Pontifications: USA to the World: “We want to fly everywhere. Period.”

Hamilton (5)

By Scott Hamilton

I haven’t weighed in on the current battle between the Big 3 US airlines and the Big 3 Middle Eastern carriers because it’s largely beyond the scope of LNC. But I like commercial aviation history, so I thought I’d bring up a little.

In the era immediately post-World War II, when third, fourth and fifth freedom rights were being negotiated between the US and the Rest of the World, there was a member of Congress, Claire Luce Booth of Connecticut, summed it up nicely: “American postwar aviation policy is simple. We want to fly everywhere. Period.”

At the time, the US civil transport industry was miles ahead of anyone else. During the War, the US built fighters, bombers and transports (the Douglas C-54/DC-4 and, toward the end, the Lockheed C-69/Constellation). Great Britain concentrated on bombers and fights, but no transports. The US airlines were ready to fly “everywhere;” the Allies’ airlines were not and the Axis countries weren’t allowed.

International service was restricted, of course, in order to nurture and protect national airlines owned by governments. Pretty much pick any non-US flag airline today and at one time it was a government-owned operation.

Go forward to more recent history.The US government negotiated what was called Bermuda One (or Bermuda Two, I don’t recall which) with the British government that, among other things, regulated US airline access to London Heathrow Airport to just Pan Am and TWA or the “corporate successors.”

When Pan Am and TWA began to fail and sold off important international routes to try and survive, the US government realized it had been snookered. The route sales, including Heathrow, were to United and American airlines as asset sales, not as “corporate successors.” The Brits exacted a huge set of concessions to allow the route transfers. British carriers got authority to a number of US cities in trade.

As the US, in the name of free enterprise, negotiated Open Skies with one country after another, I remember thinking at the time, “these are one-sided deals.” KLM got access to “everywhere.” The US got access to Amsterdam. Air France gets “everywhere,” the US gets France–but there still is pretty limited demand from the US to, let’s say, Toulouse…. Sure, there are other cities in France that at one time or another that’ve had direct service to the US, but they hardly compare to access to the USA’s major metropolitan cities.

This is, to me, what makes today’s fight so silly. The US negotiates Open Skies with United Arab Emirates (Emirates Airline and Etihad Airways) and Qatar (Qatar Airways). They get “everywhere” in the US and we get Abu Dhabi, Dubai and Doha.

And then we’re surprised when their airlines exercise their rights and the “power of the hub” of the Middle East Big 3 makes it impossible or nearly so for our carriers to fill their airplanes?

US carriers complain the Middle East Big 3 get. or have gotten subsidies, and this present unfair competition. Where have we heard this before? (Can you say “Airbus” and “Boeing”?) And, as I pointed out, pick a non-US flag airline that wasn’t founded on state control, ownership and subsidies.

Go back into our own history. There were postal “subsidies” for just about all early US carriers, including American, United and Delta. All the local service airlines received subsidies (Ozark, Allegheny, Mohawk, etc). After 9/11, a number of US carriers received government loans and guarantees.

Most particularly, every single US major airline except Southwest and Alaska went through bankruptcy (some twice or even three times), cutting billions in costs in the process. I well remember Robert Crandall, then CEO of American Airlines, decrying the “subsidies” (in the broadest sense) of the bankruptcy courts of his competitors. At one time 40% of the US capacity was operating under bankruptcy. This is one reason I have little empathy for the US Big 3’s whining. (The fact that US carriers generally have, at best, fair international service is another.)

I’ve never flown the Middle Eastern carriers. Frankly, the Middle East is not exactly on the top of my Bucket List. I’d sooner go to Iceland and Greenland, which are, thank you very much.

If Open Skies are to be reopened, it shouldn’t be just for the Middle Eastern carriers that take advantage of the international agreement. It should be for all Open Skies agreements, which are lop-sidely in favor of the Little Countries from the get-go.

But that’s too radical. And it shouldn’t be done. Instead the Big 3 should, as has been suggested, actually compete on service.

