippers, that they have no regard whatsoever for the collateral damage that would result from their anti-Open Skies agenda. Their view:  if it is good for us and will help swell already record-setting profits, it is therefore good for the United States – all other US aviation stakeholders be damned.

For nearly three years the Big Three have waged an obscenely expensive political campaign seeking to eliminate much-needed competitive choice provided by Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers). Today, the Big Three and their alliance and joint venture partners control almost 85 percent of US-Europe frequencies. However, that does not tell the full story of their terribly worrisome market power. Antitrust immunity allows the cabal to fix prices, collude to ensure profit-maximizing capacity levels and coordinate schedules. Simply put, as they see it, the US-Europe market is an oligopoly cash cow well-worth spending tens of millions of dollars of shareholder money to protect by thwarting competitive entry. 

This has led the Big Three to put Fifth Freedom rights squarely in their crosshairs. What are Fifth Freedom rights? They are a core element of each of our more than 120 Open Skies agreements. They give carriers, including the Big Three, important commercial flexibility to fly to a second country, deplane passengers and cargo and then board new passengers and cargo prior to flying onward to a third country. For example, in the case of the US-Greece market, which had no year-round non-stop service for five years, Fifth Freedom rights enabled Emirates to recently respond to a request by the Government of Greece to end that five-year service void by offering year-round Newark-Athens-Dubai service. 

Of course, what is good for US-Greece passengers is, in the eyes of the Big Three, bad for them. It chips away at their anti-competitive stranglehold on the US-Europe market. The way they see it, it is a deplorable pro-consumer incursion into what they arrogantly regard to be “their” US-Europe market and an option “their” passengers should not have. Accordingly, they are trying to bully the US Government into eliminating Fifth Freedom rights enshrined in the US-UAE and US-Qatar Open Skies agreements to safeguard their lock on the US-Europe market. Don’t take my word for it. A September 2016 interview of Doug Parker, the CEO of American, led the reporter to subtitle his article “[f]or American, Delta, the bottom line in the dispute with the big three Gulf carriers is an end to ‘fifth freedom’ Europe-U.S. flying.”  Ed Bastian, the CEO of Delta, echoed this view in an October 13, 2016 earnings call saying “freezing and/or eliminating fifths would be a great start.” 

The Big Three’s obsession with eliminating Fifth Freedom rights puts them on a collision course with the world-leading US all-cargo sector. All-cargo carriers such as FedEx, UPS and Atlas Air have relied on Fifth Freedom rights to assemble global networks that make them the envy of the world. These Fifth Freedom-dependent networks not only are critical to the hundreds of thousands of US all-cargo employees, they are critical to US exporters. Like a loose thread in a sweater, were the Trump Administration to set an unwise precedent of breaching international air service agreements by limiting or restricting Fifth Freedom rights, the global networks of US all-cargo leaders inevitably would be put at risk of unraveling. Foreign all-cargo competitors and their governments would see it as a neon flashing invitation by the Trump Administration, courtesy of the Big Three, to wield that same anti-competitive sword against our all-cargo airlines. 

So how do the Big Three respond when confronted about the extreme collateral damage US all-cargo carriers would suffer as a result of the Fifth Freedom remedy they are seeking? They deny it would happen. In Washington, they continue to attempt to mislead policymakers by falsely claiming passenger and all-cargo Fifth Freedom rights are segregable. In other words, they claim all-cargo Fifth Freedom rights are in a hermetically sealed vacuum and you can breach, eliminate or limit passenger Fifths with absolutely no consequence to the former. That is knowingly false. Fifth Freedom rights in Open Skies agreements apply co-equally to passenger and all-cargo carriers. If you unwisely restrict or limit one, you do the same to the other. 

More recently, the Big Three have deployed Fair Skies, a Delta-funded mouthpiece, to dismissively assert “the passenger and air cargo industries are very different.” Putting aside obvious differences between segments of the industry, there are significant similarities that are highly relevant to this debate. Both US passenger and air cargo airlines have benefitted enormously from Open Skies. Both have long relied on Fifth Freedom rights and continue to do so - US all-cargo to construct and operate their global networks and Delta and United to support their Fifth Freedom operations at Tokyo Narita International Airport. Also, when either has had concerns about unfair competitive practices by foreign carriers or their governments, both have steadfastly filed an International Air Transportation Fair Competitive Practices Act (IATFCPA) complaint and relied on that Congressionally approved process.

To support its assertion that the interests of US all-cargo airlines, their employees and exporters that rely on them are irrelevant to the Open Skies debate, the Big Three rely on an opinion piece in the Huffington Post by Rob Britton entitled “More Clouding of Issues in the Gulf Airline Trade Dispute.” It is troubling that, according to Britton, raising the risk of substantial economic harm to our world-leading all-cargo carriers and their hundreds of thousand employees is dismissively regarded to be nothing more than “clouding.” 

Britton has a unique vantage point on the US-UAE aviation relationship issue and Open Skies debate. He has been on both sides of it. In 2013, Britton, as a consultant to the US-UAE Business Council, authored a report touting the importance of the US-UAE aviation and aerospace relationship to both countries. Here is a link to Britton’s 2013 report entitled “U.S.-U.A.E. Commercial Aviation:  Taking Flight the World’s Fastest Growing Bilateral Aviation Relationship” -- http://usuaebusiness.org/wp-content/uploads/2015/09/US-UAE-aviation-report_Published.pdf 

However, shortly after the Big Three’s political campaign started, Britton flip-flopped attacking the US-UAE aviation relationship and the Open Skies agreement that is indispensable to it. Since then, Britton has written dozens of opinion pieces mouthing the arguments of the Big Three and their anti-Open Skies lobbying arms, Fair Skies and the Partnership for Open and Fair Skies. Aside from a credibility problem, Britton’s background is work for a passenger carrier so it is curious he holds himself out as having all-cargo expertise. 

The reason Open Skies has succeeded so magnificently, and why it should be respected and safeguarded at all costs, is that it is an inclusive policy that considers the interests of all US aviation stakeholders. Viewed through the prism of Open Skies’ inclusiveness, it would be a non-starter to even consider a policy change that could potentially decimate the world-leading US all-cargo sector solely to enrich the Big Three further. In fact, it would be considered laughable. That is why the Big Three are so desperate to change the rules of the game. Delta’s Bastian has confirmed they want to a substitute a prism based on Canada’s protectionist Blue Skies policy where Air Canada’s profit-maximizing needs is the exclusive consideration, all other stakeholders be damned.

I have confidence President Trump, as a successful businessman who never shied from competition, can see straight through the Big Three’s shameful plea for protection. Companies like Delta, American and United that made a record-setting combined profit of $28.8 billion in 2015 and 2016 alone have zero credibility to argue they simultaneously are victims of unfair commercial behavior and that their existence lies in the balance as a result.

Why would the President want to put our world-leading all-cargo carriers at risk solely because the Big Three are afraid of competition and prefer to invest millions to lobby against it rather than in improving their product? If the Big Three are as confident in their allegations against the Gulf Carriers as they breathlessly claim to be, they should have the courage to file an International Air Transportation Fair Competitive Practices Act complaint and let this matter be evaluated in the normal course. 

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