US Carriers Continue to Hammer on Middle East Subsidies While Europe Fractures

Emirates, Etihad, Government Regulation, Qatar Airways

I’m sure you’ve all just been dying to get an update on the US-Middle East airline fight, right? There’s little to discuss of substance, but if you’re looking for fireworks, nothing beats what’s happening across the Pond. The European carriers are really starting to take sides, and you won’t be surprised to see which airlines support which position.

Airlines Quit AEA

In the US, the fight slowly continues to move forward. Since my last post on this subject, the US carriers did get the Departments of State, Transportation, and Commerce to take a deeper look into the issue. A public comment period is now open, so feel free to have your say as the government decides whether or not to take action.

Meanwhile, Middle East carriers have been challenging US carriers to show proof of these alleged subsidies. The US carriers have now responded. If you feel like wasting an entire weekend, you can sift through the more than 1,000 pages of subsidy-proving documents that have now been posted. It’s just backing documents to support the claims that have already been made and nothing new.

The numbers may be there, but this is still going to be a long, uphill battle for the US carriers. So, let’s come back to that down the road. In the meantime, take a look at Europe where airlines are starting to take sides. It’s getting ugly. The Association for European Airlines (AEA) is a trade group representing European carriers not unlike Airlines For America (A4A) here in the US.

The AEA represents legacy carriers big and small within Europe. You won’t find easyJet or Ryanair as members, but you’ll find everything from Air Berlin to British Airways. Or, uh, I should say you used to be able to find that.

Air Berlin just quit the group, and nobody should be surprised. Other members of the group, notably Air France/KLM and Lufthansa Group, have been hostile toward the gulf carriers and want policymakers to tighten the screws, just as the big three in the US are asking. The AEA has generally followed that line of thinking. Money-losing Air Berlin, however, almost certainly wouldn’t exist if not for the continuous financial injections from Etihad, so there’s no doubt it supports its big brother. I imagine we’ll see the same from Alitalia, which is now another Etihad-supported zombie airline. But Air Berlin isn’t the first to make this move.

Last month, British Airways and Iberia (jointly owned by IAG) quit the AEA. Among the big 3 in Europe, IAG sees things very differently. Willie Walsh, CEO of IAG, has long been a supporter of letting the market decide what lives and what dies. And if the European airlines can’t compete, then that’s their problem. He has impressive results to show for it, even turning Iberia into an airline that isn’t drowning in a sea of red ink. Recently, Qatar Airways even took a 10 percent stake in IAG.

The AEA is falling apart and that’s because the airlines in Europe simply don’t agree on a way forward. In the US, you have that as well but it’s quieter. The big three are unified in their feelings that gulf carriers need to be restricted, and Southwest is likely ambivalent. The airlines that are most likely to go against the grain are smaller: JetBlue, Virgin America, and Alaska. In general, those airlines that a) benefit from gulf carrier traffic without being hurt by it, or b) are partially owned by a gulf carrier, are going to support open skies for all. That’s going to create big divides in the airline community, and we already see the battle lines forming.

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18 comments on “US Carriers Continue to Hammer on Middle East Subsidies While Europe Fractures

  1. Isn’t it interesting how Willy Walsh makes statements like that since BA is doing well. But if it was being crushed by the big three ME airlines, he would be wining just like the other “free market” propagandists do when things aren’t going the way they want .

    1. He wouldn’t.

      In fact you’ll recall that BA bitterly opposed Air France bail outs (BA wasn’t doing so great either); sorted out loss making Iberia without hand outs and has always been a champion of letting the market decide.

      The easiest thing for the U.S. to do is to admit that it is protectionist towards its own airlines, airlines which have done very nicely out of various tax breaks, Chapter 11 restructuring and cheap fuel. Reading reviews of airlines such as United, and it’s clear why pax are choosing alternatives.

  2. Its surprising the US carriers haven’t played on the labor angle. The Gulf carriers employ thousands of ground crew, who are mostly Asians, at very low wages and in less than salubrious living and working conditions compared to the US carriers, which have to pay US level wages and abide by civilized labor standards. If I’m not mistaken Gulf carrier flight attendants aren’t allowed to work past the age of 25 or be married or get pregnant and have to endure some of the most sexist labor practices on the planet. Google a news story about Qatar Airways flight attendants for more on that.

    Of course, the US carriers could provide better service but try getting people to pay for it. The vast majority of the traveling public selects airlines based solely on price. It could be argued, pretty successfully, that the Gulf carriers (some Asian ones too but no one is complaining about them), via their cost structure, have an advantage in that regard.

    This issue, to me, is a case of corporate giants duking it out in the political playing field using whatever tactics they think will help their cause. I fret over the thousands of people whose livelihoods depend on the outcome.

