Ed Bastian’s Dishonest Air Italy Op-Ed

Delta’s war on Qatar Airways is back in full swing, despite the US and Qatar having come to an agreement earlier this year. The latest attack from Delta comes in the form of an op-ed from CEO Ed Bastian, which is dishonest and hypocritical, to put it mildly.

Delta’s best and worst trait

Before I get into the actual content of this op-ed, let me share what I consider to be both Delta’s best and worst trait — Delta only cares about Delta, and they’re darn good at it.

Delta does a great job of taking care of their shareholders, employees, and customers, and that’s admirable. But they’ll do so at just about any cost. When you look at their filings with the DOT, it’s amazing how they’ll flip flop their stances on things as it suits their interests.

Like I said, Delta is fiercely loyal to Delta. And that’s good on one hand. But it’s also off-putting.

The latest round of drama with Air Italy

Air Italy is a fast growing Italian airline. As we know, Alitalia is a basket case of an airline that has been losing a ton of money. Ultimately their situation worsened significantly when Etihad decided to no longer flush money down the toilet, and pulled funding from Alitalia.

Air Italy was previously a small airline (at the time known as Meridiana), but Qatar Airways saw an opportunity here. So they bought a 49% stake in Air Italy, and have been doing everything they can to make the airline grow.

Earlier this year Air Italy began flying to New York and Miami out of Milan (previously they flew to the US out of Naples and Palermo), and in the past few weeks they’ve announced new 2019 flights to Los Angeles, San Francisco, Chicago, and Toronto.

The US airlines take huge issue with this, claiming that Qatar Airways is using Air Italy to create fifth freedom routes in a roundabout way. They claim this violates the agreement the US and Qatar reached earlier this year, which simply isn’t true. At the time the countries agreed to the following:

  • Within one year, Qatar Airways will release audited financial statements in accordance with internationally-recognized accounting standards, and within two years they will disclose any transactions with other state-owned entities, such as caterers or other companies that support airline operations
  • A side letter states that Qatar’s civil aviation authority is “unaware of any plans by Qatar Airways to start fifth freedom flights;” note that Qatar Airways doesn’t say they won’t, just that they don’t have any plans to as of now

Qatar Airways never said that they wouldn’t launch fifth freedom flights, let alone that an airline they invested in wouldn’t start service to the US (which is very different than a fifth freedom flight).

Ed Bastian’s outrageous op-ed about Air Italy

One of the things that I find most frustrating about “news” nowadays is that facts are no longer facts. We’ve gotten to the point where people can just present lies as facts, and somehow we’re okay with that.

Ed Bastian’s op-ed about Air Italy is filled with dishonesty.

“Qatar has been giving its new acquisition billions of dollars’ worth of new airplanes, including Boeing 787 and 737 jets, with plans to deploy larger Boeing 777 and A350s as well.”

Why can’t we just be honest here? So far the airline has been given A330s and 737s. They haven’t been given any 787s (though there are plans for that in the future).

“Qatar is using the tiny, close-to-defunct Air Italy to skirt its promise to the U.S. to not add so-called ‘Fifth Freedom’ flights to the U.S., which are routes that operate outside of a carrier’s home country – such as nonstop flights between the U.S. and Europe.”

Why can’t we just be honest about what’s happening here? A fifth freedom flight is when an airline operates a flight from their home country to another country via a third country. This includes something like Emirates’ flight from Dubai to Milan to New York, or Singapore’s flight from Singapore to Frankfurt to New York.

Is Ed Bastian really suggesting that Qatar Airways’ goal here is to fly people from Doha to Milan on Qatar Airways, and then connect them from Milan to North American gateways that they already fly to (with the exception of San Francisco) using Air Italy? Why would they do that? That doesn’t even make sense.

It’s one thing if Ed Bastian wants to argue “Qatar Airways is making a financially unsound investment and is dumping capacity.” We could discuss that reasonably, and I’d even largely agree. But this has zero to do with fifth freedom flights.

Let me actually take it a step further here. If their intent was to create fifth freedom flights, they’d have good fares from XYZ (whatever city you want in the region) to Doha to Milan to the US. But they don’t. So this simply isn’t even in the picture.

