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American Airlines and Qatar trade barbs: is the "truce" over?

Earlier this year when the US and the governments of the UAE and Qatar reached a truce over the years-long subsidy debate between American, Delta and United and Emirates, Etihad and Qatar, the immediate question was how long the cease fire would last.

The answer is: barely a few months. Recently, American has insinuated that Qatar Airways could be violating aspects of the agreement through its stake in Air Italy, which is adding services from Milan to Miami and New York JFK. In return, Qatar Airways appears to be threatening to leave the oneworld alliance as tensions with American continue to flare.

Hopefully the current aggravations will not escalate to the point where American seeks further government intervention, but proving that Qatar is in fact violating the terms of the truce could prove difficult.

Summary

  • A brief history of the years-long subsidy debate ignited by American, Delta and United and running since 2015.
  • American cries foul over Air Italy’s service to the US from Milan, arguing that Qatar Airways’ stake in Air Italy constitutes cheating on recent agreements reached with UAE and Qatar.
  • So, is the truce over, and will the Big 3 press the US government for additional talks with the UAE and Qatar?

A condensed history of the debate before a 'truce' was reached

In early 2015 American, Delta and United released the now famous White Paper that sought to prove Emirates, Etihad and Qatar were being illegally subsidised by their respective governments. The US airlines argued that the Middle Eastern operators had received USD40 billion in subsidies over a ten-year period, and they sought to open government-to-government consultations that spurred larger debates about open skies agreements.

JetBlue, Hawaiian, FedEx and Atlas Air banded together to stress the importance of open skies agreements and warned that it was dangerous to tamper with agreements that support millions of tourism jobs and billions in direct spending by tourists.

The US “Big 3” did not gain much traction on the issue under the previous administration of President Barak Obama. Eventually, the Trump Administration reached an agreement with the governments of the UAE and Qatar that entailed Emirates, Etihad and Qatar committing to financial transparency and a seeming pause in fifth freedom flying. 

In many ways, Emirates’ launch of Dubai-Milan-New York JFK in late 2013 galvanised the Big 3 to mount their subsidy campaign.

Delta has stated that that Emirates service was “ground zero” on fifth freedoms, noting, “we have to stay vigilant to get fair skies, not open skies”. Since that time, Emirates has launched fifth freedom service on a Dubai-Athens-Newark pairing, which has raised concerns by United.

See related report: US-Gulf airline conflict: peace with (almost) honour

American takes issue with Air Italy's flight to the US due to Qatar's involvement

Previously, CAPA's conclusion was that a pause in fifth freedom flights was a small price for Emirates to pay to end the years-long subsidy controversy, given that those types of operations represent a microscopic proportion of the airline’s operations. Qatar and Etihad do not operate fifth freedom flights to the US.

But Qatar’s 49% stake in the rebranded Air Italy (formally Meridiana) has reignited the ire of American. Air Italy recently launched flights from Milan to New York JFK and Miami with Airbus A330 widebodies leased from Qatar.

All the large three global US airlines offer flights from the New York City area (JFK and Newark) to Milan alongside Air Italy, Emirates and Alitalia. Air Italy has quickly built up close to a 15% seat share in the market.

Year-on-year seat share between New York (JFK and Newark) and Milan as of late Oct-2018

Air Italy is breaking American’s monopoly on the Milan-Miami pairing and the new flights have generated a reaction from American. The news outlet Skift quoted American CEO Doug Parker speaking at a recent industry summit when he said: “Someone is cheating already”.

The publication stated that Mr Parker had remarked that the US had side letters that “talk about they [Emirates, Etihad and Qatar] don’t intend to fly nonstop flights from outside the Gulf to the United States. We have one of them now using a carrier they made an investment in to fly to the United States”.

That was obviously a reference to Qatar’s investment in Air Italy. From a technical perspective, Air Italy operates under its own certificate and is a registered airline in Europe. So, there is no clear violation of the agreement the US recently reached with the Qatari government.  Air Italy and Qatar have created a codeshare agreement covering numerous markets, including Doha and Italy, but that still does not represent a violation of the pact.

Qatar threatens to leave oneworld as tensions with American appear to grow

After Mr Parker made those remarks, Qatar Airways CEO Akbar Al-Baker threatened to end its five-year membership in the oneworld alliance, according to CNBC.

Earlier in 2018, American ended codeshares with Qatar and Etihad. CNBC quoted Mr Al-Baker, who had said that American was creating a “bad feeling”. American and its oneworld JV partner British Airways initially invited Qatar to join the alliance.

Now the major question is: what happens next in Big 3 vs ME 3? And consumers?

After the agreements were forged between the US and the governments of the UAE and Qatar that arguably placed limits on fifth freedom flights by Emirates, Etihad and Qatar, the US Big 3 unsurprisingly declared victory.

But immediately questions surfaced: was the debate in fact over, or were the latest agreements just a temporary truce in the controversy. The most recent tit-for-tat between American and Qatar shows, for now, that the recent agreements appear to have been a brief truce, and the rhetoric could ratchet up at any time.

Now the pressing question is whether the rhetorical jabs will result in enough frustration for American, Delta and United to press the US government for additional talks with the UAE and Qatar, which could ignite another chapter in the open skies divide with US airlines.

Meanwhile, there is little discussion about the interests of consumers in this whole exercise. Since the Gulf carriers entered the market some five years ago, the Milan-New York JFK market size - in terms of direct service, as opposed to one-stops over European hubs - has doubled.

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