One of the major issues
facing the US Airline Industry is the ability of some competitors, namely the
three Middle Eastern or Gulf carriers (Emirates, Etihad, Qatar), to utilize the
US Government sponsored Export-Import Bank to finance the purchase of excessive
numbers of wide-body jet aircraft from Boeing at low rates. The purpose of the
Ex-Im Bank is to support US businesses by making it easier for foreign
companies to purchase US manufactured products. Evidently the Ex-Im Bank is
wildly successful, judging by the number of aircraft ordered by the Gulf
carriers. The Gulf carriers are using these aircraft by adding massive amounts
of capacity and operating at a loss, which is straining the ability of US air
carriers to compete internationally. While I understand why the Ex-Im Bank
exists, I’m not certain that companies from oil-rich Middle Eastern nations are
the intended recipients. Emirates is the largest airline in the world by
capacity, while it hails from the United Arab Emirates (UAE) with a population
of 9.2 million. Interestingly enough there are a mere 1.4 million citizens and
the remainder are expatriates.
The Gulf carriers
fielding excess seating capacity as a result of cheap wide-body jets plays into
another issue for the US carriers. Emirates, Etihad, and Qatar are all
allegedly receiving government subsidies from their respective nations (UAE and
Qatar). The Gulf carriers deny these allegations, but the US carriers have
requested that the Obama administration investigate the matter. The Air Line
Pilots Association (ALPA) has issued a report alleging that the Gulf carriers have
collectively received at least $42 billion in quantifiable subsidies over the
past 10 years. These include loans with no interest and no commitment to
actually repay, governments covering losses from fuel hedging, and prohibiting
unions, thereby paying workers substantially less than US carriers. The Gulf
carriers claim that there are no subsidies and allege that they are successful
because they provide better service than the competition. Regardless of
subsidies or whatever discount the US Ex-Im Bank provides, these airlines
clearly have deep pockets and are not shackled by silly concerns like keeping
the business solvent. The best thing the US carriers have going is US
bankruptcy law, which they have used and abused to stay alive in a cutthroat
industry with slim profit margins.
Cheap labor is another
threat to the US carriers, and the Gulf carriers are a big offender here, but
they are not the only ones. Norwegian Air International has recently been in
the news because they have acquired an Irish operating certificate in order to
skirt Norway’s labor laws and operate a low cost airline by using cheap labor. Labor
costs have been driving jobs out of post-industrial societies for decades. I’m
not sure how much can be done about it, I think it is up to the consumer to a
certain extent to choose an airline that pays its employees a better wage. Of
course, given the proliferation of Walmart here in the US, consumers seem to
care more about saving a few bucks than supporting businesses that pay
employees better.
References:
Carey, S. (2015, February 22). U.S. Airlines Clash
Over Rivals From Persian Gulf. Retrieved March 16, 2015, from http://www.wsj.com/articles/u-s-airlines-clash-over-rivals-from-persian-gulf-1424737494
Flottau, J. (2015, February 4). Emirates Says Open
Skies Reversal Would Be A 'Shame' Retrieved March 16, 2015, from http://aviationweek.com/commercial-aviation/emirates-says-open-skies-reversal-would-be-shame
Jansen, B. (2014, December 11). Congress pleases both
sides in Norwegian airline dispute. Retrieved March 16, 2015, from http://www.usatoday.com/story/todayinthesky/2014/12/11/norwegian-air-international-dot-alpa-afa/20240759/
RESTORING OPEN SKIES: THE NEED TO ADDRESS SUBSIDIZED
COMPETITION FROM STATE-OWNED AIRLINES IN QATAR AND THE UAE. (n.d.). Retrieved
March 16, 2015, from http://www.alpa.org/Portals/Alpa/PressRoom/PressReleases/2015/Fair_Skies_Launch_030515.pdf
Reed, T. (2014, April 13). Delta, Leader Of The U.S.
Airline Industry, Challenges Boeing And Export-Import Bank. Retrieved March 16,
2015, from http://www.forbes.com/sites/tedreed/2014/04/13/delta-leader-of-the-u-s-airline-industry-challenges-boeing-and-the-export-import-bank/
United Arab Emirates. (n.d.). Retrieved March 16,
2015, from http://en.wikipedia.org/wiki/United_Arab_Emirates
On the topic of the Gulf carriers, I also read about the possibility of a new U.S. customs facility being built at the Dubai airport to expedite the security process, which will have U.S. security measures inserted into the foreign market. This will allow for more flights to fly into the U.S. from Dubai more efficiently and place even more stress on the U.S. airlines fighting for those routes.
ReplyDeleteYou mentioned about cheap labor, and how not a whole lot can be done. I agree with you to that extent. However, you also mentioned that the consumer needs to purchase their tickets from a company that pays their employees more. I honestly do not think that people care how much a company is paying their employees, as long as the ticket they purchase is cheaper. So, I do not think that the consumer is going to be able to have much affect on the labor costs.
ReplyDeleteDubai has become a major world hub airport. I'm not surprised that they would add a U.S. customs facility there. But wouldn't this also facilitate U.S.carriers traffic as well and could the U.S. choose to provide those customs services for there carries only which would be an incentive for travelers to fly U.S. airlines
ReplyDeleteI like how you state that the airlines aren't concerned with the issues addressed because they have deep pockets. The oil tycoons in the area have so much money it isn't a concern of theirs.
ReplyDeleteFrom my research , unions allege Norwegian Airlines is seeking to evade Norwegian and international labor laws and pay pilots less by establishing NAI as an Irish airline
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