Tuesday, May 31, 2011
A new European Commission study on slot allocations at European Union airports has found that an additional 28 million passengers per year could use EU airports if slots were distributed more efficiently. See EU Commission: Airports Must Improve Airline Slots, BBC News, May 31, 2011 (available here). The report calls on EU airports to rely on secondary trading of slots in order to help ensure that they are acquired by airlines which place the highest value on the slots. In other words, air carriers should be free to sell and/or swap slots among one another without interference or penalties from regulators.
Blog readers interested in learning more about EU slot guidelines and suggestions for improvement may want to download Gabriel S. Sanchez's article, Toward Comprehensive Slot Rule Reform in the EU, 9 Issues in Aviation L. & Pol'y 88 (2009) (available from SSRN here).
Thursday, May 26, 2011
According to a recent story, India will refrain from entering into anymore air services agreements until at least 2014 in order to give its national carrier, Air India, an opportunity to return to profitability. See Air India Plans to Restrict Competition on Global Routes to Bounce Back to Profit, Travel Biz Monitor, May 25, 2011 (available here). India is currently an Open Skies partner with the United States. Though the story did not indicate that the Indian Government planned to denounce any of its existing bilaterals, it is not out of the question that policymakers may choose to dial-up protectionism in order to aid their ailing carrier.
There is an irony in all of this. The International Civil Aviation Organization's fourth Air Services Negotiation Conference is scheduled to take place in Mumbai this October. According to ICAO's website, "This event is primarily organized for aviation negotiators from different States to conduct bilateral (and regional or plurilateral if so desired) air services negotiations or consultations in a central meeting place." Despite playing host to the Conference, apparently India will be sitting this one out.
Tuesday, May 24, 2011
Blog readers may be interested in Jan Abrell's working paper, Private Transport and the European Emissions Trading System: Revenue Recycling, Public Transport Subsidies, and Congestion Effects (May 17, 2011) (available from SSRN here). From the abstract:
From 2012 onwards, the European Emission Trading System regulates the carbon emissions of electricity generation, refineries, energy intensive production, and aviation. Beside the fuel efficiency regulation of cars, there exists no European approach of carbon regulation in the private transport sectors. However, half of the income of allowance auctioning has to be used for implementing environmental improving policies including public transport subsidies. Using a Computable General Equilibrium model of the German economy, we show that exempting transport from carbon pricing but recycling revenues via public transport subsidies is welfare enhancing. By including congestion effects into the model we show that such a recycling scheme has the potential of negative gross cost of carbon regulation by reducing congestion and global pollution externalities.
Monday, May 23, 2011
Blog readers may be interested in Justin Dickerson's new working paper, Antitrust in the Skies: The United and Olympic Airlines Mergers (May 12, 2011) (available from SSRN here). From the abstract:
This Article explores the 2010 merger of United Airlines and Continental Airlines - which usurped Delta’s briefly-held title as the world’s largest airline - as well as the failed merger of Greece's two largest airlines, Olympic Air and Aegean Airlines, and the antitrust considerations associated with each of these transactions. Part II of this Article details the United and Continental merger, explaining pertinent portions of each airline’s corporate history over the past 10 years, which has included multiple other unsuccessful merger attempts. Next, Part III describes the circumstances surrounding the failed combination of Olympic and Aegean, including the role the Greek financial crisis played in their desire to merge. Part IV compares the United/Continental and Olympic/Aegean mergers, first discussing the legal standards the United States government and European Commission ("EC") employed in making their antitrust determinations, and then explaining key differences between the two unions - such as distinctions between the size and concentration of the U.S. and Greek/European airline markets, and Olympic/Aegean unwillingness to make compromises in light of the EC's initial findings - that might explain the opposite outcomes. This section also proposes that Olympic Air and Aegean Airlines could aid their future chances of success, should either decide to attempt to merge with the other or another airline, by working more collaboratively with the EC to achieve compromises and reasonable alternatives. Finally, Part V concludes by suggesting that more airline mergers are likely to follow in the United States and abroad.
Wednesday, May 18, 2011
Blog readers interested in perusing the 669-page Appellate Body Report, European Communities and Certain Member States--Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R (May 18, 2011), may do so here. For those with less time to spare, an 8-page summary of the report is also available for download.
The World Trade Organization's Apellate Body issued a report overturning part of the Panel's decision in the ongoing dispute between the United States and European Union concerning the latter's subsidization of Airbus. See WTO Overturns Part of US Aid Complaint Ruling on Airbus, AFP, May 18, 2011 (available here). Even so, U.S. Trade Representative Ron Kirk is touting the decision as a victory for the United States. According to the Apellate Body, Airbus still received $18 billion in subsidies which are inconsistent with WTO rules.
