Open Skies, Or Not?

ASEAN has recently reached a milestone to open skies agreements and the establishment of an ASEAN Single Aviation Market, which will benefit customers with more choices as well as companies in being more cost-efficient.

Over in Europe, the European Commission has adopted a new Aviation Strategy for Europe with a Single European Sky, probably to tackle the fierce competition in the air industry by placing the EU as a leading player in international aviation whilst guaranteeing a level playing field.

Meanwhile, the open skies dispute between the Big Three of the US airlines (American, Delta, United) and the Big Three of the Gulf carriers (Emirates, Etihad, Qatar) is still ongoing.  The American airlines claim that the Gulf governments provided $42 billion in subsidies to their airlines, against open skies aviation agreements.  The Gulf airlines argue that the amounts are equity from their governments, who are the owners of their businesses, since the airlines are all wholly owned by the government.  The Economist in their analysis also cited the example of the generosity of the Gulf carriers to the media, which it felt was a conflict of interest in the reporting by the media.

What is undeniable are the investments by the Gulf airlines of other airlines. Qatar Airways had a 10% stake in British Airways’ parent company IAG which it upped to 12% recently, and it is eyeing more airline investments like Italy’s Meridiana and India’s IndiGo.  Etihad Airways had invested 49% in Alitalia, Italy’s national airline, as well as 29.21% in airberlin (Germany’s second largest airline) and 40%  in Air Seychelles (national airline of Seychelles).  Emirates Airline has an alliance with Qantas where Emirates gain access to 50 points in Australia and Qantas connects unto Emirates’ flights to more than 70 destinations.  To meet the rapid growth of Emirates Airline, the Dubai government is investing $32 billion for a new airport Al Maktoum International at Dubai World Central. Dubai International is already the world’s busiest airport having overtaken from London Heathrow in 2014 and 2015.

Open skies policy is a double edged sword.  Is it fair for private airlines to compete with government owned airlines? The amounts that governments can inject into their airlines business, whether it’s equity transferrals, interest-free loans or debt guarantees are generally not something that private companies can match up to.