Friday, December 18, 2009
Canada and the European Community officially signed their much-heralded air transport agreement today. See Richard J. Brennan, Canada, EU Land Open Skies Deal, Toronto Star, Dec. 18, 2009 (available here). The salient features of the agreement are outlined in the EC's official press release:
As from now all EU airlines are now able to operate direct flights to Canada from anywhere in Europe. The Agreement removes all restrictions on routes, prices, or the number of weekly flights between Canada and the EU. Other traffic rights will be liberalised gradually in parallel with the opening up of investment opportunities. The end product will be that EU undertaking or citizens will be able to freely invest in Canadian airlines and vice versa.
Furthermore, the agreement will help tackle common challenges, such as security or the environment. Both sides agreed to closely cooperate in order to mitigate the effects of aviation on climate change. In the field of safety and security, the agreement envisages mutual recognition of standards and one-stop security. This will facilitate the operations for airlines and airports, and reduce inconvenience for passengers. The text provides for a strong mechanism to ensure that airlines cannot be discriminated against in terms of access to infrastructure or state subsidies. This approach will be a real novelty in international aviation.
See Press Release, Europa, EU and Canada Sign Air Transport Agreement, IP/09/1963 (Dec. 17, 2009) (available here). The full text of the agreement, along with relevant background material, is available from the European Commission's Air Transport Portal here.
As discussed previously on the blog, while the agreement contains the seeds to grow into one of the most liberal aviation pacts in history, they've yet to germinate. Like the U.S., Canada still maintains a tight 25% cap on foreign ownership of its airlines' voting equity and reserves domestic routes (cabotage) for its carriers alone. Until Canada liberalizes its foreign investment and establishment rules for EC airlines, the potential of the agreement will not be actualized. As it stands, while the EC has won Canadian recognition of its "Community carrier" construct whereby any airline licensed by a Member State may operate service between Canada and any point in the Community, they are not afforded fifth freedom rights. Similarly, Canadian carriers do not have intra-Union fifth freedom rights. So, for example, Air Canada could not operate service between, say, Toronto and London, then onward to Frankfurt. Once Canada lifts its foreign investment cap to 49%, its airlines will have access to intra-Union fifths while both parties will have unlimited seventh freedom rights for their all-cargo carriers.
After that, everything hinges on the willingness of both sides to take the radical legislative steps necessary to provide a full right of establishment for each other's airlines. This would allow, for example, British Airways to operate a wholly-owned subsidiary in Canada ("Canadian Airways") with full access to cabotage routes. The final phase of the agreement will be entered once both parties remove all restrictions on traffic and investment rights, thus setting the stage for a true crossborder airline merger (say, Air Canada and Lufthansa). With no timetable established under the Canada/EC Agreement for accomplishing these lofty goals, however, it could be years, even decades, before its full possibilities are realized.
Thursday, December 17, 2009
British Airways appears to be off the hook this holiday season as a High Court issued an injunction today blocking cabin crew from going on strike next Tuesday. More details are available from CNN International here. While the High Court judge denied the crew's union--United--the right to appeal, it's possible that Unite could go straight to the Court of Appeal. However, it's unclear as of yet whether an appeal could be filed and heard before Christmas.
The Australian Government is prepared to lift its 25% ceiling on foreign ownership of Qantas to 49%, thus paving the way for the carrier to participate in the slow process of global airline consolidation. See Qantas Ownership Rules to Change, Reuters, Dec. 16, 2009 (available here). Australia currently allows 100% foreign ownership for airlines which operate domestic service exclusively (cabotage).
The liberalization of its foreign ownership rule for Qantas is only the first step the Australian Government will need to take. Under the current bilateral system, most air services agreements include "nationality clauses" which only allow carriers which are owned and substantially controlled by nationals of their flag State to be designated to fly international routes. Until Australia secures assurances and/or amendments to its existing bilaterals, foreign investment in Qantas could result in the loss of valuable traffic rights.
Wednesday, December 16, 2009
A British High Court is expected to rule tomorrow on whether British Airways's cabin crew can proceed with a 12-day strike starting this Tuesday. See Philip Pank, British Airways Seeks Ban on Staff Christmas Walkout, London Times, Dec. 16, 2009 (available here). From the story:
Lawyers for BA argue that a strike ballot, which was passed with the overwhelming support of cabin crew members, contained “serious and substantial irregularities” because about 800 people voted even though they were due to take voluntary redundancy before the possible start of any strike. Almost a million passengers will have their flights cancelled if the strike goes ahead on Tuesday.
