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US airlines take aim at the Gulf carriers when perhaps they would be better woo-ing them

19-Dec-2014

Some prominent airlines in Europe and elsewhere take explicit aim at the Gulf carriers "stealing" traffic via sixth freedom flows, which they argue "belongs" to them. Yet, though this transfer traffic comprises about 80% of the Gulf airlines' US flights, the US airlines in their still-protective rhetoric against Gulf carriers do not target this sixth freedom element. The source markets for Gulf carriers' US flights are highly fragmented, and even the largest source markets – from Hyderabad to Dhaka to Kabul – are not served by US carriers and seldom have high frequency, if any, from their international partners. "Delta has never been a big player in that market," Delta chief revenue officer Glen Hauenstein has acknowledged.

Instead, some vociferous US airlines are more strongly opposed to growing fifth freedom services across the Atlantic. But there is an irony: Delta, the most outspoken, has its own fifth freedom network; it is not insignificant, at about half the size of Emirates'. Emirates' Milan MXP-New York JFK service sparked concerns, but American and Delta quietly acknowledge their own international stagnation paved the way for Emirates' entry. German researchers believe Emirates will be able to open only a "handful" of fifth freedom trans-Atlantic routes, and these will depend on legal changes since many UAE-Europe air service agreements (besides Germany) do not provide for fifth freedom trans-Atlantic flights.

So what explanation is there for some US airlines reacting so strongly against what is at worst a minor competitive threat that can be avoided through proactive commercial decisions – and partnerships?

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Sixth freedom traffic is the heart of Gulf airlines, and US airlines cannot compete – nor, it seems, do they want to

Although Delta Air Lines CEO Richard Anderson has strongly opposed anything Gulf-related – even down to using them as a reason to wind back the US' open skies agreements – it is perhaps surprising to learn that one of the world's largest airlines seemingly has no issue with the core business of Gulf carriers. Delta's Mr Hauenstein acknowledged the geography Gulf carriers have is key to their being a hub to large and under-served parts of the world. Despite the size of these markets, Delta is largely ignoring them, preferring to reside inside the protected US domestic market, or in anti-trust immunised JVs or the less competitive environment of Latin American routes.

"They are halfway around the world from us and we don't really participate in a lot of the flows that they have the primary gateway for," says Mr Hauenstein. "Delta has never been a big player in that market."

Of the approximately 25 daily flights Gulf carriers will have to North America in late-2014, all but one (Emirates' Milan-New York service) are non-stop from the Gulf, carrying around 20% local traffic and the balance connecting, mainly from the Middle East and Asia (including India).

Whereas Mr Hauenstein focuses on the traffic flows to explain commercial success, Mr Anderson has resorted to theatrics, saying, "They have the ability to gain advantages in markets because profitability doesn't matter" (good rhetoric, albeit with little if any foundation).

Gulf carriers are expanding slowly in the US, and Emirates – which derives 7% of its revenue from the US, a little less than it does from Australia – intends to make the US one of its three largest markets.

So it is worthwhile looking at what exactly is this traffic that the Gulf carriers bring to and from the United States, and if US carriers could reasonably serve these markets.

See related report: Emirates Airline to make the United States its third largest source of revenue

The Middle East and South Asia are top markets for Gulf airlines’ US flights 

On Emirates’ US services, approximately 18% of passengers have Dubai as their origin or destination, according to estimates from OAG Traffic Analyser. Emirates’ 10 largest source markets comprise 45% of all traffic, with South Asia leading the pack along with Iran. Etihad is also estimated to have 18% local traffic, with its top 10 source markets (accounting for 52% of traffic) also in South Asia and Pakistan.

Qatar carries a lower proportion of local traffic of 9%. Its 10 largest source markets comprise 35% of total traffic, making Qatar’s traffic profile far more fragmented than at Emirates and Etihad, which rely heavily on India.

