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The US-Gulf Carriers Dispute As a Threat to Open Skies Agreements

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The US-Gulf Carriers Dispute As a Threat to Open Skies Agreements The U.S-Gulf Carriers Dispute as a Threat to Open Skies Agreements: Load Factor as a Criteria to Judge the Misconduct of the Open Skies Agreements By Majed Alwehaibi A Thesis Presented In Partial Fulfillment of the Requirements for the Degree of Master of Science in Aviation Administration Middle Tennessee State University May, 2017 Thesis Committee: Dr. Paul A. Craig, Chair Dr. Wendy S. Beckman, Committee Member Dedicated to my wife, the woman who left everything 7300 miles away to facilitate my success. She has been supportive and helpful, To the man and woman who sent their hearts 7300 miles with me, my father and my mother. And to my little princesses, Joud and Seba. ii ACKNOWLEDGMENTS I feel one or two pages are not enough to show gratitude and appreciation of who helped and supported me in this journey. First, after thanking God, I would thank and recognize this great nation, the U.S nation, for the warmness, openness and hospitality toward international students. I would also thank and recognize my country, Saudi Arabia, for providing me with this opportunity. I also would seize the opportunity to recognize Prince Fahd Bin Abdullah the Ex-President of the General Authority of Civil Aviation for supporting me in this move. Prince Fahd, your response to my scholarship request was a great moral in supporting youth in Saudi Arabia. Secondly, I’m very sure that without my parent’s prayers and support I would not have a step forward. Thank you, Mr. Abdurrahman Alwehaibi and Mrs. Latifa Alarfaj. I would also to recognize and thank my brothers and sisters. They always sent me joy and happiness. Appreciation is extended to all my family and my friends. I, literally, feel that Aerospace Department is my family in the USA. The Department provides love, support, happiness and warmness of the family. I would also thank my classmates from USA, China, India, France, Ghana and Uganda. Special thanks to the faculty and to the staff of the Department and the School at large. Full gratitude, appreciation and respect to the committee that eased, fostered and enriched my thesis project; Dr. Paul Craig and Dr. Wendy Beckman. It’s a great achievement to work with such Professors. Thanks for the time, effort and support. iii ABSTRACT The Open Skies Agreement was a great achievement for air transportation liberalization. Many studies have proved the Agreements’ benefits to passengers, airports and airlines. However, in 2015, Delta Airlines, United Airlines and American Airlines submitted a white paper to the U.S government claiming that the three Gulf carriers, Emirates Airlines, Etihad Airways and Qatar Airways, are receiving subsidies and flooding the U.S international travel market with more than half empty flights. The Gulf carriers denied receiving any governmental support, and that alleged subsidies could not be proven or disproven. To try to determine if those carriers are operating empty flights, data was collected from the T-100 International Segment database to investigate the flood of empty flight accusation. The results revealed that the Gulf carriers experienced a huge increase in flights and passengers during the study period, and that, they were operating with a passenger load factor comparable to the U.S carriers. iv TABLE OF CONTENTS LIST OF TABLES …………………………………………………………………….. vii LIST OF FIGURES ………………………………………………………………….... viii CHAPTER I – INTRODUCTION ………..………………………………….................. 1 Literature Review ……………………………………………………………….. 2 The Major U.S Carriers …………………………………….…………… 4 American Airlines (AA) ….....…………………….…………….. 4 Delta Airlines (DL) …..…………………………………………. 5 United Airlines (UA) ..…………………….…………………….. 6 The Gulf Carriers ………………………………………………………... 7 Emirates Airlines (EK) ……...…………………………………... 7 Qatar Airways (QA) ...…………………………………………… 7 Etihad Airways (EA) …………………………………………….. 8 Previous Studies …………………………………………………………………. 8 Important Updates ……………………………………………………………… 15 Importance of the Topic and Statement of the Problem ……………………….. 16 Research Questions ……………………………………………………………. 17 CHAPTER II – METHODOLOGY ……………………………………………..…….. 18 Participants and Instrument Used …………………..………………………….. 20 Design ………………………………………………………………………….. 20 Data Collection ………………………………………………………………… 21 Data Analysis …………………………………………………………………... 23 v CHAPTER III – DATA ANALYSIS ………………………………………………..… 27 Load Factor Calculations ………………………………………………………. 27 Descriptive Statistics of the Airlines Groups’ Load Factor …...……………….. 31 Gulf Carriers’ Performance Compared to the Other Carriers ……...…………... 32 Two-sample t-Test for the Main Hypothesis …………………………………... 35 Pearson Correlation to Examine Carriers’ Performance …..………………….. 