Dramatic, Negative Consequences if the Government Fails to Enforce Open Skies Agreements

We're now nearly a year into the trade dispute about the ability of the three heavily subsidized Gulf airlines - Emirates, Etihad Airways, and Qatar Airways - to enjoy unfettered and unlimited access to the entire U.S. market. Their continued rapid and massive expansion in the U.S. violates the "Open Skies" aviation agreements that the U.S. has with the United Arab Emirates (UAE) and Qatar. Our Open Skies pacts clearly hold that subsidies to foreign airlines are not allowed, and yet these three airlines have received more than $42 billion in subsidies from the UAE and Qatar.

As often happens in Washington, a fog of half-truths and deception has descended on the battleground. The Gulf airlines and their supporters have 1) repeatedly denied incontrovertible evidence, claiming that they are not subsidized; 2) willfully mischaracterized the position of American Airlines, Delta Air Lines United Airlines and seven labor unions; and 3) deliberately misrepresented the relief sought by the unions and the U.S. airlines.

Here are the facts. To point one, the U.S. airlines would never have raised the first arguments, in winter 2015, without clear and undeniable evidence of massive subsidies. The evidence, which was gathered by forensic accountants and investigators who spanned to globe to unearth the truth, is clear. On point two, U.S. airlines have welcomed the opening of international airline markets, which have enabled them to greatly expand their overseas networks, either with their own jets or in partnership with European carriers. Their objections are not protectionist; the U.S. carriers seek only effective enforcement of trade deals already on the books. And on the third point, the U.S. airlines' "ask" has remained consistent and modest: the U.S. should open negotiations with the UAE and with Qatar on the subsidy issue; and between the decision to talk and the actual start of consultations, the three Gulf airlines would maintain the status quo with no additional expansions.

The Obama administration has had all the facts and evidence for months, and is poised to decide. As the Administration contemplates this matter, a key question remains, why would Washington decide against a homegrown industry that is so important to the fabric of our country?

The extended economic benefits of the U.S. airline industry are numerous. First, the industry provides thousands of middle-class jobs, work that pays well above the national average. At a time when leaders at all levels of government are cheering a steady decline in the unemployment rate and focused on creating good, stable jobs, damaging U.S. carriers would be counterproductive. Second, after a decade of struggle and crisis, U.S. airlines are again flourishing - growing capacity, adding flights, investing in quality improvements, and bringing new jobs to communities large and small. And third, in addition to direct employment, the U.S. airline system underpins national economic development, and fosters the expansion of U.S. businesses into global markets. It's not an exaggeration to describe the networks of American Airlines, Delta Air Lines, United Airlines, and others as akin to the power grid. Just like flipping the wall switch, those networks are always there, always delivering huge benefit.

The risks are great if the U.S. government fails to act. First, fueled by wheelbarrows of government cash, we can expect that Emirates, Etihad Airways, and Qatar Airways would continue their huge expansion in the U.S., adding new gateways and increasing flights at their 12 existing airports such as New York and Los Angeles. Unlike privately-held airlines that are accountable to investors, the Gulf trio doesn't need to earn profits, so they can expand just about anywhere without concern for making money. These carriers' growth, here and across the world, is part of mandates from the Emirati and Qatari governments to grow their airlines as a means of diversifying their economies away from reliance on the energy sector.

Second, the Gulf trio would continue to inflict damage on U.S. airlines and their employees. While the Gulf carriers insist that their growth does not impact U.S. airlines, the data prove otherwise. As one example of harm, it's been estimated that each U.S. daily widebody roundtrip lost or forgone because of subsidized Gulf carrier competition results in a net loss of more than 1,500 U.S. jobs. Another example of the harm that will only continue if nothing is done is the decline in bookings on U.S. carriers as the Gulf carriers continue to expand. When Emirates entered a market, the U.S. carriers and their joint venture partners have experienced double-digit drops in passenger bookings through the key markets of Seattle, Washington, D.C., Boston and Dallas/Fort Worth.

Third, as I explained in a recent article, continued Gulf expansion threatens the viability of the U.S. domestic airline network. As Gulf expansion forces U.S. airlines and their European allies to reduce long-haul flying, domestic flights decrease, too. This is because more than half of passengers on a typical American, Delta, or United overseas flight make a connection from or to a domestic flight. So as the international network is squeezed by unfair competition, the domestic network shrinks as well. And bear in mind that network decline is exponential and not linear (simple example: shrinking from 10 flights to 7 drives an overall network decrease much greater than 30%). Everyone should be concerned, especially those in small and medium-sized U.S. cities like Omaha, Richmond, and Shreveport. Furthermore, even small reductions in U.S. flying hurts, because declines in flight activity cycles directly and indirectly through local and regional economies - jobs are lost, local suppliers lose business, laid-off employees spend less, and so forth.

Despite the Gulf carriers' and their supporters' efforts to cloud the issue with vagueness (none of the three airlines release financial data that would pass muster in the U.S.) and with willful distortion of the U.S. airlines' position, the most relevant fact, indeed the key legal point, is that their subsidies violate the terms of the Open Skies agreement. Period. It's time for the Obama administration to act. Failure to act will put the U.S. airlines, their workers, communities across the country that rely on service and the entire American aviation industry in serious jeopardy.