Open Skies: Much Ado About Nothing?

All sides claimed victory last week in the long-standing dispute over government subsidies and unfettered air access that legacy U.S. airlines have waged against Persian Gulf carriers for more than three years.

In what has commonly been called the “open skies dispute,” Delta, American, United and their unions have insisted that the government rein in U.S. expansion by three Persian Gulf carriers — Emirates, Etihad and Qatar — on the grounds that they are subsidized by their respective governments.

But despite all the claims of victory, analysts voiced skepticism that the agreement reached by the U.S. and the United Arab Emirates (UAE) and formally announced by the State Department will have any significant impact on the status quo.

“This is a very elegant way for everyone to walk home a winner,” said Samuel Engel, head of the aviation department at the ICF consultancy. “But I believe very little has changed. The reason is that, in many ways, the situation had already resolved itself.”

The Record of Discussion document signed by the U.S. and the UAE is the latest, perhaps the last, salvo in the skirmish.

Among other things, the document requires airlines from the U.S. and the UAE to produce audited financial statements that meet internationally recognized accounting standards at least annually, addressing one of the primary demands of the Big 3. The document asserts that Emirates and U.S. airlines already issue those reports. Etihad will begin issuing them at least annually once it completes a restructuring currently underway.

However, the Record of Discussion makes no mention of flights operated by Emirates that depart from the UAE, make stops in a second country and then continue on to the U.S. Emirates currently operates two such routes, known in industry parlance as “fifth-freedom” flights: one from Dubai to Athens to Newark, the other from Dubai to Milan to New York.

The Big 3 U.S. carriers assert that the major Gulf carriers have accepted more than $50 billion in state subsidies since 2004, violating the bilateral open skies aviation agreements that the U.S. has with Qatar and the UAE.

In their campaign, the Big 3 and U.S. aviation labor unions initially asked the U.S. government to put a freeze on all new U.S. routes by the Gulf carriers until such subsidies were addressed. But more recently, they have scaled back their demands to ask only for a freeze on fifth-freedom routes.

After a period of confusion last week, during which statements from the State Department differed from remarks that White House National Trade Council director Peter Navarro made to travel industry representatives, the White House and State Department came together in saying that, along with the primary agreement, the UAE had stated that its carriers have no current plans to add new indirect routes to the U.S.

The U.S. entered into a similar agreement with the government of Qatar in January.

The UAE deal set off bellicose claims of victory from the three primary advocates in the open skies dispute: first, the UAE and its airlines; second, U.S. legacy carriers and U.S. unions represented by the lobbying group the Partnership for Open & Fair Skies; and third, the lobbying group U.S. Airlines for Open Skies, consisting of Hawaiian and JetBlue as well as cargo carriers FedEx and Atlas Air, which opposed the Big 3’s efforts.

The UAE issued statements proclaiming that the discussions with the U.S. confirmed that Etihad and Emirates have operated in compliance with the 2002 U.S.-UAE open skies agreements all along.

“Airlines in both countries are free to continue to add, reduce or adjust flights and services consistent with the broad provisions of the 2002 [air transport agreement],” the UAE embassy in Washington said.

U.S. Airlines for Open Skies sounded equally pleased with the outcome. “This resolution is a clear victory for American workers, travelers and exporters and reaffirms the U.S. commitment to open skies,” the group said.

And despite assertions to the contrary from the UAE and Emirates itself, the Partnership for Open & Fair Skies asserted that the UAE has committed to a freeze on any additional fifth freedom passenger flights to the U.S. The group also took out ads in the New York Times and New York Post thanking President Trump.

“By acting to enforce our agreements and restore a level playing field, your administration has again shown that you stand with American workers and will fight for our jobs and economy,” the ads state.

The rhetoric from all parties aside, Engel said that to a large extent the real concern of the legacy U.S. carriers, namely the commercial threat posed by the Gulf carriers, had subsided well before the new agreement. After adding a net 14 U.S. routes between 2012 and 2014, Emirates, Etihad and Qatar have added a net of just two U.S. routes since the beginning of 2016, according to data from the airline industry analytics company OAG. Meanwhile, the total number of seats each airline is scheduled to fly to the U.S. this year is down from last year.

Those figures reflect the broader and marked slowdowns in network growth at all three airlines (including reductions in capacity at Etihad) since 2016. “All three of those carriers have slowed down their growth, and that makes them less of a threat today than they were when the campaign began,” Engel said.

Seth Kaplan, managing partner of the newsletter Airline Weekly, largely agreed. “I think this does help everybody mostly save face,” he said. “It may be that there weren’t going to be any more of those flights [indirect routes from Gulf states to the U.S.].”

Still, Kaplan said that the deal could have the practical impact of making new fifth freedom routes by Gulf carriers even less likely.

“And that, indeed, would be a victory for the U.S. carriers,” he said.

(Travel Weekly)

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