37 Correlation between Gulf Carriers’ LF and Other Carriers’ LF ………..……... 40 Correlation to Examine Relationship between LF and the Gulf Carriers’ Expansion ……………….……………………………………………………… 43 CHAPTER IV – DISCUSSION AND CONCLUSION …..……….………………….. 46 Research Question 1 Discussion ……………………………………………….. 46 Research Question 2 Discussion ……………………………………………….. 47 Research Question 3 Discussion ……………………………………………….. 47 Research Question 4 Discussion ……………………………………………….. 48 Research Question 5 Discussion ……………………………………………….. 49 Limitations ……………………………………………………………………... 50 Future Studies ………………………………………………………………….. 51 Conclusion …………………………………………………………………...… 51 REFERENCES ………………………………………………………………………… 54 APPENDICES ………………………………………………………………….……… 62 Appendix A – Current Open Skies Agreement Model ……………..………………….. 63 Appendix B - Open Skies Partners …………………………………………………….. 78 vi LIST OF TABLES 1. Airlines Groups for the Study………………………………………………….... 20 2. Strength of Correlation ………………………………………………………..…. 26 3. All Participants Airlines Load Factor ……………………………………….….... 28 4. Airlines Groups Load Factor ……………………………………………….….… 30 5. Descriptive Statistics for the Airlines Groups ………………………………...….. 31 6. Gulf Carriers’ Growth in Flights and Passengers …………………………….….. 33 7. Number of Passengers …………………………………………………....….….... 35 8. t-Test: Two-Sample Assuming Equal Variances ………………………….……... 36 9. Correlation (relationship) between Gulf Carriers’ LF and U.S Carriers’ LF ….… 37 10. Correlation between Gulf Carriers’ and U.S Carriers’ Number of Passengers .…. 39 11. Correlation (relationship) between Gulf Carriers’ LF and Other Carriers’ LF …... 40 12. Correlation between Gulf Carriers’ and Other Carriers’ Number of Passengers …. 42 13. The Relationship between Gulf Carriers’ LF and Number of Passengers …..……. 43 14. The Relationship between Gulf Carriers’ LF and Number of Flights ………..…... 44 vii LIST OF FIGURES 1. Airlines Passenger and Freight Load Factor ……………………………..……….. 19 2. Air Passenger Market Detail ……………………………………………………… 19 3. T-100 International Segment Interface …………………………………………… 22 4. Downloaded Row Data …………………………………………………………… 23 5. Load Factor Formula ……………………………………………………………… 24 6. Load Factor Calculations 1 ……………………………………………………….. 24 7. Load Factor Calculations 2 ……………………………………………………….. 25 8. All Participants Airlines Load Factor …………………………………………….. 29 9. Load Factor of Airlines Groups …………………………………………………... 30 10. Airline Groups Load Factor Performance in 2015 ……………………………….. 32 11. Gulf Carriers’ Growth in Number of Flights and Number of Passengers to the US Market ………………………………………………………...…………………... 34 12. Scatterplot of the Relationship between U.S and Gulf Carriers’ LF ………..……. 38 13. Development of Gulf Carriers’ and U.S Carriers’ LF ………….………………… 38 14. Scatterplot of the Relationship of U.S and Gulf Carriers’ Number of Passengers .. 39 15. Scatterplot of the Relationship between Gulf Carriers’ and Other Carriers’ LF .… 41 16. Development of Gulf Carriers’ and Other Carriers’ LF …………….……………. 41 17. Scatterplot of the Relationship between Gulf Carriers’ and Other Carriers’ LF .… 42 18. Scatterplot of the Relationship between Gulf Carriers’ LF and Number of Passengers .……………………………………………………………………….. 43 19. The Development of the Gulf Carriers’ LF and Number of Passengers ………..… 44 20. Scatterplot of the Relationship between Gulf Carriers’ LF and Number of Flights .45 viii 21. Development of Gulf Carriers’ LF and Number of Flights ………..…......…...….. 45 ix 1 CHAPTER I - INTRODUCTION The foundation of the Open Skies Agreements was a victory for the U.S air carriers as well as carriers from the second party countries. According to the U.S Department of State (n.d.), the Open Skies Agreements increased the number of international passengers and cargo to/from the USA. Therefore, the U.S economy has grown and produced new jobs (U.S Department of State, n.d.). Consequently, the U.S government signed more than 100 Open Skies Agreements. However, some of the major U.S air carriers lobbied, in 2015, and claimed that the expansion of the Gulf carriers is a threat to international aviation and the Open Skies Agreements in specific. The U.S carriers claimed that the Gulf carriers are subsidized state-owned carriers that are competing unfairly with other airlines (“Get the Facts on Gulf Carrier Subsidies,” 2016). In January 2015, three major U.S carriers (American Airlines, Delta Airlines, and United Airlines) had a meeting with the Obama Administration to submit, in a white paper, their findings regarding the three Gulf carriers; Emirates Airlines, Etihad Airways and Qatar Airways (Sasso, 2015). In a 60-page document, the U.S carriers presented the issue and the allegations to the Administration. The presented document was called “Restoring Open Skies: The Need to Address Subsidized Competition from State-owned Airlines in Qatar and the
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