The Open Skies Treaty. What is it and why is Mr. Anderson upset?

There has been a lot of fuss recently after Delta’s CEO, Richard Anderson, made a controversial connection between the terrorists responsible for the 9/11 hijackings and airlines that are based out of the Arabian Peninsula, such as Emirates. The CNN video is embedded at the bottom of this post.

The comment was made because Mr. Anderson is frustrated with the gulf airlines’ advantage in the market and because they provide superior service than his own airline.

So what exactly is an “Open Skies Treaty?”

Open Skies Treaty, or Treaties, (hereinafter “OST”) are treaties, or deals, made with other countries to remove restrictions on international air travel. The OST eliminates government interference in commercial decisions on things such as routes, capacity and pricing. Usually these policies greatly reduce fares and have been known to increase the level of service offered by the airlines. But that’s obviously debatable.

Every OST includes a “fair competition” clause, which prevent parties from engaging in unfair dealings.

Why are Delta, American, and United upset over OST?

The big U.S. three are upset because Emirates, Qatar, and Etihad are subsidized by their governments. According to Mr. Anderson, the three gulf airlines mentioned above have been subsidized by their respective governments in excess of $40 billion since 2004. The top three U.S. airlines want the treaty modified to prohibit grossly unfair government subsidies like those mentioned above.

Meanwhile, JetBlue’s CEO, Robin Hayes, sent a letter to the secretaries of State, Commerce and Transportation expressing his unwavering support for the OST. Mr. Hayes cites that without the OST, JetBlue would have never reached the Latin American market.

The rationale behind Mr. Anderson’s frustration:

The real issue is that Emirates, Qatar, and Etihad usually provide superior service than U.S. airlines and their fares are usually lower too, at least for coach. Mr. Anderson is worried that as time goes on these major gulf carriers will begin to dominate the U.S. market because of their unfair government subsidies and that will obviously affect their business.

Personally, I think Mr. Anderson should focus on repairing his Skymiles program so people wouldn’t be so disinterested in his airline. Most of us, and yes this is a generalization, would pay a little more to fly an airline who gives us elite benefits and miles, but he’s already gotten rid of that so of course I would choose a lower fare to Dubai than flying Delta. He likes money and so do consumers.

The REAL irony behind the OST frustration:

U.S. airlines receive millions of dollars in subsidies from the Essential Air Service program. Additionally, American, Delta, and United have all had big mergers which consumed another large U.S. carrier. In terms of fair market and what is best for the consumer, these mergers have hindered competition and only helped the top three airlines. If Continental, Northwest Airlines, and US Airways (who is about to disappear), were still around frequent flyer programs would probably not be getting the sack. Again, this is a matter of opinion and debatable.

U.S. based airlines also receive antitrust immunity to engage in alliances with partners like British Airways, Air France, and Copa Airlines. Another form of “boost” that U.S. airlines get from our government.

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So basically, that is what is going on. I wrote more than I intended to but oh well. I’m not an economist, and yes, I understand that there is a big monetary difference between the subsidies received by the gulf carriers and U.S. airlines but the fact of the matter is, U.S. based airlines have more customers to service than Qatar does so the field is already biased.

So really it just comes down to Mr. Anderson and the other U.S. airlines wanting to control a larger piece of the pie without really working for it.

Mr. Anderson didn’t know how else to defend his position and so he said something stupid, watch it below: