Tag: Aviation

Trade Policy by Other Means: Gulf Airlines and the Electronics Ban

Trade Policy by Other Means: Gulf Airlines and the Electronics Ban

The United States and the United Kingdom both announced last month electronics bans on inbound flights from Middle Eastern countries, yet a notable difference between the orders stands out: the American ban includes airports in the United Arab Emirates and Qatar, but the UK ban does not.

The Trump administration banned carrying consumer electronics larger than a mobile phone – to include laptops and tablets – onto inbound direct flights from eight Middle Eastern and North African countries, including Jordan, Egypt, Turkey, Saudi Arabia, Morocco, Qatar, United Arab Emirates, and Kuwait. The U.S. Department of Homeland Security said the move was a response to the increased targeting of airlines and airports by terrorist groups over the past two years.

The United Kingdom issued a similar ban shortly after, but did not include the United Arab Emirates and Qatar.

While it is difficult to assess the appropriateness of measures taken in the name of national security without access to the classified information on which they may have been based, the fact that the U.K. followed suit lends credence the American concerns. Though the UK’s ban reinforces the likelihood that Washington’s decision was made for pragmatic security reasons, the difference in countries covered by the ban is not insignificant.

Why the UAE and Qatar Stand Out

The American ban uniquely applies to Doha International Airport in Qatar, Dubai International Airport in the United Arab Emirates, and Abu Dhabi International Airport in the United Arab Emirates, which are hubs for three Gulf airlines with which the United States’ three largest airlines have been in a multi-year trade dispute – Etihad (Abu Dhabi, UAE), Emirates, (Dubai, UAE), and Qatar Airways (Doha, Qatar).

The “Big Three” American airlines – United Airlines, Delta, and American Airlines – lobbied the Obama administration to review the Gulf airlines’ access rights to U.S. airports under Open Skies agreements, alleging that they benefit from unfair government subsidies that allow them to steal market share by offering better service at cheaper prices. The Gulf airlines counter that American airlines benefit from their own forms of government subsidization, including American bankruptcy protection laws (United Airlines filed for bankruptcy in 2002, Delta filed in 2005, and American Airlines filed in 2011) and public investment in airports and related infrastructure.

The inclusion of Qatar Airways, Etihad, and Emirates’ hub airports in the ban strikes at the core of these airlines’ strategic geographic advantage. Situated at the nexus of Europe and North America to the west, Africa to the south, and South Asia and East Asia to the east, these airports serve as efficient collection points facilitating global passenger flows, collecting in a central location disparate passengers traveling from one end of the world and sending them off to shared destinations on the other.

The ban dramatically inconveniences business travelers flying on Etihad, Emirates, and Qatar Airways, incentivizing them to travel on competing airlines instead. Business travelers are often expected to work while in the air, especially during long-haul flights. Now imagine a business traveler flying 14 hours without access to a laptop.

Business travelers will look elsewhere as long as this ban holds. By incentivizing business travelers to choose alternative airlines for their cross-global travel, the ban negatively impacts the Gulf airlines’ business prospects in the United States.

The ban will negatively affect the Gulf airlines’ ability to profitably conduct business in the United States. But is the ban justified on its security merits?

 

Security and the Gulf Airlines

One of the challenges in writing on security policy is the lack of access to national security information on which decisions may have been made. Any assessment based on publicly available information is necessarily limited for this reason – to put it simply, “you don’t know what you don’t know.”

That the UK does not include Qatar and the UAE in its ban suggests that there is at minimum a difference of opinion on the relevance of these countries to the threat these measures are meant to address. It should also be noted that the Gulf airlines and their airports take security at the last point of departure seriously, which is to be expected given their objectives of serving as major global hubs.

Of particular note, the UAE’s Abu Dhabi International Airport even has an American passport control point staffed by American Customs and Border Patrol agents inside the airport through the U.S. government’s Preclearance Program. Passengers flying to the United States from Abu Dhabi pass through American passport control and customs while in Abu Dhabi, before they even set foot in the United States. It’s worth quoting Customs and Border Patrol at length to get a full sense for what exactly this means (emphasis added):

Preclearance Overview

U.S. Customs and Border Protection (CBP) air Preclearance operations is the strategic stationing of CBP law enforcement personnel overseas to inspect travelers prior to boarding U.S.-bound flights. Through Preclearance, CBP Officers conduct the same immigration, customs, and agriculture inspections of international air travelers typically performed upon arrival in the United States before departure from foreign airports.

