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Fri 16 Sep 2016 12:19 AM

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The double standards of US carrier complaints over Gulf codeshare deals

Automatically handing the Big Three airlines US government contracts would simply amount to state subsidies, says Ed Attwood

The double standards of US carrier complaints over Gulf codeshare deals

It’s been a relatively quiet summer for the Gulf airlines and their seemingly endless spat with American carriers. That all changed at the beginning of this month, when Delta Airlines cried foul over a decision by the US government to award a contract for federal worker travel between New York and Milan to JetBlue Airways, on flights that are operated by Emirates.

The contracts were awarded by General Services Administration (GSA), which said codeshares are permitted under the Fly America Act and that the contracts awarded to JetBlue were done so because it offered cheaper fares than the three big US airlines — Delta, United Airlines and American Airlines. Delta’s point is that the Fly America Act says that all travel paid for by US government federal employees must be on a US airline.

At face value, it seems that, for once, the big American airlines have some substance to their complaints. But dig a little deeper and it’s soon apparent that something smells — and it’s not the contents of one of Delta’s inflight meals.

Yes, JetBlue does not operate services to Dubai (or anywhere else outside the US, for that matter). But there are many examples of the ‘Big Three’ US carriers using foreign airlines for GSA contracts for their own benefit. Delta’s service between Washington and Paris, for example, is operated exclusively by Air France. In this case, Delta could provide its own aircraft to service the route, but chooses not to. American Airlines, meanwhile, has chosen Etihad and Royal Jordanian to operate its GSA routes between Chicago and Abu Dhabi and Amman, respectively.

In addition, of the 83 deals that the programme has awarded for 2017 that operate to Dubai, Doha and Abu Dhabi, 75 of those have been handed to Delta, American and United. Any government employee travelling to Dubai from one of 30 American cities must fly with a US legacy carrier. Some might argue that that in itself is a protectionist policy — but you won’t hear any of the Gulf airlines complaining.

What’s in it for JetBlue? Well, as airlines don’t tend to break out the revenue-sharing details of their code-sharing arrangements for commercial reasons, we don’t know how much JetBlue stands to gain from the GSA contract. Probably not much in terms of direct revenue. But where it does undoubtedly benefit is through the thousands of passengers who step off an Emirates flight at a US airport and then step onto a JetBlue service for a codeshare connecting flight elsewhere in the country.

At this point, it’s worth remembering that services provided by the Gulf carriers actually provide more traffic for all American airlines; Emirates’ own analysis puts the cost of additional revenue gained by US legacy carriers from interline passengers who connect with the Dubai giant’s flights at $132m between 2010 and 2014.

But the most salient point here is that the GSA programme is not designed to shore up revenues at US carriers. It is intended to get the best deal possible for the government, thus taking strain off the American taxpayer. If a JetBlue/Emirates contract is both lawful under the terms of the Fly America Act and cost-effective, then it stands to reason that the US government should take that option. That’s how a free market operates.

Handing out the contract automatically to Delta or another ‘Big Three’ carrier would simply amount to yet another state subsidy that American legacy airlines already receive in terms of government assumption of airline pension obligations, bankruptcy debt relief, grants, loan guarantees, antitrust immunity and so on. Complaining about the lack of a level playing field when the big US carriers already use that same playing field to their own advantage is — as JetBlue CEO Robin Hayes has already succinctly put it — hypocrisy.

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