Qatar (the country) has been in a sticky situation for some time now. With many of its Arab neighbors accusing the country of meddling in their internal affairs as well as being a state sponsor of terrorism, those countries have cut off diplomatic relations. Qatar has been isolated, and the economic impact is large. For that reason, Qatar is desperate for friends, and the US just happens to be one of that remains. Recent negotiations have resulted in stronger ties between the two countries, and part of that includes an effort to reform how Qatar Airways operates. This is a step forward, though it’s hard to know if there will be any actual impact.
You’ll recall that the big US airlines have targeted Qatar (with Qatar Airways) and the United Arab Emirates (with Emirates and Etihad) in an effort to shut down what they consider unfair competition. The US carriers argue that the US government needs to take action, because these Middle Eastern airlines are emboldened by massive subsidies to expand beyond what’s commercially reasonable. Under the Obama Administration, the pleas were heard, but there wasn’t any resolution. Now under Trump, things have started moving. Some of this may be due to the Trump Administration’s interest in putting restrictions on trade, but it may also just be that opportunity knocked.
When Qatar ran into trouble with its neighbors last year, the US remained a friend and gained leverage in the process. This week, a lot more than just this aviation agreement was announced. There was an “Inaugural U.S.-Qatar Strategic Dialogue” this week that is to become an annual event. The US will also effectively turn the Al Udeid US military base into a larger, more permanent operation. This kind of love-fest is hugely valuable to Qatar, and the country’s Defense Minister Al-Atiyah is playing that up:
The state of Qatar has never waived its commitment to stand with friends and allies, especially when the – when they needed us the most. When other in the region were no longer able to accommodate U.S. present of their soil, Qatar eased restriction and expedited its offer to host its ally.
With this background, the time must have felt right to try to get some concessions on the aviation front, especially since it fits in well with the Trump Administration’s stance on trade. The discussions produced “a set of Understandings to address concerns that U.S. carriers have raised with respect to government support of Qatar’s flagship carrier, Qatar Airways.”
The end result is something squishy in the sense that it’s not a revised open skies agreement nor is it otherwise legally-enforceable. There are three main pieces here.
Qatar Airways “should” issue public annual reports with financial statements audited externally in accordance with internationally-recognized accounting standards.
This will certainly be nice to have, but it won’t alone stop any sort of subsidies. Emirates, an airline which puts out audited financial statements regularly, is still a main target of the US airlines in this campaign. So this alone improves transparency, which is good, but it doesn’t do more than that.
Within two years, Qatar Airways “should” make public any significant new money the airline takes from the State. It also should take steps to make sure those transactions are based on commercial terms.
In theory, if Qatar Airways can only take state money on commercial terms, then that should prevent any true subsidy, but I imagine there are a lot of holes here. What about, for example, the fact that Qatar Airways has the sole right to distribute alcohol for the whole country? Are those recurring revenues a problem?
More importantly, this isn’t enforceable anyway. I can’t imagine a world where Qatar Airways is able to operate subsidy-free within two years. So, what happens then? It’ll be up to the US to determine whether there should be additional enforcement action, but there are no teeth to this agreement if it’s not honored.
Qatar Airways has given assurances that it isn’t currently looking to fly any fifth freedom routes from Qatar to the US via an intermediate point (like Europe or Asia).
There’s no strict prohibition on fifth freedom flying in this deal from what I can tell. It’s just that Qatar Airways has said it isn’t planning on doing it. Well, yeah. Instead, Qatar is following the Etihad model and making large investments in foreign carriers. Qatar doesn’t need to fly from Europe to the US. It can just have Meridiana lease some airplanes and do the flying itself. While it may not have true voting control over the airline, it very clearly has strategic control from all early indications. If I were Qatar, I wouldn’t want to bother with fifth freedom flying either when I could just have a European airline do it for me with my airplanes.
So, does any of this matter? If you listen to the lobbying groups fighting on behalf of the US airlines, then this sounds like an amazing victory. In reality, it’s a step forward, but I don’t know that it has any real impact.
I know I sound somewhat negative on this, but that’s not entirely the case. It’s an improvement in transparency which is a move in the right direction. I just don’t have much faith that this is going to change anything about how Qatar Airways does business, mostly because I can’t see how the airline can function without subsidy in the near future.
What will be more interesting now is to see what happens with the UAE. That country has much more at stake — after all, Emirates is the airline that really likes the idea of fifth freedom flying — but the UAE is in a stronger negotiating position than Qatar. Not only does the UAE not have the same diplomatic issues as Qatar, but FedEx relies on fifth freedoms for its Dubai hub operation. This will be a much trickier negotiation.
