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Air fair? Battle erupts over subsidies for international airlines

By   /   March 9, 2017  /   News  /   No Comments

Jennifer Aniston, the Sydney Australian Symphony Orchestra, Formula One motor racing and the Los Angeles Dodgers all have one thing in common — fat checks from Emirates airlines.

In addition to Aniston’s $5 million endorsement deal and $20 million global ad campaign, the airline reportedly dished out $272.25 million for more than 70 sports-related sponsorships in 2013, including Formula One, soccer’s FIFA and World Cup, golf, tennis, sailing, horse racing and is even the Dodgers’ official airline sponsor.

“[Emirates is] all over the world with high-priced sponsorships,” said Andrea Fischer Newman, Delta Air Lines senior vice president of government affairs. “Our sponsorship spend pales in comparison.”

AP File Photo/Kamran Jebreili

AIR FAIR? Explosive growth of Middle East airlines around the world is prompting calls by U.S. carriers for an investigation of whether they are subsidized by their home governments.

As for actual air travel, Emirates’ fleet of 85 Airbus A380 widebody aircraft and 160 Boeing 777s makes it the largest operator of both types of planes, the largest airline in the Middle East and the world’s fourth largest in passenger count.

Not bad for an airline that’s been around for just 32 years.

Newman points out that such lavish spending is a lot easier for government-subsidized airlines that don’t need to cover the true costs of their operations.

And the problems go much further than fútbol and Jennifer Aniston.

The Partnership for Open and Fair Skies, a coalition of Delta, United and American Airlines, and several air industry labor unions says Emirates, Etihad Airways (UAE’s other airline) and Qatar Airways have gotten $50 billion in government subsidies, grants and loans since 2004.

The group says these subsidies distort the market, threaten American jobs and violate international Open Skies Agreements (OSAs.)

The U.S. has 120 OSAs with countries around the world, dating back as far as 1992. The bilateral agreements aim to eliminate government interference in commercial airline decisions about fares, routes and capacity in order to create a competitive, freer market.

The agreements have been largely successful in liberalizing air services to the benefit of consumers, airlines and economies.

A 2015 Brookings Institution study found that the agreements have saved passengers at least $4 billion by stimulating competition that lowered fares 15 percent and increased flight frequency.

RELATED: Federally subsidized air service strains meaning of ‘essential’

But coalition spokesperson Jill Zuckman tells Watchdog.org that unlike profit-driven airlines, subsidized Gulf carriers can afford to add vastly more capacity than the demand in their own countries.

“It is no accident, for example, that U.S. airlines offer no flights to Qatar or the UAE and only two nonstop flights to India – the second-largest country in the world. Gulf overcapacity has made it commercially non-viable for U.S. airlines to serve either market,” she said. “And the Gulf carriers continue to leech passengers from routes already served by U.S. airlines, failing to stimulate their own demand and instead only feeding off their fair-playing competitors.”

Zuckman cites recent data showing international travel on U.S. carriers and their joint venture partners fell sharply after the most recent entries by Gulf carriers in Seattle, with a 21.4 percent drop, 14.3 percent in Washington, D.C., 13.3 percent in Orlando, 13.1 percent in San Francisco, 10.8 percent in Boston, 8.8 percent in Chicago and 7.6 percent in Dallas-Fort Worth.

And every route lost or foregone due to Gulf carrier subsidies costs 1,500 U.S. jobs, Zuckman said.

The Big Three domestic airlines have spent the past two years appealing to the federal government to address the disparity caused by the Gulf carriers subsidies.

The Middle East airlines have repeatedly denied accusations of subsidies and unfair competition. They say U.S. airlines simply want to protect a market that’s slipping away to fast-growing foreign competition.

Emirates President Tim Clark has insisted the carrier has not received more than $10 million in seed money, with the company earning profits for 28 straight years.

And Qatar Airways CEO Akbar Al Akbar said in a 2015 news release that Gulf carriers’ presence in the U.S. creates rather than destroys American jobs:

“Airways passengers support local economies in the US. In 2014 alone, the airline brought 248,000 visitors to the United States and made a significant contribution of $900 million to US economies and employment, all thanks to Open Skies. Qatar Airways currently operates over $19 billion worth of direct-purchase Boeing aircraft with future deliveries of another $50 billion to come.”

Government officials from the three countries eventually met last summer but took no formal action, effectively leaving the matter in a holding pattern.

But the battle is being drawn anew under President Donald Trump’s watch, and could come to a head within days.

On Feb. 1, the CEOs of the domestic Big Three airlines sent a letter to Secretary of State Rex Tillerson, urging him to pick up where his predecessors had left off.

Then this week, 25 members of Congress from New York and New Jersey sent a letter to Trump insisting that he take quick and decisive action “to defend U.S. interests abroad and ensure that U.S. Airlines and their American workers have a fair and equal opportunity to compete.”

The letter asks the president to bar Emirates from the March 12 launch of its new daily flight from Dubai to Newark. (Emirates announced the flight Jan. 23, three days after Trump’s inauguration.)

Emirates is also dealing with the PR aftermath of its first annual sales decline in 10 years, prompting the recent Bloomberg headline, “Is Emirates Airline Running out of Sky?

RELATED: Feds may soon yank subsidized air service to Lewistown

As the two sides gear up for what could be a decisive confrontation in Washington, one scholar says there’s a third side that’s chronically ignored by politicians and airlines.

“When everyone starts talking about leveling the playing field, where are the consumers in all of this?” asks Clifford Winston, Brookings Institute senior fellow and co-author of the 2015 OSA cited above.

“The public does not tend to have a representative,” he said in an interview with Watchdog.org. “That’s the tragedy.”

Winston adds that given the economic success of the 1970s airline deregulation and OSAs, the U.S. should do something that would likely not fly with Trump — push for one giant, global marketplace.

“It’s time to finish the job and open the whole thing up,” he said. “Why is it that GM and Chrysler have to compete with foreign automakers on our soil. Why don’t the carriers have to do that? Pick an industry. We have to take the lead and negotiate and say, ‘open up, and we’ll open up.’”

Kathy Hoekstra is a national regulatory reporter for Watchdog.org. Contact her [email protected] and @khoekstra.

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