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There’s been a lot of talk about unfair competition recently. Air France and Lufthansa have been complaining to the European Commission that the Gulf carriers benefit from financial support from their local state and that this gives them an unfair competitive advantage over European carriers. Meanwhile the US carriers have been complaining for months that state subsidies to Gulf carriers contravene the Open Skies agreements between the US and the Gulf states, and that these agreements should be renegotiated to protect US carriers and American workers from unfair competition.
Sounds like a bunch of whinging 10-year olds, doesn’t it.
Most economists would be tempted to describe the allegations put forward by the US and European carriers as anti-competitive behaviour. The alleged state subsidies provide the Gulf carriers with an ability to price their services below their true cost. This could force other carriers out of the market or limit their ability to enter Gulf markets if they are not able to price their fares at a similar level. This sort of behaviour is often referred to as ‘predatory pricing’.
So why this preoccupation with the term ‘unfair’?
‘Unfair’ suggests a lower standard and a weaker justification than anti-competitive. So far the US and Europeans are not suggesting the Gulf carriers are acting illegally. Aviation is not covered by the traditional trade laws, making it difficult to point to any particular law that the carriers are breached. Probably a good thing too as we imagine there are a few other airlines who might have breached some of the trade rules typically enforced by the World Trade Organisation.
The use of this language merely highlights that the US and European carriers are seeking their own protectionism as Gulf carriers expand into their traditional markets, rather than any direct response to the Gulf carriers.
