Wednesday, February 25, 2009
A troubling (though underreported) development in the proposed British Airways/American Airlines alliance approval and immunization drama is a new push by labor to make approval contingent on AA extending recall rights for nearly 2,000 furloughed flight attendants. (The full story is available from the Joplin Independent here.) Roger Graham, who was behind the extension of such rights to AA flight attendants following 9/11 and is currently running to head AA's flight attendants' union, wrote to Transportation Secretary Ray LaHood that "[i]f American Airlines is being truthful about additional flying they believe the anti-trust immunity would bring then they should not be unwilling to provide an additional extension to the recall rights of those workers currently laid off.”
What Graham's "observation" fails to appreciate is that AA's potential new flying opportunities will largely hinge on its capacity to keep overhead costs to a minimum and, perhaps, shed more unnecessary labor. Even in a best case scenario for the BA/AA alliance, both carriers--like all of civil aviation--are being forced to take a hard look at their business models in order to survive during the worst worldwide economic crisis in decades. Though fuel costs currently remain at a manageable level, the airlines well know that it is only a matter of time before they escalate again. The shedding of capacity U.S. carriers undertook in 2008 should allow them to turn a minor profit in 2009. However, if oil prices begin to spike again, then more cuts will be required. This is the time for governments worldwide to do everything in their power to unshackle international civil aviation, not threaten to withhold the capacity for key players to compete in order to ease the discontent of those displaced by the market. With the SkyTeam Alliance already enjoying approval and immunization from the DOT, the BA/AA alliance requires it more than ever if there is to be a level playing field in the transatlantic market. Further, given the shockwave a denial of immunization will likely send through the ongoing U.S./EU negotiations for a second stage air transport agreement, catering to labor could lead to a recall of the rights granted under the 2007 agreement and a lot more furloughed flight attendants.
Monday, February 23, 2009
Irish low-cost carrier Ryanair had some cause to celebrate last week. The European Commission announced that it would not appeal last year's judgment by the Court of First Instance (CFI) which nullified the Commission's decision that Ryanair had been the recipient of illegal State aid on account of advantages authorized to the carrier by Belgium's Walloon Region and Brussels South Charleroi Airport (BCSA). In an official press release, Ryanair CEO Michael O'Leary stated, "We are happy but not surprised at the Commission's decision not to appeal what was a thorough vindication of the low cost airport model and Ryanair's agreement with Charleroi Airport. The Commission simply got it wrong, as has been subsequently proven by the huge success of Charleroi Airport."
What ought to be kept in mind is where the Commission "got it wrong." As discussed previously on the blog, the CFI held that the Commission had incorrectly applied European Community State aid rules to the Ryanair/BSCA arrangement. The CFI by no means provided a "thorough vindication of the low cost airport model" in its decision. In fact, it made no comment on whether the deal could have survived under the State aid rules had the Commission applied them properly. With eight other investigations into its arrangements with secondary airports in Alghero, Aarhus, Bratislava, Frankfurt Hahn, Hamburg Lubeck, Pau, Berlin Schonefeld, and Tampere, Ryanair's tangle with the Commission is far from over. The CFI decision provides an ample roadmap for the Commission to avoid future legal pitfalls when applying State aid rules to comparable arrangements between Ryanair and the aforementioned airports. It seems that Europe's largest low-cost carrier will have to be ever more dogged in the fight to vindicate its business model.
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.