Tag Archives: globalization

Dispatch from the battle lines over Globalization: US Airlines take on the Middle East Carriers

Dubai International Airport. CC image from Raihan S.R. Bakhsh

Dubai International Airport. CC image from Raihan S.R. Bakhsh

There’s a fight brewing amongst big international airlines. The old guys are complaining that the new kids aren’t playing by the same rules; the new kids argue that the old guys need to step up their game. The dispute represents a fascinating window into a very public battle over globalization. What are the rules, and who gets to make them?

A coalition of the three major American airlines (American/US Airways, United, and Delta) combined with many of the unions that represent their employees are putting on a full-court press (complete with ads in DC’s Metro), arguing that the Big Three carriers in the Middle East (Emirates, Qatar, and Etihad – often abbreviated as the ME3) are undermining the principles of free and fair competition with subsidies that distort the market. The Gulf air carriers are pushing back against the accusations, arguing they provide a superior product at a lower cost. Vox has a brief article that summarizes the arguments for both sides.

The US carriers outline billions in subsidies to these carriers. They include everything from subsidized development of the region’s massive airports to interest-free loans and infusions of capital from the ruling families – who also own the airlines themselves.  The alleged subsidies support Qatar and Etihad to a greater degree than Emirates (the paper alleges that Qatar and Etihad would not be viable commercial businesses without their subsidies; not so for Emirates). You can find the white paper and presentation here.

ME3subsidies

Summary of the subsidies alleged by the US carriers. Image from the Americans for Fair Skies presentation.

Central to the debate are the United States’ Open Skies treaties with Qatar and the United Arab Emirates. Open Skies treaties deregulate the routes and destinations for international air travel between the two signatories. The US State Department prioritized signing Open Skies agreements since signing the first such agreement between the US and the Netherlands in 1992 (see the full list of agreements here, as well as the text of a sample agreement).

There is an inherent asymmetry in any Open Skies agreement between the United States and Qatar or the UAE; due to the small size of those countries, the agreements only add two or three destinations worth serving for US airlines (indeed, there are only two scheduled flights to Qatar or the UAE from US-based carriers – Delta flies ATL-DXB and United flies IAD-DXB). Gulf airlines, however, earn rights to fly to a wide array of American cities.

Part of the success of the Gulf carriers is due to the geographic advantage of the Middle East hubs. Dubai has long served as a stopover point for refueling along the Kangaroo Route. Now, carriers like Emirates use Dubai as centrally located hub to efficiently connect air traffic between Europe, Africa, India, and Southeast Asia.

However, there’s more to the rise of the Gulf carriers than advantageous geography. For these Gulf states (often, effectively, city-states), focusing on aviation is a deliberate economic development strategy. When you’re talking about state-owned businesses, how do you differentiate between the viability of the various airlines as businesses from the state’s explicit policy of aviation-focused economic development? In their white paper, the US carriers make the case that Open Skies agreements assumed that an open market would provide a superior business model to state-owned airlines (and there is a long history around the world of poorly run state-owned airlines) and that competition would bring this truth to light. However, with the rise of State Capitalism, the US carriers argue, it’s not clear that assumption can be trusted.

It’s the next step in the idea of developing around the aerotropolis. Instead of building your economy around an airport, why not build it around an airline? Dubai’s success in developing their middle-eastern metropolis around a global aviation hub inspired Qatar and Abu Dhabi to do the same – a strategy that not only required the airport, but the airline to feed it.

The Gulf carriers aren’t just looking to their Middle East hub airports, either. Emirates took advantage of struggling Alitalia to earn a fifth-freedom route from Milan to JFK. Emirates makes no secret of their ambitions to offer service around the globe via some key fifth-freedom routes:

President Tim Clark has revealed the first details of what looks like the next step in Emirates’ march to become a truly global powerhouse. On the sidelines of last week’s International Air Transport Association (IATA) annual general meeting in Cape Town, the airline outlined plans to set up a major transpacific operation. Its aircraft would be flying through intermediate points in Asia to destinations in North America. What is making the threat even more serious for Asian and U.S. airlines is that Emirates has another 67 Airbus A380s on firm order, which—like its large incoming fleet of Boeing 777-300ERs—has the range capability to fly from many points in Asia to cities far beyond the U.S. West Coast.

