Monday, November 30, 2009
Wednesday, November 25, 2009
After years of successfully warding off federal passenger rights legislation and getting state-based initiatives invalidated under the 1978 Airline Deregulation Act, the airlines haven't overcome one enforcer: the Department of Transportation. Yesterday, the DOT levied $175k in fines to three carriers--including Continental Airlines--for the high-profile stranding of 47 passengers earlier this year. See Airlines Fined for Stranding Passengers, Wall St. J., Nov. 25, 2009, at D2 (available here). According to the DOT:
These precedent-setting enforcement actions involve consent orders that reflected a settlement by the carriers of violations alleged by DOT's Aviation Enforcement Office. They are the first enforcement orders punishing carriers for extended tarmac delays, as well as the first time a carrier acting as a ground handler for another airline has been punished for failing to properly help passengers leave an aircraft during an unreasonably long tarmac delay.
"I hope this sends a signal to the rest of the airline industry that we expect airlines to respect the rights of air travelers," said U.S. Transportation Secretary Ray LaHood. "We will also use what we have learned from the investigation to strengthen protections for airline passengers subjected to long tarmac delays."
Press Release, U.S. DOT, DOT Issues Precedent-Setting Fines for Rochester, MN Tarmac Delay Incident (Nov. 24, 2009).
Interestingly, neither the news story nor the official press statement indicated which regulation(s) the airlines were alleged to have violated. It is also not clear to what extent (if any) the DOT will take weather conditions or the country's antiquated air traffic control system into account when determining whether or not to impose penalties on airlines which experience delays. With the holiday travel season set to begin and the usual round of delays expected, the airlines have to be less than enthused about the DOT's new enforcement zeal.
Monday, November 23, 2009
As previously discussed on the blog, see here, the U.S. National Mediation Board is looking to remove a 75-year-old rule for railways and airlines which would favor the labor unions. Over the weekend, the Wall Street Journal ran an excellent commentary on the proposal. Blog readers should make a point to check it out. See Obama Union Rules, Wall St. J., Nov. 21, 2009 (available here).
With the ink barely dry on its merger deal with Spain's Iberia, British Airways CEO Willie Walsh told the Financial Times that a merger with Australia's Qantas could still happen (though no timetable was provided). See Rebecca Keenan & Tim Smith, BA Still Keen on Tie-Up With Qantas, Sydney Morning Herald, Nov. 24, 2009 (available here). In his interview, Walsh stated that political opposition to the deal within Australia constitutes a "major hurdle."
That's not the only hurdle, however. When a BA/Qantas merger was first discussed last year, observers pointed out that a foreign ownership profile for the Australian airline could compromise its right to be designated under Australia's bilateral air services agreements with such important partners as Japan. Given its long history of air transport protectionism, it's no surprise that Japan was absent from last week's Agenda for Freedom Summit sponsored by the International Air Transport Association. With Japan still refusing to sign an open skies agreement with the U.S. and still committed to limiting airport access to foreign carriers, there is no evidence that it is inclined to begin waiving the restrictive nationality clauses in its bilaterals.
Friday, November 20, 2009
Despite the Department of Transportation's promise to render a decision by October 30, the oneworld Alliance's antitrust immunity docket continues to swell with new filings. On Monday, Virgin Atlantic let loose another volley of criticism at the proposed link-up, comparing recent statements made by American Airlines CEO Gerard Arpey concerning slot scarcity at Tokyo's Narita Airport to the current situation at London Heathrow. See Motion for Leave to File and Supplemental Comments of Virgin Atlantic Airways, Dkt. No. OST-2008-0252 (Nov. 16, 2009) (available here). Not surprisingly, the oneworld Alliance returned fire:
Virgin attempts to compare Heathrow slots to Narita slots, yet omits the key fact - there is a vibrant secondary market for slots at Heathrow. It is hard to see how Virgin can argue that new entrants lack access to Heathrow when five new carriers launched more than a dozen new flights to the US immediately upon US-EU Open Skies taking effect. Virgin should also explain how it does not have an adequate number of Heathrow slots to operate its desired schedule when it is leasing a number of them to Aer Lingus. In fact, on the same day Virgin filed its motion, The Times reported that "the world’s leading airlines have expressed little to no interest" in bmi’s Heathrow slots, including Virgin Atlantic.