“These Italian routes, already highly competitive and well-served by existing carriers, are simply not economically viable without Qatari subsidies.”

How can you be so dishonest? These routes are already well-served by existing carriers? Not a single airline flies nonstop from Chicago, Los Angeles, or San Francisco, to Milan.

“It’s remarkable that in an era when global aviation is thriving, Qatar must keep its state-owned airline aloft with a massive infusion of subsidy dollars. The airline lost $1.3 billion in its most recent fiscal year, flew fewer passengers, and has said it may ask its government for another capital injection.”

I’m not sure how much Ed Bastian is keeping up with global politics, but in case he wasn’t aware, the country of Qatar has had its most challenging year in decades, given the blockade with its neighbors. I think it’s completely expected the airline wouldn’t be doing great right now. Of course they carried fewer passengers than the previous year, they’re not allowed to fly to Egypt, Saudi Arabia, and the UAE, which were previously some of their biggest markets.

Ed, are you this quick to forget the help that US airlines got after 9/11?

The irony in all of this

I think there’s a real conversation to be had about subsidies in the airline industry, and about the impact they have on global aviation. What bothers me is Delta’s horrible hypocrisy when it comes to this.

They take huge issue with Air Italy, right? Their issue is that they’re owned by a “subsidized” Gulf carrier and that they lose money.

For eight years, Delta had a transatlantic joint venture with Alitalia, meaning they were sharing revenue with them, and in turn, profiting off of them. Alitalia was 49% owned by Etihad, they lost a ton of money, and they were bailed out by the government repeatedly. Every single thing they’ve said about Air Italy should have also applied to Alitalia.

How many times did Delta say anything? Not once, because they stood to profit off it.

If government subsidies are such a huge issue, why would Delta invest in China Eastern, which is majority owned by the Chinese government?

Why would Delta partner closely with Jet Airways, which loses huge amounts of money and is owned by Etihad, another money-losing Gulf carrier?

The hypocrisy here is just astounding.

Delta isn’t opposed to government-owned airlines. They’re opposed to government-owned airlines when they don’t stand to gain anything.

Delta isn’t opposed to money-losing and otherwise subsidized airlines. They’re opposed to these only when they don’t stand to benefit from the arrangement.

Bottom line

There’s a real conversation to be had regarding subsidies, but Delta isn’t having it. Instead they’re lying to no end and looking out only for themselves.

Do I believe Qatar Airways is dumping money into Air Italy, and that they’re growing too much too fast? Yes. Do I think this has anything to do with fifth freedom routes? No. Is it pathetic to me how Delta takes huge issues here, but had no issues with Alitalia for years, even though they were doing exactly the same thing? Yep.

Air Italy and Qatar Airways aren’t “disrespecting” Donald Trump, US airline jobs aren’t at risk (employment in the US airline industry is at an all time high), and if nothing else, the Gulf carriers spend a huge amount of money on new Boeing jets (which Delta doesn’t).

Comments

  1. Now I will definitely consider Air Italy for travel YYZ-MXP. Appreciate the effort you put into this story.

  2. Hey Delta, Air Italy might end up flying to your Atlanta hub to “rub more salt in your wound” if you continue this 😉

  3. I’m not really sure what you expect Delta (or any US airline) to say here. Do you expect them to shut up and stay quiet while Qatar (rightly put) infuses huge capital and equipment to what was once a largely defunctive airline? Considering we live in a country governed by a bully, how can you expect Delta to stay quiet? Besides, none of this information really gets to the consumer, they will continue to fly with whatever is the cheapest airline.

    And I think it is a bit incredulous to assume Qatar isn’t hoping to funnel their traffic through Milan to the US and Canada. Are they going to come out directly and say it? Of course not! It doesn’t make business sense for them to expand the airline as they are doing without the hope that they can fill seats, of course from Italy and Europe, but also in the future, from the rest of Qatar’s routes.

  4. Lucky, what would be QR’s rationale for dumping money into Air Italy? If QR really is subsidizing a money-losing venture (and I’m not arguing otherwise), how does QR stand to gain?

    I can sort of understand why the Qatari government might be willing to lose money on an airline that raises the profile of Qatar/Doha and makes it easier for people to get to the city. But I’m scratching my head why they’d want to do the same for a carrier based in Italy whose brand is completely separate?

