US Airlines Ramp Up Effort to Stifle Middle East Carriers – What Do They Know?

It looks like American, Delta, and United are getting a little nervous about those fast-growing carriers in the Middle East. It’s bad enough that the three have now banded together to push on the US government to renegotiate open skies treaties with those countries. From what’s known publicly, this seems like a bad idea. So either they’re dumb, or they know more than we do.

Gulf Carriers Attack

The US has been the world’s biggest advocate of open skies treaties for two decades. It has signed more than 100 of them since 1992. What does that mean? An open skies agreement means that airlines of one country have the right to fly to the other country without restriction* and vice versa. I put an asterisk there because there are always non-governmental restrictions that get in the way, like slot scarcity at JFK or something like that.

But the point is that you lift the shackles of government regulation off the air traffic between two countries and let airlines compete on an equal footing. EQUAL is the word that American, Delta, and United are currently fighting about.

Open skies agreements have been very successful in growing traffic. Think about the silly restrictions that only allowed a limited number of flights on two US carriers and two British carriers between Heathrow and the US before the current open skies agreement with the European Union was signed.

Or, more importantly for this post, think about how traffic has exploded between the US and both Qatar and the United Arab Emirates. Of course, most of that growth has come from carriers based in those countries and not from the US. But it has certainly added a ton of capacity and travelers have benefited greatly.

It’s that huge, one-sided growth that has the US carriers crying foul. Were this any other airline in any other country with even more questionable underlying finances, the US carriers wouldn’t care because there wouldn’t be a credible threat. But this? This is going to get a ton of attention because of what’s at stake.

The argument from the US carriers presumably centers entirely on the issue of a FAIR and EQUAL competitive playing field. They say that these Middle East carriers (Emirates, Etihad, and Qatar) are highly subsidized and have huge advantages. With those structural advantages, it’s just not fair competition.

On the surface, this argument seems rather weak. While Etihad has certainly had gobs of subsidies, Emirates is really just benefiting from coming from a country that strongly supports aviation. There is a huge tax advantage to being based in the UAE, and labor is cheaper. (While flight crews tend to make good money over there, the people on the ground don’t.) It’s hard to argue that different environments make something inherently unfair. Besides, those exist everywhere.

Look at the list of open skies agreements and you can pick out plenty. There’s Jordan, Singapore, Taiwan, El Salvador, Guatemala, Malaysia, Uzbekistan, Pakistan, Burkina Faso, oh hell, you get the point. Companies in one country will always have structural differences than those in another country. Sometimes it’s an advantage, and sometimes it’s a disadvantage. But the US carriers have never complained about these other ones for the obvious reasons I mentioned. There isn’t a threat.

But, especially in the case of Emirates, it’s hard to see how this is a strong argument. And that’s why I assume there’s something that the US carriers know that we don’t. Maybe they’ve uncovered a smoking gun. If not, then they’re wasting our time.

From a customer perspective, the gulf carriers are great. Someone in Seattle today now has a whole world of new single-stop options that didn’t exist before Emirates arrived. You can really say the same for even big cities in the US. The number of places you can fly via Dubai, Abu Dhabi, and Doha is astounding. And the fares are often very good. So travelers love it.

The opposite end of the spectrum is that garbage we see in Canada. Canada is downright draconian when it comes to allowing access to gulf carriers. Etihad, Emirates, and Qatar have 3 flights a week to the entire country. (Etihad and Emirates serve their hubs from Toronto while Qatar serves its hub from Montreal.) They want more access but the Canadian government refuses. That doesn’t seem good.

The US carriers knows that the federal government cares about how the general public will feel about any move. So if the airlines are really making a full court press here, then they really must know something we don’t. The timing is probably also not a coincidence.

Sure, gulf carriers can take a lot of traffic for people going from the US to Africa, Central Asia, India, and Southeast Asia. But to Europe, Asia, and anywhere within the Americas, they aren’t a threat. Or are they?

Emirates started a Dubai-Milan-New York flight that the US and European carriers have been fighting. But Emirates recently won its appeal and the route will continue. Remember, Etihad has been pouring money into failing carriers as well. That means airlines like Alitalia and Air Berlin now have Etihad propping them up. Meanwhile, Qatar bought a sizable stake in British Airways’ parent company IAG. This is just the tip of the iceberg, and it’s why US carriers are so scared. (European carriers have been scared for years.)