“BA has therefore brought this action to protect its passengers against these wilful, disproportionate and clearly unlawful actions,” Bruce Carr,QC, told the High Court in London.
If the strike proceeds, nearly a million passengers could be stranded during the holiday travel rush. It appears that BA's alliance partners are preparing for the worst. In a statement out today, Australia's Qantas tried to reassure consumers that it is "doing everything [it] can to minimize disruption," see Bill Lindsay, Qantas: Assessing Impact of Planned British Airways Strike, Dow Jones Newswire, Dec. 15, 2009 (available here), while American Airlines "is already allowing [flight] changes without penalty or fee, even though BA has not canceled any flights as of [yet]," see Harriet Baskas, Travelers Scramble to Save Holiday Travel Plans, MSNBC, Dec. 16, 2009 (available here).
Tuesday, December 15, 2009
The U.S. State Department website has a complete scan of the Record of Discussions, Delegation List, and Memorandum of Understanding for the freshly finalized U.S./Japan open skies agreement here. According to the ROD, the two parties "will inform each other at such time as each is prepared to sign the 2009 MOU, expressing their hope and expectation that signature . . . would take place not later than October 2010."
A new working paper which may interest blog readers is Steve L. Puller et al.'s Testing Theories of Scarcity Pricing in the Airline Industry (NBER Working Paper No. w15555, Dec. 2009) (available from SSRN here). From the abstract:
This paper investigates why passengers pay substantially different fares for travel on the same airline between the same two airports. We investigate questions that are fundamentally different from those in the existing literature on airline price dispersion. We use a unique new dataset to test between two broad classes of theories regarding airline pricing. The first group of theories, as advanced by Dana (1999b) and Gale and Holmes (1993), postulates that airlines practice scarcity based pricing and predicts that variation in ticket prices is driven by differences between high demand and low demand periods. The second group of theories is that airlines practice price discrimination by using ticketing restrictions to segment customers by willingness to pay. We use a unique dataset, a census of ticket transactions from one of the major computer reservation systems, to study the relationships between fares, ticket characteristics, and flight load factors. The central advantage of our dataset is that it contains variables not previously available that permit a test of these theories. We find only mixed support for the scarcity pricing theories. Flights during high demand periods have slightly higher fares but exhibit no more fare dispersion than flights where demand is low. Moreover, the fraction of discounted advance purchase seats is only slightly higher on off-peak flights. However, ticket characteristics that are associated with second-degree price discrimination drive much of the variation in ticket pricing.
Monday, December 14, 2009
After experiencing a negotiating setback last week, the United States and Japan managed to finalize an open skies treaty to replace the restrictive agreement the two parties had originally made in 1952. See Press Release, Dept. of Transp., U.S. Transportation Secretary LaHood Announces U.S.-Japan Agreement on Open Skies, DOT 196-09 (Dec. 11, 2009).
"Achieving Open Skies with Japan, a major U.S. transportation and trade partner, has been a long-standing U.S. goal and is good news for air travelers and businesses on both sides of the Pacific," said Secretary LaHood. "Once this agreement takes effect, American and Japanese consumers, airlines and economies will enjoy the benefits of competitive pricing and more convenient service."
Under the new agreement, airlines from both countries would be allowed to select routes and destinations based on consumer demand for both passenger and cargo services, without limitations on the number of U.S. or Japanese carriers that can fly between the two countries or the number of flights they can operate. It would remove restrictions on capacity and pricing, and provide unlimited opportunities for cooperative marketing arrangements, including code-sharing, between U.S. and Japanese carriers.
The agreement also would provide opportunities for growth of U.S. carrier operations at Tokyo’s Narita Airport and ensure fair competition regarding the new opportunities at Tokyo’s close-in Haneda Airport.
The agreement also paves the way for Japanese airlines JAL and ANA to apply for approval and antitrust immunity to deepen their alliance relationships with U.S. carriers. As it stands, ANA is a member of the Star Alliance while JAL remains in oneworld, though it is currently being courted by SkyTeam. The open skies treaty may not mean immunization, however. While it has been longstanding DOT practice to require an open skies agreement before granting immunity to international intercarrier agreements, the Justice Department's recent series of objections to Star's and oneworld's applications have placed a cloud of uncertainity over such authorizations.