Friday, October 30, 2009
U.S. and Japanese negotiators concluded their latest round of air transport talks without finalizing an open skies agreement. See Mariko Sanchanta, Hurdles Remain for U.S.-Japan Open Skies Deal, Wall St. J., Oct. 30, 2009 (available here). According to lead U.S. negotiator John Byerly, "We made enormous progress on an open skies memorandum of understanding" and he remains "cautiously optimistic that we can succeed." Succeed at what? While the media attention has been on an open skies arrangement, the nature of the negotiations bespeaks something else. According to the story:
At stake are lucrative new routes between Japan and the rest of Asia, which is the fastest growing aviation market in the world, and expanded services between Japan and the U.S. . . .
Haneda, which is the more convenient of the two airports to Tokyo's city center, will offer new international services only between 11 p.m. and 6 a.m., when Narita closes down to commercial air traffic. At the moment, Japan is offering the U.S. only four operations a day, or eight landing slots at Haneda, according to a Japanese government official involved in the negotiations. "[The U.S.] says this is too small and not commercially meaningful, that it is not fair and equal" compared with what the Japanese carriers will receive, said the official.
Mr. Byerly said negotiations over slots are continuing. "There are only a limited number of flights available at night," he said, adding, "we have to discuss how many slots [we receive]."
In one concession by the U.S., its airlines would see their proportion of Narita's slots shrink under the deal currently being discussed. The U.S. carriers' share at Narita Airport is currently roughly 30% of all landing slots, but it won't get new ones when Narita expands its capacity by 10% next year. The move follows concerns from Tokyo that U.S. carriers had too much dominance at Narita.
Slots are not typically part of the open skies template. Cf. U.S. Dept. of State, Current Model Open Skies Agreement Text (Jan. 10, 2008) (available here). If the story is accurate, the slot negotiations appear more akin to the managed trade approach of old-style restrictive bilaterals than the liberalizing open skies ethos. Open gateways and unlimited designation opportunities won't mean much to U.S. carriers if the Japanese Government is still allowed to protect slots for its domestic airlines and thus limit airport access. Yet even with these restrictions looming, airlines on both sides of the Pacific are hoping that a deal can be reached which will satisfy the Department of Transportation's longstanding requirement to only grant antitrust immunity to alliance agreements involving carriers from States which have signed an open skies treaty. Will an agreement with elements of managed trade be enough? Hopefully Japan will forego these last vestiges of air transport protectionism so we won't have to find out.
Thursday, October 29, 2009
The Wall Street Journal has a new story up on All Nippon Airways's (ANA) aggressive plan to acquire more slots at Tokyo's two major international airports even as fellow Japanese carrier JAL struggles to survive. See Mariko Sanchanta, ANA to Seek More International Slots in Airport Expansions, Wall St. J., Oct. 29, 2009 (available here). From the story:
"ANA is arguing they only have half of JAL's international slots, and are arguing that they need more," said the official. "JAL is facing a difficult situation, so it would make sense to strategically allocate more slots to ANA."
"We want to put in requests for more slots, but nothing has been decided," said an ANA spokesman. "We would like our proportion of our international routes to increase, but this is not for us to decide."
Traditionally, slot allocations have been meted out by the government in proportion to the size of each carriers' international route operations. JAL generates about 70% of its revenue from its international operations, giving it the lion's share of international slots at Narita, while ANA derives roughly 30% of its revenue from international flights.
However, the government official said that it was considering disproportionate slot allocations for the first time, given JAL's uncertain future.
If ANA is able to secure more slots, it could be a market boon for the Star Alliance. As the story mentions, ANA supports the establishment of an open skies agreement between the U.S. and Japan. The airline hopes to join the plethora of European carriers which have been able to integrate themselves into global alliance partnerships with U.S. airlines under a grant of antitrust immunity from the Department of Transportation. Though not an official element of U.S. international aviation policy, the DOT has long required an open skies bilateral to be in place prior to bestowing approval and immunity on an alliance agreement. The limits of that policy are currently being put to the test in the context of the oneworld Alliance application. With the DOT reportedly delaying its decision due to Justice Department concerns, a cloud of uncertainty still hangs over the future of antitrust immunity for expansive alliances. At this point, it's far from certain than a Japan/U.S. open skies deal will be enough to secure immunization.
