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DISPATCH The Arab Battle For U.S. Skies by chineloSA(f): 1:10pm On May 06, 2015
America’s biggest airlines say the luxury carriers of the oil-rich Persian Gulf aren't playing fair. But are Emirates, Etihad, and Qatar Airways subsidized -- or just smarter?


BY AFSHIN MOLAVIMAY 4, 2015facebooktwittergoogle-plusredditemail
The Arab Battle for U.S. Skies
DUBAI, United Arab Emirates — Amid the turmoil and tumult of today’s Middle East, the region achieved a quiet milestone in 2014: Dubai International Airport surpassed London Heathrow to become the world’s busiest airport, measured in terms of international passengers. With its faux palm trees, Porsche raffles, and glittering duty-free shops selling everything from Scottish single malts and Havana cigars to Swiss chocolates, gold bars, and local dates, the airport, at times, feels like a 21st-century shrine to consumerist globalization.

But look beyond the duty-free glitter and do some people-watching, and you’ll see one of the most cosmopolitan collections of peoples under a single roof anywhere. A group of salwar kameez-clad Pakistani tribesman with red henna beards and white turbans fawn over the latest iPhone. A Kenyan sports team in tracksuits orders sandwiches at a Subway. A tanned European couple with Louis Vuitton hand luggage flip through magazines. A group of young Iranian women shop for perfume, a gaggle of Chinese and Indians buy gold, and a Balkanish-looking fellow in a black leather jacket and neck tattoo yells into a phone.

In 2014, Forbes magazine noted that Dubai is the most air-connected city on the planet, contributing to its distinction as the seventh “most influential” city in the world. Jad Mouawad of the New York Times points out that this Persian Gulf city-state has emerged as an air superhub, a modern crossroads connecting East and West. The rise of Dubai and other Arabian Peninsula air hubs — Abu Dhabi and Doha — have reshaped global commercial aviation. And the Gulf “Big Three” airlines — Emirates in Dubai, Etihad Airways in Abu Dhabi, and Qatar Airways in Doha — have emerged as major global carriers, capable of going toe to toe with the industry’s giants.

Their rise has coincided with the emergence of a new global middle class and an attendant surge in global air travel. Unsurprisingly, the fastest-growing market in air travel comes from emerging economies — places that the Gulf carriers serve well. According to the Airbus’s Global Market Forecast, emerging markets will account for nearly two-thirds of all air travel by 2033.

The three hubs of Dubai, Abu Dhabi, and Doha are blessed with fortunate commercial geography: They are a four-hour flight to one-third of the world’s population and an eight-hour flight to two-thirds. Any self-respecting McKinsey study would have told these governments to build air hubs and national airlines to exploit their comparative geographic advantage.Any self-respecting McKinsey study would have told these governments to build air hubs and national airlines to exploit their comparative geographic advantage. And they did.

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It was inevitable, then, that the Gulf carriers would eventually begin direct flights to the United States in hopes of encouraging Asian, African, Middle Eastern, and Australian travelers to use Dubai or Abu Dhabi instead of Frankfurt or London as their stopover hub en route to the United States — and, conversely, bringing U.S. travelers to Doha or Dubai on their way to Delhi, Bangkok, or Sydney. Over the past five years, the Gulf carriers have flooded the zone, with some 252 direct flights a week from their respective hubs to 10 U.S. cities, from Seattle to Chicago to New York. It’s a sound business model: feed the demand of growing traveler needs while hitting the most important market in the world.

Unsurprisingly, Delta, United, and American Airlines — the three largest U.S. carriers — are displeased. The Gulf airlines, after all, are cutting into the U.S. long-haul business, the most lucrative in aviation. Just ask Lufthansa what that looks like: The German carrier has had its market share slashed by nearly a third since 2005, as some 3 million Germans annually opt for the Gulf carriers to take them to Asia. This has been good for German consumers, to be sure. But not for Lufthansa. The same goes for the U.S. Big Three: Increased capacity may be good for the consumer, but not for them. After suffering record losses in 2008, it was their refusal to expand capacity on domestic flights, thus raising their prices, that helped them recover.