What a concept.

Remember when Pan Am, TWA, British Airways and BCal lined up against Laker Airways for low-fare trans-Atlantic service?

Then it’s been the fight against Norwegian Air Shuttle’s long-haul, low-fare service.

Now it’s the Big 3 vs the Big 3.

See a pattern here?

36 Comments on “Pontifications: USA to the World: “We want to fly everywhere. Period.”

  1. To fly everywhere yes. What is more problematic though is when a foreign airline takes passengers into a country and then takes a few more onboard within that same country to carry them to another part of that country. I am referring here to what we call cabotage, which is an entirely different ball game.

    • I am referring here to what we call cabotage, which is an entirely different ball game

      you mean like Delta has out of Tokyo?

      • I didn’t know for Delta. For me to fly everywhere means to have a free market. But “Open Cabotage” would not only be a free market but also a free-for-all. Especially if it was granted to everyone.

      • Delta, and United, do not stay in Japan. They fly beyond to a third country. All on treaties negotiated at the end of WW II, when Japan had no air service or the wherewithal to do so

    • That’s what Emirates is already doing in the UK and EU……….and they want to do that set-up in the USA.

      But playing the Devils advocate, US Carriers main profits are based on charging extra fees(Delta being the Worst offender)……..without these Fees, US Carriers are in the RED do to poor Management and Bloated costs……such as Marketing-Promotion…..75+ years of poor Decadent management.

      The Big 3 US players (with their monopoly on International Flights) want more…..screw the ticket buyer…more so the Business-Corporate Flyer; that rarely if ever pays for their actual ticket and keeps Carriers in Business Year-Round

      • There is very limited 5th freedom flights with Emirates. They only use Milan as a stopover to JKF. Most of their true 5th freedom flights are connected to Australia and NZ

  2. In this post you make an excellent diagnosis, doctor, then you poison the patient as the ‘cure.’

    So you want to fly on an aircraft that has bigger seats, young flight attendants, better food, new planes, etc., but you don’t care that the airline gets its new aircraft on US taxpayer-funded aircraft loans, hires Third World young girls to fly, but doesn’t offer benefits, job protections (not unions, just basic job protections), and is so entwined with its government of origin that all the aircraft handling services, the catering, cleaning, airport and landing fees, and, yes, the local FAA-equivalent are all the same entity as the airline itself.

    Then you ask the US airlines to compete on service.

    Maybe you would understand the threat if I bought a subscription to your services, then opened a site myself, and just posted all of your content for free or at a discount?
    Oh, but that’s illegal? or where would I get the money? What if set it up in Dubai, and it’s not illegal. And what if I get my government to give me a small business loan, that I never have to pay back to get started?
    That sounds fair?

    I really appreciate your insight. But you bailed out on this one intellectually.
    Assess the situation, then prescribe a solution that is workable.

    • I think you have missed the points (and not been paying attention to the mantra of the free market capitalist to boot).

      point 1: all airlines (especially US airlines) have benefited from govt subsidies at some or several points in their history.

      point 2: open skies agreements are inherently more easily exploited by the smaller country with good hub geography (Iceland, ME3, Singapore). indeed this extends to the whole free market economic model as the small low wage market will always have an economic advantage exporting to the large high wage market.

      point 3: business is war, war is not fair, quit your bitching and fight to win.

      point 4: the product is everything. flying on one of the big 3 domestics is an exercise in self abuse. the planes are old, the service terrible, and the prices set through collusion. the ME3 hang their hat on providing great service at competitive fares in brand new planes.

        • there is nothing “free” about the so called free market.

          free market (when used by politicians and corporate big wigs) is marketing propaganda to make the plebes feel good while their jobs get shipped overseas. the subsidies and special exemptions are all still there, exactly where the politicians have been paid to put them. all countries play the same game.

          but free market capitalist theory is a different story. just like real communism, real free markets are a fantasy. in both cases that is probably a good thing.

      • Are the big 3 not fighting back?

        I don’t care a wit about Emirates and who has jobs with them, I do care about people with jobs in the US.

