Thursday, January 18, 2007

News Roundup

Virgin America Responds To DOT’s Show Cause Order

Late yesterday, Virgin America responded to the U.S. DOT’s decision to tentatively deny the carrier the economic fitness certificate it needs to operate due to concerns about the role of foreign investors in the carrier.  In an unusual move, the carrier offered to remove the current CEO Fred Reid in response to criticism that he might have impermissibly close ties to UK citizen Richard Branson and the Virgin Group.  Other important changes proposed by the carrier include: eliminating one of the three board seats previously awarded Branson's Virgin Group; raising another $20 million from U.S. investors; placing all of Virgin Group's shares in a voting trust supervised by a U.S. trustee; and the Virgin Group giving up veto or consent rights regarding various aspects of Virgin America’s operations or decisionmaking.  The airline also rolled out a new website this week entitled "Let VA Fly!" that includes a grassroots campaign to get the public involved with lobbying the D.C. political establishment, and new details about the carrier's onboard product.

Additional Resources:

1) Virgin America Press Release

2) Virgin America’s Full Filing With DOT

3) Campbell-Hill Study on Virgin America’s Benefits to U.S. Consumers

4) San Francisco Chronicle Editorial "Fighting the Unfriendly Skies"

United Tentatively Wins China Route Case

On January 9, 2007, the U.S. DOT tentatively decided to allocate seven weekly combination frequencies to United so that it could serve the Washington D.C. (Dulles) - Beijing market with nonstop B-747 service.  One important factor that caused the DOT to chose United’s proposal over competing proposals (from Northwest and Continental) was that, of the proposed U.S. gateways in the route case, the Washington D.C. area was the largest such U.S. gateway without any nonstop service to China.  The DOT also found decisive the fact that United would provide significantly more U.S.-China capacity (46,000 more seats annually) than Continental’s competing proposal.  The DOT further noted the "community of interest" between Washington D.C. and Beijing and the significant behind and beyond-gateway traffic flows that United would be able to generate to support the route.  United is anxious to begin sales and marketing of the new service and has filed for pendente lite authority that, if granted, would allow the carrier to begin these activities before the finalization of the route award.

Additional Resources:

1) DOT Show-Cause Order

2) United’s pendente lite motion

U.S.-EU Open Skies Agreement Developments

After a meeting in Brussels on January 10th and 11th, U.S. and EU negotiators are scheduled for a second round of talks (in Washington D.C. the week of February 5th) to examine and discuss proposals to replace the NPRM that would have liberalized restrictions limiting foreign control of U.S. airlines.  According to a news release by the U.S. State Department, one proposal the EU might put forth as a substitute to the NPRM are changes pertaining to the "foreign ownership of non-voting stock in U.S. airlines."  A small success from the recent talks in Brussels was an agreement that new EU members Bulgaria and Romania would be part of any U.S.-EU open skies agreement.  U.S. negotiator John Byerly also expressed hopes that a U.S.-EU open skies agreement could still be finalized during the German presidency of the EU that ends on June 30, 2007.

Additional Resources:

1) State Department Press Release

2) Joint Statement Following U.S.-EU Meeting In Brussels

3) John Byerly (U.S. DOS) Press Briefing Before Recent U.S.-EU Talks

U.S. Senate Will Hold Airline Merger Hearing

According to a recent Reuters article, the U.S. Senate Commerce Committee will hold a hearing to examine issues surrounding airline consolidation on January 24, 2007. The U.S. House of Representatives is also expected to hold hearings on the same topic in the near future.

EU To Open Negotiations With Canada On Comprehensive Aviation Agreement and Passenger Rights Ombudsman Decision

On January 9th the European Commission proposed to open negotiations with Canada on a comprehensive aviation agreement that would likely be similar in structure to the proposed U.S.-EU open skies agreement.  Also, the European Ombudsman recently called for the Commission "to correct inaccurate and misleading information contained in leaflets, posters and a video presentation on air passenger rights."

Additional Resources:

1) EU Press Release On Proposal To Open Negotiations With Canada

2) EU Ombudsman Press Release Regarding Incorrect Passenger Rights Information

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