Moves to fully expose the air transport industry to free market forces are being enthusiastically endorsed by some; others would prefer to see some brakes applied.
Rarely does the debate at an annual meeting of the International Air Transport Association (IATA) stretch itself beyond the customary polite exchanges of resolutions formally proposed and adopted. This year's choice of venue in Sydney, however, allowed for some unusually straight talk.
In his opening address at the June summit, Australia's deputy prime minister and minister for transport, John Anderson, not only called for a full liberalisation of the air transport system, but attacked the current bilateral system because "it promotes the well being of the flag carriers". This to an audience of flag-carrier chief executives.
Anderson's blunt talk, insisting that the airline industry no longer be treated as "special", is something that those executives are likely to hear repeated as the liberalisation clarion call gains momentum. Which does not make the message any more appealing to those for whom such a brave new world seems more like a ticket to extinction. "It is essential at this point to seek to move away from the bilateral system and towards a free world in aviation; and Australia is taking a leading role here because it is time for the world to move beyond the bilateral system," said Anderson. Such words are welcomed by some; feared by others.
On the other side of the world, and just two weeks earlier, senior airline executives and industry experts debated common aviation areas and their potential for creating pathways to multilateral open skies. As in Sydney, this debate - in Phoenix, Arizona - soon highlighted the increasing divide between those pushing for liberalisation and those who fear its consequences. While further liberalisation of the industry seems inevitable, the pace at which it occurs and the shape it takes will depend largely on how that divide is bridged. How can liberals convince the sceptical that they have something to gain and not everything to lose?
The liberalisation debate is no longer just about words. There now exist at least three documents addressing the issue. The Association of European Airlines (AEA) has its policy statement proposing the Transatlantic Common Aviation Area (TCAA), a free-market concept backed by Brussels. The Australian Government, meanwhile, used the IATA meeting as an opportunity to unveil an International Air Services policy statement, which calls for major changes to the way in which Australia addresses key areas of international aviation policy. IATA itself unveiled Wings For The Future, a document which lists five principles that should be adhered to during the liberalising of air transport. This October, the US Department of Transportation intends to hold a summit in Washington to follow the Beyond Open Skies conference it hosted last year in Chicago.
Battle lines drawn
But if the IATA summit and the Sky Harbor Airport symposium in Phoenix are true indicators, then the fists are only beginning to be bared in the liberalisation debate and it is not always obvious who will take which side. The USA, for example, while calling for airlines and governments to look beyond open skies, seems markedly reluctant to embrace the European TCAA's proposal, which takes liberalisation one step too far for some US tastes - lifting limits on cabotage and ownership rules.
While union opposition is the most commonly cited reason for this reluctance, a number of labour representatives from both sides of the Atlantic took part in the Phoenix debate and no-one appeared to reject outright the idea of a TCAA or to further liberalisation of the industry. The mood was more one of caution and scepticism, summed up best by Duane Woerth, president of the Air Line Pilots Association: "When I look at the TCAA I ask myself what's going to change in the way that our employees operate? We are not using the fifth freedom rights we have had for 30 years because they are impractical. I have not seen much reason to get excited."
But the unions are seeking to be part of the negotiations that could lead to a TCAA. Changes in ownership rules concern them because of what has happened in the shipping industry, with flags of convenience now a routine practice. And the unions are against what they regard as 'preconditions' about cabotage and ownership rules being included in a TCAA proposal.
Woerth's remarks contain a home truth, however. The European Commission and AEA seem to sense that the TCAA concept represents an opportunity to gain a policy lead; borrowing from the experience of creating a single market within Europe itself.
However, there is much less enthusiasm among the US major carriers and their government. Without equal push from both sides, the TCAA proposal is likely to find itself put on a back-burner. As Dr Rene Fennes, principal administrator at the EC and a keen supporter of the TCAA, puts it: "What we are talking about here is political will and political guts."
To that, add political trust as well. One of the most outspoken pro-liberalisation airlines, the UK's Virgin Atlantic, is routinely accused by other carriers as asking for the impossible - a fully liberalised transatlantic market that includes cabotage and a lifting of ownership rules - because it knows the USA will never concede such a request and so the status quo is maintained between the USA and the UK in the form of the controversial and restrictive Bermuda II treaty. Virgin's director of external affairs and route development, Barry Humphreys, retorts: "We are not scared of competition; I can only say look at our history."
Fennes adds that if Europe and the USA cannot take this step forward in liberalisation, who can? But as the IATA summit showed, others are willing to take the lead. The Australian Government has amended its rules to allow foreigners and foreign airlines to own up to 100% of an Australian carrier - hence Virgin's plans to launch a low-cost carrier there later this year. The government's aviation policy paper also commits Australia to more liberal and open international aviation policies, either through reciprocal open skies arrangements or "the most liberal arrangements possible".
Singapore is also willing to push the boundaries. Singapore Airlines' vice president of international relations Stanley Kuppusamy says his country would even welcome the opportunity to be included in any TCAA negotiations, believing that the proposal could extend beyond the EU and the USA to "like-minded nations anywhere in the globe".
But the idea of liberalisation spreading so rapidly and easily is far from likely. Nashir Mallam-Hasham, chairman of Air Mauritius, spoke for many smaller carriers at the IATA meeting when he made an impassioned plea for safeguards against the "unfair and destructive competition" that uncontrolled liberalisation could lead to. Small airlines will lose their identity, he warned, and environmentally sensitive countries such as Mauritius could be devastated if exposed to unlimited airline access and tourism.
Cautious pace
Which is why IATA's director general, Pierre Jeanniot, must tread carefully. On the one hand, IATA recognises the inevitability of liberalisation. On the other, it realises that not its all members are ready for it. "The answer to the challenge of globalisation is to encourage flexible and increasingly liberalised developments by like-minded groups of nations and airlines," Jeanniot told the Sydney audience. "In my view, a major step would be for governments to further relax their rules on foreign ownership." IATA's Wings For The Future document, however, does little more than list the areas that should be protected if liberalisation proceeds - safety and security oversight; adequate infrastructure; continued availability of the interlining system; industry mechanisms; and open access to all players. The document states: "It is essential that the five principles are not compromised as the industry moves towards greater liberalisation."
Dr Assad Kotaite, president of the International Civil Aviation Organisation (ICAO) endorses these principles, but seems to be pushing for a leadership role to be taken up so that the industry is fully prepared for the inevitable. "In my view, the evolution of ownership and control provisions on a global basis would be a key economic regulatory development towards ensuring the safe, secure and orderly growth of civil aviation," Kotaite says. "It would bring our industry in line with others and would produce substantial economic benefits. But unless the aviation community is directly involved in that evolution, the risks will be high. I cannot emphasise too strongly the need to keep ahead." He calls on carriers to "embrace the concept and lead it forward" promising economic benefits for all. But not everyone is yet convinced that they have more to gain than lose.
Source: Airline Business
