By: Edwin Fuller
Founder and President of Laguna Strategic Advisors
Now, as United works to put its public relations misstep into the past, it, along with American and Delta (the three US legacy carriers), have once again petitioned our federal government to intervene in the aviation market and thereby undermine our Open Skies policy by reopening “consultations” with the United Arab Emirates and Qatar – home to Emirates, Etihad and Qatar airlines. In the past, these “consultation” requests have been accompanied by demands to freeze new flights to the US and roll back existing flight schedules.
As I’ve explained in previous blogs, under Open Skies, international carriers can fly into and out of US cities under a series of agreements. These agreements essentially are free trade pacts for air travel that prohibit countries from regulating routes and capacity among each other’s carriers. These pacts have been in place for more than three decades – with the full and active support of the US airlines – and the US now has 114 of these agreements in force with countries in every corner of the globe.
Nevertheless, our legacy carriers are once again claiming the Gulf carriers (Emirates, Etihad and Qatar) continue to be unfairly subsidized by their governments in violation of the US Open Skies agreements.
US government found no basis to these claims
The US government has investigated these claims for the past two years and has found no evidence to support them.
Further, our government also found no evidence that the legacy carriers have been harmed economically as a result of the Gulf carriers’ route expansion into our gateway cities. And, perhaps most importantly, the government reported that our country has enjoyed many positive economic benefits over the years as a result of our Open Skies agreements including (1) US job creation, (2) made-in-America manufacturing, (3) expanding the US travel market and (4) lowering air fares.
Let’s look at these points more closely.
- Open skies creates new jobs across the country. In 2014, the Gulf carriers brought 1.1 million international visitors to the US. These visitors contributed more than $4.1 billion to our GDP, supported nearly 50,000 US jobs and generated $1.1 billion in federal, state and local tax revenues. Given that each overseas visitor spends on average $4,400 when they visit the US, these travelers are creating economic benefits that extend to the entire community, not just travel industry participants.
- Made-in-America manufacturing benefits too. Because of Open Skies, overseas carriers have committed to purchasing American products. The three Gulf carriers have over 300 Boeing aircraft on order or currently in use, including 777s and new Dreamliners. These orders support thousands of American manufacturing jobs across the Boeing supply chain. According to the US Commerce Department, every $1 billion in aircraft orders supports almost 6,000 American jobs. Without Open Skies, those airplane orders could easily go to Airbus, shipping thousands of US manufacturing jobs to Europe.
- Open Skies expands the US travel market. In 2014, more than 52% of inbound travel to the US on the Gulf carriers originated in South Asia, compared to less than 1% for the US carriers. This means the Gulf carriers are generating new passengers to the US. Nearly 30% of Gulf carrier travel to the US came from the Middle East, compared to just 3.7% for US carriers, helping reach markets previously under-served by the US carriers. Once in the US, nearly 30% of all Gulf air carrier passengers transferred to the US airlines on their arrival here.
- Travelers enjoy lower airfares thanks to Open Skies. Economists have noted that airfares have fallen 32% on routes affected by Open Skies agreements compared to air travel markets that have remained regulated. It is estimated that Open Skies agreements have generated at least $4 billion in traveler cost savings.
My hope continues to be that our US air carriers would focus on building the best customer-driven airlines in the world rather than working hard to keep competitors out. As a businessman, it’s tempting to wish competition away, especially during challenging times. But, competition brings out the best in all of us. It helps spur innovation. It gives customers more choices at a wide range of prices, and it encourages businesses to improve their customer services.
If you share my belief that competition is good and that US air travel choices should not be limited, let your elected Congressional representatives hear from you.