October 30, 2009
No Japan/U.S. Open Skies?
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.
October 29, 2009
ANA Looking to Expand
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.
Open Skies, Closed Markets
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.
October 27, 2009
Delay for oneworld Decision?
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.
Agenda for Freedom
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.
October 26, 2009
oneworld's Future to be Decided
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.
Airline Industry in India Facing the Free Fall
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.