Seat 2B By Joe Brancatelli
HOME E-MAIL JOE PRINT SEND A LINK 2015 COLUMNS JOE'S ARCHIVES SEARCH
U.S. Airlines Wage Their Own Gulf War
March 13, 2015 -- After two years of planning and planned leaks, the Big Three U.S. airlines (American, United and Delta) have gone public in their turf war against the Big Three Gulf carriers (Emirates, Etihad and Qatar Airways).
But first, an intermezzo...
Need a little Rome in your life? A roundtrip nonstop from New York at the end of the month will cost you about $1,075. Yet a roundtrip flight to Milan from New York will cost only about $635.
Why is there a 40 percent fare differential between flights to Rome, Italy's government and tourism capital, and nonstops to Milan, Italy's fashion and finance capital?
The answer: competition.
On the New York-Rome run, only the Big Three U.S. carriers and hapless Alitalia offer flights. But the Milan route also has an aggressive upstart determined to upset the long-established order. Emirates launched nonstops between New York's Kennedy Airport and Milan's Malpensa Airport 18 months ago and coach fares have plummeted.
Now do you understand why the U.S. carriers have declared war on the Gulf airlines? The so-called Gulfies are proving to be tough, well-funded, bare-knuckles competitors. And after merging their way to control of the U.S. market, the financially fat and complacent U.S. carriers weren't expecting a Spanish Inquisition of competition from a distant corner of the world.
Even worse for the U.S. airlines, Americans fliers like what the Gulfies offer: marginally better service and lower prices in coach; dramatically better premium-class cabins and airport lounges; newer aircraft; and global connections to fast-growing international markets via new airports in felicitously located cities such as Dubai (Emirates), Abu Dhabi (Etihad) and Doha (Qatar).
But the U.S. carriers war on the Gulfies isn't being waged on the competitive battlefield. Instead, the U.S. airlines have gone political.
Delta Air Lines chief executive Richard Anderson last year assailed the Ex-Im Bank, which offers low-interest loans on Boeing jets to foreign carriers. Anderson and his counterparts, United chief executive Jeff Smisek and American boss Doug Parker, last month complained privately to Obama Administration officials. And after embarrassing himself on national television by tying the Gulf airlines to terrorism, Anderson and his compatriots last week went public with a raft of self-serving documentation.
Using an umbrella organization they created called the Partnership for Open & Fair Skies, the U.S. carriers' manifesto claims the Gulf carriers benefit from "$42 billion in quantifiable subsidies and other unfair benefits from their respective governments." Boiled down to the basics, the U.S. carriers believe that the three Gulf carriers are essentially tools of policies pursed by the rulers of Qatar and the United Arab Emirates of Dubai and Abu Dhabi.
While one can quibble with the specifics of the 55-page document and its relentless, low-level anti-Arab rhetoric, it's impossible to argue with two overarching truths: First, that the three Gulf airlines have managed stupendous, unprecedented global growth thanks to massive direct and indirect cash infusions into their countries' respective aviation infrastructure. Second, that the three carriers are barely concealed extensions of their governments' commercial ambitions.
So what? If anything, the governments of Dubai, Abu Dhabi and Qatar are simply following the blueprint laid out and executed by the U.S. airlines and the United States itself. There's little new in the report. We've seen it all before. Right here at home.
One example: U.S. carriers claim the Gulf governments use the airlines as the aeronautic expression of their countries' policies. Yet the concept of a flying "chosen instrument" was created decades ago in the United States. The seminal work on Pan Am is quite literally called The Chosen Instrument. Pan Am's status as the engine of American hegemony was known even as the carrier built out its global empire. In Alfred Hitchcock's 1946 thriller Notorious, the American spy (Cary Grant) tells his asset (Ingrid Bergman) that his Brazilian cover is public relations man for Pan Am.
Subsidies? The U.S. carriers document a raft given to the Gulf airlines. But the American people gifted U.S. airlines $5 billion after the terrorism attacks of September 11, 2001, then let them keep billions more in aviation taxes in the next few years. U.S. bankruptcy laws allowed the U.S. airlines to renounce debt, break labor agreements and dump pensions onto the government-run Pension Benefit Guarantee Corporation. Via bond issues and other vehicles, U.S. taxpayers and passengers, not airlines, largely built and maintain the nation's commercial airports and air-traffic control systems. Federal agencies guarantee airline war and terrorism insurance and provide the safety and security infrastructure that allows the U.S. airlines to operate.
U.S. airlines complain that the Gulf carriers are building huge hubs that allow them to collect customers from U.S. cities and send them to spoke cities around the globe. True enough. But that's another U.S. innovation. For years, Northwest operated a major hub at Tokyo's Narita airport. It's still part of the operations of Delta Air Lines. And ask Caribbean carriers how American Airlines crushed regional competition by funneling fliers over its hubs in Miami and San Juan.
The U.S. carriers' 55-page complaint rails against far-above-GDP growth of the Gulf airlines. But talk to Seattle-based Alaska Airlines about how Delta Air Lines is flooding Seattle-Tacoma Airport with flights simply because Delta wants a hub there, too. Or examine New York, where Delta spent lavishly and bled cash profusely as it blanketed the region with new flights at Kennedy and LaGuardia airports. And American Airlines has long had a reputation for driving out competitors whenever it found them inconvenient. Its tool? Massive capacity increases and bare-knuckle competition.
The U.S. carriers' anti-Gulfie manifesto also conveniently ignores a reality of the current global marketplace: U.S. airlines are in bed with the Gulf companies.
Qatar Airways is in the Oneworld Alliance with American Airlines. Qatar also holds a 10 percent stake in the holding company that owns British Airways, a Oneworld carrier that shares a transatlantic joint-venture across with American Airlines. Emirates code-shares with Qantas, also a Oneworld Alliance partner. It partners with Korean Air, which code-shares with Delta. Both Korean and Delta are partners in the SkyTeam Alliance. Etihad is part owner of Alitalia, (which is in SkyTeam with Delta) and Air Berlin (which is in the Oneworld Alliance with American). Etihad also code shares with Air France and KLM, both in the SkyTeam Alliance; American Airlines of Oneworld; and a host of airlines that are members of the United Airlines-led Star Alliance.
My guess is that the U.S. carriers' efforts will yield them nothing. Not because they are necessarily wrong. And not because the underlying "open skies" treaties that govern the aviation agreements between the United States and the Gulf countries aren't stacked against U.S. airlines. (After all, what logic is there in allowing Gulf airlines to fly to any U.S. destination when U.S. carriers are limited to just three cities in the Arab Gulf?)
The U.S. carriers' push is likely doomed because it fails the smell test. Americans dislike the oligarchy that the U.S. carriers have created and they hate the service and policies that they offer. Moreover, Americans like competition and they love the kind of cut-throat, price-slashing competition the Gulf carriers have brought to air travel. In fact, a U.S. district court judge once dismissed complaints against American Airlines despite agreeing that American was "a difficult, vigorous, even brutal competitor."
In other words, American pot, meet Gulf kettle.
This column is Copyright © 2015 American City Business Journals. All rights reserved. Reprinted with permission. JoeSentMe.com is Copyright © 2015 by Joe Brancatelli. All rights reserved.