If you saw the news earlier this week that President Trump had addressed the gulf carrier subsidy issue, you could be forgiven for being extremely confused. What happened was reported in very different ways depending upon the interpretation, so you ended up seeing headlines like these:
- Trump resists calls to crack down on Persian Gulf airlines – The Hill
- U.S. Plans Qatar, U.A.E. Talks on Airline Subsidies – Bloomberg
Which is it? Is Trump taking action or not? The answer is… we don’t know. We do know that the administration is going to hold informal talks (just as President Obama did before), but that doesn’t mean anything. The feds have apparently said that if things aren’t resolved by a certain date, then they’ll take tougher action. You can decide if you want to believe that one. (I remain highly skeptical, at best.)
Though I do love a good backstory, I’m not going to reiterate this one here in great detail. In short, the 3 big US airlines (American, Delta, and United) have accused the 3 big Middle Eastern airlines (Emirates, Etihad, and Qatar) of receiving massive government subsidies. They don’t like it, and they want the US government to step in and amend the open skies agreements between the US and both the UAE and Qatar to punish them.
A ton of lobbying money is being spent on this effort, mostly by the US carriers, to prove that yes, there is massive subsidy. It’s hard to refute that (though the case is far stronger against Etihad and Qatar than Emirates, which is a viable airline on its own). But what would be considered a victory in this fight? Well, the formal process here would involve having the US and the UAE/Qatar enter into consultations. If that works well, then it would result in an amended agreement that addresses the concerns at hand. But informal talks are a long way from formal diplomatic discussions.
Still, what would that amended agreement look like? What would satisfy everyone here? Some might say that these airlines should be barred from flying to the US at all while others might be fine with just arresting growth. Personally, I think the broad attack on these airlines is hurting what should be the primary goal: preventing fifth freedom flying.
This attack on three large airlines is extremely noisy. It’s hard to make a case for what subsidies are ok and which ones aren’t. What about the big subsidies at Chinese carriers, the very ones that both Delta and American own a stake in? How much subsidy is too much? The answers tend to get squirrelly and it muddies the water. There is a more straightforward and fair way to approach this.
The US carriers should give up on fighting these airlines in their home hubs. Yes, there are certain advantages to being in those locations versus elsewhere, but such is life. And even with those advantages, you see these airlines starting to struggle.
Still, the market from the US to the Middle East/Africa/India/Southeast Asia (where the Middle East airlines can ideally connect passengers) is relatively small. Here’s a look at where Emirates can realistically take Americans via Dubai (thank you Great Circle Mapper):
That is a whole lot of lines, but the total market is fairly small. There are very few people from fly from the US to Africa. Sure, India is a bigger market, but most of those people were flying through Europe before. There was always limited service from US carriers to India. And for Southeast Asia, that’s really only a good option from the eastern US. Those are also markets where US carriers have had limited to no service. The overlap is small, and the impact is relatively minimal. The Middle East is perfectly positioned to serve those places, and the UAE and Qatar are much lower cost operating environments. It’s not a fight worth fighting. (I may be singing a different tune if I were a European airline.)
The fight that IS worth fighting is against those fifth freedom routes. A fifth freedom route is one that starts in your home market and goes to another country. Then the flight goes beyond to a third country, and the airline has the right to carry local passengers between those two other countries. Fifth freedom flights were originally designed because airlines didn’t have the ability to fly nonstop from their home countries to certain destinations. That’s why Air New Zealand flies LA to London and it’s why Singapore flies Frankfurt to New York. Those airlines need to stop somewhere to get to these far flung destinations from their homes.
Emirates is operating two fifth freedom routes to the US today, but neither are necessary. (Again, thank you Great Circle Mapper.)
Emirates can, and does, fly nonstop from New York to Dubai. Yet it’s still sending some airplanes via Europe. It’s hard to see here, but one goes from New York/JFK to Milan/Malpensa while the other goes from Newark to Athens.
This is really just opportunistic use of a low cost structure to compete on routes where there is no way for the local airlines to be competitive. Is it fair for Middle Eastern airlines to take a ton of subsidies and use low cost labor practices permitted in their home countries to fly routes that don’t touch their homes at all? That seems more like unfair competition, and it’s a bright line that avoids the issue of the Chinese subsidies (since they don’t do this at all).
If one of the Middle Eastern airlines were to start flying from North Asia or Europe to the US with high frequency, it would be very bad for the carriers that actually call those markets home. That is where the discussions should be focused, and it’s where the feds might have the easiest time making a deal.
Hopefully that would be enough to placate the US carriers. Any actions with a broader scope than that seem like a bad idea. So what exactly has Trump announced? Not much. This discussion is just getting started again.