Should Etihad CEO James Hogan use a food taster in America?

Etihad has joined the fray in Washington DC over alleged unfair subsidies to the major and sovereign owned Middle East airlines caused by a campaign by the major US carriers to roll back an Open Skies agreement and restrict their success in America.

But so far no-one on either side of the debate has mentioned that if the US carriers were to stampede Congress into endorsing such action, it could rapidly escalate into an unpredictable retreat from free trade principles and agreements in general.

The consequences of this could be much more harmful to the trade interests of the US, Australia, and many other nations,  than anything which may be at stake for American Airlines or Delta, whose managements seem to be in a competition to ramp up the hysterical rhetoric they are using around Capitol Hill.

It isn’t clear for example how the US critics of the success of the big three Middle East carriers, Emirates, Etihad and Qatar Airways,  would quarantine action against them from spreading to US trade relations with the Middle East, or cause in principle application to  the European and Asian markets where the American flag carriers are similarly hopelessly uncompetitive against the airlines of other countries.

A comparable malaise for the US carriers applies in varying degrees to the Australia market, which is an Open Skies contest in which Qantas has been the winner for decades regardless of all the unfairness the flying kangaroo has traditionally invoked ranging from geography to militant unions, exchange rates, unappreciative Australian investors and finance houses,  and ownership restrictions.

In his address to the US Chamber of Commerce Foundation’s 14th Annual Aviation Summit Etihad president and CEO, James Hogan made the point, if one could summarise, that America’s major carriers don’t even try to compete in the market for non-stop flights between their hub cities and those of Abu Dhabi, Dubai and Doha in the Middle East.

It is a very important point. If this is a phony war, what is the real target?

Some US observers have suggested that target really is the major European carriers, whose share of the North Atlantic market is something the Americans would like to see redistributed even more in their favour to overcome a lack of competitive success against those carriers, who are their ostensible allies in the attack on the Arabs.

This is of course, a fairly nasty interpretation of what may really be going on.  Who would have thought that being rabid about Arabs daring to invest in their own national carriers might be a cover for pushing Air France KLM or Lufthansa further down the slippery slope they are already on because low cost carriers in Europe are bleeding them dry, slowly, but surely?

If the US is persuaded to close Open Skies for Arabs, would such a precedent for re-regulation enable a wholesale shutting down of similar agreements elsewhere, especially where Middle East money is funding other non ME carriers that undermine American carriers with newer fleets and better product?

This is where Mr Hogan at Etihad, and his counterpart Mr Akbar al-Baker at Qatar, may be persons of real concern for the US carriers because they are both pursuing a strategy of buying into the European competitors of US airlines.

Qatar is taking a minority stage in IAG, which owns British Airways and Iberia, and Etihad has substantial investments in airBerlin and Alitalia (with their vital trans Atlantic access to the US-EU market) and minority stakes in AerLingus and even Jet Airways and Virgin Australia, with the latter two in a position to compete with American carriers on the India and South Pacific routes.

European law makes such investments by Qatar or Etihad comparatively straightforward compared to the lock-the-gate mentality when it comes to foreign investment in US airlines.

There is not an atom of doubt that if Qatar or Etihad could buy similar leverage and participation in US carriers they would do so.  Their pursuit of global airline investment ambitions via Europe, India or even Australia are a long term threat to American carriers ever regaining the dominance they used to have in world air transport.

The case the US carriers could make to their law makers is that unless the rich Arabs are stopped, American supremacy in global aviation will never be restored, which ignores the reality of Asia’s rapid ascendancy in air transport which in turn is something the Middle East carriers can never realistically hope to contain either.

The possibility that the US carriers will have their way with Congress, and win a war that will deeply wound the general American economy if it all escalates out of control, is a very real one.

Trying to force the future direction of global trade reform through the prism of what best suits a collection of uncompetitive American carriers could turn into another Middle East calamity that might also take decades to correct.

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