January 4 - The Great Open Skies Scam: Top False Advocacy Claims of 2017


INDUSTRY ANALYSIS


The Great Open Skies Scam: Top False Advocacy Claims of 2017


By Kevin Mitchell

As the third year of Delta Air Lines, American Airlines and United Airlines’ (Big Three) political war against US Open Skies policy and Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers) nears to a close in January, it is time to reflect on last year’s top 11 most outrageous examples of the Big Three’s false advocacy. If your favorite examples are not on my list, please share them.

No. 1 Advocacy Claim – Captain Tim Canoll, President of the Air Line Pilots Association (ALPA), claimed President Trump is a foolish “chump” because he has not been smart enough to side with ALPA and the Big Three in their campaign against consumers and much-needed competitive choice.

Chump

noun informal

     - a foolish or easily deceived person.

On December 22, 2017, Captain Canoll wrote an op-ed for The Daily Caller entitled “Trump is a Chump to Allow Massively Subsidized Arab Airlines to Compete Unfairly With U.S. Carriers.” This tells you all you need to know about the Big Three and ALPA’s great Open Skies scam: even though neither the law nor facts support their demand to abandon Open Skies, by loudly and repetitiously making false claims and casting aspersions, they arrogantly believe they are entitled to get their way.

Such arrogance has no bounds whether it is branding the President a “chump” or the Big Three referring to passengers as “their passengers,” as though they are chattel rather than intelligent consumers whose patronage must be earned and re-earned by providing excellent service and good value. In stark contrast, the Business Travel Coalition (BTC) applauds President Trump and Secretaries Tillerson, Ross and Chao for following the law when they rejected the Big Three’s demand for a freeze on new Gulf Carrier flights that would have breached our Open Skies agreements with the UAE and Qatar, as well as rejecting their demand for formal bilateral consultations.

No. 2 Claim – We the Big Three actually support Open Skies policy and are unfairly portrayed as seeking to replace it with a protectionist anti-consumer model.

Unfortunately for this claim Ed Bastian, the CEO of Delta, and ringleader of the Big Three, has made it unequivocally clear that the Big Three are on a mission to do nothing short of seeing an end to America’s hugely successful Open Skies policy that has significantly benefited consumers and the economy for 25 years. In Delta’s recent 15-minute scare video to its employees, Mr. Bastian denounced US Open Skies policy and instead advocated for Canada’s protectionist and widely panned Blue Skies policy.

It is not surprising that Canada’s anti-consumer and protectionist policy appeals to Mr. Bastian. The “North Star” of Canada’s international aviation policy is Air Canada and its self-interests. Other stakeholders such as consumers, mid-size communities, all commercial and cargo airlines and Canada’s national economy are irrelevant.

That is precisely what the Big Three aspire to replicate in the US – a dramatic 180-degree policy pivot that results in the US Government solely considering their commercial demands while ignoring all other stakeholders. That would be lousy and dangerous public policy solely for the benefit of oligopolists seeking to add to their already record-setting profits at the expense of consumers and competitive choice.

No. 3 – The Big Three continue to suffer commercial harm due to Gulf Carrier competition.

Spoiler alert – claims of commercial harm and record-setting profits are contradictory.

This hollow political argument is laughable. In the past three years Delta, American and United have collectively generated more than half of the world’s airline profits – the world’s!. Not surprisingly, according to Aviation Daily, a US Government official recently confirmed the obvious – the Trump Administration has evaluated the Big Three’s claim and concluded no commercial harm has been proven. Just how false is this political soundbite? It is a whopper.

Between January 2015, when the Big Three’s political campaign against Open Skies began, and the end of third quarter of 2017, collectively the Big Three have earned $38.5 billion in profits. That total is expected to swell by billions more when their 2017 fourth quarter profits are announced. Next year they are forecast to make an additional net profit of $16.4 billion.

The Big Three have avoided the International Air Transportation Fair Competitive Practices Act (IATFCPA) like the plague despite that they supported US Government action under it just four years ago in an Open Skies-related dispute. IATFCPA requires a provable showing of commercial harm. Appropriately, and no doubt to their knowledge, the Big Three’s complaint would be rejected. In the world of untruthful Open Skies advocacy, the commercial harm claim takes the cake, or at least half of it (see no. 4 below).

No 4 – Gulf Carrier competition is an existential threat to US jobs.

Like commercial harm, the Big Three’s jobs claim is a total political fabrication with no basis whatsoever in fact. These are the best of times for US airline employment. Since the Big Three’s anti-Open Skies initiative began in January 2015, employment at Delta, American and United has soared by a whopping 23.4 percent from 229,328 to 283,128 (through October 2017).

