When you bring up open skies, some may have no clue what
that means while to others this is a big deal. In the aviation industry if
someone brings up open skies they will immediately think of airlines flying to
different countries freely. According to the U.S. Department of State, “Open
Skies agreements between the United
States and other countries expand
international passenger and cargo flights by eliminating government
interference in commercial airline decisions about routes, capacity and
pricing. This frees carriers to provide more affordable, convenient and
efficient air service to consumers, promoting increased travel and trade and
spurring high-quality job opportunity and economic growth. Open Skies policy
rejects the outmoded practice of highly restrictive air services agreements
protecting flag carriers. (Open Skies Partnerships)” These new agreements have
made it much easier to travel around the world, and have opened the door to a
different variety of airlines that weren’t present before. Now over seventy
percent of international departures from the United States fly to open skies
partners and not just too large countries (Open Skies Partnerships). However
are all countries/airlines playing fair when it comes to the open skies
agreements?
A lot of
competition has recently grown out of what are called the Persian
Gulf carriers. These airlines have been rapidly growing all over
the world especially in the United
States taking advantage of open skies. These
carriers have began new routes from all different cities across the United States
to there main hubs in the gulf. The three gulf carriers that I am talking about
our Emirates based in the United Arab Emirates ,
Etihad also based in the United Arab Emirates ,
and Qatar Airways which is based in Qatar . Recently these airlines have come under
scrutiny that they are receiving unfair government subsidies which gives them
an unfair advantage over are United
States based carriers. According Bart Jansen
of USA Today, “representatives of American, Delta and United airlines told a
news conference at the National Press Club that Gulf carriers Emirates, Etihad
and Qatar
have received $42 billion in subsidies since 2004. The subsidies make it
impossible to compete for lucrative international travelers, according to
domestic airlines joined by unions for pilots and flight attendants. (Jansen)” Jansen
goes on to say, “the U.S. allegations focus on benefits such as
interest-free government loans, cheaper access to airports and services such as
fuel and ground handling that are governed by airline officials. (Jansen)”
However all of the gulf carriers will all deny that ever received any of this
money and got this unfair advantage.
After
looking to see if I could find any evidence to support the case of gulf carriers
getting an unfair advantage I found a very interesting article. According to
this article published on the PR newswire these airlines have actually
confirmed in fact some of the unfair subsidies they have received. “Qatar
Airways confirmed it received free land worth $452 million from the
government of Qatar .
Its submission to the U.S.
government clearly states that the State provided Qatar Airways with parcels of
land to ensure that the carrier had enough real estate for office and
residential space, and in 2013, appropriated the land for the public interest
at its then market value. (Emirates Confirms)” The article also says that, “ Emirates
confirmed that it allowed its parent company, the Investment Corporation
of Dubai (ICD) to assume its fuel hedging contracts, explaining that
it had the option to pursue a different approach, one that made it unnecessary
to report its hedging losses. The result is that Emirates shifted costs off its
books and artificially increased its profits all without the typical risk a
commercial enterprise would encounter in the marketplace. (Emirates Confirms)” This
just shows that indeed the gulf carriers have received unfair subsides from
there home countries while they claim they don’t get any money.
Furthermore the Gulf carriers have
opened up travel to places that would be possible without them operating the
route. So while they may receive an unfair advantage is that really a bad
thing. I see why US
airlines want to fight back, because at the end of the day they are loosing
customers and therefore loosing money. Recently I have heard the US airlines are
dropping routes that compete with the carriers. A good example of this is Delta
Airlines dropping their Atlanta to Dubai route, which
directly competes with Emirates. According to the Delta website the route was
dropped due to overcapacity on the route due to unfair government subsidies
(Modolo). Was that the real reason or where they just simply not making money
on the route and this way they could close the route and blame it on someone
else?
