U.S. carriers not thrilled with influx of foreign airlines
Chicago’s O’Hare airport is one of many big airports welcoming luxury foreign airlines for the economic boost. But U.S.-based airlines say that they operate at a disadvantage because some foreign airlines have lower labor costs and aren’t hamstrung by U.S. regulations.
The world’s highest-rated overseas airlines have entered the Chicago market in recent years, highlighting economic opportunity for Chicago but also fueling controversy about whether foreign carriers have an unfair advantage over U.S. competitors.
Emirates airline began service last week from Chicago O’Hare International Airport to its home base in Dubai, United Arab Emirates, and Cathay Pacific announced a week before that it would increase service from Chicago to Hong Kong. Last year, Qatar Airways began flying three times a week to Doha, Qatar, and quickly ramped up to daily flights.
Each of those airlines, known for luxury service and decked-out aircraft, has been rated the best in the world by respected air-travel rating group Skytrax — Qatar in 2012, Emirates in 2013 and Cathay this year.
The ratings rely significantly on the passenger experience. Emirates, for example, offers on some flights premium seats that might include private suites, showers and in-seat minibars, while the in-flight entertainment system has 1,800 channels and 27-inch screens in first class.
Chicago officials are thrilled with the influx of foreign airlines, which means planeloads of people visiting the city — many with lots of money to spend — and the possibility of achieving Mayor Rahm Emanuel’s goal of attracting 55 million visitors per year by 2020.
The inaugural Emirates flight at O’Hare on Tuesday received a “water cannon salute” — a celebratory dousing of the plane by airport firetrucks as it approached the gate.
“Emirates is a world-class airline, well-known for offering its customers a best-in-class service,” Rosemarie Andolino, commissioner of the Chicago Department of Aviation, said in a ceremony at O’Hare to welcome the airline. “Emirates’ service from Dubai to O’Hare helps support increased tourism, business and economic opportunities for connecting passengers from Chicago and the United States to destinations across India, Africa, the Middle East and the Asia-Pacific region.”
She said the addition of Emirates service alone will generate about $200 million of economic activity annually in the Chicago area.
Don Welsh, CEO of tourism promoter Choose Chicago, called the Emirates arrival “a wonderful, great day for Chicago and tourism.”
Enthusiasm not shared
Not surprisingly, that enthusiasm for foreign airlines is not shared by U.S. carriers, many of which have been through bankruptcy protection in recent years. No U.S. airline even made the top 20 in the most recent Skytrax ratings.
U.S. carriers are scrambling to keep up by improving their offerings, but they contend that they operate at a disadvantage because some foreign airlines receive government subsidies, have lower labor costs and don’t deal with U.S. regulations, some of which hamstring the growth of domestic airlines.
Jean Medina, a spokeswoman for U.S. airline-industry group Airlines for America, said foreign airlines don’t face the same tax, regulatory and infrastructure burdens that U.S. airlines do. She noted that the domestic airlines’ more profitable international operations enable them to provide service to less-profitable small and rural markets in the United States.
The group claims that many foreign governments help their aviation industry, while the U.S. government uses America’s airlines as a piggy bank for more taxes.
“The government needs to play its role in ensuring U.S. commercial aviation is operating on a level playing field with foreign competitors, enabling carriers to respond with maximum effectiveness to global competition,” she said.
Middle East-based carriers, in particular, have grown rapidly. Their share of all international capacity increased to 11 percent in 2012 from 2 percent in 2002, equaling U.S. wide-body-operator carriers’ capacity, which decreased to 11 percent from 14 percent in the same period, according to Airlines for America.
Last week, Adel Al Redha, chief operations officer at Emirates, said he expects service to Chicago to “significantly expand.”
Connected to the world
Overseas airlines don’t see themselves only as conduits to destination airports, in Dubai or Hong Kong for example, but as carriers to city hubs that allow travelers to connect to other parts of the world. Turkish Airlines, rated as the best airline in Europe for four years running, flies daily from O’Hare and connects through Istanbul to more than 100 countries, more than any other carrier in the world.
United Airlines and the region’s No. 2 carrier, American Airlines, declined to comment on the rise of foreign carriers, deferring to Airlines for America.
The controversy also involves reauthorization of the U.S. Export-Import Bank, the government credit agency intended to support exports of American goods by providing loans and loan guarantees to foreign buyers. The bank will be forced to close if Congress does not renew its charter by Sept. 30. Notably, the bank helps Chicago-based Boeing sell aircraft to overseas airlines, but U.S. airline executives have complained.
Emirates is the largest operator of Boeing 777 aircraft, with 138. Late last year, it placed the largest order in aviation history, for 150 Boeing 777s, valued at $76 billion.
Hubert Frach, Emirates’ divisional senior vice president of commercial operations for the West, defended the airline’s commitment to playing fair.
“As an airline, as a player in global aviation, we certainly believe very much in competition and bringing choice to markets, to consumers,” Frach said. The U.S. and United Arab Emirates, where Emirates is based, are open markets, he said.
Frach also made a distinction between state-owned, which Emirates is, and state-subsidized.
“With Emirates, the position is absolutely clear. We are not receiving subsidies. We are not state-funded,” he said.
And, he said, Emirates buys fuel — it’s a huge cost for any airline — from the same suppliers other airlines do, as the United Arab Emirates is not a big oil-producing country.
Boeing says the Export-Import Bank provides a fair way for the company to compete with rival Airbus.
“If U.S. export credit is in doubt, airplane customers will likely hedge their bets by turning to companies — like Airbus — that do have export credit guarantees,” Boeing Capital President Marc Allen said in congressional testimony July 31.
“And if Ex-Im goes away, it is predictable Europe and Airbus will use export credit pricing to provide its aerospace industry an advantage over ours — with China, Russia and other emerging players to follow.”