Friday, June 29, 2007
2007-2009 China Route Proceeding
On June 21, the U.S. DOT set out the procedures it would follow in the "2007/2008/2009 U.S.-China Air Services and Combination Frequency Allocation Proceeding." For the 2007 part of the case the DOT has tentatively determined that the new designation will go to a combination carrier and that the newly designated carrier will be given the seven combination frequencies up for allocation. The front-runner for this award is Delta which has already announced that it will file for Atlanta-Shanghai service. United may have a strong case for the 2008 award for seven combination frequencies for nonstop service between the U.S. and Guangzhou as it has already made its argument for San Francisco-Guangzhou service in a previous route proceeding. As many airlines are currently arguing in the proceeding, it seems a bit premature to dole out the 2009 awards as part of the current proceeding, as the market may change a great deal between when the awards are made and when a carrier actually begins operations on that route. Click here for the order instituting the proceeding. The following is a Wall Street Journal article discussing the route case Download wsj_delta_is_leading_contender.doc.
Ryanair-Aer Lingus Merger Blocked By EU Competition Authorities
This week the European Commission formally blocked the proposed merger between Ryanair and Aer Lingus. The Commission stated that the combination would harm consumers and be anti-competitive. The combined carrier would have a monopoly on 22 routes and a dominant position (a market share greater than 60%) on 13 more routes. The merger would have reduced consumer choice and would have led to higher prices for the more than 14 million passengers in the EU using these routes to and from Ireland each year. The Commission also deemed Ryanair's offer of remedies to be inadequate because the amount of slots given up would not lead to meaningful competition. To read the Commission press release click here and for the Commission Q and A memo click here. For a Ryanair press release announcing that the carrier would appeal the decision and giving reasons for the appeal click here.
First Antitrust Immunity Filing Under New U.S.-EU Agreement
SkyTeam carriers Air France, Alitalia, CSA Czech Airlines, Delta Air Lines, KLM and Northwest Airlines recently filed an application with the DOT seeking antitrust immunity on transatlantic routings. The carriers withdrew a similar application in January 2006 after the DOT indicated that they would reject the application. Now that the new U.S.-EU open skies agreement is in effect, it will be interesting to see if the DOT softens its objections to granting antitrust immunity to an agreement involving two U.S. carriers. Here is a Wall St. Journal article discussing the application Download wsj_airlines_seek_u.S. Clearance.doc. Click here for the actual filing the carriers made with the DOT.
Labor Issues Roundup
Airline labor relations garnered a great deal of news coverage this week. Northwest has had many canceled flights and disruptions to its operations due to the failure of its pilots to work beyond the amount required by their contract (the contract maximum is 90 hours per month while the FAA allows up to 100 hours). The union denies that there is a sickout taking place. A USA Today article discusses the problems at NWA. There was also an amendment added to the FAA reauthorization bill that would allow FedEx workers to unionize under the National Labor Relations Act instead of the Railway Labor Act. A Memphis Commercial Appeal article discusses the amendment. Finally, according to a press release from SkyWest, a federal district court in California refused ALPA's request to ban SkyWest from funding its in-house pilots union (the SkyWest Airlines Pilot Association). See the full court decision here.
EU Adds to Blacklist
The EU added all 51 Indonesian carriers to the list of airlines that are prohibited from flying to the European Union. In addition, new carriers from Russia, the Ukraine, and Angola were added to the list. The EU will now allow Pakistan International Airlines to conduct operations to the EU with B-747 and Airbus A-310 aircraft in addition to the B-777 operations that were already approved. Click here for AP article discussing changes to the blacklist.
