January 30 - Spinning The US-Qatar Open Skies Understanding


INDUSTRY ANALYSIS


US-Qatar Understanding: A Whimper Not a Bang

Spinning The US-Qatar Open Skies Story


By Kevin Mitchell

It is only fitting that a political campaign based from the start on a legal fiction supported by blatantly false facts would end with ridiculous claims of victory even when, by the “victors” own definition of success, it was a colossal failure. That is precisely what happened when the US and Qatar announced that they have reached an understanding on a handful of voluntary commitments to end the three-year-old contrived controversy that the “victors” have unsuccessfully sought to kindle between the two governments.

In this case, Delta Air Lines and American Airlines were very clear about what constituted victory for each company, and what would be considered a failure. Both have hailed the US-Qatar understanding as a great victory. In other words, in terms of measurable commercial value gained, the campaign outcome is well worth the tens of millions of shareholder dollars spent lobbying and the three years of management time and attention both companies spent obsessing over it.  

The best way to assess results is to compare it to how “victory” was defined by the protagonists. Let’s see exactly how the US-Qatar agreement, in fact, measures up to how Doug Parker, CEO of American, and Ed Bastian, CEO of Delta, defined victory.

In a September 15, 2016 interview with The Street Mr. Parker said his bottom line - as well as that of his oligopoly partners Delta and United Airlines - was to end Fifth Freedom Europe-US flying(*). Based on Mr. Parker’s victory lap calling the agreement a “landmark action,” one would think American had achieved that result. However, in fact, there is no restriction, limit or prohibition whatsoever on Qatar Airways’ right to fully and freely exercise its Fifth Freedom rights contained in the US-Qatar Open Skies Agreement. 

There is a side-letter acknowledgment by the Qatar Civil Aviation Authority that it is not aware of any current plans by Qatar Airways to start new Fifth Freedom flights to the US, but no commitment under any circumstances to not do so in the future. After all, Fifth Freedom rights are a core element of every US Open Skies agreement including the one between the US and Qatar. These rights were untouched and preserved fully by the recent understanding. So, Qatar Airways continues to have full flexibility to freely exercise its Fifth Freedom rights in the future.

To what “landmark action” then is Mr. Parker referring? Could it be his fellow oneworld partner Qatar Airways’ voluntary commitment to release publicly audited financials within one year? You can comb through the thousands of public words Mr. Parker has spoken about Open Skies in the last three years and I doubt that you will find a demand that Qatar Airways produce audited financials. The same is true for his oligopoly partners. The fact is Qatar Airways already released Ernst & Young audited public financials last year. It is a “landmark action” to get someone to do what they already have done!?

Delta’s disingenuous claim of victory is even more laughable. In an October 13, 2016 Q3 2016 earnings call, Mr. Bastian was asked what is Delta’s bottom line for victory? Unlike Mr. Parker who declared a moratorium on Fifth Freedom flights as his ceiling, it was just a floor for Mr. Bastian’s lofty expectations. Mr. Bastian specifically said, “freezing and/or eliminating fifths would be a great start.” It logically follows that failing to succeed either in freezing or eliminating Fifth Freedom flying would be a lousy start and terrible outcome, right? 

Yet, Peter Carter, Mr. Bastian’s Chief Legal Officer, incomprehensibly crowed to the press recently that the US-Qatar understanding, i.e. Delta’s failure to achieve Mr. Bastian’s minimum stated objective, was a “landmark milestone.” It makes one wonder what superlative Mr. Carter would have used if Delta actually achieved victory as Mr. Bastian so clearly defined it.

If success has many fathers, then failure has many spin doctors. Messrs Bastian and Parker unambiguously defined what would constitute success and they failed. Well, if that’s what it takes to end this wasteful and harmful campaign, then many stakeholders might be willing to join their victory lap to end this farce of a campaign.

(*) A Fifth Freedom allows a carrier to transport revenue traffic from its home country to a second country and onto a third country.

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