The Argument That US Carriers Should Stop Complaining About Middle East Carriers and Compete on Product Is Garbage

American, Delta, Emirates, Etihad, Qatar Airways, United

The fight between the US carriers and the Middle East carriers is just starting to ramp up, but people are quickly taking sides. As you saw in my lukewarm reception, I think there is merit to what the US carriers are saying but outside of revisiting fifth freedom rights, it’s hard to see how any other restrictions would make sense. Now that the cards are on the table, we’ll see different defenses formed to combat the accusations. While I’m sure some will be better than others, none will be worse than the argument that US carriers should just improve their product and win on that basis. That’s just not going to happen. Nor should it.

US Airline Disadvantage Versus Middle East Carriers

The Chairman and CEO of Emirates (and pretty much half of everything in Dubai) has said “offer the best to the passengers and people will fly with you.” Yeah, sure. If you offer me the best then I’ll take it. Wait, I don’t have to pay extra for it do I?

The answer with the Middle East carriers is no. They can keep their costs much lower, and they don’t have the same level of pressure to make a profit. Both Qatar and Etihad in particular will just get more money pumped in from the government. No problem.

These airlines can spend a lot more on things that people might like but won’t influence purchase decisions. So they spend the money and offer tickets for the same price or lower than what airlines offer today in the market. If you’re a passenger that sounds great.

But should American carriers “up their game”? Yes, to an extent, and they have, especially in the premium cabin. Look at what Delta has done by installing flat beds with direct aisle access in business class on its long haul fleet. Look at American doing the same thing. United has been quietly investing in everything from seats to upgrading meals and lounges. In coach there’s been investment as well, particularly by Delta. But these investments only make sense if passengers are going to pay for them. That does mean full flat beds up front are a necessity. Emirates still hasn’t even done that. But does it mean providing limos to every passenger and free hotels on overnight connections? No, it doesn’t.

The other issue, of course, is labor. Qatar’s CEO is incredibly outspoken about his anti-union stance, and he can do that because he lives in Qatar. He can fire people without cause and he can impose strict rules that govern their behavior even off the clock. He can really do whatever he wants in that regard. In the US, that simply can’t happen. It doesn’t matter if you’re anti or pro-union. The rules are the rules, and you can’t just fire people because they’re too old or too large or, incredibly, just too lazy to properly do the work. It’s not how things work here. The airlines might like more flexibility but they will never get anywhere near what can be done in the Middle East.

Could or should a US carrier become like an Etihad or Qatar? No. First of all, with the way labor rules work in the US, they’re just not going to be able to provide the same kind of service as foreign carriers. I mean, I guess they could if they paid a ton of money to get all the angry, disgruntled people to leave on a regular basis but that gets us to the larger issue. US carriers have to create a business that’s profitable (or at least tries to be). Costs are inherently higher for US carriers than they are for Middle Eastern carriers thanks to structural differences. And if costs aren’t low enough to make a profit, they can just get in line for another cash infusion in the Middle East. So for the US carriers to match what those carriers do means they’ll have to charge more. And while some people will always pay more for quality, they’re not going to pay the US carriers significantly more to get the same level of service that the Middle Eastern carriers can provide.

So US carriers are right to focus their investments in areas where people are going to be willing to pay for improvement. It’s not like they’re sitting still as the Middle East carriers might have you believe, but they’re not busy lighting money on fire to match a Middle Eastern product that they could never offer at a competitive fare. Nor should they.

[Original Etihad photo via Jordan Tan. Original Delta photo via Chris Parypa Photography. Original ball and chain photo. / Shutterstock.com]

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90 comments on “The Argument That US Carriers Should Stop Complaining About Middle East Carriers and Compete on Product Is Garbage

  1. This is protectionist garbage.

    On the same logic, California should not allow Texas carriers compete in California because they have oil, lots of land, and tax subsidies (plus overall lower State taxes), which California doesn’t.

    U.S. carriers didn’t buy any fuel efficient A380s. Their aircraft are 12 year old vs. 6 years for the middle east ones. They don’t hire cabin personnel from the Counties they fly to (an imperialistic slight of hand). They renegotiated contracts with the unions in which quality of service isn’t an element at all. And unionization, when only 7% of the U.S. workforce is unionized, is not a driver of higher costs.

    They are in this situation due to their terribly short sighted management. Customers hate them. In a free market, no company where customers are treated with contempt would survive.

    Let the market — customers voting with their wallet — decide. Not some protectionist in Washington. We’re all better off because thankfully no protectionist in Sacramento is deciding that a Texan (or Georgian or Illinoisan) airline can’t fly there; the same applies at the Federal level.

    1. I stopped taking you seriously when you claimed that CA doesn’t have oil. Unfortunately for you, that was right at the start of your first paragraph.
      Seriously, why engage intellectually with someone who can’t even get the very basic facts leading up to his presumed argument right?

    2. California actually has almost as much oil as Texas. Texas does not subsidize its carriers in any way.

      Try researching your facts before you spout out garbage.

    3. Hear. Hear.

      Red herrings about limo service, and free hotels don’t help the argument for the US Carriers. Nobody chooses Qatar so they can stay in a free hotel overnight in the middle of the desert so they are coerced into visiting Doha for a few hours.

      UA/DL/AA all just turned good profits. There’s nothing stopping them from upgrading their soft product across the board, but they choose to do the exact opposite. They ate up their domestic competitors. They’re cutting legroom. They’re cutting seat-width. They’re cutting award availability. They’re cutting loyalty programs themselves. They’re cutting flight frequencies. They’re cutting wages.

      Their argument reminds me of the exact argument that Taxi companies make against Uber and Lyft. They’re more than happy to take payouts from the government, strangle their customers, and screw over their employees when everyone has no other choice. But god forbid a competitor comes in with a better approach. Instead of competing, they’d rather complain to the government than respond to their customers.

