American Airlines assessing the impact of open skies deal
The head of American Airlines is satisfied with a US-UAE deal to resolve a long-running dispute about allegations of government aid, but relations with Arabian Gulf rivals are unlikely to thaw immediately.
The airline needs to see the impact of the agreement and its effect on the growth of Gulf airlines into the US market, Doug Parker, chairman and chief executive of American Airlines, told The National at the International Air Transport Association’s annual meeting.
It is too soon for its relationship with Gulf airlines to change or for closer ties to become feasible, he said.
“We’re very pleased with the result of the talks between the US government, the UAE and Qatar and we’re grateful for what the US government was able to accomplish there,” Mr Parker said. “While it’s in place, we haven’t had enough time to make sure that those resolutions actually have the effect that we hope for.”
Talks between the United States and the UAE last month affirmed the open skies agreement between the two countries and seemingly resolved a long-running dispute that centred on US claims that airlines from the Gulf, including Emirates and Etihad Airways, received unfair government subsidies.
The Gulf airlines have long denied this, saying their rivals Delta, American Airlines and United were simply unable to compete with their levels of service. Since 2015, the three largest American airlines have urged the US government to take action against the Gulf airlines by restricting their expansion. Asked if the agreement could change its previously tense relationship with the Gulf airlines and eventually open doors to potential partnerships, Mr Parker said: “We need to see more.”
As 130 executives and delegates gather in Sydney for the aviation meeting, the main issue under the spotlight is oil prices reaching a three-year high, a level that may end an era of unusually high returns.
American airlines, while still profitable, is seeing a higher fuel bill drain its earnings, Mr Parker said. “The fact is we’re making less money,” he said. “When your second-largest expense goes up by 40 per cent, the cost of production goes up, the cost to the consumer goes up over time, but that hasn’t been the case yet.”
The hit on profitability from climbing oil prices will hurt airlines.
“It becomes clear this [oil price] is the new normal,” he said.
“You would see over time less capacity growth in the industry and therefore higher prices, but I don’t think that’s going to happen in the near-term.”
Privatisation of airports is not the answer to boosting efficiency or raising funds, International Air Transport Association officials said amid concerns about rising airport charges and a push by Middle East governments to sell state assets.
Airports with private ownership are often more expensive for airlines and consumers because there is less competition compared to other industries, Henmant Mistry, director of airports and fuel at Iata, told reporters in Sydney yesterday. Governments looking to sell a stake in state-owned airports to raise money or reduce operating costs should consider alternative ownership models.
“We could not find evidence that private airports were on average more efficient than government airports, which is unusual, you typically expect government-run to be more inefficient,” Brian Pearce, chief economist at Iata, said during the media briefing.
The Middle East has seen a push towards privatising stateowned assets, including airports, as some governments seek to finance budget deficits when oil prices were low. Saudi Arabia began a programme to set up companies that manage its airports, the so-called corporatisation process, with a view to sell a stake in these assets once they become profitable. Oman is also studying the option to partly privatise its airport management company.
“Governments should be careful if their main objective is to raise cash because their airport is a key part of international trade and competition to attract tourists so they don’t want to make that asset too expensive and damage the longer-term economic benefits that come from it,” Mr Pearce said.
Saudi Arabia has approached Iata to request its input on the airport privatisation process, according to Nick Careen, senior vice president for airport, passenger, cargo and security at Iata.
A new report titled Airport Ownership and Regulation, commissioned by Iata and researched by Deloitte, was released on the sidelines of the Iata meeting yesterday.
Governments should consider a range of options for airport ownership models including full government ownership, to forms of corporatisation, hybrid models such as service or management contracts and greater private participation such as equity sales, concessions and full divestiture, the report said.
“Each has its merits and there is no one-size-fits-all solution,” according to the report.