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The ongoing battle between legacy U.S. carriers Delta Air Lines, United Airlines, and American airlines and their Gulf rivals Etihad, Emirates, and Qatar Airlines shows no sign of abating.
On one side are the U.S. airlines and their allies, mostly a mix of unions they have contracts with and municipalities where they have hubs or where mayors want to guarantee continued service. On the other side are many other U.S. airlines, most of the major global hotel chains, and the nation’s largest tourism lobbying group.
This week, one tourism board and one airline released letters in support of opposite sides of the cause, and it’s worth looking at them in comparison to understand what’s happening: One from Lufthansa, which has struggled mightily to compete with Gulf carriers as it struggles with labor issues, and the other from Discover LA, which benefits from multiple inbound airlines to drive visitors to the market.
Los Angeles Tourism’s Case
The letter from Discover LA reads like a note from from somebody who wants to say that they’re having a great time but they don’t want to hurt anybody’s feelings:
“LAX is the nation’s second busiest airport with more than 70 million passengers, and is proud to be the number one U.S. airport for origin and destination travel. This ranking is, in large part, due to the growth of foreign carriers, many of which have received some level of government support.”
But it quickly hits the mark on why it can say things that other tourism boards only say off the record, out of fear they’ll anger a local political leader who can control their budget:
“Given that LAX is not a hub airport or dominated by any one U.S. carrier, its international growth has been dependent on its ability to attract the foreign flag carriers which have contributed mightily to the Los Angeles economy.”
Discover LA’s letter coincided with the US Travel Association’s release of a letter of opposition to Delta and the U.S. carriers that was signed by the country’s leading hospitality CEOs. Notably absent were leaders of destination marketing organizations, as they walk a delicate line between supporting local tourism and making sure they continue to get a decent air lift from U.S. carriers. Typical of the necessary cautious approach to the issue is New York City’s marketing organization. When asked about its position, NYC & Company told Skift, “Continued growth in international visitation to the United States remains a priority, as does ensuring that the marketplace remains fair for all operators. We look forward to the results of a thorough federal review.” Leaders of three other large market city destination marketing organizations told Skift they couldn’t comment on the issue.
The Lufthansa letter, on the other had, reads like evidence presented at a trial. “Gulf carriers generate their growth by taking substantial portions from other market participants. There is no evidence that the Gulf carriers meaningfully stimulate market growth.”
Lufthansa identifies two key strategies used by Gulf carriers to increase their market shares in Europe: Big planes and equity stakes.
“Emirates is using its largest aircraft, Airbus A380, mostly in European markets, not only at hub airports, but also at secondary airports,” Lufthansa’s report states. These A380s are being used not to better serve Europe, the argument goes, but to direct passengers through its hub in the Gulf. “Some 72% of the capacity available is filled with passengers travelling to destinations beyond the Gulf.”
One could argue that this is how hubs — like Lufthansa’s Munich or Frankfurt — are supposed to work.
The second argument focuses on Etihad’s strategy of taking equity positions in ailing carriers and injecting more money. “Etihad is using a different approach: It acquires equity in ailing EU carriers, namely Air Berlin, Alitalia, Air Serbia and Darwin Airline, using them to expand its network and market reach. This is against normal practices as required by an open market economy according to which a financially weak airline would have to be substantially restructured and downsized.”
This is similar to what British Airways parent IAG has done with Vueling and Iberia and is soon hoping to do when it acquires Aer Lingus.
The letters, below, are short. Much shorter than this debate has proven to be.