That bears repeating and an exclamation point – the Big Three’s employment has risen 23.4 percent while they simultaneously argue Open Skies should be abandoned because they purportedly are losing jobs due to Gulf Carrier competition.

Unlike the Big Three’s claim, this is not political spin. It is factually supported straight talk based on hard numbers from the US Department of Transportation’s (DOT) Bureau of Transportation Statistics (BTS) – (https://www.transtats.bts.gov/Employment/). The other half of the bogus advocacy cake award goes to the Big Three for their imaginary job-loss claim.

No. 5 – Open Skies is a litmus test of President Trump’s commitment to his America First Agenda because 1.2 million US airline jobs are endangered by Gulf Carrier competition.

According to DOT’s BTS database, in October 2017 there was a total of 700,179 full and part-time airline employees in the US. What about the other 500,000 bogus jobs conjured up by the Big Three to inflate their political sound bite? What do you expect – when cooking-up a totally fictitious political argument to attempt to pander to President Trump’s US jobs agenda it is only fitting that their recipe requires false statistics to embellish it! Again, do not take my word for it. DOT’s BTS database is an independent and authoritative source.

No 6 – The financial security and future of every Delta employee’s family is at grave risk.

If this were a list of the most shameful advocacy, then Mr. Bastian of Delta would be at the podium accepting the ignoble award. A low-point of this year’s campaign was the 15-minute Delta-produced video intended to scare its employees into advocating against Open Skies. Mr. Bastian’s ominous message to his trusting employees was that the Gulf Carriers are coming for their jobs and the economic security of every Delta family is at risk.

“Our Future Our Fight.”

But what did Mr. Bastian omit from his fear mongering, Grim Reaper warning to employees and their families? In a November speech to the Detroit Economic Club, Mr. Bastian boasted Delta’s future is so rosy that it plans to hire 25,000 workers over the next five years. In addition, according to the Atlanta Journal-Constitution, at the same time that Mr. Bastian is telling Delta employees their jobs are at dire risk, Delta in fact is in the middle of a hiring spree seeking more than 1,000 new flight attendants. When trying to scare and manipulate his employees, Mr. Bastian didn’t let facts get in the way. That is very disappointing and disturbing.

No. 7 Claim - The Big Three are Charter Members of the President’s America First Club and the Gulf Carriers are enemy #1.

If the Big Three are such great allies of the President’s America First agenda, then why have they not used their record-setting profits to purchase a single US-made Boeing aircraft since he was sworn-in? Just recently Delta did announce a $12.7 billion aircraft order. However, it chose Airbus purchasing 100 A321neos with an option for 100 more. Based on the US Department of Commerce’s jobs multiplier, Delta could have supported President Trump’s America First initiative with more than 60,000 US manufacturing jobs.

It did not. Instead, it turned its back on President Trump and Boeing and its workers. Nevertheless, that Delta decision to BUY European is no surprise. It is part of a pattern. The Delta Way. In 2014 Delta purchased $14.3 billion worth of Rolls-Royce powered Airbus widebodies to replace retiring Boeing aircraft. More than 70,000 additional US manufacturing jobs were lost. Yet, there is Ed Bastian unabashedly waving his America First pennant as he calls for Open Skies policy to be abandoned as he purports to be a champion of US workers.

In stark contrast, Gulf Carriers actually are President Trump’s job-creating America First partners. The most recent major global air show was in Dubai in November. Emirates placed a $15.1 billion order for 40 Boeing 787s that, according to the Department of Commerce, will create or support over 78,000 American jobs. Flydubai, Emirates’ code-share partner, ordered 175 Boeing MAXs valued at $27 billion boosting President Trump’s America First agenda with more than 140,000 additional US jobs. Then there is Boeing’s next-generation 777X. Gulf Carriers collectively have purchased 235 of the 306 777Xs that Boeing has sold. As for the Big Three, they have not purchased a single 777X.

No 8 – Breaching Open Skies agreements with the United Arab Emirates and Qatar is good for US national security.

This one requires some serious Olympics-level mental gymnastics. The Big Three argue national security would be enhanced by selectively breaching international agreements with the United Arab Emirates – who President Trump has praised for its efforts to combat militant groups and terrorism – and Qatar - who hosts the US Strategic Command’s forward headquarters. The tortured argument continues that it is in the US national interest to inflict economic harm on the UAE, our largest trading partner in the Middle East, and a country with whom the US enjoys a $19 billion annual trade surplus, our third largest trade surplus globally.

