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Global

With U.A.E. & Qatar Open Skies Resolved, What Next?

By Michael B. Baker / 24 May 2018 / Contact Reporter
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After the U.S. and United Arab Emirates earlier this month reached an accord on a years-long Open Skies dispute, both sides were quick to claim victory. Partnership for Open & Fair Skies–the coalition that includes the three legacy U.S. carriers, plus airline employee organizations–called it "a win for American jobs" via campaign manager Scott Reed. U.S. Airlines for Open Skies, which disagreed that Middle Eastern carriers had violated the agreements, called it a "thoughtful approach" that "will allow all sectors of commercial aviation to grow stronger than ever." U.S. Airlines for Open Skies includes JetBlue and Hawaiian Airlines.

The resolution was similar to one the U.S. reached with Qatar this year: Both Emirates and Etihad agreed to provide more transparency in financial reporting and confirmed they have no plans to add additional fifth-freedom flights to the U.S. In Etihad and Emirates' case, that means flights between the U.S. and a country other than the U.A.E. So, what does that mean for the industry?

"Not as much change as people might think," said ICF VP and aviation group leader Samuel Engel. "Mostly, the economics of those airlines have done more to resolve the situation than any trade negotiations or diplomatic negotiations."

Well in advance of the resolution, the Middle Eastern carriers already had slowed growth to the U.S., and they likely had no interest in adding further fifth-freedom service to the U.S. regardless. Further, the agreement is an understanding that such service will not be added, but it stops short of officially freezing such service, according to reports, meaning Middle Eastern carriers technically still could add them if they so desire.

For Emirates, it otherwise has been business as usual, Engel said, with annual growth slowing but still continuing. Etihad has been undergoing a more significant shift. From its peak activity in 2016, it has cut back on capacity by about 4 percent, but that has included dropping 26 markets. Etihad mostly was branching out to new markets, while Emirates was adding markets while also adding capacity to existing markets, he said. "If you do that too much, you run the risk that what you're really doing is planting flags on the map for branding purposes rather than economics," Engel said. "It suggests they're taking a hard look at genuine rationalization."

Etihad also has pulled back on its strategy of building a network through investments in airlines around the world, particularly after one such investment, Airberlin, went belly up last year and while another, Alitalia, is trying to emerge from bankruptcy protection.

Qatar Airways, meanwhile, sustained a substantial financial loss last year in the face of an ongoing diplomatic dispute in which it had to end service to U.A.E., Saudi Arabia, Bahrain and Egypt. That has cut its ability to depend on the flow of labor to those countries as business, which "is the backbone of all of these airlines," Engel said.

Ultimately, the bigger impact could be less on the Middle Eastern carriers and more about what the U.S. carriers now feel empowered to do. In a CNBC interview after the decision, CEO Ed Bastian, for example, said Delta now might go into markets "where we have been run out," such as the Middle East, India and parts of Southeast Asia; on May 24, Delta made good on that prediction by announcing it will return to India for the first time in about a decade. 


Updated May 24, 4:55 p.m. Eastern: BTN updated this story to reflect Delta's announcement that it would return to India.

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