Foreign Airlines Should Be Able to Fly Within the US and Lose Money if They Want

Government Regulation

There’s a fun-filled cycle of hate in the US airline industry that works in a specific way. First, something bad happens (legroom gets cut, traveler gets dragged off an airplane bleeding, person forced to pee in a cup, you name it). Then there are cries for airlines to stop being so mean. Finally, inevitably, people started putting out their own solutions; one of which is always that foreign airlines should be allowed to fly within the US. After a fair bit of negative news over the last month, we’ve reached the end of this cycle again. I’ve heard this a few times lately, most recently from Gary Leff at View from the Wing, and I agree that foreign airlines should be allowed to compete domestically… but not because it’s going to somehow improve customer service. It won’t.

For those who aren’t familiar with the government regulations determining what airlines can and can’t do, it’s probably important to explain that it’s exceedingly rare for foreign airlines to be able to fly within any one country. This is called “cabotage” and in the US, it is not allowed. In fact, US-based airlines may have no more than 25 percent of shares owned by a foreign entity before they’re considered to be foreign-owned and not permitted to fly domestically. Why? Oh, there are a host of weak reasons batted around, but it’s really just inertia with a healthy dose of protectionism added in.

What would happen if we opened the floodgates and allowed any foreign airline to come into the US? Would Etihad and Qatar bring their high levels of service along with low fares as is the case internationally? Only if they wanted to lose money doing it, and you know they wouldn’t be allowed to get subsidies from their home governments to support a domestic US operation like they can internationally.

One of the big advantages that these airlines have is their ability to deliver a better product at a lower cost, but many of those low costs would evaporate in a domestic operation. First, lower labor costs from a foreign workforce won’t be allowed within the US. Any airline that operates in the US would have to fly under US labor laws and obey minimum wage rules. I’d also imagine they wouldn’t be able to export labor from their home (or other) countries even if they were hired under US labor law. There’s been a tremendous uproar about airlines like Norwegian doing that for international flights today, and I don’t believe that’s something that would ever be allowed for domestic flying. The companies would also be unable to ban unions, as some can do in their home countries.

That eliminates a lot of the cost advantages these airlines enjoy, but it also kills some customer service “advantages.” There are a lot of reasons people can be fired in other countries that won’t fly in the US. Even if a foreign airline does try to legitimately fire people for providing poor service, it can’t get too aggressive or unionization will be right around the corner in a domestic operation. It’s a much more even playing field within one country.

But that’s ok, right? After all, Emirates could come in and provide generous legroom, great inflight entertainment, and people would flock to them. But wait, no they wouldn’t. That’s because for the vast majority of travelers, price and schedule rule. Travelers don’t want to admit this. They get angry at airlines for squeezing legroom but balk every time a fare goes up. So if you think Emirates could waltz into the US market and charge more on the vast majority of routes, then you’re nuts. Sure, it could work on a few routes here or there; big routes with a fair bit of premium demand might support it. But those routes are few and far between.

The best case scenario for a foreign airline coming into the US is to turn into something like JetBlue. But we already have JetBlue. We don’t need a foreign airline to come in to provide that level of service. If you live in Springfield or Dubuque or any of the smaller cities around the US, you’ll never have a chance in hell of seeing a foreign carrier come in.

Instead, you know what would happen? Mergers. If the US government allowed foreign airlines to fly domestically within the US without getting the same thing in return, then Lufthansa would buy United, IAG would buy American, etc. There would be a tremendous benefit to having a true merger instead of the joint ventures they have today, and these companies would likely jump on that option quickly. If the US government only allowed cabotage in exchange for the same in other markets, then you could see the reverse: United buying Lufthansa. This may actually end up being good for consumers, but it’s not going to deliver better service or more legroom. It will just mean a more seamless experience for travel around the world.

The simple reality is that most people in the US want a cheap fare, and the airlines are responding by cutting the base product in order to deliver. If foreign airlines came to the US, the high expectations for opulence would instantly result in disappointment. Or a whole lot of red ink. Or both. But go ahead and let them try… I’ll be happy to take advantage of the fare wars while they last.

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68 comments on “Foreign Airlines Should Be Able to Fly Within the US and Lose Money if They Want

  1. Why would huge mergers like this be good for customers?

    The US domestic market is already at the edge of having too few airlines to support robust competition. Opening the door for something similar at the international level doesn’t sound like a self-evidently good thing.

    1. That was my first question. Then I realized what site I was reading. It’s pretty clear he’s an advocate of the airlines and by extension, security for the employees-masquerading as a passenger/customer “advocate”. It’s a very clever and genius ruse actually. But the public has never benefited from mergers. He is right about everything else though: those same customers DO have unfair and unrealistic expectations. But I have yet to see any compelling argument from him that convinces me why fewer choices for the consumer are better. They aren’t. But they’re fabulous for airline profits and airline employee job security.

      1. I’m sorry, but your third sentence is nonsense to anyone who’s been following this blog for any appreciable amount of time.