It is unclear what, if any, impact today's decision will have on pending EU plans to bolster the competitive position of its aircraft manufacturing giant. The EU still has a complaint concerning alleged U.S. subsidization of Boeing pending before the WTO, though it could be more than a year before the Apellate Body issues a report on the matter. In the meantime, both sides would do well to come together to work out a new agreement on the proper scope of injecting aid into their respective aircraft industries. With emerging economies such as China and India exploring the possibility of expanding their presence in the market, the dispute over subsidies will likely have global implications in the near future.
Tuesday, May 17, 2011
The International Aviation Law Institute was cited as a contributing partner to the World Economic Forum’s new report, Policies and Collaborative Partnership for Sustainable Aviation (2011) (available here). The report, which developed out of a year-long multistakeholder dialogue among airline industry leaders, government officials, academics, and non-governmental communities on progressive and practical measures to decrease aviation CO2 emissions, is expected to inform the ongoing environmental policy discussions taking place under the auspices of the United Nations and the International Civil Aviation Organization. As part of the partnership, the Institute submitted a detailed white paper discussing the international political and legal challenges to reducing aviation emissions through so-called “Market Based Measures” such as taxes or cap-and-trade systems.
The Institute's Director, Professor Brian Havel, along with IALI's FedEx/United Airlines Resident Research Fellow, Gabriel Sanchez, are currently finishing a new law review article which expands on the Institute’s contribution to the WEF report by addressing, inter alia, the possibility of forging a global agreement to offset civil aviation’s carbon footprint while remaining sensitive to the ongoing problems associated with fragmentation in the international legal system.
Friday, May 13, 2011
Blog readers may be interested in James Bono & David Wolpert's Decision-Theoretic Prediction and Policy Design of GDP Slot Auctions (Working Paper, Mar. 23, 2011) (available from SSRN here). From the abstract:
We examine the potential for a simple auction to more efficiently allocate arrival and departure slots during Ground Delay Programs (GDP's) than the currently used system. The analysis of these auctions uses Predictive Game Theory (PGT) Wolpert and Bono (2010a,b), a new approach that produces a probability distribution over strategies instead of an equilibrium set. We compare the simple auction with other allocation methods, including combinatorial auctions, and theoretical benchmarks using data from a one-hour GDP at Chicago Midway. We find that the simple slot auction overcomes several practical shortcomings of other approaches, while offering economically significant efficiency gains with respect to current practices and the potential to lower airline costs. We also find that the second price version of the simple auction dominates the first price version in nearly every decision-relevant category. This is despite the fact that none of the conventional arguments for second price auctions, such as dominant strategy implementability, even apply to GDP slot auctions. Finally, the results indicate that combinatorial auctions, if made operationally practical, might be more efficient than our auction, even though the combinatorial auction does not implement the social optimum in dominant strategies.
Thursday, May 12, 2011
Blog readers interested in the commercial success of Southwest Airlines may want to read Rachel Ang's working paper, Low Cost Carrier with Bags Fly Free (Apr. 13, 2011) (available from SSRN here). From the abstract:
Southwest airline is recognized in the United States as one of the most important and influential airline organization in corporate America. This study examines how Southwest uses the competitive marketing strategies and market performances - “Low Cost Carrier with Bags Fly Free” to assist customer relationship marketing, Customer Lifetime Value (CLV). Based on 108 findings of the in-depth interviews, many recommendations can be derived for Southwest, the most powerful multichannel aviation carrier in the Unites States of America. The philosophy of “Low Cost Carrier” has driven customer retention and commitment for past two decades. With consumers shopping around for best prices, will “Bags Fly Free” continue to support Southwest for permanent growth in market share and development.
Wednesday, May 11, 2011
Cabotage has become a topic of discussion again among aviation law aficionados, particularly with regard to whether or not the doctrine applies to non-remunerative carriage. As a number of commentators have noted, the application of the doctrine varies considerably from country to country. For instance, under 49 U.S.C. § 40109(g), the Department of Transportation "may exempt by order a foreign air carrier . . . for not more than 30 days to allow the foreign air carrier to carry passengers or cargo in interstate [i.e., domestic] air transportation in certain markets" if the Department determines that such authorization is in the public interest due to an "emergency created by unusual circumstances not arising in the normal course of business[.]" This seems to imply that any domestic carriage of passengers or cargo, regardless of remuneration, is barred under U.S. law unless granted special dispensation by the DOT. However, the Department's webpage, "Airline Cabotage," adds the qualification that these limited cabotage rights apply to "commercial traffic." It is not clear whether the "commercial traffic" language constitutes a gloss on the provision, an iteration of DOT practice in these matters, or a simple confusion concerning the actual language of the statute. Interestingly, the word "cabotage" itself has never appeared in U.S. law. See generally Nicky E. Hesse, Some Questions on Aviation Cabotage, 1 McGill L.J. 129, 133 (1953); see also 49 U.S.C. passim.
