September 17 - Epiphany Moment for American's Doug Parker?


INDUSTRY ANALYSIS

By Kevin Mitchell 

 

Epiphany Moment for American's Doug Parker?

In a June 23, 2015 interview in the South China Morning Post, Doug Parker, the Chairman and CEO of American Airlines, remarkably said he “doesn’t know” if China’s state-owned airlines receive government subsidies, nor was he “particularly alarmed” that Chinese competitors were using that advantage to surpass US carriers in the transpacific market (https://btcnews.co/2pfLrvq).  

The context was a wise South China Morning Post reporter who could not help but notice the rich hypocrisy of Mr. Parker whining about alleged state aid to Gulf Carriers while concurrently saying nothing about Chinese carriers. In fact, the hypocrisy is worse than that. Not only did Mr. Parker say nothing about heavily subsidized Chinese carriers while moaning about Gulf Carriers in that 2015 interview, in 2017, while fulminating about Gulf Carriers at an even higher decibel level, Mr. Parker invested $200 million of American shareholder money in China Southern, the most subsidized of all Chinese carriers.

When pointedly asked in the interview about his selective indignation, Mr. Parker’s full quote, which certainly is worthy of enshrinement in the disingenuous Hall of Fame alongside whoppers by Richard Anderson and Ed Bastian, was "I don't know if they are subsidized or not.” To help Mr. Parker overcome his selective memory, the South China Morning Post article went on to note China’s four listed state-owned airlines, including the ones American and Delta Air Lines have equity stakes in, collectively reported receiving direct government grants of 6.98 billion yuan in 2014 alone.

Last month American announced it was waving the white flag and exiting the Chicago-Beijing and Chicago-Shanghai markets. Vasu Raja, its Vice President Network and Route Planning, candidly admitted the two routes “have been a colossal loss maker for us.” Reuters noted this “underscore[s] increasingly tough competition from state-backed Chinese rivals as they aggressively expand their fleets with cut-price tickets.” American’s Raja echoed that point adding “[t]he current fare environment severely limits our ability to successfully compete between Chicago and Beijing.”

This comes at a time American, Delta and United Airlines (Big Three) were forced to capitulate to the Government of China’s demands regarding how they refer to Taiwan on their websites. Some lawmakers have angrily accused China of bullying tactics and, in a recent confirmation hearing, the Department of Transportation’s nominee for Assistant Secretary of Aviation and International Affairs testified that China is not complying with our air service agreement.   

Against this backdrop, one would think this was the moment for Mr. Parker to admit an epiphany. An inflection point. American’s retreat from the Chicago-China market represents a recent and tangible example of how Chinese carrier state subsidies distort competition and are artificially skewing transpacific market share in favor of Chinese carriers. The political climate in Washington likely would be highly receptive given resentment over China’s bullying on the Taiwan reference issue and other trade-related frustrations. And, Mr. Parker had a keynote appearance in Washington at Airlines for America’s high-profile aviation summit scheduled last week. The stars were perfectly aligned. Mr. Parker seized the opportunity to pounce. He pounced, but pounced on Air Italy and his oneworld partner, Qatar Airways, instead while failing to mention a single word about Chinese airline subsidies. Crickets on state-subsidized Chinese carriers.

Showing he is a one trick pony, Mr. Parker pulled out his old, tired and debunked anti-Open Skies and anti-Gulf Carrier talking points. He just was forced to abandon the Chicago-China market. American has never served either the United Arab Emirates or Qatar, much less ever taken down a flight due to head-to-head competition with Emirates Airline, Etihad Airways or Qatar Airways. Yet, Mr. Parker’s only international competition gripe was Gulf Carriers and, specifically, his oneworld partner Qatar Airways and its minority investment in Air Italy.

Selective indignation. An unhealthy fixation and blinding obsession with Gulf Carriers. You pick your own description. 