Today, CBP has more than 600 law enforcement officers and agriculture specialists stationed at 15 air Preclearance locations in 6 countries: Dublin and Shannon in Ireland; Aruba; Freeport and Nassau in The Bahamas; Bermuda; Abu Dhabi, United Arab Emirates; and Calgary, Toronto, Edmonton, Halifax, Montreal, Ottawa, Vancouver, and Winnipeg in Canada. CBP also staffs a Pre-inspection facility for passenger/vehicle ferry traffic to the U.S. in Victoria, Canada.

In Fiscal Year 2016, CBP personnel stationed abroad precleared 18 million travelers, representing over 15 percent of all commercial air travelers to the United States.

Preclearance Benefits

DHS firmly believes that establishing Preclearance operations in strategic locations will assist our efforts in identifying terrorists, criminals, and other national security threats prior to their boarding an aircraft bound for the United States, and is a critical step in DHS’s continued efforts to enhance national security and facilitate growing international travel and commerce.

The aviation security benefits of Preclearance are substantial because a uniformed, U.S. law enforcement officer interviews the precleared passenger before he or she boards the plane. This added security layer provides an additional opportunity to detect and stop threats as early in the process as possible.

In addition to enhancing security, Preclearance has the potential to increase capacity and create growth opportunities for airports and air carriers in the United States and abroad, while improving the passenger experience. Preclearance generates the potential for significant economic benefits for the United States and our international partners by facilitating travel through all gateways, creating an overall increase in clearance capacity, and maximizing aircraft and gate utilization. For travelers, Preclearance leads to faster connections and the ability to exit the airport immediately upon landing the United States.

Source: U.S. Customers and Border Patrol

Preclearance is explicitly designed to mitigate threats to national security, including from terrorism, before passengers depart for the United States. Passengers flying to the United States from Abu Dhabi pass through the same U.S. customs in Abu Dhabi, manned by U.S. CBP Officers, that they would receive once in the United States; they receive the same aviation security screening as they would if flying domestically in the United States:

Aviation Security Screening 

Preclearance passengers, and their carry-on and checked baggage, must undergo aviation security screening prior to entering the CBP inspection area. Aviation security screening, as part of the preclearance process, must be maintained at a level comparable with Transportation Security Administration (TSA) standards. This ensures security on U.S.-bound flights and allows passengers and their baggage to transfer to connecting flights in the United States without undergoing re-screening. Some foreign airports may already provide security screening at or near this level, but a signed Memorandum of Cooperation between TSA and the local General Civil Aviation Authority is required for preclearnance operations.

Source: Preclearance Expansion: FY2016 Guide for Prospective Applicants (CBP)

If CBP officers are on premises and the provision of aviation security screening is on par with America’s, but Abu Dhabi International Airport still does not provide sufficient screening of electronic devices, then no airport anywhere can, including in the United States.

Trade Policy by Other Means?

It is impossible to know based on publicly available information why Dubai, Abu Dhabi, and Doha are included in the American electronics ban, but not the United Kingdom’s. If the justification is that these airport’s security practices are not up to par, then at the very least Abu Dhabi’s inclusion is unusual.

It is possible the decision was driven by information that flagged the UAE and Qatar as potential threat sources. According to the Department of Homeland Security’s FAQ sheet, “DHS, in close cooperation with our intelligence community partners, selected these airports based on the current threat picture.” That’s a broad statement, but it’s possible the rationale could cover other dimensions such as the geographic origins of potential threats. For example, al Qaeda in the Arabian Peninsula attempted to route bombs hidden in printer cartridges on cargo flights through Dubai in 2010. However, that does not explain why the United Kingdom viewed the threat differently and did not include these countries.

Without knowing the information on which the electronics ban decision was based, we simply cannot confidently assess whether such a far-reaching decision was commensurate with the threat and why the UAE and Qatar were covered in the U.S. ban but not the UK’s. But given American president Donald Trump’s mercantilist trade rhetoric, his pledge in February to help American airlines in their Open Skies spat with the Gulf airlines, and the fact that Abu Dhabi already meets American aviation security standards and is staffed by U.S. CBP officers, it is not unreasonable to consider whether protectionist trade motives played a significant role.

Cover Picture: Public Domain

Are Gulf Airlines Destroying U.S. Aviation? The PR Battle in a Trade Spat Heats Up

The PR conflict between Gulf-based airlines Qatar Airways, Emirates, and Etihad, and the three biggest American airlines is heating up. For those of you who are just catching up, the three largest U.S. carriers—Delta, United, and American Airlines—formed a lobbying group called the Partnership for Fair and Open Skies (the Partnership) and earlier this year filed a complaint to the U.S. government accusing the three Gulf carriers of violating their Open Skies agreements, which allow foreign airlines to land in the U.S., by receiving unfair subsidies from their government owners and investors. The Delta-United-American alliance wants the Obama administration to renegotiate the Gulf carriers’ Open Skies agreements to limit the allegedly subsidized “excess” passenger capacity they have been delivering to the United States.