        Cranky isn’t some discount Chris Elliott or Ralph Nader and he isn’t some reflexive labor/management apologist. He can call the US3 jackasses for connect pricing changes, call AA a jackass again for their new 737 layouts, criticize DL for ending their interline agreement with AA, post that UA has largely given up on LAX as a hub and question the recent wave of wage increases across the US industry.

        And yet the CEOs of the US4 plus other execs and media organizations from around the world hit him up for his opinions or to get posted on this blog because they respect his insights and know he isn’t beholden to a side in anyone’s stupid narrative.

    2. grichard – Well you can think about some of the issues with joint ventures. For example, different frequent flier programs with varying benefits (especially upgrade rules) can be frustrating, as can codeshare issues. It drives me up the wall that if I buy a United codeshare on Lufthansa in coach, I’m unable to purchase seat assignments. Yes, better tech could fix this, but just getting a single management on a single platform will solve most of the frustration.

      There’s also the potential network benefit. The airlines may cooperate in a common area, but that doesn’t mean that they’re optimizing connections together. With one airline and common management you can fix that. Of course, it all depends on the structure. The US airline structure is more about consolidation whereas the European structure is to have more independence between brands (though certainly not complete independence). Still, this is all theoretical discussion anyway.

      Oh, and Matt D – I’m not sure what blog you’re reading, but this is not a passenger/customer advocate blog. I take whatever side I think is right in any discussion. Having an airline background means there’s no question I side with airlines more often than any regular person with no industry knowledge. But that’s why people come here, to get a perspective that’s different from what general media gives.

    3. Well, all the international JVs are is 2+ airlines trying to coordinate their schedules (good for flyers) and prices (bad for flyers), which isn’t very different from what an airline does within itself.

  2. Another good thought provoking article.
    There are a number of valid economic reasons that explain US airlines’ generally lower level of customer service that are rooted in policy decisions that were made decades ago and which can’t be easily changed.
    Customer service at US airlines suffers because the US government is absolutely determined to force competition into US airline markets despite the capacity limitations of airports. Terminals are crowded, delays are far worse than in most other countries, and airlines have no choice but to push as much capacity through the system in order to maintain their market share against new entrant, lower cost carriers. Most other countries accept capacity limits at airports and impose slots – and then don’t bend on those limits – while the US resists slot controls and pushes for double digit market capacity shares for low cost carriers whether an airport can sustain additional flights or not. The US chose not to build a nationwide intercity rail system and relies on the car and airlines for intercity transportation– both of which require the US to build the infrastructure but private owners to provide the equipment. The US is simply too big and spread out (large population centers separated by 2500 miles) for surface transportation to work.
    Further, the US deregulated the domestic airline industry nearly 40 years ago without realizing that low cost carriers would siphon off the largest routes with the greatest profit potential and operate them on a point to point basis without realizing that the legacy carriers built global transportation systems that don’t work if competitors are allowed to compete in a subset of the largest, richest markets while expecting incumbent legacy carriers to continue to serve the entire US.
    Labor costs for airlines in the US are above average compared to comparable industries – and that is fine because US airlines are some of the most efficient in the world. But Emirates and other foreign airlines that rely on labor including flight attendants from third world countries simply wouldn’t survive if they had to pay US, not global, market rates for airline labor – some of which is highly skilled.
    The big 3 have adapted to the structural challenges which are the result of the US government decisions but other countries haven’t done the same things with their airlines and there is no assurance that foreign carrier models could work in the US.
    Foreign airlines aren’t permitted to subsidize international routes involving the US but that hasn’t stopped them from doing so according to the US global carriers. “you can’t fly here because you subsidize your own carriers” won’t influence the argument.
    The US has one of the largest domestic airline markets in the world. China is quickly gaining in numbers but the value of the US market is far larger. The EU market is perhaps comparable but since the EU is shrinking and the chances are high that there will be more countries leaving in time if not a full-fledged collapse of the EU, trading anything of long-term value would be foolish. The biggest reason to never allow foreign carriers, which gain their rights from their countries, is because the US would never gain a comparable benefit.
    And then there is the national defense and economic necessity argument. You don’t outsource key functions of any economy to foreigners; there is a growing realization that the US has lost so much manufacturing capacity that it is possible it cannot produce some of the things necessary for national defense if it became necessary to do so.
    No country regarding any industry gives away something that has deep value unless it can gain something in return. Whether one supports Trump or not, he is questioning the value of America’s trade relationships in ways that haven’t ever been done. Aviation is absolutely a key industry that falls under those types of relationships. And the US airline industry and its employees are very politically active and vocal. Consumer desires for lower prices simply can’t be used as the bottom line determinant of economic policy for a country.

