ATW Editor's Blog

US carriers are not backing off Gulf campaign, but may be changing tactics

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Some thoughts on yesterday’s panel debate on the Gulf carriers at the CAPA Americas Aviation Summit in Las Vegas.

I observed the majority of the debate, which was moderated by Pillsbury Law partner Ken Quinn, and it led me to believe that while I don’t think the three US carriers involved are going to drop their subsidy and unfair competition accusations against the three Gulf carriers, I do think they are shifting the strategic basis of their campaign.

First thing to note is that only two of the complaining US carriers – American and Delta – took part and only one of the Gulf carriers, Etihad.

American was represented by the highly experienced and respected Will Ris, senior VP government affairs, while Ben Hirst – one of America’s most able lawyers in or out of the aviation industry – stumped for Delta as its chief legal officer. Jim Callaghan, general counsel & company secretary, was Etihad’s man on the spot.

There was one other airline executive on the panel – FedEx Express senior VP & general counsel Rush O’Keefe. FedEx, for whom Open Skies and fifth freedom rights are critical to its air cargo business and which also has a Dubai hub, is opposing the campaign by the three US passenger airlines.

The other panelists were former ALPA president, now Americans for Fair Skies lobbying organization president Lee Moak. AFS is in the anti-Gulf carrier camp and is particularly focused on publicizing the threat to US airline jobs that the Gulf carriers allegedly pose.  US Travel Association president Roger Dow and World Travel & Tourism Council president David Scowsill also took part.

Inevitably, the debate was dominated by the four airline panelists both in terms of airplay allocated by the moderator and to whom audience questions were directed. All four airline lawyers made strong opening statements and defended their positions well under questioning. Ris was diplomatic and charming, but he pushed back hard when Quinn compared the customer service products of the Gulf carriers to those of the US majors. Ris sharply criticized Quinn for implying that US carrier seats and service were inferior and he pointed out that American was investing heavily  in new customer products, “and doing it with our own money”.

The debate did veer off into some strange analogies. Callaghan invoked a poker game where only one side (the US carriers) dealt the cards or was permitted to see all of them, and which promised an ace of spades, but delivered a three of diamonds. Hirst countered with an (American) football analogy, which lost me totally as I’ve never seen a game (a soccer analogy I might have understood).

But because Hirst and Ris both kicked the debate off with statements that essentially said ‘this is not about airlines, but about fair trade and all we want is for the US government to talk with the UAE and Qatar governments’, then I can see why some are wondering whether this dispute may already have peaked?

I don’t think the US majors are backing away from the fight they picked. But it may be that, behind the scenes, there’s a realization that some of the more highly-charged accusations that have been lobbed in this campaign can be lobbed right back. And some of the nastier stuff – repeated Arab/sheik references, an unwarranted 9/11-terrorist remark, exploited women crews, etc. – are without basis and neither helpful nor appropriate in the global air transport world. At the end of the day, every one of these airlines is first-class when it comes to safety and security standards.

Almost certainly, that smear campaigning has made some very influential partners of the US carriers involved take note and perhaps proffer some stern advice. IAG CEO Willie Walsh and Emirates president Tim Clark were initially on the CAPA summit’s agenda but were last-minute no-shows.

Walsh has made his views on anti-Gulf campaigning very clear, withdrawing British Airways and Iberia from the AEA association because of what he says is their protectionist stance against the Gulf carriers. Qatar Airways has a 10% stake in IAG and BA is an extremely important partner to American and within the oneworld global alliance (in which American, BA and Qatar are all members).

So I don’t think the US carrier trio is backing away from this campaign, but I do think they want to elevate it to a more diplomatic, trade-based discussion and set it somewhat apart from their global company brands by making it a government-to-government discussion.

Ris and Hirst both referred to the clause in the US Open Skies agreements with the UAE and Qatar that allows for such government consultations at any time and for any reason.

But there’s still a problem with that, and Etihad’s Callaghan most clearly put his finger on it. He noted that for unfair competition and subsidies to be demonstrated, it must also be shown that harm is being done.

With the US majors sitting where they are right now – record profits, not especially popular with the American traveling public, benefiting from their government-allowed consolidations and anti-trust partnerships – I think it will be tough to demonstrate the “damage” to government lawyers, especially as they largely do not serve the Middle East and sub-Indian continent markets that the Gulf carriers dominate. 

That may be why a public campaign was deemed necessary. But it’s also why Callaghan’s words at the summit panel could play large in government discussions. “The three largest carriers not just in the US but also in the world, and which also control the three clubs—the global alliances—that control 50% of the world’s traffic, are trying to shut the door on any competition or potential competition. That’s what’s going on here,” he said.

I will be moderating a free trade panel next week at the Phoenix International Aviation Symposium May 6-8. It will not be a US vs Gulf carrier panel, rather a broader discussion of what constitutes fair competition in the global air transport market, Open Skies status, and where global alliances and joint ventures sit. Of course, the Gulf debate will be discussed.  I will keep you tuned.  

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