CAPA hosts major US-Gulf airline debate; Emirates, Etihad, American, Delta, FedEx, pilots, tourism

For the full two day agenda and other details of the CAPA Summit, please see Americas Aviation Summit 2015

28 April, 2015, Session 1 -
09:00-11:00: The Gulf Carriers: Good for the US Airline Industry as well as for Consumers? Or a Threat to Sustainability?

The Gulf airlines' unique long haul-to long haul model and their global reach have spelled major change for established airlines in Europe and Asia especially. Some major European airline groups - most notably Lufthansa - have stridently opposed expansion of the Gulf airlines. One, IAG has however grown close to Qatar Airways, now a member of the oneworld alliance and owner of 10% of IAG.

Asian airlines, more accustomed to competition for sixth freedom traffic, have fought back.

In the US, whatever the eventual regulatory outcome as the three major airlines seek government protection, the Gulf airlines have already reset the bar for international travel expectations. Turkish Airlines too, although just off the ideal geographic axis, is almost a Gulf carrier - but only in being a highly successful global hub carrier.

North American airlines are less threatened, because of its geography, but even so strident industry voices are raised against allowing them greater access, despite the consumer benefits.

These voices have remarkably included calls from the CEO of the world's largest airlines for the US to reverse the open skies policy that the US has disseminated across the world over the past three decades.

Canada has meanwhile reverted to use of 70-year old bilateral trade restrictions to limit the Gulf airlines' access, while Latin America is gradually welcoming more services.

• How real are the threats offered by the Gulf airlines to incumbent airlines?
• What is the nature of opposition to the new wave airlines?
• What are the implications for consumers, airports and other providers as the Gulf airlines enter the Americas?
• Are there partnership opportunities with the Gulf airlines?

Moderator: Pillsbury, Partner and Head Aviation, Aerospace and Transportation Practice, Kenneth P. Quinn

• Panellists:
  American Airlines, Senior VP Government Affairs, Will Ris
  Americans for Fair Skies, President, Lee Moak
  Delta Air Lines, Executive VP & Chief Legal Officer, Ben Hirst
  Emirates, President and CEO, Sir Tim Clark
  Etihad Airways, General Counsel and EVP Legal, Jim Callaghan
  FedEx, Senior VP and General Counsel, Rush O'Keefe
  US Travel Association, President & CEO, Roger Dow
  World Travel and Tourism Council, President & CEO, David Scowsill

What they have said:

American SVP Government Affairs, Will Ris:

"This is a really hard issue for us because our instincts are all about open markets, no governments getting in the way. So until we actually saw the magnitude of these subsidies, we weren't all that interested in joining this."
"But once you see the facts and the data, it is so overwhelming. And then when you take that and begin to look at the trend lines of expansion in this gulf carriers and the massive purchases of the equipment we just came to the conclusion we have to get involved in this and stop this before it gets to a point where we will all look back and wish we had done something.
"If you drive out U.S. carriers .. that is profoundly anti-consumer. So, some benefits that result from very low fares may be desirous in the short-term, but this is going to be disastrous (for consumers) over the long run." (Dallas Morning News, 5-Mar-2015)

Lee Moak, President, Americans for Fair Skies

"What Qatar and the United Arab Emirates are doing by subsidizing their airlines with more than $40 billion in government money is predatory protectionism at its worst. They are anti-Open Skies by undermining the principles of open markets by subsidizing their airlines. These Middle East airlines would not be in existence due to their massive financial losses if it were not for the subsidies by their governments. The evidence is clear. Facts are facts. The U.S. government has the proof it needs to take action. It's time for the U.S. government restore fairness to our Open Skies and end the Gulf subsidies." (Wings magazine, 2-Mar-2015)

Ben Hirst, Executive VP and Chief Legal Officer, Delta

"We fully expect the government to act on the evidence. From the US airlines' standpoint, we're competing with (foreign) governments, not private businesses." (AviTrader 13 Feb-2015)

Sir Tim Clark, President and CEO, Emirates

"We have never received financial subsidies or bailouts. We did receive start-up capital of US$10 million in 1985 and a one-time infrastructure investment of US$88 million for two Boeing 727 aircraft and a training building." (AviTrader 13 Feb-2015)