    Also, Ed should note that the Chinese carriers are the ones with $2,500-ish J class fares from just about anywhere in the U.S. to anywhere in Asia right now. The same O&Ds with QR are in the $4,500-$6,000 range (much to my disappointment!). It’s been that way for many months now, QR doesn’t seem to be publishing many of those sub-$3,000 fares these days, sadly.

  5. @ AVS — What I hope for from Delta is a bit of honesty (ie, literally not making up facts, like that Air Italy is getting 777s and A350s, which is patently false).

    And no, I genuinely don’t think Qatar is hoping to funnel passengers through Air Italy, at least not as a primary motive. That would be extremely inefficient (at least two connections, rather than Emirates and Etihad, which offer one connection options), not to mention that in many cases Qatar’s load factors and yields on their own flights to the US aren’t great.

    I think their motive is twofold. First of all, to sort of replicate the Etihad Airways Partners model (I don’t think they learn from their mistakes), and also to create a network for Air Italy that will connect passengers on flights outside of Qatar (like Delhi to Milan to New York, for example). But none of this is at all related to fifth freedom service that involves Qatar.

  6. @ Lucky – I think we can all agree everyone lies. From our president, to Delta’s president, to Qatar’s president. So Ed Bastian is hardly unique in that matter. Say whatever strengthens your case, be damned with the truth (after all, who apart from folks with knowledge about aviation are going to fact check?)

    And regarding Qatar’s supposed “fifth freedom” motive, I believe it is them thinking ahead. With the US (and Canada already) becoming ever more protectionist, especially against the middle-east and Asia, Qatar knows they aren’t going to have many opportunities in the future to expand. From their perspective, they are getting more volume into the US with a brand that is largely disassociated from them, which is a win from their perspective. Flying on two connections may be inefficient today, but this is hedging on Qatar’s side, knowing that things may only get worse from here on. And even if they do not plan on increasing Qatar’s own flights to Milan and their purpose is to serve more routes like Delhi-Milan-NYC etc., from Qatar’s perspective, how is that different from a fifth freedom route? Thats not what it may be called, but it is still them increasing their revenue by transporting more passengers from Delhi to NYC, whether it is via Doha or Milan. Delta should rightly be concerned about these tactics. Now whether they should respond with more dignity or brashness is another matter.

  7. @AVS — I’m still trying to figure out why QR would want to fly people from Delhi-Milan-NYC if they can’t do it at a profit? Why would that be a win for them? The argument is that Qatar is subsidizing money-losing airline(s), and I understand why they might do that for a carrier based in Doha flying with the Qatar brand. But what’s the logic for doing it via Milan with a carrier called Air Italy?

    I’m not asking this to be argumentative, I just really want to know the answer because I can’t figure it out. And that seems like an important piece to this ongoing saga — what are the underlying motivations, and relatedly, long-term goals of the various players?

  8. I agree with your frustration around Delta’s hypocrisy but do feel that Bastian makes some good points. Every blogger loves to fawn over the ME3’s ridiculous business and first class cabins but, perhaps outside Emirates, these aren’t sustainable business models and only exist because of outrageous government subsidies and infrastructure spending. Equally hypocritical is that bloggers take photos of sipping champagne while the cabin crew are largely treated as indentured servants and the lavish airports and business class lounges were built by what largely amounts to slave labor. Yes – US carriers repeatedly step on their own feet and don’t do much to build goodwill for themselves but I, for one, refuse to be a sellout. Moreover, I find it ironic that a gay travel blogger is so quick to come to the defense and support of carriers supported by regimes that would happily throw him in jail… or worse.

  9. @ AVS — If you’d like to make the point about how Delta should be concerned about that, shouldn’t they also be concerned about all the other government subsidized capacity being brought to the US? My issue hasn’t been the discussion of subsidies as such, but rather the specific bullying of the “big three” Gulf carries. What about Saudia? Why aren’t they a target? And Air India? And Alitalia? The list goes on and on…

  10. @ ChiFlyer79 — I love the point about fawning over the ridiculous business and first class cabins. Emirates has seven seats per row in business class, and seats are angled. Business class seats on most Etihad planes are outdated. Qatar has 2-2-2 business class seats on a majority of their fleet. There’s nothing unsustainable about the cabins as such.

