Clearly none of the Big Three U.S. airlines care much for the supposed government subsidization of their new-found Persian Gulf rivals, Etihad, Qatar Airways, and Emirates Airline. But of the three – American, Delta and United – Delta obviously stands apart as the most outraged about having to compete against the governments Abu Dhabi, Qatar and the U.A.E, in addition to the airlines that call those Gulf States home.
It’s understandable. Nobody likes playing against someone who not only is playing with House money but also is secure in the fact that the House has stacked the deck in their favor.
What’s not understandable is why Delta, more than either American or United, has taken the lead in criticizing the Gulf carriers? And why is Delta running the point in the expensive lobbying effort by the Big Three carriers to gin up Congressional, Obama Administration and public outrage against to those still-not-definitively-proven subsidy-takers from the Middle East?
Is Delta’s long-term strategic plan more endangered by the remarkable growth of the Persia Gulf carriers over the last decade than the strategic plans of United and American? That does not appear to be the case. All three are facing tougher competitive circumstances thanks to the growth of the Gulf carriers since 2000.
All three Gulf airlines have been successful in using their fortunate geographic locations to build powerful hubs connecting international travelers from Europe and North America to destinations in Asia and Oceana (and vice versa). That may be surprising to you, but only because most westerners haven’t yet adapted their thinking about how international air travel flows fastest and most efficiently. But in truth connecting via one of the Persian Gulf hubs shaves a couple of hours, and lots of costs off very long international trips that require at least one stop.
And only the Persian Gulf carriers offer that short cut. U.S. and some European carriers could do so thanks to very liberal aviation deals in place with the Gulf states, but none are operationally, financially or strategically structured to set up and operate such hubs, even though the Persian Gulf region if perfectly located for very long haul travel connections. Thus, each of the Big Three would seem to be equally disadvantaged vs. the Persian Gulf carriers. Still, if Etihad, Qatar Airways and Emirates have been, in fact, receiving government subsidies that are supposed be banned by international aviation agreements, their ability to exploit their geographic advantage has been unfairly boosted. However, there’s no obvious reason why Delta should be more outraged by it than either American or United.
Maybe it’s because Delta, more than the other two big U.S. carriers, is standing on principal against the notion of government subsidies. But such a principled stand would be, itself, curious, given the following:
- Delta dumped its responsibility for paying employee pensions underfunded by $3 billion on the Pension Benefits Guarantee Corporation, a government entity, during its $2007 Chapter 11 bankruptcy proceedings. At the time the PBGC said it expected to have to pay out about $920 million to Delta retirees – money that Delta legally avoided having to pay as a result of its bankruptcy filing. While that’s all quite legal, many argue that, in principle, the U.S. government is subsidizing Delta’s old pension obligations
- Delta bought a Pennsylvania oil refinery in 2012 for $150 million – with the help of a $30 million subsidy from that state’s government. Pennsylvania, it seems, was desperate to keep that about-to-be-shut-down refinery open and its workers employed. Delta’s reasoning for buying the plant on those low-price terms was that owning a refinery would serve as a partial hedge against high oil prices, thereby potentially lowering the airline’s annual fuel costs.
- Delta has lobbied relentlessly to protect its rights to operate a hub on foreign soil – Tokyo’s Narita Airport – and to pick up Japan-originating passengers and fly them to other destinations in Europe. That extremely rare right came to Delta as the spoils of war. Northwest and Pan Am effectively were given those remarkably valuable and unprecedented rights by Douglas MacArthur when he served as military governor of Japan after World War II. Pan Am’s Japanese service rights went to United when it bought Pan Am’ Pacific Division 30 years ago. Delta got Northwest’s Japanese rights in its 2008 merger with Northwest. Other U.S. carriers now can fly to Japan, and more recently were given rights to pick up locally-originating traffic in Japan and carry those passengers to any country other than the United States, but they are six-decades behind the curve when it comes to building a connecting hub in already heavily-served Japan and trying to build such hubs now would be enormously expensive and risky. Thus, they serve Japan only as a destination. As a pracitical matter than cannot operate hubs there while Delta and United operate very profitable Asian connecting hubs at Tokyo’s Narita Airport.
- Delta last year spent $450 million to buy a stake in China Eastern Airlines, the most state-subsidized of China’s airlines. That means that Delta now benefits, if indirectly, from Chinese government subsidies.
- Delta has a partnership arrangement with Saudia, which is owned and subsidized by the Saudi Arabian government.
- Delta continues to share revenue with Etihad from certain trans-Atlantic routes via Delta’s joint venture alliance with Italy’s Alitalia, which has a joint venture partnership with Etihad.
- Delta argues that its opposition to the Gulf carriers is driven by its concern for U.S. aviation industry jobs that it says are threatened by the Gulf carriers’ subsidy-powered growth, even as the carrier buys mostly airplanes made in Europe by Airbus (which until recently had a long history of having received subsidies from the governments of France, Germany, Spain and the United Kingdom) and, most recently, jets made in Canada by Bombardier - which last fall avoided financial collapse thanks to a $1.3 billion “investment” made in it by the provincial government of Quebec (on top of $1.1 billion in subsidies over the years from the federal Canadian government).
So the quest for understanding of why Delta is so strenuously opposed to competing against Etihad, Qatar Airways, and Emirates Airline will continue. We’ll get back to you once we uncover a believable reason.
