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Gulf airlines heavily subsidized by their governments are causing a potentially devastating economic impact to U.S. markets.

That’s what a report issued by expert industry economist Bill Swelbar Wednesday found as a result of Emirates, Etihad Airways and Qatar Airways shifting passengers away from U.S. carriers without generating new demand.

 “With each new U.S. gateway that the subsidized Gulf carriers enter, there will be more and more smaller communities that will see their traffic numbers dwindle and their domestic services threatened as international passengers drive directly to these gateways to access subsidized Gulf carrier flights,” the report stated.

Swelbar’s report notes the unprecedented influx of subsidies paid by the governments of United Arab Emirates and Qatar to their state-owned airlines are distorting the market with:

  • A rampant increase in subsidized Gulf carrier capacity, beyond what regional demand would dictate;
  • A reduction in passengers traveling on U.S. airlines to key local and connecting markets;
  • A shift of connecting passengers from U.S. airlines to subsidized carriers; and
  • A reduction in U.S. airline service, due to the reduction in local and connecting passengers.

Open Skies bilateral agreements encourage competition among airlines, but government subsidies are a violation of such agreements because they tilt the playing field in the subsidized carriers’ favor.

“The U.S. carriers are not asking to undo the Open Skies policy that has benefitted U.S. consumers and communities in the overwhelming majority of cases,” Swelbar’s report said. “They simply insist that competition with Gulf carriers is conducted in a way that meets the Open Skies agreement of ‘fair and equal.’”

The Partnership for Open & Fair Skies is a coalition including Delta, American Airlines and United Airlines that is urging the U.S. government to open consultations with the government of the UAE and Qatar to address the flow of subsidized capacity into the U.S.