    This isn’t about fawning over products. As I’ve said before (and I’ll say a million times over), my issue is with the hypocrisy in their argument.

    There’s simply zero justification for targeting only these three airlines.

    I totally agree with you re: slave labor in the UAE and other Gulf countries. I take huge issue with that. Is the same not true in Saudi Arabia, though? Why doesn’t Delta throw their SkyTeam partner Saudia into the mix?

    So, please, this isn’t about “bloggers” fawning over the Gulf carriers. My genuine objection here is that this amounts to bullying. If they have a policy issue, let’s discuss the big picture policy issue. Let’s not bully three airlines, when plenty of other airlines do exactly the same thing (and Delta profits off of some of them).

  11. Good points, but there is no way that Air Italy is profitable with these routes. No “new” airline can launch that many international destinations at once and be profitable. I would argue that Air Italy is in fact a different case than any other airline launching routes to the US because they are receiving support from Qatar, which is heavily subsidized. Air Italy is Qatar’s way around the fifth freedom restrictions.

  12. @ Scott — It’s a great question. My guess is that Qatar Airways (rather optimistically) thinks that they can turn a profit on Air Italy eventually. Qatar has a lot of oil money right now, and they’re doing what they can to invest that abroad in all kinds of sectors.

    Qatar Airways has invested already in IAG, LATAM, and Cathay Pacific, so Air Italy is only one of several investments. As you can see, the investments in the other three mega airlines are fairly hands-off. Air Italy is certainly more hands on.

    My guess is that Qatar saw real potential here. Alitalia was on the verge of liquidation, and they saw potential to come in and become the national airline. Ultimately I don’t think they’ll succeed, because:
    a) Alitalia won’t actually go out of business, because of continued government funding
    b) There’s a reason Alitalia couldn’t turn a profit, and Air Italy will face many of those same challenges
    c) Alitalia had the advantage of having US airline partners, which greatly helped with providing feed for their flights, and Air Italy doesn’t have that advantage, since they don’t have US partners

    So I do think Qatar genuinely thinks they can turn a profit here because they see potential in the Italian market with Alitalia’s struggles. I don’t think it’ll work out quite as they hope, though.

  13. @ Lucky – Delta isn’t concerned about Saudia, Alitalia and Air India because they haven’t put their government funding to good use!! These Airlines are content with losing money while offering sub par service and customer service, and have no intention of becoming global players. Why would you complain about folks that have no interest in becoming your competition?

    They complain about Qatar because Qatar boldly starts routes and airlines without giving two sh*ts about anyone else, with the clear intention that they want to own the Asia – US corridor. Delta is now worried that they now want to take over the Europe – US corridor as well.

    Again, apart from completely refreshing their fleet and cabin crew to truly compete with Qatar (which is far more expensive), I don’t know what else you expect them to do other than malign the middle eastern airlines in the media. They certainly aren’t going to just keep quiet!

  14. @AVS They aren’t concerned with carriers who obey the rules and laws of fifth freedom routes. Name one airline other than Air Italy that loses hundreds of millions of dollars (or Euros, GBP, etc.) that is expanding both network and fleet, nevertheless at the rate Air Italy is. Look at WOW Air… losing money and they are cutting routes, not adding. You don’t go from losing money to being profitable by adding costs.

  15. @AVS because everyone lies it’s ok to lie? Delta’s behavior is pathetic and they deserve sympathy from absolutely no one. They should grow up and stop whining about competition.

  16. @jetsetter – I’m not sure if you’re following the news, but air india and Alitalia are both losing billions without any expansions. They continue to get recovery packages from their governments just to stay afloat. If that’s what you mean by “obeying the rules” I believe they are obeying them because they don’t know how to disobey them, like Qatar does. Who wins the battle only time will tell.

  17. @AVS “air india and Alitalia are both losing billions without any expansions”

    That statement is only true if you choose to ignore Alitalia’s new routes to Mauritius and Johannesburg and its new Rome – Maldives and Rome – New Delhi routes too.