Cornelia Woll of the Max Planck Society for the Advancement of Science, has an interesting working paper available. See Open Skies, Closed Markets: The Importance of Time in the Negotiation of International Air Transport(APSA 2009 Toronto Meeting Paper, Aug. 20, 2009) (available from SSRN here). From the abstract:
How can we explain an international agreement that fall outside of the win-set of one of the key players? This article surveys the US-EU Open Skies agreement signed in 2007 and asks why Europeans accepted the agreement after having rejected a comparable version three years earlier. Theoretical approaches that explain time inconsistency in international negotiations tend to focus on reasons why states can be constraint to accept suboptimal solutions. In multi-level bargaining, principal-agent theories focus on loss of control and constructivists suggest that governments can become trapped in rhetoric. This article shows that paradoxical agreements can be voluntary and explains them by adding a time dimension to classical multi-level bargaining analysis. In doing so, the case narrative thus provides an actor-centered account for the observation that flexible international agreements lead to greater commitment than rigid ones.
Tuesday, October 27, 2009
The Wall Street Journal is reporting that the Department of Transportation will likely miss its Oct. 31 deadline to render a decision on whether or not to grant approval and antitrust immunity to the oneworld Alliance. See Daniel Michaels & Kaveri Niththyananthan, US to Miss Deadline on Airline Antitrust Ruling, Wall St. J., Oct. 27, 2009 (available here). The reason? Inter-agency tensions between the DOT and the Justice Department.
This scenario played itself out once already this year. After granting preliminary approval and antitrust immunity for Continental Airlines to join the Star Alliance, the DOT delayed its final order pending a late filing by the DOJ's Antitrust Division which requested limiting the scope of immunity. Though the Star Alliance largely received the full immunity it was looking for, it had the luxury of avoiding the level of public scrutiny which has been paid to oneworld. With everyone from members of the Senate Judiciary Committee to Sir Richard Branson raising voices of protest concerning the pending transatlantic link-up, the DOT is under pressure to heed the Justice Department's objections (regardless of what it might do to the DOT's longstanding international aviation policy).
It is worth noting that when the DOT decision is finally issued, it will come against the backdrop of negotiations between the U.S. and European Community for a "second stage" agreement to their landmark 2007 Air Transport Agreement. With negotiators set to meet in early November to discuss concrete proposals for the second stage, the EU will certainly be interested in the outcome of the oneworld application. The United Kingdom has been and remains particularly adamant that it will consider suspending rights granted under the 2007 Agreement if it is dissatisfied with U.S. second stage concessions. Given that the U.S. is highly unlikely to yield on raising its foreign investment cap for airlines or granting EU carriers cabotage rights, a lot could hinge on the DOT's willingness to let the oneworld Alliance join Star and SkyTeam with full antitrust immunity.
In an interesting about-face, members of the Star Alliance are professing "neutrality" on the matter of whether or not the rival oneworld Alliance, which includes American Airlines and British Airways, receives approval and antitrust immunity from the Department of Transportation. See Doug Cameron, Star Airlines Neutral on Rival Alliance As Own Grouping Expands, Dow Jones Newswire, Oct. 27, 2009 (available here). As the story points out, members of Star have previously opposed oneworld's attempts to secure immunity.
The International Air Transport Association has a website dedicated to its "Agenda for Freedom." From the website:
The rules that govern the international aviation business are out of date. They place heavy restrictions on airline ownership and market access. This prevents airlines from enjoying the commercial freedom that other businesses take for granted. And in the current economic environment, this is a serious threat to their very survival.
The Agenda for Freedom initiative is leading the charge to remove these restrictions.