    4. The US carriers don’t have A380 because they’ve concluded that it would be impossible to make a profit with them. The US carriers need to make a profit. Virtually all A380 flying airlines are either completely or partially state-owned. In the words of one US CEO, “we’ve got some of the best bean-counters in the business and we can’t make money with the A380”.

      1. …and you are wrong about Uber as well. The traditional taxi/limos are regulated to higher safety standards and have higher costs than Uber because someone was injured or killed. Virtually every safety regulation is in place because of a previous accident. Other regulations, such as how many cabs can be in a certain area have been implemented due to problems found over the last 100 years. Uber skirts these rules and regulations and therefore has lower costs. That doesn’t mean its a good thing.

      2. Actually, only 5 of the 13 A380 operators are state-owned, but the point still stands. What’s telling is that, at least to my knowledge, none of the privately-owned operators have placed any additional A380 orders or even exercised options after getting them in service. I believe the head of BA recently said they’ve been quite happy with the performance of their new A380s, but when asked if he planned to purchase more he flatly replied “No”.

        To say the A380 if an efficient aircraft is misleading. It actually sucks up an amazing amount of fuel, so it’s only efficient when it’s full. Even then, on a per-seat basis, it’s probably not much better than a 777 on long-haul flights. On short- to medium-haul, it’s probably worse than the 777 or A330 (the Airbus and Boeing fanboys can debate these things till the cows come home).

        What that means, effectively, is that the A380 is only profitable if you can fill it, and that’s only possible on certain heavy trunk routes or to airports with limited capacity like LHR. The US airlines have decided (quite rightly I think) that there are no routes on which they can operate them profitably.

  2. So if I understand you correctly, by your reasoning, you will stop purchasing goods from China because the manufacturing processes there create cheaper conditions than in the US and thus are unfair?

    1. David – You do not understand me correctly. I’m saying that people will not pay more to buy something from the US if they can get the same thing cheaper from the Middle East. So US carriers should not be trying to match what the Middle East carriers are doing from a product and service basis. They should focus on what people really want and are willing to pay for.

      1. So you think people don’t want better service from the crappy US carriers? As noted above they’ve merged to the extent that there’s little domestic competition so it’s a race to the bottom. Cut, cut, cut. Force more pax into the same amount of space. Treat your employees like crap who in turn treat your customers like crap. Add a fee for everything. It’s all about providing dividends to shareholders.

        Of course they should be trying to match what the best carriers provide. I avoid US airlines if at all possible when I am flying abroad. The big Asian and European carriers also provide much better service and generally better products. Don’t they get support from their governments as well? Why no outcry from the US carriers against them?

        1. RakSiam – Once again, that’s not what I’m saying. I’m saying US carriers should not match exactly what the Middle East carriers are doing because they’ll have to charge a lot more and people won’t want to pay it. As I’ve already said several times, the US carriers are investing in improving the experience but they’re doing it in ways that people are willing to pay for the improvement. That’s the right way to approach this. Yes, US carriers should be improving the experience but they should not be trying to provide the same level of service as Middle East carriers that have far lower cost bases and less need to profit.

          1. Who is clamoring for the US Carriers to “match” the ME3?

            Coming within a football field would be nice. Improving the soft product would go the furthest, and would be the cheapest major improvement.

            Even compared to Euro competitors, our product is trash.

            When’s the last time you flew on a 45 minute flight in the US in F, and received anything more than a 49c pack of snack mix and a glass of equally cheap wine? My last similar flight in Europe gave me a full breakfast.

            The straw man that they should be providing the “same level of service as the ME carriers” is disingenuous. Most anyone would be ecstatic with them even attempting to match what Euro carriers do.

            No one expects them to match the ME3, even if that’s what the US3 would have you believe.

            1. Jon – Well if nobody is clamoring for them to equal the Middle East carriers, then they should be cheering the billions of dollars that the carriers are pouring into improving the product. There have been big investments all around in areas where people are willing to pay for a better experience. But full breakfast on a 45 minute flight? Not worth it. European carriers are bleeding on their short haul flying. Nobody should be trying to replicate that.

  3. What is the point of having a CEO that makes millions if she cannot spell a long term plan to attract the business clients that are defecting to other carriers? The ME 3 lack transparency in not presenting certified financial statements. US carriers have alienated the high end business client by charging more money for a product that lacks consistency in the air and ground services. Fly AA international F out of LAX and experience a much different lounge than DFW or MIA.

    European business class flyers notice the lack of vintage award winning wines, crew that is multilingual, IFE with extensive international selections or enough aircraft in the fleet manufactured this century.

    Unless you can name which university teaches the current model of US carriers operations is a winning formula, your essay sounds highly opinionated. The fact is people no longer associate US airlines with quality. The fare for their services has to reflect the lost grounds in perception.

    1. It’s not the US carriers fault that they’ve alienated you, of course. It’s everyone else’s fault. Their Their FA’s. Their Pilots. Their Ground Crews. Their Passengers. Their Government. Their ME3 Partners.

      But NOT their management. DEFINITELY not their management!

      If UA/AA/DL were so scared of the ME3, why do they all have agreements with them for award redemption/earning (and in AA’s case, full alliance benefits)?

  4. The point of CF’s argument is this, a private airline can’t compete with an airline whose owner is a government with limitless pockets and no intention to make profits. Nor should they.

    The point isn’t to question whether the ME3 airlines have a better product at a cheaper price, they obviously do in most cases.

    Any government can subsidise its airlines to its heart’s content, that’s their prerogative. But that serious distortion in competition means they don’t get the benefits of Open Skies into the world’s largest aviation market. They can’t have it both ways.

