Fair and open skies for US and Gulf carriers

Opinion: US airlines’ preoccupation with amending the open skies agreement with the GCC carriers fails to take into account the broader dynamics of a global aviation industry.
Fair and open skies for US and Gulf carriers
Accusation: US carriers claim Gulf airlines are benefiting from government subsidies.
By Captain Tilmann Gabriel
Thu 25 May 2017 12:36 PM

The aviation industry is one of the most susceptible to global economic shocks, whether as a result of political crises, sudden fluctuations in oil and gas prices or shifts in financial markets.

The biggest international events of the past few decades have clearly demonstrated this, and to allow this sector to continue to realise its potential, all carriers, including the legacy airlines of the US — must focus on the future, not the past. That means they must recognise that the changes in the airline industry are critical to the sector’s long-term success.

After 9/11 and the 2008 financial crisis, most US airlines went through Chapter 11 bankruptcy protection, socialising their department onto the taxpayer — an instrument not available in most other countries. By EU regulations, airlines owned by the government (as few as there are left in Europe) can only subsidise their national carrier once.

The Middle East carriers are capitalised by the enormous wealth of the state investment funds (the US and EU airlines call this subsidy), which is now under pressure with the declining revenues out of lower oil and gas prices.

All these major disruptions are forging stronger relationships amongst those airlines, and also partnerships and investments beyond Europe. The largest airline groups launched what is dubbed the Airlines for Europe (A4E) alliance in January 2016, which brought together budget carriers — such as Easyjet and Ryanair — with the sector’s giants, including Lufthansa, Air France-KLM and the International Airline Group (IAG), the parent company of British Airways, Aer Lingus, Iberia and Vueling.

Since then, however, whilst Lufthansa and Etihad have previously fought over Air Berlin codeshare rights, the two reconciled their differences to become business partners in 2016. On a similar note, in August 2016, Qatar Airways boosted its stake in British Airways-owner IAG, to more than a fifth of the company, becoming its largest investor.

Moreover, many countries simply do not have national four-or five-star airlines (or any national carrier at all), and rely on others to ensure their residents are comfortably well-connected, and that in-bound tourism is supported. This rationale is what guided Emirates’ announcement this year that it will launch a new daily service from Dubai to Newark via Athens.

The move will mark the first time Greece and the United States will enjoy year-round, non-stop, daily service between them since 2012, and the agreement obviously came about with the full support of the Greek government.

Against such a backdrop, the US airlines must recognise that they are competing not only against their counterparts in the Gulf, but against airlines all over the world, and any route embargos cannot specifically target Emirates, Etihad or Qatar.

For example, Singapore Airlines flies from five US cities, stopping in a different country before going to Singapore, and Air New Zealand flies from Los Angeles to London. Meanwhile, Delta and United both fly routes from Tokyo that don’t involve their home country — Delta to six other Asian countries, and United to Seoul. The US must seek to build its relationships with all airlines and airports, or to be more consistent in the way it applies rules.

It is important for the three legacy airlines of the United States to recognise that they simply aren’t the only players in the market, and to realise that the smaller, four-star airlines rely on established international carriers for their business.

There is no doubt that the world has been and will continue to be more interconnected, and with that, more passenger traffic is being created. The overall operations and service models of airlines are also continually changing, and there is clearly a strong case for less protectionism and fairer, open sky policies.

This is essential not only for the long-term sustainability of the industry, but also to cater to an ever-changing, globalised consumer world.

Captain Tilmann Gabriel, Director at City, University of London.

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