Persian Gulf-based airlines have warned against protectionism after France and Germany called on the European Union to look into allegations of social dumping and unfair subsidies from Gulf carriers.
At a meeting of EU transport ministers last month (13 March), Paris and Berlin asked the European Commission to put an end to what they claim are unfair competitive practices by Persian Gulf airlines.
Qatar, Saudi Arabia, and the United Arab Emirates are accused of distorting the EU aviation market with public subsidies and special guarantees for national carriers.
American, Delta, and United, the biggest US airlines, have also complained, accusing Gulf-based competitors of receiving billions in state aid from their government and “divert[ing] global traffic to their hubs”.
State aid dispute
But Persian Gulf carriers hit back at the move, saying EU and US airlines were trying to “pull the ladder up” after receiving similar subsidies.
James Hogan, President of Etihad Airways, said the company has brought big revenues to the United Arab Emirates.
In 2014 alone, Etihad carried almost 15 million passengers to 111 destinations, Hogan told the the Aviation Club in London last week (26 March), adding that such a rapid growth required major investment. He admitted that Etihad received subsidies since 2003, in the form of equity capital and shareholder loans.
But the US and EU airlines also benefited from government assistance, Hogan claimed. Referring to subsidies US-based airlines received in the past, the Etihad chief said US carriers are now “trying to pull the ladder up after years of having it their own way”.
“The people that will really lose if these giant legacy airlines are successful are the millions of travellers benefitting from new choices in the global air travel market,” Hogan said.
Compete instead of complain
A study commissioned by US carriers found that Persian Gulf states disbursed a total of €39 billion in government support to their national airlines since 2004.
Hogan admits that some of these findings are true, but encouraged other airlines to compete instead of complaining.
“They [EU and US airlines] are getting a smaller slice, it is true. But it is a slice of a bigger cake. Maybe we all get a smaller slice- but if the cake is bigger, then everyone benefits,” Hogan said.
Accusations against Gulf carriers do not limit themselves to unfair subsidies, however. According to Eurocockpit, the European pilots association, they are also guilty of social dumping.
“Airlines are increasingly seeking unfair advantages through market-distorting business practices such as social dumping […]. This, in turn, puts pressure on other companies to use similar practices to safeguard their market share,” said Eurocockpit.
In order to cut costs and compete with Gulf airlines, European carriers recruit pilots and crew through foreign work agencies to pay lower taxes and social benefits, Eurocockpit explained. These low-cost contracts means pilots change jobs more frequently and risk being overworked, the association warned.
“Ensuring a competitive level playing field with 3rd country carriers is a precondition for the industry to survive. This must include launching initiatives to foster fair competition and regulatory convergence at bilateral and global level,” Eurocockpit said.
Gulf carriers compete with Europe’s airlines on international flights but the subsidies they receive create distortions in the market, denting the competitiveness of EU and US carriers, critics say.
Qatar, Saudi Arabia, and United Arab Emirates airlines have received €39 billion in state aid from their governments since 2004, according to a study compiled for the big three US airlines: American, Delta, and United.
France and Germany complained about the situation at a meeting of EU transport ministers in Brussels on 13 March, saying “European airlines are losing market share against the Gulf companies, because of their unfair competitive practices, and in particular because of the significant public subsidies and guarantees they enjoy.”
Paris and Berlin called on the European Commission to end such practices by adopting a common strategy on controlling foreign airlines’ operations with traffic rights in the EU.
The EU's Transport Commissioner Violeta Bulc said she will seek a new mandate from EU countries to reopen talks with Persian Gulf states about market-distorting state aid to airlines.
She said the Commission will look not into state aid in Persian Gulf states, but also in countries like China, Brazil, and Turkey.
- 4 June 2015: end of European Commission consultation on the aviation package
- 11 June 2015: EU Transport ministers meeting
- 2nd semester 2015: Commission to publish aviation package