How is it doing this? By promulgating a non-legally binding statement for States to sign which commits them to waiving the nationality clause and other restrictions in their bilateral air services agreements. (A discussion paper setting out the waiver commitment is available here.)
The Agenda for Freedom is joined by the U.S.-circulated Multilateral Convention on Foreign Investment in Airlines (Sept. 14, 2009) (available here). The draft U.S. agreement would be a binding treaty requiring States to forgo the nationality clauses in their bilaterals. It does not, however, require that State parties "permit foreign ownership or control of [their] airlines." See id. art. 5. So, for example, under the Multilateral Convention, Air Canada could be substantially owned and controlled by, say, Germany's Lufthansa and still be designated by Canada under its open skies treaty with the U.S. to serve Canadian/U.S. city pairs. The only "catch" being that Air Canada would have to have received its air operator certificate from Canada and retain its principal place of business within Canadian territory. See id. art. 1(1). This would prevent Canada from designating, say, Lufthansa to operate Canadian/U.S. service under the aforementioned open skies treaty.
Monday, October 26, 2009
A lead story in the Financial Times is reporting that the European Commission may order British Airways, American Airlines, and Iberia--all members of the oneworld Alliance--to surrender takeoff and landing slots at London Heathrow as the price for approval of their more integrated transatlantic alliance. See Mark Mulligan, Antitrust Threat to Atlantic Air Alliance, Fin. Times, Oct. 26, 2009 (available here); see also Kaveri Niththyananthan, BA Sees No Reason to Cocede Heathrow Slots, Wall St. J., Oct. 26, 2009 (available here).
To BA and AA in particular, the warning from the European Commission must seem like a regress. In 2002, five years before the signing of the U.S./EC Air Transport Agreement, the U.S. Department of Transportation conditioned its approval and antitrust immunity for their alliance on the surrender of 224 slots at Heathrow. See U.S.-U.K. Alliance Case, Dkt. No. OST-2001-11029; see also Laurence Zuckerman, British Airways and American Cancel Alliance, N.Y. Times, Jan. 26, 2002, at C1. The plan did not go through. Since the end of March 2008, however, Heathrow slots have become more available and access to U.S. carriers widened from just AA and United Airlines. Critics argue that the slots still remain scarce and expensive, but should that matter? If AA and BA are using them at the 80% threshold set by European Community law, see Council Regulation 95/93, 1993 O.J. (L 14) 1, this should not immediately trouble anyone. (What is troubling, however, is that the Commission opted to suspend the 80% threshold over the summer; but this act of protectionism is peripheral to the alliance issue.) Both carriers are aware of the high price their slots could fetch in the secondary market and of the opportunity costs associated with slot retention. If they fail to use their slots efficiently, they will suffer economically. That's for the market to decide, however.
On the U.S. end, the DOT is expected to issue its preliminary decision this week on whether to extend antitrust immunity to the oneworld Alliance. Despite an unprecedented amount of public attention being paid to how the agency parcels out antitrust immunity, there is good reason to hope that the Department will proceed with the immunization. First, approval would create competitive parity between the three major transatlantic alliances and help discipline prices. Second, it would reinforce the DOT's longstanding international aviation policy of extending antitrust immunity to crossborder link-ups involving carriers from States which have signed an open skies agreement with the U.S. Last, but not least, approval could go some way toward appeasing both the U.K. and Spain, both of which are unlikely to be pleased with ongoing U.S. reticence toward extending EU airlines foreign investment and cabotage rights as part of a "second stage" U.S./EC Air Transport Agreement. Of course, the immunization could all be for naught if the European Commission tightens the regulatory strictures on alliances and makes stringent demands on BA, AA, and Iberia.
