The big three American airlines have started questioning the Open Skies Treaty signed with Gulf airlines. The CEOs from the Gulf airlines boldly reject all accusations claiming the big three American airlines are unable to complete successfully with unsubsidized airlines. Tim Clark, Chief Executive Officer of Emirates, once stated about the time when the agreement was signed “The US dictated the document, not us, and I was there. I asked if they were sure that’s what they wanted. It was a complete departure (from bilateral agreements).”
Never Ending Accusations
The big three American airlines have started questioning the Open Skies Treaty signed with Gulf airlines. The CEOs of Delta Air Lines, United and American Airlines accuse Emirates, Etihad, and Qatar Airways their growth is inherently linked with receiving unfair financial support in excess of $42 BN from their oil-rich governments which own the airlines. The US signed the agreement with the U.A.E in 1999 and with Qatar in 2001 to support the development of air travel and air cargo industries. As usually with such a strategic partnerships, things started slowly. We can assume it took about 10 years decision-makers from the major US carriers to realize the Gulf airlines benefit substantially more from the agreements. It become apparent the Gulf airlines not only experienced unexpected growth in size but also become industry trend-setters in terms of superior customer service and unmatched offered quality.
Etihad Airways Pearl Business Class – Cabin
As soon as the big three airlines with high focus on highly profitable international flights recognized measurable lost of customers, the CEO started questioning the validity of the Open Skies Treaty with the two Gulf countries. Despite the fact the agreement was signed to eliminate government interference in the commercial decisions, the CEOs recently begin suggesting and putting pressure on the government to keep the Gulf carriers from adding more US flights and to conduct a review of the Open Skies Treaty. I have no interest to support any airlines, but I think it is wise to provide an explanation what the Open Skies Agreements are about:
Open Skies agreements have vastly expanded international passenger and cargo flights to and from the United States, promoting increased travel and trade, enhancing productivity, and spurring high-quality job opportunities and economic growth. Open Skies agreements do this by eliminating government interference in the commercial decisions of air carriers about routes, capacity, and pricing, freeing carriers to provide more affordable, convenient, and efficient air service for consumers. America’s Open Skies policy has gone hand-in-hand with airline globalization. By allowing air carriers unlimited market access to our partners’ markets and the right to fly to all intermediate and beyond points, Open Skies agreements provide maximum operational flexibility for airline alliances. The United States has achieved Open Skies with over 100 partners from every region of the world and at every level of economic development……(U.S. Department of State – Diplomacy in Action)
The Growth of Gulf Airlines
The above quote clearly states the Open Skies Treaty enables all sides of the agreement benefiting equally. In fact, it turned out the agreement benefits substantially only the Gulf airlines. Regardless who the winner is at this point of time, it sounds very immature to ask the government to review the already signed agreement. And we all know the low does not work backwards. The truth is the Gulf airlines experienced unparalleled growth in the last decade or so focusing on business customers and gaining worldwide respect from travelers. It might be difficult to explain what propelled countries in the middle of desert to rule the skies, but no one will argue the Gulf airlines have raised standards on international flights and set up their hubs at the global strategic locations at junction of Europe, Asia, and Africa, gaining access to almost 4 B people within eight hours of flight. Undoubtedly, the fleet is another significant aspect which differentiates drastically the Gulf airlines from the big three American Airlines.
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Emirates Rule the Sky
It seems like Emirates, Etihad, and Qatar Airways recognize the value of having the best of the best airplanes to attract new travelers and to retain its present customers. The Gulf airlines invested in the recent decade billions of dollars to acquire new airplanes and annually increase their capacity. As an example we can refer to Emirates which is presently the world’s largest operator of the Airbus A380. Emirates currently own 60 Airbus A380s and placed orders for another 80 double-deckers. The decision-makers at Emirates want to make sure they have the capability to carry 70 million passengers by the end of 2010. With the fleet of 140 Airbus A380s, Emirates will dominate the skies for many years to come. The other Gulf airlines might not focus so much on A380s, but outshine significantly the big three American airlines in the fleet category as well. It sufficiently is expressed with Akbar Al-Baker, Qatar Airways Chief Executive Officer, statement verbalized recently while speaking in Doha:”….First of all, we don’t fly crap airplanes that are 35 years old.” If prognoses revealed by the investment bank, Alpen Capital, turns out to be true, the Gulf’s aviation sector will experience the fastest passenger growth until 2032. Consequently, we can expect continuously changing the landscape of the global aviation industry giving an edge to Gulf airlines.
Truth Must Be Determined
I need to confess the accusations against the Gulf airlines are serious, and no government should support financially any organization conducting activities in a free market. If those accusations will ever turn out to be true, then the big three American airlines are really pushed into a disadvantageous position. European major airlines, including Lufthansa and Air France, also have accused the Gulf airlines for receiving subsidies to found their expansion. The Gulf airlines are well known for offering highly competitive ticket prices and are regularly criticized for moving passengers below the costs. On the other hand, there are also airlines which never blame their counterparts from the Gulf region for their market share percentage or financial performance. Will Walsh, Chief Executive Officer of British Airways, openly admits he cannot identify any evidence of unfair subsidy and once stated:
I don’t support the view being expressed by the US carriers. It’s a move back to protectionism which the industry could do without. If this gathered momentum, it would be negative for the industry and consumer if it could threaten Open Skies and that would concern me. (Gwyn Topham)
The CEOs from the Gulf airlines boldly reject all accusations claiming the big three American airlines are unable to complete successfully with unsubsidized airlines. James Hogan, Etihad Airways Chief Executive Officer, recently counter-attacks the big three airlines in his airline’s formal response to the US government stating:
The big three US carriers had received more than $70 BN in state support in the last 15 years – including tax breaks, taking over pension liabilities, and, most obviously, Chapter 11 bankruptcy protection. (Gwyn Topham)
The US Dictated the Open Skies Treaty
It seems like both sides has entered a long debate before it will be resolved. Both sides might raise interesting and valid points, but it might be still questionable whether or not the US government should review the Opens Skies Treaty. Tim Clark, Chief Executive Officer of Emirates, once stated about the time when the agreement was signed:
The US dictated the document, not us, and I was there. I asked if they were sure that’s what they wanted. It was a complete departure (from bilateral agreements.” (Gwyn Topham)
Tim Clark, Chief Executive Officer of Emirates
The airline industry evolves more dynamically than the conflict will be resolved. It is difficult to predict what position policy makers in the US will take to address the concerns raised by the largest domestic airlines. Considering the US interest in the Gulf region goes beyond the commercial aviation sector, the big three American airlines might be instructed to apply more diplomacy in solving this delicate issue.
Critchlow, A. (2015). Gulf airlines are winning the battle for the skies. Retrieved on June 25, 2015 from the World Wide Web: US Airline giants pick fight with Gulf rivals over ‘sky sharing’ deal
Topham, G. (2015). US airline giants pick fight with Gulf rivals over ‘sky sharing’ deal. Retrieved on June 25, 2015 from the World Wide Web: Gulf airilnes are winning the battle for the skies
U.S. Department of State – Diplomacy in Action. (2015). Open Skies Agreements. Retrieved on June 25, 2015 from the World Wide Web: Open Skies Agreemetns
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