United Airlines, the wholly owned subsidiary of United Continental Holdings UAL, announced that it will discontinue flights connecting Washington Dulles International Airport and Dubai from late January next year.
With United Airlines' latest decision, there remains no U.S. carrier to operate direct flights to the Gulf state from early next year, according to a Reuters report . We note that Delta Air Lines, Inc. DAL had announced earlier this year that it will discontinue operations to Dubai from Atlanta effective early 2016 due to excessive competition from the Middle East carriers.
United Airlines’ announcement follows the award of a contract, pertaining to travel on the route in 2016, to low-cost carrier JetBlue Airways Corporation JBLU by the General Services Administration (GSA) – a 66 year-old independent agency of the U.S. government. GSA works toward managing and supporting the basic functioning of federal agencies. JetBlue itself does not fly to Dubai but does have a codeshare agreement with Emirates for the same. As a result of the award, approximately 15,000 government employees will have to fly to Dubai next year, availing the services of JetBlue’s code-share partner.
United Airlines protested against the GSA’s decision, which makes these Dubai-bound federal workers entirely dependent on a foreign carrier, with JetBlue merely serving “as a booking agent for Emirates.” United Airlines further believes that the award is in violation of the intent of the Fly America Act. The Act “expressly limits the U.S. government from procuring commercial airline service directly from a non-U.S. carrier.” However, United Airlines was unsuccessful in reversing the GSA decision and consequently decided to terminate its services on the said route.
United Continental, along with American Airlines Group AAL and Delta, is embroiled in a tussle with their Gulf counterparts. Earlier in the year, the three U.S.-based carriers had complained to the Obama administration that the massive subsidies and other benefits enjoyed by the three state-owned airlines – Qatar Airways, Etihad Airways and Emirates – were unfair in nature and denied a level playing field to the American carriers.
No wonder, United Continental considered the decision that makes the federal workers dependent on Emirates flights to fly to Dubai from Washington as “unfortunate”. With no U.S. carrier willing to fly to Dubai from early next year, we believe that the tussle between U.S. carriers and their Gulf counterparts will intensify further going forward.
JetBlue does not agree with the stance adopted by the three U.S. carriers and alleges that it is solely a self-promotional exercise and in no way endorses fair competition. Consequently, it has retained its links with the Gulf carriers.
Stay tuned for further updates on this latest issue.
Zacks Rank
United Continental currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Hawaiian Holdings, Inc. HA which sports a Zacks Rank #1 (Strong Buy).
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