Local traffic and top source markets (cities) for US flights on Emirates, Etihad and Qatar: Aug-2013 to Aug-2014

 

Emirates

Emirates

Etihad

Etihad

Qatar

Qatar

 

Source

Share

Source

Share

Source

Share

O&D

Dubai

18%

Abu Dhabi

18%

Doha

9%

Connecting market rank: 1

Hyderabad

8%

Lahore

7%

Kathmandu

5%

2

Delhi

6%

Hyderabad

6%

Dammam

4%

3

Mumbai

5%

Ahmedabad

5%

Kochi

4%

4

Dhaka

5%

Mumbai

5%

Hyderabad

4%

5

Bengaluru

5%

Islamabad

5%

Chennai

4%

6

Chennai

4%

Chennai

5%

Ahmedabad

3%

7

Tehran

3%

Karachi

5%

Delhi

3%

8

Karachi

3%

Delhi

4%

Dhaka

3%

9

Kochi

3%

Dhaka

4%

Bengaluru

3%

10

Ahmedabad

3%

Bengaluru

4%

Karachi

3%

In a Dec-2014 speech, Etihad CEO James Hogan said key connecting markets for Etihad's new Abu Dhabi-San Francisco service are India, Nepal, Pakistan and Sri Lanka.

India is the single largest source market for Gulf carriers. Emirates, Etihad and Qatar Airways’ US flights combined carry approximately 30-35% of passengers travelling to/from India. The number of passengers travelling to/from India is twice that of local UAE or Qatar traffic. After India, South Asian and Middle Eastern countries (including Pakistan, Bangladesh, Saudi Arabia) are top source markets.

But there are nuances: South Africa is a top 10 source market only for Emirates, Sri Lanka only for Etihad and Nepal only for Qatar. All three have Thailand as their 10th largest source market while Etihad and Qatar also have Indonesia as their ninth largest source market.

Top country source markets for US flights on Emirates, Etihad and Qatar: Aug-2013 to Aug-2014

 

Emirates

Emirates

Etihad

Etihad

Qatar

Qatar

 

Source

Share

Source

Share

Source

Share

1

India

36%

India

36%

India

28%

2

UAE

18%

UAE

18%

Qatar

9%

3

Pakistan

6%

Pakistan

18%

Saudi Arabia

8%

4

Bangladesh

5%

Saudi Arabia

6%

Pakistan

7%

5

Iran

3%

Bangladesh

4%

Nepal

5%

6

Saudi Arabia

3%

Nepal

2%

UAE

3%

7

South Africa

2%

Sri Lanka

2%

Iran

3%

8

Ethiopia

2%

Kuwait

1%

Bangladesh

3%

9

Iraq

2%

Indonesia

1%

Indonesia

3%

10

Thailand

1%

Thailand

1%

Thailand

2%

Air Canada's rhetoric meanwhile scarcely stands up to careful examination

To the north of the US, Air Canada has made the point that if Gulf carriers could access as many Canadian routes as they seek, Air Canada would have to trim its European flights as those connect with beyond markets. This claim is scarcely borne out by facts.

As noted above, the top destinations for Gulf carriers from the US is usually in markets where the European partners of North American carriers do not have a strong and/or convenient presence.

Further, looking at Air Canada's European network in late May-2015, Air Canada's single largest European destination based on available seats was London Heathrow, where there are, exceptionally, only limited long-haul Star connections to the markets Gulf carriers serve.

Second largest is Frankfurt, which does facilitate onward connections (although Lufthansa, as one of India's largest sixth freedom operators, would quickly fill any gap left by Air Canada's potential withdrawal).

But the other destinations – from Brussels to Paris – actually have limited if any long-haul connecting opportunities. The traffic on those flights is mostly end-to-end to the European destination.

Air Canada top 10 hubs/bases/stations in Europe ranked on available seat capacity: 18-May-2015 to 24-May-2015

Can US airlines compete with Gulf networks? American does not serve any of the Gulf airlines’ top markets

When American Airlines CEO Doug Parker was asked if American could compete with Gulf carriers’ networks he responded: “Of course we can. On the ability to get people to more places, to do so safely and efficiently and with seats that are as good or better than anyone else’s in the world — the things customers really care about — we can.” However, Air Line Pilots Association President Captain Lee Moak bluntly asserted at a Dec-2014 Washington forum that Gulf carriers "are stealing the market".

