Tuesday, December 28, 2010
Blog readers interested in learning more about the life, work, and impact of Alfred Kahn may want to follow these links:
- A Deregulating Democrat, Wall St. J., Dec. 29, 2010 (available here)
- Shira Ovide, Stuck in an Airport? Blame Alfred Kahn, Wall St. J. Deal Journal Blog, Dec. 28, 2010 (available here)
- Robert D. Hershey, Jr., Alfred E. Kahn Dies at 93, N.Y. Times, Dec. 28, 2010 (available here)
- Anne Swardson, Alfred Kahn, Who Oversaw Airline Industry Break-Up for Carter, Dies at 93, Bloomberg, Dec. 28, 2010 (available here)
- International Aviation Law Institute, A Conversation with Professor Alfred Kahn (2006) (available in streaming video here)
Lessons From Deregulation: Telecommunications and Airlines After the Crunch (Brookings Inst. Press, 2003), one of Alfred Kahn's last works, is available online free of charge here. From the abstract:
Over the last several years, the value of stocks in both the airline and the telecommunications industries have dropped catastrophically. Since these industries were among the most important?and most visible?to have been unleashed from regulation in recent decades (albeit in widely differing degree), their wrenching experience has understandably raised the question of whether their deregulation should be reconsidered or even reversed.
The airlines were comprehensively deregulated in 1978 in one bold stroke, and six years later the government apparatus for controlling domestic fares and routes was abolished. The telecommunications industry is in the midst of a parallel initiative, but one that is both more gradual and more complex. In common, however, is positive evidence of the advantages of open competition over direct comprehensive regulation.
Alfred E. Kahn, one of the foremost authorities on deregulation, argues in this book that every passing year demonstrates the superiority of the road chosen for the airlines. He contrasts the financial meltdowns of these two industries with others taking place at the same time, particularly in technology-related stocks and dot.coms, pointing out that these sectors were also relatively free of direct economic regulation. Their experience provides a useful counter to the natural tendency to blame all the woes of aviation and telecommunications on government policy.
This book provides a valuable and accessible guide to unraveling the complex world of network deregulation. It will serve as a reference point for practioners and policymakers, as well as an important introduction for the general public, written by one of the masters of the field.
Alfred Kahn, former Chairman of the Civil Aeronautics Board and Professor of Economics at Cornell University, died yesterday at the age of 93. Aside from his towering contributions to regulatory economics, Kahn is undoubtedly best remembered as the intellectual architect of airline deregulation. Under Kahn's leadership, the CAB pushed the long-regulated aviation industry toward reliance on competitive forces. Kahn's project was subsequently picked up by the Congress, which passed the Airline Deregulation Act in 1978 and the CAB Sunset Act in 1984.
Blog readers interested in learning more about Kahn's role in airline deregulation can view the International Aviation Law Institutes's A Conversation with Professor Alfred Kahn, part of IALI's "Conversations with Aviation Leaders" series, here.
Friday, December 17, 2010
The Future of Aviation Advisory Committee has posted its full presentation to Secretary of Transportation Ray LaHood here. The recommendations cover, inter alia, air transport issues relating to the environment, finance, competiveness, viability, labor, and safety. While there are a number of good ideas contained in the report, in the area of trade in air services, the recommendations left much to be desired.
In essence, the recommendations reaffirmed the tenets of the 1995 U.S. International Air Transport Policy Statement, 60 Fed. Reg. 21,841 (May 3, 1995), which--though remarkably progressive for its time--fails to address important issues such as crossborder mergers, air carrier access to global capital markets, and the full removal of entry barriers to the U.S. market. Instead, the recommendations focus on exhorting the DOT to "strengthen the competitive position of [U.S.] air carriers to at least ensure equality with foreign air carriers," a mandate which could easily be misconstrued as encourging the government to directly manage the competitive process of the international market.
