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Delta Airlines complaining about Gulf carriers (again)


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Interesting article on Airline Subsidies...

NOV 17, 2016 @ 11:05 AM 5,399 2 FREE Issues of Forbes

Government Airline Subsidies... So What?



Ashley Nunes

Dr. Nunes is a frequent contributor to Aviation Week and has previously written for NPR, Politico and Wired, among others.

In 2014, some $865 million in subsidies went to China Eastern and China Southern, both of which partner with Delta. (AP Photo/Phelan M. Ebenhack)

Last month saw Atlanta-based Delta Airlines complain about government travel contracts awarded to JetBlue Airways. These contracts allow Jetblue to ferry federal employees between New York and Dubai and between New York and Italy. However, because Jetblue, with its short-haul airplane fleet, does not have the long-haul airplanes needed to fly those routes, they will be operated by code-share partner, Dubai-based Emirates. Delta opposes this arrangement because Emirates allegedly, “exploits an improper advantage over U.S. flag carriers by receiving massive subsidies from its home government.”

Delta doesn’t stand alone. United and American Airlines also claim that Gulf carriers, specifically Emirates, Etihad and Qatar Airways, don’t have to worry about being profitable because oil-rich rulers with deep pockets own them. This allows the Gulf three to flood the market with excess capacity that drives down fares and puts competitors out of business. Delta’s reportedly cancelled its Atlanta-Dubai route for this reason. The airplane used on that route was redeployed on the transatlantic market where it could, according to Delta, “compete on a level playing field that’s not distorted by subsidized state-owned airlines.”

Delta’s outrage would almost be understandable were it not for two things.

Firstly, many state-owned carriers serve American markets. These include Surinam Airways, Caribbean Airlines and Kuwait Airways. Why not go after them as well? The answer is competition. As long foreign airlines don’t threaten the balance sheets of their American counterparts, all is well. Once they do, the latter cries foul. Emirates, for example, started flights to New York in 2004. The Open Skies Agreement—the legal framework that allows Emirates to do so—was signed in 1999. Since then, and for the better part of a decade, there was silence from the West. Gulf subsidies were, at least publicly, a non-issue. They "mysteriously" became an issue after U.S. carriers began losing passengers (and revenue) to the likes of Emirates.

Second and more importantly, Delta and its counterparts freely partner with carriers that are subsidized, particularly in China. A report from aviation think tank Centre for Aviation (CAPA) report notes that Chinese carriers—unlike their Gulf counterparts—have documented government subsidies that are labeled as such in their own books. In 2014, some $865 million in subsidies went to China Eastern and China Southern, both of which partner with Delta. $162 million went to Air China, a United Airlines ally, and $82 million to Hainan Airlines that code-shares with Dallas-based American Airlines. As CAPA’s Peter Harbison aptly notes, when it comes to subsidies, “no airline has clean hands.”


After withdrawing from Dubai, Delta stated that airlines don’t cancel profitable routes. This claim is somewhat misleading. Airlines have a limited number of airplanes. Good management entails deploying those airplanes on routes that generate a profit. Great management means doing so on routes that generate the most profit. If 2015 figures are anything to go by, Delta’s management team may well be among the best. The airline reported nearly $6 billion in pre-tax income during the year. $2.6 billion of that went to shareholders and $1.5 billion was doled out to Delta’s 80,000 employees in what remains the largest profit-sharing payout in history.

So what’s all the fuss about?

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