Traffic profiles, however, suggest American – and other US carriers – would have problems selling the destinations, or doing so conveniently. American Airlines – one of the world’s largest airlines – does not fly to any of the top 10 source market countries for Emirates, Etihad or Qatar. Delta serves four: the UAE and South Africa non-stop, India and Thailand with one-stop in a foreign hub – although Delta in 2015 is ending its India services. United serves two: India and UAE.

Partners (often in Europe) to US carriers would be of limited help in changing this equation. In some markets like Saudi Arabia, O&D demand to Europe exceeds supply, so making sixth freedom seats available to partners cannot always readily be done with optimal pricing. Some countries like Nepal and Bangladesh receive limited or no European carrier service.

Mr Hauenstein has observed that Delta’s key partner, Air France-KLM, has not had a significant presence in South Asia. Of other SkyTeam partners, Delta has Saudia, but has discreetly distanced itself from the Saudi flag carrier due to concerns from the Jewish community in the US. Delta’s other Middle East partner, MEA in Lebanon, could only serve some destinations via a two-stop proposition, first in Europe (MEA does not serve North America and Delta does not serve Lebanon) and then Lebanon.

American’s key partners are British Airways and Iberia, and are complemented by airberlin and Finnair. BA is constrained from growing at Heathrow, meaning it can be expected to focus on maximising revenue per existing flight, such as by favouring higher-yielding passengers between Europe and India (or Pakistan and Saudi Arabia, etc.) than passengers travelling between those markets and North America, although BA itself is a player in the North America-India market.

United partner Lufthansa has a substantial presence in India, but not across all of the larger markets. Hyderabad for example is estimated to be a larger source market than Delhi and Mumbai for Emirates, Etihad and Qatar, but Lufthansa discontinued Hyderabad in 2011.

And details can tilt the competitive balance: Gulf airlines typically operate newer and nicer hub airports, have connection times ideally scheduled, offer greater frequency and are known for dramatically more generous product offerings.

US airlines exited India before the Gulf airlines ramped up capacity

With India the largest connecting market by far for Gulf carriers, could Gulf carriers be preventing US carriers from carrying traffic to and from India?

At one point American and Delta served India non-stop from the US, but withdrew – but this was long before Gulf carriers were anywhere near the size in the US they are in 2014. The challenges for US carriers in India are multiple. Flight lengths exceeding 14 hours place an extra burden on fuel, the US-India market is characterised by low-yielding traffic, and US carriers lack an extensive network in India that would allow them to aggregate traffic over a hub. Prior to Air India joining Star Alliance, US carriers did not have any strong partnerships in India (oneworld and SkyTeam are still without an Indian partner).

Gulf carriers also face 14 hour-plus flight times from the US to the Gulf, but their network of destinations ensures premium traffic can also be carried. Gulf carriers can offer one-stop service from key US metropolitans to about a dozen Indian cities, creating hundreds of one-stop city-pairs.

See related report: Non-stop US-India market continues to shrink with American Airlines ending Chicago-Delhi service

Even Delta is not blaming Gulf carriers for its lack of sustainability in serving India. Delta CEO Richard Anderson blamed Delta's withdrawal from non-stop India-US services on Air India.

As Mr Anderson told a Senate hearing in Jun-2014: "Air India provides an especially revealing example of the (Ex-Im) Bank’s disregard of the adverse impact its financial guarantees impose on U.S. airlines. Only two years earlier, Air India had used separate guarantees to secure below-market financing for the purchase of Boeing 777s and deploy them between JFK and Mumbai, in direct, head-to-head competition with Delta at significantly reduced ticket prices. Delta had no choice but to exit that market. I personally presented this problem to the Bank following the Bank’s September 2011 deal, but my concerns fell on deaf ears. With its latest round of Ex-Im guarantees, Air India continues to take delivery of subsidised widebodies to this day."

