Gulf carriers delight as Congress rakes US airlines over the coals

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Article Summary
Lawmakers fault lack of competition for plummeting US customer service; could this affect US airlines' campaign for fairer competition with Gulf carriers?

Three Gulf airlines discreetly rejoiced May 2 as Congress lambasted their US rivals at a hearing.

The House Transportation and Infrastructure Committee called the hearing on declining customer service at domestic airlines following a series of well-publicized incidents. These include the violent removal of a paying customer from an overbooked United Airlines flight last month.

Throughout the hearing, House members took turns blaming poor customer service on industry consolidation and dwindling competition. The negative publicity is widely seen as a blow to the Big Three airlines — United, American and Delta — as they lobby the Donald Trump administration to review the open skies agreement with the Gulf airlines, which the US carriers accuse of being unfairly subsidized.

The hearing "should humble the three US major network carriers, but it probably won't," said Kevin Mitchell, the chairman of the Business Travel Coalition, an industry trade organization in favor of international competition. "Their arrogance is born of failed corporate cultures that only increased competition from the Gulf carriers and other airlines can reverse. Not in a million years would the cultures at Etihad Airways, Emirates Airlines or Qatar Airways have allowed such atrocious treatment of a guest like Dr. David Dao aboard United Airlines Flight 3411."

Instead of spending millions of dollars on their campaign against the Gulf airlines, Mitchell told Al-Monitor, the US carriers should spend the money on "improving their cultures, products and services."

Lawmakers did not directly link customer service woes with the Gulf airlines battle, but members of both parties said a lack of competition was to blame for the state of the industry. In the short term, that makes it unlikely that they will rush to defend domestic airlines against rival carriers that by all accounts treat their customers better.

"I do think that some of the customer service issues we've had are because of lack of competition and we've gone too far in monopolizing," committee member Jerrold Nadler, D-N.Y., told Al-Monitor.

While airline industry officials argued that they face intense competition and transparent pricing, one of the witnesses argued that customers often don't actually know what guarantees they're purchasing when they pay for a ticket online.

What happed to Dao "powerfully brought home, once again, that consumers are at the mercy of powerful airlines in an ever-more concentrated industry, facing increasingly less competition, and showing less interest in how their passengers are treated," said William McGee, an aviation consultant at Consumers Union. "We hope we have seen the last of the airline mergers. But in many ways, we have already lost the benefits of competition, and no new scheduled passenger airline has emerged since 2007."

Lawmakers also made clear that they want to see progress on the part of the airlines amid the public outcry, another reason to doubt that they will rush to reopen the open skies agreement.

"I shouldn’t need to remind you that Congress will not hesitate to act, whenever necessary, to ensure your customers are treated with the respect they deserve," Committee Chairman Bill Shuster, R-Pa., told the assembled airline leaders in his opening remarks. "If we don’t see meaningful results that improve customer service, the next time this committee meets to address this issue, I can assure you, you will not like the outcome."

In 2015 alone, the Big Three airlines spent more than $6 million on their Partnership for Open and Fair Skies seeking to curtail Gulf airline subsidies, according to tax filings reviewed by Politico. The United Arab Emirates, meanwhile, has pushed to preserve the existing open skies agreement as part of its $13.5 million-a-year lobbying campaign, while Abu Dhabi-based Etihad even has its own in-house lobbyist.

The three US airlines had hoped to enroll congressional support amid new threats from the Gulf carriers on lucrative trans-Atlantic flights to Europe. When Emirates began service from Athens, Greece, to Newark, New Jersey, in March, their Partnership for Open and Fair Skies campaign got 25 House members from New York and New Jersey to sign on to a letter asking Trump to cancel the route until the subsidy issue is resolved.

At the same time, the US airlines are well-aware of the value of pro-competition arguments. Even as they seek to undercut their Middle Eastern rivals, they've framed the issue as US resistance against foreign government-backed monopolists.

"The subsidies allow the Gulf carriers to operate without concern for turning a profit, unlike US airlines, and therefore focus entirely on stripping market share and driving out competition," the CEOs of the Big Three airlines wrote in a Feb. 1 letter to Secretary of State Rex Tillerson asking him to review enforcement of the open skies agreement. "The subsidy-enabled capacity dumping by the Gulf carriers has nearly eliminated US carrier service to the Middle East and India. If left unchecked, we will continue to see the Gulf carriers expand in the US market, causing further harm to hard-working Americans."

Found in: rex tillerson, donald trump, us middle east policy, gulf states, subsidies, business sector, competition, airlines

Julian Pecquet is Al-Monitor's Washington Editor. He was previously Congressional Correspondent from 2014 through May 2017 and most recently before that headed up The Hill's Global Affairs blog. On Twitter: @JPecquet_ALM, Email: jpecquet@al-monitor.com.

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