Blog readers may be interested in a recent brief article on India's air transport sector. See Jitendra Singh Rathore & Anamika Sharma, Sr., Airline Industry in India Facing the Free Fall, Strategic Innovators, at 74 (available from SSRN here). From the abstract:
In India, the last decade or so showed prominent signs and a lot of promise for fast-paced growth in the airline sector. The industry, before the gloomy signs of global recession began to appear, was soaring high. But, eventually, the economic downturn impacted the aviation sector in India and dampened the spirits of the players - big and small. India is still a new arena for private players in the airlines business and stakes are high for one and all. In the present times, there is an immediate need to formulate effective strategies to survive through the recessionary phase. It is difficult for those in business to maintain their bottom lines and therefore they should resort to restructuring and consolidation. The airline companies are gasping for breath. The factors like government policies, strategic alliances and fuel prices etc. have a direct bearing on the industry The paper is an attempt to study the prevailing state of Indian airline industry and the strategies adopted by the premium as well as the low-frills airlines to sustain and survive in these times. In this context, the strategies adopted by a few major airlines of the world are also discussed.
Thursday, October 22, 2009
Hubert Horan, an independant aviation analyst with 25 years of experience and a previous guest writer for this blog, has submitted a rebuttal to the oneworld Alliance's recent filing against Justice Department concerns over extending antitrust immunity to global airline alliances. Horan's summary of his criticisms are bellow, followed by a link to his full filing.
The BA/AA Statement directly acknowledged the evidentiary problems highlighted by the DOJs attack on the DOTs Star Alliance/Continental approval. On the one hand BA/AA are asking for the exact same treatment as earlier ATI cases, yet they recognize that those cases were approved despite the complete absence of any legitimate, objective evidence of public benefits and minimal competitive risks. Thus the need for their Statement (OST 2008-0252-3357), because (unlike Skyteam and Star), BA/AA knew they couldnt count on DOT approval without having some sort of evidence on the case record.
However, their Statement was some of the most embarrassingly awful analysis Ive seen in my quarter-century in this business. The central arguments--that there is no statistically significant fare effect from reducing the actual number of carriers on a route from two to one and that granting antitrust immunity has no significant effect on fares are based on an incredibly simplistic regression where all of the input data is wrong. The Statement claims that ATI grants will never affect consumer pricesnot just in this narrow case, under current conditions, but anywhere, anytime, regardless of market conditions. The claims that ATI grants will never affect consumer prices is wholly based on their regression which attributes all observed price variations to variables reflecting the number of competitors. But the input data was garbage, because it treated all immunized partners (Northwest and KLM on Detroit-Amsterdam) and independent price competitors, just like BA and Continental on Houston-London. Thus none of the explanatory variables were accurate (for example, the competitors=2 variable was a random mix of markets with 1 and 2 actual competitors). Thus the regression output and the conclusions quoted above are also garbage.
The Statement separately notes a variety of competitive disadvantages that BA/AA might face absent full freedom to Collude, but while these may not be favorable to BA/AA shareholders, there is zero evidence that immunity would lead to net public benefits across the market, which is the relevant antitrust standard. Immunity may make it easier for BA/AA to harmonize frequent flyer mileage accrual rules, but that doesnt mean immunity will give BA/AA customers a more lucrative frequent flyer program. Anyone who participates in these programs knows that the claim that reduced competition leads to more generous programs is ridiculous. The Statement argues that the DOT should ignore the risks of reduced competition because there in the past immunized partners sometimes increased capacity on hub-to-hub routes, but presented no evidence that the current application would lead to overall capacity increases (and the past increases were all one-time events that occurred a decade ago under very different market conditions). Industry consolidation (especially the radical consolidation occurring on the North Atlantic) poses risks to consumers if airlines can more readily restrict supply without fear of meaningful market discipline, and the Statement asks us to ignore these risks on the basis of a totally incompetent regression. In my experience, testimony like this is usually a mix of valid, marginal and challengeable points. I couldnt find a single legitimate claim in the BA/AA Statement that had any relevance to the case at hand.
My statement attacking the BA/AA is also on the case record at OST-2008-0252-3362 (available here). Blog readers may wish to compare the two Statements and draw their own conclusions. One cannot begin to deal with the larger issues raised by the specific BA/AA application or North Atlantic consolidation more generally without first addressing the DOJs basic evidentiary problems. It is unacceptable to make major antitrust decisions based on wholly unsubstantiated assertions, or evidence totally unrelated to the case at hand, or on the basis of analysis as atrociously awful as what you'll find in the BA/AA Statement.