Arguably, the DOT's interpretation that "cabotage" means "commercial traffic" is the most sensible approach in light of the doctrine's "canonical" definition under the Chicago Convention: "Each contracting State shall have the right to refuse permission to the aircraft of other contracting States to take on its territory passengers, mail and cargo carried for remuneration or hire and destined for another point within its territory." See Convention on International Civil Aviation art 7., opened for signature Dec. 7, 1944, 61 Stat. 1180. Besides, an overly strict reading of the cabotage prohibition in U.S. law would imply that British Airways, for example, would be barred from enplaning its own employees for courtesy carriage during a stopover in New York on a London/Los Angeles flight.
For further discussion of the history of cabotage, see Pablo Mendes de Leon, Cabotage in Air Transport Regulation (1981).
Friday, May 6, 2011
Blog readers may be interested in Xavier Fegeda & Ricardo Flores-Fillol's paper, Technology, Business Models and Network Structure in the Airline Industry (XREAP Working Paper No. 2010-14, Dec. 2010) (available from SSRN here). From the abstract:
Network airlines have increasingly focused their operations on hub airports through the exploitation of connecting traffic. This has allowed them to take advantage of economies of traffic density, the existence of which is beyond dispute in the airline industry. Less attention has been devoted to airlines' decisions on thin point-to-point routes, which can be served using different aircraft technologies and different business models. This paper examines, both theoretically and empirically, the impact on airlines' networks of the two major innovations in the airline industry of the last two decades: regional jet technology, and the low-cost business model. We show that, under certain circumstances, direct services on thin point-to-point routes can be viable, and that as a result airlinesmay be interested in diverting passengers away from the hub.
Wednesday, May 4, 2011
The Wall Street Journal has a detailed story on the European Union's Single European Sky (SES) program. See Daniel Michaels, Sky Wars: Europe Battles to Erase Borders in the Air, Wall St. J., May 4, 2011 (available here). As the story makes clear, despite the renewed impetus given to the program following last year's "Volcanic Ash" crisis, inter-governmental squabbling among the EU Member States remains an issue. Unsurprisingly, the airline industry's lead global trade group, the International Air Transport Association, has been unimpressed by the glacial pace of ATM modernization in the EU.
Though only lightly addressed in the story, it should be made clear that U.S. efforts to upgrade its own ATM system, the so-called "NextGEN" initiative, faces its own challenges. The House and Senate have yet to agree on legislation to further fund NextGEN and organized labor, fearful that ATM modernization will yield job losses, are expected to resist efforts to fasttrack the project. Even so, the U.S. and EU have pledged to cooperate on their modernization efforts to ensure interoperability once their respective systems are fully functional. See Memorandum of Cooperation, NAT-I-9406, U.S.-EU, June 17, 2010, 2011 O.J. (L 89) 3.
Blog readers interested in learning more about the legal and political challenges to ATM modernization will find detailed discussions of these issues in Brian F. Havel and Gabriel S. Sanchez's forthcoming book, The Principles and Practice of International Aviation Law. Moreover, Professor Havel's analysis of U.S. views on the SES initiative will be published later this Spring.
Tuesday, May 3, 2011
The New York Times ran a story in yesterday's edition on the alleged clout of airline alliances. See Susan Stellin, The Clout of Air Alliances, N.Y. Times, May 2, 2011 (available here). Written more for travelers than business or legal analysts, the story does a good job summarizing the history and benefits of alliances, while putting up the usual warning signs that these ventures adversely affect competition.
Sunday, May 1, 2011
The Spring 2011 issue of the International Aviation Law Institute's flagship publication, Issues in Aviation Law and Policy, has gone to press and will soon be available to subscribers or those interested in purchasing individual issues. The following papers will appear in the issue:
Hon. Gerald L. Baliles, Commentary, Time Flies: Observations about the Decade Past, and a Look Toward the Future
Matt Andersson, Commentary, The Impact of Policy on Global Aircraft Manufacturing and Development
P. Paul Fitzgerald, Europe's Emissions Trading System: Questioning its Raison d’Etre
David E. Rapoport & Michael L. Teich, The Erosion of Secrecy in Air Disaster Litigation
James L. Devall, The U.S. and EU Approaches to Global Airline Alliances: Cooperation or Conflict
Allan I. Mendelsohn, Foreign Plaintiffs, Forum Non Conveniens, and the 1999 Montreal Convention
Steven H. Resnicoff, Shooting Down Suicide Airplanes--What's Law Got to Do With It?
Douglas M. Marshall, Civil, Public, or State Aircraft? The FAA's Regulatory Authority Over Government Operations of Remotely Piloted Aircraft in U.S. National Airspace
Isaku Shibata, Airfield Management of High-Density Airports in Metropolitan Areas--A Study of Narita International Airport
Stuart A. Hindman, Full-Body Scanners: TSA's New "Optional" System for Airport Searches
Readers interested in learning more about the journal, including subscription information, can do so through the Institute's website here.