January 2 -  Why Are The Big Three Silent About Heavily Subsidized Air India?


Editor’s Note: Paragraph #2 of this analysis was corrected by removing Dallas-Fort Worth and Los Angeles as current Air India destinations. While non-stops to these destinations were announced by Air India in early 2017 neither route was launched and flown during the August 2017 to September 2018 period.


INDUSTRY ANALYSIS


By Kevin Mitchell

 

Why Are The Big Three Silent About Heavily Subsidized Air India?

It dominates the non-stop US-India market

Delta Air Lines continues to promote the story that it was chased out of the US-India non-stop market by Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers). It is a truly bizarre fiction given that the Gulf Carriers do not fly non-stop between the US and India. In fact, they have never been permitted to do so. So, how exactly how does a carrier chase another out of a non-stop market it does not serve?!

However, that’s not the most bizarre part of this fable. There is a foreign carrier that does fly non-stop in the US-India market. Indisputably, that carrier is heavily state-subsidized with its government publicly disclosing it has provided $9 billion in state aid to it since 2013 alone, and there are widespread expectations that another tranche of state aid will be needed in the near future. There also is no dispute that carrier dominates the non-stop US-India market with nearly a 70 percent market share. Between October 2017 and September 2018, this heavily state subsidized airline flew 900,000 passengers non-stop between India and New York JFK, Newark, Chicago, San Francisco and Washington Dulles.

That carrier is Air India. Yet, do you ever recall Delta, American Airlines or United Airlines (Big Three) complain about it? Can you once remember the Big Three claiming that the $9 billion in state aid to Air India since 2013 -- $5 billion in cash infusions and another $4 billion in debt write-offs – violates the US-India Open Skies agreement?

Of course not. The Big Three don’t have a principled position against state aid to foreign carriers. What about heavily subsidized Chinese airlines that are carrying an increasing share of US-China passengers? Crickets. How about South African Airways, which seems to require an annual government bailout? Not a peep.

The Big Three are a one-trick pony. They only complain about Gulf Carriers with manufactured “facts” and contrived arguments devoid of real-world support but rich in hypocrisy.

What’s the explanation?

- Is it selective indignation calibrated to their competitive concerns – perhaps the Big Three are comfortable with Air India and South African Airways but fear the Gulf Carriers?

- Is it a “professional courtesy” for Star Alliance members?

- In the case of Chinese carriers, is it that Delta and American are defensive about the hundreds of millions of dollars each has invested in heavily subsidized China Southern and China Eastern and they are hoping to whitewash that hypocrisy?

You should ask them.

One thing is certain, if you look at Delta’s long history of excuse-making for its absence from the US-India non-stop market it never has mentioned multibillion subsidies by the Government of India that prop up Air India. The same is true for United, which competes head-to-head with Air India in the non-stop US-India market but also counts that heavily subsidized carrier as one of its Star Alliance partners.

For years United has flown two daily non-stop US-India flights – Newark-Delhi and Newark-Mumbai. Between October 2017 and September 2018 it carried nearly 400,000 US-India passengers non-stop. The importance of the US-India non-stop market was underscored by United’s India country manager, Harvinder Singh, who emphasized, “[o]ur commitment to this important market (US-India) is further underpinned by both the introduction of the Boeing 777-300ER on our Mumbai–New York/Newark route in October this year (2018) and the launch in December 2019 of a new nonstop seasonal service from New Delhi to San Francisco."

However, United never mentions the $9 billion of aid from the Government of India that enables Air India to offer nearly three times as many weekly non-stop flights as United, and to fly nearly 900,000 non-stop passengers annually.  

Then there is Delta and its ever-changing list of excuses about serving the US-India non-stop market, which culminated in it vacating that market in 2012. First, Delta blamed low passenger demand for suspending flights. Then, when it announced it was pulling out of the market, it blamed the US Export-Import Bank (EXIM). Over the past few years, it has, and continues, to blame connecting service offered by the Gulf Carriers. However, not once has it criticized the multi-billion dollar state subsidies received by Air India, which dominates the US-India non-stop market.

In 2009, Delta said that while it was “committed to India,” the decision to suspend non-stop flights was “prompted by lower projected passenger demand.” (https://btcnews.co/2AqLaM2)

In 2012, when it announced it was terminating US-India non-stop flying, and vacating that market, its then SVP and General Counsel Ben Hirst blamed EXIM’s lending to Air India, for Boeing 787s, for its decision to terminate its New York JFK-Mumbai flight and for its absence from the US-India non-stop market. Mr. Hirst wrote:

“In 2006, Delta initiated nonstop service between New York and Mumbai, competing with Air India’s one-stop service. But between 2006 and 2009, Ex-Im provided Air India $3.3 billion in loan guarantees, which the airline used to finance long-range aircraft at below-market rates. Air India then used its new subsidized capacity to flood the U.S.-India market, dropping ticket prices by more than 30 percent, a level at which Delta could not compete.”

In that op-ed, Mr. Hirst also blamed EXIM lending for American’s short-lived, unprofitable Chicago-Delhi non-stop flight. It should be noted that American canceled that flight shortly after it filed for Chapter 11, along with other routes, and did not mention or blame Gulf Carrier competition. Significantly, Delta’s Hirst didn’t mention or blame Gulf Carriers for Delta’s departure either. Take a look for yourself at http://btcnews.co/2temTSR.

Then, in 2015, Delta’s protectionist narrative shifted and so too did its version of the facts. It began blaming Gulf Carrier competition for its absence from the US-India non-stop market. As the new narrative went, so went Delta’s completely new version of the truth – it allegedly was run out of the US-India market by purportedly unfair competition by Gulf Carriers. Delta claimed alleged subsidies violated the US-UAE and US-Qatar Open Skies agreements. However, not once has it claimed that the multi-billion dollar undisputed state subsidies that the Government of India provides to Air India violate the US-India Open Skies agreement.

So, what is the truth about Delta’s absence from the US-India non-stop market? Glen Hauenstein, its President, had a refreshing moment of candor during its Q2 2015 earnings call on July 15, 2015. When asked about the US-India market, Mr. Hauenstein described it as a “missed opportunity.” In other words, the fault lies with Delta’s senior leadership, not the US EXIM Bank or Gulf Carrier competition.

The reason for this “missed opportunity” for non-stop flying is Delta’s singular focus on outsourcing its US-India passengers to its foreign airline partners and forcing those customers to connect via partners’ European hubs. Just how fixated is Delta on funneling its passengers to foreign-crewed connecting flights? In Delta’s Q2 2018 earnings call on July 12, 2018, Mr. Hauenstein boasted to Wall Street analysts about the success of this outsourcing strategy noting “we continue to rely more heavily on our partner's [sic] EU hubs and now deployed [sic] 60% of our transatlantic capacity into their hubs.”

So, if you are a US-India passenger on Delta expect to fly to Paris, Amsterdam or London and be forced to connect onto Air France/KLM, Jet Airways or Virgin Atlantic. If you prefer non-stop, which business travelers especially do, tough. It is more profitable for Delta and its joint venture partner airlines to inconveniently connect you via Europe often adding significant total journey time. Obviously, this voluntary commercial decision by Delta to deny passengers non-stop US-India flight options had absolutely nothing to do with EXIM lending to Air India to support US job-creating Boeing 787 purchases. Nor did it have anything to do with Gulf Carrier competition.

The next time the Big Three complain about Gulf Carriers and alleged subsidies, ask them to explain why they are completely silent about multi-billion dollar state aid that Air India and Chinese carriers receive. However, don’t expect a credible answer because they have none.

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