Following a bit of saber-rattling last year, leaders of the “big three” US consolidated carriers, American, Delta and United, are believed to ramping up their campaign in Washington DC against the major Gulf carriers, which are looking to expand their North American footprints.
The US carriers should tread carefully. There are risks to a strategy that could lead to regulatory intervention on what is essentially a marketplace issue.
First, airlines do themselves no favors if they play the game of (rightly) rejecting regulation where it is not necessary, but (wrongly) seeking it when it suits them. Lawmakers should stay out of airline business practices such as ancillary fees, use of phones (when operationally safe), and other product-related decisions where rules are not applied to other travel businesses and have nothing to do with safety, security and anticompetitive behavior. Requesting help to keep out competition sends mixed signals to Washington and opens a back door to the era of heavy-handed economic regulation. Remember when CAB defined what could count as a “sandwich”?
These same US carriers are turning to the Asia market and transpacific routes to get a bigger slice of that fast-growing market; one made possible through Open skies. If US carriers seek regulatory help to fend off Gulf competition in North America, then they have no recourse should Asian flagships do the same to them.
That isn’t to say a competitive threat doesn’t exist. In a report headed by professor Martin Dresner, a member of the University of Maryland faculty and one of the country's leading aviation economists, empirical results suggest that greater competition by Gulf carriers in US international markets is associated with significant growth in US-Middle East traffic volumes and small but statistically significant traffic losses and fare reductions for US carriers in route markets connecting the US with Africa, Asia, Australia and Europe.
Second, the “government subsidy” accusations that the US carriers use as the foundation for their anti-Gulf carrier campaign fall into the “people in glass houses” category. Each of the carriers that are leading this campaign have benefited from Chapter 11, allowing them to clean their balance sheets and void obligations to creditors and employees. They also enjoy legacy rights on some of the world’s most lucrative hub airports and routes, particularly in the transatlantic market. Individual US states provide millions of dollars of incentives that help support, attract and keep their local carriers.
Whatever ‘subsidy’ accusations are leveled at the Gulf carriers, each effectively started from scratch and built their global networks and customer bases on their service reputations, not on inherited rights. In other words, the customer chose the product. That’s the market at work and that’s where US carriers should invest their time and resources, not in lunches on Capitol Hill.