September 28 - BTC Leter To American Airlines Board


Members of the Board of Directors

American Airlines Group Inc.

P.O. Box 619616, MD 5675

Dallas/Fort Worth International Airport, TX 75261-9616

           

Re: Political Campaign Against Open Skies Policy And Gulf Carrier Competition; Time To Reassess


Dear Directors:

As the joint American/Delta/United campaign against the United States’ longstanding Open Skies policy and Gulf Carrier competition nears its third anniversary, the Business Travel Coalition (BTC) continues to hope that American will put its shareholders' interests first by distancing itself from this Delta-driven obsession. Thus far, that wait has been in vain. Hopefully, however, the upcoming anniversary, and the increasingly obvious reality that the campaign has lost steam, and there is no prospect of victory as defined by your Chairman, will cause the Board to reassess the shareholder money and management time and attention that is being squandered on this losing effort.

American management is smart and deserves to be commended for running a fine airline. However, given that savviness, it is especially surprising that Delta was successful in convincing American to join its campaign that was doomed to failure from the beginning as well as disappointing that American stood silent when Delta’s former Chairman attempted to inject anti-Muslim sentiment into it. 

Moreover, it is hard to understand American’s continued involvement when the first round knock-out punch that Delta promised ended with you and your competitors on the ropes, and as the campaign stumbles American continues to repeat Delta-concocted arguments and “facts” that taint American’s credibility. 

Most astonishing, as I will explain below, is American’s continued participation in a campaign that harms the company’s interests by distracting it from other government affairs priorities to Delta’s benefit. Respectfully, I think it is time for the Board to reassess American’s continued involvement in this failing campaign, and to put the best interest of American shareholders first, not Delta’s corporate interests.

Three years ago, instead of relying on Delta’s boastful claims that it had an ironclad legal case against the Gulf Carriers with overwhelming and irrefutable facts, American should have done independent due diligence. The litmus test for American’s engagement should have been evaluating whether a complaint under the International Air Transportation Fair Competitive Practice Act (IATFCPA) could succeed. That is the threshold test for Administration action. Had it done so, your executive team would have reached the inescapable conclusion that such a complaint would fail. That is precisely why the Obama Administration declined to take punitive action against the Gulf Carriers, and why you are having no luck with the Trump Administration.

This is not surprising. IATFCPA is the threshold test that any Administration would responsibly apply in its internal deliberations, i.e. can the claims withstand a rigorous and fact-based independent evaluation, and can the complaining party or parties prove current commercial harm resulting from the alleged unfair competitive conduct. The fact that American/Delta/United have chosen not to file an IATFCPA complaint indicates that they know such a complaint would fail. Given that, it is mystifying why a management team as smart as American’s would even join a doomed effort in the first place.

However, American’s involvement becomes even more perplexing given Doug Parker’s public comments that the end-game is a restriction on so-called Fifth Freedom flying by Gulf Carriers in the US-Europe market. If that is American’s definition of victory, failure is inevitable. US all-cargo giants FedEx, UPS and Atlas Air Cargo rely on Fifth Freedom rights. Their global networks depend on them, and therefore, they are sacrosanct to all-cargo carriers. In fact, FedEx operates a strategically important Fifth Freedom hub in Dubai. 

It is unrealistic to believe that the Trump Administration would breach the US-UAE and US-Qatar Open Skies agreements by denying Fifth Freedom rights and thereby set a dangerous precedent that other countries could use against our all-cargo airlines. If there is any doubt about that, look no further than the Obama Administration’s rejection of demands by American/Delta/United to freeze Fifth Freedom rights. Given their importance to the all-cargo sector, restricting or limiting Fifth Freedom rights is tantamount to the third rail of US international aviation policy. Yet, Mr. Parker wants to grab it with both hands. It was a fatally flawed miscalculation by Delta in the beginning, and that should be apparent to your astute management team.  

Nevertheless, American persists in letting this Delta obsession distract it from other government affairs priorities. The irony is your competitor, Delta, benefits as a result. For instance, Mr. Parker has spoken forcefully about the need for meaningful air traffic control reform and how it would significantly benefit American by permitting your increasingly young fleet to deliver huge modernization-related operational returns on those multi-billion dollar aircraft investments. If that is so, then why dilute your ATC reform advocacy by seemingly dedicating more American staff and consultants time to gathering signatures on virtually meaningless anti-Gulf Carrier Congressional letters? Who benefitted? Delta, which vigorously opposed ATC reform last year due to its aged fleet and has given nothing more than lip service to its purported change of heart this year.

Another example is the failed application to secure antitrust immunity paving the way for an American-Qantas joint venture. By all accounts, American was blindsided by this decision. Perhaps your team took its eye off the ball lobbying on the Gulf Carrier issue instead? Again, Delta is the beneficiary of the distraction. Delta, and its immunized joint venture with Virgin Australia welcomed that decision and the competitive advantage it enables them to maintain.

Your alliance partner, Willie Walsh, the CEO of International Airlines Group, offers a case study that the Board would be well served to consider. There is no tougher competitor than Mr. Walsh. He does not shy away from a fight when it makes commercial sense. It is instructive that Mr. Walsh has taken a diametrically opposite approach to the Gulf Carrier issue.

Having worked for decades to eject government from his commercial decisions, he is loath to selectively invite them back into the equation when he feels the need for a big club to beat competitors over the head. Instead, despite having more Gulf Carrier head-to-head competition than any airline CEO in the world, he walks the deregulation talk – he wholeheartedly supports competition and competes vigorously. In fact, he proudly notes that he competes head-to-head with Emirates in the London-Dubai market and makes money. 

Rather than follow the lead of Richard Anderson and now Ed Bastian, respectively, Mr. Walsh better embodies American’s grand tradition as a competitor, not a pleader for government protection.

Thank you for considering my views.

Kevin Mitchell

Chairman

Business Travel Coalition 

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