That news shouldn’t come as a surprise to frequent flyers, who know U.S. carriers such as American prefer more utilitarian premium cabins — with flat-bed seats and gourmet food, but without the over-the-top luxury often favored by the three largest Gulf carriers. During the past decade, Emirates Airline, Etihad Airways and Qatar Airways have taken share from U.S airlines and their European partners, especially on routes to the Middle East, Africa and India, by offering unusually opulent premium products.
Like its main U.S. competitors, Delta Air Lines and United Airlines, American has objected to the three Gulf carriers, alleging they compete unfairly by taking subsidies from their governments. The three U.S. carriers, through a trade association, have argued the Gulf carriers should be barred from adding new U.S. routes until addressing the subsidy issues. Emirates, Etihad and Qatar deny they receive illegal government assistance.
On American’s third quarter earnings call Thursday, an analyst asked CEO Doug Parker whether American might consider competing with the Gulf carriers in a different way — by continuing to improving its product. American has made major strides with its business class cabin in recent years, and executives said on the call they believe their product is superior to United’s and Delta’s.
“Look, the issue with the Middle East carriers is not about their product,” Parker said. “It’s a symptom of the problem. When you’re subsidized and you don’t care about profits you can certainly put in place a product that’s uneconomic, because the flying itself is uneconomic. The answer to the Middle East carrier issue is not for us to have a product that competes with them. The answer is for them not to be subsidized.”
Parker ‘Hopeful’ About U.S. Policy
During the waning months of the Obama Administration, American’s trade group, the Partnership for Open & Fair Skies, had asked officials to engage in consultations with the governments of Qatar and the United Arab Emirates to address the issue, since the Open Skies agreements signed by both countries bar certain types of subsidies.
That did not happen, though the sides met informally last year. Since then, official U.S. policy has not changed, but Emirates and Etihad have reduced U.S. flights for what they say are commericial reasons. Emirates blamed the U.S. government’s temporary laptop ban, as well as the Trump Administration’s proposed travel ban, for depressing demand for U.S travel.
While U.S. airlines had been bullish the Trump Administration would take the subsidy threat seriously, so far there has been little indication much will change. However, Parker said Thursday he’s had “productive conversations” with the Administration, and he’s “hopeful” U.S. policy will evolve.
China a Different Issue
Until it does, the three Gulf airlines may launch as many U.S. routes as they want. That includes routes stopping in Europe, such as Emirates new Dubai-Athens-Newark flight.
That new route, which started in March, has angered executives at United, since it has a hub in Newark. Last week, the same analyst asked United President Scott Kirby why United objects to Emirates’ expansion, but not to new U.S. flights from China Eastern and China Southern —two government-controlled carriers that almost certainly receive subsidies.
“It’s really not the same extent, and certainly they are not allowed to do things like fly from Newark to Athens,” Kirby said last week.
Earlier this year, American bought a $200 million stake in China Southern Airlines, and Delta owns a larger stake China Eastern Airlines.
But like other U.S. airline executives, Parker has little to say about China’s airlines, instead focusing on the Gulf carriers.
“One of the biggest threats to the long-term viability of our business is the U.S. government not stepping up and making sure that those two countries aren’t allowed to continue to subsidize flying and jeopardize U.S. aviation jobs,” Parker said. “What we can’t do is compete against oil-rich countries that don’t care about making profits.”