  3. Maybe it’s just me, but I’ve flown most of those fancy foreign airlines (BA, LH, Swiss, Cathay, etc.) and their “domestic” products, which are exactly what we’d get here, are not really any better in my experience than UA, DL, AA, and WN. Sure, they’ll toss a small meal at you on shorter flights, but that’s never really impressed me. Does anyone really think Etihad is going to start flying an A380 between NY and MIA? Even if they could, I don’t think they will. Just my opinion.

    1. BA’s Euro Traveller, at least, is now worse than AA, DL, and UA (never mind B6, AS, VX, and WN). They now charge even for water on board, and their pitch (even in Club Europe) is 30″ — awfully tight. The only advantage of BA’s European coach product is that elites get lounge access on intra-Europe itineraries.

    2. Maybe it’s just me, but I’ve flown most of those fancy foreign airlines (BA, LH, Swiss, Cathay, etc.) and their “domestic” products, which are exactly what we’d get here, are not really any better in my experience than UA, DL, AA, and WN. Sure, they’ll toss a small meal at you on shorter flights, but that’s never really impressed me.

      Marshall, the crappy service of the legacy domestic carriers is not inspiring anybody (American or foreigner) to want to fly them, in particular one British man who flew Delta and United inside the United States and made two video reviews about his experiences-SHOCKING Delta Airlines Business Class experience (Delta One LAX-JFK), plus Why you shouldn’t fly United Airlines across America-I doubt that what you experienced was as bad as what he went through both times (check out the comments for both videos as well-the commenters want the same thing as well, most likely.)

      Now, I want you to look me, the British man, and most of the people (all Americans) who made the derisive comments about the legacy carriers’s crappy service in the eyes and try to convince us why the foreign carriers can’t and shouldn’t set up shop in the United States doing domestic routes instead of these now-bloated-with-way-too-much-money-and-crappy-service domestic carriers whose heydays are behind them.

  4. Cranky,

    You are off base on this one even though you do make some valid points.

    One of the biggest reasons you do not see foreign ownership of domestic airlines or foreign airlines flying domestically in the US is because of the Civil Reserve Air Fleet (CRAF).

    The Dept of Defense uses CRAF to augment the US Air Force to carry troops both in time of war and peace (See the Air Force fact sheet at the link below).

    http://www.af.mil/About-Us/Fact-Sheets/Display/Article/104583/civil-reserve-air-fleet/

    Imagine what would happen if either a domestic airline had foreign ownership or flew so much domestically that the US airlines had to shrink to maintain profitability. CRAF would be reduced because the airlines could not provide the planes or crews

    Even worse if the owners of an airline or an airline that had significant US domestic market share were one of the ME3.

    If there were a war in the Middle East (like that would happen :) ) That airline could elect to “sit that war out”.

    In my mind, that is NOT a weak reason!

    1. That program is a huge boondoggle/subsidy. It’s also voluntary for US airlines. It could be just as voluntary for US airlines majority-owned by a foreign carrier. It’s not necessary for the military but if ever deemed so there’s nothing to stop a legal process to secure foreign-owned aircraft.

      1. Keith – Couldn’t agree more with Gary on this one. CRAF isn’t a reason to block foreign ownership. There will still be domestic airlines after all this. Even if they were all foreign owned, it’s highly unlikely (I hope) we’d be at war with all of them. We could also seize property from them if needed, though I can’t imagine getting to that point either.

  5. I suspect the model that foreign airlines would be looking at is likely transcontinental flights feeding their own networks. Thus, Emirates might fly domestically from one side of the country, say LA to feed in passengers to its flights out of the country, say New York to Europe. Thus, they would cut those passengers from US carriers. Then, since they are going from LA to NY, why not collect some domestic passengers going the same way as well?

    Also, a small point. There’s a difference between a subsidy, and a company using its bigger capital to dominate a market. The former is anti-market, but the latter is market reality. US majors have no problem in using their big size to enter markets and squeeze out smaller companies. That’s not a subsidy. Nor is it a subsidy if ME carriers fo it.

    1. your point would be valid if you used Lufthansa or Japan Airlines or Gol as your example but the whole complaint against the ME3 is that they are being subsidized by their governments. Until the US government either debunks the argument that the US global 3 airlines are making, you logically have to consider it a possibility.
      And part of the reason why the US carriers fought Branson’s startup of Virgin America was because they believed he was more interested in building his brand in the US at the expense of profits. his ownership was capped at 25% and Virgin America ultimately was a poorly run business over its lifetime and was sold by investors who were focused on maximizing their profits.
      And allowing foreign carriers to compete because they would feed their own flights highlights the very same flaw that deregulation allowed – competitors skim off the largest and most profitable flights while expecting US legacy carriers to continue to serve small communities that are dependent on well-developed but costly hub and spoke systems.
      Governments simply have to make decisions that are in the interest of the whole, even if it means that some people don’t get everything they want. If allowing foreign carriers into the US domestic market results in there not being a 6th or 7th choice in major NYC markets but at the cost of service to lots of small and medium sized cities, the government has to say it isn’t worth allowing foreign carriers into the US.

