Author's Note:
For the final blog post in my college career, I wanted to look back at the Global Airline topic. In the original post, we examined the Open Skies Agreement and subsidies, identified participating carriers, and discussed the Export-Import Bank. This time, I decided to look into exactly who was opposing the Open Skies agreement, what their argument was, whether or not facts supported them, and the benefits of the Open Skies Agreements. I provide as much research as I could find and I make my recommendations.
Final Blog
Around the world, international aviation is as complex as any other subject of foreign relations, and the environment of international aviation is subject to trade agreements and requires some diplomacy. In the interest of creating a global airline economy that opens up markets and attempts to tap into otherwise inaccessible revenue streams, many nations create mutual agreements that allow the cooperating nations’ airlines to operate internationally and grants mutual rights in doing so. These international agreements are known as “Open Skies” agreements. The United States has many foreign nations with which it has established these Open Skies agreements. As stated on the United States Department of State website under “Civil Air Transport Agreements”:
The Department of State, working with the Departments of Transportation and Commerce, negotiates bilateral and multilateral civil air service agreements with foreign aviation partners. Since 1992, the United States has pursued an “open-skies” policy designed to eliminate government involvement in airline decision-making about routes, capacity, and pricing in international markets” (U.S. Department of State, 2002).
The Department of State negotiates the Open Skies agreements with foreign entities. The Open Skies agreements are created for the following reasons, that are outlined on the Department of State website:
America’s Open Skies policy has gone hand-in-hand with U.S. airline globalization. By allowing U.S. air carriers unlimited market access to our partners’ markets and the right to fly to all intermediate and beyond points, Open Skies agreements provide maximum operational flexibility for airline alliances (U.S. Department of State, n.d.).
As of recent, the United States is involved with over 120 partners in reciprocal Open Skies agreements. The United States has established many of the Open Skies agreements in bilateral form. In addition to the bilateral agreements, the United States is involved in two multilateral Open Skies agreements. As outlined by the Department of State:
In addition to bilateral Open Skies air transport agreements, the United States has negotiated two multilateral Open Skies accords: (1) the 2001 Multilateral Agreement on the Liberalization of International Air Transportation (MALIAT) with New Zealand, Singapore, Brunei, and Chile, later joined by Samoa, Tonga, and Mongolia; and (2) the 2007 Air Transport Agreement with the European Community and its Member States. The United States maintains restrictive non-Open Skies air transport agreements with a number of other countries, including China (U.S. Department of State, n.d.).
Recently, the Open Skies agreements between the United States and certain Middle Eastern countries have come under scrutiny. The Delta Airlines News Hub reports:
Delta, along with American and United through the Partnership for Open & Fair Skies, have asked the U.S. government to open consultations with Qatar and the UAE to address the issue of $42 billion in government subsidies given to the Gulf carriers, which violate the Open Skies agreements between the U.S. and those nations (Modolo, 2015).
The subject of controversy is government subsidies provided to foreign airlines that are perceived as an unfair advantage and as a violation of the Open Skies agreements. The “Big Three” United States air carriers, Delta, American, and United airlines, joined forces in creating the Partnership for Open & Fair Skies. An article by Modolo in USA Today states that “the Partnership submitted a nearly 400-page document to the United States government clearly outlining the harm subsidized Gulf carriers are doing to U.S. airlines” (Modolo, 2015). According to USA Today, the Big Three and their unions “urged the government Thursday to renegotiate treaties with the Persian Gulf countries” (Jansen, 2015). Despite the claims of the Big Three, the United States should keep the Open Skies agreements because of the agreements’ economic benefit to the United States, other United States air carriers and organizations support the agreement, and the gulf carriers are justified since all airlines receive financial support from their home governments to some extent.
The Big Three airlines and their proponents, including associated unions, want the U.S. government to intervene. USA Today highlights that:
The airlines want the government to begin formal consultations with Qatar and United Arab Emirates to resolve complaints. They are also asking the government to prevent any additional Gulf routes to the USA until the dispute is resolved. Ultimately, the treaties between the countries could be terminated (Jansen, 2015).
An article from USA Today revealed that, the United States airlines involved in the Big Three, acting upon the belief that there were unfair practices being conducted by the Gulf carriers, raised allegations to three associated departments in the government to be reviewed:
Airline executives revealed a month ago they circulated a 55-page briefing paper outlining the subsidies to officials at the Transportation, State, and Commerce departments, in an effort to change or scrap treaties called “open skies” agreements with the United Arab Emirates and Qatar (Jansen, 2015).
