In a potential blow to United Airlines, Delta Air Lines, and American Airlines, the U.S. State Department is not expected to seek official consultations with the governments of Qatar and the United Arab Emirates to discuss whether Emirates, Etihad Airways, and Qatar Airways have unfair competitive advantages over their U.S. counterparts, according to a person familiar with the matter.
The government has started briefing stakeholders about its intentions, the source said. Politico first reported the news.
The U.S. carriers, along with several labor unions representing their employees, have argued that all three major Persian Gulf airlines are violating terms of Open Skies agreements that allow them unfettered access to U.S. airports. The diplomatic agreements permit the U.S. government to call for consultations with foreign governments if the State Department believes foreign airlines have violated them.
However, despite intense lobbying from these three U.S. carriers, the State Department is expected to announce it will not request official consultations. Instead, U.S. diplomats likely will bring up the issues at more informal meetings scheduled for this summer. The government also apparently declined to temporarily ban Emirates, Etihad, and Qatar from adding new U.S. routes, as the U.S. airline lobbying group had requested. They remain free to launch new flights at will.
Though the government had not yet made an official announcement, both sides of the Open Skies debate claimed victory on Monday.
“I am grateful to the Obama administration for not buying into a highly questionable suite of arguments against Open Skies that from the beginning smacked of protectionism, cronyism and an unfortunate allergy to healthy competition,” Roger Dow, president and CEO of the U.S. Travel Association, said in a statement.
But Jill Zuckman, spokeswoman for the Partnership for Open & Fair Skies, lauded the government for taking some action. Her group, supported by American, Delta, and United, as well as many airline employee unions, has claimed Emirates, Etihad ,and Qatar combined have received more than $42 billion in government subsidies since 2004. It has charged that the subsidies violate a section of the Open Skies agreements that ban airlines from charging “prices that are artificially low due to direct or indirect government subsidiary or support.” Emirates, Etihad, and Qatar have responded that they are for-profit businesses and receive no unfair subsidies.
“We appreciate how seriously the United States government has taken the issue of massive subsidization of the Gulf carriers,” Zuckman said in a statement after news of the State Department’s apparent decision leaked. “Discussions between our governments are an important step forward.”
All U.S airlines generally support Open Skies agreements, as they give them rights to serve many important foreign airports as often as they wish. The U.S. has such agreements with more than 100 countries and regions, and without them, cities like Dallas-Fort Worth, Detroit, Las Vegas, Memphis, Minneapolis, Portland, and Salt Lake City likely would have far less international service. International fares also likely would be higher from all cities.
But in this case, Emirates, Etihad, and Qatar have leveraged the agreements to ramp up their operations in the United States. Emirates now serves 10 U.S. cities, while Qatar flies to eight and Etihad flies to six.
The trio rarely competes head-to head with U.S. carriers, who have canceled most of their Middle East flights in recent years. But they do compete on many one-stop itineraries, especially to India and the Middle East. And in many cases, the Persian Gulf carriers undercut prices offered by the U.S. airlines and their European partners.
This issue has been divisive in part because many U.S. aviation interests do not agree with United, Delta, and American. Fedex Express has been especially vocal, as it leverages global Open Skies agreements to efficiently operate its businesses. Fedex joined with Atlas Air Worldwide Holdings, Hawaiian Airlines, and JetBlue Airways in opposing the Delta, United, and American request for consultations.
“The Big 3 claim to support Open Skies but their demands, if implemented, would endanger this network of more than 100 U.S. aviation agreements,” the four airlines and shipping companies wrote to the government in 2015.
The U.S. airlines and their Gulf counterparts also have long disagreed over what constitutes a subsidy. In its 210-page response to charges it had received subsidies, Emirates turned the accusation around, noting it had not “depend[ed] on government subsidies, bail-outs, and bankruptcy laws,” as some U.S. carriers did. Using its own methodology, Emirates claims U.S. carriers received more than $100 billion in government subsidies between 2002 and 2015. “The legacy carriers benefit from massive federal, state, and local government support of their own,” Emirates said. Not surprisingly, the U.S. carriers deny they have received subsidies.
In a June 24 interview with Skift, Etihad Aviation Group President and CEO James Hogan reiterated that his carrier had done nothing wrong. He also said Etihad’s actions should not concern U.S. airlines.
“We were able to demonstrate we created no damage for U.S. carriers,” he said. “We are very clear that what we do is generate more customers. We give access to the American market for people who want access to that part of the world — places like Pakistan and Sri Lanka, where you won’t see a U.S. flag carrier.”