Rodney Slater, former US Secretary of Transportation and now a partner at Washington-based law firm Patton Boggs, looks at how new aviation policies will shape the airline world by 2025
The choice to move, to go where one pleases or needs to go has long been one of life’s great needs and pleasures. In a global economy, that ability has never been more essential and prized, both for individuals and businesses.
Aviation, the fastest-growing mode of transportation, has played a special role in this regard for the past 60 years. December 2005 marks the 61st Anniversary of the 1944 historic Chicago Aviation Conference, at which a system for international aviation governance was produced relying principally on a bilateral aviation policy regime.
Much has changed in the world since 1944. During a US Department of Transportation (DoT)-hosted ministerial event in 1999, “Aviation in the 21st Century – Beyond Open Skies”, the need for a new aviation policy architecture to guide aviation decisions was made quite clear. This was followed by a series of meetings and a report summarised in a DoT document, Aviation 2025, styled The Changing Face of Transportation issued in November 2000.
This report said that:
- Aviation in the year 2025 will be marked by characteristics that differ from today’s environment. These changes will be driven by consumer demand and the industry’s need to meet those demands while creating shareholder value.
- The distinction between domestic and international aviation will be nearly nonexistent in the key forms it exists in today: ownership and control, licensing, and competition policy.
- The thousands of bilateral air transport agreements between national governments will give way to regional/plurilateral pacts that will probably evolve toward a multinational regime.
- By 2025, the airline industry will have followed other industries in becoming truly global, even on the production side.
In short, we will see the complete deregulation of the industry on a global basis and normalisation of the airline industry as an economic sector. A recently announced US DoT Notice of Proposed Rule Making will significantly reduce the restrictive interpretation of the statutory requirement that US citizens exercise “actual control” of US airlines.
The proposal would not change any of the numerical requirements governing ownership and control as prescribed by US law. The requirement that US citizens must own 75% voting stock, as well as the requirement that the president and two-thirds of the board and other senior managers be US citizens, will remain in effect. Additionally, US interests would retain control of all decisions pertaining to safety and security.
Foreign or non-US citizen investors would gain more say in the day-to-day management decisions of the airline. It is believed that this decision will open up US airlines to more foreign investment, while at the same time retaining, for the US, matters key to questions of “actual control”. Moreover, it is believed that this action will ease the way for the European Union to more seriously consider consummating a multilateral Open Skies agreement with the USA that would include all 25 member countries.
In an effort to enhance productivity and efficiency, airlines will substantially rationalise hub-and-spoke systems. This will be done not only through consolidation, but also through airline planning and operating changes and innovations, such as dynamic scheduling, which provides for capacity management changes close to flight time. Long-term efficiency gains will be possible by operating fewer, larger aircraft into permanently constrained hubs.
With the addition of Independence Air, more than 50% of the US aviation capacity is provided by airlines currently in bankruptcy. Coupled with record high fuel prices and the continued need to restructure, so-called legacy carriers are revamping business plans so as to take into account a dramatically altered business environment caused by the growing presence of low-cost carriers. Bankruptcy may in fact offer an opportunity for management and labour to work through the challenges necessary to many of the business models and cost concerns at the heart of the issue.
For the most part, airlines have found themselves providing more of a commodity in the simple, yet safe and secure, transport of a person from one point to another.
As airlines become comfortable with not competing for every passenger segment, the rationalisation of the hub-and-spoke networks on a global scale will create opportunities for other innovative services that will be largely point-to-point, but will have the ability to focus on the needs of a particular market segment.
The role of government will be to facilitate this process. Where stakeholders have divergent interests, the US DoT should secure the public interest on the basis of a long-term vision, ameliorating the long-term negative effects of short-term corporate policies – both of which are inherent when an industry is in fundamental transition.
A new aviation policy architecture is taking shape, and more people with more choices represent the driving force that will help to usher in a new era in aviation.
Source: Airline Business
