3:00 p.m. ET UPDATE: Delta Airlines has provided this updated statement apologizing for CEO Richard Anderson’s 9/11 allusion:
“Richard was reacting to claims the gulf carriers have been making that US airlines received subsidies in the form of payments from the US government after the 9/11 attacks and the bankruptcy proceedings that resulted. He didn’t mean to suggest the gulf carriers or their governments are linked to the 9/11 terrorists. We apologize if anyone was offended.”
A dispute between U.S.-based airlines and the surging Mideast-based airlines — Qatar, Emirates and Etihad — has now gone from tense to downright nasty, with two powerful airline CEO’s exchanging harsh, “I-can’t-believe-he-went-there” insults on live TV.
Delta CEO Richard Anderson went on CNN on Monday to discuss U.S. claims that Gulf-based air carriers unfairly are getting subsidies from their governments. When CNN’s Richard Quest brought up the Gulf airlines’ claims that U.S. airlines have also gotten government subsidies, in the form of federal bankruptcy protection, Anderson dropped the hammer, making a controversial reference to the Sept. 11 attacks.
Delta CEO Richard Anderson made a controversial reference to 9/11 when talking about Mideast competitors. (Photo: Getty Images)
“It’s a great irony to have the UAE from the Arabian Peninsula talk about that,” Anderson said, “given the fact that our industry was really shocked by the terrorism of 9/11, which came from terrorists from the Arabian Peninsula. That caused us to go through a massive restructuring. And in the United States, our restructuring process is transparent, and there is no government subsidy.”
Qatar Airways CEO Akbar Al Baker went on CNN the following day to deny taking subsidies and to lob a sharp response to Anderson’s Sept. 11 reference. “He should be ashamed to bring up the issue of terrorism in order to hide his inefficiency in running an airline,” Al Baker said. “He should compete with us instead of cry wolf for his shortcomings.”
Qatar Airways CEO Akbar Al Baker hit back hard at the Delta CEO’s comments. (Photo: AP)
The exchange is more than a nasty CEO vs. CEO smackdown. It’s the latest in a dispute in which the government-owned Middle Eastern airlines feel they’re beating the U.S. at its own game, while the U.S. airlines accuse their rivals of cheating with performance-enhancing cash.
The rise of the Gulf carriers
“The big three Gulf carriers are some of the fastest-growing airlines in the world,” says Scott Mayerowitz, an airline reporter for the Associated Press. Mayerowitz points out that the three Mideast carriers make up one-third of the orders for the Boeing 777 and Airbus A380 — two of the world’s largest and farthest-flying jets. “To put that into perspective,” says Mayerowitz, “they can put more than 70,000 passengers in the air at any given moment once these planes come online.”
Qatar and its Mideast counterparts are making a big push in the global marketplace. (Photo: AP)
And it’s not just the planes that have U.S. air carriers nervous, it’s what the Gulf carriers are doing with them: expanding into foreign markets once dominated by U.S. carriers and their international partner airlines. According to Reuters, U.S. carriers claim that since 2008, their share of bookings from the United States to destinations in South and Southeast Asia dropped 5 percentage points to 34 percent. In contrast, the three Gulf-based carriers saw their combined bookings on the same routes soar to 40 percent last year; in 2008, that share was only 12 percent.
Airways News senior analyst Vinay Bhaskara says the Gulf carriers’ plan for their international push is nowhere near done. “There’s another 5 to 10 cities and probably another million to million-and-a-half passengers waiting for the Middle East Big Three over the next five years,” Bhaskara says. And those passengers are eager to taste the high-flying luxury suites and premium economy-class service that have the Gulf carriers making international headlines almost daily.
Many airline analysts believe the Gulf carriers surpass U.S. airlines in terms of luxury and amenities. (Photo: Qatar Airways)
“[U.S. carriers and their international partners] are going to lose out on a chunk of their profitability because in a lot of these markets, [the Gulf-based carriers] provide much better service than the European or Asian airlines,” warns Bhaskara.
Though U.S. carriers saw record profits last year, they have not forgotten the difficult times they endured during the surge of their Gulf-based rivals. In the years after Sept. 11, the three biggest U.S. airlines — American, Delta, and United — were forced to restructure under federal bankruptcy protection. In a statement, Delta told Yahoo Travel: “The Middle East carriers, meanwhile, capitalized on that difficult time in the industry’s history to begin in earnest an unfettered expansion that was largely paid for with subsidies from their governments.”
And Delta backed up its CEO’s assertion that its post-9/11 bankruptcy protection doesn’t count as a subsidy. “This couldn’t be further from the truth,” the airline said in its statement. “Chapter 11 is a completely transparent process that involves no government funding.”
Delta isn’t backing down from its claim of unfair competition. (Photo: AP)
Meanwhile, each of the big three Gulf carriers have explicitly denied getting government subsidies. Emirates President Tim Clark recently told the Associated Press, “What [the U.S. airlines] can’t understand is that something could be as good and profitable as it has been without subsidies. You know why? Because they’ve all had subsidies themselves, and they still can’t make it.”
Why does this battle over subsidies matter
The big three U.S.-based air carriers are lobbying the U.S. government to slow down the Gulf-based carriers’ expansion plans — and their “unfair government subsidies” claims are Exhibits A, B, C, and D of their case. Bhaskara of Airways News says he believes the airlines face an uphill battle convincing Washington to go along. He says: “The only way [the U.S. airlines] can pull anything like this off is if they can get public opinion on their side.”
So far, the public hasn’t been paying attention to the airline battle. But with the CEO of a major U.S. company making headlines for using the terms “9/11” and “terrorist” while talking about the company’s Mideast rivals, that may change. And the U.S. airlines are showing no signs of backing down.
“Right now, the U.S. carriers are the most profitable and successful airlines in the world,” says Mayerowitz. “They have a greater vested interest in protecting that dominance.”