US airlines worry about greater Gulf airline fifth freedom flights

It seems the main concern of US airlines is Gulf carrier expansion on fifth freedom flights, and in particular those across the Atlantic, the traditional heart of US carriers' international networks and where the powerful anti-trust immunised joint ventures operate. Gulf carriers are not new to trans-Atlantic fifths, with past examples including Emirates' Hamburg-New York JFK and Qatar's Brussels-Newark. But the route that rocked the US airlines was Emirates' entry on Milan MXP-New York JFK in Oct-2013.

Mr Hauenstein described Milan-New York as "fertile ground", and effectively admitted incumbents had left themselves exposed with poor service quality. Capacity on the route dipped after 2009, in line with Alitalia's reduction. Without Emirates' entry, capacity would have been restored, but with its improved product Emirates also injected growth to the route. This growth was partly through added capacity but also the introduction of a third choice of carrier; the route had effectively comprised only two entities: the Alitalia-Delta JV, and American Airlines. 

Milan Malpensa-New York JFK seat capacity by carrier and total figure: 2003-2013

Further, it was not just the annual picture that showed some slack. On a month-by-month basis, carriers were curtailing off-season capacity. Altogether, Emirates estimated half of the Milan-New York market transferred via points elsewhere in Europe, meaning there was substantial unsatisfied direct demand.

Further, Delta and American privately acknowledge they were letting their products stagnate, especially in the premium cabins. American is confident its re-configured aircraft will now allow it to fight back. Mr Hauenstein also identified the Italian market had doubts about Alitalia's stability (ironically now rectified with a stake from: none other than Etihad). Ticket brokers also preferred Emirates as the airline paid commission upfront whereas Alitalia had paid in arrears. Alitalia subsequently shifted to up front payments.

Despite these various factors creating the environment for Emirates’ entry, Mr Anderson in his Jun-2014 testimony to a US House Hearing on the Export-Import Bank, attributed Emirates' launch with 777-300ERs between Milan and New York as Emirates' ability to receive funding for its Boeing aircraft from the Ex-Im Bank.

This may very well be a factor in acquiring aircraft, but even to make a point it was excessive to strip away the commercial factors and describe, as Mr Anderson did, the route's launch as "Emirates’ Bank-backed entry". (It is interesting to speculate what argument Delta might have conjured up had Emirates launched the service with an Airbus aircraft such as the A380 – which, Mr Anderson suggests, are only suitable for government-owned airlines to buy.)

Milan Malpensa to New York John F Kennedy International (seats per week, one way): 19-Sep-2011 to 6-Jul-2014

Mr Hauenstein said Emirates "are not to go on their first foray up against a strong carrier, probably they're going to look for opportunistic fleet carriers". Rather than see that commercially-oriented decision as a reason to sort out their own house, the US airlines saw Emirates' entry on Milan-New York as one step down a slippery slope. "This is kind of ground zero on fifth freedoms, and we have to stay vigilant to get fair skies, not open skies," Mr Hauenstein said.

See related report: Delta Airlines remains dismissive of Gulf carriers’ importance as its protectionist stance deepens

While governments can often be faulted for exercising protectionism, this is not always the case. Most want travellers to create broader economic activity and to support tourism. In granting access, Italy determined Emirates would provide a generic benefit. Similarly, Royal Jordanian applied to Austrian authorities for permission to have fifth freedom flights from Vienna to Miami and Los Angeles, which are un-served from Vienna. Austria apparently gave initial support due to what is believed to be frustration with the failure of Austrian Airlines’ owner Lufthansa to grow Austrian's long-haul network and instead re-directing passengers to other Lufthansa Group hubs. (Royal Jordanian's routes have not materialised.) Ireland likewise will let Ethiopian Airlines fly from Dublin onwards to Los Angeles, a destination Aer Lingus has cut.