      That is exactly the type of argument that is playing out regarding health care reform right now…. the health care system could be made less costly but at the cost of service to millions of Americans.

      1. Yes, it’s a possibility. My point was that Brett stated that the ME3 were subsidised, where as you point out, it’s only a possibility. Given the whining and moaning from US carriers over a very long time, and the considerable resources at their disposal, one would have thought if there were evidence of subsidy, that evidence would have come to light by now.

        The substantive point though was, yes, by the theory I suggested, foreign airlines would cherry pick at the best routes. If they did, that might make Brett’s challenge moot. If they aren’t going to challenge US airlines in the way Brett thinks, the outcomes are also likely to be not what he expects.

        1. Mark – I think it’s pretty clear that Qatar and Etihad are kept afloat with massive subsidies. Whether that should matter or not for international operations is up for debate, but it would be shocking if the US government allowed that to support domestic operations.

          Also, I agree that foreign airlines would cherry pick the best routes. If they tried anything else, they’d just lose even more money.

          1. Tim and Brett, I am quite happy to agree that the ME3 might be subsidised. However, I think it’s a big stretch to assert that they are. Further, it depends on how one defines a subsidy as well. There are some analyses which claim to “prove” the ME3 are subsidised. For example, the Huff Post had an article that looked at 2014 and claimed that because there was a loss in that year: ergo the subsidy theory was proven. However, if the analysis had been done over the years prior, when American was protected under sec 11 bankruptcy, it could well be argued that US airlines were subsidised by their creditors and staff and government. In other words the “proof” of subsidy is often over a period which is cherry picked, or consists of a definition of subsidy that really isn’t.

            Let’s go a little further. Since Australian labor is better paid and with better conditions, and not had the chapter 11 debt writeoff, does that mean Qantas should grouse about subsidised US airlines competing Sydney to LA?

            Or if a bigger airline with more capital available to it enters a route operated by a smaller capital constrained company, is the bigger airline subsidised? So, if Emirates with newer more fuel efficient bigger aircraft paid for by stock holders provides competition to operators who get capital via expensive debt because boards decide to fund the company via debt, is that a subsidy?

            It’s really a brave call to say who is subsidised, and by how much.

            There’s market distortion enough to go round.

            1. chapter 11 is not a subsidy. it is an exchange of debt for equity and affects private lenders. Companies in chapter 11 cannot convert government obligations into equity except under rare exceptions.

              The fact that you and even ME3 airlines continue to assert that C11 is a subsidy shows how poorly the US bankruptcy process is understood – but it doesn’t change that it is not a subsidy. Looking up the definition in a financial textbook will show why.

              Lower costs and/or losses don’t prove or disprove subsidies. Companies can be subsidized by a government and still have both higher costs and losses.

              By the way, the US does subsidize some US industries including the dairy industry.

              The only subsidies that the US government provided to US airlines was to change out cockpit doors post 9/11. It was from the government and there was no expectation of repayment.

            2. Tim,

              If a company goes into bankruptcy, that means it is unable to pay its debts as they fall due. That means that company has received goods and services and paid less than they should for those goods and services. In other words, the company has been subsidised.

              This is the simple reason that people outside the US, as you point out, do not accept the legal fig leaf you are trying to extend here. Certainly, if you want to say that US airlines being allowed to operate at less than their real costs by availing themselves of Ch11 is not a subsidy, then that’s ok. However, you should understand that the rest of the world might not see it the same way, and call it for what it is.

            3. Hi,

              It is not a Government subsidy per se. I have never said it was though. It is, however, a subsidy by its creditors. A forced subsidy by which it gains goods and services at lower prices, by virtue of laws which ARE framed by government. Put another way, if the Gulf States forced the ME3 suppliers to take losses on supplying those airlines, I think it would still be fair to call it a subsidy.

              So, if US carriers can get goods and services below cost from suppliers via US laws. Would you be happy with the Gulf states changing laws so that, for example Emirates could declare bankruptcy, still keep trading, bilk its suppliers, and use the savings to keep ticket prices low?

              And that’s assuming there’s even any evidence that the ME3 are subsidised. US airlines repeating the mantra is not proof.

            4. Mark – It seems pretty clear that Qatar and Etihad are subsidized, so I’m not sure what additional proof you’re looking for. But that doesn’t mean you can’t blame the countries for doing it if it fits their goals. It’s just a question of how other countries should deal with companies that receive those advantages.

              As far as bankruptcy goes, it’s just a structural way of dealing with a failing company. In places without reorganization laws, the original company just goes out of business and then a new one, version 2.0, is usually started with its assets (or another company just takes over the assets). The end result in terms of a competitive positions isn’t all that different. It’s just the creditors and shareholders that end up with different outcomes.