  18. I would love to see the moment where US airlines will have to compete. It would drive a massive change in service attitude and customer focus.
    All those events with ‘weather’ and crew over their hours would be history as well.

  19. Does anybody see in this, like I do, that QR is likely to remain in Oneworld in spite of all their sabre rattling against this?

    As long as they are in, Delta annot be fully joined by AA in their crusade to impose high prices and bad service agains… good service and low prices. ALSO, in the event of a (still unlikely in my mind) REAL Brexit, and I do not mean “being out but still doing everything as if they were in”, IAG/BA cannot join the DL crusade although they hurt as much from QR as the US airlines deservingly do, with the added irony of QR being their main shareholder.

  20. @AVS – AI has been rapidly expanding its routes in the last few years, especially to North America and is now the only airline to fly direct from the subcontinent to SFO, IAD, ORD, and EWR. In addition, the airline has been expanding its growing domestic network and its overseas networks such as to TLV. For some reason we have all been brainwashed to think that corporations and all airlines exist only to make money for its investors. In many cases, they serve more than just a profit-making organization, and to provide a social need. In the case of AI, it is a vital organization that the government counts on for supporting non-profit making activities, such as evacuations, relief missions, aid supply to name a few. If only any of the US 3 had any sense of social responsibility.

  21. @ChiFlyer79: You can make your arguments persuasive if you can stick to facts and avoid name-calling or personal attack. Government subsidies may not be limited to only government bailout. Are you aware that GE and Apple do not pay taxes and it is called corporate welfare? Homophobic countries do not harass, arrest or execute homo foreigners if they do not display or flaunt their passion in public. White privileges are prevalent worldwide. more so among the third world countries. The six wealthy Gulf states are third world countries because they have no democratic government. Have we ever seen non-white western hostages kidnapped and executed? Because white lives matter and are worth much more in those parts of the world.
    @Lucky: The Big Three Mid-East airlines are fierce competitors of the Big Three US airlines. Others are not because they do not offer extravagant premium cabins and airport lounges, quality foods and liquor, and superb services. And they have deep pocket to finance but lack the vision and interest to cater to such areas.

    You cannot fully and directly blame countries that exploit and abuse cheap labor from impoverished countries. The root of the problem is that the cultural and religious influences are the impediment to their advances and development, such as corruption, bribery, and the lack of education and population control. You are abused because in most cases, you allow it happen to you without determining a way out and not repeat the same mistake. Especially in the 21st century when the societal attitude and perception have changed.

  22. The one great lesson, I’ve learned in life is that everyone is a hypocrite. It’s just a matter of degree. Delta. Qatar. You. Me.

    Are Delta’s complaints selective, sure, but that doesn’t make the thrust of what they are saying untrue. But, I think you have always had blinders on regarding the ME3. You raise the same false equivalencies every time when you discuss them (Gary does too). They are not real businesses who have to concern themselves with minor details like profit and loss. Instead, they are arms of their respective governments given subsidies to drive a national purpose. So slave labor used to build their airports, atrocious labor policies, routes that generate massive losses to rub salt in a wound, or investments in loss making airlines like Alitalia or Air Italy are just fine to the governments so long as they drive that national purpose.

    Delta can’t scream about every government funded airline, especially if it really has no real potential to harm it. But, you bet that it will make a fuss about transatlantic routes between the US and Europe. And I don’t want to hear about how American took loans from the US in the 1930’s or any such nonsense to say the US industry is subsidized too. Of course there has been some government support to the airline industry, but there is just no comparison on the amounts involved or the prolonged nature of the subsidies. None.

  23. @ Brian:

    Why talk about 1930’s when you can use 2001 / 2002?

    And when a Boeing passenger aircraft list price is $ 32M but a US airline is able to get it at $ 20M (launch program foreign carrier gets it at $ 26M best) because a toilet seat cover or a wrench for a military program is invoiced at $ 124,000, isn’t this subsidizing?

  24. @pierre. Thanks for helping show just how not comparable these things are.

    2001/2002 – Delta got about $400 million after 9/11 and still ended up bankrupt. Other governments offered similar programs to their industries as well during the time period. Even with that, every airline in the US – except Southwest – went bankrupt and their shareholders lost everything. Qatar alone has received over $15 billion in subsidies since 2004, not including what they received after 9/11.