Japan has opened Osaka Kansai to fifth freedom services to North America for Emirates. Coincidentally or not, Tokyo-centric Japan Airlines will re-open its service from Kansai to Los Angeles, making it JAL's only long-haul flight from Kansai. JAL was under local pressure to resume the route, but by continuing to resist re-entry could have meant a greater opportunity, and support, for Emirates (or another carrier) to better link Kansai with North America.

Fifth freedom traffic is a small component of Gulf airlines

Emirates caused some turbulence when president Tim Clark calmly expressed a wish to fly from the UK to the US and various trans-Pacific services, even though Mr Clark thought such routes would be long term as Emirates would remain focused on its Dubai hub. Mr Hauenstein did not see it that way, believing Emirates would more seriously pursue fifth freedom opportunities "because they have no better use for the airplane".

The evidence suggests otherwise: since 2005, the share of fifth freedom ASKs on Emirates' network has dropped from about 12% in 2005 to 5% in 2013. This still means net annual growth, but well below the average growth rates. In any event, the growth is relatively small – and in the case of Milan, a result of incumbents stagnating.

Emirates fifth freedom ASKs and fifth freedom share of total ASKs: 2003-2013

Emirates' other fifth freedom services include tagging Buenos Aires from Rio de Janeiro, where Buenos Aires is too far to reach non-stop from Dubai and there is demand for more capacity between those two Latin American cities. (Qatar Airways and Turkish also operate fifth freedom Brazil-Argentina sectors, from Sao Paulo to Buenos Aires.)

Emirates also operates fifth freedom flights between Bangkok and Hong Kong, but so too do Kenya Airways, Royal Jordanian and Sri Lankan. Others, including Ethiopian and PIA, even Qantas, have done so in the past. In short, these are not special exemptions Emirates alone has received. Nor are they typically valuable as they are low frequency and confront home brand airlines with greater market power.

The bulk of Emirates' fifth freedom services are primarily centred around Australia, including flights from Asia to Australia, and Australia to New Zealand. The New Zealand sectors make efficient use of ground time, allow Emirates to serve New Zealand (also too far for non-stops) and offer a more premium product than the more basic narrowbody products of the local airlines in the market. The Asian sectors help make Emirates accumulate ASKs, but passenger performance is not stellar. Australian data indicates the passenger load factor on Emirates' Asia-Australia services is a little north of 60%.

Emirates often offers one of the cheapest fares on those city pairs since the flights are heavily driven by cargo demand. These services are also not exemptions: Singapore Airlines flies fifth freedom from Dubai (admittedly in smaller numbers than in the past) while Qantas flies fifth freedom from Dubai as well, where the beyond rights are available.

Emirates has the largest fifth freedom network by far of the Gulf carriers. Qatar has a quarter as many seats but less than a 10th as many ASKs, reflective of its fifth freedom services being very short, typically within Southeast Asia or with narrowbodies in Eastern Europe. Emirates in comparison has more longer-stage fifth freedom flights, and all on widebodies, the only aircraft it flies.

Etihad has just two round-trip fifth freedom flights: Nagoya-Beijing and Singapore-Brisbane. Etihad has half the seats of Qatar but more ASKs, reflective of its use of widebody aircraft and its longer Singapore-Brisbane service. Etihad's fifth freedom network will significantly decrease when it launches in 2015 non-stop Abu Dhabi-Brisbane service, ending the one-stop service through Singapore with local pick-up rights.

Delta has its own fifth freedom network, one grounded in a contentious history

Yet, despite its Gulf related concerns, Delta has its own fifth freedom network, with about 40% of the seats and half as many ASKs as Emirates. Perhaps any prospective Gulf carrier fifth freedom trans-Atlantic growth should be kept in perspective: in 2014, US carriers operated about 336 daily US-Europe roundtrip passenger flights while Gulf carriers collectively operated just one. This may be the thin end of the wedge, but it is an extremely thin one.

