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Tiny Air Italy Pushes Back on Big U.S. Carriers That Say It Competes Unfairly

Brian Sumers
Tiny Air Italy Pushes Back on Big U.S. Carriers That Say It Competes Unfairly

Air Italy, the European airline 49 percent owned by Qatar Airways, continues to push back against accusations by the three major U.S. carriers that it is “cheating” by adding new flights from its Milan hub to several U.S. cities.

“I would love to know how we are cheating,” Rossen Dimitrov, Air Italy’s chief operating officer, said in an interview. “We are a fully European airline, and we meet all the regulations and requirements of the EU. We have a majority shareholder which is European.”

This is the latest in the war of words between the trade group representing American Airlines, Delta Air Lines and United Airlines, and the largest Gulf carriers, Qatar, Emirates, and Etihad Airways. The group, the Partnership for Open & Fair Skies, long has complained about Gulf carriers, arguing they are unfairly subsidized by their governments, leaving the U.S. airlines unable to compete effectively.

Historically, it has two issues. First, it objected to flights the carriers launched from their home hubs to U.S. cities, saying the airlines dumped more capacity than the market could reasonably support. Second, it opposed Gulf carrier flights from Europe to the United States, such as Emirates’ Milan-New York service, which the airlines are permitted to operate under the Open Skies agreements their governments signed with the United States.

Those concerns are less of a problem now than a couple of years ago. The Gulf carriers have been retrenching, and they’re no longer adding U.S routes, whether from their home hubs or from Europe.

More recently, the trade group has found a new enemy — Air Italy. It’s an airline that didn’t exist until last year, when Qatar Airways bought nearly half of a short-haul Italian airline called Meridiana, and renamed it.

The airline has changed its strategy and has been growing quickly since. This summer it is flying from Milan to Los Angeles, San Francisco, Miami, and New York, mostly with airplanes leased from Qatar.

The three major U.S. carriers have questioned Qatar’s motivations, asking the U.S. State Department to look into whether Qatar’s investment is appropriate.

“With respect to Meridana Airlines, it is clear that that airline could not be driving the growth and funding the losses it is clearly having if there wasn’t a strong government entity behind the scenes funding that,” Delta CEO Ed Bastian told reporters earlier this month in Seoul. “The questions are appropriate.”

Secretary of State Mike Pompeo has said he takes the Air Italy threat seriously, but that doesn’t mean the government will take action.

No Legal Standing

On a legal basis, the larger U.S. carriers likely don’t have much of an argument.

Air Italy is a European-registered airline, and the majority of it is owned by a European shareholders. Just as Delta can own 49 percent of Virgin Atlantic and 10 percent of Air France-KLM, Qatar can own 49 percent of Air Italy.

“What are we doing different than Delta is doing with Virgin and everyone else?” Dimitrov said .”If we call an investment cheating, then we need to redefine the definition of investment.”

Other U.S. interests agree. Earlier this year, the CEOs of FedEx, JetBlue, and Atlas Air wrote to Pompeo, asking him not to take action against Air Italy or Qatar. They noted the Italian Civil Aviation Authority and the European Commission already ruled Air Italy is a European airline, and warned other countries could retaliate if the United States pulls Air Italy’s traffic rights.

“Should the U.S. breach the U.S.-Qatar agreement by restricting Qatar Airways’ rights into the U.S., or the U.S.-EU agreement by restricting Air Italy flights, we can expect to see a rapid unraveling of hard-fought aviation rights around the world when other governments take similar action to shield their state-owned airlines from competition,” they said. “Undoubtedly, closing access to global markets will be a punishment that brings higher prices and fewer choices for American travelers, consumers, and shippers.”

Alaska Airlines did not sign the letter, but it has also tacitly endorsed Air Italy. Earlier this month, it agreed to an interline relationship with Air Italy that will allow customers from both airlines to connect to the other’s flights. The relationship could boost Air Italy’s revenues in San Francisco and Los Angeles, as it will now have access to new customers.

In the future, Dimitrov said, it is possible the two carriers might form a closer codeshare relationship.

Not a Major Threat

The major U.S. airlines may never persuade regulators to shut down Air Italy, but they can pressure it in other ways.

Most obvious is price. Savvy travelers may have noticed an unusual number of fare sales to Milan recently, such as the $582 price offered by United Airlines from Los Angeles for fall travel. A global airline like United can afford to sell prices so cheaply to put pressure on a competitor.

There are other levers, too. To make a route work, airlines generally need connecting passengers, so the Miami flight could pull passengers not just from South Florida, but from the entire Southeast. But with the exception of Alaska, which does not fly to Miami, Air Italy does not have much feed in the United States

Dimitrov said Air Italy has reached out to the three major carriers about an interline relationship. It is not unprecedented for an airline to have such a relationship with a fierce competitor. But in this case, not surprisingly, none has agreed.

“I would love to have a long term relationship with any of them, or all of them,” he said.

There is also the matter of reliability and meeting customer expectations. In an odd move, Air Italy announced a new Chicago route late last year, and began selling tickets for it, only to cancel it a couple of months later. Instead of starting it in spring 2019, the airline said, it will begin in 2020. Dimitrov blamed it on an “aircraft delivery issue.”

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