“These carriers don’t release financial statements the way the U.S. carriers do and their past financial reporting practices leave a lot to be desired,” said Jill Zuckman, spokesperson for the Partnership for Open & Fair Skies, which represents the big three U.S. carriers and their unions.
American, Delta and United contend that Qatar, Etihad and Emirates have benefitted from $39 billion in subsidies provided by the governments of Qatar, the United Arab Emirates, and Abu Dhabi and Dubai, the two largest emirates.
Now the subsidized carriers are increasingly dumping capacity in the U.S and they are reporting alleged profits as a public relations maneuver, Zuckman said.
Etihad said last month that it earned $73 million in 2014, up from $48 million a year earlier. Revenue rose to $7.6 billion from $6 billion, the carrier said, largely due to a 22% increase in passengers to 14.8 million as capacity grew. New destinations included Dallas, Los Angeles and San Francisco.
Dallas is a hub for American. San Francisco is a hub for United. Los Angeles is a hub for American, Delta and United. All three carriers face the threat of losing international passengers to Gulf carriers, when the passengers might otherwise fly internationally and then connect on partner airlines.
Zuckman said it’s tough to believe Etihad financial reporting due to inaccuracies in past financial statements, particularly accounting that credited the company with a $213 million 2013 operating profit. The alleged profit, she said, resulted from the $700 million sale of Etihad’s frequent flyer program to a related company, Etihad Guest, which is owned and controlled by the airline.
In other words, she said, “Etihad sold its frequent flyer to itself at an inflated price and then counted the gain in order to report a profit.” International financial reporting standards and U.S. accounting principles prohibit companies from counting gains from sales of assets to controlled entities.
Without the transaction, Etihad would have reported a 2013 operating loss of $511 million, she said. Also in 2013, Etihad counted revenue it received from partner airlines in which it holds equity, but it did not include its share of those partners’ losses, which totaled $134.7 million.
Etihad spokeswoman Katie Connell said Zuckman’s suggestions are inaccurate.
“Our 2014 financial results, in which we recorded a net profit of $73 million, were audited by KPMG and were in accordance with International Financial Reporting Standards (IFRS) and we stand by them,” Connell said.
As for Qatar, CEO Akbar Al Baker claimed in a June 16 interview with The Wall Street Journal that Qatar made $103 million.
“We are not afraid to [publish earnings],” he told the newspaper. “We are a private company. But I can tell you our last year profit for the financial year was $103 million.”
Zuckman said Akbar Al Baker provided no financial documents to support the claim. She said the claim “doesn’t pass the laugh test. “
“The truth is, Qatar Airways would be out of business without the ongoing financial support from the Qatar treasury,” she said.
A Qatar spokeswoman did not respond to a request to comment.
The Partnership for Open Skies has asked the U.S. government to open consultations with Qatar and UAE regarding the three Gulf carriers. It is seeking a freeze on the introduction of new passenger service by the Gulf carriers during these consultations.
(Ted Reed - Forbes)
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