JetBlue Airways Airbus A320-232 aircraft
Photograph ©2014 by Brian Cohen.
Brian Cohen·
Financial
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JetBlue Airways Awarded Government Contract for Service to Milan — But Again, There is One Minor Detail…

M any readers of The Gate who commented on this article pertaining to the announcement last year from the General Services Administration of the United States that it awarded the government contract for 2016 on the Washington-Dubai route to JetBlue Airways were outraged over the fact that because JetBlue Airways does not actually offer service to Dubai from the United States, that Emirates Airline — which is an official codeshare partner with JetBlue Airways — would be solely operating this route carrying an estimated 15,000 government employees of the United States, which includes active duty military personnel whose official travel is funded by taxpayers of the United States.

JetBlue Airways Awarded Government Contract for Service to Milan — But Again, There is One Minor Detail…

Since that article was written and posted, a second government contract was reportedly awarded to JetBlue Airways for service between New York and Milan — even though JetBlue Airways does not actually offer service to Milan from the United States — and once again, Emirates Airline was actually the beneficiary of that contract, as it is the airline which operates service for that route as an official codeshare partner with JetBlue Airways.

The Partnership for Open & Fair Skies — which lobbies for American Airlines, Delta Air Lines and United Airlines in their fight against the troika of Mideast Gulf carriers known as Emirates Airline, Etihad Airways and Qatar Airways — has accused the General Services Administration of the federal government of the United States of violating a law known as the Fly America Act against air travel for government employees funded by taxpayers.

“Prior to these decisions, American Airlines held the contract for the New York-Milan route and United Airlines provided the Washington Dulles-Dubai service”, according to this article written by Rich Thomaselli for TravelPulse.

“JetBlue is not asking Emirates to supplement its own flights … it is asking Emirates to provide all of the service between JFK and Milan that the contract requires”, according to Peter Carter — who is the chief legal officer of Delta Air Lines — in this article written by Kate Modolo for Delta News Hub. “Congress designed the Act ‘… to help improve the economic and competitive position of U.S. flag carriers against foreign air carriers.’ Emirates is not just a foreign air carrier, it is a state-owned Gulf carrier that exploits an improper advantage over U.S. flag carriers by receiving massive subsidies from its home government. This appears to be a glaring contravention of the Fly America Act’s vision … [that] will impair the ability of U.S. carriers to compete in that market.”

Summary

Leaders of the three legacy airlines based in the United States continuously claim that the three largest airlines based in the Persian Gulf region have expanded rapidly with illegal government subsidies totaling a minimum of $42 billion and that they cannot compete.

When I hypothetically asked whether or not the three airlines based in the Persian Gulf region could sustain a prolonged period of lower fuel prices — if indeed they were being subsidized illegally by their respective governments, as the chief executive officers of the three legacy airlines based in the United States allege — a reader of The Gate who goes by the name Paul posted this comment: “Our own economy hasn’t been doing great for a while now and we are continuing subsidizing American/United/Delta. What makes you think this wouldn’t be the case for the Middle East?”

See also

The awarding of contracts for two transatlantic routes to JetBlue Airways by the General Services Administration of the United States just seems odd at best. Did JetBlue offer bids significantly low enough as compared to its domestic competition — and if so, could those bids possibly have been subsidized by Emirates Airline?

Airlines based in the United States should be free to engage with airlines who are foreign partners to form codeshare arrangements — but to have taxpayer dollars fund an arrangement where the airline with the successful bid does not even operate any flights on a particular route is simply ludicrous, in my opinion.

Photograph ©2014 by Brian Cohen.

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11 Comments

  1. except the US3 have done the same on other routes…Their issue isn’t that JetBlue is using a “non-american” airline, it is that they are using a middle east carrier. Double standard. We should be thankful the government picked the cheapest option…

    Reply

  3. I’ve been particularly offended by how most of the bloggers on Boardingarea consider the GSA City Pair scheme a “government subsidy”. It is not a subsidy. It is a contract vehicle that is designed to be transparent and competitive providing government employees access to a set fare between two destinations to conduct business on behalf of the US Government. The GSA City Pair scheme is similar to any company forming agreements with airlines for their employee’s business travel. This attitude is similar to calling all government contracts subsidies (some could argue that point, lol) and an unfair viewpoint.

    I firmly believe that GSA violated the Fly America Act by forming a sham codeshare agreement circumventing the clear express intent of Congress. The Fly America Act states that GSA “shall take necessary steps to ensure that the transportation of passengers and property by air is provided by an air carrier holding a certificate under section 41102” 49 U.S.C. 40118. Forming a codeshare and allowing a foreign carrier to provide the transportation is in my opinion a clear violation of the Act when a domestic US carrier flies regularly between the city pairs. United’s IAD – DXB is a perfect example of this case.