Wednesday, October 21, 2009
The Fall issue of Volume 9 of Issues in Aviation Law and Policy (IALP) is currently in production. For blog readers unfamiliar with the journal's history, IALP was formerly published by CCH/Wolters Kluwer since April 2001 in looseleaf format. Starting with Volume 8, the journal was placed under the auspices of the International Aviation Law Institute and is now produced in a more portable and readable perfect-bound format. What has not changed is the core concept which animated the launch of IALP eight years ago: to present articles and commentaries by leading policymakers, officials, analysts, academics, and industry leaders who have the experience and expertise to brief readers on the challenges confronting global civil aviation today and in the future.
Those interested in subscribing to IALP are encouraged to contact Stephen Rudolph, the Institute's Executive Director, at 312-362-5769 or by e-mail. A comprehensive two-volume archive of the first seven volumes of IALP is also available. Further information on the journal, including a complete list of past articles, is available on the Institute's website here.
Articles from the forthcoming issue include:
Robert van der Vliet, Europe's Take on Interlining--II: (Member) State Sovereignty and the 'Non Imperial Empire'
P. Paul Fitzgerald, Air Passenger Rights: The First Canadian Efforts...an Inauspicious Beginning
Gabriel S. Sanchez, Toward Comprehensive Slot Reform in the EU
Mervyn E. Bennun, The Tuninter 72 Prosecution and Attachment E to Annex 13 of the Chicago Convention
Gregory O. Principato & Monica Hargrove Kempt, Recent Developments in Airport Security Searches: Is Excessive Cash a Security Threat?
Hanna Chouest, Dualism, Science and the Law: The Treatment of the Mind-Body Dichotomy Under Article 17 of the Montreal Convention
Moses George, Public Monopoly to Private Monopoly--Case Study of Greenfield Airport Privatization--Part I
Prof. Brian Havel was featured in today's edition of the Chicago Tribune. In it, he commented on the likelihood of a U.S./Japan open skies treaty given the Japanese Government's current interest in saving the foundering Japanese Airlines. See Julie Johnson, United's New Ally May Help It Counter Losses, Chi. Tribune, Oct. 21, 2009 (available here).
Monday, October 19, 2009
In its latest press release, the Association of European Airlines expressed "its disappointment that the [European] Commission had failed to bring the state of the industry to the table at the 9th October Council of Transport Ministers, thereby stifiling debate on the winter slots waiver." See Press Release, AEA, Turbulent Skies: 35,000 Job Cuts, Record Losses Overshadow AEA Assembly, at 2 (Oct. 16, 2009) (available here). The Commission had managed to pass a six-month suspension of the "use-or-lose" slot rule which requires a carrier to use a slot at least 80% of the time during a given season in order to retain it for the following season. See Council Regulation 95/93, art. 10, 1993 O.J. (L 14) 1; see also Council Regulation 545/2009, 2009 O.J. (L 167) 24 (suspending the use-or-lose rule for the summer 2009 season). However, it appears they have no interest in pushing the matter further.
This shouldn't surprise anyone, including the AEA. In the recitals of the slot rule suspension regulation, the European Parliament stated that any future proposal to suspend or modify the use-or-lose rule "should be made only if it forms part of a proposal for a general revision of" the Community's slot rules. See Regulation 545/2009, supra, recital (3). Apparently the Commission is not in a position to offer a comprehensive revision to the EC's slot rules at this time. That is unfortunate. Having been in place for over 15 years and routinely subjected to criticism from industry stakeholders, the slot rules are in need of an overhaul.