      1. And US airlines have cost benefits over most EU carriers. So… open skies would go away there under similar logic

    1. US carriers made a lot of money last year. They need to spend that wisely to be competitive.

      Islamic finance does not allow loans, so Qatar CEO is correct that the money pumped into them is equity.

      No 5 star Skytrax US Airline. I wonder why…l

      Let the Asian and Middle East airlines serve US domestic so that More Americans can understand why US carriers are so far behind.

      1. Not even a 4 star Skytrax airline from the U.S. (except JetBlue but they don’t count for long haul purposes). DL, UA and AA only manage 3 stars along with the likes of Aeroflot of Russia and Aeromexico. Cathay Pacific – Skytrax World Airline of the Year 2014 – is 100% private rendering the U.S. legacy carriers’ arguments void. BA, Lufthansa, Qantas etc etc all 100% private and offer a far superior service to U.S. carriers… There is no excuse. If you look on UA’s investor page all you see is highlights like “$x billions in profits declared”. Again there is no excuse for them to be so crap.

  5. While I completely subscribe to your argument about the structural inequalities that benefit ME carriers relative to US carriers, as someone who almost always flies in economy class, I must say I haven’t seen that many tangible differences between US and ME carriers’ economy product (with the exception that ME carriers’ IFEs actually have movies that I want to watch). The seats, by and large, are the same width; the same goes with legroom.

    That said, unless something changes dramatically, I will continue to prefer a two-stop 30 hour international itinerary to fly with a ME carrier (over a one-stop 18 hour itinerary with a US carrier) because of differences in the on-board experience. It is the little things, one example being:

    – QR and EK leave bottles of water out in the galley for passengers to help themselves at any time during the flight – there’s no need to wait for the cabin crews to make their rounds before you can hydrate
    – To those who will respond to my above point by saying “that’s what the FA call button is for,” my experience on US carriers is that the cabin crew treats FA calls as emergencies and/or annoyances, and more often that not, what you get is an extremely annoyed response to “can I please have some water?” I believe this is an issue that was raised in a CF trip report on EK from a couple of years ago.

    I completely subscribe to the notion that cabin crew are safety/contingency personnel first, and service personnel second – and I really don’t think that, as I flier, I ask a lot of the flights I am on. Plus, I have trouble imagining how such differences in services (bringing on board a few more bottles of water) will cost the airlines significantly more.

    1. Having flown four times on Etihad 777s with 10-across seating and numerous times on Delta 777s with 9-across seating, it is not true that the economy products are comparable — Etihad’s product is far worse. And it’s not just the width. In their effort to cram as many seats in as possible, Etihad has no passages (even galleys) to pass between aisles except at the very back of the plane, which makes it difficult to go for a walk or get to the lav when there’s anyone else standing in the aisle, let alone a service cart. And Delta 777s have excellent movie selection too, by the way.

      Delta also leaves bottles of water and a mini self-serve snack area out for coach passengers, at least on LAX-SYD (the route I’ve flown often). It’s in the starboard side mid-ship cart in front of seat 44F, as well as all the way in the back.

      1. Thanks for your comment. I definitely agree with your point that 10-abreast seating is much less desirable than 9-abreast seating on a 777 (one reason I’d rather fly QR [9] over EK [10] if their prices were comparable). And on my last flight on EK, I remember feeling sorry for the cabin crews on a couple of occasions because the service carts kept bumping into armrests, feet, bag straps, etc.

        I’ve never flown Etihad, so I can’t comment on whether Etihad has a cabin layout issue vis-a-vis Emirates.

        That said, I suppose that the 9 vs. 10 abreast layout probably bothers me less than other people (I’m pretty slender). I didn’t mean to imply that ME carriers’ economy classes were comparable to US carriers; just that the differences aren’t enough to sway me to pick one over the one based simply on the quality/glitziness of the seats, IFE technology, etc. In other words, my choice is dictated by whichever airline can provide me with consistently better-quality service.

  6. It is not unlike when people complain about American airports; do you really want to pay whatever ridiculous cost that Dubai and other’s are putting down for their giant white whales of an airport? People would have a heart attack if they saw the price tags that would have to be taken out of tax coffers. We have enough of a ridiculous edifice complex in the country that we certainly don’t need to ape the silliness going on overseas.

    1. We have enough of a ridiculous edifice complex in the country that we certainly don’t need to ape the silliness going on overseas.

      Sean S,

      That was the best line I have read here in a while & being a psych student in college, I can appreciate it all the more.

    2. In fairness, the costs of those white whales is a lot lower overseas. Take Dubai’s new airport, for example. The entire Dubai World Central complex (including the world’s largest airport plus residential, commercial, and port facilities) is guesstimated at $32 billion. The cost to add a single runway to Heathrow – $27 billion.

      How is that possible? Well, the acquisition cost for the vast expanse of barren sand DWC is built on was probably nil, and most of the construction work is done by imported labour from India and Asia who are paid a pittance.

      1. I agree, that certainly in their low cost environment building these places and staffing them is dirt cheap. I can’t remember which airport it is that has a whole floor dedicated to nothing but First Class passengers, including luxury shops and different restaurants. No one would think that was a viable plan at an airport here where non-airline revenues are so essential to keeping themselves afloat.

        And again, like Cranky himself said, no one complaining here is going to actually cough up the money, either through their local tax dollars or through increased fee’s, to see such luxury. Don’t get me wrong, I love going overseas and seeing some of these large scale “let’s put us on the map” projects, but I would hate to be the one footing the bill.

  7. I have to agree with Cranky. It is essential that the three US legacy carriers improve their service and product to a degree where it feels at least partially competitive with the three ME airlines. And all three have done so and continue to do so. I agree that DL is farthest ahead (as they started the earliest).

