January 13, 2011
BUILJ Publishes New IALI Study
The Boston University International Law Journal has just published Brian F. Havel & Gabriel S. Sanchez's Restoring Global Aviation's "Cosmopolitan Mentalite", 29 B.U. Int'l L.J. 1 (2011), as the lead article for its 29th volume. The study is the first of its kind to assess international aviation's global regulatory environment from the standpoint of philosophical cosmopolitanism. From the abstract:
For over six decades, the central juristic premise of the global regulatory regime for international civil aviation has been that citizenship defines ownership; the mentalite—the determinative category of thought—has been that nationality organizes air commerce. Through this conflation of commercial and national affiliation, there are American carriers, British carriers, Canadian carriers—but not a single authentically transnational carrier. Because nationality supervenes, there is no international airline as such; the concept of a multinational enterprise remains unknown in air transport, even in the 21st century.
In this article, we generate a fresh context within which to reevaluate the issue of airline nationality by first illuminating the implicit cosmopolitanism of the international aviation industry and of its (potential) global regulatory structure by recollecting the origins of the current order and by positioning the industry within the conceptual development of the notion of cosmopolitanism itself. To accomplish this, we use the recently-signed air services agreement between Canada and the European Union to project what we will call a “cosmopolitan mentalite” that can radically transform air transport law and regulation for the future. In particular, we will explore how a doctrine of “citizenship purity” has had a stranglehold on the natural cosmopolitanism of the aviation industry virtually since its establishment, and how the Canada/EU agreement, which contains features (or at least prospective features) excluded from all prior bilateral air services agreements through which countries exchange air route permissions, models a way past the industry’s inheritance of regulatory chauvinism.
January 12, 2011
Discontent with U.S./EU Second Stage
Though the Second Stage Protocol to Amend the 2007 U.S./EU Air Transport Agreement, 2010 O.J. (L 223) 3, has been in provisional effect since last year, the instrument still has not received final ratification from the European Parliament. In a draft report published by the Parliament's Committee on Transport and Tourism last month, concerns were raised with respect to the agreement's failure to include new market access opportunities for EU airlines, including the right to own and control subsidaries established in the United States. See Eur. Parliament, Draft Report on the Draft Council Decision on the Conclusion of the [Second Stage Protocol], Doc. No. 2010/0112(NLE) (Dec. 16, 2010) (available here). Additionally, the report called on the European Commission to establish a third round of negotiations with the U.S. to address, inter alia, additional market liberalization provisions.
Undoubtedly, one of the biggest challenges facing the Commission is overcoming U.S. inertia. As it stands, the U.S./EU Agreement is essentially "perfect" from the perspective of the U.S. Open Skies policy. See generally 1995 U.S International Air Transport Policy Statement, 60 Fed. Reg. 21,841 (May 3, 1995). The U.S./EU accord establishes open gateways for both parties' carriers, removes archaic restrictions on pricing, capacity, and frequencies, and allows U.S. and EU airlines to pursue joint commercial ventures such as code-sharing and integrated alliances. From a policy standpoint, this is all the U.S. has ever wanted out of the EU and now they have it.
Blog readers may be interested in perusing Darren A. Prum's recent article, Flight Check: Are Air Carriers Any Closer to Providing Gambling on International Flights that Land or Depart from the United States?, 74 J. Air L. & Com. 71 (2009) (available from SSRN here). From the abstract:
This article examines the likelihood that air carriers will provide gambling entertainment on international flights that land or depart from the United States or its territories. Recently, international carriers began offering wagering activities on non-U.S. routes in an effort to tap new sources of revenue for their operations. With such opportunities available to foreign flagged carriers but non-American ones, some commentators believe that Congress will be forced to change the U.S. laws in order to keep U.S. carriers competitive.
The prohibition against in-flight gambling began in 1962 when the federal government disallowed the activity on US-flagged airlines. Northwest Airlines reignited the debate in 1994 when they tried to remove the ban on international routes. Instead, the government widened the prohibition to include the activity or carriage of such devices on any carrier, regardless of the aircraft’s country of registration, that landed or departed from a U.S. territory pending a study by the Department of Transportation (DOT).
As a result, this action by the U.S. government prompted an outcry from other sovereign nations as well as many international airlines. With a blatant disregard for those concerns and a determination that the activity could be conducted safely while flying, the DOT’s study concluded that the most prudent approach for America included a wait and see strategy to allow monitoring of foreign carriers’ progress and experience before changing course in the U.S.
