US airlines seek to slow growth of Gulf rivals Emirates, Etihad and Qatar

Qantas and Emirates have formed a joint venture, but the US carriers have not done so with their Gulf counterparts. Photo: Nic Walker

US airlines have accused Emirates, Etihad Airways and Qatar Airways of accepting more than $US40 billion of government subsidies and unfair advantages over the past decade as they seek to prevent the Gulf carriers from reaching anywhere near the 21 per cent market share they enjoy on long-haul flights to and from Australia.

American Airlines, United Airlines and Delta Air Lines have produced a detailed position paper as they lobby the US government to clamp down on the open access the Gulf carriers have to the US market.

Gulf carriers account for only 5.2 per cent of long-haul traffic to and from the US market, but that figure is growing and they are taking market share from the US airlines on flights to destinations such as India and south-east Asia. The Gulf carriers have argued they are doing so in part because they have more attractive product and service offerings than the US airlines.

The their position paper, the US airlines accuse Emirates of accepting $US6.8 billion of subsidies and unfair benefits. Photo: iStock

Unlike in Australia, where Qantas Airways and Emirates are joint-venture partners, as are Virgin Australia Holdings and Etihad, the US carriers have not formed deep alliances with the Gulf carriers. Instead, they are concerned the inroads the Gulf carriers are making into the international market will damage the US domestic network, which relies on domestic-to-international connections to make services viable, particularly to smaller communities.

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The position paper Open skies accuses Emirates of accepting $US6.8 billion of subsidies and unfair benefits, Etihad of $US18 billion and Qatar of $US17.5 billion over the past decade, despite denials from the Gulf carriers as to the scale of any benefits.
It cites evidence from financial accounts and other sources, including The Australian Financial Review's revelation last year that Etihad had received a $US3 billion interest-free loan from the Abu Dhabi government and that the government also covered the costs of the airline's sponsorship of English Premier League team Manchester City.

One-time gain

The position paper also said Etihad's reported $US209 million annual operating profit and $US62 million net profit in 2013 would not have been possible without a one-time $US724 million gain from the sale of its frequent flyer program.

"Although the financial statements do not provide much detail on the transaction, they do show that Etihad sold the program to a newly created related party that is owned 50 per cent by Etihad's wholly owned subsidiary Etihad Airport Services and 50 per cent by Global Loyalty Company, whose ownership is unknown but appears to be related to Etihad," the US airlines stated in their paper.
It added the sale price appeared to be twice as much as other buyers had paid for comparable transactions. Comment was being sought from Etihad on Friday.
In addition to its Virgin alliance, Etihad, run by Australian-born chief executive James Hogan, owns more than 24 per cent of the equity in the Australian carrier.
The US carriers also said the Gulf carriers benefited from discounted service agreements and low airport landing charges, as well as from having a non-unionised labour force.

More access

The position paper comes as Qatar and Etihad are both lobbying the Australian government for more access. Trade and Investment Minister Andrew Robb said last month that giving Qatar enough capacity so that it could fly to Sydney in addition to Melbourne and Perth from its Doha hub could generate $120 million of spending a year by European tourists coming to Australia via Qatar.
Etihad, which is boosting one of its daily Sydney flights to a larger A380 from June, has been pitching for an increase in traffic rights between Australia and the United Arab Emirates. However, Qantas warned a rise in capacity on Middle Eastern routes could threaten the long-term viability of the Middle East as a hub for Australian carriers. Qantas flies to London via Dubai as a result of its partnership with Emirates.