Yesterday, I wrote about an open letter the chief executives of two airlines and the shipping company FedEx sent to U.S. Secretary of State Mike Pompeo in defence of Qatar Airways and the current Open Skies arrangement that the United States has with countries in the Middle East, including Qatar and the United Arab Emirates.
Fred Smith Chairman and CEO of FedEx, Robin Hayes, CEO of JetBlue, and Bill Flynn, President and CEO of Atlas Air Worldwide said they wanted to “set the record straight” over what they called “wholly-unsubstantiated claims” about Qatar Airways and its minority investment in Air Italy.
What I missed yesterday though, was that this wasn’t the only open letter sent by aviation executives to senior U.S. officials. In fact, the chief executives of the three largest airlines in the United States (American, Delta and United Airlines – or collectively known as the ‘Big Three’) sent a letter to President Trump and even published a copy of that letter in the New York Times and NY Post with full page ads.
If you’ve been following this debate even loosely over the last few weeks, months or even years then you’ll probably be able to guess that Doug Parker of American, Ed Bastian of Delta and Oscar Munoz of United take a very different view and aren’t in the least bit happy with Qatar’s latest investment in Air Italy.
If you haven’t been following this story quite as closely as I have, then it’s probably worthy of a recap…
For several years, the Big Three U.S. airlines have been leading a high-profile campaign against the U.S. expansion of Persian Gulf airlines like Qatar Airways, as well as Emirates and Etihad. They claim these airlines have received billions of dollars in government subsidies that allow them to manipulate the market and dump capacity that just isn’t sustainable.
They say they’ve seen this happen in Europe and Asia and now these Middle East airlines have rapidly expanded their operations into the United States. Essentially, they can only do this because of subsidies and U.S. airlines simply can’t compete.
Bastian has previously said Delta was unable to serve destinations throughout the Middle East or even India because competition from rivals like Qatar Airways pushed airfares artificially low. The ultimate risk, claim the Big Three is that hundreds of thousands of U.S. aviation jobs are at jeopardy because of these government subsidised rivals.
The Persian Gulf airlines have been able to quite freely expand into the United States because of what’s called an Open Skies agreement that the U.S. has with the governments of Qatar and the United Arab Emirates. Open Skies basically enables a free-market environment for airlines, allowing them to operate as many routes as they want.
Through a Washington-based lobby group, the Big Three argued that the Persian Gulf airlines were in violation of these Open Skies agreements because they weren’t subject to free market pressures like their U.S. counterparts. When President Trump was elected into office, they had hoped his ‘America First’ agenda would lead to some concrete action.
Qatar invests in Air Italy
Well, last January, the Trump Administration did manage to sign an agreement with the State of Qatar to address these concerns. It wasn’t quite the slam dunk that some were hoping for but it did at at least put pressure on Qatar Airways to be more transparent in its financial dealings – the airline even said it had no plans to open any Fifth Freedom flights to the United States.
The Big Three hailed the agreement a victory. There were hopes that a similar agreement would be reached with the UAE and suddenly it looked like everyone could move on.
And then came Qatar’s investment in Italian airline Meridiana. In fairness, Qatar Airways had actually acquired a 49% stake in the Sardinian-based airline back in 2016 but just months after signing the landmark agreement, Qatar Airways decided to rebrand Meridiana as Air Italy.
It may well have been a case of really bad timing but Air Italy’s sudden new business strategy that involved opening up a slew of new routes to the United States – all with the help of significant financial backing from Qatar Airways incensed the Big Three. The fight was back on and Qatar Airways had become public enemy number #1.
The open letter to President Trump
Ed Bastian has already written an op-ed on what he thinks of Air Italy (it’s not good) but yesterday’s full-page newspaper ads were the first time all three chief exec’s have put their name to such public criticism of Qatar Airways’ Italian investment.
Parker, Bastian and Munoz tell President Trump in the letter that “America’s airline workers are counting on you to step up on their behalf.”
They claim Qatar Airways is breaking the rules and “hurting” American workers through its investment in Air Italy.
“Qatar Airways has used its Italian proxy to launch routes to Los Angeles and San Francisco and added flights to Miami – a further effort to undermine U.S. airlines. Simply put, Qatar Airways represents a grave threat to American jobs and the health of the airline industry,” the letter reads.
“No rule-abiding business can compete with a massively subsidized airline that ignores economic realities and can wipe away losses with one infusion of government cash after another.“
The chief exec’s call on President Trump to hold Qatar to account, although they don’t specify exactly how the Administration should go about doing this.
Who’s got the strongest argument?
Passions on both sides of this debate run really high and there are competing arguments that are all very strong. The likes of FedEx and Atlas Air had benefited enormously through the current arrangements – they’ve built huge distribution hubs in the region and ending the Open Skies agreements would hurt their businesses massively.
For its part, jetBlue has worked closely with Emirates to forge codesharing agreements that feed passengers into its network.
Yet, the Big Three have a good point – yes, they could do more to compete but how can they keep up with airlines that can haemorrhage money and never go out of business because they’ll be bailed out by government investment?
(Although, that argument is strained because the same attention has never been paid to the likes of Alitalia which is staying afloat on the back of Italian taxpayer money.)
Nonetheless, the point remains that some airlines aren’t competing fairly. But as we see, there are two sides to this coin and U.S. officials no doubt realise they have to tread a very careful path in this dispute.
The full letter can be read below:
Dear President Trump,
Your administration was built on the enduring principle that the U.S. government will stand up for American workers against foreign governments that break their trade agreements with our country. The American people are grateful for that promise.
Today, America’s airline workers are counting on you to step up on their behalf.
In January 2018, your administration reached a historic agreement with Qatar over its Open Skies violations. While we hoped this agreement would hold Qatar accountable and force its heavily subsidized airline, Qatar Airways, to follow the rules and stop hurting American workers, that did not happen.
Today, Qatar Airways is ignoring the 2018 agreement that your administration signed by using massive government subsidies to launch new routes to the United States through its stake in Air Italy. Air Italy was a struggling regional carrier until Qatar Airways injected tens of millions of dollars into the company to circumvent the agreement and expand its U.S. presence. In the last few days, Qatar Airways has used its Italian proxy to launch routes to Los Angeles and San Francisco, and added flights to Miami – a further effort to undermine U.S. airlines. Simply put, Qatar Airways represents a grave threat to American jobs and the health of the airline industry.
No rule-abiding business can compete with a massively subsidized airline that ignores economic realities and can wipe away losses with one infusion of government cash after another.
We respectfully encourage your administration to hold Qatar accountable for violating its agreement with the United States and affirm that we will not tolerate these continued infractions. We appreciate your resolute leadership in enforcing fair trade principles and ask that you continue to stand up for the more than 1.2 million U.S. workers whose jobs depend on a strong and vibrant passenger airline industry.
Doug Parker, CEO, American Airlines, Edward Bastian, CEO, Delta Air Lines, Oscar Munoz, CEO, United Airlines