The nastiest feud in the airline industry isn't over just yet

The nastiest feud in the airline industry isn't over just yet

Etihad Airways A380 JFK Flags


An Etihad Airbus A380.


Last week, the governments of the United States and the United Arab Emirates agreed to settle their differences on air transport between the two countries. This agreement, along with a similar deal the Trump administration made with the Qatari government in January, looks to have effectively ended the long-running dispute between America's three largest airlines and their rivals from the Persian Gulf.

News of the deal has supporters of US3 claiming victory. The Partnership for Open and Fair Skies, the organization tasked with representing America's big three in the matter went as far as running full-page ads congratulating the Trump administration on the victory in the New York Times and New York Post.

"This agreement is a win for American jobs and shows that President Trump stands up to countries that violate our trade agreements," the Partnership's campaign manager, Scott Reed said in a statement shortly after news of the agreement surfaced.

The CEOs of American, Delta, and United (US3) all issued similar statements of effusive praise.


For years, the 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 claims such behavior is in violation of the Open Skies agreements that govern air travel between the US and the two Middle Eastern nations. The ME3 has consistently denied these allegations.

Delta Airbus A350


A Delta Air Lines Airbus A350-900.

The US3's anger over the arrival of the ME3 and their adulation following the agreement is understandable. America's airlines have only recently recovered from the devastating effects of 9/11 and the financial crisis through a combination of shrewd management, a lot of belt-tightening, and a fortuitous fall in fuel prices. Even though American, Delta, and United are three of the world's most profitable airlines, their money-saving strategies have also been pilloried by the press and their passengers.

So when they see three fast-growing newcomers arrive on the scene sporting fleets of brand new planes and splashing their cash, it can be hard to stomach.

And while the agreement does effectively quell the US3's threat to reexamine the terms of the US-UAE Open Skies agreement the question must be asked- Did it actually change anything?

Not really.


No real winners here

The US3 and its supporters claimed victory on the getting the UAE agree to greater financial transparency and to concede that its subsidies of state-owned Etihad and Emirates are harmful to competition. The US3 also claim to have gotten Emirates and Etihad to freeze the number of its fifth freedom flights or flights between the US and the UAE with a stopover in a third country.

Business Insider was able to obtain the text of the agreement called a "record of discussion" and it quickly became evident that hardly any of US3's claimed "victories" reflected reality.

Airbus A380 Emirates 100th plane

REUTERS/Fabian Bimmer

The business class lounge on board an Emirates Airbus A380.

First, the UAE's admission that subsidies are harmful to competition is not clear-cut. Even though both delegations agreed that "government support in whatever form may adversely impact competition," they also agreed that such support "is neither uncommon nor necessarily problematic in the global aviation sector."

The wording here is incredibly loose and doesn't compel any real action on the part of the Emiratis.

And then there is the issue of the fifth freedom flights. The US3's representatives along with White House Trade advisor Peter Navarro trumpeted their decisive win getting the UAE government to freeze the number of fifth freedom flights operated by its airlines.


Well, the UAE government doesn't seem to agree.

"All the terms and provisions of the Air Transport Agreement including fifth freedom rights remain fully in place, with UAE and US airlines free to continue to add and adjust routes and services," Yousef Al Otaiba, UAE Ambassador to the US, said in a statement.

When contacted by Business Insider, Emirates Airline echoed the UAE government's stance on the matter.

In fact, the fifth freedom part of the agreement isn't even in the record of discussion. It's actually the subject of a side letter sent by the UAE government to US assistant secretary of state Manisha Singh. The UAE does not agree to freeze the number of fifth freedom flights its airlines operate. Instead, the letter simply states that the country's airlines have notified the UAE government that it has no current plans to launch more of fifth freedom routes.

Eithad Boeing 787


Fifth freedom flights is a major point of contention because they threaten the US3's lucrative routes to Europe, Asia, and South America.


But that's more a factor of economics than politics. Etihad has never operated fifth freedom routes and with the Abu Dhabi-based airline cutting routes left and right, it doesn't seem like they were going to start.

On the other hand, Emirates operates two fifth freedoms - New York-Milan and Newark-Athens. They are also the only two fifth freedoms operated by any of the ME3 airlines. These also happen to be the only two routes where the US3 and the ME3 compete directly against one another.

Here, again, economics seems to be the name of the game. Emirates Airline president Sir Tim Clark has been very vocal about the deleterious effects the Trump administration's immigration policies have had on passenger traffic to the US. Over the past year, the airline has reduced the number of flights to major US cities like Boston, Los Angeles, Orlando, and Seattle.

The US did score some minor wins

With that said, the negotiations did bear some fruit.

Both delegations agreed to release audited annual financial statements using international accounting standards. The text also noted that the US3 and Emirates already release such statements every year. So the real movement here is on the part of Etihad.


Emirates Boeing 777-300 ER


And with Etihad in flux, the agreement stipulates that it won't have to issue these statements until its on-going restructuring is complete.

In addition, the delegations agreed to charge all airlines market rate for use of airports and facilities. This means the UAE airlines will probably have to pay a bit more to use their own airports.

However, one of the most important points and arguably the most overlooked point in all of this is the two governments' agreement to reaffirm its stance in counter-terrorism activities. The discussion actually opened with the two delegations agreeing to work towards securing regional stability and fighting terrorism.