What’s the story with Air Italy? Qatar Airways owns a 49 percent stake in Air Italy that just started Milan Malpensa-US service this Summer season with a grand total of two US points – New York JFK and Miami – and just daily flights to each. This Winter season they will operate reduced schedules. Mr. Parker and his US-Europe oligopoly partners, Delta and United, are alleging in Washington that Qatar Airways effectively controls Air Italy. In his remarks last week, Mr. Parker went so far as to publicly accuse the Government of Qatar of “cheating” on the agreement it signed with the United States in January ending a three year old dispute over the US-Qatar Open Skies agreement. 

Does Mr. Parker have a principled position against any carrier that is minority owned by Qatar Airways operating in “his” cash cow US-Europe oligopoly market? Obviously not. He does not object to British Airways, Aer Lingus, Iberia and LEVEL who all operate in the US-Europe market and are part of the International Airline Group that is 20 percent owned by Qatar Airways.

Among Mr. Parker’s dusty Gulf Carrier talking points is his claim the Gulf Carrier issue is all about jobs. In fact, of course, the true motivation is that the Big Three, and their alliance and joint venture partners, are seeking at all cost to maintain their stranglehold on the US-Europe market where they currently control more than 80 percent of the seats and reap historic profits. What oligopoly welcomes new entrants, especially ones that offer a far superior product and value proposition? Certainly not the Big Three. 

They have endeavored to stifle new competitive choice at the top end of the market – for premium passengers who might prefer to travel in comfort on Fifth Freedom flights operated by Gulf Carriers – and the more cost-conscious end of the market by campaigning to block competitive entry by Norwegian Air International and Norwegian Air UK Limited. Now they are pushing insidious legislative language on Capitol Hill to try to change the evaluation process for new international carriers seeking to serve the United States, making it more subjective and easier to challenge new entry thereby contravening international commitments including the historic US-EU Open Skies agreement.

Facts are stubborn things. The same way Mr. Parker chose to ignore the well-known and publicly disclosed fact that state-owned Chinese carriers are heavily subsidized, his jobs narrative conveniently ignores the facts. According to the Department of Transportation’s Bureau of Transportation Statistics (BTS), in January 2015 when the Big Three launched their anti-Open Skies lobbying campaign against the competitive choice Gulf Carriers provide, American and US Airways combined had 98,426 total employees. In July 2018, BTS’s last reporting period, American reported 108,945 employees. So, from the time Mr. Parker first starting crying Gulf Carrier competition is causing the sky to fall for US airline employment, American employment has grown by 10,519 or 11 percent. As for its anti-Open Skies oligopoly partners, Delta’s employment has grown 15 percent while United’s rose 6 percent over the same period.

A question worth pondering is how much more American employment would have grown if Mr. Parker weren’t outsourcing so much international flying to foreign alliance, joint venture and code-share partners. According to the Partnership for Open and Fair Skies, the anti-Open Skies advocacy group Mr. Parker helps fund, for each international flight American outsources to a foreign partner, rather than operate itself with an American-crewed American aircraft, 1,500 jobs are lost.

Another stubborn fact relates to Mr. Parker’s often-repeated claim that Emirates Airline is subsidized. According to paragraph 7 of the US-UAE Record of Discussion, “audited financial reports have for many years been issued by Emirates Airline and by the U.S. airlines.” So how is it possible that a fully transparent, PricewaterhouseCoopers-audited airline like Emirates is able to hide billions of dollars in alleged subsidies? It is not. It is just a tired, fully rebutted talking point and political sound bite that undermines Mr. Parker’s credibility each time he continues to use it.

Surely American employees and shareholders are hoping Mr. Parker snaps out of his Gulf Carrier trance and begins to focus on the real issue of competition distorting Chinese state-provided subsidies that, in fact, have caused American commercial harm. The crews that operated its Chicago-China flights no doubt do. But, apparently that high-profile retreat was not a strong enough jolt of reality for Mr. Parker. Based on his Pavlovian tendency to solely rant about Gulf Carriers, employees and shareholders should not count on an epiphany about Chinese carrier subsidies any time soon. How many more cancelled American US-China flights will it take for that epiphany and pivot?

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Mitchell is the founder of the Business Travel Coalition and OpenSkies.travel.

 

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