1) Describe the US-UAE Open Skies Agreement. List and describe two long-haul carriers that are a part of this agreement that also receive government subsidies.
America's Open Skies policy has really helped the U.S. airline globalization. This allows U.S. air carriers to have an unlimited market access to many foreign markets and the right to fly to all over the world. (Open Skies 2017) Open Skies agreements provide maximum operational flexibility for airline alliances. (Open Skies 2017) The United States and along with almost 100 partners have agreed to the Open Skies agreement.
2) Do any long-haul US carriers receive subsidies or have received subsidies in the past? If so, which airlines? Why?
I didn't find any specific long haul U.S. carriers that received subsidies. Although, it has happened in the past. In the 1930s. After the Airmail Act of 1925, the government gave routes to three major long-haul U.S. carriers. These carriers included United Airlines, Transcontinental and Western Air (Also known as TWA), and American Airways (later became American Airlines)
So throughout history, all of these airlines were sort of helped out by the government in order to survive.
After 9/11, the commercial airline industry suffered greatly. According to the article “ 9/11 Airline Bailout, Who Got What?”, just two days after the terrorist attack, Congress got presidential approval for a $15 billion dollar bailout. (Holguin,J 2002) A lot of that money did go to major U.S. airlines. The article didn't specify which airline, but I'm assuming that the money was shared in relativity of all airlines and airline sizes. So yes, U.S. carriers have received subsidies from the Government in the past.
3) Another complaint is that long-haul foreign carriers have made aircraft purchases at "below market interest rates" that are unavailable to US carriers. How is this possible? Please discuss the Export-Import Bank.
Traditionally, The Export-Import Bank was primarily as a resource to sell American-made products and goods to businesses and governments from countries that are limited or do not have access to products. (Reed,T 2010) Not all countries are economically stable enough to buy or purchase large commercial aircrafts. The Export-Import bank sort of levels the playing field by allowing this countries to buy aircraft at a lower and less interest price.
So what has become of this is U.S. government subsidizing non-U.S. carriers to help them better compete with U.S. carriers. Many U.S. airlines are not happy with this because they believe it gives certain carriers such as Emirates, Etihad, and Qatar Airways an unfair advantage with airplane cost.
4) Are there any current issues with Norwegian International Airlines and the Open Skies Agreement?
Norwegian International Airlines was approved for the Open Skies agreement and many people and airlines are not happy about it. Norwegian Airlines tickets for international flights are ridiculously low compared to many other competitors. Many believe that Norwegian Airlines is cutting corners in safety and labor laws that could give them unfair advantages in prices, however this hasn't been confirmed. (Jansen, B 2016)
5) Finally, critically analyzing the above information, do you feel that the global "playing field" of long-haul carriers is fair?
I have mixed feelings about the Open Skies agreement and Export-Import Bank. On one hand, i think these agreements and agencies are necessary for the global economy and wealth of the world. On the other hand, I believe that it has gave certain airlines and companies an unfair advantage in the industry. I think every company should be investigated before they are approved for an agreement to ensure that there are not any corners that are being cut that may give an unfair advantage.
References
Open Skies Agreements. (n.d.). Retrieved March 10, 2017, from https://www.state.gov/e/eb/tra/ata/
Zhang, B. (2015, September 14). The 3 US airlines trying to fend off their lavish Middle Eastern rivals suffered a big setback last week. Retrieved March 10, 2017, from http://www.businessinsider.com/3-biggest-us-airlines-fighting-for-turf-2015-9
Holguin, J. (2002, December 09). 9/11 Airline Bailout: So, Who Got What? Retrieved March 10, 2017, from http://www.cbsnews.com/news/9-11-airline-bailout-so-who-got-what/
Reed, T. (2010, September 13). Why U.S. Airlines Pay More to Finance Jets. Retrieved March 10, 2017, from https://www.thestreet.com/story/10857852/1/why-us-airlines-pay-more-to-finance-jets.html
Jansen, B. (2016, December 05). DOT approves contested Norwegian Air flights. Retrieved March 10, 2017, from http://www.usatoday.com/story/travel/flights/todayinthesky/2016/12/02/dot-approves-contested-norwegian-air-flights/94838292/
Good Afternoon E,
ReplyDeleteAlbeit this is my first time commenting on one of your blog posts, it is not my first time reading one. I believe your response to this topic and its associated questions was accurate, succinct, and conveyed your sentiments very clearly. I think your excellent use of brevity while answering the questions indefinitely enhanced the audience’s readability of your responses, consequently allowing them to follow your train of thought. This is important because it empowers readers to formulate their own (informed) opinions regarding the topics of globalization and Open Skies agreements by reading and understanding your perspective. Subsequently, readers are not only able to become more knowledgeable regarding the aviation industry, but also enhance their general realm of knowledge!