Emirates can choose from several geographic points that offer the necessary aeropolitical framework. The United Arab Emirates (UAE) has an open skies agreement with the U.S. “It allows us to take passengers on a fifth-freedom basis from the West Coast and central points in the U.S. to points in Asia,” Clark says. In Asia, there are open skies agreements with Thailand and Singapore. Emirates also has similar rights for some destinations in Japan.

Bold added. This is the root of the entire debate: a battle over the details of a global aeropolitical framework. A battle over the rules.

When it comes to Emirates, their Dubai hub isn’t the concern from the US carriers. The real concern is these aspirations to cover the globe with fifth-freedom traffic. Delta claims that the ME3’s cheap connections in Dubai make it difficult to serve India directly from the US (and presents strong competition for the European joint venture partners if connecting to India in Europe). Flying to US cities from Europe or Asia directly (e.g. the current New York-Milan service, if expanded to other airports) threatens to undermine direct service to Europe; additional fifth-freedom routes across the Pacific could do the same. Brett Snyder notes the concern about hurting the overall network:

If the Middle East carriers skim the international markets with the most traffic, then the US carriers will have to cut back service. When international flights get cut, the whole network becomes vulnerable. The end result is probably less service for smaller and mid-tier cities. It’s just the way the network effect works.

While the American carriers are asking the US Government to revisit these agreements, the Feds must balance other US interests in the region beyond air travel. Qatar and the UAE host a number of US military facilities. The US has a large trade surplus with both nations, partly due to companies like Boeing selling lots of widebody airliners to the Gulf Carriers. American cargo airlines like FedEx take advantage of Open Skies in a similar fashion to the Gulf carriers, facilitating global cargo movement. In other words, it’s not clear the US carriers have a sympathetic ear from the Federal government.

The PR campaign from the US carriers is an attempt to change policy by influencing public opinion, but it will be an uphill climb with the general public. Counter-arguments from the Gulf carriers ask why the American carriers are afraid of competition. US airlines aren’t exactly earning lots of sympathy from the public.

The PR battle is also getting nasty: Qatar Airways’ CEO accuses Delta of flying “crap” planes without a hint of irony: it’s not hard to buy nice, new aircraft when you can fall back on massive capital infusions (as alleged in the white paper) to buy those expensive aircraft. Lufthansa’s CEO, facing a strike from his unionized pilots, joked that he should hire Qatar’s CEO as his union advisor (unions being illegal in Qatar and the UAE). And while customers might like the product and the price point offered by the Gulf carriers, it’s not clear than anyone in the US would be willing to accept the trade-offs that make that product possible.

The white paper notes that the subsidies documented meet the World Trade Organization definition. However, even though both Qatar and the UAE are part of the WTO, aviation isn’t a core part of the WTO’s agreements.

If aviation were a part of the WTO, there would be a specific process to raise and resolve disputes. In other trade areas, the WTO can authorize the use of ‘counterveiling measures’ against subsidies and dumping, such as tariffs or restrictions on trade volume. But here, there aren’t any specific rules governing aviation – hence the PR campaign.

In essence, this is a battle over the rules. If the story of the aerotropolis is the story of globalization, is this a tide that lifts all boats? Or is it a race to the bottom? Competition is good, but what if the basis for that competition is based on the rules governing labor markets in Qatar or the UAE? Will the fight over the rules of the game lead to improvements in working conditions for migrant labor in the middle east? While the US airlines are certainly acting in their own self-interest, is this battle similar to the public scrutiny over Qatar’s labor practices in advance of hosting the 2022 World Cup? Could this battle over the rules not only find room for fair competition, but also leverage an improved quality of life elsewhere in the world?

Or is all of that wishful thinking?