        And yes Boeing would still make airplanes even if Emirates et all bought none, Mr. M would get less money, so what?

    • “but you don’t care that the airline gets its new aircraft on US taxpayer-funded aircraft loans”

      And you care so much about this issue that you’ve obviously filed a protest to the US government, and left a paper trail of protests, whenever an Ex-Im-funded Boeing aircraft has been handed over to Singapore Airlines, ANA, Japan Airlines, SAS, Norwegian, Qantas etc. Could you please provide a link to your “protesting”? 😉

      “hires Third World young girls to fly”

      You mean, from “third world countries” such as the UK, Germany and France?

      http://www.emiratesgroupcareers.com/english/careers_overview/cabin_crew/default.aspx

      ” but doesn’t offer benefits, job protections (not unions, just basic job protections)”

      No benefits?

      http://become-cabincrew.com/airlines/emirates.html

      http://www.thenational.ae/business/aviation/pension-style-scheme-earns-emirates-praise

      NB: As for unions, I’ guess that you’ve been on the barricades protesting the union-busting that’s been going on at Boeing for quite some time, and that you ain’t ever going to fly on a 787 since major fuselage sections and final assembly of a large fraction of 787s are made and assembled in Charleston, South Carolina. 😉

      BTW, isn’t it ridiculous how that “right-to-work” moniker is used down in the South, and elsewhere in GOP territory? Who the heck do they think they’re fooling? The moniker “right to work” is promoted as a freedom while it actually discourages unions who can bargain with employers for more rights and privileges than workers as individuals can never attain — which is fine. of course, with the GOP and the Koch brothers and other wealthy individuals the GOP is beholden to.

      “and is so entwined with its government of origin that all the aircraft handling services, the catering, cleaning, airport and landing fees, and, yes, the local FAA-equivalent are all the same entity as the airline itself.”

      Here’s a link to Emirates’ position on Airlines and subsidy. Their position don’t seem to square well with your position – interesting! 😉

      http://www.emirates.com/english/images/Airlines%20and%20subsidy%20-%20our%20position%20new_tcm233-845771.pdf

      • I would read a fully independent assessment.

        I won’t read Emirate PR anymore than I would Boeing mgt

        I do think you have some good points.

    • If you can only compete on an artificially leveled playing field… just don’t.
      ( … The 787 project presented to the world that the FAA is an unloved Boeing division.)

      Most politics ( and thus negotiated stuff with other nations ) is (industry) lobbyist driven in the US ( and that same industry seems to hate “real” competition with a vengeance).
      More so than in most other countries around the world.

      Having lobbying powers does not necessarily make for intelligent or just sensible objectives.

  3. I concur that the Middle Eastern carriers are re-defining the business model of this industry, this is interesting to watch as I see in that little threat to the average Joe. Now for sure there will be some loosers…

    I still don’t understand why the USA let Pan Am and TWA go under!

    • why the U.S Gov let Pan Am go? Lockerbie? No bomb.The cargo door opened at the mid span latch ripping it off owing to a live/shorted wire feed from the S2 switch as shown on the radar scope from Gt Dunn as the A.A.I.B report states on page 15 the right hand nose wheel door fell of first but the problem with that is the right hand nose wheel door was still on sec 41 in the field in Thundergrath 4.1/2 miles from lockerbie. TWA was the same to as i have seen the radar scope picture.R.I.P to all who passed away.

  4. You can fly from New York to Thailand with the Middle East three in coach receiving three superb meals ice cream and cappuccino on demand, and your own private screen with with in flight entertainment with 1000 movies for the same price on Jet blue from JFK to Charleston SC…. With the bag of blue chips or processed food snack foods.

    Enough said.

