December 2, 2011
EC Announces Better Airports Package
The European Commission announced a variety of proposals aimed at better utilizing existing EU airport capacity, reducing delays, and improving the quality, efficiency and transparency of certain airport services and management functions. See European Commission press release, "Better Airports" Package Launched, Dec. 1, 2011 (available here). The most notable change is to rules regarding slot distribution. Airlines will now be better able to trade slots with one another. Additionally, the minimum threshold required for an airline to retain capacity to its slots under the "use it or lose it rule," which previously required airlines to use their slots at a minimum of 80% capacity, will be raised to 85%. Additionally, the package includes measures intended to improve ground handling services and increase the transparency in the decision-making process surrounding noise limits around airports. Before the measures can take effect, they must first be approved through the co-decision procedure involving the European Parliament, European Council and national Parliaments.
Institute Fellow Weighs in on ETS Controversy
International Aviation Law Institute Senior Research Fellow Gabriel Sanchez recently contributed his thoughts on prospects for an aviation emissions agreement in an article for The Conversation here.
December 1, 2011
Preemptive Resolution to ETS Controversy Appears Unlikely With One Month to Go
There is officially one month left until the aviation industry becomes subject to the EU Emissions Trading Scheme. The initiative has been a subject for discussion at the ongoing climate summit in Durban, with China, Japan and Venezuela all publicly criticizing the measure. See Allesandro Vitelli and Randall Hackley, China, Japan Clash With EU Over Aviation CO2 Curbs at Summit, Bloomberg Business Week, Nov. 30, 2011 (available here). From our vantage point it's impossible to predict what impact the Durban talks will have on the plan to include aviation in the EU scheme. Perhaps the EU could gain concessions from other nations on broader climate initiatives by scaling back its plans for aviation. Alternatively, intransigence from non-EU States on non-aviation climate change solutions might strengthen EU leaders' belief that unilateral emissions regulations are necessary.
A potential complication emerged yesterday with the report that ICAO hopes to coordinate a global agreement on aviation emissions over the course of the next year. The article we linked to in yesterday's post implied optimism on the part of ICAO secretary general Robert Benjamin that a deal could be reached in that time frame. See Alessandro Vitelli and Mathew Carr, UN Aviation Regulator Presses for 2012 Carbon Market Deal, Bloomberg, Nov. 30, 2011 (available here). The secretary general's comments also provided potential answers to two key questions that had been plaguing aviation emissions talks: who would administer the regulations and will developing nations be subject to different rules? With regard to administration, Benjamin suggested that the World Bank would be tasked with setting emissions targets and collecting fees or charges. As far as developing nations are concerned, Benjamin's comments indicated support for treating nations equally. This is one of the most difficult issues in any global emissions debate and is especially tricky for aviation where the Kyoto Protocol's "common but differentiated responsibilities" framework conflicts with the prohibitions against discrimination contained in the Chicago Convention. This very issue was examined by Joanne Scott and Lavanya Rajamani in a paper we called attention to a few weeks ago. See EU Climate Change Unilateralism: International Aviation in the European Emissions Trading Scheme (Nov. 1, 2011) available from SSRN here. The issue will undoubtedly be a source of great debate before an agreement is reached. Indeed a story today quoting comments from ICAO spokesman Denis Chagnon only clouded matters, as Chagnon made ICAO's intention of securing an emissions agreement next year sound more aspirational than firm, and implied that there was not yet a set plan decisively addressing the two issues Benjamin weighed in on.
So what does the latest news from Durban and ICAO mean? The prospect of ICAO successfully negotiating a deal next year, after struggling to do so for the past decade, seems overly optimistic. However, the likelihood of success will undoubtedly increase if non-EU nations spend 2012 complying with the EU scheme and see a global agreement as a way to regain control over regulation of their carriers in future years. Thus, the clearest takeaway appears to be that barring a last-minute change-of-heart by the EU, the ETS will begin to affect aviation January 1 as scheduled and foreign carriers will have little choice but to comply. While ICAO recently reiterated its opposition to the EU's approach, this recent announcement is a strong indication that ICAO views a global agreement as the best, and perhaps only, way out of the current impasse. There does not appear to be any interest in having ICAO decide an Article 84 challenge to the ETS. China has indicated it will file a lawsuit challenging the EU directive before the end of the year, but it is still unknown where the challenge will be filed or whether it will involve any distinct legal claims from those brought by U.S. carriers earlier this year. The outcome of the U.S. challenge, and resolution of the forthcoming Chinese challenge will both come after the new ETS rules have taken effect. While some retaliation by non-EU states is likely, diplomatic relations between the EU and its trade partners appear certain to be dominated by more urgent matters over the coming weeks and it is hard to see the aviation emissions issue making its way to the forefront. Our best prediction right now is that no alternative will be reached before the EU rules on aviation emissions take effect. Once the regulations are in place and their impact can be assessed, the severity of that impact will likely determine the lengths non-EU States are willing to go to find an alternate solution.
November 30, 2011
ICAO Hopes to Produce Global Carbon Agreement by End of 2012
In a potentially important development for the ongoing dispute over aviation emissions, ICAO announced today that it intends to bring its members to an agreement on carbon emissions-reduction measures next year. See Alessandro Vitelli and Mathew Carr, UN Aviation Regulator Presses for 2012 Carbon Market Deal, Bloomberg, Nov. 30, 2011 (available here). We'll analyze this development in detail in tomorrow's blog post.
November 29, 2011
AMR Files for Bankruptcy
AMR, the parent corporation of American Airlines and American Eagle Airlines, announced this morning that it has filed for Chapter 11 bankruptcy protection. See Michael J. De La Merced, American Airlines Parent Files for Bankruptcy, New York Times Dealbook, Nov. 29, 2011 (available here). American is the last of the legacy carriers to file for bankruptcy protection and the only major U.S. airline not to have done so following the 2001 terrorist attacks. The possibility of a bankruptcy filing had been the subject of increasing speculation by analysts in recent months. American will continue operating while under bankruptcy protection as many of the other carriers have done. The nation's third-largest carrier by number of destinations (fourth-largest by number of passengers) is expected to use bankruptcy to shed labor costs and unwanted aircraft leases, but reportedly intends to continue with its recent purchase of new aircraft from Boeing and Airbus in the hopes of reducing costs by transitioning to a newer, more fuel-efficient fleet. This announcement provides an opportunity to revisit past discussions of deregulation and its effects on the domestic airline industry in upcoming blog posts. For now, those interested in the immediate consequences of the bankruptcy filing may enjoy two recent papers by Federico Ciliberto and Carola Schenone about the effects of past airline bankruptcies. The authors conclude that carriers tend to lower prices and experience fewer cancellations and delays while operating in bankruptcy, but once out of Chapter 11 these measures return to, and in the case of prices exceed, pre-bankruptcy levels. By contrast, reductions in route structure, flight frequency and capacity are also common in bankruptcy but are typically permanent. See Federico Ciliberto and Carola Schenone, Are the Bankrupt Skies the Friendliest?, August 2010 (available from SSRN here); Federico Ciliberto and Carola Schenone, Bankruptcy and Product-Market Competition: Evidence from the Airline Industry, August 2010 (available from SSRN here).
November 28, 2011
Star Alliance Expands in South America
Air Transport World recently reported that Copa Airlines and Avianca-Taca are set to join the Star Alliance in April 2012. See Kurt Hofmann, Copa, Avianca-Taca to Join Star Alliance in April 2012, ATW Online, Nov. 22, 2011 (available here). This is eminently sensible as LATAM, the entity to be created by the in-process LAN-TAM merger, is expected to join oneworld once the merger is complete.