Karen Walker
Pop! That's the sound of Central American carriers reacting to the open skies agreements they were applauding just a few months ago, but which they now regard as black clouds that have opened the floodgates to US competition and left local airlines with little shelter.
The bubble has burst and the region's airlines feel betrayed by the US. An open skies agreement is fine if you are a major US airline seeking new markets, or a small overseas carrier that can forge a codeshare pact with a US major.
But what if, as in the Taca group's case, you find your anticipated codeshare strangled by US politics? Federico Bloch, chief executive officer of Taca, made his fury public at this year's AvNews Latin American & Caribbean airline CEO conference in Orlando, Florida. His predicament could serve as a warning to other countries. Bloch's experience has prompted him to advise South American countries not to sign any more open skies deals until they understand what has happened in Central America. And he is threatening to put pressure on Central American governments to rescind their bilaterals.
Although a believer in the principle of open skies, Bloch says they should be truly open on both sides and argues that the new agreements in the region have succeeded only in tying the hands of Taca while foreign competition moves in. 'We think the US is in violation of every single agreement they have made with every country in Central America,' says Bloch. 'They cannot live with that. It is an issue of credibility. I am sorry to be the guinea pig. My advice to other countries is: 'Don't do anything until you have seen what they are doing to us.'
What went wrong? US politics is at the crux of the problem. Since US negotiators first swarmed across Central America waving their open skies blueprints, the face of aeropolitics has changed dramatically in Washington DC. Politicians, officials at the Departments of Transportation and Justice, and analysts at the General Accounting Office are unnerved by the domestic and global alliances sweeping the industry. The proposed American Airlines/British Airways alliance is no longer alone in being scrutinised for possible anticompetitive traits; the very word 'alliance' is now sufficient to raise suspicions in Washington DC.
Bloch is not so much the guinea pig as the unfortunate hare that failed to cross the finishing line before the rules of the race changed. A year ago, he was practically crowing about the partnership opportunities provided by open skies. Bloch, an astute business man, picked and was chosen by the ultimate US prize - American Airlines - which would have provided valuable access to US markets via Miami. On paper, there was nothing to prevent the codeshare once the bilaterals were signed - except for US politics.
Capitol Hill is now poking its nose into such alliances because of the overwhelming marketshare the combined airlines would gain on some routes. The AA/Taca codeshare has been on hold ever since, even though the carriers are not seeking antitrust immunity. 'We have not requested immunity because we were told that would be difficult. But the agreement says we are entitled to have codeshare partners and that those partners would be decided by market forces - not governments,' says Bloch. 'We should be deciding who we do business with, not government bureaucrats.'
But while the American-Taca codeshare has frozen in the icy stare of US politics, US airlines have swiftly taken advantage of their new-found opportunities under open skies, increasing their available seats to the region by some 40 per cent and by as much as 67 per cent to countries like El Salvador. Local airlines have seen sales increases of barely 1 per cent to the US.
Ironically, Bloch's outburst at the conference was followed by a speech from Delta Air Lines' new CEO, Leo Mullin, newly arrived from Atlanta and seemingly unaware of Bloch's accusations. Mullin outlined his airline's 'bold plans' to expand in Latin America and build its Atlanta hub into a major, alternative Latin American gateway. 'We plan to become a significant airline in Latin America, serving all major cities as liberalised agreements allow, and we intend to do it profitably,' he said. To those Latin American CEOs in the audience, this must have sounded more like a threat than the positive endorsement of open skies that was intended.
Long-term alliances with Latin American carriers 'based on mutual respect' will be an important part of Delta's growth strategy, added Mullin, highlighting the alliances forged with Aeromexico, AeroPeru, Aeropostal, Air Jamaica and Transbrasil. But he was then in alliance talks with United Airlines, so Mullin didn't hang around after to pursue any new relationships.
Bloch's timing for launching an attack on the meddlings of Washington is pertinent. The dogged US pursuit of open skies continues, with Argentina, Chile and Peru at the top of this year's wishlist. The Chilean government, however, is already digging in its heels, saying that acceptance of a deal is conditional on the approval of an immunised alliance between LanChile and American - something that will be politically hard for the US to swallow. But Bloch's comments are likely to bolster the Chilean argument that such issues should be settled before a country opens its doors to the full weight of US competition. Bloch is, in effect, warning Chile to stick to its guns. 'You would be absolute fools to sign until you know that the US is prepared to put its money where its mouth is,' he says. And as Bob Papkin, a lawyer at the Washington-based firm of Squire, Sanders & Dempsey, points out: 'If the Chileans win out and get immunity, will the Argentinians expect or deserve anything less?'
This could leave US open skies negotiators struggling to answer an array of embarrassing questions. But then, as Papkin remarks: 'This is not an administration that is easily embarrassed.'
Source: Airline Business