Completely ignored by Virgin is the fundamentally different impact the Proposed Alliance and Delta/JAL would have on interalliance competition. If JAL joined SkyTeam, consumers would be faced with yet another Star/SkyTeam duopoly – controlling 92% of US-Japan bookings. Such an alliance would eliminate the existing US-Asia competition between SkyTeam’s hubs at Narita (Delta) and Seoul (Korean) and JAL. In contrast, the Proposed Alliance would account for just 40% of US-UK bookings, and even together with Star the two hub networks at Heathrow will account for just 54%. And unlike SkyTeam - which already has two integrated Asian hubs, oneworld today has none. There is simply no comparison between the Proposed Alliance (which will add to interalliance competition) and JAL joining SkyTeam (which would reduce such competition).
Joint Applicants' Answer to Virgin Atlantic's Unauthorized Motion and Supplemental Comments, at 1-2, Dkt. No. OST-2008-0252 (Nov. 18, 2009) (available here).
Market Place, the syndicated business radio show produced by American Public Media, has a good story up online about American and Delta's efforts to court JAL into their respective alliances. See Market Place, What AA, Delta Gain From a JAL Alliance (Nov. 19, 2009) (available here). You can read the text of the story on their website or listen to the streaming audio version.
Wednesday, November 18, 2009
A new story in the Wall Street Journal is reporting that Delta Air Lines and the other members of the SkyTeam Alliance are willing to provide over $1 billion in funding to the struggling JAL if it jumps ship from the oneworld Alliance. See Doug Cameron & Yoshio Takahashi, Delta, SkyTeam Offer Funding Deal to JAL, Wall St. J., Nov. 19, 2009 (available here).
The offer is no doubt enticing for the perennially troubled JAL. SkyTeam has a larger route network than oneworld and, with respect to the lucrative transatlantic market, it has already overcome the regulatory hurdle of receiving antitrust immunity from the U.S. Department of Justice. oneworld's future still hangs in the balance of a postponed final order from the DOT. (Like oneworld, however, SkyTeam remains under competition scrutiny from the European Commission.) Japan's other major international carrier, ANA, is already part of Star--the largest of the three alliances. Arguably, if JAL wants to keep pace with its chief rival, it would be in a better position to do so with SkyTeam.
At the same time it is important to bear in mind that neither JAL nor ANA are able to deepen their participation in any alliance since they remain ineligible for antitrust immunity from the DOT. As a matter of policy, the DOT only grants immunity for international intercarrier agreements where the home States of all the parties have an open skies agreement with the U.S. Cf. U.S./EC Air Transport Agreement, Memoranda of Consultations, para. 48, 2007 O.J. (L 134) 4. As discussed previously on the blog, the most recent round of air transport negotiations between the U.S. and Japan failed to finalize such a treaty. See here. Until some sort of deal can be brokered which would satisfy the DOT's longstanding open skies requirement, both Japanese carriers will have to remain content with their more limited alliance roles.
There is an impressive new paper up online discusing the economic ramifications of the Department of Transportation's carve-outs to its grants of antitrust immunity for airline alliances. See Jan K. Brueckner & Stef Proost, Carve-Outs Under Airline Antitrust Immunity (CESifo Working Paper Series No. 2848, Nov. 2009) (available from SSRN here). From the abstract:
This paper offers the first formal economic analysis of carve-outs under airline antitrust im- munity. Carve-outs are designed to limit the potential anticompetitive effects of cooperation by alliance partners in hub-to-hub markets, where they provide overlapping nonstop service. While the paper shows that carve-outs are beneficial when the alliance does not involve full integration of the partners’ operations on the hub-to-hub route, its key point is that a carve-out may be harmful when imposed on a joint-venture alliance. A JV alliance involves full exploitation of economies of traffic density on the hub-to-hub route, and a carve-out prevents the realization of these benefits. While a carve-out may limit anticompetitive incentives on the hub-to-hub route, welfare may be reduced if the resulting gains are overshadowed by the efficiency loss generated by the carve-out.
