Monday, February 23, 2009
Giovanni Bisignani, the International Air Transport Association's Director General and CEO, delivered a strong speech on the importance of civil aviation to worldwide economic recovery to the Wings Club in New York City. (A full text of the speech is available from IATA here.) While Bisignani centered his comments on the need for an initial $4 billion investment to improve the U.S.'s air traffic management system, he also encouraged the Obama Administration to make serious policy adjustments with respect to security, the environment, and commercial freedoms. On the last point, Bisignani stated:
Thirty years after the US started deregulation under President Carter, the job is still incomplete. International markets are closed until governments negotiate them open and foreign ownership restrictions limit access to global capital and prevent cross-border consolidation. . . .
[I]t’s time for the bilateral system, fathered by the US and the UK 62 years ago, to go the way of the paper ticket - framed and in a museum. What worked in the 1940s is killing the industry today.
Bisignani's observation is not new, but its importance has been dramatically heightened by the worldwide economic crisis. With the financial sector still in turmoil and global manufacturing experiencing a rapid decline, service industries are being affected. In December 2008, IATA reported a 22.6% plummet in air cargo compared to a year before and an overall $2.5 billion loss for the industry in 2009. The prudent response to the drop in demand for a market overcrowded with players is consolidation. Opportunities within the U.S. are dwindling. Last year's Northwest/Delta merger was a critical move for both carriers, but one which may not be available to other major U.S. airlines such as Continental, United, and American.
For all of its exhortation on opening up U.S. carriers to foreign investment, Bisignani's speech failed to address a number of pending issues which could have a substantial (and detrimental) impact on the future of air transport liberalization. Specifically, Bisignani did not discuss Rep. James Oberstar's legislative proposal which would sunset antitrust immunity for transnational airline alliances and perhaps lead to divesting the U.S. Department of Transportation of its immunization powers altogether. He also refrained from mentioning the petition brought to the DOT by Alaska Airlines which calls for an investigation into the ownership structure of Virgin America. The outcomes to both the legislative proposal and the petition are important because they will provide clear indication of the U.S.'s aeropolitical mentalité. A willingness to take protectionist action will likely signal intransigence on the foreign investment issue. Unless these challenges to authentic liberalization are dealt with quickly, there may be little hope for the macro-level change Bisignani and his constituents believe is vital for the stability of international civil aviation.