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United Airlines loses government subsidy and exits Dubai. US-Gulf market will grow 12% in 2016

The US legacy airlines' campaign against the Gulf carriers demonstrates considerable pragmatism. Delta, most vociferous in opposing operations by state subsidised airlines, has acquired a stake in state owned and officially subsidised China Eastern; American Airlines during the dispute has grown its partnerships with two of the three ugly sisters: Etihad and Qatar Airways.

Now United Airlines has announced it will exit the Dubai market because it has lost a government contract (“Fly America Act”) to a JetBlue codeshare operated on its long haul sectors by Emirates. The Gulf carriers and others have contended Fly America is effectively a subsidy by requiring government employees to travel on US-marketed flights, rather than subject to tender on the open market. United will exit the market since it no longer receives government preferences/subsidies to carry the government business. Unlike Delta, United says Dubai remained profitable for it, just “less profitable”.

Meanwhile the three Gulf carriers will grow US seat capacity by 12% in 2016, according to OAG data. This is front loaded towards the first half of the year, when there will be 22% growth, reflecting additions made in 2H2015 and to be made in early 2016. Gulf carriers may be preparing for 2H2016 growth, or could focus on new opportunities in Australia and China as air traffic rights open up.

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