What exactly the US carriers are hoping to achieve with this isn’t entirely clear, but we’re going to see a lot of friction in the coming years. The battle has just begun. Let’s see if the US carriers actually have uncovered anything to help their cause.

[Original shark photo and original buoy photo via Shutterstock]

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68 Comments on "US Airlines Ramp Up Effort to Stifle Middle East Carriers – What Do They Know?"

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N
Guest
I’m not sure there needs to be a smoking gun. Couldn’t it be as simple as there are now airlines with the funding AND product to take a bite out of the US carriers revenue and profits? Of the countries you list in the beginning, really only Singapore and Taiwan have carries with excellent products. And due to distance and cost, they don’t fly a ton to the US – just a few cities. The Mideast three are being far more aggressive, and because they can connect virtually any two cities with a single connection, the US carriers are scared.… Read more »
bb
Member
Our door’s need to remain locked when it comes to the ME3 and to a degree, Turkish Airlines…..with bottomless pockets they can afford to buy the huge amounts of NEW planes. and it seems, the bigger, the better…..they are already eating other Flag carriers business….the Middle East to London route boggles my mind with how many flights combined, they have and with the A380….Open Skies wasn’t meant for 3 maybe 4 carriers from the Middle East to fly the world’s air travel’s and send other airlines spiraling downward….the LCC’s are doing a good job of that….the US doesn’t need little… Read more »
LG
Guest
I can kind of understand as a business why the US airlines want to keep competition away. The three middle eastern carriers have taken Europe by storm and made legacy airlines that were suffering from LCC competition fall even further into losses. The US airlines are right in the fact that the three carriers have serious advantages due to their economic systems and environment. And I don’t mean policies that “support” aviation, the government in the three countries have ample oil and oil revenue, no human or employee rights and don’t tax anyone because they have oil income. I find… Read more »
Sean S.
Guest
To play devil’s advocate for a moment, Dubai has minimal oil revenue anymore, and while it is true that Bahrain and Qatar certainly do, the likelihood is they will continue on with their sovereign wealth funds and with their location as an alternative financial and offshore location for the more duplicitous individuals and companies amongst us. But I agree that overall, it is hard to see such unrestrained capacity hitting the market and being sustained without significant subsidies; the likelihood is that one of the three Gulf carriers will have to either merge with the other or be scaled back… Read more »
LG
Guest
Oh ya, I agree that Dubai as an emirate is definetly trying to invest in other sectors to move away from oil dependency and oil revenue is playing a less and less role in their income nowadays. Yet they still have massive funds to draw money from. And I never considered a merger as a way to soothe overcapacity, thanks for that new take on the future Sean. I can see a possible Etihad-Emirates merger to create a “UAE” national airline. I still have no idea where they plan to put these A380’s on not to mention 100 B777X. Only… Read more »
lance
Guest

No chance of a Etihad-Emirates merger. The UAE is made up of individual emirates (or like a US states) and Abu Dhabi and Dubai compete against each other. More chance of the Yankees and the Red Sox getting together than Emirates-Etihad.

About all those wide-bodies, remember the idea of Emirates is to drive Dubai as the connecting city, so I assume it’s either more cities or more frequency between Dubai and the other destination.

Bob
Guest

But there have also been other advantages for US carriers like JetBlue. They have a great partner to provide connections. Maybe once Southwest gets it’s computer system together we will see arrangements like this too.

flyrchris
Guest
Our government has also helped these ME carriers. The ME carriers that have ample amounts of cash are purchasing their planes from Boeing using the Import/Export Bank of the United States. This gives loan guarantees and favorable interest rates to these carriers while US based carriers pay market rates to finance their airplanes. The Import/Export Bank serves a great purpose in helping sell American good overseas, but I don’t think the ME carriers are struggling to find financing. They could probably pay cash for very 777 or 787 they order. That gives them at somewhat of a unfair advantage. Who… Read more »
Nick Barnard
Member

AFAIK, the rates at the import/export bank are more expensive than what the US airlines are getting.

