Norwegian’s 787-9 order pressures US Open Skies hypocrisy

Chris Kjelgaard discusses how Norwegian's order for 19 787s has once again put the US' Open Skies policy under scrutiny.

Chris Kjelgaard discusses how Norwegian's order for 19 787s has once again put the US' Open Skies policy under scrutiny.

Boeing’s announcement on Wednesday (October 21) of a firm order by Norwegian Air Shuttle for 19 787-9s along with options for 10 more is putting the spotlight yet again on the blatant hypocrisy the USA’s largest airlines and its Department of Transportation (DOT) have demonstrated over the past two years regarding the nation’s liberalised air service agreements with other states.

While American, Delta and United have been happy to reap major service benefits from the ‘Open Skies’ agreements the DOT has negotiated with well over 100 foreign states and trading blocs such as the EU, these airlines and the DOT have turned viciously protectionist against US Open Skies partners throughout the past two years when it has suited them.

Even while profiting to an unprecedented degree from Open Skies approval for their antitrust-immunised joint ventures, which now dominate the entire transatlantic market and transpacific routes to countries such as Japan and Australia, the big US carriers have publicly rejected their supposed love of free Open Skies markets when faced by strong competitors.

Two examples of extreme protectionism on the part of the US big three are well known. One is their stance against three large carriers based in states on the Arabian Gulf – Emirates, Etihad Airways and Qatar Airways.

American, Delta and United don’t like the fact these passenger-friendly carriers increasingly dominate US-Middle East and US-India routes and – hypocritical to the core – constantly accuse them of receiving massive state subsidies. However, equally constantly, the US big three neglect to note they themselves have long been huge beneficiaries of US state largesse, partly in the form of Chapter 11 bankruptcy protection.

The other example is the big three’s stance against Norwegian’s move to establish a subsidiary in Ireland which it wants to use to acquire, finance at low cost and operate widebody aircraft for long-haul flights throughout the world.

Afraid their highly profitable oligopolies with big European carriers on the North Atlantic will suffer from the low-fare competition Norwegian’s Irish subsidiary would introduce on Europe-US routes, the US big three and their pilot unions have lobbied for two years to prevent the DOT approving the new carrier’s application to fly to the USA. So the DOT has done nothing.

The European Commission approved Norwegian’s application to set up its Irish subsidiary long ago, officially making it an EU-based airline. The DOT’s overly extended foot-dragging on the carrier’s application has infuriated the EU to the point where it has declared the USA to be in breach of the US-EU Open Skies agreement.

If the DOT continues to procrastinate, the EU eventually may feel forced to nullify its Open Skies agreement with the USA. That would immediately mean the EU withdrawing the antitrust immunity the three big US-European transatlantic joint ventures now have to coordinate capacity, schedules and fares among member airlines.

Withdrawal of antitrust immunity could quickly mean fares dropping, whether Norwegian’s Irish subsidiary was operating to the USA or not.

However, Norwegian has adopted several imaginative strategies which, for the medium-term future, will make DOT’s inaction regarding Norwegian’s Irish subsidiary less consequential.

Under its existing air operator’s certificate (AOC), which under the EU-US Open Skies agreement allows Norwegian to operate to the USA despite Norway not being a member of the EU, Norwegian is already operating a growing network of routes to the USA from five Scandinavian and European airports. These include London Gatwick Airport.

Moreover, Norwegian has imaginatively used its existing AOC to launch Boeing 737-800 service from Boston to the Caribbean destinations of Guadeloupe and Martinique, which are officially parts of France.

Theoretically there is nothing stopping Norwegian from operating service from US cities to quite a few other Caribbean islands, which are also officially parts of Europe.

At a dinner in August in Sint Maarten, the cabinet finance secretary for this autonomous part of the Netherlands asked me and a fellow reporter which airlines Sint Maarten should seek to entice. Both of us immediately answered ‘Norwegian’, because Norwegian is open to new ideas and could legally serve Sint Maarten both from the USA and from major European cities.

Subsequent public statements from the head of Sint Maarten’s Princess Juliana International Airport indicate the airport did then approach Norwegian and received strong encouragement regarding future service.

Norwegian has also newly revealed that under its existing AOC it plans to launch service from Boston to Cork and other secondary European cities in 2016 with 737-800s. Also, because the 100 737 MAX jets Norwegian has on order will have enough range to fly between the US East Coast and any Western European city, it plans to use many to expand its transatlantic network.

But Norwegian’s big new order for up to 29 787-9s is the real headline-grabber. Norwegian will undoubtedly use many of them to launch new routes from Europe to Asia and Latin America.

However, the $5 billion order – with all the lobbying by Boeing it may generate – will only increase the pressure on the DOT to ignore the anti-competitive arguments of the US big three and their pilot unions and allow Norwegian’s Irish subsidiary to fly to the USA.

That would be a very good thing for the flying public, both in the USA and Europe: have you noticed recently that many transatlantic economy fares are much higher than transpacific fares?

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