liberalisation-open markets, open skies, & beyond jonathon r nield
TRANSCRIPT
The Case For and Against Regulation
• Tight regulation up to 1970s• Civil Aeronautics Act of 1938- regulate competition• While air transport is not a natural monopoly,
"unregulated competitive forces may have adverse consequences for the public at large. (Richmond 1971).
The Case For and Against Regulation
• Airlines have non-differentiated product• Low barriers to entry• No significant economies of scale
The Case For and Against Regulation• Air transport is a public
utility• The nature of the
benefits of the airlines could not be jeopardized
• Strategic, Social, and Political implicationso Countries developed
one national carriero Free international
competition would put national carriers at risk.
The Case For and Against Regulation
• Rapid development of non-scheduled air traffic 1960s-1970s
• Chartered services would potentially jeopardize scheduled services
The Case For and Against Regulation
• Regulation limited pricing freedom and product differentiation, restricted capacity growth, excluded new entrants
• Benefits of a competitive environment:o lower fareso innovatory pricingo product differentiation
• Airlines forces to improve efficiency and productivity
• Some inefficient airlines may be forced out of certain markets
The Case For and Against Regulation
• Fear of getting locked-in within industryo Equal market share and prices below
sustainable levels• Arguments against the airline industry being
different than any other industry regarding need for consumer protections.
Mounting Pressures for Liberalisation
• Carter administration in the 1970s abolished CAB and the airline market was deregulated
• European airline markets soon followed with the mounting pressure from the rapid US deregulation
• Internation Air Transport Negotiations (Carter) 1977-1985: US began many bilateral negotiations to encourage competition in international markets
Open Market Phase of Liberalisation
• Countries wanted increased access to US market• US-Netherland Bilateral agreement set tone for future
policy:o Multiple designation acceptedo 5th Freedom Righto Dutch only given 5 pointso No restrictions on frequency or capacityo No restrictions on the 6th freedomo Unlimited charter rightso Country of origin sets tarriffs- Double Disapproval
• Pressure on other European countries
Open Market Phase of Liberalisation
• UK-Netherlands bilateral agreement in 1984-1985 sets stage for Europe
• Succession of agreements and treaties removed many of the restrictions on routes, capacity, frequency, and pricing.
Open Market Phase of Liberalisation
• JAL in Japan ended its monopoly in 1986 (ANA)• Southeast Asian countries saw multiple new
airlines startup• Asiana-South Korea• Eva Air- Taiwan• Dragonair- Hong Kong• Qantas- Australia (Continued as deregulated sole
Intl carrier)
Open Market Phase of Liberalisation
• US-European bilaterals often unbalanced• Intra-European bilaterals balanced• US offered more 5th freedom rights than the Intra-European
bilaterals• Most US bilaterals allowed unlimited charter flights from any
point• Unlimited or multiple designation rights• Break of gauge rights• Removal of limits on the frequecy of flights• Removal of capacity limits• Double disapproval
US Pushes for 'Open Skies'
• 1992 to Present• Arguments against bilateralism grew• Airlines should be able to operate as any other
international industry• Market opportunities only as great as the least
liberal state• Maturing nature of the industry and difficulty of
operating within the confines of bilaterals
US Pushes for 'Open Skies'
• Maturing nature of the industry and difficulty of operating within the confines of bilateralso Growing concentration of US carriers (American, United)o Airline alliances and mergers internationally were becoming
more prevalento Privatization of airlines
• Morphing marketing conditions created need for successful airlines
• Airlines in US were pushing for more deregulation (American, Delta, United)
• European Community>EU also pushing for open skies
US Pushes for 'Open Skies'
• 1992- US and Netherlands signed first 'open skies' agreement
• New features in version 2.0 of the deregulation:o Open route accesso Unlimited 5th freedom rightso No tarriff controls UNLESS too high/lowo Code-Sharingo Break of gauge
US Pushes for 'Open Skies'
• US pushed for open skies first with like-minded states• Reluctant states had implied threat of counter-measures• KLM filed for anti-trust immunity to better exploit the
code-share with Northwest• By 2007, over 60 'open skies' agreements• Some countries (Italy) introduce open skies in phased
bilaterals• Only two countries without open skies, UK and Japan
European Common Aviation Area
• Europe moving toward open skies• Different structural approach• Unlike bilateral approach of the US, Europe took a
multi-lateral approach
Clouds in the Open Skies
• Despite the progress of the US and EU in open skies agreements, most countries still had traditional bilateral agreements
• Cabotage still not allowed• Seventh Freedom still not allowed
o Flying between two points outside airline's operations
• Airline ownership controlo 25% max in US
• Still said to be US biased
European Court Changes Rules
• European Court of Justice 2002• ECJ was only entity able to negotiate bilateral air
service agreements• Traditional nationality clauses infringed upon
Article 43 of European community. Airlines with foreign ownership could be designated to fly between states
• Bilaterals with the US needed to be renegotiated• Open Skies to Clear Skies
Trans-Atlantic Common Aviation Area • European Commission wants to further
liberalise the international arena.• US political structure and law makes certain
desired freedoms difficult to attain• Airlines are seen as a component of national
security• Civil Reserve Air Fleet (CRAF)• March 2007- European Council of Ministers of
Transport opened 5th freedom rights to/from US and any point within EU member states
• Other efforts broke down