Spat over which U.S. airlines fly government workers intensifies

A spat among airlines over which deserved the contract to fly U.S. government workers on certain routes intensified on Tuesday, with the chief executive of JetBlue Airways Corp calling rivals hypocritical for protesting its award.

The largest U.S. airlines have taken issue with a contract for federal employees to buy flights between New York and Milan in 2017 from JetBlue, which are marketed by the New York-based airline but operated exclusively by its codeshare partner, Dubai-based Emirates.

Delta Air Lines Inc, No.2 by passenger traffic, has said the award undermined the "Fly America Act" that requires taxpayer-funded travel to take place on domestic carriers, for the benefit of U.S. companies and jobs.

The contract also struck a nerve because Delta and peers are embroiled in competition and an ongoing row with Emirates. U.S. airlines have lowered fares to fill planes to Europe - a response in part to Gulf rivals that have added flights at a loss thanks to state subsidies, they allege. Emirates has denied it is subsidized.

The Fly America Act permits exceptions for codesharing agreements with foreign airlines, however. Carriers such as Delta and American Airlines Group Inc take advantage of this, JetBlue CEO Robin Hayes said.

"It���s quite clearly hypocritical nonsense," Hayes said in an interview in Washington. "If the big three airlines can continue to win these contracts using their partners, flying on their partners' metal, why can���t JetBlue?"

For instance, American won the contract for travel from Chicago to Abu Dhabi in 2017, but the flights are operated by Etihad Airways, based in the United Arab Emirates. American previously held the New York-Milan contract.

American said on Tuesday that U.S. carriers themselves operate flights between New York and Milan, distinguishing that route from those they do not serve where U.S. employees have no choice but to fly on foreign partners.

American is "disappointed by the award," added Chief Executive Doug Parker at a conference in Washington.

Last year, JetBlue won the contract for Washington-Dubai flights, prompting United Continental Holdings Inc to cancel the route. Emirates operated the flights; a review by the U.S. Government Accountability Office found no objection.

The U.S. General Services Administration said all its contracts complied with the Fly America Act.

(Reporting by Jeffrey Dastin in Washington; Editing by Stephen Coates)