Eric Morris
Guest

That wouldn’t negate that the ME3 are being subsidized by Ex-Im, if they are using it. All these subsidies and agreements are a tangled race to the bottom. I guess if the Wright Brothers did not have government financing, Ohio state manufacturing subsidies, and a Kitty Hawk open skies agreement, this industry would have failed to launch.

Nick Barnard
Member

Perhaps. But then you could say Boeing is being subsidized… Oh and Delta is too, because they’ve had engine overhaul contracts setup through the ExIm Bank.

haolenate
Guest

Ex-Im rates are typically lower rates than what airlines will find in their own countries.

Nick Barnard
Member

True, but its not lower than what US carriers find in the US.

kt74
Guest
I’m not sure what Cranky is suggesting that US airlines know? There’s nothing stopping Delta or United from improving their product, flying nonstop to anywhere in the world that EK/QR/EY do (Baghdad, Tehran, Kabul and Algiers, anyone?), investing in underperforming European airlines, hiring a harder-working workforce domiciled in low tax jurisdictions, or asking the federal govt for support to buy US-built planes. Heck, it wasn’t that long ago that they all had hubs in Tokyo and Frankfurt and fly fifth freedom all over the world – including all over the Middle East So, why the big fuss right now? Sounds… Read more »
Grichard
Guest

Oopsie. This is why your out-of-office response should be set to people in your network only.

Jason Lemieux
Member

I’m not sure why this got through the filters. I’ll take a look right now. Sorry about that.

Shane
Member
I assume you meant 3 daily to Canada, not weekly. Slightly off topic, but I know the ME carriers have better premium service than US and Euro carriers which probably accounts for most of their profits, but I’m kind of tired of hearing about how great the carriers are to fly and much better than the others. I haven’t flown any of them yet, but I am not sure how sitting 10 abreast in a 777 on Emirates is going to be better service and quality than 9 across on United. I’m not saying United is such a great airline,… Read more »
kt74
Guest

Nope. He means 3x weekly. The Canadians are *that* protectionist

The advantage to Y passengers is the ability to fly daily, one-stop from Miami to Chongqing, Seattle to Basra, or Dallas to Jaipur. And many other combinations.

The Y product is nothing special – good enough. But at least the wifi, unlimited IFE and alcohol is free… 10 abreast Y – that’s what AA is retrofitting, isn’t it? And you can always fly QR 777s with 9 abreast

Andrey
Guest
It is so good that someone has finally tried to put the discussing public from the top of their enthusiasm about ME premium cabins (which most of this public cannot afford to fly for their own money) to the bottom of the most common form of travelling – coach. Coach is the biggest cabin with any airline for the sole reason that most people cannot or are not willing to afford to pay for all those fancy suites everybody is so amazed about. And I would say that coach tickets on ME3 are hardly way too better than on any… Read more »
MT
Guest

The airlines did oppose the pre-clearance center in Abu Dhabi. I don’t recall the airlines themselves doing much of the talking, but Airlines for America (the trade organization representing the US airline industry) was very vocal. Pilot unions were also very vocal, and certain members of Congress very publicly were against it.

http://crankyflier.com/2014/01/30/what-is-preclearance-and-why-are-airlines-so-mad-about-abu-dhabi-having-it/
Opinion article: http://aviationweek.com/commercial-aviation/viewpoint-us-plan-aid-etihad-outrageous

Andrey
Guest

I heard, but they were all probably still too quiet at that time not forseeing the scale at which ME3 would grow in the USA.

A
Guest

I’m not sure I really have an opinion about open skies. What I do believe is that the ME carriers are building something that is not sustainable for the long run. While they may have the economics worked out for the time being it will not last forever. Never mind that they are all based in a part of the world that is a powder get waiting to explode. Sure, the UAE may be the Switzerland of the ME but one arab spring in the wrong place could have all these airlines grounded overnight.

bo
Member

Until the US revokes some labor laws and allow for the removal of the senior “wide-bodies” that work the international sectors US carriers will never be competitive.

