Qatar Airways’ Victory, And How US Airlines Are Twisting It

Filed Under: Qatar

Yesterday I wrote a post about how after three years and millions of dollars of lobbying by US airlines, the US and Qatar finally agreed to a resolution regarding their Open Skies disagreement.

This debate boils down to US airlines claiming that the Gulf carriers have received billions of dollars in illegal subsidies, and suggesting that this is putting the US airline industry at risk (the way I see things, there’s nothing illegal here, and the US airline industry isn’t at risk).

Today US Secretary of State Rex Tillerson announcement the new arrangement that should finally put the Open Skies debate between the US carriers and Qatar to rest. This is a victory for Qatar Airways, as this agreement is pure fluff. However, not surprisingly this is an opportunity for the US airlines to spin it into something much bigger than it is. Or maybe it’s just that any agreement — even if it basically says nothing — is more than they’ve otherwise accomplished on this front in the past three years.

The resolution between the US & Qatar

Per ABC News and the AP, here’s what’s contained within the eight paragraph document outlining the “understandings” between the US and Gulf carriers:

  • 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

As I said yesterday, this is a win for Qatar Airways, and for consumers. Beyond that, this is even less binding that we previously thought. Yesterday the assumption was that Qatar Airways agreed not to start any fifth freedom flights (which wouldn’t be a big deal, because they don’t seem to plan to anyway), but that’s not even the case; they’re just saying that they don’t have any plans as of now.

The US carriers lost big time here. Really, really big time. They’ve spent the past three years negotiating this agreement, they’ve invested millions of dollars in lobbying groups and smear campaigns, and out of this they get… nothing, really.

US airlines’ warped sense of reality 

While the above is what’s contained within the agreement, you wouldn’t know that based on the press release I received from the Partnership For Fair & Open Skies, which is one of the lobbying groups for the US airlines. They “applaud the Trump administration for negotiating an agreement.” Are you ready for this (bolding mine)?

Today, the Trump administration announced an important agreement with the State of Qatar that will protect American workers and result in a series of changes in the way Qatar finances and operates its state-owned enterprise, Qatar Airways, including an end to government subsidies.

They go on to say this:

As part of the agreement, Qatar has committed to operate in a transparent manner by using internationally agreed upon accounting and auditing standards and applying commercial terms to all transactions. Additionally, Qatar has committed to not introduce any “fifth freedom” passenger flights to the United States, which are flights coming from outside Doha carrying passengers to the U.S.

Right, so that sounds great, only it’s not actually true:

  • Qatar Airways agreed to different accounting standards, but that doesn’t translate to them changing their businesses practices; it just means they’ll be more transparent about their losses
  • Qatar didn’t agree to not introduce any fifth freedom flights, but rather acknowledged that as of now they don’t have any plans to do so

Here’s what the CEOs of the big three US airlines have said about this:

American Airlines Chairman and CEO Doug Parker said: “Today’s landmark action will help create a level and fair playing field for American Airlines and other U.S. carriers. We are extremely appreciative of the president and his administration for their dogged determination to enforce U.S. trade agreements and stand up for American jobs. The administration’s actions today thoughtfully address the illegal subsidies received by Qatar Airways, and most importantly, support American workers and closer to home, American Airlines’ 120,000 team members.”

Delta CEO Ed Bastian said: “Today’s agreement by the State of Qatar is a strong first step in a process for commercial transparency and accountability, and we remain committed to working with the administration to address the harmful trade violations by the United Arab Emirates as well. We are grateful to the Trump administration for working to restore a level playing field for the U.S. aviation industry and to the tens of thousands of Delta people who have made their voices heard in an effort to protect millions of American jobs and put an end to unfair competition.”

United Airlines CEO Oscar Munoz said: “It is important that all parties understand the need for a level playing field for U.S. based carriers, and the impact unfair competition can have on the good paying jobs our industry supports. We applaud this agreement and thank the administration for effectively representing the interests of the American aviation industry.”

Landmark action? The president’s “dogged determination?” Oh my.

Bottom line

I’m surprised American, Delta, and United aren’t more embarrassed here. They’ve spent years and millions of dollars on this campaign, and honestly they got nothing out of it. Worst of all, this is the agreement they reached with Qatar Airways, which Delta’s CEO claims is the worst offender of “illegal subsidies.” They haven’t reached an agreement with the UAE, but presumably that will be even less substantial (if that’s even possible), based on the fact that they’re viewed as less egregious offenders.

(Tip of the hat to View from the Wing)

  1. Listen folks, US airlines get plenty of subsidies from our government. Here’s an excerpt from a USA Today article:

    “Consider the Essential Air Service program, which currently provides subsidies for airlines serving 163 rural communities nationwide. There’s also the Fly America Act, which since 1974 has required federal agencies to use U.S. air carriers to transport passengers and cargo when such travel is funded by the government.

    And then there’s the bailout many have forgotten. In the aftermath of 9/11 and the grounding of commercial aircraft, Congress and President Bush put forth the Air Transportation Safety and Stabilization Act. Washington so quickly assisted the airlines that virtually nothing was asked in return, not even the quid pro quo of implementing the many passenger rights proposals put forth during that time.”

