British Airways and Qantas use fifth and seventh freedom rights out of Singapore.
Fashion is rarely about comfort - ask any model teetering down the catwalk. The same could be said of the current trend for global alliances. But many airline managers would still opt to deal with fashionable alliance pains than risk stepping into the even scarier territory of fifth and seventh freedom routes. Are they right to ignore those opportunities?
Some industry observers - and even airlines - are beginning to question that point. Because fifth and seventh freedom flights are aggressive actions, they tend to ring alarm bells on all sides. National governments and carriers often react strongly against the idea of a foreign carrier operating within their boundaries and hide behind decade-old laws which prohibit something that is normal practice in almost any other industry. IBM, for instance, makes computers in Taiwan and sells them in Australia because it makes best business sense. But airlines tend to be more wary of seventh freedom rights, even where they exist, because they are uncertain about the commercial viability of operating on someone else's turf and about the potentially sensitive labour issues.
Craig Jenks, president of the Airline/Aircraft Projects consultancy in New York, points to some of the ironies that have developed because of those fears and historic rules. "The odd thing is this: at the very moment that the industry is supposedly becoming much more competitive, the global alliance model apparently makes fifth and seventh freedoms redundant due to the availability of a foreign partner through alliances and codesharing."
Jenks continues: "An important twist is that US-Europe open skies deals have enshrined the global alliance presumption against seventh freedom use. The open skies model tends to be code-sharing fifth, using partner flights, with no seventh freedom dimension. The exception is cargo, where companies such as FedEx need seventh rights. But Brussels now seems to be saying that this is anti-European Union, as the member state doing the deal in effect hands US access to its own carriers, making no provision for operations by other EU carriers. But seventh freedom remains almost the definition of what would happen if there were zero boundaries."
Jenks has compiled a list of recent fifth freedom activity and fifth/seventh freedom hubs either owned or controlled by a foreign carrier. In April, Malaysia Airlines started a Kuala Lumpur-Dubai-Newark service three times a week. The route has no alliance dimension, but takes advantage of a truly open regime - any carrier can fly anywhere to or from Dubai. Malaysia has opportunistically started the first Dubai-New York nonstop service, capitalising on the strong US-Middle East market and diverting some Boeing 777s that had been deployed on intra-Asian markets.
Qantas, meanwhile, is increasing its Sydney-Singapore-Mumbai service to a daily frequency. The stop in Singapore, points out Jenks, is dictated not by aircraft range limitations, but by Qantas' use of Singapore's Changi Airport as a fifth freedom hub. Singapore Airlines is believed to be evaluating a new Singapore-Beijing-New York route, possibly to begin this year, which would use fifth freedom rights and have no alliance dimension. And United Airlines is upgrading its Los Angeles-Hong Kong-Delhi route from a Boeing 747/767 service to a 747 all the way. So the fifth freedom leg, between Delhi and Hong Kong, is substantially upgraded. Michael Whitaker, director of international and regulatory affairs at United, points out that, while alliances have allowed the airline to operate "much more efficiently", there can be significant barriers to their use in some regions. "Hong Kong is a perfect example, where a code-share is prohibited, so there is no possibility of a code-share. India is also somewhat restrictive so, in Delhi, which would be very difficult to reach nonstop, the only way you can make the route work economically is through fifth freedom," says Whitaker. Ideally, he says, United would prefer to serve Delhi nonstop and he feels that this will ultimately be the case.
A surge of interest by US carriers in the Latin American market, coupled with the recent spate of open skies agreements, has also raised the fifth/seventh freedom question. "You have a very interesting dynamic in Latin America," says Whitaker. "American Airlines is dominant there and has got partnerships with most of the carriers. This has brought up accusations of them having an exclusionary approach through their alliance partnerships, which means other US carriers will have to serve the market direct."
Bob Booth, an aviation consultant with Miami-based Avman, says that Latin American carriers are on the alert to that possibility. "Latin American carriers will get very worked up about it," he says. "I think you will see some reaction, and it worries me because I believe in open skies. It forces national carriers to get their act together. But, if you start to see too much fifth/seventh freedom and if US carriers start to encroach on regional markets, then you will see a reaction. It will only take a couple of local airlines to be put on the street, and I fear that liberalisation will be in danger," he warns.
