Open Skies Agreements are put in place between two or more countries to allow relatively free flowing air operations between airlines and cargo carriers from each of the countries that are involved. They are designed so that an airline that is a part of the Open Skies Agreement can land on foreign soil (as long as that country is also part of the OSA) with minimal to no interference or interrogation from the airport or the government. One of the current Open Skies Agreements that is under a bit of heat is the OSA that exists between the United States and the United Arab Emirates. The airlines that are involved in this OSA are Delta, American, and United (US), and Emirates, Etihad, and Qatar (UAE). The issue that has caused all the squabbling comes down to competition that some American air carriers say can't be contested because of large government subsidies.
The Big 3 US airlines are all claiming that Emirates and Etihad in particular receive government subsidies that are large enough to allow them to charge prices so low that the American carriers simply can't compete with it. The American carriers claim that the Gulf carriers received nearly $42 Billion in subsidies from their respective governments (National, 2016). The Americans also claim that these subsidies enable the Gulf carriers to allow "better standards of service, scheduling advantages, and ticket prices." (National, 2016). One of the big issues with the American carriers throwing around "government subsidies" as their main argument for not being able to compete with the Gulf Big 3, is that they seem to forget that they themselves receive very handsome subsidy funds from the US government for things like Essential Air Service, which provides mandatory air service to smaller markets that the airlines would normally lose money on, as well as the bank bailouts and bankruptcy proceedings that took place in the Great Recession of the mid 2000's. On top of all of this, US air carriers in general received nearly $155 Billion in government subsidies between 1918 and 1998 (Skift, 2015). So what has all that money gone towards?
One other major hurdle that seem to get in the way of the American Big 3 is the Export-Import bank, which guarantees loans to foreign companies buying US products when private sector lenders can't or won't accept the risk the credit line (Bloomberg, 2016). While this is good for American jobs, as it promotes the export of American made goods, it hurts the American Big 3 air carriers, because foreign airlines (like the Gulf 3) can purchase American aircraft with a guaranteed loan through a low default, low interest lending agency that is backed by the US government. The Gulf 3 are already the largest buyers of Boeing aircraft in the world, especially in the long range market. Emirates and Etihad have already bought models of the Boeing 787 and 777X in a volume that leaves the American carriers in the dust (National, 2016).
Overall, I would personally say that the American 3 have a valid argument about some of the issues currently going on, but they also need to buck up and change with the times in other areas. The Export-Import Bank did have a 5-month shut down after its charter expired on June 30, 2015, but it was brought back to life as part of the FAST Act that was signed into law by President Obama on December 4, 2015. This new charter will reauthorize the Export-Import Bank to operate through September 30, 2019 (Democrats, 2016). While I do believe the Export-Import bank structure may give an unfair advantage to foreign purchasers, and probably should be amended for such large purchases as aircraft (the aviation industry is the single largest customer of the Export-Import bank, after all), I don't believe it will solely affect the American carriers enough to where they cannot compete. As is, the American 3 and the Gulf 3 only actually compete head to head on 2 routes, of the 1700+ routes that exist in the US (National, 2016). I would say that if American carriers really want to compete, perhaps they should dig into their year-in and year-out record profits and figure out a way to better scheduling times, lower ticket costs, and increase the level of experience that customers feel both on the aircraft and in airports.
Resources:
National - McAuley, A. (2016, July 26). Victory for Gulf Airlines as US Government Ends Open Skies Row With No Further Action. Retrieved November 03, 2016, from http://www.thenational.ae/business/aviation/victory-for-gulf-airlines-as-us-government-ends-open-skies-row-with-no-further-action#full
Skift - Schaal, D. (2015, April 09). WikiLeaks Disclosure Shows U.S. Airlines Received Billions in Subsidies. Retrieved November 04, 2016, from https://skift.com/2015/04/09/wikileaks-disclosure-shows-u-s-airlines-received-billions-in-subsidies/
Democrats - The Ex-Im Bank: Back in Business. (2016). Retrieved November 04, 2016, from http://democrats.financialservices.house.gov/issues/extending-import-export-bank-charter.htm
Bloomberg - Export-Import Bank of the United States: Private Company Information. (2016). Retrieved November 04, 2016, from http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapid=6369571
I would have to agree with your points and your side with the playing field being unfair. I would also like to add that the Big 3 also received government subsidies in the form of bailout money post 9/11. Although the Gulf carriers do receive regular subsidies, the US carriers do as well but they are covered by the name. Great post and great information.
ReplyDeleteI also find it odd that the US Carriers cry foul when they themselves receive numerous subsidies. Their subsidies date back to the beginning of aviation with the Air Mail Act of 1925. The US basically wrote the book on getting government help. It seems to only be a problem when someone else is using that same strategy against them.
ReplyDeleteI was unaware that the aviation industry was the largest customer of the export-import bank. This was very insightful and alters my opinion somewhat of the issue so great find. I agree that the big three need to "buck up" somewhat and stop crying about unfair regulations because it will never be perfectly fair.
ReplyDeleteThat is an interesting fact that there is only competition on 2 routes. Hearing it put that way makes it seem even more ridiculous that such a big stink is being made about unfairness in the industry.
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