Gulf carriers cutting into market - US airlines

Etihad Airways, Qatar Airways and Emirates have emerged as dominant players in the international travel market. Photo / iStock

The three big US international airlines say competition from rapidly-expanding Persian Gulf carriers has cut their passenger load to the Middle East and Asia by more than 20 per cent.

That data was contained in the latest salvo from the triumvirate — American Airlines, Delta and United — as they seek federal intervention to slow the growth of gulf carriers.

In a filing this week to the US Department of Transportation, the three US airlines said the competition had caused sharp declines in their passenger volume from three major domestic airports that serve as hubs for routes to the Middle East and Asia.

The airlines said passenger loads from Boston were down by almost 23 per cent and from Washington Dulles International Airport by 25 per cent, and their joint venture partners had seen a more than 28 per cent drop from Seattle on flights bound for the two regions.

The international market is vital to the US airlines, which recently regained their financial footing after a decade of bankruptcies and mergers. But the companies' return to solvency comes in an era in which there is little growth in the domestic market and international flights offer a better prospect.

The need to expand globally has resulted in head-butting with three gulf airlines — Etihad Airways, Qatar Airways and Emirates — that have emerged as dominant players in the international travel market.

"These guys are real competitive threats," said Bill Swelbar, an MIT professor and adviser to the three US airlines. He said joint-venture agreements between US and European airlines are notably at risk.

"You think about a Lufthansa under attack; that makes United under attack. You make KLM and Air France under attack; that makes Delta under attack, because these agreements are very much the fabric of a joint venture," Swelbar said.

The US airlines cried foul early this year, contending that three gulf carriers receive enormous subsidies from the countries that own them. The US airlines want the federal authorities to open talks with those governments under the Open Skies Agreement and to cap service to the United States by the gulf airlines at current levels while the discussions are underway.

Though US transportation officials have opened a formal docket that has drawn scores of comments from interested parties on either side of the argument, the officials have been noncommittal about their intentions, even to the point of declining to set a firm timetable for their response.

The 400-page filing by the US airlines this week comes as a rebuttal to docket submissions by the gulf airlines, which said their governments are making investments in their airlines with the expectation of financial returns. They rejected the contention they were government subsidised.

Determining subsidies vs investments is challenging because the gulf airlines have no obligation to open their books as a publicly traded US corporation must.

As an example of a subsidy, the US filing cited the $7.8 billion that the United Arab Emirates spent to expand and transform the airport in Dubai for the benefit of Emirates airline. The filing also pointed to government land that was given to Qatar Airways to build office and residential space. And it said financial statements showed that Etihad received billions in cash from the Abu Dhabi government.

"Time and time again the gulf carriers manipulate the facts in order to support their false claims," said Jill Zuckman, spokeswoman for the three US airlines. "The Obama administration should closely review this evidence and quickly request consultations."

Any hope for a united American front in the dispute fractured this month when FedEx and another US international cargo carrier, Atlas Air Worldwide, and two smaller US passenger carriers, JetBlue Airways and Hawaiian Airlines, weighed in against the push to open negotiations under the Open Skies agreement.

Open Skies agreements with more than 100 nations allow airlines from different countries equal access to one another's airports without interference from the respective national governments. A US official who spoke on the condition of anonymity said it would be "a major breach" of Open Skies if the United States tried to limit the access of gulf airlines to US markets.

Bijan Vasigh, a business professor at Embry-Riddle Aeronautical University, predicted that's unlikely to happen and suggested the US airlines may have a second motive.

"This could be some type of pre-emptive strike by the US airlines to [force] some sort of voluntary restrictions by Emirates, Etihad and Qatar," Vasigh said.