Sunday, October 18, 2009
Lori Brown of Western Michigan University's College of Aviation has an interesting paper up online. See Post 9-11 Flight Attendant/Pilot Communication and Security Training Requirements; Are They Adequate to Reflect Our Current Age of Terrorism? (Oct. 4, 2009) (available from SSRN here). From the abstract:
The events of September 11th, 2001, have magnified the importance of flight attendants protecting safety of passengers and crew, as well as, providing critical information to the pilots. The events of September 11 changed forever our concepts of aviation safety. The use of a hijacked aircraft as a weapon requires a new strategy to ensure that the crew always retains control of the aircraft. Flight Attendants have an immediate need for updated security training. This training should include basic defense maneuvers to allow them to defend themselves and slow down any terrorist attack. Crew communication and coordination should be integrated in this training. Currently, there is no comprehensive training that explains what the flight attendants, pilots and air marshals do in case of an attack. These groups should be trained to work together as a team, to be as effective as possible. This information was made evident in the testimony of Patricia Friend, International Presidents, Association of Flight Attendants, CWA, AFL-CIO, before the subcommittee on transportation security and infrastructure protection of the homeland security committee, U.S. House of representatives, November 1, 2007.
Last Thursday, the U.S. House of Representatives passed a new air safety bill aimed at bolstering training standards for airline pilots. See Press Release, U.S. House Transp. & Infrastructure Committee, House Approves New Air Safety Bill (Oct. 15, 2009) (available here). From the press release:
“This legislation was developed as a result of the crash of Colgan Air Flight 3407, where 50 people tragically perished outside of Buffalo, New York on February 12, 2009, and subsequent hearings by the Aviation Subcommittee. The accident serves as a reminder that we must maintain constant vigilance over airline safety,” said Rep. James L. Oberstar (Minn.), Chairman of the Committee on Transportation and Infrastructure.
“This bill ensures that pilots flying for regional and mainline air carriers are trained to the highest standards, and requires all airline pilots, including first officers, to hold an Airline Transport Pilot certificate, which requires pilots to have a minimum of 1,500 flight hours. Currently, a first officer on a commercial passenger flight only needs a Commercial Pilot certificate, which requires 250 flight hours, or as few as 190 in some cases. The ATP certificate also requires additional aeronautical knowledge, crew resource management training and greater flight proficiency testing,” Oberstar said.
A compact commentary on the bill is available here.
Thursday, October 15, 2009
Yesterday's edition of the Financial Times had an outstanding piece on airline deregulation and the limits of industry oversight from government regulators. See John Kay, How the Skies Proved the Limits of Regulation, Fin. Times, Oct. 14, 2009 (available here). The piece discusses some of the lessons government officials might today draw from airline deregulation as the debate over future financial sector regulation continues to be waged on both sides of the Atlantic.
British Airways CEO Willie Walsh rightly noted yesterday that the transatlantic aviation market will turn into an "untouchable duoply" if the Department of Transportation fails to approve and grant antitrust immunity to the oneworld Alliance. See Doug Cameron & Josh Mitchell, British Airways' CEO Warns of Transatlantic 'Duoply', Dow Jones Newswire, Oct. 14, 2009 (available here). The remarks came during Walsh's speech to the International Aviation Club in Washington, D.C. See Press Release, British Airways, Give Consumers Choice, Urges BA Chief (Oct. 14, 2009) (available here) (summarizing Walsh's speech).
In the course of his talk, Walsh also stated the following:
If approved, this agreement [to further integrate the oneworld Alliance] will bring substantial benefits to US-EU customers by offering an expanded route network, improved schedules and connectivity, greater access to discounted fares, fully reciprocal frequent flyer programmes and integrated corporate deals.
Above all, it will provide customers with choice. The Star and Skyteam alliances already operate across the Atlantic with the benefit of anti-trust immunity. But surely a market of 800 million potential consumers deserves a choice of more than two network providers. If Star and Skyteam remain the only immunised alliances across the Atlantic, we could end up with an untouchable duopoly. I do not believe that customers would want that.
Walsh is correct. Consumers won't want a duopoly. Thankfully they won't have to endure one if the DOT stays the course with its international aviation policy and immunizes the link-up.
