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U.S. Carriers Detail Unfair Competition Allegations Against Gulf Carriers

By Michael B. Baker / March 05, 2015 / Contact Reporter
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The three largest U.S. airlines and a handful of airline trade organizations, which are asking the Obama administration to open review of Open Skies agreements with Qatar and the United Arab Emirates, on Thursday released a detailed report citing $42 billion in "quantifiable subsidies and other unfair benefits" transferred during the past decade to airlines in those countries, which they say are a violation of those agreements.

The U.S. carriers during the past few months have used the media to lob vague charges of unfair competition against rapidly expanding Gulf carriers Emirates, Etihad and Qatar Airways. That push includes Delta Air Lines CEO Richard Anderson's poorly received February comments on CNN regarding terrorism. He later apologized.

On Thursday, the carriers and the unions announced a new coalition, the Partnership for Open & Fair Skies, and made public the evidence they have been gathering against the Gulf carriers in hopes of spurring U.S. government action.

In a press conference, American Airlines senior vice president for government affairs Will Ris said the "sheer magnitude" of subsidies that Gulf states pay to their local carriers violated Open Skies policies by creating a "government distortion of the market."

"This is not questioning Open Skies," Ris said. "American, Delta, United and the major unions continue to be supporters of Open Skies. It's an effort to ensure the fundamental Open Skies policies are enforced."

While Emirates has released financial statements since 2002, neither Etihad Airways nor Qatar Airways provides public financial records. For those carriers, the coalition cobbled together data using financial filings required by certain local regulators, including those in Singapore, Australia and New Zealand, said David Ross, a trade negotiation specialist from law firm WilmerHale who serves as counsel for the coalition.

Since 2004, both Qatar and the UAE have granted $39.2 billion in "quantified subsidies," which Ross defined as a transfer of resources from the government under better-than-commercial terms to their airlines, according to the data presented by the coalition. They also advanced $3.1 billion in what the coalition calls "unfair benefits," which include savings from low labor costs that resulted from the two countries' bans on unions.

For Qatar Airways, the coalition cited more than $17 billion in subsidies and other benefits, including $7.8 billion in interest-free loans and shareholder advances and $6.8 billion in avoided interest from government loan guarantees. It cited a similar level of subsidies and benefits for Etihad Airways, including $6.3 billion in "equity infusions" from 2007 through 2013 and $4.6 billion in interest-free, no-obligation loans. Neither airline would be commercially viable without those subsidies, according to Ross.

For Emirates, the coalition cited a more modest $6 billion in subsidies and benefits, largely from a $2.4 billion government assumption of fuel-hedging losses and $2.3 billion in subsidized airport charges.

"We're all about competing, but this is an example of unfair competition," said Mark Anderson, senior vice president for corporate and government affairs for United Airlines. "We're not competing against air carriers; we're competing against government treasuries."

Such subsidies have enabled "skyrocketing capacity" at the three carriers, Ross said. Emirates, ranked 30th in terms of available international seat miles in 1998, now ranks at the top, while Qatar Airways has risen from 90th to 10th, he said. Given current aircraft orders by the three carriers, their available international seat miles, which now are on par with those available at the three U.S. carriers, will be about 46 percent greater than the U.S. carriers' in 2020, according to the coalition.

The Gulf carriers during the recent dust-ups have countered that U.S. carriers are attempting to block competition and should concentrate on improving their own services. Emirates president Tim Clark plans to meet later this month with senior U.S. political leaders to respond to the accusations from U.S. carriers, according to Bloomberg.

U.S. travel industry advocates, including the U.S. Travel Association, also have been critical of U.S. carriers' attempts to revisit those agreements. U.S. Travel Association president and CEO Roger Dow in February said limiting Gulf carrier expansion into the U.S. would "fly in the face of competition and consumer choice and ultimately harm demand for travel to the U.S."

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