Tuesday, November 17, 2009
Despite the summit being hosted within its territory, Canada opted to refrain from signing the Statement of Policy Principles set forth by the International Air Transport Association as part of its Agenda for Freedom. See Robert Gibbens, Canada Holds Off on Air Carrier Liberalization, Montreal Gazette, Nov. 16, 2009 (available here); see also IATA, Statement of Policy Principles Regarding the Implementation of Bilateral Air Services Agreements (Nov. 16, 2009) (available here). According to the story:
Canada was odd-man-out at Monday's International Air Transport Association "Agenda for Freedom" Summit in Montebello, Que.. Seven countries including the United States, Chile, Malaysia, Panama, Singapore, Switzerland, the Emirates and also the European Commission signed IATA's airline liberalization policy document.
But Canada stood aside, saying it needs more time to evaluate the policy process, IATA sources said. Canada has strict limits on domestic airline ownership.
This is a strange justification from the Canadian Government, particularly since its airline ownership law mirrors U.S. restrictions. Yet the U.S. chose to the sign the Statement. By doing so, however, the U.S. in no way legally bound itself to altering its tight 25% cap on foreign ownership of airline voting equity. The Statement clearly sets forth that it "creates no legal obligations on the signatories or the countries they represent. See Statement, supra, para. 5. The International Law Commission's Guiding Principles Application to Unilateral Declarations of States Capable of Creating Legal Obligations (2006) (available here), notes that determining whether or not a legal obligation has been created requires "tak[ing] account of [a declaration’s] content, [including] all the factual circumstances in which [it was] made" and, more importantly, such declarations must "manifest the will to be bound." But even if the Statement could be construed--in defiance of law and logic--has a binding declaration, it makes no mention of States' internal rules on foreign ownership. Rather, it promotes States waiving the nationality clauses in their air services agreements on a reciprocal basis. Here is the relevant text:
1. Freedom to access capital markets
a. We should generally respect the policies of other countries that to encourage foreign investment in their airlines. Accordingly, on the basis of reciprocity, and in the absence of valid social or public policy concerns, we should waive, where our legal systems permit us to do so, or otherwise refrain from exercising rights under existing bilateral air services agreements to disallow service by an airline of the other party to that agreement on the grounds that it is not owned and controlled by nationals or the Government of that other party.
b. Furthermore, also on the basis of reciprocity, we should eliminate, replace or otherwise reduce the negative effects of traditional nationality clauses when negotiating new or amended air services agreements, including through expedited methods such as joint memoranda of understanding or a public exchange of letters.
c. We should give sympathetic consideration to the possibility of a multilateral agreement to accomplish this goal.
So, following the Statement, State A and B would reciprocally waive the nationality clause in their bilateral, thus allowing State C to purchase State B's airline without jeopardizing the carrier's right to fly to and from A. Of course, State A and B could still waive and retain any internal ownership restriction they deem appropriate.
Is there more to Canada's hesitancy? Unfortunately, it's not clear from the story.
Monday, November 16, 2009
The International Air Transport Association has posted an extensive press release concerning the recently concluded Agenda for Freedom Summit in Montebello, Quebec, Canada. See Press Release, IATA, Governments Sign Principles for Liberalization (Nov. 16, 2009) (available here). As mentioned on the blog last week, the International Aviation Law Institute's Director, Brian Havel, gave one of the meeting's keynote addresses. More details on this historic gathering will be forthcoming on the blog.
Friday, November 13, 2009
Harvard Business School has a Q&A session up online with Tony Mayo, Distinguished Research Fellow at HBS and one of the authors of Entrepreneurs, Managers and Leaders: What the Aviation Industry Can Teach Us About Leadership (Palgrave, 2009). See Come Fly With Me: A History of Airline Leadership (Nov. 9, 2009) (available here). An excerpt from the book follows the Q&A.
