The Impact of Gulf Carrier Competition on U.S. Airlines

Abstract

Gulf carriers, such as Emirates Airline, Etihad Airways, and Qatar Airways, have expanded aggressively and are creating an increasingly dense global network. These carriers' future growth prospects, however, hinge on their ability to gain access to lucrative markets in Europe and America, for example. Existing bilateral agreements stifle the Gulf carriers' ambitious expansion plans in some instances, and incumbent carriers lobby to restrict further market access. To contribute to this debate, the objective of this research is to empirically examine the effects of Gulf carrier competition on U.S. carriers' passenger volumes and fares in international route markets. Based on data obtained from the U.S. Department of Transportation, the empirical results suggest that greater competition by Gulf carriers in U.S. international markets is associated with 1) significant growth in U.S.-Middle East traffic volumes and 2) small but statistically significant traffic losses and fare reductions for U.S. carriers in route markets connecting the U.S. with Africa, Asia, Australia and Europe.

Keywords: Gulf carriers, Competition, Air fares, Passenger traffic

JEL Classification: L93, L13