James S
Guest
Not a very politically correct opinion, but a valid one. The inflight experience on Emirates, Etihad or Qatar is so far beyond anything the US3 can offer that it’s not even funny. The service, even in coach, is polished, professional and attentive. Crew greet you by name, are groomed to the nines, and seem genuinely happy to be there. Contrast that with American, United, and (to a lesser but still noticeable extent) Delta, where most of the longhaul crews can’t be bothered with pesky things like service standards or grooming. Even in F and J, the attitude is that they’ll… Read more »
Bill Hough
Guest

Bingo. This really nails it.

But you have to add the corporate arrogance/indifference of the US carriers, who have lousy customer service (see: “UA breaks guitars) and nasty and growing nickel-and-dime fees which irritate people.

Sean S.
Guest

I’m not sure what’s more hilarious about this post; the casual sexism, ageism, or the entitlement. I fly international semi-regularly, and I’ve generally had positive experiences on Delta, who I use, though certainly I cannot speak about others. Admittedly I don’t fly business class either, and maybe my expectations aren’t on part with the Diamond Medallion flier but in my experience most flight attendance service is from average to quite good. I’m not getting a 40 minute dinner presentation, but I don’t really care about that either.

Bill Hough
Guest

The simple fact is that DL, for whatever reason, cannot complete with the ME3, so they’ve resorted to whining for the government for protection. Cranky feels that DL knows more than we do. I disagree; if they had something they would release it to bolster their case. I suspect that they’re bluffing.

James S
Guest
Ah, yes, the old entitlement chestnut. It’s a testament to the lousiness of the US3 that someone who has paid thousands of dollars for a seat in a premium cabin, and who expects professionally-delivered service from friendly, well-groomed crew, is immediately dismissed as “entitled.” I, too, fly international semi-regularly. The things you see US3 cabin crews do on those flights would get crews written up or fired on just about any other respectable carrier. Snapping at passengers, ignoring call buttons, rolling eyes, smacking gum, carrying on conversations with each other across the aisles. I once watched an AA crew member… Read more »
billyshearer
Member

CAPA did an excellent analysis on the Middle East ‘subsidies’, and it turns out that, well, um, Emirates is just a really well run airline. CAPA also points out that, um, US airlines have been subsidised and many of their alliance partners receive assistance.

http://centreforaviation.com/analysis/us-airline-attacks-on-gulf-carriers-more-rhetoric-than-consistency—but-it-makes-for-good-politics-192138

LG
Guest

But what about the no taxes and no labour rights. Emirates may not be “subsidised” as such but I’m sure cheap oil and government favouritism plays a part in their success. Emirates is known to have a cost base second to none. No airline is THAT well run, I mean global network, excellent service AND profit. An airline that good, is too good to be true. If Emirates are that good, why isn’t every other airline in the world. How come China’s, Australia’s and Europe’s airlines can’t pull an “Emirates” off if there is clearly a market there?

Abby
Guest
The ME3 are hurting the European big 3 airlines much more than the big 3 American airlines. AFKL, LH and to a lesser extent BA are heavily reliant to transfer traffic, EU-ME/Asia and NA-ME/Asia. EU-ME/Asia is no issue for UA, DL and AA. The NA-ME/Asia transfer traffic that was previously flying on UA-LH or DL-AFKL JVs on the Atlantic is being siphoned off via the DXB/AUH/DOH. Assume someone used to play $1000 to fly SEA-CDG-BOM on DL-AFKL; also assume the trans-Atlantic part is worth $500. DL used to get 50% of that ($250) via the JV, that’s gone now via… Read more »
MeanMeosh
Guest

“AA is not so badly affected because it’s JV with BA is relatively new and the NA-LHR flights are mostly BA and not AA”

I’d say it’s probably more because QR is now part of Oneworld, and also have a codesharing agreement with EY on its ORD-AUH nonstop. Plus AA has been weak in Asia since pretty much the beginning of time, so they likely benefit more than most carriers in being able to sell one stops to most of south/southeast Asia via Doha and Abu Dhabi. At least for now.