Meanwhile a number of non-Gulf airlines also operate across the Atlantic with local uplift rights, apparently slipping under Delta's radar.

Delta, Emirates, Etihad and Qatar fifth freedom network summary: 2014

Carrier Frequency Seats
(million)

ASKs

(billion)

Delta 5,886 1.8 6.4
Emirates 11,338 4.3 13.9
Etihad 1,408 0.4 1.5
Qatar 5,030 1.2 1.1

In criticising Emirates' Milan-New York service, Mr Anderson observed that "Fifth Freedoms under the Chicago Convention way back in the 1940s, were never intended to be used the way that they were used in those circumstances...the Fifth Freedoms were originally intended to take into account the range of airplanes to be able to fly nonstop. And it wasn't intended to, in essence, set up operations between two countries, neither of which you're a citizen of, as standalone operations."

(It is more than a technicality that the multilateral Chicago Convention actually contained no reference whatever to fifth freedom – or any other freedoms for that matter. The Convention merely formally recognised the fact that nations had established sovereignty over their own airspace. The upshot of that was that international flights could only operate where two countries agreed to allow it, usually applying "reciprocity" in bilateral air services agreements.

To uplift traffic involving a third country [the "fifth freedom"] made this reciprocity equation difficult and it was rarely granted; the incumbent airlines convinced their governments not to "give away" access to third country airlines. But that was merely a function of good old fashioned protectionism, applying the principle that airlines "own" the passengers in their respective countries. It is that archaic principle at the core of Mr Anderson's hypothesis.)

A number of Delta's fifth freedom services do pull traffic from the US, such as in Tokyo for carriage to other Asian points and in Amsterdam to Mumbai (although this is ending). But Delta still uplifts local traffic, to varying amounts, and where it does not use the extensive rights that the US government has been able to negotiate for it, that is usually because it can now serve most of its fifth freedom destinations with non-stop service. Delta is even understood to have evaluated Seattle-Singapore non-stop service. In the past, US airlines also considered using Australia-Japan fifth freedom rights to support a triangular Pacific routing.

Aircraft range, which Mr Anderson cited as the original justification for fifth freedom services, is no longer the constraint it once was. If Delta chose to break up its Shanghai service in Tokyo and carry local traffic between Shanghai and Tokyo, there seems little reason why Emirates – which received approval from Italy – should not be able to do so in Milan.

The US has negotiated dozens of "open skies" agreements, whose permutations allow US airlines to operate fifth freedoms all over the world. The fact that US airlines don't exercise their myriad fifth freedom rights has nothing to do with old fashioned principles – they are simply not interested in doing so.

Further, regulatory thinking has evolved since the Chicago Convention. Regulators now welcome fifth freedom service to stimulate competition or even to compensate for limited local supply. But if old thinking is to prevail, Delta – via its Northwest heritage – will surely remember the bitter days of Japan-US air service negotiations and impasses.

Japan protested that US carriers were operating too many fifth freedom services and with too many local, rather than connecting, passengers. Northwest fought bitterly to preserve those rights when it was to its advantage. But the debate is not about logic, but of preserving self interest.

Trans-Atlantic fifth freedom opportunities may be limited for Gulf airlines

Even if Emirates or the other Gulf airlines do have "no better use" for aircraft and wanted to invade trans-Atlantic markets, it is difficult to see where substantial fifth freedom growth could occur. The aeropolitical environment remains too limiting: few European countries permit UAE carriers fifth freedom services. Germany does from some cities, and so too does the UK – but not to North America.

There are other complexities. Flights would also need to fit into Gulf carriers' scheduling banks. Further, as Gulf carriers use larger aircraft on European services, potential fifth freedom flights beyond would need to be on large enough city pairs to sustain the larger aircraft. Such city pairs with large un-met demand are few, and Gulf carrier service could be prevented if existing American and European carriers met demand. Ironically, one such carrier to fill unfulfilled demand could be Norwegian International, which the US airline pilots and airlines are working so hard to block.