    There’s a whole lot more in the original article. Click here for the read.

    US airlines are now rolling in the dough. They just don’t want to dilute that fact by lowering ticket prices. If Qatar, or Emirates, or Etihad had a lower priced ticket to a desired destination (not a real option since I am not going to fly to Europe via a Persian Gulf hub) I would buy that ticket and, at the same time, enjoy the cleaner planes, better amenities, and better service.

  2. Lucky – do you think this could possibly lead to more cooperation between QR and one of the US3? QR is keen to invest in US and if I read correctly between the lines, this could mean that the door is now open for a significant transaction (like an investment in AA) without the public hostility resulting from this Open Skies issue.

    Also, it seems this is a departure from perhaps a coordinated stance by the ME3. Not surprising given the political situation between Qatar and UAE.

  3. I’m wondering if this’ll be mentioned in the SotU address tonight. I mean, if there ever was an administration that loved outright lying about fruitless victories, it’s this one.

  4. Woah, I though this piece was written by the same guy who tried making himself look better by writing a bitchy commentary on Chris Christie.

    Ben, you’re way better than this. Don’t let the kweens get you down on their level.

  5. The US3 have probably come to realize that this campaign wasn’t going anywhere, and this was an opportunity to end it without looking like they were just giving up(and honestly most non-avgeeks will(if at all) just hear the US airlines twisted version of it.

  6. @ A — I don’t see expanded cooperating between Qatar and the “big three” US. On principle the US carriers are still going to keep playing the same card in order to save face.

  7. QR have a vested interest here. They’re a member of OneWorld and want feed from AA, which has been made more difficult with announcements by AA with regard to arrangements with EY and QR.

    This may very well clear the way for AA and QR to resume codeshare services.

  8. Hmm, I’m wondering if there’s more to this than you realize. At least, based on the quote you included from the Partnership For Fair & Open Skies, it says that QR has committed to “… applying commercial terms to all transactions.”

    “Commercial terms” is a pretty important phrase. I haven’t followed all the details of this subsidization claim, but in theory, you could argue that the state is subsidizing the airline if, for example, the state oil company sells jet fuel to the airline at a below-market price. Committing, however, to apply “commercial” terms would imply that the airline will have to start paying market prices, which would eliminate any subsidy. The same would be true if you have to pay market prices for catering, airport fees, etc.

    The devil is in the details, but if QR really is agreeing to pay market prices for all transactions with third parties, then it could indeed be true that most of the airline’s subsidies will disappear.

  9. so it’s ok if American airlines get subsidies, but not others? It’s kinda like imposing over 200% tax on Bombardier, because Boeing isn’t making enough money. America is run by a bunch of fucktards.

  10. It’s 2:30am in Doha and I’m sitting in a quiet cubicle in the Qatar Business Lounge waiting for my connection to São Paulo enjoying every bit of those government subsidies. Doug Parker is never going to have a product or sadly employees that will come close to what Qatar offers.

  11. I flew QR to Doha on an AA codeshare (Fly America Act) and of course, paid about $1,000 more for the ticket than had I bought the same routing from QR — nice subsidy. The Fly America Act specifically prohibits a federal govt contractor (me) from selecting the lowest cost option – we MUST purchase the higher cost codeshare ticket – almost without exception. Point: the Fly Amer Act not only forces us to fly on US carriers (except for Europe), we also must pay MORE MONEY for the ticket! A double subsidy actually. And contractors cannot use the USG city pair fares !

    AA announced it’s ending its codeshare agreement with QR in March. My question, Lucky, is will they reconsider, since it’s a profit center for which they do no work?

  12. I’m with AdamR on this! No doubt he will throw his shoulder out patting himself on the back for this great “victory”! If not tonight, before the week is out.

  13. Obviously, and as Ben said it’s fluff, this was obv some agreement where Qatar probably payed the US3 to end this ridiculous back and forth. Lord knows Qatar can afford pay. They probably figured, if you can’t beat ‘em, join ‘em.

  14. @Lucky, what software do you use to produce these cartoon jpgs? Just curious as they look terrific, especially the namaste one from your air India post.

  15. @Bill they’re BITMOJIS, not a special “software” lol.

    They’re mainly used to Snapchat or iMessage.

    You can download on your iPhone the BITMOJI app and create your own!

  16. what a joke. the US airlines are crazy. They are milking people left and right and then complain that they cant make more money because someone else has a better product for less money!

    They CAN compete but they have the mentality that they WONT, because they know they would need a completely different culture than what most of their staff has.

    The US3 have some good products (UA’s/AA’s 77Ws) and Delta has some good products, the issue is the employee’s and the general mentality of America…

    I love the ME3 and TK! If they want to piss billions of dollars down the drain to help bring people to or through their countries then good for them. The US gives subsidies and money to bring tourists and “others” to America, so what does it matter?

  17. Well Lucky….this commentary is probably good for a few more upgrades from the lads in the middle east. 😉

  18. US airlines complaining about ( chuckle/barf ) TRANSPARENCY ? FAIRNESS ?

    I’m still waiting for the punch line.

    Maybe it will be the salaries of the CEOs.

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