Bill Hough
Guest

If DL, AA and UA would spend as much time and effort to become customer-friendly, they would not have to complain about EK et. al. Unfortunately, all the US dinosaur airlines have to offer is horrible customer service, ever-increasing fees and those horrible new “slimline” seats that are less comfortable than a park bench. I have no sympathy for them.

jmd757
Member

There is no such thing as good customer service in this country no matter what the industry. I am dealing with Social Security and I am dealing with people who absolutely hate their jobs and they have take it out on me. Maybe we’d be better off with Emirates, Qatar, and Eithad just take over the US.

Nick Barnard
Member

Social Security is a government agency… Why would you expect them to have good customer service versus say a high end restaurant in the us?

David SF eastbay
Member
AA/DL/UA seem like a bunch of cry babies don’t they. They just don’t like that people are going via the middle east to a lot of cities mostly in India as an example that can be on a single connection, instead of going via AMS/FRA/CDG/LHR on partner hub with limited flights to India and then a domestic AI/9W connection to their final destination. Plus the middle east carriers are keeping costs down and offering more connection option with multiple daily flights. And I never understood the backlash of EK’s NYC-MIL-DXB, when the U.S. carriers don’t seem to mind SQ’s JFK-FRA-SIN… Read more »
KFA
Guest

If the big 3 wanted to sink EK all they have to do is offer to hire most the US pilots flying there. They are waiting for any opportunity to quit and go home. Would be hard for EK to compete with lack of flight crews.

Andrey
Guest

With mass dismissal of Russian pilots, ME3 will be able to easily fill the void.

Mike
Guest
Spot on about Canada – complete protectionist for the god-awful Air Canada. The Canadian govt is scared shi*less about the big 3 flying to Canada. Air Canada will be flying to Dubai in Nov….and unless they improve their inflight Business Class, no way they can compete with EK and EY or QR. In terms of hard product, the gulf carriers are ok – but not so amazingly different than the Americans. As KFA right says, all the US and other carriers need to do is hire back the pilots and crews. And in one shot, all the Middle Eastern carriers… Read more »
Mitch
Guest
My problem with the Middle Eastern airlines is based on 9/11. Just suppose that all of Emirates’ huge A380s decide to commit Jihad on the same day here in America. I know it sounds crazy — and I have never been one for conspiracies — but think about it. They are loaded with fuel, fly all over our country, and are growing daily here in the US adding city after city. Add to that their 777s and the other two Middle Eastern airlines, and well…. What’s to stop them from plowing into 15, 20, 25 cities one day bringing the… Read more »
Billy Bob
Guest

What about Aeroflot? Are you terrified of them also??

Nick Barnard
Member
Well. Its better than the US deciding to commit a Jihad in Iraq and Afghanistan. Ultimately one of the things that protects the US for better is that we have a large military and we’ll use it. Sure ME3 countries could use the commercial airliners as bombs, but they’re effectively ending their government by doing so. Likewise Russia, China and other Nuclear powers already have the power to wipe out US cities. The only reason they don’t is because we’ve made it known that we’ll respond to those attacks immediately in kind. Nuclear weapons work and aren’t used, because its… Read more »
Nick Barnard
Member

Err.. Its no different than the US deciding….

Nostradamus
Guest

If I’m correct I believe the “crash into skycraper” option is outside of the Airbus performance envelope, and is thus disabled on all aircraft. And remember, pilots can’t override it – one of the big differences between Boeing and Airbus.

So that would never happen, unless Toulouse is one of those cities that Fox news has labeled under control of nefarious elements….

Nick Barnard
Member

Except the ME3 also fly Boeing equipment.

Sent from my computer that moonlights as a phone. Please forgive any misspellings or terseness.

Oliver
Guest

And all the ME3 pilots that other posters unthread want to recall to US airlines are… Jihadists?!

EK_Luv
Guest

“Call me crazy”

ok you are crazy.