    BA, AF, LH, IB specifically have suffered quite a bit, and continue to do so because of those dreaded unions. Europe has a long legacy of wanting to protect its workforce from profit driven economic forces and this is both admirable but also – sadly perhaps – impossible in today’s global economy.

    In the end I think that the action the US airlines are taking is – at the moment – mostly preemptive. They have not (yet) lost a ton of paying PAX to the ME3. They have seen however what it has done to the EU based legacy carriers, who have lost massive amounts of passengers traveling East/South. West is already happening as well, but not yet from the main hubs LHR/FRA/GDC. It could happen though, as Milan – JFK is demonstrating.

    The only way to compete is to offer a similar product at a similar price, but in order to be able to offer that, BA/AF/LH/IB would have to move their operating base to Dublin and recruit their crews in the Far East. Wait… that hasn’t worked to date either…

    Oh well, another day, another strike to protect what is nice to have but impossible to maintain in the global economy.

    1. Agreed. This is a pre-emptive strike against fifth freedom flights like MXP-JFK. The US/EU carriers need to protect their trans-Atlantic routes because that’s where they make a big chunk of their money.

  8. If the US airlines(especially United) follow the Middle East scheme…newer planes, better quality ground and air service, then more passengers will come back to the US airlines. I, however, doubt it. To borrow Sarah Palin’s analogy…It’s like putting lipstick on a pig.

    1. You obviously don’t understand cranky’s point at all. Airlines have to invest in things people are willing to pay. They are all investing in newer planes (AA is getting a new airplane a week) better on board hard product and improved lounges but they have to allocate their resources in things that make sense economically. Everyone complains about crappy service but they all flock to Spirit and Ryanair because they have the cheapest fares. Doesn’t quoting Sarah Palin automatically make your argument weaker no matter what it is?

  9. Anyone who thinks unions are looking out for anyone other than the union executives is fooling themselves. You want proof? Detroit, Chicago, etc. etc.

    1. Could you explain this further? I’ve had perfectly adequate experiences flying through ORD and DTW recently, and, given that a large percentage of the ground personnel there are non-union, I’m not quite sure how it wouid prove your point anyway.

  10. We’re talking about global aviation here. Not all countries are same and so we need to accept the different rules and regulations across the countries.

    Labor rules:
    Except for high end technical products and perishable goods, almost everything Americans use is NOT Made in USA. BPO industry is thriving in Philippines and India. Why?? Residents in developed countries have higher cost of living. Labor in Middle East is mainly migrant labor from Indian subcontinent and SE Asia. These laborers earn better and live in much more than conditions than what they might get at home. Many of them are ready to work for 16 hour shifts 6 days a week if their bosses allow.

    Tax rules:
    US firms don’t object the difference in the taxes between USA and Ireland, Netherlands, Cayman Islands and many other tax havens. For that matter even Delaware. Why??

    Airport regulations:
    Why allow development near the airports and on the flight paths? Most airports up came much before the neighborhoods that are now protesting against 24 hour airport operations in US & Europe.

    Subsidies:
    The Middle Eastern royal families are building their future businesses. This will be their main business once their oil wells dry up. As promoters of a private business, they can pump in any amount of money they like and are not accountable to any third party.

    Inequality and change is permanent. Accept that.

    1. These laborers earn better and live in much more than conditions than what they might get at home. Many of them are ready to work for 16 hour shifts 6 days a week if their bosses allow.

      Surprisingly no one has informed human rights groups (http://www.hrw.org/news/2014/01/21/qatar-serious-migrant-worker-abuses). Nor evidently the workers themselves (http://www.huffingtonpost.com/james-dorsey/likely-qatar-deportation-of-striking-workers-raises-concerns_b_6239440.html). Or you know the massive public relations outcry about the death toll of constructing the World Cup stadia. Simply repeating statements from a Thomas Friedman column doesn’t make it so.

      Inequality and change is permanent. Accept that.

      Nope. That may be how you are able to sleep at night, but certainly not all of us.

      1. I work in the oil industry and have have seen the quality of life of laborers in India, Middle East and USA. I have spent a couple of nights at the labor camps in India and Middle East. They are similar, but the pay is much better in Middle East compared to the Indian subcontinent.

        The value of life is cheap, rates of accidents are high, human rights are non existent. Why don’t we Americans think about the human rights of laborers in China? (http://en.wikipedia.org/wiki/Foxconn_suicides) This is just the tip of the iceberg.

        It was difficult for me to sleep at the labor camps, much more difficult there after at hotels and homes. But what have we done to uplift them? My 120k income just allows me to overfill up my 2 check in bags with old books, clothes, caps, shoes, laptops etc. for the laborers and carry my stuff in cabin bag on my frequent 2-3 day business trips from US to India.

  11. I still don’t see where the US carriers are losing much business on route’s to the middle east. In most cases they don’t even fly there so passengers are left with the choice of flying with one of the three middle eastern airlines or making a connection somewhere to another foreign airline so they are losing out no matter which way they go. As far as 5th freedom rights, there was a time when Pan Am and TWA did it all of the time and there were few complaints, it was all a matter of convenience and providing service to countries that would otherwise be under served. Besides which those rights are provided by the countries in question and probably on a case by case basis so if the US carriers want to provide them then they need to negotiate with the concerned governments for the same rights that are provided to other airlines. It’s not like there asking for 5th freedom within the US. I think we all know that isn’t going to happen anytime soon although in some cases it might be a good idea.

  12. U.S. carriers are never at the top of any list for serivce like SQ/CX are over the Pacific, but you don’t see U.S. carriers complaining about them. Is it because things are more equal over the Pacific with fares and carriers not being support by their governments?

    As you said, work rules in US/Europe will never match the Middle East, so airlines are just going to have to suck it up and deal with it. The U.S. government isn’t really going to do anything since they can’t tick off UAE/Qatar and risk being able to use those countries for military bases and assistance in fighting terror groups.

