Alex and I opened the last podcast episode with the story of the major U.S. airlines sending a report to the White House about what they call unfair competition.

Little idea we had that the war of words would reach fever pitch that fast, or, in the words of Ron Burgundy in Anchorman:

Boy, that escalated quickly

Skift reports that Delta CEO, Richard Anderson, went live on CNN with what can only be described as very harsh words. I'll let you be the judge:

it’s a great irony to have the UAE from the Arabian Peninsula talk about that, given the fact that our industry was really shocked by the terrorism of 9/11, which came from terrorists from the Arabian Peninsula.

Contentious to say the least. 

Unfair competition?

This comes as the last, well, escalation, since the report was filed. The U.S. airlines argue that they've lost market share due to various forms of state aid given by governments to the Gulf carriers, Emirates, Etihad, Qatar (and others). It affirms that more than $40bn of loans, tax exemptions and other support since 2004 is what allows those airlines to compete—unfairly if you follow their argument.

Delta, United and American Airlines have apparently lost, for instance, more than 5% of the share of bookings from the US to the Indian subcontinent since 2008. The overall share of booking from the carriers located in the Arabian peninsula has increased more than tenfold if you follow their numbers.

Tim Clark, Emirates Airline CEO, was quick to ironically respond that he'd be very interested to see how the aforementioned $40bn was calculated—not to mention hinting that the Chapter 11 proceedings are a form of state aid, which certainly led to Anderson's reply mentioned above.

Competing on experience?

EK's chairman simply added "offer the best to the passengers and people will fly with you."

That last sentence seems to be what Richard Quest echoed when interviewing Anderson:

Everyone would accept they give superb service and quality of flight, so you’re not necessarily going to have the consumer on your side.

Or Akbar Al Baker, Qatar Airways' CEO, never shy from pushing his point across:

It is like you open a shop and there’s a neighbor who is already established. Everybody knows him so they mostly go there. You have to do something different for people to come to your shop. We attract customers by giving them a ‘wow’ product.

Ben Schlappig, author and aviation expert at One Mile At A Time, contends that it's a bit too easy of an argument:

The US airlines historically haven’t had nearly the capital of the Middle Eastern carriers — no US airline could afford to order 100 A380s, for example

This is why I said on the podcast that it was difficult to take sides here. A lot of the airlines around the world, including U.S. ones, were borne out of government subsidies, sometimes being the flag carrier of a country. It is the case in Japan, in China, in Thailand, in Europe, almost everywhere. Even to this day, after privatization efforts have gone underway, voices are raised on how Lufthansa got help for its pension plan funding or how SAS seemingly had preferred treatment during its latest restructuration. 

Such subsidies still exist in many parts of the world, but even beyond that, it's the philosophy of building an airline, a corporation or even an entire economy that is at stake here. Gulf countries are building an infrastructure, not only companies—no matter how people judge this goal. Shareholder value, potential subsidies notwithstanding, is not the primary concern. I again encourage you to read Schlappig's point of view on this.

Closing Open Skies?

As Alex and I mentioned in the podcast, the creation of a Milan-JFK route is certainly not foreign to the heating up of the debate, nor is the Etihad's capital entry into airlines, from Alitalia to IAG. The competition is basically not centered for flight routing via the Middle East anymore.

The more general topic of Open Skies, the "free trade agreements for airlines", is what it boils down to in the end. Which airline can fly where to and from? The U.S. has 114 such agreements currently. We will cover the topic in a forthcoming episode, as it's more complex than a few lines I could write here.

Of note, the deregulation of the market has led, in the U.S.A. to a consolidation of the market, whereas in Europe it seems to have opened the market more widely. While the two entities are hardly comparable for various reasons (timing, regulation, history, local rules, etc.), the largest carrier in Europe controls 13% of the market, whereas AA/US has 25%. The top 4 control 39% and 83% respectively (read more about those numbers over at The Travel Insider). 

Competition is a variable concept, depending on how you see it, whether based on the numbers I've just mentioned or on your opinion on the "Big Three" ways of doing business from the Gulf.

Sides are another variable concept. While the unions are, for once, siding with the airlines in the US, not everybody is. JetBlue voiced its willingness to defend the Open Skies agreement—a sign of its challenge to the big four. The U.S. Airports are in that same camp.

This might just be the beginning

It is not the first time we've heard those types of argument. Delta had, for instance, already sought to block the loan guarantees for Gulf carriers acquiring Boeing jets (Emirates is, for instance, the largest operator of 777s in the world, having almost double the number of them compared to UA).

In Europe, Air France-KLM and Lufthansa addressed the European Commission to complain about the competition—seemingly focusing on voiding traffic rights.

It's not the first time and it won't be the last time. Those last comments by Anderson have escalated the debate to a new height and I'm not sure to like where all this is going. 

Listen to Alex and I talking about this topic (starting at 0:58). I've added some articles in the show notes too.