ATW Editor's Blog

Editorial: Gulf Open Skies decision is right call

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Despite a renewed campaign against the hub Gulf carriers, the three US major airlines ended the year with essentially nothing gained.

The US will not reopen negotiations on its Open Skies agreements with the UAE and Qatar, nor freeze the traffic rights of Gulf airlines to the US under those aviation treaties. Those were the core requests of the US majors, and while talks will continue on Open Skies compliance, the fundamentals remain in place.

This was the right call. American, Delta, United and US airline labor groups have joined forces in what has become an increasingly shrill and at times low-ball attack on Emirates, Etihad and Qatar Airways, even attacking the CEO of one of those airlines when he was honored with industry awards.

What they failed to do was demonstrate that the Gulf carriers have materially harmed the businesses of the US carriers, which have generated more than half of world airlines’ profits in the past three years and are forecast to again produce the strongest financial performance in 2018 with an expected net profit of $16.4 billion.

Indeed, the only harm that the US majors suffer is self-inflicted. American intends to end its codeshares with two of the Gulf carriers in 2018—one of them, Qatar, a oneworld alliance partner. That will hurt revenues on all sides and reduce service choices for American’s customers. It’s also hypocritical. American has deep partnerships with airlines such as British Airways, where Qatar Airways has a 20% stake in BA’s parent company, LATAM, in which Qatar has a 10% stake, and Qantas, which has a joint venture with Emirates. So American will continue to benefit indirectly from the Gulf carriers through its closest airline partners.

The truest fact of the modern airline industry is that it is a network. Neither the smallest nor the largest carrier can stand alone. Airlines seek out alliances, joint ventures, codeshares and liberalized aviation agreements so they can deliver global connectivity. These arrangements, unique to aviation, are the patches the industry applies to work around ownership and cabotage rules that protect home markets. The US has some of the most draconian airline protectionist rules, while Europe now has some of the most liberal.

But what the US did gift to the world of commercial aviation was Open Skies; a concept that has spread globally and which has allowed airlines to grow and be more creative, while giving passengers choices in their international travel plans.

The greatest threat in what the US majors might have achieved with their anti-Gulf carrier campaign was a “two-tier” Open Skies system in which some arrangements were less “open” than others. It would have raised the question: when will restrictions be sought on other Open Skies agreements so the US majors can return to an international market that more closely reflects the consolidated US market, with its single-carrier dominance in hub cities?

The Open Skies system is safeguarded, at least for now, and the US majors on a healthy financial footing to compete well and prosper. That’s a New Year resolution worth pursuing in 2018.

Karen Walker karen.walker@informa.com

 

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