Calls for more - not less - liberalisation are increasing, sometimes from unexpected quarters. Earlier this year Taca Group president Federico Bloch accused the US Department of Transportation of betraying Central American airlines with its open skies agreements after he discovered that US politics still prevented him from cementing partnerships with the US carriers of his choice. "We believe in true open skies in an open market," says Bloch, who emphasises that he does not fear seventh freedom as part of that deal.
Former KLM vice-president for foreign relations, Peter Van Fenema, also questions how "open" the US open skies agreements really are. Fenema, who is now a researcher at the Meijers Institute in the Netherlands, says: "One of the things that should be on the list of the European Union in any future discussions with the USA is recognition for European carriers to operate from any point in Europe to any point in the USA. But most people don't ask for - or ask for and don't get - seventh freedom in their so-called open skies agreements." Van Fenema adds that the response in the USA to seventh freedom is very lukewarm. "I think it's high time for the USA to move liberalisation into a higher gear, but the question is, what would they want in return? They could start the ball rolling with this now and I don't think it would make any material difference to them if, for instance, a carrier from European country A was allowed to serve the USA from European country B. But this is a bargaining chip and, in negotiations, you tend to hold on to your bargaining chips."
Most prominent of all in the call for seventh freedom rights has been Virgin Atlantic chairman Richard Branson, who is challenging the UK Department of Transport to make this part of any open skies deal with the USA. Virgin says this campaign will be stepped up over the next few weeks. "We are very serious about setting up an airline in the USA," says Virgin spokesman Paul Moore. "It would be a separate company with American employees - that's something that really chimes with Americans. Our view is that it would be a low-cost, high-value operation and that it would make good economic sense." Moore adds that Richard Branson can set up a record Megastore in the USA without any problems. "Our employees here say it's great because it's taking the Virgin brand into America. But anachronistic rules prevent us from doing that with an airline. It's blatant protectionism. Alliances are an artificial solution to an artificial problem. There is no reason why the rules should not be different now."
In the USA itself, not everyone disagrees with that viewpoint. Scott Gibson at the Economic Strategy Institute in Washington DC, says the institute has not taken a position on seventh freedom and is open about the idea of a broad open skies agreement with Europe. But he sees resistance in the near term, saying: "Ultimately, the whole world will evolve away from the notion of citizen ownership, but that's a long way down the road, I think. One would hope it would evolve that way, but it's a bigger issue than just traffic routes.
We have no problem with cabotage as long as it's within a reciprocal regime. But the fact is that no-one yet has made a credible case with labour. I think this is an issue that could be easily diffused, but no-one has done it." n
Freedoms of the air| First freedom | Fly across the territory of another state. |
| Second freedom: | Land in another state for non-traffic purposes such as refuelling or emergency. |
| Third freedom: | Put down in another state passengers or freight taken on in the state of airline registration. |
| Fourth freedom: | Take on in another state passengers or freight destined for the state of airline registration. |
| Fifth freedom: | Take on passengers or freight in a second state and put them down in a third state. |
| Sixth freedom: | Take on passengers or freight in a second state, carry them via state of registration and put them down in a third state. |
| Seventh freedom: | Take on passengers or freight in a second state and put them down in another state without the journey beginning, stopping or terminating in airline's state of registration (cabotage). |
| Hub | Airline |
| Paris/Orly | British Airways/Air Liberté BA owns domestic network. |
| Nice | Lufthansa/Air Littoral Lufthansa effectively controls and could own hub network. |
| Singapore | British Airways/Qantas fifth and seventh freedom hub. |
| Stockholm | Finnair fifth and seventh freedom intra-Europe. |
| Vancouver | American Airlines/Canadian Airlines American control could increase. |
| Sharjah | Lufthansa Cargo/Hinduja Lufthansa Europe-India cargo hub. |
| Subic Bay | FedEx fifth and seventh freedom cargo hub. |
Source: Airline Business