Prof. Dr. Richard Klophaus at the Competence Center Aviation Management at Worms University of Applied Sciences in a 2014 paper examined the prospect of additional EU-US services by Emirates. Mr Klophaus wrote the UK would present the best fifth freedom trans-Atlantic opportunities if liberalisation occurred. And that is a big if since "such head-to-head competition would lower chances to get fifth freedom rights enabled by UK authorities." He concluded: "Because of regulatory constraints and commercial reasons it is unlikely that Emirates will offer more than a handful of direct EU-US routes in the coming years."

It is often Emirates that attracts attention and high level opposition – after all it is the world's largest and one of the fastest growing international airlines. Prof. Klophaus suggests that Etihad perhaps represents a greater threat in this context, noting Etihad's growing equity investments in Europe (Aer Lingus, Air Serbia, airberlin, Alitalia and Etihad Regional), in addition to close commercial partnerships (Air Europa); these potentially give Etihad the local European feed that could theoretically sustain a wider range of fifth freedom trans-Atlantic services. Etihad however has been clear in saying it is not interested in these markets, at least for now, as the routes for its European partners.

Partnerships between US and Gulf airlines make sense – but the pilots don't agree

So where to for this contentious debate? Other airlines have been down this road of denial and fighting. For many the answer is "if you can't beat 'em, join 'em". Qantas joined forces with Emirates, Lufthansa nearly concluded a deal with Etihad and Air France has agreed a working relationship with the Abu Dhabi carrier – as even Air Canada has. International Airlines Group (the owner of British Airways, amongst others) invited Qatar Airways into oneworld. But in the US the dynamics are different. By Delta's own admission, it has not even tried to beat the Gulf carriers.

Indeed, simply because there is so little overlap, US carriers could theoretically enter into deep, strategic partnerships beyond the understanding American Airlines has with Etihad and Qatar. The partnerships would give US carriers access to fast-growing markets they are not currently serving, or are not serving effectively. Using the US' deep pool of bilateral rights, the potential for exploitation is extensive. There would be limited risk, overlap with other partners would be relatively minimal, with damage limited. Even more attractively, US airlines could even include provisions regarding Gulf partners operating future fifth freedom flights.

There are various models for such partnerships, and they are evolving; Air France-KLM is quietly trying to forge a JV with Etihad, while publicly opposing its expansion. The go-to example is Emirates-Qantas, and it is not difficult to see that partnership broadly replicated: Delta flying to Abu Dhabi with onward codeshare access, American to Doha, for example.

In the US the drivers would be different. In the Qantas-Emirates example, Qantas saw the irreversible gains that the Gulf carriers were making at its expense. It was a defensive move with upside.

In contrast, US airlines have limited overlap with Gulf carriers, no such imperative exists and the market dominance of the big three/four in the heavily protected US is sufficient carrot for a large foreign operator to want to chase.

The current wave that the US majors are riding, based on Chapter 11 followed by consolidation, delivers temporarily reduced competition greater market power and unaccustomed profitability. It is easy to adopt an attitude of if it works, don't fix it. But perhaps US airlines should re-evaluate what qualifies as broken. Most waves break, sooner or later.

Despite its lucrative returns, the US domestic market is only achieving low single digit growth and there is a limit to the amount baggage charges can be raised. Meanwhile, costs are rising (while most other airlines in competitive markets are reducing by three or four percent annually) and, outside this cosy environment, other regions have significantly higher growth rates while their airlines are growing rapidly into international markets.

Partnering with Gulf carriers may be perceived as a bold move, but perhaps that is what US carriers need if they – some of the world's largest – are serious about being global airlines. Indeed, it is hard to see why this logic would not prevail. There may be a more obtuse reason. A regular reading of the pilots' unions public offerings gives a strong hint in that direction. They see change as a threat. If Delta is keen to maintain its profit levels, the last thing Mr Anderson wants at present is to suffer the fate of Lufthansa and Air France, where cost cutting is provoking its pilots into almost monthly strikes.


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