    Most bloggers and readers see this as a price/competition issue. I disagree. Government contracts are highly regulated. Importantly, Congress establishes a framework for choosing the government’s business partners. Selecting a business partner is a very important step in the government procurement process. It is not as simple as X company has the lowest price so let’s choose them. Frequently Congress directs agencies to reduce competition and increase price to reach their goals. These goals may be to increase small business participation, encourage development in depressed areas, or bolster minority owned businesses. In this case, Congress directed agencies to require government funded travel on US carriers, unless the route does not exists or a bilateral agreement requires foreign carriers. GSA lacks the authority to disregard the clear expressed intent of Congress. Again, selecting a business partner is much more than price and Congress understands that. It is a trade off.

    Overall, I wish that United would challenge the GSA City Pair contract under the contract disputes act (travel regs are a bit weird so assuming that the CDA governs). I agree with your statement that “Airlines based in the United States should be free to engage with airlines who are foreign partners to form codeshare arrangements — but to have taxpayer dollars fund an arrangement where the airline with the successful bid does not even operate any flights on a particular route is simply ludicrous, in my opinion.”

    Reply

  4. Last year I flew to Delhi for government work from Washington, DC. Previously, United had the contract (because they actually fly to India). Last year, it was awarded to American – who don’t actually fly to India. It was flown on their partner British Airways. Where is the outcry in this scenario? Just as Noah said above – because BA is not part of the ME3.

    Reply

    1. The “outcry” is that no US carrier flies that route. If no US carrier flies that route than a codeshare agreement is permissible under the statutes. However, giving a route to a non us airline when a US route exists (see IAD – DXB on United) is a clear violation of the government procurement statues.

      Reply

  5. A US-flag carrier code-share on a foreign flag carrier counts as a qualifying flight under the Fly America Act, so claiming that awarding the service under a code-share violates the Act is patently false and the airlines and congressmen making such claims know this. (There are other statutory exceptions under the Act that permit travel directly on foreign carriers such as where no US flag carrier offers service or other restrictions.)

    http://www.defensetravel.dod.mil/site/faqflyus.cfm#Q2

    GSA Citypair international awards are often given under code-shares. For fiscal year 2017, United has citypair awards under code-shares with South African Airways, Asiana, and others. ALL of the domestic 3 have won GSA citypairs using codeshares with foreign airlines! So their complaints are self-serving and hypocritical, to say the least.

    Reply

    1. You may want to actually read the GAO and DoD explanation of the Act. The Act requires a US based airline unless a reasonable exception exists. Most notably this is the case when a US carrier does not serve the route. With NYC – MIL route, US carriers serve the route and no reasonable exception likely exists. An agreement between two airlines does not transform an international carrier into a US carrier – this is nothing more than an sham to circumvent the rules. Just because an airline tickets something does not mean that it actually operates the route. In this case, the organic statute and rules use language such as “performs” and “serves” which strongly indicate that the airline should actually fly the route. Again, when a US carrier does not serve the route it is perfectly acceptable for a codeshare.

      Overall, this is an issue that GAO or Federal Court of Claims needs to arbitrate.

      Reply

  6. So kind of like UA’s codeshare on ET to ADD? UA has the GSA contract IAD-ADD, but don’t fly there.
    They also have IAD-CPT and IAD-JNB while B6 has IAD-DUR…

    Reply

  7. “The awarding of contracts for two transatlantic routes to JetBlue Airways by the General Services Administration of the United States just seems odd at best. Did JetBlue offer bids significant**(LY)** low enough as compared to its domestic competition — and if so, ”

    minor **(typo)**

    Reply

    1. Thank you for catching that, r hirsch. I do not like grammatical or typographical errors — no matter how minor.

      I am not sure if that one was attributed to me or the supposed auto-correct feature — sometimes it hinders more than helps — but I should have proofread the article better.

      Reply

  8. Poorly researched and self serving article to push forward an emotional view. The requirements of the law are quite clear and the US3 are just bitter sore losers, they started the code sharing game to serve the GSA, and are just mad that B6 made us of it to beat them. The buy America provisions in all legislation are about the primary revenue recipient, could be IS subsidiary of a foreign Corp, US-flagged foreign vessel, or codeshare ticketing us airline for a foreign operated flight. The concern and consideration is the money first hits the US beneficiary, how they choose to supply and fulfill is not congresses concern except in the cases they make the detailed requirements.

    At the end of the day, the whole GSA procurement process ensures that USG spend on airfare is a hidden subsidy because it naturally limits competition at taxpayer expense for the benefit of US entities.

    Nobody complains that one of the US Military’s preferred arms is Italian, but as soon as it is something from the ME it is nefarious.

    Reply

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