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At CAPA Aviation Summit, Warnings Of Lasting Consequences In U.S., Gulf Open Skies Flap

By Michael B. Baker / May 04, 2015 / Contact Reporter
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Henderson, Nev. - As the three biggest U.S. airlines publicly prod the federal government to revisit Open Skies agreements with the United Arab Emirates and Qatar, their biggest obstacle might be quelling "slippery slope" arguments that would make the government reticent to act.

Representatives of American Airlines, Delta Air Lines and Etihad debated the Gulf carrier dispute last week here at the CAPA Americas Aviation Summit 2015. The U.S. airlines claim Etihad, Emirates and Qatar Airways are receiving an unfair competitive advantage via government subsidies and benefits, thereby skewing the market in violation of Open Skies. The Gulf carriers counter that the subsidies and benefits cited by U.S. carriers do not qualify as such and that U.S. carriers are attempting to bar new competitors from the market.

As it stands, the U.S. departments of State, Transportation and Commerce last month agreed to collect commentary on the issue en route to deciding whether to open consultations with the two Middle Eastern nations. U.S. carrier representatives were confident that would happen.

"If you don't ask for consultations on this volume of evidence on this issue in this particular place, when would you ever ask for consultations?" asked AA senior vice president of government affairs Will Ris. "If we don't do anything, what message does that send?"

Etihad general counsel and company secretary Jim Callaghan, maintaining that Etihad is not subsidized, said consultations were unwarranted because there is no evidence of harm. U.S. airlines would need to show "prices that are artificially low due to indirect or direct government or support," he said. "Airlines can't simply go to the government because they don't like the competitor."

Whether the U.S. government opens consultations—and agrees to U.S. airlines' request to freeze Gulf carriers' new entries into the country until the matter is decided—remains to be seen, but several third-party members of the CAPA panel said it could open Pandora's box.

Both U.S. Travel Association president and CEO Roger Dow and World Travel & Tourism Council president and CEO David Scowsill said revisiting Open Skies with the two nations could spur other countries to open similar discussions—in effect dismembering Open Skies. It also could distract from U.S. government attention to airport infrastructure, air traffic control technology and other concerns and could stifle travel to the United States, they said.

Dow cited travel between the United States and India, which Gulf carriers' Middle Eastern hubs accommodate, while U.S. carriers offer only a handful of direct flights to India. "How do we meet the needs of another 17 million visitors from around the world from many places the U.S. carriers don't serve or prefer not to serve?" Dow said. "This potentially is a slippery slope that opens a trade war of epic proportions. You look at the shipping industry that tried protectionism: We don't have a shipping industry in the United States anymore."

U.S. airline representatives said capacity would continue to meet demand if the agreements were revisited. "India is a huge market, and we are foreclosed from serving India nonstop by the Gulf carriers," Delta Air Lines executive vice president and chief legal officer Ben Hirst said. "We are not serving those markets because of subsidized flow. While the Gulf carriers have added service from the U.S., they have not stimulated U.S. traffic; it has been diverted from U.S. traffic."

Opposition also has come from outside the travel industry. FedEx Express senior vice president and general counsel Rush O'Keefe fears that changing Open Skies with Qatar and the UAE would prompt those governments to revisit cargo agreements, though Ris said the United States would make it clear from the onset that is off the table.

"I don't think it will be successful for the U.S. to say, 'Let's keep everything we like but not what we don't like,' " O'Keefe said. "This is a significant issue for us and other cargo carriers, and there are plenty of countries around the world watching this entire proceeding."

The panelists referenced an even stickier issue: national security and Middle Eastern politics. They referenced commercial airline landing rights disputes between Canada and the United Arab Emirates from a few years ago that resulted in Canada's loss of a lease on a strategic military base in Dubai.

"The Middle East is not particularly friendly territory for the United States right now, but it sure is [friendly territory] in Qatar, and it sure is in the UAE," said Pillsbury law firm partner Kenneth Quinn.

So, where will it end? The general attitude around the conference was that the ado would end with little impact to the passenger aviation industry. CAPA executive chairman Peter Harbison at the conference's onset predicted that the issue "is not going to last a lot longer than this year because it doesn't seem to lead anywhere."

Maintaining that consultations would occur, Delta's Hirst said the issue in a few years "will be past us," following a "pragmatic resolution." WTTC's Scowsill struck a similar tone. "When you get past the stage of the debate, there will be some sort of compromise. The possibility of the U.S. and the Gulf States entering into bilateral severance over the agreement is so enormous that it's not going to happen."

The dispute would thaw into a deeper relationship as the Gulf carriers continue their growth, Harbison said. Etihad, after all, already codeshares with AA, and Qatar Airways is a member of the Oneworld alliance, he said. "Even though it's not a logical industry, I suspect the logic will prevail. Within two years, at least one of the big three will be in a partnership with one of the carriers in the Middle East."

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