Tuesday, December 14, 2010
The Future of Aviation Advisory Committee, a special task force created last April to advise U.S. Transportation Secretary Ray LaHood on challenges facing the air transport industry, is scheduled to issue its recommendations tomorrow afternoon. See Press Release, U.S. Dep't of Transp., Future of Aviation Advisory Committee to Hold Final Meeting Dec. 15 (Dec. 13, 2010) (available here). Further information on the FAAC, including a full description of its mandate, is available here.
One area the FAAC is charged to examine is "balancing the [airline] industry's competitiveness and viability." The unfortunate implication of this phrasing is that "competition" and "viability" are mutually exclusive ends. This is false. A competitive marketplace is both good for consumers and the airlines, but only if authorities in Washington wield their regulatory control sparingly. Attempting to create an artificially "competitive" market by blocking mergers yields waste and undercuts sustainability. Moreover, "viability" is difficult to achieve at the international level when U.S. airlines are barred by ownership and control rules from accessing global capital markets. Tack on regulations covering everything from passenger rights to advertising and what you have is an excessively costly operating environment for U.S. carriers.
Blog readers may be interested in reading Jan K. Brueckner et al.'s new paper, City-Pairs vs. Airport-Pairs: A Market-Definition Methodology for the Airline Industry (Oct. 2010) (available here). From the abstract:
This paper provides a methodology for deciding which airports warrant grouping in multi-airport metropolitan areas. The methodology is based on the comparability of incremental competition effects from nearby airports on average fares at a metropolitan area’s primary airport. Results from a quarterly panel data set for the period 2003-2009 provide strong evidence that city-pairs, rather than airport-pairs, are the appropriate market definition for analyses of passenger air transportation involving many (but not all) large metropolitan areas. Based on the proposed method, we offer a recommended list of airports that should be grouped when creating city-pairs for the analysis of competition in the U.S. domestic airline industry.
Monday, December 13, 2010
Monday, December 6, 2010
Continental Airlines--now part of United--announced that it will appeal a French court judgment ordering the carrier to pay 1 million euro to Air France and a 200,000 euro fine. See Kim Willsher, Continental Airlines to Appeal Against Conviction for Concorde Crash, Guardian, Dec. 6, 2010 (available here). The order comes as part of the French court's judgment that Continental was responsible for the crash of Air France Concorde Flight 4590 in July 2000, which killed 113 people. According to the court, a small strip of titanium which fell off a Continental flight onto the runway punctured one of the Concorde's tires, sending rubber into the fuel tank which eventually caused the aircraft to crash.
Continental's lawyer is characterizing the judgment as a flagrant attempt by "French authorities to shift attention and blame [for the crash] away from Air France, which was government-owned at the time and [which] operated and maintained [the Concorde], as well as from the French authorities responsible for the Concorde's airworthiness and safety." See id.
According to a news report releases yesterday, the United States and Brazil have agreed to a framework agreement which would liberalize their air services trade relations by 2015. See Doug Cameron, US, Brazil Reach Open-Skies [sic] Aviation Pact, Dow Jones Newswire, Dec. 5, 2010 (available here). According to the story, "[t]he proposed deal would start ending restrictions on the number of flights between the countries from next year, with barriers on the busiest routes--notably to and from Sao Paulo's congested airports--coming down from 2013."
Until the text of the agreement is released, it's impossible to tell what other illiberal provisions may still be lurking in the deal. One question which immediately comes to mind is whether the Department of Transportation will view the new agreement as "good enough" for purposes of granting antitrust immunity to potential alliance link-ups between U.S. and Brazilian airlines. Historically, the DOT has insisted on "the existence of an 'open-skies' regulatory framework between the U.S. and foreign carriers' homelands [as] a necessary predicate to [the Department's] consideration of requests for antitrust immunity." See Final Order, at 2, Dkt. No. OST-2008-0234 (Dep't of Transp. July 10, 2009).
Friday, December 3, 2010
Professor Brian Havel's contribution to Airline Business's 25th Anniversary issue is available online from the Flight Global website here. In it, Havel discusses why the U.S. "Open Skies" policy is a milestone toward, not the culmination of, authentic international air transport liberalization.