Ridiculous. The exact opposite is true. In an October speech before the National Defense Transportation Association Fred Smith, Chairman and CEO of FedEx, argued that preserving the Open Skies agreements with the UAE and Qatar is vital to US military preparedness in the Middle East. Mr. Smith is not only an icon of global business, he is one of the most visionary logistics leaders in history and a Vietnam Marine Corp veteran. No need to say anything else on that issue.

No 9 - Breaching Fifth Freedom passenger agreements (as the Big Three advocate) would have no impact on the US’s world-leading, all-cargo airlines.

Americans for Fair Skies, the Delta-funded anti-Open Skies lobbying organization, publicly argued what the Big Three have been privately whispering around Washington: US all-cargo airlines are not stakeholders in the Open Skies debates, and therefore, their concerns should be ignored. The Big Three erroneously claim that Fifth Freedom rights, a core element of all US Open Skies agreements, can be selectively breached for UAE and Qatar passenger services with no direct or indirect impact on US all-cargo carriers’ Fifth Freedom rights. That is false.

It is a universally accepted fact that passenger and all-cargo Fifth Freedom rights are inextricably linked and cannot be segregated. On this there is nothing to debate. Harm to one necessarily means harm to both. Accordingly, the Big Three’s demand that the UAE and Qatar Fifth Freedom rights be limited, restricted or terminated would necessarily set a very dangerous precedent for the US’s world-leading all-cargo carriers such as FedEx, UPS and Atlas Air Cargo. The Big Three do not seem to care that the remedy they demand would put US all-cargo carriers, and their global networks that depend on Fifth Freedom rights, at potentially grave risk.

No 10 - Emirates is flooding the US-Europe market with Fifth Freedom capacity.

To hear the Big Three’s cries of protest, one might be deceived into thinking the US-Europe market is inundated with Gulf Carrier Fifth Freedom flights. It is not. Far from it. If you look at the top 20 carriers in the North America-Europe market for the Winter 2017 season you won’t even see Emirates on that list. It is a very small participant in that market. In stark contrast, the Big Three, together with their joint venture and alliance partners, control some 85 percent of transatlantic frequencies. As troubling as that sounds, that frightening statistic understates just how hostile that market has become for most consumers. Antitrust immunity allows the Big Three and their cabal of partner airlines - that once were competitors - to engage in coordinated behavior with impunity to wring-out every penny of profit possible by agreeing on and fixing prices, policies and capacity to keep fares at supra premium levels.

The truth is that Emirates alone, among the Gulf Carriers, offers just two US-Europe Fifth Freedom flights. New York JFK-Milan Malpensa-Dubai, which started at the urging of the Italian Government, competes head-to-head with the Big Three. The other flight, Newark-Athens-Dubai, the first year-round US-Greece non-stop flight in five years, was also requested by the Greek Government. It only competes with United’s seasonal flight during the summer months. That’s it.

An avalanche of new US-Europe service? Hardly. So much for the Big Three’s Chicken Little claims. Incidentally, as to the Big Three’s assertion that the Emirates’ flight has created a glut of capacity in the New York-Milan market, the marketplace does not see it that way. Italian carrier Meridiana recently announced plans to launch new New York JFK-Milan Malepensa service next summer.

No 11 - The recently announced US Government informal technical discussions with the UAE and Qatar are precisely what the Big Three have spent three years and tens of millions of dollars demanding, and therefore, represents a huge victory.

Dramamine alert. There is some serious spinning going on. The Big Three have invested three years and tens of millions of dollars of their shareholders’ money advocating for both a freeze on Gulf Carrier service and formal Open Skies consultations. The Trump Administration just rejected both demands. There will be no freeze.

In addition to breaching the US-UAE and US-Qatar Open Skies agreements, a service freeze would harm the US economy. For instance, Emirates’ Orlando-Dubai flight, which launched in 2015 over the howls of the Big Three who called for it to be prohibited by a retroactive freeze, continues to deliver more than $100 million in annual economic benefits to Central Florida and create thousands of tourism-related jobs.

The Trump Administration also rejected the Big Three’s demand for formal consultations. The US Government’s longstanding practice has been to request formal consultations only when, to its satisfaction, a violation of the underlying agreement has been proven. The Big Three failed to prove harm, much less that either Open Skies agreement has been violated as alleged. Nice try on the spin; however, it has as much merit as the entire specious case, which is nothing more than an anti-competitive scam.

In 2018, let’s hope the Open Skies scam will become nothing more than a bad memory of a failed plot by three mega, competition-stifling airlines with record-setting profits who are trying to flex their political muscle to eliminate competitive choice so they can charge even higher fares. It is patently obvious that this is nothing more than a political hoax. BTC hopes 2018 will see the Trump Administration soundly reject Delta/American/United’s Big Three first, America LAST agenda, and give Open Skies the ringing endorsement it has earned.

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