Gulf carriers take on US airlines

18 Mar 2015 by Clement Huang

Akbar Al Baker, group chief executive of Qatar Airways has reacted angrily to comments made by the heads of the three biggest US airlines – Delta, American and United – that the “Big Three” Gulf carriers are receiving unfair advantages over their competitors due to the subsidies and government industrial policies that favour their business.

Competition is strong between Gulf and US carriers

According to an article by the Wall Street Journal, the chief executives of Delta, AA and United alluded that the three state-owned Gulf carriers (Emirates, Qatar Airways and Etihad) have received over $42 billion in “quantifiable” subsidiaries since 2004, along with other benefits that include “exemption of corporate taxes and breaks on local airport infrastructure and services”.

In particular, the US carriers are lobbying for the government to modify or annul the existing Open Skies agreement that allows airlines from the Gulf States and US to operate flights in-between, on condition that they do not receive any government subsidies.

Delta BusinessElite seat on the B757

"We fully expect the government to act on the evidence," said Delta’s chief legal officer Ben Hirst. “From the US airlines' standpoint, we're competing with [foreign] governments, not private businesses."

Qatar’s Al Baker has responded by stating that any money that his airline has received from the state are not subsidies but rather equity-based, and any business is done legitimately.

Qatar Airways' Akbar Al Baker addresses the crowd at the Art for Tomorrow conference

“The state of Qatar is the owner of Qatar Airways and whatever funds are put into the airline is as equity, which is quite legitimate,” said Al Baker who was speaking at the Art for Tomorrow conference in Doha. “The unfortunate thing is that because they [the US carriers] are so inefficient they want to blame us for their failures and drawbacks”.

Likewise, as reported by The National, Emirates president Tim Clark has rebuffed the statements made by the US airlines by stating that he would be interested to know how the alluded US$42 billion subsidies were calculated.

Do the Gulf carriers offer superior products to their US counterparts?

We have never received financial subsidies or bailouts,” he said. “We did receive start-up capital of US$10 million in 1985 and a one-time infrastructure investment of US$88 million for two Boeing 727 aircraft and a training building.”

It should also be noted that all three US carriers have also received subsidies in the past, having filed for Chapter 11 bankruptcy protection over the last two decades. The airlines were able to reorganise their business by shredding liabilities, rejecting and cancelling orders, and even acquire financing on favourable terms.

American Airlines new business class on B777-300ER

However, it is also clear that the increased competition faced by the US carriers has adversely affected their profit margins. According to Reuters, bookings have declined by some five per cent for flights out of the US to destinations in South and Southeast Asia, and even Europe since 2008.

In contrast, the combined booking shares for the same market by the three largest Gulf carriers rose to 40 per cent last year – up from just 12 per cent back in 2008.

The Gulf carriers have regularly introduced new aircraft and products

The Gulf carriers have attributed their growing success to superior products, competitive prices, and convenient connections. In particular, Emirates’ chairman Sheikh Ahmed bin Saeed was quoted as saying that the US airlines had to improve their service in order to compete with the Gulf carriers.

“Offer the best to the passengers and people will fly with you,” said Sheikh Ahmed to Bloomberg News.

United has recently announced that it would be investing heavily to improve its lounges (see here)

As always, Qatar Airways’ Al Baker was never one to hold back as he responded by stating that his company operates state-of the-art aircraft and boasts superior environmental benefits.

"I am delighted that [chief executive] Richard Anderson of Delta is not here. First of all, we don't fly crap airplanes that are 35 years old. The Qatar Airways average fleet [age] is only fours years and one month," said Al Baker.

"We have ultra-modern airplanes. We have invested, my country has invested, huge amounts to make sure we are the lowest CO2 contributor in the aviation industry".

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Clement Huang

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