The Aero Political Battle: USA vs The Gulf

Over the last ten years the resurgence of the middle eastern mega carriers; Emirates, Qatar Airways and Etihad appears to be the benchmark for products and service delivery for global airlines. How do you compete with airlines who churn out unbelievable products nearly every year, or make mega billions of dollars worth of aircraft orders? Take Etihad which launched The Residence, an exclusive bedroom in the air early this year, where you have a butler to serve you, and you could even have a shower on flight! All at an expense of $21,000 for a six hour flight. How do you compete with an airline like Qatar Airways which has a dedicated terminal for premium customers? The gulf indeed is widening!

So what gives? The U.S carriers and indeed their European Union (EU) counterparts are now up in arms against the Gulf carriers alleging a $42 billion government subsidies for the latter, thus scaling the competition.

This week the biggest U.S airlines, sparred with three Persian Gulf carriers over flights into the U.S and have asked the Obama administration to consider new limits on that service, Delta Air Lines Inc.’s chief executive officer, Richard Anderson said.

Quoting Anderson, Bloomberg said a huge lobby by the U.S carriers is on to get regulators bar the Gulf trio from trips that don’t stop or start in the United Arab Emirates or Qatar, despite an open sky agreement existing between the U.S and the two Arab nations. He said the government also could keep Emirates, Qatar Airways and Etihad Airways from expanding further into the U.S.

Anderson’s comments shed light on how Delta, American Airlines and United Continental are lobbying the U.S. over what they call unfair support for the Gulf carriers from their nations. Speaking this Tuesday in Washington, American CEO Doug Parker said the U.S. should cap the Gulf airlines’ flights at current levels while reviewing aviation treaties with their home countries.

There’s a reasonable remedy that still positions those carriers to be able to operate,” Anderson said at Delta’s Atlanta headquarters. “We are espousing a more level playing field given the huge size of the subsidies.

The State Department said this week that the administration is still reviewing a report from the airlines asserting that the U.A.E. and Qatar have given Emirates, Etihad and Qatar Airways more than $42 billion in subsidies and other unfair benefits. The group also shared the findings with European Union regulators.

The three Gulf airlines average a combined 25 daily flights to the U.S. from their home countries, compared with two for the U.S. carriers to those nations. The Gulf trio has rejected the U.S. group’s subsidy claims, and Emirates President Tim Clark says a detailed rebuttal is in the works.

American, United and Delta are the biggest airlines in the world by traffic. They’re taking on the Gulf trio in Washington with the U.S. industry in a position of strength after $58 billion in losses in the nine years ended in 2009. Buoyed by mergers, a resurgent economy and a 42 percent drop in jet-fuel prices in the past 12 months, U.S. carriers have been posting profits and rewarding investors.

In January, Bloomberg U.S. Airlines Index reached a 14-year high. This week, American was selected to join the S&P 500 Index, barely 15 months after former parent AMR Corp. emerged from bankruptcy and merged with US Airways Group Inc. American’s 2014 earnings excluding some charges were $4.2 billion, a record for a U.S carrier.

The large U.S. airlines say that their Gulf rivals are offering impossibly cheap tickets on routes to Asia, through their hubs in the Middle East, flying jumbo jets with far more seats than could be filled from their home markets alone.

American, United and Delta have been especially hurt in routes to India, according to the U.S. airlines’ investigation. Since 2008, the three Middle Eastern carriers have more than tripled their share of U.S.-to-India bookings, to 40 percent. The share controlled by the U.S. airlines and their European partners has fallen slightly.

This scenario has given cause for concern on how Nigeria has been liberal in granting traffic rights to foreign carriers without getting anything in return, especially as it relates to domestic carriers. Although the minister recently ordered foreign carriers to recruit Nigerian pilots to be part of the technical crew of foreign carriers into Nigeria as a measure getting some positive returns fir the country, certainly this policy wouldn’t fly.

What Nigeria needs is to find a way foreign carriers will operate into some destinations along with their Nigerian counterparts. Alternatively its best to seek another bilateral air services negotiation. However considering the new policy being initiated for an African single sky, that could be a major hurdle.

Being Africa’s largest aviation market, Nigeria can take a bold move to negotiate on its own and force its agenda through. As a top emerging market, Nigeria’s aviation market is a huge potential over the next 50 years, considering the current and future youth population and the untapped human and material resources.

The marginal contribution of aviation to Nigeria’s GDP is inexcusable. A 20 – 30 year road nap is required with the total agreement of stakeholders on how to move the industry forward irrespective of political leanings or developments in the future. A visionary road map that will survive future governments is the key to the future growth of aviation in Nigeria.