"The allegations are all the stuff of nonsense. We are an affordable competitor which people value and I'm sure that we will be allowed to continue on that basis. We will disprove the allegations made against us and I hope that we will receive some kind of apology from the protagonists once we do... We are a facilitator and enabler and a connector....We are about to report the highest profit in our 30 years." (CNBC, 17-Mar-2015)

James Hogan, President and CEO, Etihad Airways

"We've been helped by our geographic position. The Gulf is at the centre of today's trade and travel routes. That is one advantage all three 'Gulf carriers' share. Today's aircraft technology and the changing patterns of world trade mean we are positioned strongly for many new and emerging markets.
"We've been helped by our blank sheet of paper - no legacy systems, no legacy aircraft, no legacy mindsets. And we operate from one hub…..
"We get criticized regularly for our so-called lack of transparency but we see few national airlines that were as open in their first stages of development, as we are being in ours.
"And let me also say this. We are not a public company but we are fully compliant with the international financial reporting standards. We are audited by KPMG and we provide full transparency to the 76 financial institutions which provide us with more than 10.5 billion dollars in loans." (Presentation, Washington, 17-Mar-2015)

FedEx, CEO letter to US Secretaries of State, Transportation and Commerce, 18-Feb-2015

"Recently, several US passenger carriers have questioned Open Skies, specifically as it relates to Middle Eastern carriers. These US passenger carriers do not fly extensively between foreign points like FedEx does. They believe they have little to risk by limiting foreign carrier access to US markets. What they want is for the US government to protect them from competition from able, attractive new entrants.
"For FedEx, the Open Skies agreements with the Middle Eastern countries are very valuable. Under the agreement with the UAE, we have established a hub in Dubai, where FedEx flights from the US criss-cross with our flights from India and Asia in order to move US products into local markets. This hub also acts as our gateway into Africa. Presently FedEx alone operates almost two-thirds more flights to the Middle East than all the US passenger carriers combined. Modifications to this agreement might spell the end of these opportunities, closing off those markets to our customers."

US Travel Association, Press Release, 8-Apr-2015

"The Big Three U.S. airlines have constructed themselves an enormous glass house, and their amnesia about their own subsidies has now cost them the credibility of their own core argument for breaking Open Skies agreements. I give all credit to our friends at the Business Travel Coalition for discovering this pivotal bit of evidence (that U.S. airlines received $155 billion in federal subsidies between 1918 and 1998) that completely alters the landscape of this debate."This exposes the fiction that the U.S. airline cartel's furious and expensive assault on Open Skies is about subsidies.
"We hope this prompts policymakers and the public to ask: OK, what's really motivating the campaign to break these agreements? We hope there is something else to dissuade us from by far the most likely conclusion: the Big Three airlines hate competition, and rather than cope with it in the marketplace they will undertake extreme means to stamp it out politically."We have long known that the subsidy argument for breaking Open Skies agreements was thin if not downright foolhardy, and now we have strong evidence of that from an unbiased source, the Congressional Research Service.
"This development, coupled with the inarguable harm rolling back Open Skies would inflict upon American travelers, economic productivity and job creation, should end any discussion over selectively abrogating the agreements. But the Big Three airlines have shown a lot of determination and resources, so we're resigned to the fact they'll keep this up, and we're curious to see what their next whopper is going to be."

WTTC, Economic Impact of Travel and Tourism: 2015

"Travel & Tourism's direct contribution to world gross domestic product (GDP) and employment in 2014 was US$2.4 trillion (2014 prices) and 105 million jobs respectively. Taking its wider impacts into account, Travel & Tourism's total contribution to the global economy in 2014 was US$7.6 trillion (2014 prices), which equates to 9.8% of total economy GDP in 2014...
"We expect Travel & Tourism in 2015 to generate in the region of 7.2 million new jobs in total, with 2.1 million new jobs directly created within the sector. This represents growth rates of 2.6% and 2.0% respectively.
"Lower oil prices will benefit net oil importing economies and this is already being felt through falling inflation which is boosting real disposable incomes and consumer purchasing power. India and the UK's GDP growth forecasts for 2015 have been upgraded, while the US economy is expected to pick up with GDP growth of 3.3% in 2015. On the downside for the US, its economic strength will also be reflected in the strength of the US dollar, which is forecast to appreciate against all major currencies including the yen, euro and sterling. This will lead to slower growth in US visitor exports and faster growth in outbound spending in 2015, with Mexico, Canada and other major US outbound travel destinations set to benefit."