    1. David SF – I think it’s primarily that they don’t receive massive subsidies. Singapore is a good example. It’s an airline that offers tremendous service, but labor is cheap and labor rules are much more flexible. Singapore can force flight attendants out very easily and the airline has done that for years. But the airline has created a product that people are willing to pay for and it’s a profitable airline (usually). So while Singapore has a structural cost advantage, it’s not one that requires subsidies for success.

  13. The US airlines should not be trying to compete on product with the Middle Eastern ones.

    Although US airlines have a BETTER product than many Middle Eastern airlines (Kuwait comes to mind) and don’t forget that even the 3 the US airlines complain about (Etihad, Emirates, Qatar) aren’t together fully flat in business class.

    But that doesn’t mean they shouldn’t shut up about subsidies.

    * Because they themselves are hugely subsidized (Delta’s fuel tax credits and refinery tax credits, government payments for access to aircraft in the event of wartime, etc)
    * Because their own start was hugely subsidized (US Post Office was the largest customer, and the Postmaster General drew up which carriers operated which routes.. American’s first major aircraft order was subsidized by the Reconstruction finance corporation)
    * They aren’t concerned with subsidies per se, they are concerned with competition. They are happy with other state subsidized airlines, just not those that are driving down the cost of travel to consumers.

    It’s a cynical play to use government as a tool to protect themselves from competition they deem unfair. And it would hurt consumers as well as international relations to act here.

    1. You’re talking about pocket change here, ME airlines are receiving $40BILLION worth of subsidies. Nobody is arguing against competition but with subsidies this high then it’s not a fair competition at all

      1. Pocket change?

        – The $40B number is made up
        – In any case it is not per year but cumulative
        – The subsidy alone for US airlines making aircraft available to the government has been as much as $2B in a year

        And as for how the US government shaped the industry–

        In the early days of US civil aviation the largest airline customer was the federal government in the form of the US Postal Service.

        The 1925 Kelly Act authorized the Postal Service to contract with private airlines to carry the mail. That led to airlines received most of their revenue carrying mail. Often priced to the customer by the piece regardless of weight, with the government charged for weight, airlines were known to mail bricks and other large objects to themselves in other cities to pump up their revenue.

        The 1930 Air Mail Act changed how mail was priced and gave broad contracting powers to the Postmaster General. The Postmaster used this power to consolidate contracts under three major airlines, forcing many airlines out of business. This came to fruition out of a 1930 meeting that became known as the ‘Spoils Conference’.

        The government had dictated which airlines would survive and prosper, and awarded contracts to airlines that hadn’t been the lowest bidder. When the story of what transpired finally came out, it was a scandal that led to the cancellation of contracts and to the Roosevelt administration enlisting the Air Force to carry mail. They weren’t equipped to do this.

        Accidents and deaths followed the Air Force takeover of air mail, and contracts were finally returned to the private sector. None of the incumbent carriers were permitted to carry mail, so airlines changed their names. None of the executives involved earlier could run airlines obtaining postal contracts and so leadership was jettisoned from the airlines. United and Boeing were broken up into separate companies.

  14. The issue here is not that US airlines cannot compete with ME airlines on a product basis. They certainly could. However the clear issue is that US airlines CANNOT compete on a product basis and maintain competitive pricing. US airlines do not have the government subsidizing their losses and keeping them in business so they must generate enough revenue to cover the costs of an improved product. The ME airlines do not have that responsibility. Their operations are funded by the government and can “successfully” operate at a net loss. US airlines cannot succeed, nor adequately compete, against an airline with that capability. A US airline that operates at a loss consistently is an airline that goes bankrupt.

    ME Airline operates at a loss: Nice big government check!
    US Airline operates at a loss: Bankrupt…

    If the US government poured billions into United every year, then United would quickly be able to offer better products at lower fares than Delta or American. They would take market share and, despite operating at a net loss, could drive Delta, American, and many LCCs into bankruptcy. United wouldn’t have to worry about profits or revenues or jobs or success, as every other company in a free market does.

    This presents an unfair trade advantage for ME carriers over the US carriers. We wouldn’t let it happen with US carriers. Why should it be any different when it’s an ME carrier? To play on the same field, you should play by the same rules.

    1. Unless, you know, the airline files for Chapter 11 and wipes a lot of those debts away and starts again – like, ah, yes, all three big carriers have done. How is that not a “subsidy” that’s legally-sanctioned and enacted by our government in the form of so-called “bankruptcy laws” ?

      Set aside the historical subsidies in aviation. It’s like being given a head-start on the first lap of a race and then saying it’s unfair for the next racer to be given a head-start on their first lap because you have to run your second lap without one.

      1. No no. We can’t talk about the fact that since 2001, US/AA has now gone through 4 bankruptcies to readjust to unload their debts…

      2. Chapter 11 is a set of rules the banks and creditors are aware before they issue a loan to any business. NO taxpayer money is spent in Chapter 11 bankruptcy protection. This argument is bogus

        1. A subsidy need not be in the form of “taxpayer” money to be a subsidy; the US provides plenty of subsidies and pseudo-subsidies in the form of “rules.” That would include the action of a government enacting laws by which private companies can legally wipe debts away while maintaining assets.

    2. John, the US HAS poured billions into the airlines to the tune of their recurrent “legal” bankruptcies which have effectively allowed them to be subsidised by their many creditors to the tune of billions! Many other countries do NOT allow this legalised rort!