Since 2005, U.S. airlines have also been consolidating at a rapid clip: America West with U.S. Airways, Northwest with Delta, Continental with United, AirTran with Southwest, and then, most recently, U.S. Airways with American. The U.S. Airways-American merger prompted a Justice Department antitrust lawsuit. “In recent years, major airlines have, in tandem, raised fares, imposed new and higher fees and reduced service,” the Justice Department noted. Then Attorney General Eric Holder said in an August 2013 statement that “This transaction would result in consumers paying the price — in higher airfares, higher fees and fewer choices.” Ultimately, the merger was approved. Today, as a result of these consolidations, only four carriers handle 80 percent of U.S. airline seat capacity.

The war for airspace

Now, Delta, United, and American are engaged in an orchestrated campaign, suggesting that the Middle Eastern carriers have benefited unfairly from some $40 billion in subsidies from Gulf governments over the past decade. They demand that Washington curtail those carriers’ direct flights into the United States and are taking their complaint directly to the White House via that most time-honored of Washington swords: a white paper detailing their extensive allegations. They have also created a 501(c)(4) organization, Americans for Fair Skies, that is flooding the capital with advertisements, including ads on this very website.

The message of Americans for Fair Skies is simple: The Gulf carriers are operating on an uneven playing field, deriving tremendous benefits from their state ownership, including a slew of alleged subsidies. “This unprecedented level of support allows the Gulf airlines to operate not as businesses, as U.S. airlines do, but as arms of their well-heeled predatory governments,” the organization states on its website.

The Gulf carriers generally retort that consumers enjoy their award-winning premium service and benefit from their global connectivity all across Asia, Africa, and the Middle East. The independent Skytrax airline ratings agency seems to agree: The Gulf Big Three made it to the top 10 list at the agency’s prestigious 2014 World Airline Awards, while the U.S. Big Three barely cracked the top 50: Delta came in at 49, United at 53, and American at 89.

“Stop complaining,” says Danny Sebright, president of the U.S.-UAE Business Council, to U.S. carriers, and “start competing.” Sebright is not alone. A broad network of American businesses — from Boeing to FedEx, from JetBlue to a constellation of airport councils and travel services companies — are crying foul against the U.S. carriers. It’s obvious why Boeing is uncomfortable with the U.S. carriers’ effort to limit the Middle Eastern airlines. After all, the Gulf carriers are among the biggest foreign buyers of its aircraft. At the 2013 Dubai Airshow, Emirates and Etihad dazzled the aviation world with some $100 billion in orders for Boeing aircraft. A few months later, Qatar Airways ordered another 50 Boeing aircraft, at a list price of $37.7 billion. If you’re keeping tabs, that’s nearly $140 billion of aircraft orders in less than six months. And between now and 2027, the Gulf carriers will add another 534 new wide-body aircraft to their fleets, according to Credit Suisse. That’s a lot of Boeing and Airbus planes — and lots of American and European manufacturing jobs.

But the story goes deeper than that, and it underscores a cornerstone of U.S. aviation policy: accords known as “open skies” agreements. Since 1992, the United States has negotiated more than 100 such agreements around the world, which are widely credited with expanding the global footprint of the U.S. Big Three. According to the State Department, the policy also benefits American cities like Dallas-Fort Worth, Detroit, Las Vegas, Memphis, Minneapolis, Portland, and Salt Lake City, which had virtually no international flights prior to 1992. It’s also a boon to U.S. tourism, air cargo, airports, and the aviation industry writ large.



The United Arab Emirates’ aviation strategy — driven largely by each emirate — may not be a model that everyone can follow, but it’s a good example of an emerging market overachieving. It’s also something that U.S. policymakers should celebrate rather than penalize. The benefits to U.S. industry, consumers, and labor are clear, but there’s something more intangible at play here: In a region littered with economic failure and underperformance, this is a Middle Eastern success story that supports jobs, grows economies, and builds connectivity.

The numbers don’t lie. And at the airport in Dubai, one needn’t do anything more than look around to see the future of emerging-markets travel, of South and Central Asians, Arabs and Iranians, Russians and Africans, Eastern Europeans and Chinese, lining up, boarding their planes, and flying high into the Dubai sky.

Hello Tomorrow.



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