October 15, 2010
Refundability and Price
Blog readers may be interested in a new working paper by Makoto Watanabe & Seongman Moon, Refundability and Price: Empirical Analysis of the Airline Industry (Working Paper, Sept. 20, 2010 (available from SSRN here). From the abstract:
This paper provides new evidence on price dispersion in the US airline industry. Using the observed fare differences between refundable and non-refundable tickets, we first document evidence on the prices passengers pay for an option of returning their tickets. We found that the factors related to the value of refund option and customers' demand uncertainties have a significant impact on the relative refund fares. This finding turns out to be robust for various market structures. Further, taking into account the differential patterns of the relative refund fares, we investigate the impact of market structure on price dispersions.
October 11, 2010
ICAO Resolution on Aviation Emissions
The International Civil Aviation Organization concluded the 37th General Assembly Session last week by agreeing on a resolution which, inter alia, commits the ICAO member States to reduce carbon emissions by 2% per year until 2050; develop an international framework for market-based measures such as an emissions trading scheme (ETS); and produce a feasibility study for the measures which will be reviewed in 2013. See Press Release, ICAO, ICAO Member States Agree to Historic Agreement on Aviation and Climate Change (Oct. 8, 2010) (available here).
While this all sounds salutary, don't let the rhetoric mislead: ICAO Resolutions are hortatory and aspirational; they are not the equivalent of transnational legislation or a legally binding treaty. At best, the resolution amounts to a political commitment which can easily be derailed by State interests. There are no penalities embedded in the resolution, so the cost of defection is low. Though some observers may lament this reality, perhaps they will be comforted by the fact there was no other viable option. An amendment to the Chicago Convention which imposes a binding obligation on States to meet certain emissions reduction benchmarks is almost unthinkable given the arduous amendment process set forth in the treaty. See Convention on International Civil Aviation art. 94, opened for signature Dec. 7, 1944, 15 U.N.T.S. 295. And besides, there's little evidence that enough ICAO member States would have been willing to take on legally enforcable commitments with respect to aviation emissions reduction measures. In the alternative, ICAO could have proposed a new treaty on aviation emissions, but it would take years to negotiate and the terms would no doubt be watered down from the ambitious reductions goals spelled out in the 2010 Resolution.
Perhaps the most lamentable aspect of the ICAO Resolution is what it didn't include, namely a fresh condemnation of the European Union's plan to apply its ETS for aviation extraterritorialy beginning in 2012. U.S. airlines, represented by the Air Transport Association, are currently challenging the legality of the ETS before the European Court of Justice. Other major aviaion powers, including Brazil, China, and Russia, have also questioned the ETS and are seeking an exemption for their airlines. If these efforts should fail, it is likely that some of these States will resort to the ICAO Council--the organization's executive body--to seek to rule the ETS incompatible with the Convention in accordance with the procedures set forth in Article 84 of the treaty.