Thursday, November 12, 2009
In 1992, the U.S. Congress passed enabling legislation for the National Commission to Ensure a Strong Competitive Airline Industry. While Congress (with the notable exception of Rep. James Oberstar) has placed aviation on the back burner, the U.S. Department of Transportation has not. Now, over 15 years since the Airline Commission was formed, the DOT announced at the end of its closed-door meeting with industry stakeholders that it is forming a new federal advisory committee to study and recommend regulatory changes for the air transport sector. See Jennifer Michels, New Panel to Create U.S. Aviation Blueprint, Aviation Wk., Nov. 12, 2009 (available here). From the story:
The announcement was made during closing remarks to an invitation-only, five-hour meeting of airline, airport, labor and consumer group representatives yesterday, who were called together to discuss the future of U.S. aviation. It appeared to have covered the gamut, and ended with LaHood asking the participants to go home and send him an email with three things: how many people should be on the committee, what the mix of participants should be, and the five issues they think must be addressed for the DOT to create a road map for aviation.
British Airways and Iberia have agreed to terms to consummate a merger which would make them Europe's third-largest airline by revenue. See Pilita Clark & Mark Mulligan, BA and Iberia to Create Europe's Third-Largest Airline, Fin. Times, Nov. 13, 2009 (available here). However, there is a caveat: "[T]he two airlines have agreed that Iberia will be able to terminate the accord if it is unhappy with BA's handling of its swollen pension scheme, which has been one of the sticking points in the deal, first announced in July last year." Id.
The agreement comes against the backdrop of regulatory uncertainity over the future of the oneworld Alliance, to which both carriers belong. While some analysts believe the U.S. Department of Transportatio will grant the alliance approval and antitrust immunity despite objections from the Justice Department, there is less certainity with respect to the European Commission's view of the alliance. In the recent past, the Commission has emphasized its "broadly positive approach" to airline alliances in order to allow European carriers to compete effectively on a global level. See Competition: Commission Confirms Sending Statement of Objections to Members of SkyTeam Global Airline Alliance, Memo/06/243 (Jun. 19, 2006). Neelie Kroes, Commissioner for Competition Policy, has stressed that EC policy encourages European airlines to become "global winners" even as it enforces its competition rules. See Competition in the Aviation Sector: The European Commission's Approach, Address to the Conference Celebrating the 20th Anniv. of the Int'l Inst. of Air & Space L., Speech/06/247 (Apr. 24, 2006) (available here). Whether that still holds true remains to be seen.
The Air Transport Association has issued a statement on today's airline forum hosted by the Department of Transportation. See Press Release, ATA, ATA Comments on DOT Stakeholder Forum . . . (Nov. 12, 2009) (available here). From the release:
Airline executives participating in the forum called for:
- No new taxes and fees, which would burden an already overtaxed industry and travelers/shippers
- Fully funded and accelerated modernization of the nation’s air traffic control
- Enhanced oversight of energy markets to excessive speculation and the resulting volatility of oil prices
- Elimination of arcane restrictions on airlines’ ability to operate efficiently in the global marketplace
- A global sectoral approach to climate change for aviation developed through the International Civil Aviation Organization (ICAO)
Though the event is by inviation only, blog readers may be interested to learn that the International Air Transport Association will be holding its next Agenda for Freedom Summit this weekend in Montebello, Quebec. The meeting, which will include representatives of seven countries' aviation authoritiesthe European Commission, will discuss a statement of policy principles on air transport liberalization, and how to implement it.
The International Aviation Law Institute will be present at the meeting as well. IALI Director, Prof. Brian Havel, will be giving one of the event's keynote addresses.
The U.S. Department of Transportation, in cooperation with the AFL-CIO, is holding a closed-door forum today to discuss the airline industry's future with an apparent eye on reregulation. See Joan Lowy, Unions Prod Obama to Fix Ailing Airline Industry, Assoc. Press (Nov. 12, 2009) (available here). From the story:
The forum, which is closed to the public and the media, was organized at the request of the AFL-CIO's Transportation Trades Department.