With respects to your answer to the first question, I completely agree with you on the fact that the U.S. Open Skies agreements have perpetuated airline globalization in a positive direction. I also concur with and like the fact that you stated how the Open Skies agreement have provided foreign airlines with maximum operational flexibility (i.e. unlimited access to the U.S. market), essentially no government oversight or control, and government subsidies (amounting to billions of dollars). It is because of these three factors why U.S. carriers and notable aviation organizations have lobbied against the U.S. and the Open Skies agreements.
I noticed we shared similar information regarding our answer to the second question. Like you, I also had trouble answering this question and finding specified (long-haul) air carriers that have received government subsidies in the past or present. However, the reason for this is because back when these long-haul carriers were being subsidized by the government they were under a different name. I believe most people forget how The Airmail Acts of 1925 and 1930 awarded contract air mail (CAM) routes to United Airways (now United Airlines), Transcontinental and Western Air (TWA), and American Airways (now American Airlines), and subsidized them for delivering mail. These air carriers were first paid by the weight of the mail carried, and then by the volume, but because said carriers began mailing items such as bricks to earn extra money, the contracts were rescinded (which lead to the ‘Spoils Conference’). After the ‘Spoils Conference’ was conducted, the air carriers had to change their names in order to receive the CAM routes once again. Therefore, I strongly believe most individuals are not cognizant of the fact that the Airmail Acts and CAM routes were the essential ‘birth’ of commercial aviation in addition to the fact that two of the long-haul carriers (i.e. United and American airlines) originated as government subsidized airlines and grew from because of it. One thing I learned from reading your response was that Congress approved a $15 billion bailout after the event of ‘9/11’, of which the funds were allocated amongst various U.S. air carriers (and the aviation industry). I personally would like to know exactly how much each airline received as well as how they utilized it to recover during the following months.
In regards to your response to the third question, I noticed we also expressed similar sentiments regarding how the EXIM bank allows foreign carriers to purchase aircraft at below market interest rates. I think it was both an important and strong point for you to state that not all countries are economically stable enough to purchase wide-body aircraft. This is an aspect I personally did not consider. While conducting my research, I learned one of the primary purposes of the EXIM bank is to aid economically disadvantaged counties in purchasing such aircraft via low-interest-market loans. As you mentioned, it is because some of the foreign-carriers are owned/operated by economically-disadvantaged countries (or governments) that they are the only ones eligible to receive the ‘below-market-loans’, thereby providing said foreign-carriers with an unfair advantage when purchasing aircraft. Hence the reason why U.S. carriers and supporting organizations are upset. Now, my question to you is, how are said economically-disadvantaged countries struggling financially (thereby eligible for EXIM low-interest-rates) if they are receiving millions (or billions) of dollars in U.S. government subsidies, fee waivers, and special tax-exemptions?
ReplyDeleteAfter reading your response to the fifth question regarding your thoughts about the global ‘playing field’ before fair or not, I believe we feel the same way. Rather than giving a straight ‘yes or no’ answer, I provided a mixed answer. In this answer, I stated how I do feel the ‘playing field’ is unfair, but is necessary for the continual stimulation and growth of the U.S. economy and aviation industry in its entirety. I also liked how you stated every company should be investigated before they are approved for an agreement in efforts to prevent countries (that are financially stable) from attaining an agreement when they do not need one. This is one aspect I did not consider when I drafted my response and I think it would be an effective proactive means of prevention, but may cause more than good (in the long-term) with respects to foreign-relations and how the U.S. is perceived by other countries.
Overall, I think you did an excellent job answering the questions; keep up the great work E!