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Gulf subsidies row in focus at annual airline CEO meeting
June 4, 2015 / 5:31 PM / 2 years ago

Gulf subsidies row in focus at annual airline CEO meeting

* IATA members gather in Miami

* Row over subsidies increasingly bitter

* Response to Germanwings crash also eyed

* IATA due to give update on airlines’ profitability

By Victoria Bryan

BERLIN, June 4 (Reuters) - A row between U.S. and Gulf carriers over alleged subsidies will be in the spotlight along with aviation safety in the wake of the Germanwings crash when the airline industry gathers for its annual meeting next week.

The International Air Transport Association (IATA) meeting will kick off on Sunday in Miami amid an increasingly bitter row as three U.S. airlines allege Gulf carriers have received more than $40 billion in unfair subsidies. They have called on the U.S. government to review the Open Skies policy that authorised commercial flights between the United States and Qatar and the United Arab Emirates over a decade ago.

The allegations by Delta Air Lines Inc, United and American Airlines, rejected by Etihad, Emirates and Qatar Airways, have also found backing among some European carriers, notably Lufthansa and Air France-KLM.

The Dutch government said last month it would temporarily stop granting new slots at Amsterdam’s Schiphol airport to Gulf airlines, promising a tougher line against possible “unfair competition” from the Middle East.

However, planemaker Boeing, FedEx and airlines such as JetBlue and British Airways owner IAG have backed the U.S. Open Skies policies.

“This is a debate that goes beyond subsidies. It’s to do with how airlines are run and how markets around the world are changing,” independent aviation consultant John Strickland said.

IATA represents the interests of around 260 airlines from across the globe, accounting for 83 percent of global traffic, and this year’s meeting is set to be the biggest yet.

IATA is unlikely to step directly into the row between some of its most high-profile members, but delegates say some airlines could use the formal part of the agenda to try to win support from global members for a declaration backing their case.

“It’s not for IATA to act as a ringmaster, but it could help to take some of the heat out of the discussion and bring a more factual look at the debate,” Strickland said.

IATA Director General Tony Tyler said it was up to governments to decide and that it was more an argument over what constituted fair competition.

“The last time this happened it was with the Europeans and the Middle East and since then you’ve seen the integration through alliances or commercial agreements or in the case of Etihad, investments,” Tyler told Reuters on Thursday.

Air traffic rights or airline services do not fall under World Trade Organization rules, meaning there is no global basis for dealing with subsidy claims and presenting challenges for the U.S. government as it reviews the matter.

The chief executives of Lufthansa and Turkish Airlines have suggested WTO-style tools could be used in the dispute.

Others says airlines should focus on improving their own business.

“It strikes me that the kind of mindset that focuses on complaining about competition is probably the wrong mindset. Airlines should focus on putting their own house in order,” Jonathan Wober, an analyst at CAPA-Centre for Aviation, said.

PROFITS AND SAFETY

The industry is also under pressure to respond to the Germanwings crash in March. Evidence indicates co-pilot Andreas Lubitz locked the pilot out of the cockpit and deliberately steered the plane into a French mountainside, killing all 150 onboard.

Airlines across the world swiftly moved to implement a rule to ensure two members of crew are in the cockpit at all times. Authorities in the United States and Europe are examining cockpit door technology and pilot screening measures after it was revealed Lubitz had suffered depression in the past and had hidden details of an illness from his employers.

Lufthansa, which owns Germanwings, has suggested random psychological checks for pilots could be an option.

IATA’s Tyler will also on Monday give updated forecasts for airline profitability this year. IATA currently expects net profits of $25 billion in 2015 for a profit margin of 3.2 percent, the strongest in more than five years.

Lower oil prices are helping airlines, meaning many have reported improved results in the traditionally weak first quarter of the year.

However, analysts say some airlines could use cheap oil to offer more seats to gain market share, thus driving prices down further, which would hurt profits. (Additional reporting by Tim Hepher in Paris and Zachary Fagenson in Miami; Editing by Susan Fenton)

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