In order to help promote international trade and business with other countries. These are “bilateral agreements that the U.S. government negotiates with other countries to provide rights for airlines to offer international passenger and cargo services.” (Novelli, 2016) A catch for the Open Skies Agreement though, is that the company can not accept subsidies from their government. Two of the airlines in this agreement are Qatar and Emirates that are said to be breaking the agreement’s policy on accepting government subsidies. Both of these airlines however are owned by their government. With this, it is claimed that both companies receive billions of dollars in subsidies, about 42 billion dollars since 2004. (M.R.,2015) These include loans that have reduced interest rates, loans from their government that don’t have to be paid back, and fuel hedging are a few to name. Fuel hedging is when an airline buys an excess of fuel now on the prediction that it will be more expensive in the future. Where the U.S. airlines are having an issue with this is that if the airline ends up losing money on this deal, their government reimburses them for the loss.
The Gulf airlines are fighting the big U.S. carriers about their use of government subsidies. One example that has been focused on is the Airlines bailout when the three airlines (Delta, United, and American Airlines) were going bankrupt. The three U.S. Airlines have received about 70 billion since the early 2000’s. (Everington, 2015) Another report surfaced as well about U.S. airlines receiving subsidies. The report shows that the airlines received over 150 billion dollars from 1919-1998. (Reed, 2015)
The Import Export bank is a credit agency run by the government that helps outside agencies get a loan on American products. It is specifically helps them by giving these companies a lower than market interest rate on a loan. It’s purpose is to help american products become more easily available and sold around the world.
The U.S. airlines are complaining that the market is not fair for them when they are being compared to some foreign airlines, but these foreign airlines are arguing that is fair. Who is the market unfair for or is it fair? Well, I feel that there is some merit behind the airlines’ view. The U.S. airlines aren’t able to get their loans at a lower interest rate and they aren’t reimbursed on a gamble they take on fuel hedging. This puts the U.S. market at a disadvantage because these foreign airlines can charge their seats far cheaper than the U.S. carriers. However, these foreign carriers also offer a better passenger experience on average than the U.S. carriers. This means that the U.S. carriers need to step up their game before they should be screaming an unfair advantage.
Everington, J. (2015, May 15). Etihad says big three US airlines received $70bn in subsidies | The National. Retrieved November 04, 2016, from http://www.thenational.ae/business/aviation/etihad-says-big-three-us-airlines-received-70bn-in-subsidies
M.R.(2015, March 06). Airline Subsidies in the Gulf: Feeling the HEat. Retrieved November 4, 2016, from http://www.economist.com/blogs/gulliver/2015/03/airline-subsidies-gulf
Novelli, C. A. (2016, September 16). OPEN SKIES PARTNERSHIPS - state.gov. Retrieved November 4, 2016, from http://www.state.gov/documents/organization/262234.pdf
Reed, T. (2015, April 14). U.S. Airlines Have Paid the Government $250 Billion -- Amazingly, Some Claim They Are Subsidized. Retrieved November 4, 2016, from http://www.forbes.com/sites/tedreed/2015/04/14/u-s-airlines-have-paid-the-government-250-billion-amazingly-some-claim-they-are-subsidized/#5516e8576530
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