Tuesday, June 19, 2007
EU Presses Ahead With Plan To Include Aviation In ETS
Following the recent Transport Council meeting, the EU announced that it was pressing forward with its plan to include aviation in its emissions trading scheme. Tiefensee comments. This sets up a showdown at the upcoming ICAO Assembly this fall over whether or not third countries should be required to participate in this scheme without their consent. Despite President Tiefensee's comments suggesting that improvements in technology and efficiency will not solve the aviation carbon emissions problem, the U.S. and EU announced a new initiative to cut aircraft noise and pollution. The U.S. and EU will pool research funds and work to ensure compatibility of air traffic control systems. FT article. The AEA and other European airline trade associations also recently released a study critical of the EU's plans to include aviation in the ETS. Press release, executive summary. Finally, the AEA took issue with a Dutch plan to levy a 25 euro tax on all airline passengers from the Netherlands and the purported environmental benefit justification for this tax. AEA press release.
Southwest Eyeing International Service From BWI?
In a speech yesterday to the BWI Business Partnership, Southwest Airlines CEO Gary Kelly announced that any international expansion by Southwest would first entail service to Canada, Mexico and the Caribbean by its partner ATA. However, Kelly suggested that the airline plans to eventually take advantage of the new opportunities created by the U.S.-EU open skies deal, and that BWI may become a base for international service. Baltimore Biz Journal article.
Mergers and Privatizations
United's CFO Jake Brace sparked new speculation in the industry about potential merger partners for United after he announced at a recent Merrill Lynch conference that United was looking for a partner with a strong northeast presence and a southern-tier hub (for service to Latin America and the Caribbean). Pittsburgh Post Gazette article. Continental, Delta and US Airways all potentially fit the criteria laid out by Brace. Also, Alitalia's privatization effort appears to be stalling after reports surfaced that Aeroflot may consider pulling out of the auction. Reuters article. This would leave Alitalia's much smaller rival Air One as the only viable bidder for the carrier.
Follow-Ups From Previous Postings
The U.S. Department of State has posted the full text of the May 22 U.S.-China aviation liberalization agreement on its website. One overlooked potential benefit from the agreement may be new service between China and Guam and the Northern Marinas. Pacific Magazine article. Continental and Northwest, carriers that already serve the islands, are the most likely to initiate new service.
Also, the U.S. DOT finalized its decision in the LAX user fees proceeding. In a turnabout from the administrative law judge opinion discussed in an earlier posting (entirely favoring the airlines), the agency ruled that the airport was justified in increasing some of its fees that it charges airlines. Daily Breeze article. Full DOT decision.
Monday, June 4, 2007
New U.S.-China Aviation Agreement
A useful summary of the service opportunities that will be made available by the new U.S.-China aviation agreement (reached on May 23 in Washington D.C.) is contained in a recent Aviation Week article. Notable features of the agreement include:
- an increase in daily flight opportunities to China by U.S. carriers to 23 by 2012 (from 10 daily to Beijing, Shanghai and Guangzhou at present);
- the intent to resume open skies talks in 2010;
- the number of U.S. passenger carriers that may serve the Chinese market will increase from six to nine by 2011;
- and the agreement will essentially provide open skies for air cargo by 2011.
The press release by the U.S. DOT announcing the agreement can be accessed by clicking here. The Chicago Tribune also recently ran an article containing speculation about which carriers might benefit or be harmed by the new agreement.
Ryanair-Aer Lingus Merger
According to a Reuters report last week, the full European Commission now has before it a draft recommendation from DG-COMP to block the Ryanair-Aer Lingus merger. The recommended decision reportedly runs over 300 pages and could be only the twentieth rejection of a merger proposal by the Commission of the over 3,000 cases that have been considered since 1990. A final decision is expected by the beginning of July.
Environmental Impact of Aviation
Two different news reports show the variety of ways that airlines are grappling with the public relations aspects of the environmental impact of aviation. An article this past Saturday in The Guardian discusses the outrage by environmental activists after Ryanair's launch of London-Stansted to Brussels service to compete with Eurostar trains. A Bloomberg report mentions that a number of airlines have given passengers the option of paying a fee to offset the the carbon dioxide emissions from their trip and notes that environmental issues are at the forefront of this week's IATA annual general meeting. Click here for IATA head Giovanni Bisignani's speech today which discusses IATA's views on how airlines can shape the debate about the environmental impacts of aviation.