The allegations against the Gulf carriers, put forth by the Big Three, target the “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, 2015).
The executives of both Emirates and Etihad airlines quickly disputed the complaints of the Big Three airlines regarding government subsidies. Tim Clark and James Hogan, the CEOs of Emirates and Etihad respectively, claimed that they would “rebut the charges one-by-one from a 55-page report that the three largest U.S. airlines submitted” (Jansen, 2015). Hogan, the CEO of Etihad, claims that the government subsidies are misunderstood. In the USA Today article “Emirates, Etihad rebut U.S. airlines’ charge”, it is revealed that:
Hogan acknowledges at the U.S. Chamber of Commerce aviation summit that Etihad got equity investment and shareholder loans from its owner, the United Arab Emirates. But he said Etihad started from scratch in 2003 needing to buy planes, develop airport access and build up customers – and he denied getting free fuel or ground handling, as had been rumored in the past (Jansen, 2015).
Hogan was quoted telling aviation industry representatives at the Chamber of Commerce summit that, “Etihad is a David that has been facing Goliaths since 2003 when we started” (Jansen, 2015). The origin story of Etihad depicted by Hogan pretty closely aligns with the origin of the United States carriers. As stated in another article on USA Today, titled “How much do taxpayers support airlines?”, it is revealed that:
In large measure, U.S. legacy airlines actually were created by federal largesse, particularly the Contract Air Mail Act of 1925, which provided agreements and subsidies that pioneered what would eventually become the carriers’ domestic route maps. As the Smithsonian noted, the U.S. industry in the 1920s “depends for its existence almost wholly upon orders placed by Government services (McGee, 2015).
The Contract Air Mail Act of 1925 was not the last time that U.S. air carriers received government subsidies. Most recently, there was the airline bailout in the aftermath of the 9/11 attacks and the grounding of commercial aircraft. The Air Transportation Safety and Stabilization Act was quickly passed by President Bush and Congress (McGee, 2015). The claim that U.S. air carriers do not receive government subsidies can be contested. Examples of on-going government aid are the Fly America Act, the Essential Air Service program, and the billions of tax dollars going to aviation infrastructure (McGee, 2015). The Fly America Act, created in 1974, requires federal agencies to “use U.S. air carriers to transport passengers and cargo when such travel is funded by the government” (McGee, 2015). The Essential Air Service program “currently provides subsidies for airlines serving 163 rural communities nationwide” by subsidizing airlines to continue routes that they would otherwise abandon, and leave void of air service, because of the lack of profitability (McGee, 2015).
An argument posed by the Big Three maintains that “the advantages have allowed substantial growth in the last decade despite almost no growth in overall passengers, with Emirates reaching the top capacity in the world last year, with Qatar 10thand Etihad 13th” (Jansen, 2015). The United States airlines so strongly oppose the government subsidization and claim that it provides an unfair advantage for the foreign carriers, and yet the United States government has provided subsidies since the conception of the airlines and contributes billions of tax dollars toward the airline industry and its infrastructure.
The USA Today article titled “Gulf airlines woo U.S. fliers as trade spat gains intensity” proposes the true reasons behind the so-called “trade spat” that the United States carriers have brought about in the following:
The three fast-growing “Gulf carriers” have ruffled the feathers of the three biggest U.S. airlines, tweaking them with their breakneck growth and broad expansion into the U.S. market.
Those airlines – Emirates, Etihad and Qatar Airways – also have cultivated high-end reputations, winning over many U.S. customers in the process.
Each of the Gulf carriers touts a fleet of sparkling new widebody jets. The airlines’ customer service also routinely rates as among the best in the world (Mutzabaugh, 2015).
The USA Today article suggests that the Big Three are raising concerns about unfair practices, but in actuality, the Gulf carriers are winning over their passengers with a superior experience. The Gulf carriers have newer, more accommodating aircraft and better customer service proving to have competitive advantages over the Big Three.
In examining the benefits of the Open Skies agreements, the agreements “have vastly expanded international passenger and cargo flights to and from the United States, promoting increased travel and trade, enhancing productivity, and spurring high-quality job opportunities and economic growth” (U.S. Department of State, n.d.). A key component of the service provided by the Gulf carriers, is that they bring millions of travelers to the United States from places in the world that are not serviced by the U.S. carriers. USA Today says, “Emirates carried 2.4 million travelers to the United States last year, including 1.7 million from Africa, India and other countries without much U.S. service” (Jansen, 2015). The services of the Gulf carriers are a benefit to the United States’ economy. The 2.4 million travelers inevitably provide a boost in revenue for U.S. businesses, falling in the category of tourism, while they are in country.
