- REUTERS/Clodagh Kilcoyne
- American, Delta, and United Airlines have long accused Emirates, Etihad, and Qatar Airways of receiving $50 billion in government subsidies.
- Delta CEO Ed Bastian told Business Insider that the three Middle Eastern carriers cannot be treated as a monolith.
- All three Middle Eastern carriers have differing business models and are dealing with different challenges.
The on-going feud between America’s three major legacy airlines and their three Middle Eastern rivals has been one of biggest stories in aviation over the past few years.
From the beginning, American, Delta, and United (US3) have accused Emirates, Etihad, and Qatar Airways (ME3) of using $50 billion worth of unfair subsidies to squeeze competition out of markets by lowering prices to unsustainably low levels.
The US3 believes these alleged subsidies are in violation of the OpenSkies agreement that governs air travel between the US and the United Arab Emirates and Qatar.
The Middle Eastern carriers have denied these allegations.
But, in recent months, political instability; failed investments; and a depressed oil economy have forced the Middle Eastern carriers to show more discipline when it comes to spending money.
For instance, Emirates cut the number of flights to the US in the face of reduced demand while Etihad has been forced to shake up its entire senior management team after losing billions of dollars due to poor performing investments.
In other words, these Middle Eastern carriers are making moves characteristic of profit-minded businesses.
But that’s not enough to convince one of their toughest critics, Delta Air Lines CEO Ed Bastian.
Even though Bastian said he doesn’t believe they are profit-minded enterprises, the Delta CEO is quick to note that the Emirates, Etihad, and Qatar Airways are anything but a monolith.
“I’m not sure they’re all the same,” Bastian told Business Insider in a recent interview. “I think there are three different business models between the three. We have to be careful we don’t to group them together.”
That’s certainly the case. Even though the ME3 are often presented as a unified front, they are anything but. Emirates and Etihad are neighbors separated by less than an hour’s drive, but they are rivals fighting to be the main airline in the United Arab Emirates. And while both seem to get along with the Qatar Airways, political strife between the UAE and Qatar prevent Emirates and Etihad from having a closer relationship with the airline.
Etihad’s investments have failed
“Etihad is in a very difficult spot,” Bastian said. “Their investments in Air Berlin, Alitalia, and a few others have turned out to be dismal failures.”
Alitalia declared bankruptcy in May after years of financial losses but is expected to survive in some form. Air Berlin followed Alitalia into bankruptcy in August with its assets sold to off to Lufthansa and others.
In mid-2017, Etihad announced losses totaling $1.87 billion in 2016. Much of which was attributed to its investments in two ailing European carriers.
According to Bastian, of the 75 largest airlines in the world, Air Berlin and Alitalia are the two worst performers financially.
“I think they are regrouping and reassessing,” Bastian added.
This month, Tony Douglas joined Etihad Aviation Group as its CEO after the company’s previous chief executive, James Hogan, left last May.
Emirates expansion doesn’t make economic sense
“Emirates just purchased and acquired their 100th Airbus A380 and they are building an airport in Dubai that’s four-time or five times the size of Chicago O’Hare,” Bastian said incredulously.
“At some point, the economics just don’t make sense and they’ll need to evaluate for themselves how much growth they can add through Dubai to build the world’s super-connector airport.”
In addition, Bastian questioned the economic viability of Emirates’ massive fleet of Airbus superjumbos.
“The A380 has, I’ll be honest with you, not been a wildly successful airplane given that (Emirates) is the only operator,” the Delta CEO said. “Most operators I’ve talked to about the A380 are not thrilled with the performance given the cost.”
Qatar Airways is just a government agency
“And Qatar Airways is just a government agency that bleeds money,” Bastian told us. “If you look at their financial results, they weren’t the worst performing airline in the world, Alitalia and Air Berlin were worse than them. Qatar was third.”
According to Bastian, the only reason Qatar Airways avoided finding themselves at atop the list of the worst financial performers was due to subsidies like cost-free ownership of duty-free licenses and the hotel franchises in Qatar.
“It’s a ruse,” he added.
Bastian also pointed out that Qatar Airways is going around buying up equity stakes in foreign airlines while suffering through a costly blockade put in place by its neighbors in the Persian Gulf.
“Now Qatar is buying Cathay Pacific, but where is that money coming from?” Bastian questioned. “It’s coming from their government.”
Delta believes there is a resolution to the conflict coming
“I can tell you everyone we’ve talked to in Washington is concerned,” Bastin said. “We’ve had 300 members of Congress who have written in and asked for this matter to be formally investigated on a bipartisan basis.”
“To get 300 members of Congress to agree to anything tells you the importance of this matter to our people,” he added. “I think a resolution will come at some point.”
However, Bastian noted that Delta can’t simply depend on the US Government to take on the ME3.
“We can’t put our competition solely in the hands of Washington, we have to compete in the marketplace,” the Delta CEO said. “That’s why we are continuing to invest in our international fleet with the new Airbus A350s while working hard with our partners to invest and to improve the quality of service together.”
In addition, Bastian noted his airline’s joint ventures with Air France-KLM in Europe and Korean Air in Asia as major pieces in Delta’s strategy to compete on the global stage.
“There are many components to this strategy far and above this battle in Washington,” Bastian told us.