As the Americans would say, there’s a ‘bit of a situation developing’. While the UK has long come to accept the Gulf airlines’ relentless sorties into its airspace, over in the supposed home of the free market, American carriers aren’t happy with incursions by Emirates, Qatar Airways and Etihad. A trade war of the skies is underway, because having convinced consumers in the UK and continental Europe that the Middle East is the place to connect; the three now have the US in their sights.
American Airlines, United and Delta have asked Congress for a review of an Open Skies agreement with the United Arab Emirates (UAE) and Qatar, pleading unfair competition – but why the sudden escalation of this war of words?
Tapping into the market
There’s no doubt that the Gulf carriers are raising their game in the US. Emirates in particular has Europe pretty much covered, and like its two rivals, wants to tap into the huge markets in the US connecting to Pakistan, Saudi Arabia, Bangladesh, Iran and, especially, India. Last year, according to OAG, India accounted for 45.8 per cent of all the
three carriers’ US-originating transfer passengers. The arrival of more long-range aircraft into their fleets mean that non-stop flights from their hubs to the US are now the norm, providing seamless links to their vast networks in Asia and the Middle East. Then, of course, there is the energy market, with routes like Houston-Doha already established by Qatar Airways.
It is ten years since Emirates led the charge of the Gulf carriers into the US, but OAG figures show why US airlines are suddenly concerned – in 2016 Gulf carriers will put 4.3 million seats into the market, double that of 2013. This year, Emirates alone will add a record 600,000.
The Centre for Aviation (CAPA) estimates that the UK is currently the three carriers’ biggest long-haul market with around 210 flights a week. The US isn’t far behind, with approximately 170, but that will change next year.
In January, the ‘Big Three’ US airlines asked their government to request the Gulf carriers to freeze capacity while talks got underway. Naturally this went unheeded in the Middle East
Ironically, if anything the flight announcements seemed to increase, with Emirates doubling capacity to Boston and Seattle, upscaling its Milan-New York service to an Airbus A380 and announcing a new route to Orlando. Qatar Airways meanwhile announced plans for new routes from Doha to Atlanta (Delta’s home hub), Boston and Los Angeles, and moving New York to double daily.
Assuming these routes do all go ahead, both Emirates and Qatar will then cover ten US cities each, non-stop, from their hubs. Etihad is close behind with six.
The war of words revolves around the question of state aid to the Gulf carriers, with the Big Three claiming their three rivals have received US$42 billion worth of fuel, infrastructure and other government subsidies in the past decade. The mud was then slung in the other direction, with the Gulf trio claiming the Big Three had received almost US$71.5 billion in US government subsidies since 1999 – such as US$761 million given to Delta by the state of Minnesota to build a fleet maintenance facility – and pointing out that each was allowed to recover from bankruptcy after the 9/11 attacks rather than be allowed to collapse, as the free market would normally dictate.
Casting the state aid question aside, can the US carriers really complain? In the bigger scheme of things, 4.3 million seats remains a drop in the ocean compared to the size of the total US market and, whichever side of the Atlantic you sit, it can be argued that the US airlines seem to be getting ready to rumble after spending decades all but ignoring the Gulf region.
The US carriers have never really aimed to feed the Gulf hubs or any other outside Europe – only Dubai is served, by United from Washington and Delta from Atlanta. American Airlines, for example, has so far declined to fly to Doha despite Qatar Airways becoming a fellow Oneworld member in October 2013. Nowhere, it seems, is there anything remotely like the successful partnership between Emirates and Qantas on the table.
OAG illustrates how the US airlines have missed the opportunity in the Middle East. In one week in April 2010, US airlines operated 8,800 seats to and from the Gulf, while the Middle East carriers flew 43,000. Five years later, the US figure had actually fallen – to 7,800 – while the Gulf carriers’ total has soared to 131,000. As for Australia/Pacific, Africa and South Asia, all regions where the Gulf carriers offer many connections, the US trio barely registers, although American will start LA-Sydney in December, in partnership with Qantas.
The simple truth is that the three US giants stay overwhelmingly close to home – each has domestic capacity making up over 75 per cent of their total, according to CAPA, with Delta’s being nearer 85 per cent. Where the Middle East is concerned, their problem is firstly the distance – nearly 16 hours’ flying from Dubai to Atlanta. Second, unlike the Gulf carriers, they do not have many nations’ premium traffic feeding into them to offset the low-yield passengers that dominate these routes. No wonder the US airlines prefer to serve these destinations with the help of a partner in Europe.
Over in Europe, the reaction to the Gulf carriers has varied from one airline to another. International Airlines Group (IAG), parent company of British Airways and Iberia has been at one end of the spectrum: IAG chief executive Willie Walsh in a submission to the US government, said the “outdated concept of ownership of passenger traffic must be rejected by all governments”.
He also resigned IAG’s membership of the Association of European Airlines (AEA), citing the AEA’s support for the other end of the spectrum – in the form of Air France/KLM and Lufthansa, both of which want restrictions on the Gulf airlines similar to their US counterparts. Critics might point out that Qatar Airways now owns 10 per cent of IAG, but Walsh’s stance was well-known many years before the transaction.
There is also support for the Gulf carriers from US-based Business Travel Coalition (BTC), which points out that their entry to the US has stimulated demand, offered consumers more choice, lowered fares and pressured US airlines to improve their product and service. BTC founder Kevin Mitchell says: “These are all telltale signs of a functioning competition and an Open Skies policy delivering anticipated outcomes.”
The BTC is locked in battle with the Big Three and several industry unions, who have united under the Partnership for Open and Fair Skies banner. The partnership’s spokesperson, Jill Zuckman, says the Gulf carriers are racing against the clock to add more and more subsidised flights before the issue is resolved.
She is emphatic about the issue of subsidy: “The issue is that the Open Skies agreement says your flights can’t be subsidised. They don’t have to operate in the real-life market place. We’re just asking for consultations, it’s a pretty minimal ask.” Zuckman rejects suggestions that bankruptcy protection was a subsidy: “Ask the hundreds of thousands of employees whose salaries were slashed and pensions frozen. There was no influx of capital.”
We will likely wait some months for the outcome following a consultation process that ended in May. Congress must now decide whether the Gulf carriers have breached the terms of the Open Skies agreement and bar further expansion pending an enquiry.
Just as the issue was due to come under scrutiny in Washington, the Gulf carriers’ case may have been set back by the blatant threat of Qatar Airways’ boss Akbar Al Baker towards the Netherlands, who told the country it could not expect commercial contracts from his government if he was not given more landing rights in Amsterdam – something that will not go down well in Congress. When it comes to free trade, both sides, it seems, have a very fluid interpretation of what that constitutes.