        2. Mark,
          I am not suggesting that the ME3 are not subsidized just that no one has yet to come up with the evidence to disprove the US3’s assertions that they are. By logic, you have to consider the possibility that they are subsidized. I do happen to believe there is ample evidence that they are subsidized but I also believe that market realities are proving more of a detriment to their continued strategies including the fact that their governments can’t continue to spend the kind of money to carry connections between Europe and Asia – the heart of the ME3’s networks – when the stated purpose originally was to bring passengers to the Middle East. The ME3 are spending a lot of government money to siphon off passengers which do nothing for the Middle East.

  6. Agreed completely that “Foreign Airlines Should Be Able to Fly Within the US and Lose Money if They Want” however it’s rather strange to suggest that good customer service from foreign airlines is the result of low wages.

    My argument is simply that after a spate of mergers we have fewer large airlines, and less competition than we used to. A source of new competition would be removing barriers to competition, one of the biggest is the foreign ownership restriction.

    I’ve been clear throughout several posts that this isn’t a panacea. In fact it wouldn’t add competition in several markets where airports are simply full. We have government-owned airports with little opportunity for expansion, and government air traffic control that’s congested in many areas. And those are effectively barriers to entry (Alaska had to go buy Virgin America to get gates where they couldn’t).

    United, Delta, and American pursue similar strategies. We’d simply bring in different cultures, and potentially different strategies. I don’t suggest this would revolutionize air travel. They’d still have the same security, the same airports, the same air space, and the same aircraft largely from Boeing and Airbus.

    And I’m also pretty clear in my recommendation to allow foreign ownership of US airlines (meaning all US rules apply) rather than allowing foreign airlines to operate in the U.S.

    1. I think that both low wages and stronger service standards are consequences of weak labor laws; stronger service standards are not a direct consequence of low wages.

      Weak labor laws mean that many foreign airlines have much more freedom than US airlines to terminate employees for any reason, ranging from getting too old, getting married, or no longer being pretty enough to not providing attentive service. They also have more freedom to change duties or impose new duties; US airline contracts mean that airlines can’t ask flight attendants to do something so simple as start providing a turndown service in premium cabins without a contract amendment or other negotiation with the union.

      Strong labor protections and unionized labor forces have both good and bad impacts. Personally, I think the good far outweighs the bad, but there are lots of ways in which the situation could be improved in US airlines. The impact of unions goes much further than wages; in fact, I think that from both the employees’ and the employers’ point of view, wages are one of the least significant impacts of unions and strong labor protections in general.

      1. Foreign owned US airlines would be subject to the same laws as any other airline operating in the U.S.

        Of course any airline without legacy contracts finds it easier to write contracts that provide for better service standards (like actually having to perform assigned duties to keep their jobs). As they should. And that would be a great benefit to consumers.

    2. This discussion is academic because, in the real world, foreign airlines flying in the USA will never happen. Kind of like how I think repeal of the Railway Labor Act — or at least exclusion of airline pilots from it (there are no other highly paid professional workers in a major industry that are allowed to unionize) — would be good for workers, airlines and customers. It doesn’t matter if I’m right. Politics will insure that it never happens.

      But, even if it were to be allowed, I’m pretty sure it would cause more long term harm than good. The “merger thing” is number one, but I do think there is some modest national security interest (both militarily and economically) in the USA airlines being primarily owned and controlled by Americans. That advantage outweighs the modest potential advantage of lower fares or better service from foreign owned carriers.

      And, as Cranky notes, the odds that we’d get long term cost/service advantages from foreign airlines flying domestically are extremely low. Yes, in the short term, there could be some “fare wars” — just like we saw after deregulation. As a country, I’m not sure we’d want that. I don’t think our economy is harmed by having “successful” airlines: airlines that are financially strong enough to compete in the crazy-competitive int’l aviation market. Strong airlines provide safe, reliable transportation, and employ hundreds of thousands of Americans in high-paying jobs (million, if you add ancillary workers).

      And the idea that foreigners are somehow going to build a better mousetrap than the current crop of USA airlines is a longshot bet at best. Margins are still very small in the USA airline industry, compared to most other industries. Fares continue to be very reasonable for most customers. So it’s not excessive profits. What brilliant strategies are we going to see to reinvent the industry to reduce costs and provide higher service? Almost all of the supposedly wonderful foreign carriers that could enter either struggle with profitability or receive tens of billions in subsidies; and the remaining few have labor costs far below what “would fly” in the USA. That’s reality. But I guess some people like to hate on USA airlines and promise unobtainable utopian benefits if we would just “stick it to them.” Sounds like some politicians I know.

      1. BTW, I do have some personal investments in USA airlines. If foreign control were to be allowed, I think the value of those investments would increase dramatically, as the stocks would be seen as severely undervalued (and they would be) in a global aviation marketplace. But just because I think I could profit from it, doesn’t mean I think it’s good policy. Of course, if they put Gary Leff in charge of this, and he makes me a boatload of money by allowing foreign ownership, I could be like Richard Branson being “forced” to make a killing by selling my beloved Virgin America. It would certainly temper my policy disappointment. :)

        1. The value of airline stocks with removal of foreign ownership limits is an interesting one, you’d potentially get more demand for those stocks from foreign owners and you’d potentially get more competition. It’s unclear how that would shake out.