    • You have to go through their hub airports in Gulf first.
      They cant compete with US carriers to Canada or Middle South America.
      They cant compete from US to most asian cities in Japan Korea China Phillipines Vietnam. They cant compete for most direct flights to Europe and Med. ( there is one with a stopover in Milan). Australia South Pacific are out.
      North and West Africa are mostly out. There is only a small portion of global traffic where they have an advatage, compared to US carriers

  5. Someone more insightful than myself:

    Earlier today at the Chamber of Commerce 14th Annual Aviation Summit, the CEO of Etihad, James Hogan, addressed the audience and had the opportunity to directly address the evidence of subsidies his airline has received from the UAE government. INSTEAD, he only indirectly addressed the subsidy facts and offered no rebuttal. He argued that as a nationally owned airline, their “shareholder” [Abu Dhabi] had a right to equity investment. However, he did not address the fact that since 2004, Etihad has received more than $6.6 billion in interest-free government “loans” with no repayment obligation and $6.3 billion in UAE governmefnt capital injections, both of which are defined as subsidies by the World Trade Organization (WTO).
    In fact, when directly asked if he thought Etihad was in compliance with Open Skies agreements, he again deflected and said that he felt it that was something for governments to figure out.

    The facts are these: Etihad would not be commercially viable without the continued subsidy by the United Arab Emirates government to keep the airline going. Yet, after billions in continued operating losses, Etihad continues to expand, dumping available seat miles on to routes that would not be viable without the backing of its government. As such, Etihad is distorting the market, threatening U.S. jobs, and directly violating Open Skies.

    • Technically there is no single UAE government.
      Etihad is backed by oil rich Abu Dhabi.
      Emirates is backed by not oil rich Dubai

  6. I contend there is a difference between getting an entity back on its feet when its to the benefit of the country

    US auto Industry comes to mind. Airlines no different.

    To deliberately target an industry and then continue massive subsidies forever? Its now part of the corporate plan, not to get started.

    The US has taxpayers, not barrels of oil .

    A barrel of oil causes not pain, a citizen that is denied medical because all the money goes to corporations to pay mgt and shareholders?

    It becomes a race to the bottom and its own prime mortgage debacle in the making.

    • massive indefinite subsidies? you mean like the american corn farmers? or the american oil companies? or boeing? or the car companies (punitive tariffs on imported pickups)

      _every_ country plays this game with what they perceive to be their economic golden cow.

      • Dont forget the US dairy industry, the US meat industry to various extents, but especially the lamb/sheepmeat.
        Then there is US Shipping

  7. The US govt may or may not bave “negotiated in the name of free enterprise” on behalf of its carriers but there is no way they were acting altruistically. The airline business is a scale business and prior to the formation of the EU the USA domestic market absolutely dominated, by a country mile. So it isn’t surprising that the ‘Open Skies’ movement really got going in the years before it became obvious the EEC was morphing into an EU with negotiating weight to match. The USA also ensured through control of foreign ownership of airlines operating in the USA that the ‘open’ they were promoting was only insofar as it suited their own airlines. All the time resticting the potential scale of any competitor. But, unfortunately for them the LCCs and ME4 (I’d include Turkish) have found that scale by a) a different model, and b) the perfect location, and undertstandably the now US3 are worried.

    As for the everyhwere argument, I simply don’t get it. There was and is finite slot capacity at any airport and, in the smaller countries, across the entire country. So it would take a large number of people living in Amsterdam to want to fly to Seattle before a Dutch airline would consider using an existing slot for this service and until this happened could offer only a flight to an existing US destination (probably NYC) with the passengers left to their own devices from there, or do a code share, which benefits the US airline at least as much as eg KLM. Meanwhile a US major, operating hub and spoke, could offer flights from a vast number of major and minor airports to Amsterdam. Basically doing to KLM what the ME4 are today beginning to replicate from the ME. The key points were cabotage and Fifth Freedom and understandable US attempts to tilt this in their favour before the European Single Market could change the dynamics. And then all of this became a side show within a decade as the real scale threats emerged as new business models (LCCs and the ME Global – as opposed to domestic – hubs).

    Should the WTO investigate whether there is any illegal (under WTO terms) aid to the ME3? Quite possibly. Should the US3 get off their high horse? Yes.

