Open-Skies Agreements Challenged
For more than two decades, domestic airlines and successive administrations have pushed for, and achieved, broad international agreements that have fostered greater competition, lower airfares and more flights to hundreds of destinations like Tokyo, Beijing and Rio de Janeiro.
But now, with the rise of Persian Gulf airlines and other nimble foreign carriers, those pacts, called open-skies agreements, are under attack from an unlikely alliance of domestic airlines and unions.
The chief executives of American Airlines, Delta Air Lines and United Airlines recently joined together to quietly lobby the Obama administration to restrict access by fast-growing rivals based in the Persian Gulf. They cited unfair competition from the Middle East carriers Emirates, Etihad Airlines and Qatar Airways, which they say receive large government subsidies that put domestic carriers at a disadvantage.
This comes as another foreign airline, Norwegian Air Shuttle, is facing opposition from pilot unions and some domestic airlines to expand low-cost flights from Europe and Asia. The Transportation Department is reviewing Norwegian’s application, but delays have prompted a complaint by European Union officials.
Legacy airlines, which have traditionally backed open-skies policies to expand their markets, are now rebelling against the sort of competition that these policies are meant to bring about.
The push has gained their rivals’ attention. Tim Clark, the president of Emirates, said their attacks threaten “the bedrock of the modern-day aviation system.”
“By challenging open skies, you are not just challenging the aero-political situation, you are challenging the very essence of economic liberalization that the U.S. has championed for decades,” Mr. Clark said in an interview. “I hope the administration will not stand for this nonsense.”
Last week, the top executives from Delta, American and United met with several government officials, including Anthony Foxx, the transportation secretary, and Penny Pritzker, the commerce secretary, and requested that existing open-skies agreements with the United Arab Emirates and Qatar be renegotiated.
“We welcome robust competition provided the playing field is level,” all three airlines said in similar statements. “A reopening of those open-skies agreements is the first step and the right step to ensure competition is preserved and enhanced.”
This is the latest skirmish in a long-running battle that Western airlines have been waging against the fast-growing Middle East carriers. Some European countries curtail flights from the United Arab Emirates, and Canada has placed restrictions on the number of flights from there as well.
The three gulf carriers have expanded their operations into the United States in recent years, though they do not compete directly with domestic airlines. Emirates flies to nine United States cities from its hub in Dubai. Delta and United have only one daily flight each to Dubai and none to Abu Dhabi.
Gulf carriers are more threatening to the European allies of United States carriers, which have had more direct competition for a lot longer. Through their partnerships, all three big United States airlines have business ventures with a major European airline, sharing revenue and profits on trans-Atlantic flights: Delta with Air France, American with British Airways, and United with Lufthansa, the German carrier.
The domestic airlines’ change of heart about open-skies agreements is an abrupt shift after decades of pushing for them. Since 1992, the United States has signed more than 100 open-skies agreements, a policy that usually gets the strongest backing from the domestic carriers. Last year, Delta’s chief executive, Richard Anderson, called on Japan’s government to expand competition.
But it is the stunning ascent of the Persian Gulf carriers — Dubai’s airport is now the world’s busiest international air travel hub — that now concerns the domestic airlines. Mr. Anderson has become their most vocal critic, championing what he calls “fair skies” instead of open skies.
Last year, Delta sought to block gulf carriers from receiving American loan guarantees through the Export-Import Bank to buy new jets from Boeing. It also tried to block Emirates from flying a new route between New York and Milan, and took the matter before an Italian court.
Mr. Clark said Emirates did not receive any subsidies from the Dubai government. And in a sharp retort to Mr. Anderson, Mr. Clark warned that focusing on government subsidies could backfire since many airlines around the world were supported by governments.
“If you go down this minefield, you must ask yourself,” he said, “to what extent all the foreign carriers serving the U.S. are subsidized? Take China, take Thailand, take Malaysia, take Japan, take New Zealand. I could go on forever.”
Gulf carriers have succeeded by creating new markets that domestic airlines were not serving, Mr. Clark said. Emirates, for instance, offers connections between Seattle and Hyderabad in India, with a single stop in Dubai. The service is popular among the large population of technology workers with Indian origins.
“Look at where these people are going and ask yourself where was Delta, where was United, where was American when the world was becoming more globalized?” he said.
The latest talk of restricting flights has also divided the industry. Consumer advocates point out that opening new markets benefited travelers in the United States and abroad. Airports in the United States also welcome the extra traffic from the Middle East and beyond.
“Historically, shifts toward protectionism have ended up hurting markets and choking off growth and job creation,” the United States Travel Association said in a statement this week. “Travel to and within the United States has lately been under assault from protectionist, anti-competitive forces, and the move against open skies is the latest example.”
Not all domestic airlines are pushing against open skies. Robin Hayes, JetBlue’s chief executive, expressed strong support in a letter to three cabinet members, including Secretary of State John Kerry.
The first open-skies agreements between the United States and the U.A.E. and Qatar were signed in 1999. Both countries are major United States allies in the Middle East. Last year, in a move that angered domestic carriers, the United States established a customs and immigration pre-clearance facility in the Abu Dhabi airport, which allows passengers flying into the United States to clear immigration before the flight.
Supporters of open skies point out that United States carriers have received government support in the past. Delta, American and United, for example, have been granted far-reaching antitrust immunity to set up joint ventures with rival carriers on some specific routes to Europe and Asia.
“Now that U.S. airlines have secured antitrust immunity, industry consolidation and concomitantly rising airfares and ancillary fees, and are achieving record unprecedented profits, some carriers shamelessly seek to close off U.S. markets to competition from foreign carriers,” Kevin Mitchell, the chairman of the Business Travel Coalition, a trade group, wrote in a letter to various government officials.
A spokesman for the Transportation Department, Brian Farber, said the administration was taking the airlines’ concerns seriously and was reviewing them.
Still, he said that the administration “remains committed to the open-skies policy which has greatly benefited the traveling public, the U.S. aviation industry, American cities and the broader U.S. economy through increased travel and trade, and job growth.”
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