It seems unfair that Emirates, based in Dubai, would have rights to fly from Athens to Newark. But that right is codified in the Open Skies agreement between the United States and the United Arab Emirates. The Trump administration could revisit that agreement, but other U.S. businesses, especially logistics companies like FedEx, could suffer.
On Monday, Emirates Airline announced an unusual route that drew a harsh response from a trade group representing the three largest U.S. airlines. The Dubai-based carrier said it will fly from Athens to New York, nonstop, beginning in March.
At least at first, Emirates won’t have direct year-round competition since American Airlines, United Airlines, and Delta Air Lines only fly to Athens during the warmer months, but this is still a curious decision. Unlike London, Paris or even Madrid, Athens is not considered a lucrative destination for airlines. Yields, a measure the industry uses to monitor ticket prices, tend to be low, since Athens is not a global business hub.
Yet the three U.S. airlines are furious. They get angry enough when Emirates — and its two main Gulf competitors Etihad Airways and Qatar Airways — launch new nonstops from the Middle East to the United States. But this is different. For the second time, Emirates will be flying a nonstop route from Europe to the United States.
“By flagrantly violating its Open Skies agreement with the United States at the start of the Trump administration, Emirates is throwing down the gauntlet,” Jill Zuckman, spokeswoman for the Partnership for Open & Fair Skies, a trade group representing United, Delta and American, said in a statement. “We look forward to working with President Trump and his team to enforce these agreements and protect American jobs – something that the Obama administration failed to do.”
Trump may give the U.S. airlines what they seek. He might try to renegotiate the Open Skies agreements between the United States and Qatar and the United Arab Emirates, which, for now, allow the Gulf carriers to launch as many flights as they want from their home countries to the United States. It even permits them to make stops in Europe in places like Athens. U.S. airlines have similar rights in some regions to fly between two foreign countries, but they operate relatively few so-called fifth-freedom routes, with most in Asia.
The Gulf carriers don’t operate many of these flights, either. There’s only one similar route —an Emirates nonstop from Milan to New York — but U.S carriers are concerned the airlines could launch more, cutting into their trans-Atlantic profit margins. Emirates has in the past signaled it might want to fly from Budapest to the United States, though it’s far from guaranteed it will add more trans-Atlantic routes. Flights that do not arrive or depart from a hub can be challenging for airlines, since there is no obvious customer base.
Not a clear-cut issue
If the Trump Administration steps in, it is possible Emirates, Etihad, and Qatar will have to slash flights to the United States, or that the three airlines will no longer be able to pick up passengers in Europe. But like a lot of things in politics, this issue is not as simple as the Partnership for Open & Fair Skies wants Americans to believe.
U.S. airlines do not rely on the Open Skies agreements with Qatar and the United Arab Emirates, because American, Delta, and United do not fly to the countries. Delta and United each canceled their lone Dubai route early last year.
However, U.S.-based cargo operators need the agreements so they can fly packages nonstop between Asia and India and the Middle East. Gulf traffic rights are vital to Federal Express, which in recent months has criticized, “those seeking to roll back a pro-competition, pro-consumer policy under the misleading guise of ‘protecting U.S. jobs.” Open Skies agreements are also important to Atlas Air Worldwide, which also opposes American, United, and Delta through the trade group, U.S. Airlines for Open Skies.
Though FedEx backs Open Skies agreements everywhere, it is particularly interested in ensuring the agreement with the United Arab Emirates stays as it is.
“We have established a hub in Dubai, where FedEx flights from the U.S. criss-cross with our flights from India and Asia in order to move U.S. products into local markets,” FedEx told the Obama Administration in 2015. “This hub also acts as our gateway into Africa.”
That means if the Trump Administration moves to protect one U.S. industry — passenger airlines — it may directly hurt another, putting FedEx’s Dubai operation in peril. It would also hurt at least two U.S. airlines, JetBlue Airways and Alaska Airlines, since both carry Emirates’ passengers on their domestic U.S. flights. Emirates relies on Alaska to feed customers to its Seattle-Dubai flights and on JetBlue to feed its flights to Dubai from Boston and New York.
The Trump Administration may see it differently, but it’s also not clear the Gulf airlines are breaking the terms of their agreements. The Partnership for Open & Fair Skies has argued that Emirates, Etihad, and Qatar violate a provision that prohibits the carriers from taking government subsidies. They say the three carriers have received more than $50 billion from their governments.
It’s a charge the three Gulf carriers deny, saying they are for-profit businesses that, like many airlines worldwide, receive indirect help from governments to cover some costs. The Gulf carriers also have argued U.S. airlines have been beneficiaries of their own indirect government assistance, including through the country’s unusually pro-business bankruptcy laws. Delta, United, and American counter that bankruptcy protection does not count as a subsidy.
Still, the agreements are also vague about what constitutes a subsidy. They only ban airlines from charging “…prices that are artificially low due to direct or indirect governmental subsidy or support.”
Delta, which has been the most vocal in opposing the Gulf carriers, has suggested the Trump Administration may be more amenable to its arguments. Speaking on Delta’s January 12 earnings call, CEO Ed Bastian said he is optimistic the Trump Administration will “enforce its trade agreements.”
“We’re very excited about the opportunity to present our case relative to the Middle Eastern situation with all the growth that those carriers have brought to this country on a subsidized basis where we’re competing against governments, not airlines,” Bastian said. “[We want] to let the Trump administration know how we can do … a better job of protecting U.S. jobs and U.S. opportunities going forward and also protecting trade deals and enforcing trade deals that are being violated.”
But Jonathan Grella, executive vice president of public affairs for the U.S. Travel Association, sees it differently. His group promotes tourism to the United States and views all new flights as important for the U.S. economy. It wants the Trump Administration to take a liberal view toward Open Skies agreements.
“Surely an international businessman like the President understands the value of welcoming people from all around the world to your property or your country, in hopes that they will spend their money and come back again” said Grella, a former Republican party political spokesman. “We could either be opportunistic and entrepreneurial or we can make it harder for people to come to America and give into this contrived sob story that is being perpetuated by the legacy carriers and their unions.”
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Photo Credit: Emirates passenger planes are in use at Dubai airport in United Arab Emirates. A trade group representing United, Delta and American wants the Trump Administration to make it more difficult for Emirates and other Gulf carriers to grow in the United States. Kamran Jebreili / Associated Press
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