Coalition of the willing?

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U.S. Airlines Should Quit Whining

Adam Minter is a Bloomberg View columnist. He is the author of “Junkyard Planet: Travels in the Billion-Dollar Trash Trade.”
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The CEOs of three big U.S. airlines met last week with the secretaries of Commerce and Transportation to complain about competitors from the Persian Gulf. Their main accusation was that Gulf carriers have been receiving billions of dollars in hidden subsidies from regional governments as their business in the United States has surged. What did they want? The very thing that airlines are always whining about: government regulation. But in this case, on their behalf. The Obama administration, they argued, should start limiting the access that Gulf carriers have to U.S. airports.

It's a bad idea. If Delta, United and American Airlines are truly concerned about Gulf carriers, they shouldn't be running to Washington for protection. There's plenty they could do on their own, from using profits to improve their mediocre service, to burying the hatchet with Gulf carriers by offering to form partnerships.

Last week's visit to Washington was part of a broader campaign by U.S. carriers against international agreements that guarantee reciprocal access to aviation markets free from government interference. By opening access to new markets and passengers, the more than 100 of these "Open Skies" agreements signed by the U.S. since 1992 have generally been beneficial for airlines. For example, the number of overseas tourists in the United States has surged 68 percent to 32 million since the first Open Skies agreement. Even better, they’re arriving at airports -- like Minneapolis, Dallas-Fort Worth and Portland -- that never would have become international gateways without the agreements.  

But U.S. carriers have always argued that small countries like Qatar benefit most from them, because the U.S. market is so large. They also accuse Gulf carriers of being willing to bend rules by accepting state subsidies (an accusation that Emirates, the biggest of the Gulf carriers, hotly disputes).  

Last fall, U.S. carriers and their unions started demanding that the U.S. government change its standard from “open skies” to “fair skies”. Whatever that means. The airlines haven't explained, but last week’s meeting in Washington, D.C. suggests U.S. carriers would like protection from open competition in their home markets.

That would cause more problems than it would solve. At a time when global aviation is booming, and countries around the world are signing open skies agreements (especially in Asia, the world’s fastest growing market), the U.S. would risk marginalizing its own airlines. That wouldn't be in the interest of the U.S. aviation industry. It also wouldn't be in the interest of U.S. air passengers, who already face constrained competition domestically.

Instead, U.S. airlines could start by upgrading their service to the standard maintained by the luxurious but still competitive Gulf carriers. There's plenty of room for improvement. In 2014, the Skytrax World Airline Awards placed the three Gulf carriers in its top ten for overall service, while Delta, United and American were ranked 49, 53 and 89, respectively.

But if U.S. carriers aren't up for that kind of competition with the Gulf's subsidized airlines, they could always try partnerships. It wouldn't be the first time they've done so. For years, U.S. carriers have formed alliances with foreign airlines in order to extend their reach into regions where they wouldn't otherwise have access.

Delta's SkyTeam Alliance, for example, includes state-owned and subsidized China Southern. That means a Delta customer can book a single itinerary from the United States to a hub like Shanghai and then onward to any of the dozens of small Chinese cities that China Southern services. It’s proven to be a good deal for both carriers. The U.S. government has granted such arrangements immunity from antitrust regulations.

For now, at least, the Gulf carriers are particularly strong in markets where U.S. airlines are relatively weak: India, Africa and southeast Asia. In that sense, forging an alliance would help both sides. Other countries' airlines have already noticed the same thing: Australia’s Qantas, for example, has partnered  with Emirates, and Air France-KLM has an arrangement with Etihad. It's time for U.S. carriers to reach out to the Gulf. And to stop whining.  

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Adam Minter at aminter@bloomberg.net

To contact the editor on this story:
Cameron Abadi at cabadi2@bloomberg.net