The Big 3 US carriers began a war of words in March, with a complaint that the Gulf carriers were being unfairly subsidized and asking that Open Skies authorities be revoked. Etihad, one of the Big 3 Gulf carriers, has responded today, releasing a study it commissioned. That study, conducted by the London-based Risk Advisory Group, quantified government and court-sanctioned benefits and concessions received by the three largest US carriers (Delta, United and American) valued at $71,48 billion. A summary of that study can be found here (Risk Advisory Report – US Carriers (May 14, 2015) final).
James Callahan, General Counsel and Secretary of Etihad, stated “We simply wish to highlight the fact that US carriers have been benefitting and continue to benefit from a highly favorable legal regime, such as bankruptcy protection and pension guarantees, exemptions from certain taxes, and various other benefits. These benefits, which are generally only available to US carriers, have created a highly distorted market in which carriers such as Etihad Airways have to compete.”
Mr Callaghan said the current claims by United Airlines, Delta Air Lines and American Airlines that they were being harmed by Etihad Airways were baseless, and an attempt to obstruct higher-quality competition.
“There is no evidence whatsoever of any harm caused by Etihad Airways to any of the three big US airlines,” Mr Callaghan said.
“The US Open Skies policy has delivered more choice and better service for millions of consumers, more airline access to and from America, and record profits for the biggest airlines in the US. It is time to refocus on the real issue here – that the Open Skies policy is delivering the benefits it was designed to deliver, and that everyone is a winner.” Etihad’s full release can be found here (Etihad – RAG report – 15 May 2015 En FINAL).
The arguments and the war of words continues. The initial document alleging illegal subsidies by US carriers can be found here (White.Paper).
Our view is that Open Skies are to provide free market competition, and that the alleged subsidies on both sides are basically a wash. The key for consumers are fares and service levels, which with new aircraft and high standards, the Gulf 3 compete favorably against their US counterparts. In any arrangement in which a large country grants access to its multiple airports, versus typically one or two in the smaller countries, there will likely be an imbalance in flights in favor of the smaller country, which benefits form a local connecting hub. But the convenience of an on-line connection and feeder traffic domestically should provide benefits for US carriers as well in carrying traffic to those destinations. In the case of Qatar, which is in an alliance with American Airlines, there should be synergies rather than detrimental competition.
The fact of the matter is that the middle east is geographically well situation as a connection point from the developed west to the developing east. US carriers cannot develop adequate traffic flows to many smaller destinations in Asia, the subcontinent, and Africa that are feasible when demand is combined across multiple destinations at a middle eastern hub. But neither could Etihad or Emirates support flights to Pittsburgh, Cincinnati, or a myriad of smaller US cities without an alliance partner connecting in the US, which the US big 3 do quite well.
As Shakespeare put it – “Much ado about Nothing.”