Ed Wytkind, the trades department's president, said the industry has become dysfunctional, and all involved are suffering. He said he'd like to see a blue-ribbon commission to recommend solutions.
"We can't keep doing things the exact same way and expect a better outcome," Wytkind said, adding that new regulation probably should be considered.
. . . .
"A safe, secure, stable industry can't be driven by lowest common denominator," said John Prater, president of the Air Line Pilots Association. "The cheapest fare out there will not give us a transportation system that works for everyone."
Monday, November 9, 2009
A new working paper out which may be of interest to blog readers is David Timothy Duval & Niven Winchester's Public/Private Risk-Sharing in Air Service Provision (Working Paper, Nov. 2, 2009) (available from SSRN here). From the abstract:
The paper identifies and theories future trends in public/private risk-sharing agreements, as a form of public subsidy, in thin market air service provision. Using a Pacific Islands example, the paper details the economic and policy implications of such agreements. In November 2008, the Cook Islands reached a risk-sharing agreement (with a reported value of NZ\$5 million) with Air New Zealand that secured the continuation of a weekly flight from Los Angeles (LAX) to Rarotonga (RAR). By buying the option directly from the producer, the Cook Islands Government has secured access via public subsidy to ensure future visitation. Supply-side subsidisation of air service provision is not uncommon. Existing models in the United States, Europe and Australia highlight the importance of connectivity of destinations for overall economic growth. The paper makes use of policy analysis to dissect the stated value of securing air access for several Pacific Island nations, including the Cook Islands, Samoa and Tonga. The paper concludes by assessing future trends of direct government subsidisation of air services for autochthonous destinations given increasing stress on airline unit costs.
Back in July, the blog briefly discussed the alliance approval and antitrust immunity application filed before the Department of Transportation by the U.S.'s Delta Airlines and Australia's Virgin Blue, V Australia, and Pacific Blue (which also has operations in New Zealand). See here; see also Dkt. No. OST-2009-0155, Application for Approval of and Antitrust Immunity for Alliance Agreements (July 9, 2009). While pressure was being placed on the Australian Competition and Consumer Commission to block the venture, it appears the Commission is now prepared to grant the plan an initial three-year authorization. See Ian McDonald, Australian Regulator Proposes to Approve Virgin Blue, Delta JV, Dow Jones Newswire, Nov. 1, 2009 (available here).
There is no word yet on when the DOT will issue its final order for the application. Currently, the focus remains on the yet-decided oneworld Alliance application. A decision on that application was supposed to have been rendered by October 30, but has been delayed due objections from the Justice Department.
Friday, November 6, 2009
There's a new report out about the economic impact of Continental Airlines in New York and New Jersey. While not directly law related, it may be of help to those of you doing research in this field. See NERA Economic Consulting, Impacts of Continental Airlines Operations on the New York-New Jersey Regional Economy (Nov. 5, 2009) (available here). From the abstract:
In this report prepared for Continental Airlines, a NERA team led by Senior Vice President Dr. David Harrison, who leads NERA's work in the area of regional economic analysis, evaluated the impacts of Continental Airlines operations in the New York City area on the New York/New Jersey regional economy.
The study found that Continental currently contributes over 110,000 jobs to the New York/New Jersey region, along with $5.9 billion in personal income and $6.3 billion in gross regional product. By 2030, Continental's operations are projected to contribute 128,000 jobs to New York/New Jersey employment, $11 billion to the region's personal income, and $12 billion in gross regional product.
The assessment considered the direct contributions made by Continental employees, suppliers, and passengers as well as the multiplier effects of increased spending on the regional economy. To conduct the analysis, NERA used data from Continental and outside sources in conjunction with a state-of-the-art regional economic model developed by Regional Economic Models, Inc. (REMI) that incorporated extensive data on economic conditions in the New York/New Jersey region.