February 4 - Delta, American, United CEOs Admit Goal Is To End Open Skies Policy 


INDUSTRY ANALYSIS

By Kevin Mitchell

 

Letter Urges The Trump Administration To Breach US-Qatar Open Skies Agreement

For four years the CEOs of Delta Air Lines, American Airlines and United Airlines (Big Three) have vigorously, and disingenuously, denied that they are seeking to end the United States’ (US) longstanding Open Skies policy. Although that intention is obvious from the more than $50 million of shareholder money that they have wasted on their failed lobbying campaign attacking Open Skies, the Big Three CEOs finally came clean. They admitted their goal is to end universally applied Open Skies policy.

Enraged that they failed to turn the recent January 2019 US-Qatar aviation talks into a diplomatic firestorm, the Big Three CEOs fired-off a sniveling joint letter to Secretaries Pompeo and Chao calling on the Trump Administration to breach the US-Qatar Open Skies agreement if their protectionist demands are not met.        

Specifically, the Big Three CEOs demanded that:

“the Trump Administration should inform Qatar that the United States intends to cease observing the Open Skies agreement’s terms with respect to passenger airline rights, and that it will limit Qatar’s currently unrestricted market access until its commitments to the United States has [sic] been met.”

If something looks like a duck, swims like a duck and quacks like a duck, it is probably a duck. Similarly, if something looks like a breach of an existing Open Skies agreement and dishonors existing rights as urged, and would unquestionably violate an existing Open Skies agreement, it represents a clear call for the repudiation of Open Skies policy.

Think about that for a moment. For nearly 30 years, US bipartisan Open Skies policy has been the gold standard in international aviation. Widely embraced and respected, it literally has transformed global aviation by opening markets, expanding consumer choice and delivering non-stop international connectivity to communities that never had it before. Indisputably, it continues to be a hugely successful policy. It is an accomplishment in which the US understandably takes great pride and one that has significantly benefited the Big Three and the broader US airline industry.

It is a universally applied policy. Large and small countries are treated the same. Whether it is our historic Open Skies agreement with the block of European Union countries or our most recent one with Belize, it is the same core rights. The US has even entered into Open Skies pacts with countries such as Ethiopia that our airlines do not serve.

The success of Open Skies far exceeds our 126 agreements. Worldwide, it is responsible for a paradigm shift from closed and protected aviation markets to open and welcoming ones. It has been transformational. Some 150 countries across six continents have sought to emulate our success by adopting the US model through over 300 Open Skies agreements. Simply put, Open Skies reflects the best in US global policy leadership that has delivered jobs and economic growth throughout our economy from inbound travel and tourism to aerospace manufacturing to air cargo services.  

Ed Bastian, Doug Parker and Oscar Munoz disagree with me. They see Open Skies policy as a competitive nuisance. A threat to their record profits. A policy that should be selectively applied when they think that their products and services are not competitive.

In their January 29, 2019 letter, the Big Three CEOs demanded Secretaries Pompeo and Chao cavalierly breach the US-Qatar Open Skies agreement. What about US global aviation leadership? Irrelevant. What about setting a precedent of breaching international aviation agreements that could boomerang to the detriment of the US and its airlines? Unimportant.

Attempting to sugarcoat and disguise a poison pill, the Big Three self-servingly seek to distinguish the US-Qatar Open Skies agreement from many others arguing it is “provisionally applied(1)” and not “entered into force,” so it, therefore, is perfectly acceptable to abrogate it. Talk about a specious argument.

If the Trump Administration were to accede to the Big Three’s demand, would the provisional versus in force distinction fully insulate the US from being perceived globally as having abandoned its longstanding Open Skies leadership? Of course not. Would it fully inoculate the United States from worldwide reputational damage that it does not honor existing international aviation agreements and therefore cannot be trusted? Of course not. Would that distinction protect US commercial and all-cargo carriers from retaliation if foreign governments seize on that precedent as a welcome opportunity to breach US carrier rights when their incumbent legacy airlines similarly complain loudly enough and flex their political muscles? Of course not.

When it comes to preserving US international aviation leadership, making unmistakably clear that the US continues to fully embrace Open Skies and not setting a dangerous precedent, the provisional versus in force distinction the Big Three make as the basis for breaching an existing Open Skies agreement is a difference without a meaningful distinction.  

If the Big Three had a genuinely principled concern about the competitive implications of state aid provided to any foreign carrier that competes with them, they would urge the Trump Administration to begin a comprehensive policy review. They do not have a principled position and, accordingly, have not done so. Instead, they continue with selective protectionist indignation. They moan exclusively about Gulf Carriers – Emirates Airline, Etihad Airways and Qatar Airways – who they apparently regard to be more appealing to consumers and therefore their greatest competitive threat.

What about heavily subsidized Chinese carriers? Aggressive, subsidy-aided pricing by Chinese carriers in the Chicago-Beijing and Chicago-Shanghai markets recently forced American Airlines – the largest airline in the world – to wave the white flag of surrender and abandon those non-stop markets. Did Doug Parker, American’s CEO, publicly express outrage and indignantly demand that the Trump Administration take swift action to curb competition-distorting subsidies to Chinese carriers? Did he fight for American crew who lost those flying opportunities? Not a peep. He was too busy whining about Air Italy and his oneworld partner, Qatar Airways.

What about United’s Star Alliance partner Air India that has received $9 billion in state aid since 2013 alone? The US and India have an Open Skies agreement. Have the Big Three once complained that this massive state aid to Air India violates the US-India Open Skies agreement by denying them a fair and equal opportunity to compete in the US-India air service market? Crickets.

What about United’s Star Alliance partner, South African Airways, that was recently described in the press as “[t]he cash-strapped national airline (that) has been propped up by repeated government bailouts to continue operations and has recorded seven consecutive years of losses”? Not a word.

The list goes on and on. Many of the Big Three’s SkyTeam, oneworld and Star alliance partners are partially or fully state-owned.

The Trump Administration should ask the Big Three if they would support a comprehensive policy review of the competitive implications of state support provided to any foreign carrier, including all that are alliance partners of the Big Three such as heavily-subsidized China Eastern Airlines and China Southern Airlines, in which Delta and American have equity stakes worth hundreds of millions of dollars. I think we know that answer. Embarrassingly, Mr. Parker of American might again feign ignorance that Chinese carriers are subsidized.

Most important, the Trump Administration must remain steadfast in opposing the Big Three’s protectionist demand that it abandon longstanding Open Skies policy. Given this CEO letter, it no longer is even debatable that is the Big Three’s core motivation, and all claims they make to the contrary are as erroneous as the talking points they regurgitate ad nauseam. Success for consumers, airports, communities and the US economy requires that the Trump Administration continue standing firm and resolute in support of Open Skies. 

(1) When all processes and requirements to formally bring an international aviation agreement into force have yet to be completed, in the interim that agreement nonetheless can be applied provisionally with all rights and obligations. According to the State Department website (https://btcnews.co/2SmTUgp), Qatar is just one of numerous countries whose Open Skies agreements currently are applied on a provisional basis.

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