Evidence shows Gulf carriers use subsidized expansion to divert passengers, damaging carriers from around the world while failing to stimulate new growth

Washington, D.C. (September 21, 2015) – In their continuing effort to dominate global aviation, the heavily subsidized state-owned Gulf carriers – Qatar Airways, Emirates and Etihad Airways – are harming airlines throughout the world, from France to the Philippines and beyond. Their dramatic expansion highlights the urgency behind the Partnership for Open & Fair Skies’ request for the U.S. government to address these massive government subsidies and preserve American jobs, say former high-ranking officials from the Obama and Clinton administrations.

The unfair subsidization of the Gulf carriers by the governments of the United Arab Emirates (UAE) and Qatar is harming airlines in many countries around the world including Southeast Asia, France, Germany, the Netherlands, Australia and the Philippines, among others. The governments of France, Germany and the Netherlands have all pointed to the harm that is being caused and instituted a freeze on new Gulf carrier flights to their countries. Additionally, the European Union’s Transport Commissioner will seek authority from EU governments to negotiate directly with the Gulf states and address their anticompetitive practices.

“Subsidized Gulf carrier competition is fundamentally distorting the international air transport market, and the impacts are being felt well beyond the United States,” said Charlene Barshefsky, the former U.S. Trade Representative under President Clinton. “This state-driven aviation mercantilism is wholly contrary to U.S. Open Skies policy and the agreements themselves and demands a vigorous response from the U.S. government.”

“It is vital that the U.S. government remain consistent in its approach to trade-distorting subsidies, ensuring that problems they pose be addressed. This has been a top priority in TPP and should be in discussions with other areas of the world – both in new agreements and where they are counter to the provisions and principles of existing U.S.-international agreements,” said Robert Hormats, former Under Secretary of State for Economic Growth, Energy and the Environment under President Obama. “It’s not a question of the wisdom or the right of other nations to establish state enterprises. But it is very much a U.S. concern if the playing field is not level between them and their American competitors. As a strong advocate of Open Skies Agreements aimed at promoting ‘an international aviation system based on competition among airlines in the market place with minimum government interference and regulation,’ I think it’s difficult to argue that high levels of government subsidies are consistent with ‘minimum interference.’ Nor is it accurate to characterize arguments in favor of limiting such subsidies as being opponents of Open Skies.”

Specific examples of what other countries and airlines are facing include:

• Southeast Asia: According to a new analysis by the Centre for Aviation (CAPA), the average number of flights Qatar Airways, Emirates and Etihad Airways operate in Southeast Asia nearly quadrupled from 2005 to 2015. And as CAPA has also noted, “[c]ompetition in the Europe-Thailand and broader Europe-Southeast Asia market has intensified as Gulf carriers have pursued ambitious expansion in Thailand and the rest of Southeast Asia.”
• Philippine Airlines (PAL) recently complained that Gulf carrier expansion will have “pernicious consequences” on their new routes to London, New York City, and the Middle East. In a statement, the airline cited the concerns raised by the U.S. carriers and said that Gulf carriers can “create a distortion in the market and could possibly lead to PAL pulling out of these new routes.”
• In Europe, the Gulf carriers’ unfair competitive practices prompted European governments and airlines to ask the European Commission to restrict Gulf carrier access. The French Secretary of State for Transport and Germany’s Federal Minister of Transport said in a joint statement that “European airlines are losing market share against the Gulf companies, because of their unfair competitive practices, and in particular because of the significant public subsidies and guarantees they enjoy.”
• Lufthansa’s Frankfurt hub has lost nearly a third of its market share on routes between Europe and Asia since the entry of the Gulf carriers, and has had to cut flights to over twenty destinations in Africa and South East Asia-Pacific as a result. Thomas Kropp, Lufthansa senior vice president and head of group international relations and government affairs, wrote in June 2015 that “the financial support to the Gulf carriers allows them to bring capacity into the market to an extent that cannot be explained by growth of the market.”
• Air France KLM also suffered negative consequences, noting in its own filing that “European carriers have closed routes and reduced overall capacity. Air France during this period terminated services to Abu Dhabi, Doha, Jeddah, Chennai, Hanoi and Phnom-Penh and lost major growth opportunities to these regions.”
• Turkish Airlines’ president and CEO Temel Kotil recently equated the subsidies that the Gulf carriers receive to “poison,” noting the need to maintain “open and fair” skies, according to Air Transport World.

“The Gulf carriers are rapidly taking over international routes, and the harm they are inflicting across the globe will only get worse if nothing is done,” said Jill Zuckman, chief spokesperson for the Partnership for Open & Fair Skies and the former assistant to the secretary and director of public affairs at the U.S. Department of Transportation under President Obama. “The Obama administration shouldn’t stand idly by while American workers and our aviation industry are being harmed by these state-owned airlines and their government sponsors. It’s time for the U.S. to stand up for American workers to ensure all airlines can compete on a level playing field.”

Last month, the Partnership for Open & Fair Skies submitted a 400-page legal filing to the U.S. Department of Transportation, which outlined the breadth of the $42 billion in subsidies and other unfair benefits that the UAE and Qatar have provided to their state-owned airlines and demonstrated the substantial harm being inflicted on U.S. airlines and American jobs. The filing exposed a $2.6 billion injection from the government of Abu Dhabi to Etihad, showcased the harm that the subsidies are inflicting on U.S. airlines in cities the Gulf carriers have entered, including Seattle, Washington D.C., Dallas and Boston, and detailed the Gulf carriers’ admission of their massive subsidization.

The Partnership, along with 262 members of the U.S. House of Representatives, 22 U.S. senators, the U.S. Conference of Mayors, representing over 1,400 mayors of major U.S. cities, and dozens of business, trade and economic groups around the country, is asking the U.S. government to request consultations with Qatar and UAE in response to more than $42 billion in government subsidies and for an immediate freeze to new passenger service by the Gulf carriers during these consultations.

Click to view the Partnership’s latest submission to the U.S. government.