    Back to post WWII and why US airlines were strong. While it is true that really only the USA had the capacity to develop/build transports during WWII, there were so many surplus C47s around afterward that any number of countries could have had significant transport capacity at the time without any need for US manufacturing. The USA did try to retain dominance in that manufacturing though when De Havilland built the Comet as the US government threatened the UK government over its plans to sell the aircraft to countries the USA didn’t want it sold to. The UK government decided that, although it didn’t want to upset the USA, it was vital to go ahead as they needed to repay huge war debts. Square windows soon intervened and the dispute passed.

  8. An open letter to the US big 3.

    Start treating your customers as the most important people in your operation. Invest in your product and continue investing.
    Risk big or go home.
    Stop colluding with each other as that is a race to the bottom. Treat your rivals as your enemy, not your customers.
    Switch from bullying to embracing.
    The unions have you by the balls and you need to renegotiate contracts.
    Stop blaming outsiders when you know that the answers lie at home.

    • Sorry, Layman, but the 20th century issues you site don’t address the issue. The competition, the ME3 in particular, don’t have to pay their bills. They kite checks, and the gov’t, their sole shareholder, pays the tab.
      The US 3 have invested more this decade, i.e. the 21st century, in customer-focused refurbishing, new a/c, labor harmony, and expanded networks. For the first time since the late ’90’s, there is profit in airlines and airline stocks. But it won’t last if we allow our US business to face foreign gov’t’s as ‘equals.’

      • ” The competition, the ME3 in particular, don’t have to pay their bills. They kite checks, and the gov’t, their sole shareholder, pays the tab.”

        As Carl Sagan used to say, extraordinary claims require extraordinary evidence. You offer no evidence yourselfin order to back up your extraordinary claims — that the ME3 “don’t have to pay their bills” — while the claims put forth by “Americans for Fair skies”** is highly questionable at best and offers little in the way of proof. Pretty embarrassing stuff, really, that the US3 and “Fairskies” don’t seem to be aware of the fact that according to WTO, investment in infrastructure (i.e. roads, airports, rail and ports, etc.) is not regarded as a subsidy if a government is not practicing preferential purchasing, expressly favouring domestic over foreign suppliers of similar-quality goods (e.g. by paying domestic suppliers higher prices or offering special financing arrangements etc.) — or not something you’d easily accuse the governments of Qatar and UAE to be doing. For example, there’s no equivalent to the Jones Act* in the UAE.

        * http://en.wikipedia.org/wiki/Merchant_Marine_Act_of_1920

        ** http://fairskies.org/

        So, with all due respect; as for airline industry subsidies in general, you don’t seem to be able to grasp the principle that according to WTO, low or no taxation is not a subsidy if it’s across the board; that no single industry or a particular group of people are granted targeted and specific subsidies that are not available to other players in that country’s tax system. What seems to be quite obvious, therefore, is that the aviation industry is massively subsidised in those areas of the world where other forms of transportation is not tax-exempted. We’re talking about an industry where there is no tax on aviation fuel, no value added tax (VAT) on air travel and where duty-free concessions provide an additional subsidy.

        http://www.theguardian.com/environment/blog/2013/feb/08/fossil-fuel-subsidies-tax-breaks

          • Sorry, but I don’t really know what that was supposed to mean. No, I’m not a muslim. I don’t reside in the UAE, or any other Arab country for that matter; nor am I a shareholder/stakeholder in any of the ME3 airlines, or any other airline for that matter.

            I do note, though, that you’re refusing to present corroborating evidence in order to support your claim that the ME3 supposedly “don’t have to pay their bills”.

  9. USA to the World: “We want to fly everywhere. Period.”

    .. …

    Let me repeat:

    USA to the World: “We want to fly everywhere. Period.”

    reality sucks..

  10. By the way, the US3 have anti trust immunity deals with counterparts in the EU3 (IAG, LH group and AF/KLM) which mean they revenue(/profit) share on every flight that goes from Europe to a US gateway and vv. 😉

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