"Prove it" is a phrase we learn from an early age. For most of this year, American Airlines, Delta Air Lines, United Airlines, and seven aviation trade unions have worked hard to prove that massive government subsidies are what have enabled the three fast-growing, Gulf-based airlines - Emirates, Etihad Airways, and Qatar Airways - to expand in the U.S., Europe, and elsewhere. The proof is real: $42 billion in cash and unfair benefits in the past decade. And that huge government largesse violates the "Open Skies" aviation agreements that their governments signed with the U.S., pacts that prohibit subsidies and mandate a level competitive playing field.
The U.S. airlines' effort to "prove it" gained yet more momentum this week with the release of a new study by the respected transportation research firm GRA, which concluded that "of the 23 routes operated by the Gulf carriers to the United States in CY [calendar year] 2014, 19 appear to have lost money . . . The overall loss margin for the three carriers combined is -14.4 percent." The authors continued, "These findings make their [the three Gulf carriers] planned rapid growth in U.S. markets puzzling." That's so polite. To me, there's no puzzle: wheelbarrows of government subsidy cash make all this growth possible. No real airline, accountable to private investors and lenders, could grow that imprudently.
Keeping with the theme of "prove it," it's entirely fair for you to ask "how did they figure this out?" For aviation pros, it's a relatively easy bit of homework, for two main reasons. First, as a vestige of decades of Federal economic regulation, the U.S. Department of Transportation (DOT) requires all airlines, domestic and foreign, to periodically submit passenger volumes (traffic) and revenue information (and additionally requires U.S. carriers to send a range of cost data). These data are, in general, publicly available; access restrictions apply to some sensitive data.
Second, airline financial information is easy to model - many expense calculations are a function of distance, for example. In the 22 years that I worked at American Airlines, we routinely used this public data to project competitors' route profits or losses as part of periodic comparative reviews of financial performance. Indeed, my finance-department colleagues could, solely with publicly-available data, model another airline's entire income statement with astonishing accuracy, something much less possible in other industries.
In this case, the study authors used the traffic and revenue statistics that Emirates, Etihad Airways, and Qatar Airways provided (what the DOT calls T-100 data), combining passenger, cargo, and other revenue (like excess baggage fees). And the authors were careful to assign revenues - using established industry protocols - to the U.S.-Gulf flights by taking a prorated share of a connecting itinerary. For example, two-thirds of Qatar Airways' passengers from the U.S. are bound for 11 cities in India, so the authors allocated to their Miami-Doha route a prorated share of revenue on a Miami-Doha-Mumbai ticket. On the cost side, only Emirates publishes numbers that were deemed "reliable," so the authors used Emirates data to calculate costs for Etihad and Qatar Airways.
01/12/15 Rob Britton/Huffington Post
