US carriers need to stop whining and start innovating

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With the otherwise praiseworthy Delta CEO Richard Anderson appearing to link the terrorist attacks on September 11, 2001 to the rise of Emirates, Qatar Airways and Etihad (which was founded two years later in 2003), the US airline industry’s rhetoric has hopefully reached a nadir.

When asked about government subsidies and tax arrangements like Chapter 11 bankruptcy allowing airline restructuring on Richard Quest’s eponymous CNN show, Anderson said, “It’s a great irony to have the United Arab Emirates from the Arabian Peninsula talk about that, given the fact that our industry was really shocked by the terrorism of 9/11, which came from terrorists from the Arabian Peninsula, that caused us to go through a massive restructuring.” 

Let’s be clear: after a week where three Muslims were shot in the head, execution-style, in Chapel Hill, North Carolina, to little apparent concern of some media outlets, we should have no compunction in condemning these types of analogies in the strongest of terms.

Nor should Anderson’s multiple “Barack Hussein Obama” style references to the “United Arab Emirates” on the “Arabian peninsula” be overlooked.

But it’s not just about what appears to be disappointingly casual anti-Arab sentiments. 

The United States has pursued bilateral and multilateral Open Skies agreements for over 35 years, giving significant benefits to passengers and to economies on all sides of the agreements.

Over a hundred have been signed since 1992, to the general benefit of the US carriers, US passengers and the US economy. Yet after taking their share of the rewards, the US airlines have been moving to constrain competition on some routes so others may not also benefit, even while they are pleased to profit from new agreements (like the recent US-Mexico deal) where they hold the upper hand.

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Across the Atlantic, the three principal joint venture agreements (Delta-Air France-KLM-Alitalia, United-Lufthansa-Swiss-Austrian-Brussels-Air Canada, American-Finnair-British Airways-Iberia) as well as bilateral agreements like Delta-Virgin Atlantic, quite specifically allow fare collusion, create significant barriers to entry for new carriers and give passengers less choice.

There is no good reason why price ranges quoted by Kayak should suggest JFK-LHR roundtrips (which Google Flights averages as 7 hours) should range from $672-$976 while JFK-LAX roundtrips (which Google Flights averages as 6 hours 30) range from $254 to $314.

Other joint ventures operate, notably across the Pacific and to and from Australasia. Yet all three US carriers have the temerity to object when new airlines — carriers that are organising and domiciling themselves for operational efficiency just as US carriers do — want to service US ports.

They use their influence to argue against Norwegian beginning its Ireland-headquartered low-cost service, at least partly on the basis that workers are subcontracted, even while contracting out a significant proportion of mainline and regional flying to US regional airlines and outsourcing operations at dozens of airports, even including hubs like New York and Denver.

They perpetuate thinly veiled objections about the growth of the Gulf network carriers (perhaps oddly for American, which has bilateral and alliance agreements with Etihad and Qatar Airways) in the post-9/11 corollary to Godwin’s Law.

JFK LAX screenshotWith Emirates announcing its fourth daily JFK-Dubai service (this one via Milan), and the progressive upgrading of Boeing 777-operated services to A380s at other US airports, get ready for more accusations of unfair advantages and capacity dumping — surely not the sort of thing that the three US airlines would ever consider doing to new entrants, of course, and a little more than tinged with hypocrisy given that US airlines receive nearly a billion dollars of tax breaks for jet fuel alone, according to a study by Unite Here.

Delta CEO Anderson’s ill-advised (at best) comments will do him no favors in his ongoing battle against the US Export-Import Bank, a loan guarantor that ensures that overseas customers of US businesses (notably including Boeing) without access to commercial loans can access credit to purchase US goods. Anderson has argued that the Ex-Im Bank gives an unfair advantage to foreign carriers like Emirates, Turkish Airlines and Korean Air, which he considers should have reasonable access to credit markets, allowing them to finance Boeing widebodies that then compete with Delta’s services. (Clearly, there is no love lost between the SkyTeam partners in Atlanta and Seoul.)

If the once-again profitable US major airlines think they are being out-competed by the Gulf carriers then the answer is innovation, not protectionism. It’s a rare passenger that would choose one of the big three US carriers’ flights on the basis of passenger experience over Emirates, Etihad or Qatar.

Perhaps if the carriers worked on becoming airlines of choice, with industry-leading hard product, soft product and services, with loyalty programs that made headlines for expansion rather than cuts, with newsworthy onboard and airport improvements rather than attempts to outdo each other in the race to the #PaxEx bottom, instead of complaining about notional advantages while ignoring their own, they might glean more sympathy.

18 Comments

  1. Brian

    LHR departure taxes and fees on LHR-JFK are over $300.00 which makes JFK-LAX and JFK-LAX much closer in price than first blush.

    • Hi Brian, I price-checked the costs at several points during the year, all of which were actually more disparate than Kayak’s estimates, so let’s talk about specifics.

      For notional midweek returns 7-14 October on BA and AA, JFK-LAX taxes were $53. The JFK-LHR taxes were $237. That’s a difference of $181. And I’ll also point out that the *total* costs for those flights were $1248 for JFK-LHR and $381 for JFK-LAX.

