On March 21st, The Department of Homeland Security (DHS) released a factsheet unveiling an electronics ban affecting 8 predominantly-Muslim countries and 9 airlines with American-bound routes. Effective until October 14th, any US-bound flights from Morocco, Egypt, Jordan, Kuwait, Qatar, UAE, Turkey, and Saudi Arabia, must store all electronics larger than a smartphone in the cargo-hold. Subsequent DHS statements cited this policy was in response to new intelligence that Al-Qaeda in the Arabian Peninsula (AQAP) was making progress hiding bombs within computer batteries, along with previous incidents such as Russia’s Metrojet 9268’s explosion over Sinai (2015) and the attempted downing of Somali Daallo Airlines 159 with a laptop bomb (2016). Whether this policy will be effective in preventing such attacks in the United States remains to be seen.
Bruce Schneier, security technologist and lecturer at Harvard University believes the electronics ban can help prevent attacks, such as the Daallo Airlines laptop explosion, noting “Forcing it (the bomb) in the plane’s hold would make it much harder to detonate, since the terrorist has to design an automatic mechanism rather than doing it manually.” However, the Metrojet explosion in Egypt is believed to have been taken down by a bomb in the cargo hold. And if this policy is truly designed to stop terrorists from detonating laptop bombs on US routes, then why is it so easy to circumvent? Terrorism is stateless, and with ISIS worth nearly $2 billion and Al-Qaeda worth $150 million, one would think these organizations could afford to fly their laptop bombs from countries not included in the ban, like war-torn Yemen. So if this policy doesn’t prevent terrorist attacks and is easily circumvented, then what exactly does it do?
A Bit of Background: Open Skies Dispute
The big three US carriers (American, Delta, and United) have taken issue with state-owned Gulf carriers Emirates, Qatar Airways, and Etihad for receiving subsidies from their governments. According to the Partnership for Open & Fair Skies, the fact that Gulf carriers are receiving approximately $52 Billion in a variety of subsidies violates the Open Skies agreement that allows Emirates, Qatar Airways, and Etihad to fly into American Airspace. The three American companies have lobbied both the Obama Administration and now the Trump Administration to take action to “level the playing field.” But why are American, Delta, and United targeting the Gulf Carriers in particular? Italy’s Alitalia makes perennial losses, only surviving because of heavy subsidies from the Italian government. Delta partly owns China Eastern which received $865 million in subsidies, and United partners with Air China which received $162 million from the Chinese government. Even Delta is lobbying to receive fuel subsidies from the taxpayers of Georgia. It appears that American carriers are pro-subsidization until it holds them back from more profit, and this is illustrated by looking at the ever-increasing market share of the Gulf airlines.
Looking at the market shares on each of those routes, it becomes clear that a large portion of the Gulf carriers’ growth can be seen in international departures from America. As the Gulf three begin to capture a larger share of the international market, they’ve dramatically increased the number of seats flown into America, as shown below. And they continue to grow, as Emirates gained its 12th American stop earlier this year, and Qatar Airways will reach its 11th American stop in 2018 when they begin flying to Las Vegas. According to the American big three, this presents problems as the Gulf airlines are able to flood the American market drastically increasing supply and dropping prices as a result. Good for customers, bad for corporate profits.
Moving back to the electronics ban, the Trump Administration’s roll out of an electronic ban was followed by the United Kingdom rolling out their own ban. A couple specifics about the UK ban were slightly different, however. First, the United Kingdom’s ban affects UK airlines, while the American ban does not directly affect any American airlines. Secondly, and very interestingly, the United Kingdom ban doesn’t include Qatar or UAE, the epicenter of the airline subsidy debate. The two administrations shared intelligence and collaborated in crafting the policy, yet they still rolled out their bans to include different countries. The disconnect is very disconcerting because if these policies are truly based on security then it would behoove both administrations to be on the same page and communicate effectively about their reasoning for why each nation was on the list. The fact that allies such as the United States and the United Kingdom cannot agree on a single list either points to incompetency or different motives from each administration. As the UK ban affects UK based airlines, their ban is less likely to be an economic chess move and more likely to be a security policy. With the US ban, their nation choice with the background of the Open Skies dispute, the Trump administration’s ban is much more likely to be an economic move over the UK’s. So, if this is a chess move, what is it designed to do and how is it effective?
How Does This Hurt Gulf Carriers?
It remains to be seen as to how large the economic impact will be on the Gulf carriers. However, this could consolidate the losses that the Gulf airlines sustained after the Muslim travel ban. Although the previous ban is being held up in American courts, Emirates alone experienced a 35% drop in American-bound bookings. This electronic ban does more than just consolidate those losses, however. Costs could rise because of added security measures and possible delays in the event that passengers mistakenly take their electronics to the cabin. More substantially, the Gulf three are likely see a drop in business passengers who would typically travel through the Gulf to reach their American destinations. A key component of the Gulf big three’s growth is their central location, long range aircraft, and luxurious business and first class cabins, which can earn loyal business travelers. But these flights can often be too long for business travelers to be offline and unproductive. Furthermore, business travelers with sensitive information on their electronic devices fear checking laptops into cargo-holds could lead to stolen information. In fact, some corporations have policies prohibiting the checking of electronics, and as such, they are changing to unaffected carriers, which can be less direct, but much more safe and productive. And although this policy won’t unflood the US aviation market with seats, it hits the Gulf three right with their key constituency of business flyers.
The electronics ban is clearly ineffective in fighting terrorism, but quite effective at targeting the pockets of Gulf airlines. From top to bottom, this seems like a protectionist policy that was designed with the consultation of big airline industry leaders when they met with Trump just a month prior to the ban’s rollout. Although this may not create lasting financial uncertainty, it is hitting at the Gulf airlines’ highest paying passengers while increasing security costs for them in Qatar and the UAE. As the rollout was scrutinized by security personnel, it was a popular narrative to think the administration missed their target. However when we look into alternative options for the administration to protect United, Delta, and American, none are an improvement on this policy. Blocking the Gulf big three from American airspace would cause a rise in prices on the American consumer and it’s unlikely that UAE and Qatar would stop subsidizing their airlines. This policy is as discreet as it gets for an administration seeking protection for their airlines. So even when the Trump administration cites security when questioned about their policy, it’s useful to investigate what its policy truly accomplishes, because more so than most administrations, its actions speak much louder than its words.