Saturday, 16 May 2015

The All New Gulf - American War

The all new Gulf - American war of words between the big three American carriers and the three big Gulf airlines is heating up to such an extreme that trade sanctions are currently being considered.

Etihad Airways hit back yesterday at the big three US carriers seeking to restrict Gulf airlines from competing on ‘open skies’ routes to North America.  The United Arab Emirates based airline outlined a range of government and court-sanctioned benefits and concessions received by Delta Air Lines, United Airlines and American Airlines Group, and other carriers with which they have merged.

All told the benefits are worth $71.48 billion with over $70 billion coming since 2000, which has enabled the three largest carriers in the US to go from the verge of bankruptcy to industry leaders, each achieving multi-billion dollar profits.

Delta, American and United generated collective net profits of $8.97 billion last year, equivalent to 45% of the total $19.9 billion profits achieved in 2014 by the global airline industry. 2015 seems to show no sign of change as all three reported large net profits for the first quarter of the year.

Etihad Airways has denied claims by Delta, United and American that it received subsidies, but has stated publicly that it has received equity and loans from its sole shareholder, the government of Abu Dhabi.

International consultancy The Risk Advisory Group, which carried out the US carrier research for Etihad, identified that the majority of benefits accrued to Delta, United and American came from restructuring under Chapter 11 of the US Federal Bankruptcy Code. These yielded at least $35.46 billion, and additional pension fund bailouts totalling $29.4 billion from the US Government’s Pension Benefit Guaranty Corporation.

 Etihad general counsel and company secretary, Jim Callaghan, said: “We do not question the legitimacy of benefits provided to US carriers by the US government and the bankruptcy courts.

“We simply wish to highlight the fact that US carriers have been benefitting and continue to benefit from a highly favorable legal regime, such as bankruptcy protection and pension guarantees, exemptions from certain taxes, and various other benefits.

“These benefits, which are generally only available to US carriers, have created a highly distorted market in which carriers such as Etihad Airways have to compete.”

The figures produced by The Risk Advisory Group were conservative, quantifiable and credible, and obtained from public records and statements, he added.

The claims by the trio of US carriers that they were being harmed by Etihad Airways were baseless, and an attempt to obstruct higher-quality competition, Callaghan added.

“There is no evidence whatsoever of any harm caused by Etihad Airways to any of the three big US airlines,” he said.

“The US open skies policy has delivered more choice and better service for millions of consumers, more airline access to and from America, and record profits for the biggest airlines in the US.

“It is time to refocus on the real issue here – that the open skies policy is delivering the benefits it was designed to deliver, and that everyone is a winner.”

Kevin Mitchell, founder of US lobby group, said: “This report confirms that the US has found numerous ways to financially help its airline industry become established and profoundly advantage it in ways to enable the most powerful and profitable airlines in the world.

“At a time when the ‘Big Three’s’ profits are being driven to record highs by the benefits of anti-trust immunized alliances, customer service cost cutting and avoidance of ticket taxes on billions of dollars of revenue from ancillary services, it represents arrogance-in-the-extreme to demand protection from competition.

“Freezing Gulf carrier access to US markets would be the ‘mother of all subsidies’ and stick American consumers with vastly higher fares and much diminished travel options.”

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