      2. Of course it won’t happen in the near-term, because airlines are effective at lobbying for protection. However we’re seeing relaxing of foreign ownership rules elsewhere in the world so it’s certainly not unthinkable.

        Just like in the comments on my blog, iahphx, there’s never been a major piece of protection or subsidy for US airlines you didn’t like.

        For consumers though more competition is better. And there’s no conceivable reason why the federal government should prevent it.

        1. I favor the elimination of the Essential Air Service program (although I am potentially sympathetic to extremely isolated communities, particularly in Alaska).

          What else do you consider “subsidized” or “protected”?

      3. “there are no other highly paid professional workers in a major industry that are allowed to unionize”

        What are you talking about? Do you not understand US labor law? Many highly paid professional workers are in unions, from the IFPTE which represents engineers, to SEIU/AFSCME which represents doctors and mid-level providers in many states. In fact highly paid, professional employees is one of the few bright spots in union membership growth, and where gains have been made despite losing wide-swaths of unskilled and semi-skilled labor in manufacturing.

    3. Gary – It’s not just low wages, but that does allow airlines to staff more people and consequently deliver better service (in theory). But it’s more than that. It’ll be a different talent pool with different cultures and different work rules. You’re not likely to see that Asian service culture being easily adapted domestically, for example. I think it’ll be tougher to deliver that kind of service world class airlines deliver when choosing from a US-based pool for a variety of reasons.

      Regarding foreign airlines operating in the US vs foreign ownership, yes, I think it’s unlikely that, say, Emirates could fly within the US. It would have to be Emirates USA which would be a wholly-owned subsidiary but one that could have the same branding just operating under US law. I assume it would be similar to a LATAM-style scenario.

      1. Cranky, re the first paragraph of your above comment to Gary: For decades, the U.S. allowed a “world class airline” to recruit and hire cabin crew from “a different talent pool with difference [service] cultures.” The airline was Pan American World Airways. Until after deregulation, all of Pan Am’s flights were international (as defined by U.S. law). The U.S. allowed Pan American to recruit and select foreign nationals abroad to work as cabin crew, to train and base those foreign nationals in the U.S., and to have them, like all Pan Am cabin crew, work Pan Am flight patterns originating at and returning to their U.S. bases. Those foreign nationals, overall, greatly enhanced Pan Am’s in-flight service by, among other things, modelling and otherwise teaching the attitudes and practices of the different (service) culture from which they came to Pan Am’s American cabin crew members. It was a very rich meld from which passengers and crew alike benefited. (And, as a point of interest, some of the foreign nationals who flew for Pan Am were from countries whose airlines paid higher wages, and had more stringent work rules, than U.S. airlines.)

        1. Leslie – Of course, that was for international service where you can make the business case for needing different cultures and languages to best serve the clientele. But for domestic travel, it’s going to be a much tougher sell when it would be at the expense of jobs for Americans. And right now, that seems to be priority #1 in the federal government.

  7. > There are a lot of reasons people can be fired in other countries that won’t fly in the US.

    If you are specifically referring to unionized airline employees in the US, or comparing US workers to those in (say) the Middle East, that might be true. In general, however, most workers in the US are at-will employees, and there are very few reasons that they cannot be fired more, mostly relating to discrimination against a protected class. For example, one cannot be (legally) fired for reasons of gender in the US, but can be fired for daring to wear black socks.

    I’m nitpicking here, and I realize that you are probably focusing on the airlines, but worker protections in places like France and Germany are much greater than those in the US. What mean people fail to realize, however, is that these protections work both ways, because when it is tough to fire employees companies become correspondingly reluctant to hire people on as permanent employees. This is arguably a significant part of what is driving some of the unemployment in southern Europe, especially among youth.

      1. Brett,

        I thought most non-flying/non-fixing customer facing employees at airlines (call center CSRs and gate agents in particular) were non-union, while those who directly work on/in the aircraft (FAs, pilots, mechanics) are usually union.

        Are a significant portion of the call center CSRs and gate agents union? If not, they are presumably at-will employees, and it doesn’t sound like many additional employee protection rules would apply, if any.

        1. Kilroy – With the exception of Delta, where only the pilots are unionized out of the major workgroups, every other customer service group is union at the big airlines. For example: *American res/gate agents are CWA-IBT *American flight attendants are APFA *Southwest res/gate agents are IAMAW *Southwest flight attendants are TWU *United res/gate agents are IAM

  8. This:

    “That’s because for the vast majority of travelers, price and schedule rule….They get angry at airlines for squeezing legroom but balk every time a fare goes up.”

    …overlooks the fact that the exact same lousy seat can vary in price by hundreds of dollars or more, depending on the day and time of year. A seat to LAS or MCO can jump by 50% when a major convention is scheduled. Sure, US fliers shop price, but price is a moving target and one that the US carriers are out ahead of the game on. Solution? More competition.