Recently, other attempts by the U.S. government to force its ethic and morals upon sovereign nations resulted in court challenges, diplomatic efforts, international resolution forums, or retaliatory acts. Many treaties call for the International Court of Justice (ICJ) or the World Trade Organization (WTO) to resolve trade disputes involving member nations. One successful country convinced the WTO that the American ban on Internet gaming was hypocritical; while the European Union effectively utilized noise restrictions on aircraft to bring the U.S. government to the negotiating table for another dispute.
Finally, the crash of Swiss Air Flight 111 and the Unlawful Internet Gambling Enforcement Act (UIGEA) presents new challenges to in-flight gaming. While the Swiss Air accident seems like an unfortunate tragedy, one of the underlying causes for its demise led investigators to a faulty in-flight entertainment system that delivered gambling activities to its passengers. Moreover, the UIGEA requires the U. S. banking system to implement safeguards that prevent American citizens from participating in legal foreign gambling sites, which may be accessible while on an international flight.
Hence, the U.S. policy appears to be moving indirectly further away from allowing gambling on international flights because Congress continues to take actions that on the surface do not seem to affect aviation; but should the U.S. government be forced to change course, the layering approach by anti-gaming advocates will need reconciling.
Thus, competitive forces in the airline industry may force Congress to allow carriers to offer gambling on international flights.
Airline Mergers at a Crossroads
Diana Moss, Vice President and Senior Fellow at the American Antitrust Institute, has a new working paper out entitled Airline Mergers at a Crossroads: Southwest Airlines and Airtran Airways (AAI Working Paper, Dec. 10, 2010) (available from SSRN here). From the abstract:
The proposed merger of Southwest/AirTran could meet with relatively little antitrust enforcement resistance based on the Department of Justice’s (DOJ) public statements in recent airline mergers. For example, claimed efficiencies are likely to get significant weight. Moreover, concerns over eliminating competition on Southwest/AirTran overlap routes could be mitigated because the number of routes is relatively small, there is rivalry (from low-cost carriers (LCCs) and legacies) on some of those routes, and entry may be relatively easy at some affected airports.
However, the proposed merger of Southwest and AirTran – the first major merger of LCCs – raises novel issues that may not be captured by analysis that focuses mainly on overlaps between the merging partners in city-pair or airport-pair markets. These novel issues include how the merger could potentially result in: (1) a transition from a point-to- point/hybrid system to a hub-and-spoke network model; (2) changes in the two LCCs’ price discounting strategies; (3) changes in entry or expansion patterns in new and existing markets; and (4) changes in short-term output and/or longer-term capacity decisions. These questions deserve attention in an antitrust review of the proposed merger.
For example, combining the Southwest and AirTran systems may stretch the limits of Southwest’s model, pushing the merged company away from a point-to-point or hybrid system and more toward a hub-and-spoke model. If so, then the combined company may be less able to inject the competitive discipline through lower fares, more choice, and entry and expansion than each LCC alone has brought to the industry. With the ranks of the LCCs reduced through a Southwest/AirTran merger, it is also important to consider how effective the rivalry offered by the remaining LCCs will be.
Eliminating AirTran also means removing from the market the second largest LCC (based on its presence as a low fare carrier on top routes) and the source of some of the most aggressive price discounting and market entry. Combining the maverick-like AirTran with Southwest could change incentives for the merged company to discount. And because Southwest and AirTran, as LCCs, are closer competitors to each other than to the legacy airlines, potential post-merger price increases (or smaller discounts) may not be captured by standard market share and concentration analysis.
Finally, post-merger output restrictions and/or capacity reductions are demonstrated effects of airline mergers that have been largely overlooked in antitrust reviews. Not only do they raise fares, but they reduce choice for consumers. Well-publicized cutbacks at Cincinnati after Delta/Northwest and conditions imposed on United/Continental at Cleveland by the state of Ohio indicate the gravity of these effects. Mergers of LCCs should be no exception to an examination of the potential for post-merger output and capacity reductions. This is particularly true if the merger eliminates competition on routes/airports and the carriers are adept at managing capacity – as is the case in Southwest/AirTran.
This White Paper by the American Antitrust Institute (AAI) is the first of what is intended to be a series by the AAI on competition in the U.S. airline industry. It is based on publicly available information – no confidential information was provided to the AAI in the course of preparing this analysis. While we do not make a recommendation as to the legality of the proposed Southwest/Air Tran merger, the paper raises important questions that deserve investigation before a decision is made.
January 10, 2011
The Misery of Flying
Last week's edition of the Economist had a good article discussing the recent string of weather-related delays on U.S. airports and whether more regulation is the right answer to the problem. See Air Travel: The Misery of Flying, Economist, Jan. 6, 2011 (available here).