      1. How is Chapter 11 a government subsidy? Aside from it being legal protection, there is no government responsibility. The government does not just “pick up the tab”. The creditors and employees often bear the costs of bankruptcy by renegotiating the terms of repayment and renegotiating wages and benefits, respectively. They PREFER this over Chapter 7 liquidation, in which creditors most often would receive less repayment and employees would lose their jobs entirely. If there were no faith that the company could emerge profitable after restructure then there would be no further investment in the company and there would eventually be Chapter 7 bankruptcy, in which the company would be forced to liquidate. In some airline cases, creditors were made whole after bankruptcy and actually made no financial concessions.

        On the other hand, ME airlines aren’t accountable to creditors. Their “creditor” is the government, which gives out “loans” with no requirement of repayment. That is just a government subsidy, or as you put it, an annual bankruptcy? Show me one airline in the US that has such a benevolent investor that would allow annual bankruptcy yet continue to pump billions into the company year after year.

        1. The Pension Benefit Guaranty Corporation has picked up the tab of pension obligations of bankrupt airlines. The PBGC isn’t funded out of general taxpayer revenues, but it is the government picking up the tab.

          Most if not all of the surviving legacy airlines that have been through Chapter 11 did so mostly voluntarily to shed themselves of contracts. American was explicit about this, having $4.1 billion in cash on hand when they went “bankrupt”. According to Time, “its cash on hand along with cash being generated by its operations was more than enough to continue to pay off vendors and business partners on time and in full”). So yes, creditors prefer Chapter 11 to Chapter 7, but that hasn’t been the choice for most US airlines.

          1. You’re contradicting yourself on your own point! “The PBGC isn’t funded out of general taxpayer revenues, but it is the government picking up the tab”. If it’s not funded by taxpayer revenues how is the government picking up the tab? Regardless we’re talking about $40B worth of subsidies here. The number is huge

            1. The fact that it’s not funded by general taxpayer revenues doesn’t mean it’s not the government. The TSA isn’t funded by general taxpayer revenues either (it’s funded by fees on airline tickets), but it’s very much the government.

              But I agree with your larger point that the subsidies the US airlines are currently receiving are peanuts compared to those Qatar and Etihad are currently receiving.

          2. Alex – The PBGC is funded by the very companies that use it. It’s an insurance, effectively, and the companies with defined benefit plans have to pay fees into it. Regardless of who runs it, the program is funded by the companies themselves and not by the government.

  15. Why fly UAL Business Class or for that matter 1st Class. UAL’s Business has EIGHT(8) across seating with some of the seats facing backward. Their supposedly updated 1st class seats. especially on the 747-400 have little to no privacy. UAL’s 1st class service can barely compete with othe airlines Business Class Product UAL lags far behind both Delta and American in Business class and 1st class comfort and far behind Qatar, Ethiad, and Emirates. Emirates would do much better if they belonged to an Airline Alliance.

  16. The argument from so many politicians and businessmen is for less regulation yet, it seems, that only applies when it benefits that politician (in the form of votes) or that businessman (in the form of higher profits.) As soon as a deregulated environment inhibits either the vote count or the profit margin, then it’s bad, bad, bad. It’s only been a bit more than a generation ago that the airlines rallied behind Alfred Kahn’s decision to deregulate the airline industry, eschewing fixed fares and allotted routes for the open market that a capitalist society is predicated on. “Let the market decide where we fly and how much we charge” was the new mantra and, while fares have definitely not kept pace with inflation – and, in some cases/markets, are actually lower when adjusted for inflation – it cannot be argued that service levels have improved or that the flying public is well-served at its closest airport. BUT, the airlines are doing better than they ever have, so the marketplace is working – for them, if no one else. Now, the big, bad ME3 are flooding the global community with a better product at, oft-times, lower fares – and the same cheerleaders for deregulation are crying fowl. Truly, the pre-deregulation environment of US aviation was nothing if not government-subsidized (under-performing carriers were given prime route authorities to increase revenue, higher airfares were routinely approved through the largesse of the government, and critically-ill airlines were simply merged with other carriers – all with the CAB’s blessing and, often, at their command.) So, while today’s multi-merged carriers claim to be the very definition of the ethical maintenance of a market-based system, their roots and success can be traced to a system that benefited them domestically and internationally – much as we see with Etihad, Qatar and Emirates. To the US3, I would say: Calm down. The marketplace will find its balance and, in the end, consumers will benefit and everyone will be happy. That is, after all, what you tell domestic consumers every time you close a station, reduce mainline flying and charge ancillary fees.

  17. Brett – I invite you to visit your lovely neighbour to the north and then report back and share with us the delights of government interference in the commercial aviation industry when premised entirely on double-standards. If you maintain this position, then by all means, please take Transport Canada, et. al. back home with you. You can also take the diplomatic war with the UAE back with you; that is, if you can afford airfare to go anywhere.

    What you’ve done here is close your eyes (ignorantly or wilfully) and plopped yourself into 2015 on the time and space continuum and then “analyzed” the industry: “WHAT AN OUTRAGE!” Trouble is: we don’t live in a vacuum, and it’s an argument that completely disregards historical context because that context is damning to the argument that is “garbage”.

  18. Protectionism stifles competition. The U.S. carriers need to grow up. Why would I pay the same or more for an inferior product? Your argument is that the U.S. flying public should pay more, get less and be supportive of companies who can not worthy competitors for their USD.

    Moron-why would anyone buy your services.

  19. US airlines rely on the subsidies for Boeing aircraft which totaled about 9 million last year. Without this they could not afford new Boeing aircraft.

    i still don’t get the appeal of flat seats. But, that’s probably because I grew up on Greyhound’s reclining seats.