    1. I don’t see how more competition would reduce the airlines’ use of adaptive pricing. The point is that travelers overwhelmingly choose the cheapest-available price available when they purchase the ticket.

    2. The same principle of supply and demand applies to hotels, cars, commodities (fuel most food etc) and services – restaurants etc are higher on peak days of the year.

      the idea that airlines are doing something wrong that Americans don’t willingly do with other industries is non-sense.

      and that is precisely why you can’t remove demand based pricing in the airline industry.

  9. Since we are talking cabbatoge; the best thing that could ever happen if it were allowed would be to cruise ships.

    To hell with airplanes, I want to take a cruise ship from San Francisco to Seattle or LA.

    1. I believe there are a few (literally less than a handful) of cruise ships that run domestic cruises from the West Coast to Hawaii, or similar, but yes, much stricter rules for those.

      1. Kilroy – I thin Norwegian with its Pride of America is the only one so far. Others have to go internationally somewhere on the cruise since the ships aren’t registered in the US.

  10. Your last point about airline unbundling and passengers’ preferences for low base fares is just as true around the world. The US was only a bit early to the trend and anyone who sees cabotage as some kind of catch-all solution to their airline grievances is going to be disappointed.

    Look at BA’s relentless focus on cost cutting, LH/NH/AFKL/AC/SQ/QF/etc.’s emphasis on LCC subsidiaries as growth engines, or LATAM’s new single-class unbundled intra-South America product. All these carriers held up as examples of full service excellence are seeing that full service ROI is under pressure while the biggest opportunities seem to be in the low cost space.

  11. The biggest problem I see with allowing foreign carriers to come into the US is that smaller cities will become even more disconnected to the market. The biggest advantage of the current system is that you are able to get from a hub to a bunch of smaller cities with ease. There is no way EK, QR, or EY would ever actually build a network. They would become what VX was, which was useless IMO unless you only go to the few cities they served.

  12. Couple of observations:

    1. Not only would foreign government subsidies not be allowed for foreign airlines flying domestically, but they also wouldn’t make any sense — some foreign governments subsidize their local airlines because they believe it better connects them to the world, makes their home cities more prominent, brings business and tourism, etc. None of those rationales for pouring capital into a money-losing business would hold if you’re flying domestic flights off in some other country, so even if they were allowed to subsidize a business, it’s hard to imagine why they would want to.

    2. I sometimes see arguments that the European majors would make life better by entering the US market, not just the likes of SQ and the ME3. Which to some extent is ridiculous on its face — the European majors have been running scared from local LCCs for decades and are largely in pretty weak financial condition. But the only glimmer of useful insight in that argument is, the European majors often do have slightly better customer service than the US majors do, in terms of the employees not being so abusive toward customers. It would be worth thinking a bit more about why that is and what lessons could be learned for the US carriers as a result. After all, European majors pay their employees a lot and can’t fire them easily, so it’s not a culture of fear like Qatar uses.

    That said, if the US domestic market were thrown open, I would think the most likely outcome would be that aggressive LCCs like Ryanair and perhaps even something like an AirAsia might take a crack at the US. They might not succeed, but they’d certainly be far more likely to make an impact than any high-service carrier — and they’d make a further mockery of those who think that allowing foreign carriers to enter would be good for service levels.

  13. If that happened wouldn’t the US airlines be compelled to relocate to tax havens to gain the advantages some of their foreign competitors have?

  14. Two points: The ME3 are accused of paying low wages. There is no income tax in Dubai. I’m sure Delta’s or American’s flight attendants would be prepared to accept lower wages if they didn’t have to pay income tax.

    Second: the cabotage issue keeps raising its head in Canada too. I agree with Cranky – it should be allowed but cannot be compelled. Ain’t gonna happen. Does Air France really want to fly Toronto -Calgary eight times a day? Does QATAR really want to fly Montreal – Saskatoon? We came close: BA had fifths on Montreal – Chicago. Probably still do but they haven’t flown it in years. Cathay currently does fly Vancover – JFK but I have no idea how much traffic they get. Curiously, Canadians seem to think that with cabotage AA, UA and DL would provide wonderful, cheap service that Canadian carriers can’t or won’t. Saskatoon, anybody? But wouldn’t you folks love to fly Air Canada on JFK – SFO?

  15. I agree with you that we are at the end of a cycle when the “let the foreigners operators in” starts becoming a common refrain. Not sure I agree that if we saw consolidation of airlines between countries there would be any real improvement for the passenger. The more we turn an oligopoly into a monopoly the worse off the consumer is IMO. I do get a kick of out the common refrain that foreign airlines are better than US based ones. Granted I haven’t sat up front on an int’l SQ or EK flight but back of the bus is largely nothing to get excited about all over the world. And all the intra-european flights I’ve taken on all their airlines I’d say are oftentimes worse than domestic US flights today, especially in the extra legroom seats. The sandwich with jelly-ish filling is amusing but I’d rather have the IFE and Internet which is more common in N. America. AND our flights are cheap…like insane cheap lately. I’ve been booking trips at rates better than I saw in early 2002, and that was a cheap time to fly.

