Massive Subsidies for Gulf Carriers Allow for Economically Irrational Expansion Scheme

WASHINGTON, DC (April 10, 2017) – Since January 2015, Emirates, Etihad Airways and Qatar Airways have added and announced plans to add flights to the United States by almost 50 percent, according to new data released today by the Partnership for Open & Fair Skies. The sharp increase in Gulf carrier routes represents a significant shift that is only possible due to massive subsidies from their government owners. The United Arab Emirates (UAE) and Qatar have pumped more than $50 billion in government subsidies to their airlines, in a clear violation of their Open Skies agreements with the United States. The agreements were designed to eliminate government interference in the airline industry.

The increase in flights to the United States comes at the same time as the Gulf carriers increased and announced plans to increase seat capacity on flights arriving in the United States by 43 percent since January 2015. It also coincided with concerns raised by American, United and Delta, along with seven labor unions in early 2015. The US carriers and the unions released a 55-page white paper documenting the billions of dollars in Gulf carrier subsidies that have been upending the international aviation marketplace.

From 2012-2016, Gulf carriers increased capacity at more than six times the growth rate of global GDP, according to aviation economists at Compass Lexecon. The subsidies allow the Gulf carriers to fly to any destination at any time without considering customer demand or profit. Of the 23 routes to the United States operated by the Gulf carriers in 2014, 19 lost money, and more than half of these routes had loss margins of more than 20 percent. Data show that these flights are not stimulating new demand, but are instead leeching off fair-playing competitors.

The latest route adding to this trend in flights began in March when Emirates launched a fifth-freedom route to the United States with a flight into Newark, New Jersey from Athens, Greece. In response, U.S. airline workers rallied in protest, highlighting the UAE and Qatar’s repeated violations of Open Skies agreements with the United States. Twenty-five Members of Congress from New Jersey and New York sent a letter to President Trump last month to ask his administration to stop Emirates from flying between Athens and Newark and to enforce the Open Skies agreements. Without any government action, the subsidy-fueled increase in Gulf carrier routes to the United States shows no signs of slowing down. Indeed, earlier this year, Qatar Airways announced it will launch a new route between Doha, Qatar and Las Vegas, Nevada in 2018.

“With their massive subsides, Gulf carriers are able to make decisions that no rational business would ever consider, let alone do,” said Darin Lee, an aviation economist and Executive Vice President at Compass Lexecon. “No company could tolerate such financial losses except for those receiving a never-ending stream of state subsidies. If all airlines are to compete fairly, we need to stop the massive flow of government cash that has completely skewed the playing field.”

“When the Gulf carriers establish a new route to the United States, their intention is to undercut our airlines, take our passengers and harm American jobs,” said Jill Zuckman, chief spokesperson for the Partnership for Open & Fair Skies. “For every long-haul daily frequency lost as a result of subsidized Gulf carriers encroaching on the United States, more than 1,500 American jobs are lost. We are respectfully asking President Trump to enforce our international agreements with the UAE and Qatar and protect 1.2 million American jobs.”

Background on Partnership for Open & Fair Skies

The Partnership for Open & Fair Skies is a coalition that includes American Airlines, Delta Air Lines and United Airlines, along with the Air Line Pilots Association, the Allied Pilots Association, the Southwest Airlines Pilots’ Association, the Association of Professional Flight Attendants, the Association of Flight Attendants-CWA, the Communications Workers of America, and the Airline Division of the International Brotherhood of Teamsters. The Partnership is calling for the United States to enforce its Open Skies agreements with the UAE and Qatar, which have pumped more than $50 billion in subsidies to their state-owned airlines, Emirates, Etihad Airways and Qatar Airways. In January 2015, the Partnership published a white paper providing a comprehensive overview and analysis of this issue.