Tuesday, September 1, 2015

Delta, JetBlue continue Open Skies debate

The coalition led by the three US legacy carriers and organized labor is asking the US government to request the three Persian Gulf Airlines freeze capacity to the US if Qatar and the United Arab Emirates (UAE) engage in consultation over those airlines’ access to the US.

“We haven’t asked the US government to unilaterally freeze capacity,” Delta Air Lines EVP-corporate affairs and legal counsel Ben Hirst told ATW at the Boyd Group’s International Aviation Forecast Summit. “We’ve asked the US government to request that they do so.” Delta, along with United Airlines and American Airlines and allied labor groups, say the US government should begin consultations—formal dispute resolution talks provided by the Open Skies agreements—with the governments of Qatar and the UAE over alleged subsidies those governments have given Qatar Airways, Emirates Airline and Etihad Airways.

Hirst’s comments are a subtle shift in rhetoric from earlier this year, when the three legacy US carriers were more forceful in asking for capacity to be frozen. Hirst noted that Delta supports Open Skies agreements, but that the three Gulf carriers are “operated in pursuit of state industrial policy,” a concerted effort by Qatar and the UAE to diversify their economies away from oil. “Open Skies agreements are based on the elimination of government-induced restrictions to competition,” Hirst said. “What [the three Gulf carriers] are doing is a violation of these agreements, and Open Skies doesn’t work in the face of massive government distortion of the market.”

The harm caused by the Gulf carriers is apparent, Hirst said. Emirates’ fifth-freedom Milan-New York flight has depressed yields on that route, and now they are the lowest on any transatlantic market. “That market was in reasonable balance with supply and demand before Emirates entered,” Hirst said.  “There was no market justification to upgrade that flight to an [Airbus] A380, and that level of capacity will eventually drive the US carriers out of the market.”

Second, the Gulf carriers have driven US carriers out of the India market. In 2007, Delta had studied operating to as many as seven cities in India, but now has “been foreclosed” out of the country, explaining, “Yields have depressed to the point where we can’t operate to India. That’s a real effect.”

But JetBlue Airways, which has joined with Hawaiian Airlines, Atlas Air and FedEx to support the Open Skies policies as they are now, cried foul. “The big three [US carriers] are in a glass house throwing stones,” JetBlue CEO Robin Hayes told ATW. “The Open Skies agreements are pretty straightforward. If these are changed, we’d go back to a more protectionist era.”

Instead, JetBlue says it has benefited from the Gulf carriers’ expansion. Hayes pointed to Emirates Boston-Dubai service, which feeds passengers to JetBlue’s Boston-Detroit flight. Boston-Detroit had been a monopoly route before JetBlue entered the market, and the New York-based carrier would not have been able to make the flight work without feed from Emirates. Growth by JetBlue’s international partners helps JetBlue expand its own domestic network, and this is good for the consumer, he said. “We play a crucial role in keeping the domestic landscape competitive.”

Open Skies deals have allowed JetBlue to expand its international footprint, especially with its growth in the Latin America market, Hayes said. But the three legacy carriers want to protect their immunized joint ventures with European carriers. “Basically, three airlines have 80% of the share between the US and Europe,” he said. “It’s legal price and schedule collusion because of antitrust immunity.” JetBlue has called on the US Department of Transportation to review immunized joint ventures periodically to ensure customers benefit.

“The Big Three have adopted a very protectionist attitude. They have in-built advantages with their networks and large slot-holdings at protected airports. They don’t need Open Skies as much as airlines like JetBlue.” 

(Madhu Unnikrishnan - ATWOnline News)

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