New Studies Bolster Both Sides of 'Open Skies' Debate

American and Persian Gulf airlines continue to butt heads over competition in U.S. airspace. The latest development in the months-long conflict over "Open Skies" agreements came this week, with parties on both sides of the issue releasing new reports that support their respective arguments.

The first report came yesterday courtesy of Etihad Airways, the national airline of the United Arab Emirates. A study of government and court-sanctioned benefits and concessions received by U.S. carriers, it reveals that the "Big 3" U.S. airlines -- American Airlines, United Airlines, and Delta Air Lines -- have received $71.48 billion in federal support during their lifetime, including over $70 billion since 2000.

"We do not question the legitimacy of benefits provided to U.S. carriers by the U.S. government and the bankruptcy courts," said Etihad Airways General Counsel and Company Secretary Jim Callaghan. "We simply wish to highlight the fact that U.S. carriers have been benefitting and continue to benefit from a highly favorable legal regime, such as bankruptcy protection and pension guarantees, exemptions from certain taxes, and various other benefits. These benefits, which are generally only available to U.S. carriers, have created a highly distorted market in which carriers such as Etihad Airways have to compete."

U.S. airlines claim that Gulf carriers Etihad Airways, Qatar Airways, and Emirates receive subsidies from their sponsoring governments that put U.S. airlines at a competitive disadvantage. As those airlines seek expansion in U.S. markets, U.S. carriers have asked the Obama Administration to renegotiate its Open Skies agreements with Gulf nations in order to level the playing field. In place for over two decades, such agreements were designed to facilitate increased competition, lower fares, and more flights in the international air travel marketplace -- which, Etihad argues, is exactly what they've achieved.

"There is no evidence whatsoever of any harm caused by Etihad Airways to any of the three big U.S. airlines," continued Callaghan, who has accused U.S. airlines of trying to obstruct higher-quality competition. "The U.S. Open Skies policy has delivered more choice and better service for millions of consumers, more airline access to and from America, and record profits for the biggest airlines in the U.S. It is time to refocus on the real issue here -- that the Open Skies policy is delivering the benefits it was designed to deliver, and that everyone is a winner."

U.S. carriers disagree. In their own report this week, they revealed the results of an economic study claiming to show that Gulf carriers are diverting passengers from U.S. airlines without stimulating new passenger demand. According to the study, the presence of a single Gulf carrier on a city-pair between the United States and an international destination with as little as a 3 percent share reduces the number of passengers carried by U.S. airlines an average of approximately 8 percent; where all three Gulf carriers serve the city-pair, the number of U.S. airlines' passengers is approximately 24 percent lower, and on city-pairs where each of the Gulf carriers has at least a 10 percent share, U.S. airlines' passengers have been reduced by an average of 50 percent.

"The Gulf carriers assert that their service stimulates new traffic in key U.S. markets, bringing substantial numbers of new passengers to the United States. We find little -- if any -- evidence that this claim is true," said airline economist Dr. Darin Lee, one of the authors of the report, published by The Partnership for Open and Fair Skies, which represents U.S. airlines and their unions in the Open Skies debate. "An analysis of the data shows that the Gulf carriers do not meaningfully stimulate new traffic. Instead, they are using their subsidized capacity to grow their networks at the expense of U.S. and other carriers."

Both reports are available online: The Etihad study is available here, and the Partnership for Open and Fair Skies study here.

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