      So, let’s take out the taxes entirely. That’s a return pre-tax fare of $1067 JFK-LHR and $328 JFK-LAX, for flight times that are only slightly different.

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  3. The US airlines forget that while the ME3 focus on channelling people from the biggest chunk of the Earth to all of its corners and America via their ME hubs, those US carriers are mostly focused on shifting passengers within their own country (or continent if we include the Caribbean) with, although significant, but thiner channels across the oceans. And even these channels end on the coasts of Eastern Asia or Western Europe. No US carrier (except Delta) managed to fly to Russia (even to the 13 million Moscow), they do not fly to multitude of other places outside the USA. All US airlines simply don’t provide such vast choice of destinations outside the USA (if we don’t count codesharing, JVs and alliance connections with their partners).

  4. bryan

    If you think that the duration of a flight is the only significant contributor to cost to operate, then you really have no business writing about the airline business.

    And I’m at a loss to explain your statement that ME carriers don’t have access to commercial loans. Of course they do. Did you receive a stipend from Emirates to write this?

    • You’ll note, Bryan, that I said no such thing. Yet I still have to hear any good reasons, backed up by actual costs that don’t rely on exaggerations of UK APD’s influence, why the difference between transatlantic and transcontinental fares is so great.

      Your suggestion that I or RGN receive stipends from Emirates or any other Middle East airline amuses me given our ongoing coverage of those airlines and their criticism of us when we write things that they don’t like, but thank you for visiting from that Delta IP address — I guess the question is whether you’re receiving a stipend from Delta to write that.

      • Nice IP-catch. 🙂

        As for the difference in price for transatlantic and transpacific I would factor in the airline costs for bigger cabin crew, their accommodation at international hotels and other related costs, probably the costs of some sort of visas or transborder clearance for the crew, and airport fees in various countries may also play the part.

        But then again, airlines believe that passengers travelling internationally can afford paying extra, which is being charged. The same situation with airport transfer in my city. Taxi-drivers and a lot of people think that if you’re going to the airport you are rich and can easily pay a hefty sum. Since there are clients ready to pay, prices stay.

        • In terms of crew accommodation costs for LHR-JFK, BA has a townhouse in east Midtown for crew accommodation, with spillover to the Hilton by the UN. (I used to live next door.)

          D visas are $160, which amortises down to very little across a year’s flying. Airport fees are likely to be more expensive, yes, but a quick check of the LHR numbers suggest that the passenger charge is under GBP45, and the landing fees around GBP900-1800 per aircraft depending on noise, which doesn’t seem on the scale to bump up fares to that extent. (Larger aircraft on JFK-LHR, etc.)

          • Well, if you compare transcon routes of US airlines it would be fair to do so with US airlines transatlantic routes, not BA’s ones. So, what’s the cost of accommodation in London?

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  7. I understand American uses a number of different hotels in London, but the famous crew hotel is the Hammersmith Novotel, which is about $150/night. Regardless, splitting the cost of that between 300+ passengers wouldn’t seem to be material to the economy fare.

    • John, I’ll then insist on the international premium theory of “when people are ready to go abroad they should be ready (in the eyes of the CEOs and general public) to pay more”. I am sure it is being exploited and factored into the price of all (at least, full service) carriers. Sales and temporary promotional fares are exceptions.

  8. Eric Poston

    Profits are up, baggage fees have skyrocketed, and service is worse than ever. The big carriers and even many of the ‘economy’ carriers like Southwest (which isn’t so economical anymore) are cutting routes and forcing more and more traffic into hub cities that are already over capacity.

    Mr. Anderson should stop worrying about what his overseas competitors are doing and focus on improving the flight experience for his own customers. Besides the fact that Delta is typically the highest fare among airlines on the places I fly, I generally refuse to fly them because I don’t want to connect through Atlanta.

    Flying from central KY, I can fly from Lexington, Louisville or Cincinnati. Unless I’m flying to Chicago, Atlanta, Charlotte, New York, Detroit or Dallas, there are very few places I can go without having to be routed through one of these major hubs. There used to be a direct flight from Louisville to St Louis for those of us going to Missouri or on west to Kansas, but that’s been dropped. It now takes nearly 3 times as long to fly to STL and double the time to get to KC, because of the layovers in Chicago or elsewhere. On a recent trip to central Missouri, I rented a car and drove because I could drive 400 miles in less time than I could fly – and saved close to $300 by doing so.

    I love flying, but not when I spend half my travel time waiting at security, waiting to board, sitting on a runway waiting for clearance to take-off, and then waiting for baggage when I land. Airlines, are you listening? Surely you can come up with a way to get us where we need to go at a price that’s reasonable and without having to go through a hub that’s 300+ miles out of the way.

  9. atul jain

    Well I guess that almost all the flag carriers across the globe receive some form of subsidy or benefit from governments at some point or the other. In that scenario, why single out the MEB3 or for that matter any airline which is trying to expand?? At least they are increasing connectivity and employment and promoting cultural exchange across the globe. The European and american airlines are in existence since so long. even they could have grabbed the opportunity to become mega carriers decades ago. But they never did At least at this scale.

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