Another
region of the world that needs to be looked at is the United States
to China/Asia market. This part of the aviation industry has been growing very
fast including routes from multiple US
cities to different parts of Asia , including
multiple times a day. According to CAPA, “For years the US has wanted open skies, while China , whose airlines were smaller than America 's, wanted
gradual expansion. But now the tables are turning. In summer 2015 Chinese
airlines for the first time in history will be larger than their US counterparts between the US and China . The rapid change of pace and
with more growth clearly to come, is giving US airlines cause to reflect
on their experience with Gulf carriers. (Chinese airlines)” Which puts us
in the same situation that the US
carriers are currently involved with the gulf carriers. Simply put now that
Chinese carriers are bigger than US carriers to open the skies would
be a horrible idea. In order to keep competition in the market they need to leave
it how it is.
Another
thing is that Chinese carriers are all supported by the governments and have
all received subsidies and are not afraid to hide this information. “This
includes USD162 million at Air China ,
USD589 at China Eastern, USD276 million at China
Southern and USD82 million at Hainan . Notably,
most of the subsidies USD865 million were to China Eastern and China Southern, partners with Delta, which is
leading the US
crusade against Gulf airlines. (Chinese Airlines)” Therefore I would find it
very hard to believe that any US
carrier would support opening the skies between the countries. If anything the US carriers
should be trying to restrict the growth of Chinese carriers before they begin
to take more market share away from them. However I personally think the US carriers are still going to be more concerned
with the Gulf carriers, which could allow the really heavily subsidized
airlines to fly more routes in the United States if they are approved.
However are United States
airlines really that innocent when it comes to receiving government subsidies? In
1957 to 1984 US airlines
received 928 million dollars from the federal government (Schaal). This is just one instance of US airlines
receiving money from the federal government to help them out. Other instance I
can think of is the essential air service program, which provides US airlines
money to fly to airports in parts of the country that would not really have air
service otherwise. So for US airlines to say that they don’t receive any money
from the government would be a false statement. They might not be directly
owned by the governments like in Asia and the
Gulf but in the end, money is money.
After looking at this topic broader
including Asian carriers and are own US based carriers, it makes me wonder how
fair the open skies agreement is really. I think all airlines receive some sort
of money from their governments and if they want to share they information that
is up to them. However I do agree that the unfair part comes to play when some
receive more than other which can give them an unfair advantage in the
industry. If you have money it is easier to grow and really advance the company
to a good profitable airline. The open skies agreement has really opened the
world to many new places, but as also caused problems that US airlines will
continue to fight as they don’t forget the threat of the Chinese carriers. As
always the aviation industry is always growing and changing, so we will have to
see what the future brings.
Resources
Chinese airlines
overtake US carriers across the Pacific. The big dilemma: US-China open skies?
(2015, May 4). Retrieved from, http://centreforaviation.com/analysis/chinese-airlines-overtake-us-carriers-across-the-pacific-time-for-us-china-open-skies-222454
Emirates Confirms
Billions in Government Subsidy for Airport Terminal. (2015, August 27).
Retrieved from, http://www.prnewswire.com/news-releases/emirates-confirms-billions-in-government-subsidy-for-airport-terminal-300134208.html
Jansen, B. (2015,
March 06). U.S.
airlines contend Gulf rivals are subsidized unfairly. Retrieved from, http://www.usatoday.com/story/travel/flights/2015/03/05/airline-treaties-american-delta-united-emirates-etihad-qatar-gulf/24422137
Modolo, K. (2015,
October 28). Subsidized Gulf carrier competition forces Delta to cancel
ATL-Dubai. Retrieved from,http://news.delta.com/subsidized-gulf-carrier-competition-forces-delta-cancel-atl-dubai
Open Skies
Partnerships: Expanding the Benefits of Freer Commercial Aviation. (2011, March
29). Retrieved from,http://www.state.gov/r/pa/pl/159347.htm
Schaal, D. (2015,
April 09). WikiLeaks Disclosure Shows U.S. Airlines Received Billions in
Subsidies. Retrieved from https://skift.com/2015/04/09/wikileaks-disclosure-shows-u-s-airlines-received-billions-in-subsidies/
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