Global Airline Issues

For a while now, there have been three major foreign airline carriers that have been using United States subsidies. Since 2004, Qatar Airways, Etihad Airways and Emirates Airlines have been collecting subsidies. It is estimated that the Qatar and United Arab Emirate governments have received over 42 billion dollars in U.S. subsidies.  In 2001, the Open skies agreement was first signed by Qatar, and in 2002 the United Arab Emirates signed as well. The purpose of the Open Skies agreement is to “eliminate government interference in the commercial decisions of air carriers about routes, capacity, and pricing, freeing carriers to provide more affordable, convenient, and efficient air service for consumers" (Laing, 2015). It is seen by the United States that "these subsidies are a clear violation of Open Skies policy, which is based on the principle of fair competition in a marketplace free of government distortion"(Laing, 2015). Essentially, the subsidized supports that they have been receiving are loans from the government that are interest free. Also, this government support has no payback obligations along with, airport fee exemptions, free land, grants, and capital injections. This poses a serious threat to the U.S. airline companies because the Gulf region is definitely taking advantage of the support given. It’s been going on since 2001, and they have accumulated over 42 billion in subsidies. If this keeps up, the United States airlines will face a serious threat competition wise with the foreign airlines. So basically what needs to happen is that the playing field between the two needs to be evened out.

On top of the foreign airlines using U.S. subsidies, they have been getting their aircraft at below market interest rates, which the U.S. carriers are unable to get. Again, this is a huge disadvantage to the U.S. airlines in which they have to pay more money for wide body aircraft. A point that I found very interesting in an article by business wire was that “providing low-cost financing to foreign airlines, for example, the U.S. Export–Import Bank not only saves the state-owned carriers millions on each aircraft, the financing also enables these airlines to purchase state-of-the-art aircraft that are more fuel efficient and attractive to passengers”(Foreign State-Owned Airlines, 2015). The United States airline companies have been trying to upgrade their aircraft to compete with the foreing companies, but at the rates they are getting, it is extremely difficult for them to front the money to upgrade the interiors of their aircraft. There is no doubt that the foreign airlines have aircraft that look way more appealing than the U.S., but that is solely because they are getting them for such a discount. Consumer quality is much better with the Gulf airlines, so they will continue to steal customers from the U.S. airlines if these below market interest rates continue throughout the next few years.

I believe that it is safe to say that it is clearly an uneven playing field between the United States airlines and the Gulf airlines. If the U.S. has to pay top dollar for their aircraft, which limits them in how many alterations they can make for consumer satisfaction, then the Gulf should be held to the same standards. It is a competitive business, and in order to stay in business, they have to satisfy their customers. Now that these foreign airlines are getting Trans-Atlantic routes, they have been stealing business from the U.S. carriers. Nowadays, everything is about quality and price to the customer, and the foreign carriers are getting cheaper and more efficient aircraft. By having more efficient aircraft, they are able to have cheaper ticket prices, which is a huge attention getter with long distance flights. If the U.S wants to stand a chance, something needs to be done about the government subsidies that these foreign carriers are receiving.

Foreign State-Owned Airlines’ $162 Billion in Aircraft Orders Threaten U.S. Airline Industry and its Workers. (2013, November 17). Business Wire. Retrieved from http://www.businesswire.com/news/home/20131117005060/en/Foreign-State-Owned-Airlines’-162-Billion-Aircraft-Orders

Laing, K. (2015, March 12). Airlines: Foreign subsidies are destroying flight competition. The Hill. Retrieved from http://thehill.com/policy/transportation/235543-airlines-foreign-subsidies-destroying-flight-competition