Emirates has put together a response to the subsidy claim report prepared by the “US3” carriers and it is a spectacularly entertaining read. Not surprisingly it disputes all of the claims made in the US3 “white paper” but the way in which it does so is a step beyond just reporting the facts. The tone and style read (at least to me) as a combination of financial analysis and bits of humor mixed in, with expressions of incredulity at basic mistakes and disappointment in the more significant ones. The bits I read – I have not put all 190+ pages to rest yet – are simply spectacular.
For example, Emirates says that the US3 cited the wrong clause in complaining about the alleged subsidies. And it is true. While section 11 is entitled “Fair Competition” that portion of the document really only talks about allowing the carriers to operate unfettered; it has nothing to do with subsidies and best I can tell there are no claims made by the US3 that they have been unable to operate in the UAE or Qatar nor that any other aspect of Section 11 has been violated.
Okay, so maybe not all the right sections are cited, but surely there are some bits which are accurate, right? Like how the US3 have suffered in terms of traffic growth on some routes or, more importantly for the claim being made, that consumers are adversely affected. Emirates has a lot of fun with that data, actually. Emirates’ claim is essentially that the traffic numbers have not actually gone down, at least when reviewed under certain parameters.
The Legacy Carriers’ Compass Lexecon Report asserts—with no explanation or documentation—that “two of the three U.S. carriers were forced to discontinue their non-stop services between the United States and India” as a result of the growth of Gulf Carrier bookings to the region. It is odd that such a strong conclusion of cause and effect is advanced with no support whatsoever. It is particularly odd in light of the fact that the supposed competition for the Legacy Carriers’ discontinued non-stop flights consisted of the Gulf Carriers’ one-stop flights. A closer look at the fact casts grave doubt on the assertion that these cancellations were caused by competition from the Gulf Carriers.
And there are charts which show things like overall growth in the market, even for the TATL JVs which the US3 participate in. Yes, Emirates is growing faster, the US3 are all seeing some growth via their JVs.
And there are in incredulous bits. Like talking about Delta‘s varying claims as to why it halted non-stop service into India:
Delta cancelled its New York-Mumbai non-stop service in July 2009. The press at the time quoted Delta as attributing the cancellation to “lower projected passenger demand.” There was no mention of intensified competition from the Gulf Carriers or other airlines. Later, in the course of its litigation against the U.S. Export Import Bank (“ExIm Bank”), Delta changed its story and blamed competition from Air India, which it asserted had an unfair advantage because of ExIm Bank financing. At the time it made these allegations about Air India, Delta again made no claim that Gulf Carrier competition caused the cancellation of its Mumbai route. Alleging Gulf Carrier competition now, Delta evidently is happy to reinvent the alleged cause of the flight cancellation to suit whatever argument it may be making at a given time.
In lambasting the analysis of route growth and stimulation Emirates has even more fun:
The principal challenge in rebutting this argument is deciding where to start. … It is amazing to see a well-known consultancy advance an argument which blithely ignores the fact that China and India might be rather different places.
The Milan route is an interesting one because it is a market where all four parties (plus Alitalia) compete. And, once again, Emirates has fun at the expense of the US3:
Indeed, the Legacy Carriers appear to presume their audience is unfamiliar with basic arithmetic: market share is only meaningful when considered in the context of overall growth or shrinkage of the market. In fact, market share figures are highly misleading here, because Emirates’ entrance into the New York-Milan market has stimulated overall demand for the market. Since Emirates’ launch in October 2013, total bookings for New York to Milan routes increased by nearly eighty percent.
In that context losing 13 points of market share (the number claimed by the US3) actually translates to year-over-year growth for the US3 and their JV partners:
There is one caveat to these numbers: None of them discuss whether the increase in bookings was a profitable move for each of the carriers involved. And there were a LOT of very, very good sale fares to Milan in 2014. Then again, if the US3 didn’t want to carry those passengers then they didn’t need to add capacity and offer the fare. At least that’s the theory in play.
Emirates also tackles the airport subsidy claim, noting that many international hubs (which the US3 also serve) do not charge PFCs to transit passengers and that several US hubs do not charge enough in PFCs to support overall operations. In other words, just like the rest of the complaints the US3 made, it is a lot of hypocrisy.
I find this whole back and forth immensely amusing and entertaining. I struggle to come up with a version of reality in which the US government can do anything the US3 are asking without destroying its position in the global economy and generally destroying the economics of air travel for American consumers and those visiting the USA. And I’m saddened to think about how much money is being spent on lobbying, lawyers and PR to try to frame the discussions to suit each side, mostly because that means either higher fares or less money invested in the product I’m consuming (or both). But at least the accusations and replies are entertaining to read.
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Seth: I’m a full time lobbyist in DC. It’s shocking to see the army of lobbyists that the US3 are paying to spread their misinformation.
I think you put a great point on it, Seth. The amount of money being spent on this, right, wrong, misguided, or otherwise, is money that could be used for better purposes, ultimately better for passengers, as well as shareholders.
Of the money that is being spent though, it has sounded to me from the beginning, like the US3 created this argument after a few too many adult beverages, without having it properly murderboarded. I mean, just as you say – the US Government can’t help them without significant loss in position. The only logical approach I can think of, is that the US3 are demanding a lot in hopes for some compromise, however, given the lack of thinking in the arguments, I feel like that may be giving them too much credit.
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