Thursday, September 26, 2013
Reuters has a report out today describing the latest developments regarding ICAO's efforts to manage aviation emissions. The proposal currently under consideration appears to be a commitment to some form of global market-based-mechanism, the details of which would be drafted and finalized by 2016, and which would take effect beginning in 2020.
According to the report, there remains disagreement about the interim rules on emissions regulation. As has previously been reported, the EU would be permitted to keep its scheme, but only charge allowances to foreign carriers for the portions of flights over the collective territory of EU member states. The United States is reportedly objecting to plans that would exempt many developing countries from the obligation to comply with the EU regulations.
Wednesday, September 25, 2013
Tuesday, September 24, 2013
Monday, September 23, 2013
The New York Times reports that an F.A.A. aviation rulemaking committee is expected to formulate rule changes later this week that would allow passengers to use electronic devices such as e-readers and tablets during takeoff and landing. Restrictions are likely to remain in place on cell phone and Wi-Fi use. A brief explanation of the current policy can be found here.
Thursday, September 12, 2013
Greg Principato, past president of Airports Council International-North America, will present at the International Aviation Law Institute (IALI) and Chaddick Institute for Metropolitan Development's third annual lecture on October 21 at DePaul University. The title of his speech will be "Trouble on the Tarmac: Redirecting U.S. Aviation Policy to Promote Economic Growth."
Principato served eight years as president of Airports Council International-North America, before stepping down in June 2013. During his 30 plus-year career, he worked on a wide variety of aviation issues. His many achievements include serving as executive director of the 1993 National Airline Commission, helping negotiate a new air service agreement between the United States and Japan, working to develop a new global standard for aircraft noise, and helping negotiate an international airline alliance.
Each year, IALI and Chaddick invite an expert in national aviation policy and advocacy to discuss the role of commercial airports and their impact on U.S. cities and the national transportation network. Past presenters include Christa Fornarotto, the Federal Aviation Administration’s associate administrator for airports, and Professor John Kasarda, author of the book Aerotropolis: The Way We’ll Live Next.
Attendance is by invitation only. For more information, please contact IALI Executive Director Stephen B. Rudolph.
Wednesday, September 11, 2013
Tuesday, September 10, 2013
Thursday, September 5, 2013
Tuesday, September 3, 2013
Friday, August 30, 2013
Here's what you should know before beginning your three-day weekend:
- A November 25 trial date has been set for the antitrust challenge to the American/US Airways merger.
- More good news for American Airlines: the judge overseeing the carrier's bankruptcy appears willing to confirm its reorganization plan before the antitrust challenge is resolved.
- The U.S. Department of Transportation has released a show-cause order supporting antitrust immunity for the Delta/Virgin Atlantic joint venture.
- ICAO has rescinded India's significant safety concern designation.
- Chilean carrier LAN won a legal dispute with the Argentinian government over use of an airport.
Thursday, August 29, 2013
Wednesday, August 28, 2013
CAPA Centre for Aviation posted a very helpful article yesterday describing the extent to which New Zealand has worked to implement its new air transportation policy emphasizing an expansion of open skies agreements, even in cases where the liberalization of traffic rights has not been reciprocal.
Tuesday, August 27, 2013
Friday, August 23, 2013
Welcome to the redesigned blog! I hope everyone likes the new look.
The top end-of-week story is that American Airlines and US Airways have filed a motion requesting a November 12 start date for their antitrust trial. This is three months earlier than the February start date the DOJ would prefer. The disagreement isn't trivial, as American cannot resolve its bankruptcy proceedings without first settling the merger question. The DOJ, by contrast, wants more time to prepare its arguments.
Thursday, August 22, 2013
For those still struggling to understand the DOJ's surprising decision last week to challenge the proposed American/US Airways merger, I'd recommend two white papers from Diana Moss of the American Antitrust Institute. The arguments therein appear to be largely in line with the DOJ's thinking. The titles (with links to ssrn pages) and abstracts are below:
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.
Should US Airways make a bid for American Airlines, currently in bankruptcy proceedings, the deal could present a conundrum for antitrust authorities. The transaction would create the largest domestic airline, reducing the number of legacy mega-carriers to three – Delta Air Lines (Delta), United Continental, and US Airways-American Airlines (US Airways-American). This consolidation would occur against an industry backdrop marked by a dwindling fringe of low-cost carriers (LCCs) and growing questions as to whether legacy look-alike Southwest Airlines-AirTran Airways (Southwest) exerts any significant competitive discipline in the industry. The merger could therefore hasten a troubling metamorphosis of the domestic airline industry from one in which hub airports were designed to accommodate multiple, competing airlines to a few large, closed systems that are virtually impermeable to competition and create a hostile environment in which LCCs and regional airlines have difficulty thriving and expanding.
This White Paper, produced jointly by the American Antitrust Institute (AAI) and Business Travel Coalition (BTC), asks: What competitive issues should be the focus of antitrust investigators in reviewing the proposed merger of US Airways and American?
The paper takes the position that a U.S. Department of Justice (DOJ) investigation into the proposed merger of US Airways and American should be informed by mounting evidence on the effects of previous airline mergers, namely Delta-Northwest and United- Continental. The White Paper presents a brief analysis of these combinations and highlights a number of preliminary observations that deserve a more in-depth look. These range from the effects of previous mergers on creating costly post-merger integration problems, substantially reducing rivalry on important routes, producing above-average fare increases, and driving traffic to major hubs and away from smaller communities.
