Air Italy violates Open Skies pact with Qatar subsidies, U.S. airlines say

A tiny 15-plane carrier in Italy is creating turbulence within the U.S. airline industry, pressuring President Trump to resolve the aerial conflict.

The Big Three U.S. passenger airlines — Delta, American and United — are calling on the Trump administration to take action over their claims that Qatar has violated the 2018 Open Skies agreement by using “massive government subsidies” to add routes via its proxy, Air Italy.

The agreement limits Qatar’s ability to fly between U.S. and European destinations but doesn’t stop Air Italy, which is 49% owned by Qatar Airways. The once-struggling Italian line now is making daily nonstop flights to New York with expanded service to Los Angeles, Miami and San Francisco in what rivals describe as a “grave threat” to the U.S. industry.

“Last year, President Trump took a stand for American workers by negotiating an agreement with Qatar designed to end its Open Skies violations. In the months since, we’ve seen Qatar has no intention of respecting this administration or playing by the rules,” said Scott Reed, managing partner of the Partnership for Open & Fair Skies, a coalition of the Big Three airlines and the pilots and flight attendants unions.

Meanwhile, Qatar Airways has accused the large U.S. carriers of trying to stifle competition with allegations that “defy all logic,” and not all U.S. airlines are on board with the Big Three.

In Qatar’s corner are JetBlue, three cargo carriers, airports and tourism interests that benefit from the increased traffic and economic activity, fueling a standoff that could land on the agenda of Mr. Trump’s July 9 meeting with the Qatari emir at the White House.

The skirmish is certain to be on the administration’s radar. The partnership launched a media campaign in April with television spots in the D.C. market and ads in New York newspapers urging Mr. Trump to “hold Qatar accountable” and appealing to his well-known distaste for bad trade deals.

Earlier this month, 10 members of Congress led by Rep. Debbie Lesko, Arizona Republican, sent a letter to the administration asking for “further examination and a response” into whether Qatar is complying with the agreement.

“Air Italy’s entry into this crowded market appears consistent with Qatar Airways pattern of adding subsidized capacity in markets where demand is already well-served,” said the letter. “Without funding from Qatar Airways, Air Italy would be unable to launch its new service, just as Qatar Airways would not be viable without direct support from the Qatari government.”

At an April hearing of the Senate Foreign Relations Committee, Secretary of State Mike Pompeo confirmed under bipartisan questioning that “the U.S. government sees what’s going on.”

“We think it was a good agreement, and we’re trying to ensure it’s enforced,” Mr. Pompeo said.

As far as Qatar Airways is concerned, the Big Three are trying to beat back competitors for the U.S.-European market with specious claims of cheating.

Qatar Airways argued that the agreement permits the investment in Air Italy, announced in 2016, before the Open Skies accord was finalized in January 2018. Qatar and the Big Three airlines have feuded over the agreement’s stance on subsidies.

“Qatar Airways has fully complied with the 2018 Aviation Understandings between the US and the State of Qatar,” Qatar Airways said in a statement to The Washington Times. “Efforts by the 3 largest US carriers to claim that its pre-existing minority investment in Air Italy violates the Understandings defy all logic.”

Air Italy has 15 aircraft, but only five are capable of long-haul service. The combined fleet of the largest U.S. carriers is 4,500 planes. The Big Three and their alliance partners control more than 90% of trans-Atlantic capacity.

“The rhetoric surrounding this minority investment bears no resemblance to reality, and the claim that operations by Air Italy to the US pose any threat to the US aviation industry should be rejected out of hand,” said Qatar Airways.

Tori Barnes, U.S. Travel Association executive vice president of public affairs and policy, argued that Open Skies has resulted in trade surpluses with Qatar and the United Arab Emirates stemming from purchases of U.S.-made planes and increased international travel.

“The Trump Administration has done everything right,” Ms. Barnes said in an email. “They’ve thoroughly investigated the U.S. three’s concerns and they’ve required the Gulf Carriers to be more financially transparent to ensure no wrongdoing.”

At the same time, she said, “the Administration has yet to find any evidence of a violation or economic harm caused to U.S. carriers. That’s why the Administration has also kept Open Skies intact and taken steps to protect all U.S. interests.”

Ms. Barnes argued that the Big Three have the option of filing a complaint with the Transportation Department, but opponents said such a process would only bring the parties to where they are now: before the administration.

U.S. Airlines for Open Skies, led by JetBlue and three cargo carriers, blasted the “disinformation campaign” against Open Skies agreements with Qatar and the United Arab Emirates.

In a letter last month to the administration, the organization warned that restrictions on Qatar Airways or Air Italy flights would bring higher prices and “invite retaliation against U.S. airlines,” putting at risk “hundreds of thousands of American jobs.”

Emirates and Etihad Airways are owned by the UAE government. JetBlue has a code-sharing relationship with Qatar Airways.

“Retaliation would also have a crippling impact on U.S. passenger carriers seeking new service to the EU and halt any ability to bring down ticket prices in the outrageously expensive trans-Atlantic market,” said the organization.

Air Italy has remained defiant. It announced plans last month to add at least two North American destinations in 2020. All but the New York flights are now seasonal, but the airline has considered going year-round with flights from Milan to either San Francisco or Los Angeles.

“We will be happy to work with American, Delta and United. I have all respect for them,” Air Italy Chief Operating Officer Rossen Dimitrov told FlightGlobal. “Instead of us fighting, we could work together.”

That may be a flight of fancy.

“Qatar’s Open Skies violations represent a major threat to the U.S. airline industry and the more than 1.2 million jobs it supports,” Mr. Reed said. “We hope President Trump keeps this in mind when he meets with the emir and makes good on his campaign pledge to protect American workers.”