The Gulf carriers are much younger than the American legacy carriers but are starting to eat into the American carriers’ international market share, particularly on routes to the Indian subcontinent, by offering better service at lower prices. The Partnership claims this is only possible because of their alleged government subsidies.

In the latest round, a report apparently sponsored by the Partnership claims that the demise of the U.S. shipbuilding industry offers a cautionary tale for how foreign subsidies could kill the American aviation industry:

“The end of a level playing field in aviation, with U.S. companies facing direct competition from subsidized foreign carriers, is remarkably similar to what happened to U.S. shipbuilders in the 1980s. If these foreign carriers are indeed successful in shifting traffic from American companies to their own, then American aviation will suffer…If this foreign, subsidized capacity remain unregulated, the U.S. aviation industry will be decimated by a loss of almost 200,000 jobs.”

Two immediate problems with the report’s comparison of the U.S. aviation industry to the demise of American shipbuilding jump out at me. First, the Gulf carriers are among the largest purchasers of Boeing’s passenger aircraft. In 2014, Emirates placed a $56 billion order for a whopping 150 Boeing 777Xs. Qatar Airways also bought 50 777Xs last year and added 14 more 777s this year. Etihad snapped up 25 777Xs in 2013 and, as of 2014, had also ordered 71 of Boeing’s 787 Dreamliners. One of the Partnership’s claims is that government subsidies have helped Gulf carriers buy massive fleets of modern aircraft in a way private American companies would not or could not be able to finance themselves. Taking this assertion at face value, I fail to see how this would lead to the demise of the U.S. aviation industry, which would include American aircraft manufactures like Boeing, a la American shipbuilding in the 1980s. Certainly it would suggest the opposite.

Perhaps the author meant to limit the aviation industry comparison to just American air carriers, rather than the “apples-to-apples” comparison of shipbuilding to aircraft manufacturing. Even still, the argument does not hold. The second problem is that, even if the three legacy American carriers lose significant international market share to foreign competitors, they will hardly be put out of business. American airlines have the exclusive right to service the American domestic market. This domestic market will never go away and will never be the provenance of a foreign carrier, Gulf or otherwise. Foreign air carriers are not and legally cannot be substitutes for American carriers on the domestic market the same way a foreign-built ship could substitute for an American-built ship. The only logical comparison, in which the American product and foreign products actually are substitutes on the domestic market, is aircraft manufacture. Chicago-based Boeing is in a cushy position, locked in a duopoly with France’s Airbus for the global passenger jet market (no disrespect to our Canadian and Brazilian friends at Bombardier and Embraer). The American aviation industry will be alright.

Furthermore, the American carriers’ international routes to Europe are rather secure. Through a mechanism known as “immunization,” the U.S. Department of Trade is able to grant immunity from U.S. anti-trust laws to members of international airline alliances. The American carriers and their European counterparts (Delta and Air France-KLM in the SkyTeam alliance; United and Lufthansa in the Star Alliance; and American Airlines and British Airways in the OneWorld Alliance) have used this law to legally limit competition on transatlantic routes (which, by the way, has led to a significant increase in ticket prices compared to routes with more independent competition, according to a study by the U.S. Department of Justice). In any case, a third country airline cannot fly revenue-generating passenger routes connecting European and American cities (or any two other countries’ cities for that matter) except for routes where the European city lies as a waypoint between the third country and the American city, in which case all three countries must negotiate in order for the American and European parties to grant the third country airline the exception.

The U.S. domestic market and the transatlantic European markets are essentially locked in. In effect, the real threat from the Gulf airlines is in the market for passengers from fast-growing emerging markets, especially the Indian subcontinent. It is understandable that the U.S. carriers would be frustrated by their Gulf competitors’ ability to use government financing at extremely favorable terms to purchase new aircraft, expand their capacity on routes connecting India to the U.S. via their hubs in the Gulf and, in doing so, drive down prices and margins on those routes. But this hardly signals the “demise” of the American aviation industry, and analysts like Aaron Klein, the author of the study and a director at the Bipartisan Policy Center, should know better.

The alarmist tone of this and other Partnership research does not help its case. American travelers already sense that the Gulf carriers provide better customer service and a better flying experience at a lower price. If these Gulf carriers’ gains are unfairly earned, hyperbole and exaggeration will hardly help convince frustrated, budget-conscious, and quality-conscious American travelers to care.

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NOTE: Over the past few days I’ve been digging into the Partnership’s white paper and the Gulf airlines’ responses, trying to see who has a better case. I intend to publish an analysis of what I find in the coming week. I also intend to be more prolific with my writing here (inshallah).