The White Paper continues on to evaluate key competitive issues raised by the proposed merger of US Airways and American that deserve some attention in an antitrust investigation. One is the expected outcome – similar to previous legacy mergers – that the proposed combination could eliminate competition on a number of important overlap routes, creating very high levels of concentration and potential harm to consumers. The risk that the proposed merger could adversely affect small communities through reduced levels of, or lower quality, air service is also worth a close look. Another observation is that the merger is unlikely to be one of complementary networks (as might be argued) and could instead create regional strongholds and solidify US Airways-American’s control over key airports. Any arguments that the merger is necessary to create another “equal-size” competitor to the existing Big 3 systems are also not compelling. The analysis concludes by examining the potential effect of the merger on buyer market power and disclosure of information regarding ancillary service fees.
The joint AAI/BTC White Paper offers a number of concluding observations and recommendations. Among them is that our analysis of the US Airways-American merger– coupled with potential warning signs from previous legacy mergers – indicates that there may be enough smoke surrounding the proposed combination to indicate a potential fire. The merging parties therefore bear a heavy burden is demonstrating that their merger would not be harmful to competition and consumers.
Wednesday, August 21, 2013
Tuesday, August 20, 2013
A blog post yesterday from the Huffington Post characterizes the international debate over aviation emissions, fairly I think, as being "under the radar." The subject certainly has not received anywhere close to the amount of attention in the United States that has been devoted to construction of the Keystone pipeline. This is somewhat understandable, as a pipeline offers not only a much more visceral symbol but also a more tangible objective for advocates on both sides of the issue to rally around. Additionally, evidence to date suggests that both the U.S. media and public are only willing to devote a limited amount of bandwidth to the subject of climate change, and that coverage is easily taken up with stories on Keystone and natural disasters. Still, the lack of discussion of the subject in the U.S. has occurred despite the contentious international disagreement over the European Union's emissions trading scheme and the potentially momentous unveiling of ICAO's global emissions reduction proposal next month. This can't entirely be explained by the absence of aviation emissions from the political agenda as both legislative chambers passed a bill barring U.S. carriers from complying with the EU emissions regulation, which the President signed into law.
With much of his legislative agenda stalled in a divided congress, international aviation is one area, like the Keystone pipeline, where President Obama can support measures to combat climate change primarily through executive action. It is true that the current U.S. Senate will not ratify a Kyoto-like agreement on aviation emissions, but the executive branch should be able to assert a large influence on international policy on aviation emissions through more subtle diplomatic channels such as U.S. representation within ICAO and bilateral negotiations with EU officials over the ETS issue. By the end of the year we'll hopefully know a lot more about the administration's actions on both fronts. I'm skeptical, however, that anyone will take notice given how muted the responses from both sides of the political aisle were to the European Union Emissions Trading Scheme Prohibition Act. Regardless of what U.S. policy should be with regard to carbon emissions from international aviation, the issue undoubtedly warrants greater public attention.
Monday, August 19, 2013
Friday, August 16, 2013
To close the week, here is a compilation of various commentary and news updates on the DOJ's surprising decision to challenge the American Airlines/US Airways merger:
- A highly critical take on the DOJ's decision.
- And a more positive view.
- Former American Airlines CEO Robert Crandall isn't a fan of the move
- Loose lips sink planes? The DOJ complaint makes extensive use of quotes from US Airways executives.
- A good recap of negotiations leading up to the DOJ announcement.
- Texas Attorney General Greg Abbott explains why Texas joined the DOJ suit.
- Some are skeptical about the prospects for a settlement.
- Lawyers from the two carriers discuss plans to fight the suit.
- Meanwhile, the judge overseeing American's bankruptcy process postponed his decision on the carrier's reorganization plan with the merger up in the air.
- A judge has been assigned to the antitrust case.
- Staffing decisions related to the merger are being put on hold, at least temporarily.
- Airline stocks prices fell.
- Finally, this story suggests that American and US are largely the victims of bad timing. I think there's some truth to that. The industry is more consolidated now than when earlier mergers were approved. It is also more profitable. On the government side, the DOJ has had time to witness the consequences and feel some regret over the approval of earlier mergers and to gain comfort with enforcing the new Horizontal Merger Guidelines. Related, though unmentioned in the article, the DOJ's argument about coordination of baggage fees wasn't available for some of the earlier mergers.
It's been a busy news week, so I thought it best to break up the end-of-week aviation link omnibus into two posts. Here's a collection of aviation pieces that may have been missed amidst the merger madness. We'll have a collection of reactions to the DOJ decision posted later this afternoon.
- Matt Yglesias takes on cabotage restrictions. For a longer analysis, we recommend Robert Hardaway's Of Cabbages and Cabotage.
- Justin Fox questions the success of U.S. airline deregulation.
- Is high speed rail hurting Chinese airlines? A good companion piece to last week's story on Chinese flight delays.
- Ryanair has dismissed the pilot who publicly criticized the carrier's safety practices.
- More Dreamliner technical glitches.
- Investigation ongoing into cause of UPS cargo plane crash that killed both pilots earlier this week.