Wednesday, October 14, 2009
As the date for an expected Department of Transportation decision on the oneworld Alliance's application for approval and antitrust immunity draws near, the litany of vague and redundant charges against the link-up is intensifying. Yesterday, Senators Herb Kohl and Orin Hatch dispatched a letter to U.S. Transportation Secretary Ray LaHood expressing concerns that the alliance "raises significant competition issues" and calling on the DOT to "act cautiously." See Josh Mitchell, Kohl, Hatch Raise Concerns on American Air, BA Plan, Dow Jones Newswire, Oct. 13, 2009 (available here).
Arguably, there are "significant competition issues" at hand, but they concern the disparity which still exists between oneworld--an alliance without antitrust immunity--and its two immunized competitors, SkyTeam and Star. As for the DOT "act[ing] cautiously," both AA and BA have been waiting over eight years for a satisfactory resolution to their immunity application. See Dkt No. OST-2001-10387, Joint Application of [AA] and [BA] for Antitrust Immunity (Aug. 10, 2001); see also Dkt. No. OST-2008-0252, Joint Application (Aug. 14, 2009) (renewing their application for antitrust immunity following the 2007 U.S./EC Air Transport Agreement). Rivals such as Virgin Atlantic and naysayers at the Department of Justice have had their opportunity to provide concrete evidence that the alliance will have unduly anticompetitive effects and fail to serve the public interest. Now it's time for the DOT to decide and, hopefully, decide in favor of adding a third robust competitor in the transatlantic aviation market--one that will be able to deliver more network benefits for consumers.
Tuesday, October 13, 2009
Two weeks ago, a federal court in New Mexico ruled that enforcement of the State's liquor laws with respect to airlines is not preempted by the 1978 Airline Deregulation Act (ADA). See US Airways, Inc. v. O'Donnell, Civ. No. 07-1235 (D. N.M. Sept. 30, 2009) (order granting summary judgment). Under the Act, as codified at 49 U.S.C. § 41713(b)(1), "a State . . . may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation" under the relevant federal statute. This is not the first "high profile" ADA preemption case to come up recently. Last year, in Air Transp. Assoc. of Am. v. Cuomo, 520 F.3d 218 (2d Cir. 2008), a court struck down a New York State "Passenger Bill of Rights" requiring airlines to provide passengers with basic amenities such as "electric generation service to provide temporary power for fresh air and lights"; "waste removal service in order to service the holding tanks for on-board restrooms"; and "adequate food and drinking water and other refreshments." See id. at 220 (quoting the statute). The court ruled that requiring their provision "to passengers during lengthy ground delays does relate to the service of an air carrier and therefore falls within the express terms of the ADA's preemption provision. As a result, the substantive provisions [of the N.Y. statute] are preempted." Id. at 223.
In the US Airways case, the issue at hand was whether or not New Mexico's liquor licensing regime could be enforced against US Airways. Under the licensing statute, the State has the power to issue, suspend, or revoke a license to sell liquor within--and according to the court--over its territory. The court properly noted that the Second, Fifth, Seventh, and Eleventh Circuits have uniformly "adopted a definition of services [under the ADA] that includes the provision of beverages as a 'service[.]'" US Airways, Inc., at 8. One Circuit, the Ninth, has departed from this recognition. Id. On that basis, the court in the instant case opted to comb the history of the ADA in order to determine whether or not a beverage-inclusive understanding of "service" was warranted. While it rightly noted that the focus of the ADA was on the economic operation of airlines, never once in the opinion did it emphasize the role of airline services--understood broadly--in facilitating economic competition both before and after the ADA was passed. Without much in the way of justification, the court blithely followed the Ninth Circuit that "service" should be understood to "refer to such things as the frequency and scheduling of transportation." Id. at 10; but see Eric E. Murphy, Comment, Federal Preemption of State Laws Relating to an Air Carrier's Services, 71 U. Chi. L. Rev. 1197 (2004) (persuasively arguing for a broader definition of "services" consistent both with the ADA and Supreme Court precedent).