    1. Could he run a highly profitable airline? VX barely made money and management was only too happy to cash out with AS’s offer. VS is 49% owned by DL and has become part of DL’s network. I don’t think VA is doing all that great financially either.

  16. Goodbye service/decent fares to/from any city not in the top 50 in air traffic demand.

    Foreign airlines would come in and serve flights to/from/inbetween JFK, ORD, LAX, SFO, DFW, IAH, ATL, SEA, DCA, MIA, MCO, LAS and any other high volume routes. If mergers weren’t an option, the US4 would be forced to re-trench and defend those routes leading to insanely low fares in those markets. But the money would have to come from somewhere, and all the secondary/third markets are going to get even pricier, or they’d lose service all together.

    It would absolutely crush the “fly-over” states.

    EK, SQ, CX, et al has no interest in flying to ICT, OMA, FAR, OKC, MCI, etc.

    Plus if you look at the carriers that have the great service, they do almost exclusively long-haul flying….that means one type of training for all FA’s. It’s a lot easier to ensure quality service on 200 long haul flights a day vs 5000+ flights varying from 30 min all the way to 16 hours.

    1. You forgot DEN, CLT, PHX, EWR, MSP, BOS, DTW, PHL, LGA, FLL, BWI, MDW, SLC, IAD, SAN, HNL, TPA, PDX….My point is in the current market if you are not in a top 30 airport you don’t have good service and likely your flights are expensive unless there is decent competition. There are old abandoned hubs like St. Louis that I think a foreign operator could takeover and setup a hub from but agree the flights would likely have to go to those top 30 spots.

  17. If foreign airlines could fly domestically, I would like them to emulate Alaska. Seems to be a full service airline, and still make money and not squeeze passengers to death.

  18. When you say “you know they wouldn’t be allowed to get subsidies from their home governments to support a domestic US operation like they can internationally”, I have to disagree with you. Even if there are no direct subsidies for the US operation, the airline will still benefit from subsidies provided in general. It’s not that hard to move the numbers around and make it look like the subsidies are only going to the foreign operations.

  19. When people say the Golden Age of flying, they mean what they see in old movies and TV shows of the 50s and early 60s. It was nicely dressed passengers and luxury service.

    You are just not going to see that today unless you pay for it.

  20. Hello from Australia where we’ve run this experiment already.

    In Australia there are no restrictions on foreign ownership of domestic airlines. There are restrictions on the ability of foreign owned airlines to fly internationally which means that Virgin Australia — which is about 80%+ foreign owned last i looked — has an Australian owned shell company that does its international flights.

    What has it meant here? Well… Qantas is kept from creating a quasi monopoly by the emergence of several foreign backed players (Virgin initially and later Tigerair) which keeps prices low relative to our population and the flight distances involved. When it comes to service our LCC’s are low cost and low frills (Tiger, now owned by Virgin and Jetstar which is owned by Qantas). Leg room is squeezed, bags are expensive, fees are punitive as per the LCC model worldwide.

    Interesting that it was Jetstar — the Qantas (Australian!) owned airline — that tried and failed to hire foreign workers. They tried running domestic sectors with foreign crews as tag flights but it was ultimately found to be illegal from a labor practice point of view from my dim memory of it.

    Zooming out the long run view is that a lot of foreign capital has been invested in making Australian aviation cheaper. Mostly they’ve lost money but the consumer has benefited. Qantas (after a bad few stops and starts) is more profitable than ever and the Australia consumer can fly from one side of the continent to the other for $100 USD or thereabouts if there’s a sale on.

    To date only the UK (Virgin) and Singapore (Tiger) have actually started an airline here. But a range of foreign players have taken ownership stakes in Virgin (it’s major shareholders are Etihad, Singapore Airlines, HNA, the Virgin group etc). There is nothing to stop United or Delta setting up shop here but obviously the Australian airlines can’t do the same in the US.

    I’m not sure what the US has to be afraid of. The more the market becomes consolidated around a handful of bug carriers the more that someone with deep pockets and airline experience is required to keep them honest and competition going. It’s basically uncontroversial here now despite the fact that the opportunities (as evidenced by Qantas’ difficulties in establishing Jetstar Asia in place like Hong Kong) aren’t reciprocated.

  21. Exactly – unshackle the market

    I know of one flight between LA and NYC that is operated by Qantas. However they aren’t allowed to sell tickets to American residents I believe

  22. If foreign airlines were allowed to fly within the US, it would encourage ULCC like Ryanair to start service within the US.

    1. Dan – At the bottom of the email, there is a link that let’s you end your subscription to that thread.. Or you can just reply to the thread with that word.

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