The Gulf airlines also provide economic benefit to United States aircraft manufacturers. USA Today states:
Danny Sebright, president of the U.S.-UAE Business Council, said Boeing sold $130 billion worth of aircraft at the 2013 Dubai Air Show to UAE airlines.
“UAE airlines are the biggest international buyers of U.S. manufactured commercial aircraft and engines, with over 400 airplane deliveries and orders in the last 15 years,” Sebright said. “And with 252 non-stop flights a week to the U.S., UAE airlines are bringing millions of visitors a year to cities across America, filling local airports, hotels, attractions and restaurants” (Jansen, 2015).
The UAE purchasing all of these American-made Boeing aircraft results in the creation and continuation of American manufacturing jobs.
Support for the Big Three is not unanimous even among United States companies and organizations. Many propose that all airlines receive government support in their own ways and to varying degrees. The following is from a USA Today article:
“There’s not a playing field in the world that is level,” says Kevin Mitchell, chairman of the Business Travel Coalition and an opponent of restricting access to Gulf airlines. Other parties – including U.S. carriers FedEx, JetBlue, and Hawaiian – agree with Mitchell and have challenged the Big Three’s claims they’re protecting American jobs rather than protecting their turf (McGee, 2015).
In addition to the chairman of the Business Travel Coalition and these United States-based air service providers, the CEO of the U.S. Travel Association, Roger Dow, disagrees with the argument of the Big Three. As noted in USA Today:
Roger Dow, CEO of the U.S. Travel Association, said the three largest U.S. airlines have been helped enough by the federal government over the years “that playing the subsidy card strains credulity in the extreme.”
“The bar should be extremely high to roll back these trade agreements that have unquestionably benefited travelers and the U.S. economy,” Dow said (Jansen, 2015).
Ultimately, the United States benefits from the Open Skies agreements, in numerous ways, and the United States government should leave the agreement in place. The global aviation market can never be a completely fair playing field, but the United States airlines have been at the top and are doing well enough abroad that they should continue to compete. It would behoove the United States government to assist its’ domestic air carriers in catching up or surpassing foreign carriers in their fleet acquisition. The Gulf carriers are able to purchase new aircraft at lower than market interest rates through the Export-Import Bank, which is not available to the domestic carriers. The United States government has a chance to pacify the Big Three by supporting them more, and in doing so, the United States could potentially increase its economic strength if it were to increase market share in the global air transportation market.
References
Jansen, B. (2015, March 5). U.S. airlines contend Gulf rivals are subsidized unfairly. USA Today.
Retrieved from https://www.usatoday.com/story/travel/flights/2015/03/05/airline-treaties-american-delta-united-emirates-etihad-qatar-gulf/24422137/
Jansen, B. (2015, March 17). Emirates, Etihad rebut U.S. airlines’ charge. USA Today. Retrieved
from https://www.usatoday.com/story/todayinthesky/2015/03/17/gulf-carriers-etihad-emirates-subsidies-us-chamber-aviation-summit/24844191/
McGee, B. (2015, September 2). How much do taxpayers support airlines? USA Today.
Retrieved from https://www.usatoday.com/story/travel/columnist/mcgee/2015 /09/02/how-much-do-taxpayers-support-airlines/71568226/
Modolo, K. (2015, October 28). Subsidized Gulf carrier competition forces Delta to cancel
ATL-Dubai. Delta News Hub. Retrieved from https://news.delta.com/subsidized-gulf-carrier-competition-forces-delta-cancel-atl-dubai
Mutzabaugh, B. (2015, March 15). Gulf carriers woo us fliers as trade spat gains intensity. USA
Today. Retrieved from https://www.usatoday.com/story/todayinthesky/2015/03/17/gulf-carriers-woo-us-fliers-as-trade-spat-gains-intensity/24908245/
U.S. Department of State. (2002). Air Transport Agreement between the government of
the United States of America and the government of the United Arab Emirates. US Department of State. Retrieved from https://www.state.gov/documents/organizatio n/1 25743.pdf
U.S. Department of State. (n.d.). Civil air transport agreements. US Department of State.
Retrieved from https://www.state.gov/e/eb/tra/ata/
No comments:
Post a Comment