US hits West Asian airlines below the belt

The three West Asian carriers — Etihad, Qatar and Emirates, known as the ME3 airlines — have taken market share away from European air carriers (Lufthansa, British Airways, Air France, KLM) and US airlines (American, United and Delta Airlines).

Last month, US President Donald Trump used the power of his office to do US carriers a huge favour. His Department of Homeland Security listed seven West Asian airports — Amman, Cairo, Jeddah, Riyadh, Kuwait City; Casablanca, Doha, Dubai and Abu Dhabi — for travel restrictions effective March 25.

The main new restriction is that passengers on airlines flying to the US from these airports will not be allowed to carry laptops, notebooks, tablets and cameras — any electronic device larger than a smartphone — on board. They are forced to check such devices into baggage holds. A recent CNN report explaining this rationale said that a laptop bomb when in the cargo bay is more difficult to trigger remotely. Also, placing devices in the cargo bay might reduce damage even if a bomb were to explode. No US airline serves any of the said airports, but curiously, the new rules explicitly do not apply to US carriers.

The fact is that there has been no terror incident on the ME3 carriers to date, all of which sport an outstanding safety record.

As a practical matter, no experienced traveller will consign pricey electronics to checked baggage. Travellers expect to not only use their devices in flight but also fairly soon after landing — and the risk of damage to a laptop for a business person, student or employee is too much to stomach.

The result is that the laptop restrictions are bound to affect passenger load factors on Etihad, Emirates and Qatar.

For free-market activists, it appears that Trump has used the excuse of aviation security to weaken the competitiveness of ME3 airlines. These carriers operate over 40 flights a week to multiple US gateway cities drawing passengers from all over Asia. US-bound travellers from India are vital to the ME3 revenue model and profitability.

Indian travellers can theoretically choose from 28 different airlines in Mumbai and 36 airlines in Delhi to connect to the US. But most passengers stay with the big names — the ME3 airlines, Air India, Jet Airways, the western airlines and a few eastern carriers such as Singapore Airlines, and Thai. (United is the only American carrier with service to India). With ME3 airlines hurting, the competition clearly benefits. BusinessLine reports that Air India bookings to the US have doubled in the two weeks since the ban was announced. American carriers will rely on their vaunted alliances to bring Indians to the US via their vast European and Pacific hubs.

The ban is not fair because it picks out ME3 carriers for differential treatment. The ME3 airlines have always been competing the hard way — buying new planes, hiring pilots, expanding capacity, extending networks and increasing the frequency of flights — and have helped bring fares down.

Until a decade ago, Dallas passengers flying to India had just two airlines offering one-stop connections: British Airways and Lufthansa, and prices were high. Today all the ME3 airlines offer one-stop connections to India through their hubs and with so many seats available, fares have fallen to the delight of passengers.

Service on these airlines is generally more reliable because they are exempt from onerous labour policies of the western carriers which have resulted in frequent work stoppages.

And then, there are taxes. The costs of building and maintaining airports are assumed by the rulers and not passed on to passengers in the form of airport taxes and fees. For a flight from India to the US, British Airways routinely charges nearly $250 in taxes to connect through Heathrow.

Etihad, in contrast, charges just $45 to connect via Abu Dhabi. Lower taxes further reduce ticket prices and were driving traffic to the ME3 airlines. Until the laptop ban. The ME3 carriers have immediately responded to the ban. Emirates says that it will allow passengers to use laptops until the flight is called and will pack passenger laptops in special pouches to take to the baggage hold for the flight. It will also offer free tablets for use on flights. Etihad and Qatar are offering business class passengers use of free company laptops in flight. It is not clear how many passengers will find these workarounds satisfactory.

The western carriers contend that West Asian government investments and tax-free benefits amount to illegal subsidies to the ME3 airlines. But this claim is a little dishonest. Of the top 10 US carriers, eight of them have declared bankruptcy, some multiple times in the last decade. In reorganising after bankruptcy, creditors were forced to forgive billions of dollars of debt in court. These credit subsidies did not come from the government but they came from private investors. A dollar is a dollar no matter what the source. What Trump has done is more anti-competitive. He has changed the rules of a cricket match in which one side is allowed to field 11 players but the other side only eight.

The writer is the managing director of Rao Advisors LLC, Texas