June 6 - Wishful Thinking Meets Reality


INDUSTRY ANALYSIS

By Kevin Mitchell – June 6, 2018

 

Wishful Thinking Meets Reality

 

Doug Parker, the CEO of American Airlines, is in denial. Wishful thinking is one thing. Reality and cold hard facts are another.

Mr. Parker invested over three years of his valuable time and vast amounts of American’s limited political capital, not to mention millions of shareholder dollars, with one sole objective: a binding commitment prohibiting UAE carriers Emirates Airline and Etihad Airways from exercising Fifth Freedom Open Skies rights in the future(*). To his credit, Mr. Parker made no pretense of caring about financial transparency or other issues his lavishly funded lobbying group, the Partnership for Open and Fair Skies, moaned about. Mr. Parker was very clear: a prohibition on Fifths or bust.

In a September 15, 2016 interview of Mr. Parker the publication The Street left no ambiguity, and the title of its article says it all  – “American CEO Says Mideast Carriers Should End Europe-U.S. Flights: For American, Delta and United, the bottom line in the dispute with the big three Gulf carriers is an end to ‘fifth freedom’ Europe-U.S. flying.” To emphasize that point, Mr. Parker pointedly told the reporter “[o]ur biggest concern is flights outside the Gulf, flights from outside the Gulf region to U.S.”

Mr. Parker doubled down at the March 1, 2018 US Chamber of Commerce Aviation Summit reiterating his litmus test for victory: “What really matters is they [Qatar Airways] will not add fifth freedom flights, and that is what we hope to see happen with the UAE as well.” 

The Parker Test – a binding prohibition on future Fifths or bust? 

It is bust!

According to the White House Press Office’s May 17 statement describing the informal US-UAE aviation understandings, it failed the Parker Test. There is no mention of a binding restriction, limitation or freeze on Fifths Freedom rights. The White House stated UAE carriers only indicated “no current plans.” In other words, the UAE Government’s statement on Fifths is solely a snapshot in time regarding current plans, not a forward running movie.

The State Department in two confirming statements could not be more clear or emphatic – the Parker Test was not met. In addition to mirroring the White House that the UAE only provided a statement that its carriers have “no current plans,” State put an exclamation point on the fact that all future Open Skies rights, including Fifth Freedoms, are fully preserved and remain freely and fully exercisable. Specifically, State emphasized “all rights and provisions of [the 2002 US-UAE Open Skies agreement] remain in force” and “nothing in their [the UAE] communication amends or otherwise changes the 2002 Agreement or any rights therein.”

To the extent a scintilla of doubt remained, the Associated Press (AP) drove a wooden stake through it. AP, in its May 22 report, indicated it had seen a copy of the side letter from the UAE Government to the US Government on Fifths. According to AP, that letter contains “no talk of a freeze or commitment not to change those [current] plans in the future.” Moreover, AP further reported it obtained a copy of the State Department’s talking points “to be used by government spokesmen if asked whether the deal included a freeze. ‘No,’ said the [State Department] talking points.” The US-UAE deal failed the Parker Test. 

Yet, in a Gold Medal-worthy feat of verbal gymnastic-like dexterity, Mr. Parker unconvincingly tried to spin the deal as a victory declaring he is “pleased” with the outcome. So how exactly does Mr. Parker claim American’s “F” for failure – no binding commitment to limit, restrict or otherwise freeze future Fifth Freedom flights – somehow morphed into an “A” for an anti-competitive victory?

Mr. Parker told reporters assembled in Sydney for the IATA Annual General Meeting earlier this week “[w]e were pleased with what we saw from the agreements which include not commitments but statements by those carriers that they do not intend to fly fifth freedom routes and that gives us confidence.” But, according to the White House and State Department, UAE carriers stated only they have “no current plans.” That critical phrase – “no current plans” – was conveniently omitted from Mr. Parker’s statement. Wishful thinking? Or, more likely, denial.

However, there is one thing that is deserving of Mr. Parker and American’s confidence. Appropriately, Open Skies was fully preserved for the present and future. That means as the State Department made undeniably clear, “nothing in their [the UAE] communication amends or otherwise changes the 2002 Agreement or any rights therein.” Simply put, future Fifth Freedom rights of both US and UAE carriers are fully preserved and may be exercised by both at any time without limit. That’s an especially great outcome for US all-cargo carriers who rely on them the most.

Mr. Parker should give the aviation community some credit for being intelligent. He clearly defined victory. Despite spending copious amounts of American shareholder money, Parker and his team clearly failed to achieve the result they equated to victory. 

To his credit, unlike more practiced counterparts at Delta, Mr. Parker never seemed particularly comfortable or deft at making the truth unrecognizable and having an easy way with hypocrisy. This was on full display during a June 23, 2015 interview in the South China Morning Post. A wise reporter asked Mr. Parker if it was not hypocritical to attack Gulf Carriers over alleged state subsidies while concurrently standing silent regarding the huge disclosed subsidies received by Chinese carriers, and investing in China Southern. Mr. Parker’s stunningly awkward response “I don't know if they [Chinese airlines] are subsidized or not.” Seriously?! Mr. Parker is one of the smartest CEOs in the global airline business. Good thing the reporter didn’t follow-up by asking Mr. Parker if he was also unaware that China is a communist country where all its largest airlines, including American’s equity partner China Southern, are instrumentalities of the government. 

Then there were Mr. Parker’s tortured and feeble attempts to explain why it was not hypocritical to maintain commercial relationships with Etihad and Qatar Airways for over two years while simultaneously attacking and publicly maligning both as unfair competitors. In other words, American has taken a “principled” position against both carriers but they remain valued commercial partners who contribute millions of  “tainted” dollars from code-share revenue splits that American’s bank account enthusiastically welcomes.

Mr. Parker’s silly initial attempt to reconcile the irreconcilable – it’s a dispute between governments, not carriers and commercial friends – was laughable. Of course, the only reason it was an issue for the US Government was the unprecedented $50 million lobbying campaign that American, Delta and United Airlines funded out of the wallets of their shareholders. 

Then, after the howls of hypocrisy grew too loud, Mr. Parker finally terminated those lucrative partnerships with Etihad and Qatar, feigning outrage at foolish gender insensitive remarks made by the CEO of Qatar Airways, which continues to be American’s oneworld alliance partner.

Clearly written and carefully chosen words have meaning. The White House and State Department statements could not be more clear – UAE carriers have “no current plans” to operate new Fifth Freedom flights but their unlimited right to do so in the future is fully maintained by the US-UAE deal. No amount of wishful thinking or denial by Mr. Parker will change that. It is time to move on.

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

©2001 to 2018 Business Travel Coalition, Inc..