In a week in which Ryanair grabbed headlines when rumours circulated of its plans for services from Stansted and Berlin to New York, Boston and Miami with a lead-in fare of £10, you could be forgiven for not paying proper attention to a slowly simmering story about the level of international air fares.
US carriers American, Delta and United with the support of pilots and cabin crew unions last month submitted a document to the US Departments of State and Transportation claiming that Etihad, Emirates and Qatar were not acting in accordance with the Open Skies agreement because of Gulf governments' subsidies and support. They argue that devices such as interest-free government loans and cheaper access to airports and airport services give them an unfair competitive advantage.
Although the specific contents of the paper are not public it is understood that the carriers are claiming that the three carriers have received $42 billion in state help since 2004.
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For their part, the Gulf carriers deny this is the case. While the US CEOs are pressing that the Open Skies agreement between the US and Middle East carriers be reviewed and renegotiated, both Emirates CEO Tim Clark and Etihad CEO James Hogan are in the States this week and strongly arguing their innocence.
This may be posturing but the underlying message is that US carriers — which have just become profitable after years of enduring heavy losses — are looking squarely at what has happened in Europe where the Middle East carriers have won huge chunks of long-haul air market share because of lower prices.
Leaving aside the issue of whether or not they are being subsidised, there is the undoubted factor of labour costs. Lufthansa this week is suffering huge losses due to more flight cancellations because of a pilots' strike — the 12th over the issue of benefits. The UAE and Qatar do not allow unions — in fact in Qatar a member of staff has to ask permission to marry and females can lose their jobs if they become pregnant.
Middle East carriers may or may not be receiving unfair subsidies. In our global economy European and American airlines are having to contend with the same issue that manufacturers have faced for years, namely that businesses in so-called emerging markets have much lower cost bases so are in a position to offer buyers — including travel buyers — lower prices.
But, as with purchasing clothes or cars, the buyer does have a choice and unit price is only one aspect. There is also what the price delivers — is it the same time (connecting or direct), the same seat and the same service?
Open Skies could potentially be re-negotiated but ultimately buyers — both consumer and business — have to make decisions strategically and price may be only one factor.
Should the US carriers worry about Gulf carriers as much as they are, or does the threat lie elsewhere? This report suggests otherwise.