Delta Air Lines Inc. is one of three large U.S. carriers asking the Department of Transportation for a review of the Open Skies agreement with the United Arab Emirates and Qatar, citing recently released evidence that the countries have offered more than $42 billion in subsidies to their fast-growing carriers.
Delta, along with American Airlines and United Airlines, last week made public the results of a two-year investigation into government support of Emirates Airlines and Etihad Airways from the UAE, along with Qatar Airways from Qatar.
The 55-page document was gathered with the help of investigators hired by the airlines. All three Middle Eastern airlines deny that they have received subsidies and told the Wall Street Journal last week that they are reviewing the document before preparing responses.
The American carriers, allied under the Partnership for Open & Fair Skies, say they fully support the Open Skies agreements, which allow airlines to pick routes and set their own schedules and prices without government interference. The U.S. has signed such pacts with more than 100 countries since 1992.
But Delta, United and American contend that the agreements rest on a notion of fair competition that is undermined by government support offered by these oil-rich Middle Eastern nations.
“We welcome competition with all international carriers and are in strong support of Open Skies, which has provided wide benefits to the global economy and millions of Americans,” said Richard Anderson, CEO of Delta, in a statement. “However, the subsidies provided by the governments of Qatar and the United Arab Emirates undermine the true spirit of Open Skies and distort the international aviation market.”
The bulk of the subsidies, more than $30 billion, come in three categories: interest-free loans (with no repayment obligation) and shareholder advances ($12.4 billion); equity infusions, grants and future subsidies committed ($11.2 billion) and interest savings from government loan guarantees and interest-free loans ($8.8 billion), the report alleges. The Middle Eastern airlines have also received help in the form of government assumption of fuel hedging losses, subsidized airport charges, passenger fee exemptions and union bans, which allow for lower-cost labor, the U.S. carriers allege.
Armed with these cost advantages, the airlines can undercut U.S. airlines’ prices on competitive routes, displacing service by U.S. carriers. Each nonstop route lost amounts to 800 jobs displaced, the partnership carriers argue. Emirates, which serves more international traffic through its Dubai hub than any other carrier in the world, has been an easy target for
Emirates CEO Tim Clark has countered that his airline operates routes that Delta and others have neglected, using the Dubai hub to link cities that would otherwise never have been connected.
The report asserts otherwise, noting that flights to large American cities harm U.S. carriers’ abilities to offer connecting service to U.S. destinations, plus the Middle Eastern governments compete with each other on subsidies, driving a race to the bottom:
Unlike U.S. and third country carriers, the Gulf carriers are adding this new capacity (all of which will be deployed on international routes) at rates that substantially exceed global GDP growth, which drives growth in demand for air transport services. Therefore, in order to fill this excess capacity, they must take passengers from other countries’ carriers. And because the Gulf governments’ competing economic development strategies effectively force the Gulf carriers to match each other’s increases in capacity, and chase the same pools of international passengers, the harm that their subsidized capacity causes is magnified.
These assertions come after Delta has criticized the U.S. government for subsidizing Middle Eastern and Indian carriers’ purchases of Boeing aircraft through the Export-Import Bank of the United States.
Delta has blamed Ex-Im backing of Air India jet purchases for the cessation of its nonstop flights to India, and it blames the government subsidies and Open Skies for making it tougher for U.S. carriers to operate flights to India, even when connecting through Europe. Delta last year stopped offering flights to Mumbai, India, through an Amsterdam connection on one of its trans-Atlantic joint venture partners, KLM.
“We can’t say definitely we’d be flying Atlanta-Mumbai one way or another. However it’s safe to say that the government-subsidized Gulf carriers have made the Indian market difficult for both U.S. and European carriers, because the playing field isn’t level and there’s no opportunity for fair competition,” Trebor Banstetter, a Delta spokesman, told Global Atlanta.
The outcome of all this will have bearing on Atlanta travelers’ options, especially when heading to India. While the KLM flight is no longer an option, Delta travelers can now go to India via Paris through Delta’s joint venture with Air France. Another one-stop option to India from Atlanta is Lufthansa’s daily flight through Frankfurt to five Indian cities.
Some Indian-American travelers lament the fact that Middle Eastern carriers have not gained access at Hartsfield-Jackson Atlanta International Airport, despite the paucity of one-stop connections to India and Middle Eastern carriers’ expressed interest in flying into Atlanta. They blame what they believe is Delta’s “hostile” posture toward these carriers and its heavy influence on policy makers in Atlanta, where it holds some 70 percent of the gate space at what constitutes one of the biggest hubs for any airline in the world.
In a letter to Atlanta Airport General Manager Miguel Southwell, the Greater Atlanta Malayalee Association, a community group with links to the Indian state of Kerala with about 3,000 members, urged the Atlanta airport to seek a connection to India via the Middle East through some of the very airlines Delta has publicly taken to task: Emirates, Etihad, Qatar Airways and India’s Jet Airways and Air India.
“As the situation stands now, travelers are being forced to take costly and time consuming transit through Chicago, Dallas, Houston, New York, Washington, Miami or Philadelphia during their trips to India,” Jerish Augustine, president of the association, said in a news release about the letter. “We believe that new direct route from Atlanta to the Middle East or India, will not only make business trips and vacations in India and Middle East more convenient, but also more efficient and profitable.”
Read the full report here: Partnership for Open and Fair Skies