  20. CF,

    How do taxes on fuel, labor, revenue, and tickets compare from the US to the ME3? How is the tremendous cost of the new mega airports ($50B USD at least that I count) there being funded compared to infrastructure investments here? Are PFCs or the airlines themselves funding the new airports in DOH and DWC, and the new terminals at AUH and DXB? Are such fees comparable in scope to what SEA wants airlines to pay for the new international facility, for example? I have a suspicion that US carriers are taxed much more heavily, and are expected to bear a bunch higher burden of infrastructure development (which consequently is lower overall), than are the ME3. If that’s the case then I can understand the argument for protectionism. If the government imposes an unavoidable burden on our airlines which is substantially greater than other countries do on theirs, and as a result ours are defeated on their home turf by them, then our government shares some culpability in that defeat.

    1. Eric C – The airlines do certainly pay some (low) user fees in the Middle East, but they are most certainly not having to pay the entire cost for airport projects as is the case in the US. Further, the user fees in the Middle East are often only imposed upon local passengers. So anyone who flies to Dubai will pay the fee. But anyone who connects through Dubai won’t. That kind of structure makes it easier for Middle East carriers to build their hubs without needing to fund infrastructure except on the small local passenger group.

  21. I’m pretty surprised at the number of comments here that completely fail to understand the point I’m trying to make. This post isn’t about whether subsidies are good or bad. It’s specifically talking about the argument that US carriers should elevate their game to match Middle East product and service standards. They should not because it won’t work.

    You like subsidies and want to fly a Middle East carrier? Go for it. But are you going to pay more money to get the same product delivered by a US carrier? No. So the US carriers would be stupid to try to emulate the Middle East carriers across the board.

    Of course, the US carriers should be investing where people are willing to pay, and they’re doing just that. There’s no question they’re behind. They’ve spent the last 15 years trying to stay afloat. Investing in the product wasn’t an option and things have deteriorated. But now, US carriers are spending billions of dollars upgrading the experience where it matters most. That’s how they should be competing.

    You want to argue about who subsidizes what and how much? Go ahead, but it’s irrelevant to the topic of this particular post. Save that for another discussion.

      1. Olamide – Well, I might get into that in another post. In short, I don’t consider it a government subsidy. There is no government money going into the bankruptcy process. Sure, the rules allow the airlines to restructure, but if those rules didn’t exist, then you’d just have new companies being born out of the ashes of the old one. (This is common in many other countries.) So if anything, airlines in the US would likely have lower costs and be more competitive if bankruptcy weren’t allowed. Bankruptcy doesn’t help airlines be more competitive. It helps management teams stay in control. (Though with American and US Airways, that was not what happened the last two times.)

    1. But can US3 fly with only Premium Economy, Business & First? The bulk will always remain Economy & Cargo. They need to do something to attract the price sensitive Economy passengers also.

      1. Gary – The US carriers are doing a ton to attract the price sensitive traveler… they’re trying to keep fares lower. Yes, that means slimline seats and all that, but if you’re price sensitive, then you’re getting what you want. For those who aren’t, you can pay a little more and sit in an economy plus-style section on US carriers. You get what you’re willing to pay for.

        1. I would prefer a 1 stop 20 hour flight on ME3 with nice food, good movies, newer aircrafts, 10 abreast in Y than flying 2 stop 19 hour flight on US3 with equally nice but smaller serving of food, some classic movies, older but well maintained aircrafts and 9 abreast. I could save 1 hour but would have to pay $100+ more.

    2. If US Carriers were investing where people are willing to pay, they’d INCREASE the number of available products (ie SKU’s). Not cut-and-gut them.
      US Carriers are gutting First class, or cut it altogether.
      US Carriers are reducing or not offering extra-legroom seats in Y on long-hauls.
      US Carriers refuse to even consider a Y+ product.
      US Carriers are gutting the FF programs as best they can.

      US Carriers have gone to great lengths to devalue their own products. And you’ll have us believe that the ME3 are at fault?

      1. Jon – I’m a little confused by your critique since US carriers offer more cabin options than the Middle East carriers. The Middle East carriers have First Class on only a portion of their fleets. (Emirates has more than others.) None of them offer a premium economy cabin nor do they offer an extra legroom section in coach. As for gutting frequent flier programs, the Middle East carriers aren’t exactly the most lucrative around either.

        1. CF – one must remember that none of the U.S. based carriers offer a premium economy either (not even the new Delta Comfort + is a true premium economy). What the U.S. carriers offer is economy with extra legroom, that’s it. True premium economy exists in airlines such as VS, BA, CX, NZ etc and the rest of the list compiled by Seatguru (and of course DL, AA and UA are not on that list) as they merely offer extra legroom and not a premium service.

          1. CNZ – Yes, and that’s what I said in another comment. But that still gets you more legroom than you’ll find on a Middle East carrier. If you want more legroom on one of them, you’re buying a business class ticket.

    3. So, are you proposing that the US airlines focus on protecting their bread and butter (domestic, transatlantic, some transpacific) since competing with the ME carriers is futile and the US airlines aren’t that invested there anyway?

      1. AW – Simple geography says that the US carriers aren’t going to win in markets like India, Africa, and to some extent Southeast Asia. All those arguments from US carriers saying that they would serve India so much more without the Middle East carriers are silly. That just sounds like those carriers are trying to make the harm seem more real than it is today. Yes, they can serve those places with their joint venture partners but it’ll likely involve more stops and longer flight times. Even on a competitive playing field, they’d have trouble winning that fight.

  22. As a person from coach I am sick of all those improvements and innovations in premium cabins, while the only innovations in coach seem to be slimmer seats, tighter pitch and less food to the amount of none. And I say this from the perspective of someone who on occasions flies US airlines and only once flew Emirates (this is not a matter of choice but logistics).

    But I don’t see that ME3 offer a real price advantage. It all depends on a route. When I used to compare prices for transatlantic tickets from Russia, Russian, European and US carriers were cheaper than ME3. With more or less the same service in coach I’d never pay more to an ME3, especially as I won’t get miles to a SkyTeam (or any other alliance) mileage program.

