Without action, American communities face decreased access to vital aviation service

Washington, D.C. (July 23, 2015) – A new report by one of America’s foremost aviation economists finds that the government-subsidized expansion of the Gulf carriers into the United States is threatening service and access for communities across the nation. The report, authored by William Swelbar, executive vice president at InterVISTAS Consulting, Inc., and a research engineer at MIT’s International Center for Air Transportation, concludes that heavily subsidized Gulf carriers are shifting passenger traffic away from U.S. air carriers without generating new demand, thereby threatening the viability of nonstop flights and service to local communities in America.

In the paper, entitled, “Violations of ‘Fair and Equal’ Open Skies Agreements Threaten Large and Small American Communities and their Access to the Global Air Transportation Network,” Swelbar examines how Qatar Airways, Etihad Airways and Emirates are diverting passengers from U.S. carriers, creating potentially devastating economic impacts to domestic markets.

The report notes that the unprecedented influx of subsidies paid by the governments of the United Arab Emirates (UAE) and Qatar to their state-owned airlines, Qatar Airways, Etihad and Emirates, are distorting the market with:

• A rampant increase in subsidized Gulf carrier capacity, beyond what regional demand would dictate;
• A reduction in passengers traveling on U.S. airlines to key local and connecting markets;
• A shift of connecting passengers from U.S. airlines to subsidized carriers; and
• A reduction in U.S. airline service, due to the reduction in local and connecting passengers.

Swelbar writes, “With each new U.S. gateway that the subsidized Gulf carriers enter, there will be more and more smaller communities that will see their traffic numbers dwindle and their domestic services threatened as international passengers drive directly to these gateways to access subsidized Gulf carrier flights.”

Ultimately, the report warns that transfer of passengers away from U.S. carriers will significantly disrupt the U.S. aviation industry. Swelbar notes, “If passengers start moving away from taking U.S. carriers to overseas destinations, domestic connecting flights are threatened. The negative externalities are significant: passengers to hundreds of other destinations will also be affected, and the community will be less connected to the nation and the world.”

The report concludes, “The U.S. carriers are not asking for an end to Gulf carrier service, or an end to competition with foreign carriers. Competition is necessary to a healthy market and brings value to consumers and businesses. More importantly, the U.S. carriers are not asking to undo the Open Skies policy that has benefitted U.S. consumers and communities in the overwhelming majority of cases. They simply insist that competition with Gulf carriers is conducted in a way that meets the Open Skies agreement of ‘fair and equal.’”

“The consequences of inaction are clear in this new research: Without fair and equal competition, American communities large and small will suffer a massive financial and economic hit,” said Jill Zuckman, chief spokesperson for the Partnership for Open & Fair Skies. “That is why we are calling on the U.S. government to open consultations with the governments of Qatar and the United Arab Emirates and address the $42 billion in subsidies and other unfair state benefits these Gulf carriers receive.”

The full report is available here.