Even if the court in US Airways, Inc. been inclined to adopt a broader definition of "services," it still had recourse to the canon "that 'where an otherwise acceptable construction of a statute would raise serious constitutional problems, the Court will construe the statute to avoid such problems unless such construction is plainly contrary to the intent of Congress.'" US Airways, Inc., at 11 (quoting Edward J. DeBartolo Corp. v. Florida Gulf Coast Bldg. & Constr. Trades Council, 485 U.S. 568, 575 (1988)). In the court's view, Section 2 of the 21st Amendment of the Constitution prohibits preempting the statute on the grounds that it would violate New Mexico's right to "virtually complete control over whether to permit importation or sale of liquor and how to structure [its] liquor distribution system." Id. at 12 (quoting California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 110 (1980)) (internal quotations omitted).
It will be interesting to see what US Airways chooses to do in response to the ruling. One of US Airways's hubs is in Phoenix, Arizona. Clearly any flight bound in or out of that hub which has to cross New Mexico's airspace will be curtailed from selling liquor, at least temporarily. Will this be enough to dissuade passengers from flying on the carrier? Since deregulation took effect, consumers appear to be overwhelmingly more concerned with access to affordable and frequent flights than any particular service offering. (Exceptions still exist, particularly for business class passengers on long-haul flights.) That doesn't mean they don't care for a drink or two (or three). While the provision of alcoholic beverages is an obvious revenue producer for the airlines, there doesn't appear to be any evidence (yet) that it is in any way tied to significant consumer demand for a particular airline's services. What ought to worry US Airways and, indeed, all carriers operating within the U.S., is if this ruling results in patchwork enforcement of individual State liquor rules with respect to the airlines. If this occurs, it's likely that a more concerted challenge to these individual State licensing and oversight schemes may be in order.
As discussed previously on the blog, see "Iceland and Norway to Join U.S./EC Air Transport Agreement," the European Commission issued a proposal to the Council of Ministers outlining procedures for Iceland and Norway to accede to the 2007 U.S./EC Air Transport Agreement. As noted, the accession is an important first step toward actualizing the Agreement's potential to function as a plurilateral faciliator of global air transport liberalization. Cf. 2007 art. 18(5), U.S./EC Air Transport Agreement, 2007 O.J. (L 134) 4 (extending the Agreement to third parties following the development of conditions, procedures, and necessary amendments); see also Restatement (Third) of Foreign Relations Law of the United States sec. 312 (1987) (discussing the structure and functions of a plurilateral agreement).
Last week, the U.S. and EC, in the context of their ongoing negotiations for a "second stage" agreement to expand on the liberalizing provisions of the 2007 Agreement, approved Norway and Iceland's accession. See Josh Mitchell, Norway, Iceland to Join "Open Skies" Pact with US, Dow Jones Newswire, Oct. 9, 2009 (available here). Though incremental, the decision to expand the Agreement beyond the U.S. and EC appears to indicate that both sides are dedicated, in principle if not in practice, to ensuring that the 2007 Agreement will continue to order their aviation relations. Both parties have also agreed to reconvene next month with a list of concrete proposals for the "second stage."
Monday, October 12, 2009
Though not specifically legal in terms of subject matter, Sylwia Nowak's working paper, How do Public Announcements Affect the Frequency of Trading in U.S. Airline Stocks? (Centre for Applied Macroeconomic Analysis Working Paper No. 38, 2008, Nov. 2008) (available from SSRN here), may be of interest. From the abstract:
This paper examines how news releases, key microstructure features of market activities and crude oil futures returns affect trading frequency in U.S. airline stocks. Using the autoregressive conditional hazard framework of Hamilton and Jorda (2002), we show that on average, trading intensity spikes prior and consequent to macroeconomic announcements, but decreases around firm-specific releases. We find that market microstructure variables have a small yet significant effect on trading frequency, with high trade volume and narrow bid/ask spread inducing higher trading intensity. Strong evidence is provided to indicate that the intraday crude oil futures returns are relevant for model.