  23. Amen! The industry is littered with history of carriers that offered improved products but got zero revenue benefit. The idea that younger, prettier FAs and a nice meal in Y is all that the US carriers need to hoover back the traffic from the ME3 is idiotic. If product was so important, why is ueber fabulous SQ losing out to the definitively less amazing EK? Why do US/EU carriers still get higher average fares than the ME3? The EU/US carriers aren’t afraid they can’t compete with the ME3’s am-eye-zing food–they’re afraid of loads of cheap capacity. After all that’s all the ME3 are really doing–providing loads of cheap, reliable seats where there were few or none before. And there’s nothing wrong with that…people don’t pay more for product in those regions either! But they’ll complain just like their Western brethren:-D

  24. Excellent post; I both agree and disagree. I still do not know the right answers, but then I don’t play in the airlines’ sand box (no pun intended). What I do currently believe is this:
    1. Yes, the three principal Sand Box airlines (Emirates to a lesser degree) HAVE received substantial $billions in free or reduced capital funding.
    2. U.S. carriers also received some handsome hand-outs following 9/11, some paid back and some not.
    3. The Sand Box Airlines’ counter argument that our flag airframer (Starts with “B” not “A”, regularly pockets huge tax discounts from state and locals who wish to retain or develop local aerospace building. Does that trickle down to airlines’ operating costs? Of course it does!
    4. The general Personnel policies of the Big Three Sand Box Airlines are horrible and in a few cases essentially indentured servitude. U.S. Airlines likely would not, even if they could, and that certainly lowers the S.B. carrier’s costs.
    5. When it is far too late to change a ticket, you’re already on the airplane and pushed back, the S.B. carriers are going to win, about 95% of the time. Why?
    A. In most cases their hardware is *far* younger and far more comfortable.
    B. In even more cases, their ‘soft product,’ generally considered to be basic service, food, booze, and some measure of genuine concern for the sucker in that paid seat, is nearly always better. (With tiny apologies to the U.S. carrier that fly many of the same, long haul routes, your in-flight services suck and you obviously don’t give a damn.)

    Yes, I agree with many that Qatar’s mouthpiece-thug-CEO, Al Baker, is a jackass. I also agree that dollar-for-dollar (or Euro?), he delivers a far superior experience than do his U.S. competitors.
    At the end of any period, we cannot (will not) simply ban the Sand Box Boys from U.S. airports. The playing field needs to be leveled and I’m the first to admit that I do not know how to accomplish that. If the U.S. carriers’ services were a LOT better, my buying choices would become more difficult, and I’ll deal with it. Currently, those choices are not a challenge and the Box Boys usually win.

  25. A comment on just the following sentence in your post, CF: “The rules are the rules, and you can’t just fire people because they’re too old or too large or, incredibly, just too lazy to properly do the work.” Under virtually all, if not all, “rules,” (i.e., employment law and labor contracts in the commercial aviation industry), If an employee cannot properly (i.e., as prescribed by the employer) do the work (even with reasonable accommodation of his or her disability, if any), or if an employee does not properly do the work due to laziness, then that employee’s employment can be terminated. And if that termination is grieved or challenged under the law, it will be upheld if the applicable process works as it should.

    1. P.S. Two important addenda to my above comment: “employment law” in the comment should read “U.S. employment law,” and “labor contracts” should re “U.S. labor contracts.”

  26. the ME 3 and not sure about Turkish Airlines, but their crew’s work on contract’s and you don’t get old, high paid crew’s like you do with the U.S. carriers….their flight attendants aren’t old or high paid….they work their contract and when it’s up they go home unless it is renewed for a few more years….they don’t have the expense of high paid crew’s both in the cabin and cockpit…..pay will always be lower at the ME3 because nobody will reach 15-35 years seniority with the higher pay…..i know a lot of English people will fly with them for a few years then come home and try to get on with British Airways or Virgin….don’t know about other countries like France or Germany…..there will always be plenty of young and eager people wanting to be flight attendants or pilots because they want to see the world….they are young and don’t think about the pay….to them, it’s free travel, glamorous to a point, but aren’t in it to make a career like those with U.S. carriers….

    1. High Paid Employees? I don’t know what you have been sniffing, but with housing and other benefits, those poor, low wage, contracted ME-III crews are making more money, than my two kids working for UA and US

  27. All the whining and gnashing of teeth will do nothing but paint the “merger madness” US Carriers to look like crybabies. Just who is it that has solid gold, anti-trust protection as they merged with other bigs resulting in just four US Airlines and the ability to control seats and fares as a UNIT, unlike other carriers in large countries? Secondly, they’re fighting alone, BA deserted them and the Germans are doing the same thing. Of course the middle eastern three ME-III have their fingers in those pies too, as they do in the Land Down Under and soon all of East Asia. Without partners, the crybabies have few willing to listen outside an unsympathetic home country. Speaking of which, it’s gunna get worse before it gets better Tim Clark the irascible, Grand Poopah of the ME-III is now running AirBus for all intents and purposes. Grand Poopah Timmy owns most of the A380’s in active service and now he wants a re-do or he ain’t playing ball no mo. Timmy who claims he doesn’t like the 787, because Boeing only builds cattle cars, fill ’em up sardine style, not wants a neo-A350, built from the ground up like the 787 was, with new wings and a new cabin rather than re-doing the 330-340. So if he gets his way, AirBus may not survive and US carriers will have to take what AirBus-Tim Clark will allow them to have, or AirBus says NO WAY we aren’t putting another $15-20 Billion into designing a SuperJumbo that hasn’t had any new orders in 2014-2015, or starting over with a ground up 350.

  28. Truth is the U.S. carriers are just being wack. Ex. They still fly planes with one video screen per six rows, after all… (At least AA is *trying* to be in the game. I’ll credit them that.)

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