Links: Metro’s disco inferno; the power of ports

Two items worth sharing:

7000 Series Metro Cars: 

Over the weekend, WMATA released a few pictures and some videos (complete with a soundtrack that would make Michael Bay jealous) of the prototype of the 7000 series, currently under assembly in Japan.

The front end of the cars looks sharp – the black background with the white Metro logo is clean and easily read and identified at a distance.  Compare against a rendering here.

It’s unfortunate that the side doesn’t share the same clean look.  The industrial design of the car body is fine – echoing other transit vehicles (both old and new) with the corrugated steel.  The contrast against the smooth finish at the window levels provides a similar effect to the current fleet’s brown stripe.

The car interiors will feature real-time strip maps showing the next stations on the line – early commentary has focused on misspellings.

While the old paint scheme (essentially just the brown stripe) might seem a little dated, the future cars feature this “disco ball” motif around the Metro logo, both inside and out.  It’s an upgrade from the hideous “America’s Metro” debacle, but still feels like it will be dated quickly.  The large penumbra around the M means that the disco ball on the exterior is centered on the entire carbody, rather than having the M aligned with the windows, as it is now with the brown stripe.  The front end of the 7000 car shows the crisp M logo well – I’m not sure why they didn’t keep the same approach with the sides and resorted to this disco gimmick.

The importance of ports: 

As each of those new Metro cars is manufactured, they’ll be shipped to the US for final assembly – likely arriving in some large port complex. Will Doig has an interesting article on the battles over waterfront land between maritime uses and real estate interests:

The problem (if you can call it that) is that this is happening just as the maritime industry is booming, thanks to an explosion of cheapo imports from Asia. It’s conventional wisdom that urban industries are dying, but shipping isn’t one of them. Even with the recession, the container trade has doubled since 2000, and 2012 is expected to be another record-breaking year. “I think it’s great to have a park, but you can put a park anywhere,” says Hughes. “There has to be someplace to do this.”

Are cities that place? After centuries of ports fueling urban growth, some people are starting to think: Maybe not anymore. “The scale of port activity requires much more space than it used to,” says Doucet, referring to the massive container ships that require not just deep-water ports, but dry-land acreage and fleets of trucks to unload their cargo. “It’s actually much more practical for ports to be located outside the city center.”

Doig’s article only touches on the changes to the landscapes that the current state of the art of shipping has brought upon our landscapes.  The article reminded me of some excellent Mammoth posts on the subject (shipping and border control, the landscape of globalization, and the physical distribution network as a sampling), noting how the economic logic and physical requirements of this type of trade, combined with legal structures and other constraints has created entirely new landscapes.

The key point that Mr. Doucet makes in Doig’s article is that the geography of shipping today is very different from the old landscape of longshoremen working on Manhattan’s docks.  Framing the battle over this real estate has something to do with the longevity and ‘stickiness’ of land uses – but often isn’t looking forward to the changing environment such infrastructure is operating in.

Norman Foster’s aerotropolis

Image via Foster+Partners

Norman Foster is working on a concept for a massive new airport complex for London along the Thames Estuary. I first saw this (via ArchDaily) thanks to a shared Google Reader item (alas, no more) from Neil Flanagan.  Yesterday, Planetizen points to an Atlantic piece on the subject, featuring new renderings from Foster + Partners posted on DesignBoom:

understanding the transportation challenges facing britain, london-based practice foster + partners, have collaborated with consulting firms halcrow (international) and volterra (UK) for a self-funded study producing the ‘thames hub vision’, a detailed report that uses scale and strategic cross-sector thinking to design an integrated infrastructure network. the masterplan proposes to replace the existing thames barrier with a new crossing that will extend london’s protection from floods into the 22nd century. it will mitigate the capital from rising storm levels, free up vital land for development and harness tidal power to generate carbon-free energy.

building on existing transportation lines to the north, east and west of london ‘the hub’ will avoid future congestion into the city. an orbital rail system with a four-track, high-speed passenger and freight route will link london’s current radial lines, with a future high-speed rail line to the midlands and the north, the thames estuary ports, high speed 1, and european networks. by minimizing the developmental impact the environmental strategy aims to provides new wildlife habitats landscaped within the spine.