    1. “Its surprising the US carriers haven’t played on the labor angle.”

      Considering how much they pay starting pilots and ground crew contractors they are hardly angels when it comes to decent wages and working conditions. Here in Seattle Alaska is routinely in the news as the example of a business that continues to fight improvements in working conditions for both its employees and contracted employees. The sleeping baggage handler is opening a whole can of worms into the pay scale and working hours of those who are literally on the bottom and are typically immigrants from the same poor countries the gulf carriers are taking advantage of.

      1. Its not illegal for a foreigner to own a US based airline.

        It is illegal for an airline to be more than 25% (or is it 50%?) owned by non-US shareholders, to the point that the non-US shareholders have effective control over the airline. In theory this is to protect the US from having US based airplanes taken over by another country for war time use. (There is a program that if necessary the airlines provide planes to the military. Its one of those things they agree to to get government flight contracts.)

        IMHO, the intent is snazzy, but the execution is poor. Why not just require that a certain percentage of each fleet be within the US at any given time? Probably a bit tricker to work, but it more directly achieves the end goal.

  3. Unless the middle east countries are breaking known international laws why shouldn’t their countries be able to do what they want with airlines/companies in their country. Maybe Walsh is right, if you can’t keep up then get out. Don’t more people fly within the USA then fly out of the country everyday, so it’s not like the U.S. carriers have no market of people to still transport.

    The airlines are starting to think the only air travel on Planet Earth involves going via the middle east, but they need to open their eyes that via the M.E. is a small percentage of travel. And they should remember airlines like PanAm who was huge and known world wide, once you get to the top, the only way to go is down.

    1. By this line of thinking New York State should be able to provide discounted fuel to JetBlue so that they can undercut the foreign competitors from Texas, Illinois, and Georgia. JetBlue is headquartered in New York, so why shouldn’t NYS support their airline?

      Oh while we’re at it, I’m all for Seattle or perhaps SeaTac providing Alaska lots of free fuel and office space. SeaTac doesn’t need Delta.. (Although, I must admit I appreciate Delta buying lots of ads on public transit in Seattle.)

      Yup, just let the government subsidize carriers left and right!

      1. Why would Emirates get free or discounted fuel from their home country which doesn’t produce any oil?

        Having been directly involved in fuel sales in the Middle East and Southeast Asia I can say that the prices were no different than the prices you would see anywhere else in the world (adjusted for shipping). In fact most of the supply in these countries is coming from US and European refiners (although India is now playing a bigger role) and Exxon or Reliance isn’t going to sell jet fuel in the gulf at a discounted price when they can sell it at market rates everywhere else in the world.

        I would like to see/know where your information is coming from on these fuel subsidies?

  4. Assuming the US carriers allegations are correct, the only valid place to make an argument are the 5th freedom routes. All countries have advantages and disadvantages based on geography, legal framework, wages, etc so even with direct subsidies the gulf carriers should be allowed to fly to their home bases. However subsidized fifth freedom routes might be an issue worth bringing to the table.

  5. Subsidies exist all over the world. Many are not obvious such as the breaks given to Boeing so that their planes are more affordable. Services to many US airports are given tax breaks. The only folks not benefiting, as noted above, are beginning pilots and contracted workers.

  6. I have no sympathy for the three USA – AA, DL, UA carriers. Why are they “fighting” other airlines and governments; basically telling them how to run their airlines? Try offering service worth the prices you charge, like legroom for everybody, decent meals or snacks. Fair upgrading. Service with caring and knowledgeable ground staff and crew instead of frowns and acting like they’re doing every passenger a favor by allowing them to even step on their planes. Stop charging for things that were free for decades (5 inches of extra legroom), meals, baggage allowance plus, plus, plus. Would it occur to any one of them (or all of them) to go back to some of these suggestions ?? Guaranteed passengers would be banging down the doors to get on. Stop outsourcing, pay livable wages and benefits to employees that should be screened and interviewed properly (to weed out deadbeats, the uneducated and those who do not speak proper English !!). It’s not that complicated. Another thing about all American carriers is that they are so involved with social issues (parades, marches, charities, etc) that they are losing sight of what they are – RUN IT LIKE AN AIRLINE, NOT A SPONSOR FOR ALL KINDS OF CHARITIES AND SOCIAL ILLS. I’m constantly solicited on my job (I work for one of the three AA, DL, UA), to contribute either my time or money to charities, marches, picnics, events for all kinds of social problems, including signing a petition at http://www.openandfairskies.com. I didn’t join an airline to become a social worker !
    I can’t wait for this to play out. Could Qatar, Emirates and Etihad really be stupid enough to just let the US Government and other countries and airlines tell them how to run things clear across the world ??

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