    With regard to Boeing aircraft, I do not know why Boeing, a private company, offers better prices to other private US companies than they might offer to non-US companies. But I do know that foreign airlines receive subsidies from the US government through the Ex-Im Bank not available to US airlines. We’re not really here to talk about the subsidies to Boeing or Airbus (like what the military pays for a wrench) as that doesn’t benefit US airlines anymore than it does foreign ones.

  25. If anybody is “disrespecting” Trump, it is Ed Bastion. He clearly understands that Trump is clueless and can be easily be manipulated. So why not try and play to a clueless person knowing there is a 50/50 chance that action might be taken.

  26. Great article and debate. I’m just going to boycott all of the US and ME airlines and stick with Green Africa going forward. Someone pass me the Krug. Lol.

  27. Simple we either break up the airlines so we have 8 instead of 4, or allow all foreign carriers unlimited access to the us.

  28. Add Air Berlin to the list of european companies subsidized by ME without anybody in the US complaining.
    As for reasons behind Qatar investment in Air Italy, of course they think there is potential to develop a hub in Milan: first of all under EU law there are limits to rescue money Alitalia can get, despite italian government wish, and this will most probably cause the airline to further shrink even if they can survive. Second, the last 10 year losses showed Alitalia’s hub in FCO is simply unprofitable due to lack of business travelers and high seasonality. Third, Milan is by far the most important business centre in Italy, and Lombardy the wealthiest and most populated region, and a logic candidate to host a hub in Italy.
    Now, italian government will for sure continue to push FCO and Alitalia as their air transport solution, because they only care about unions and votes, but a hub in FCO does not make sense from a business point of view, as almost 20 years of consecutive losses show, the last 10 under private ownership.
    Air Italy are just doing that, building a hub where it can be successful.
    As for the american companies, they love Alitalia because it is small, and already part of a JV for transatlantic flights. They don’t care about Alitalia never turning a profit, but guess what, if you don’t care about the market then the market will take care of you, even if you are the italian government or a large american company. As Emirates V freedom flight from MXP to JFK already showed, the market will always find a way to develop itself. Do not make the mistake to try to stop it, or it will just harm you.

  29. Ben- love this blog but this post has some issues. The logic of this argument is on a non-linear economies of scale the Qatar is able to exploit by channeling government subsidies to a new network partnership. Inherently, this benefits the top line owner by indirectly dumping capacity they otherwise would not be able to with their current restrictions and balance sheet. The same logic would apply if Delta took government subsidies and bought into Fly Dubai to create regional competition to pad their bottom line while declaring massive losses. Delta does buy stakes, but with profits and not subsidies. What Bastian likely takes issue with is that it’s a dislinear approach. This isn’t to mention the reasons behind the blockade, which Ben you frankly compare incorrectly to post-9/11 bailouts- both in context and amount of funds. One, the blockade is in response to highly likely funneling of Qatari money into terror organizations and other nefarious purposes. Post-9/11 U.S. Gov funds were used to keep what was an essential aspect running in the aftermath when the public was avoiding the skies. In other words, if Al Bakr is willing to accept government funds then the govnerment’s culpability on the international scale goes with that. Ben- you argue it’s been a tough year in Qatar, but the reasons for this tough year are important. Certainly, this is a bit of corporate grandstanding, but the logic of Bastian holds to a degree, as Qatar is trying to have its cake with government funds and eat it too with Air Italy, and comparing it to post-9/11 is a straw man at best.

  30. @jamie

    This is so sane. Except that Green Africa is more likely to mix Perrier and cheap human waste to make up for Krug, a thought which came to me about 30 years ago when, boarding an Air Afrique flight in F in JFK, I found the bottle of champagne open in its ice bucket waiting on the F toilet seat. I was tempted to create a new drink but didn’t.

  31. “We’ve gotten to the point where people can just present lies as facts, and somehow we’re okay with that.”

    What was it you said about those Ryanair cabin crew who were caught lying in the press to make Ryanair look worse again? I seem to recall you saying it was fine and how dare Ryanair have the audacity to present the actual truth….

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