This is more or less the Aerotropolis in a tangible proposal.  John Kasarda and Greg Lindsay’s book spends a great deal of time on Heathrow; the inability of various cities (Chicago, Los Angeles) to build new and needed airports for various reasons; and cities that have done so through planning or via accident (Dulles, Dallas, Denver). Heathrow’s capacity constraints serve as a drag on not just London’s economy, but as a drag on key link in the global transport network.

Having read the book but never gotten around to a review, I thought I’d take this moment to highlight some of the more interesting thoughts I’ve come across regarding the importance of aviation as well as the aerotropolis concept.

Recently, Aaron Renn penned a somewhat pessimistic review of the somewhat totalitarian implications of planned aerotropoli:

A few things jumped at me out of the book. One of them is the close linkage between the aerotropolis and its boosters with authoritarianism (and by extension, similarly for globalization and its boosters). The second is that, despite vast sums of money and authoritarian rule, I didn’t come away with a sense of anyplace in the world that had fully pulled off Kasarda’s vision. Indeed, there are as many or more failures than successes. And even those successes are far from perfect ones.

Renn does highlight the fundamental issue, regardless of Kasarda’s plans and predictions: that aviation is a tremendous force in globalization and the flows of commerce. (For more on the tension between singular vision and democracy, see Alon Levy’s post on consensus and vision)  Back in March, mammoth made the case that the aerotropolis is merely the symbol of globalization.  Air travel might be the sexy mode, but the real work of global trade should probably be symbolized by the intermodal cargo container and all of its associated infrastructure.

It seems to me that the “aerotropolis” (particularly on the more restricted Kasarda definition) is more a symbol of globalization than it is the ultimate instantiation of globalization.  Sea shipping is (and was for centuries before the invention of flight) the dominant mode of global transport.  To get an indication of the difference in magnitude between sea and air shipping, just look at Shanghai, the world’s busiest cargo port by tonnage, and Memphis, the world’s busiest airport by tonnage: Memphis sees about three million tons a year; Shanghai sees around five hundred million tons a year.  This is not a statistical aberration.

(As an aside, Matt Yglesias makes the point that even in the age of global trade, geography and proximity still matter.) Renn also points out that theaerotropolis is ultimately a measure of connections and networks – and the idea of the aerotropolis as a proscription isn’t nearly as strong as it is in description:

The lesson I draw is that while good air connectivity is critical for a city in the global economy – indeed, I almost draw my threshold population for what constitutes a minimum viable city in the globalized world in terms of whether or not it is big enough to support a major airport – the airport is only one ingredient needed for success, not the entire recipe. Cities that pin their hopes too heavily on airport led transformation are bound to be disappointed. And even if you go in with the best of intentions trying to do airport development right, you are far from guaranteed to have success.

Renn’s critique is well put, though I feel it ends up talking past some of the broader themes that Lindsay and Kasarda highlight in favor of deconstructing Kasarada’s specific, proscriptive vision for the future of air travel.  In many ways, their main thesis isn’t anything new, just another example of transportation infrastructure shaping human development.

Also disputing the tone of telling is what we want, Kazys Varnelis disputes the book’s tag line, “the way you’ll live next.”

The answer is that the Aerotropolis is already here and it’s really not all that exciting. I went on two international flights in the last two weeks. Newark International Airport is about a half hour drive from the apartment I rent while La Guardia is about a half hour cab ride from Columbia. Do I really need to be closer? Could I really be closer, like the inhabitants of Kowloon Walled City who had jets pass by a hundred meters overhead?

No. I am far enough away that I don’t hear the noise from the planes too often, don’t viscerally experience the pollution, and don’t feel something is going to crash on my head.

Today, the City Paper linked to some great photos from the National Archives from the 1970s, including one of the District as a parking lot during a 1974 transit strike.  Varnelis’ words echo the last image in the set of a DC-10 on approach into Logan Airport in Boston in 1973:

For more on Aerotropolis (the book), see this excellent interview with co-author Greg Lindsey at BLDGBLOG.