On Competition, Not Even US Airlines Agree With US Airlines

Aerial view of airplane
Aerial view of airplane

Few feuds burn hotter than family feuds, and there's an impressive one currently roiling the airline industry.

On Tuesday, Delta announced that it is quitting the airlines' primary D.C. lobbying group -- the respected and formidable Airlines for America (A4A ) -- and taking with it its $5 million in annual dues. As an association CEO myself, I empathize with A4A chief Nick Calio; we've had our differences, but he's a very able advocate and leader, and this is one tough situation.

Delta's statements on the split did not hesitate to point to several areas of disagreement with its airline brethren -- most notably that A4A has declined to support Delta's assault on a portion of aviation policy known as Open Skies.

What is Open Skies policy, and why should the public care? Essentially, it ensures free international markets for commercial aviation. The U.S. holds Open Skies agreements with more than 100 countries that prevent governments from meddling with the routes, capacity or pricing of each other's airlines.

Quite simply, it enhances competition, which increases the number of choices available to air travel consumers and pressures carriers to keep value high and prices low.

All of which sounds great to most of us, but evidently doesn't appeal much to Delta. Since January, it, American and United (nominally the "Big 3") have been prosecuting a very aggressive campaign to persuade the U.S. government to "freeze" its Open Skies agreements with two Persian Gulf countries, the United Arab Emirates and Qatar. Why those two? To hear the airlines tell it, it's because their governments lavish subsidies upon their national airlines. But the Gulf carriers hotly dispute that. Furthermore, the argument is undermined by the fact that it's difficult to find a carrier anywhere in the world that doesn't receive some form of government assistance--including the U.S. Big 3 themselves.

It also bears mentioning that the airlines affected by the Big 3's anti-Open Skies push -- Emirates, Etihad and Qatar Airways -- are famous for the level of value and service they provide. You may have seen Emirates' on-the-mark ad starring Jennifer Aniston.

Whatever the motivation, the Big 3's crusade against the Gulf carriers appeared to be falling apart before it had even begun. It raised eyebrows aplenty when it became clear A4A would not be a voice on the Open Skies issue, and that the Big 3 were funding a separate front group serviced by the large, expensive PR firm SKDKnickerbocker.

Opposition to their effort was immediate and vehement, rooted in concern that the Big 3 were engaged in protectionist, anti-competitive behavior that would only bring harm to consumers and the overall U.S. economy. The association I lead has been among the Big 3's most alarmed critics on the Open Skies issue. We were joined in this view early on by a diverse array of interests, including watchdog groups, hotels and resorts, airports, manufacturers--the list is long.

Then, in August, other members of the airline industry went from being non-endorsers of the Big 3's Open Skies position to being explicit opponents. They formed their own outside group, U.S. Airlines for Open Skies, and immediately sent a stern letter to the Obama administration making clear their support for Open Skies and emphasizing that the Big 3 "do not speak for all, or even most, U.S. airlines."

Lately, critics of the Big 3's plans for Open Skies have not been confined to the private sector. Earlier this month, Reuters reported that the U.S. Department of Justice has expressed extreme reservations about any move to freeze Open Skies. "Justice Department antitrust officials warned of higher fares and fewer choices for consumers if the Obama administration blocks new flights," Reuters said. "In the department's view, U.S. officials must evaluate the broader public interest at stake, not merely the financial impact on U.S. aviation."

Amen and hallelujah to that. (And by the way, this was a terrific piece of reporting by Reuters journalists Jeffrey Dastin and Diane Bartz, given that Obama administration officials have been remarkably tight-lipped throughout this process.)

On the subject of the public interest in preserving Open Skies, consider the following: Airfares are 32 percent lower on routes subject to Open Skies agreements compared to those where governments dictate routes and capacity. Greater competition under Open Skies has generated at least $4 billion in benefits for travelers; negotiating more agreements could bring an additional $4 billion in traveler gains.

U.S. Open Skies agreements with the UAE and Qatar are also boosting the U.S. economy by linking the country with important new travel markets such as India, the Middle East and Asia. In 2014, the Gulf carriers brought 1.1 million visitors to the U.S., who contributed $4.1 billion to U.S. GDP, supported 50,000 jobs, and generated $1.1 billion in tax revenue.

But even though the Big 3's partnerships are disintegrating over this, their argument makes no sense on the merits, and they are opposed by their own industry and pivotal Cabinet agencies, don't count them out. They are influential, they are deep-pocketed, and they are very, very determined.

There is no set timetable, but it is possible that the Obama administration will announce a decision sometime in the next few weeks. Many who are involved in this debate believe that a best-case scenario is some kind of middle ground that is designed to at least partly appease the Big 3, such as opening "informal talks" with the Gulf countries that are in the crosshairs.

Make no mistake about it, though: no amount of damage -- not to their relationships, not to the economy, and certainly not to competition or the well-being of travelers -- will dissuade the Big 3 from seeking an Open Skies freeze. We can only hope that policymakers see how alone and marginalized they are in that effort.

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