TopGunner
Guest
US airlines enjoy government protection and subsidy by virtue of the limitation on foreign ownership of domestic airlines. So go cry me a river that you have an oligopoly on the single largest aviation market in the world. Undermining the ME3 via the EXIM Bank will hurt US industrial production, Boeing, GE, the defense contractors civil divisions would all face backlash and struggle to be on a level playing field with their competitors. Don’t forget, the US carriers get similar EXIM-like benefits when they buy Airbus through the European export banks. Is it worth the US production jobs that are… Read more »
Eric Morris
Guest
To answer your question regarding ExIm and US production jobs: An emphatic yes. If ExIm followed GAAP its “profits” would disappear. If it actually supports any jobs, it only does so by distorting other areas of the economy by using resources on favored and profitable lobbying constituents. See Frederic Bastiat on the unseen versus the seen. If Europeans are dumb enough to give me cheaper airplanes, I am all for it. I just don’t want my tax dollars to give JPM banksters bigger closing bonuses using the government’s imprimatur to benefit perfectly fine on its own Boeing.
iahphx
Member
It will be interesting to read the report the US airlines are circulating in Washington. I haven’t seen a copy yet. FWIW, I don’t buy the argument that this is sour grapes on the part of the US airlines. There is clearly something odd about the way Emirates and the other Middle Eastern airlines do business. They seem to defy Airline Economics 101. Nobody has ever survived in the airline industry offering full-frills CONNECTING service from a small population hub with gi-normous aircraft. If you could make this business model work in Dubai (population 2 million), it would work many… Read more »
Oliver
Guest

Considering their order book, they will have to find a lot more markets than those nine.

Joe Bird
Guest

As mentioned, labor costs are much much lower than US based airlines when labor rules are included.

iahphx
Member

It’s not labor costs. I believe American, Delta and United would still lose a ton of money dispatching A380s to small ultra long-haul markets like Dubai even if they paid their flight crews ZERO!

The math is insanely fishy here. Something is going on. The Middle East airlines operate with economics that exist nowhere else in the int’l aviation world.

Stephen
Guest
As a UK/US dual national, with Asian lineage, I notice that many of the comments refer to the perceived low quality of the ME3 coach product. My experience with British and Asian family and friends is that they don’t care as much about comfort on a long haul flight. I recall back in the 90s when I lived in Orlando, that our British visitors would rave about Virgin Atlantic, and the fact that they served ice cream. These are people who are used to arriving at the airport at least 4 hours before a flight, and are used to being… Read more »
Cook
Member
There are some trade-offs in addition to basic ticket price. The biggie is always the gulf carrier’s on-board, ‘soft product.’ None of the U.S. flagged legacy carriers come anywhere close to matching the gulf boy’s service. And the legacy carrier’s ‘hard product,’ that flying aluminum tube, is generally older and far less clean than those operated by the gulf boys. Whatever the many additional reasons, the legacy carriers do not complete well with most A-string foreign carriers. Lots of unknown variables here, but I think the legacy carriers do not WANT to complete; they just want protection for their sub-standard… Read more »
Green747
Guest

Look on seat guru for the seating chart of UAL’s 777’s and 747’s and compare them to those of the Gulf Carriers and you can see why in 1st and Business travelers choose the Gulf Carriers. UAL has eight seats per row on most of their 777 and 747 aircraft. I admit that in economy there isn’t that much difference except the entertainment part in which the gulf Carriers exceed.

Mike
Guest
the travel experience offered by the Gulf 3 is without a doubt superior to US carriers the question is why, as capitalism normally produces the superior product this article to be a good read: ——————- Other Carriers Can’t Compete With Gulf Airlines Under The Current System — Here’s Why FEBRUARY 18, 2015 BY LUCKY [It is not acceptable to copy and paste an entire article from another site due to copyright law. The text of the article has been removed from this comment. You can read it here: http://onemileatatime.boardingarea.com/2015/02/18/other-carriers-cant-compete-with-gulf-airlines-under-the-current-system-heres-why/%5D ——- Also, not in this article, but from what I have… Read more »
lance
Guest
I think it’s hilarious on this post that Americans, usually the home of capitalism and “get the government out of my way” is whinging about asking for government intervention about ME3. So basically you guys only prefer less government intervention when it works to your advantage and when it doesn’t work you bleat for it. (This is coming from an Aussie who is used to hearing about Qantas asking for govt intervention when profits are down). Okay my bias is that yes I traveled on Emirates recently from JFK-DXB(stopover)-SYD and having watched Nat Geo Ultimate Airport that I can sort… Read more »
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