IAG Responds to US Carriers Gulf Airlines Subsidy Claim

The group has disputed the evidence and conclusions that unfair subsidies are being provided by the Gulf States to Gulf carriers contained in the White Paper which has been prepared by American Airlines, Delta and United.

International Airlines Group (IAG), the parent company of British Airways, Iberia and Vueling has responded to the US Department of Transportation on Gulf Carrier subsidy claims.

The group has disputed the evidence and conclusions that unfair subsidies are being provided by the Gulf States to Gulf carriers contained in the White Paper which has been prepared by American Airlines, Delta Air Lines and United Airlines.

IAG has stated that the White Paper arguments should be rejected, as the evidence and conclusions are unreliable. The group also states that the arguments should be discarded as a return to international aviation policies that protect airlines from competitors instead of fostering competition.

“Competition is a fact of life for all our businesses; we believe that embracing it offers IAG the greatest opportunities to deliver profitable growth and shareholder value over the long term. This includes markets where IAG competes successfully – i.e. profitably – with all three major Gulf carriers. British Airways has faced direct competition from Emirates for over 25 years,” the response said.

The group argues that it is entirely consistent with the rationale for pursuing Open Skies policies, as set out by the US Department of Transportation (DOT).

“Open Skies agreements have vastly expanded international passenger and cargo flights to and from the United States, promoting increased travel and trade, enhancing productivity, and spurring high- quality job opportunities and economic growth. “

IAG has claimed that the consumer benefits brought to the US travelling public by the Gulf carriers are hard to ignore. Not only do they bring competitive service and prices, they stimulate the market, and introduce levels of customer service “rarely seen in this market.”

“The overall picture today is an overwhelmingly positive one for the travelling public and it is hard to reconcile the arguments made in the White Paper with the overall interests of American (and foreign) consumers,” the report said.

The group has stated the economic benefits of the US Open Skies policy, which have stemmed primarily from the increase passenger and trade flows as a direct result of the Open Skies policy.

On the trade relationship between the US and the UAE, the report highlights that the UAE is now America’s largest export market in the Middle East. US exports and foreign direct investment to the UAE had increased by $21 billion over the space of nine years.

“It can be no coincidence that this astonishing growth in trade is underpinned by the start of direct flights between the two countries in 2004 as a result of the enlightened “Open Skies” policy pursued by the US Government in its bilateral relationship with the UAE,” it said.

In addition to the trade benefits, the increasing amount of orders of Boeing aircraft and engines from the Gulf carriers has directly benefitted the largest single category of US export earnings, and support hundreds and thousands of jobs in the US.

“It would be perverse not to take into account the value of the Gulf carriers to the US economy and US citizens, a value that is made possible by the opening of markets that has been catalysed and (in many cases led) by the efforts of the US Government across the world,” the report said.

IAG’s response also highlights the fault of the White Paper which makes much of the Gulf carrier impacts in relation to passengers travelling indirectly, e.g. between India and the US, as if consumer should be denied this choice.

The Group said that passengers travelling between two points on the globe do not “belong” to any particular airline or group of airlines.

“Airlines must compete to offer passengers what they want. The outdated concept of “ownership” of passenger traffic must be rejected by all governments,” it said.

The Gulf carriers are not protected from competition by their own governments. Competition at the Gulf hubs is fierce. This is the case in Abu Dhabi, Dubai and Doha. In Dubai, well over 100 international airlines compete successfully against Emirates and flydubai. It is one of the most heavily competed international hubs in the world, as well as the largest.

IAG also highlight the state support and practices which benefit both US and EU carriers, including the idea that there are few major carriers in the world that have not previously benefitted from State support in one way or another,  or does not derive benefit from differences in national or local legislative, taxation or other policy regimes.

“In the US, there are many rules that differ from other countries which could be interpreted by other nations and their airlines as “unfair”. These include Chapter 11 reorganisation procedures, which among other things has allowed airline pensions liabilities to be taken of carriers’ books, Fly America, where Government traffic must use US airlines (or their codeshare partners) not foreign airlines, the Department of Defense strategic airlift program, state and local air service development funding support, special state and local tax forgiveness incentive programs, and broadly, federal tax dollar support for research and development in aerospace. US airlines continue to be protected by ownership and control regulations which are more restrictive in the US than in many other countries.”

In conclusion, IAG believes that the aviation industry flourishes best when competition is allowed to flourish, and in short: “To shield US airlines from their competitors would be to grant them the biggest subsidy of all.”