As Etihad Puts Boeing 787 on D.C. Route, U.S. Airlines Play Catch-Up
NEW YORK ( TheStreet) -- The Gulf airlines are rolling out their biggest and classiest new airplanes on their U.S. flights, as the big three U.S. airlines seek support for their campaign to alter a model that is enabling a massive expansion by Emirates, Etihad Airways and Qatar Airways.
Wednesday was a busy day for all the parties.
The United Arab Emirates said it was open to talks with the U.S. government regarding the campaign by American (AAL) - Get Report, Delta (DAL) - Get Report, United (UAL) - Get Report and their unions. Etihad announced it will put a Boeing 787-9 on its Abu Dhabi-Washington Dulles route starting March 15. And the big three carriers got a lukewarm endorsement from their principal trade association, Airlines for America.
Last month, American, Delta and United began circulating a report documenting how the governments of Qatar and the UAE, and of Abu Dhabi and Dubai -- the two largest emirates -- have provided about $39 billion in subsidies to Qatar, the flag carrier of Qatar and to Etihad and Emirates, flag carriers of the UAE. The carriers derive another $3 billion from the benefit of lower labor costs, the report said.
The Gulf carriers have repeatedly denied they receive state subsidies. "We are happy to talk," Laila Ali Bin Hareb Al Muhairi, assistant director-general of strategy and international affairs at the UAE's general civil aviation authority, told reporters on Wednesday in Dubai at the Future of Borders summit, according to Gulf News.
"But right now I don't think the governments should do anything. I think the governments should really commit to their open sky policies," she added, Gulf News reported.
The U.S. carriers have said they are seeking consultations, not changes in Open Skies treaties.
Meanwhile, Etihad said it will fly Abu Dhabi-Washington Dulles with a Boeing 787-9 with eight first-class suites, 28 "business studios" and 199 coach seats. Etihad currently flies two 787s. It has ordered 71 aircraft.
A week earlier, Etihad said that starting Dec. 1, it will fly Abu Dhabi-JFK with an Airbus A380 that includes a luxury, three-room private suite, complete with a butler, with a one-way price tag of $32,000.
Last month, Emirates said it will put an A380 on its controversial Milan-JFK route starting in June.
U.S. airlines are also moving quickly to add Boeing 787s, with United far ahead. The carrier has placed orders for 65 aircraft. It currently flies 12 787-8s and three 787-9s.
American, meanwhile, has taken delivery of three 787s. Its first one will enter service May 7, temporarily on the Dallas-Chicago route. In June, American 787s will fly from DFW to Beijing and Buenos Aires.
On a conference call with airline reporters Wednesday, John Heimlich, economist for the Airlines for America trade association, said U.S. airlines finally have money to spend on capital improvements including aircraft. The industry had net profits of $7.3 billion in 2014 and $22.3 billion over the past four years.
That's after losing $65.1 billion from 2001 through 2009.
As the subsidies report pointed out, Gulf airlines don't have losses. For example, Emirates held fuel price contracts valued at about $4 billion in April 2008. It appears, the report said, that the money was lost as fuel prices crashed. But late in the fiscal year, "Emirates transferred the fuel hedging contracts to its government owner, the Investment Corporation of Dubai," the report said.
During the current quarter Delta has settled one-third of its hedge book exposure, taking a loss of $300 million. Washington, can you help?
Not only does Delta not get fuel hedge bailouts from Washington, but also American, Delta and United don't have unqualified backing from A4A in their effort to have the Obama administration address the Gulf carriers' violations of Open Skies. On the A4A conference call, two reporters questioned whether the group backs the effort.
They did not get a clear answer.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.