The U.S. Travel Association (USTA) is a professional, nonprofit organization that represents the many businesses comprising the $3.3 trillion U.S. travel industry. The group has long opposed the so-called Big Three U.S. carriers in their dispute with the three major Persian Gulf carriers: Qatar Airways, Emirates and Etihad.
In a statement issued Thursday following the announcement that Qatar Airways wants to acquire a 10% stake in American Airlines Group Inc. (NASDAQ: AAL), the USTA urged American, Delta Air Lines Co. (NYSE: DAL),and United Continental Holdings Inc. (NYSE: UAL) to “get past the griping and get back to growing travel and the U.S. jobs that come with it.”
The dispute between the Big Three and the Gulf Three came to a head in 2015 when the U.S. carriers released a white paper charging the Gulf carriers with violations of the Open Skies agreement between the United States and the United Arab Emirates (UAE), home to both Emirates and Etihad, and the provisional Open Skies agreement with Qatar. The UAE agreement has been in force since 1999, and the provisional agreement with Qatar was agreed to in 2001.
Under an Open Skies agreement, foreign carriers may operate flights to and from the United States with few limitations from their home countries. The Gulf carriers, according to the Big Three, may operate as if they were European Union carriers and, what really gripes the U.S. carriers, are free to aggregate passengers from other points in Asia and fly them to the United States as if the flights originated in the either Qatar or the UAE.
The U.S. carriers’ wider claim is that government subsidies to the Gulf carriers enables the foreign carriers to charge lower fares and compete unfairly with the legacy carriers. The U.S. airlines have not yet lodged a formal complaint with the U.S. Department of Transportation, and the travel association wants the carriers to stop spending millions of dollars on lobbying and either file a complaint or shut up. In a press release last week, the USTA commented on the dispute:
Had the U.S. government enforced a freeze on Gulf carrier flights requested by the Big Three in 2015, it would have resulted in the loss of 2,650 American jobs in 2015 and 4,400 jobs in 2016. U.S. Travel and its members have been actively opposing the Big Three’s campaign to unravel Open Skies since early 2015. … [I]n 2016:
- Gulf carrier flights brought nearly 1.7 million additional visitors to the U.S.;
- These additional visitors spent nearly $7.8 billion during their trips;
- This spending supported nearly 80,000 additional U.S. jobs
What does all this have to do with Qatar Airways’ intention to acquire as much as 10% of American Airlines? If Qatar Airways is able to pull it off, it almost certainly will get a board seat and a voice in American’s opposition to the Open Skies agreement. The bigger threat would be the possibility of a takeover, however remote that may be. As we noted Thursday, obtaining more than a stake of 4.75% in American requires approval of the company’s board, and acquiring more than 24.9% of a U.S. firm is prohibited by law.
Still, Qatar’s sovereign wealth fund, which owns Qatar Airways, held $335 billion in assets in June of 2016, enough to buy 14 companies the size of American Airlines.
In its Thursday press release the USTA urges the Big Three to consider these points with regard to the Open Skies agreements:
- Gulf carriers compete head-to-head with the U.S. Big Three airlines on exactly two overseas routes.
- The Big Three are earning record profits.
- The U.S. airline industry is hiring at record levels.
- Gulf carriers are cutting U.S. flights because of contracting demand—undercutting Big Three claims that they can afford to flood the aviation marketplace with capacity regardless of market forces.
- Now a U.S. legacy carrier is considering a substantial ownership stake from a foreign airline.
- Major U.S. businesses, including other U.S. airlines, are opposed to the Big Three legacy carriers’ campaign because Open Skies agreements benefit American jobs and economic growth. Employees of those companies deserve a voice in this debate too.
American Airlines stock rose more than 1% on Thursday to close at $48.97 and traded up another 0.1% in Friday’s premarket session, at $49.04 in a 52-week range of $24.85 to $51.95.