Don't Bar These Middle Easterners Either
On Thursday, President Donald Trump will sit down with the CEOs of major U.S. airlines. While the agenda hasn't been publicized, Trump's recent meetings with auto industry and pharmaceutical CEOs suggest talk will center on how to "protect" American workers and businesses from foreign competition.
That should please the three biggest U.S. airlines: American, Delta and United. (American CEO Doug Parker won't attend the meeting because of a scheduling conflict.) For two years now, they've fought an unrelenting campaign to clip the wings of their Middle Eastern rivals, who -- they claim -- are unfairly stealing U.S. jobs. Like most efforts to stifle competition, this one is both hypocritical and unwise. The Obama administration didn't buy the airlines' argument; they're hoping the Trump administration will prove more sympathetic. If the President really wants to promote the interests of American workers and consumers, though, he should reject their pleas.
The U.S. carriers have trained their fire on three airlines in particular: Qatar Airways, and U.A.E.-based Emirates and Etihad Airways. Their home bases on the Arabian Peninsula are the most efficient places on earth to connect passengers flying between the U.S. and India (and between Europe and Australia and Southeast Asia). Partly on that basis, the Gulf airlines have boomed since the mid-1980s; Emirates is now the world's biggest international carrier.
Equally important to their success has been the flourishing of so-called Open Skies treaties. These are bilateral agreements that guarantee reciprocal access to aviation markets, free from government interference. The U.S. has signed 120 such deals, including with Dubai and Qatar. On a practical basis, that means that if Delta wants to fly from Atlanta to Dubai, it only needs a landing slot at Dubai International Airport. By contrast, to fly from Atlanta to Shenzhen, it has to seek permission from the U.S. government, which negotiates intermittently with China for access to Chinese airports.
Middle Eastern airlines have benefited richly from Open Skies treaties. Emirates alone flies to 11 U.S. airports (soon to be 12). But those flights benefit the U.S., too. Between 1992, the year the U.S. signed its first Open Skies treaty, and 2014, the number of tourists visiting the U.S. increased 68 percent (not including those coming from Canada and Mexico).
The State Department attributes that growth directly to the treaties, which makes sense. According to a 2016 study, Open Skies deals have reduced fares by 20 percent on U.S. routes, as travelers benefit from increased competition and direct flights to their destinations. Unsurprisingly, the U.S. travel industry has been one of the staunchest supporters of Open Skies.
In theory, U.S. airlines should see themselves as beneficiaries, too, since they can more easily fly passengers to overseas destinations. But the Middle East carriers -- flying new jets, providing opulent service and keeping costs down with non-union workforces -- have proven tough competitors. The Big Three argue that their rivals are benefiting from alleged state subsidies, which would violate the Open Skies agreements with the U.S., and are pushing to renegotiate those deals.
Yet their competitors aren't the only ones who would be hurt by protectionist restrictions. For example, Dallas estimates that the daily Emirates nonstop between Dallas-Forth Worth and Dubai spins off $227 million in economic value annually. Delta, United and American are unlikely to take up that route if it's canceled (most passengers to and from Dubai only transit there). Likewise, FedEx, which has a large sorting facility in Dubai, strongly supports the current arrangements. Finally, the U.S. military could suffer disruptions to its supply chain to the Middle East, which relies in part upon commercial carriers.
Those would be steep penalties for U.S. businesses and consumers to pay in order to shelter U.S. airline profits that themselves are highly subsidized. An attempt to cancel or rewrite the Open Skies treaties could also encourage other countries to demand their own renegotiations.
Instead, the Trump administration should be seeking more -- not fewer -- Open Skies agreements. It could start with the fast-growing Chinese market, where flights by U.S. airlines are currently capped (and where they don't compete against Middle Eastern carriers). Twenty-five years of open skies prove that's the best way to grow aviation jobs and help airlines reach new heights.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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