Wednesday, August 26, 2015
Last week, the Australian Competition and Consumer Commission (ACCC) gave its blessing to a proposed code-sharing agreement between Qantas and China Eastern. The ACCC had indicated earlier this year that it was inclined to block the deal because it would reduce competition on the Sydney-Shanghai route, but the carriers were able to assuage those concerns by pledging a 21 percent increase in capacity on the route over the next five years.
Friday, August 21, 2015
The Washington Post has obtained copies of FAA files on close encounters between drones and manned aircraft, reporting the number of incidents is nearing 700 so far in 2015, a dramatic increase from the previous year. The Post's report has drawn more attention to an area of growing concern. New York Senator Charles Schumer reportedly intends to introduce an amendment to the upcoming FAA reauthorization bill that would require all drones to be manufactured with built-in geo-fencing that would prevent the drones from operating above 500 feet of altitude or within no-fly zones surrounding airports. The FAA is currently developing rules for commercial drone operations, but hobbyist activity is largely unregulated.
Wednesday, August 19, 2015
Professor Joseph Schwieterman, director of DePaul University's Chaddick Institute for Metropolitan Development and a long-time friend to the International Aviation Law Institute, published an opinion piece in the Wall Street Journal yesterday arguing that the Department of Transportation should take into account the availability of intercity bus services when conducting its investigation into accusations of price gouging by U.S. carriers on select routes in the immediate aftermath of last May's Amtrak derailment in Philadelphia.
Tuesday, August 18, 2015
A recent collection of papers have advanced the provocative theory that major institutional investors, such as BlackRock, Vanguard, and the like, effectively reduce competition in concentrated industries, including the U.S. airline sector, by holding stakes in competing firms. The economic theory is that by owning shares of all of the major firms within a given industry, these firms profit from most from increases to overall industry profit margins rather than from competition for market share among participants within the industry. While each individual firm should still have incentives to compete, management serves the interests of the company's largest shareholders, and thus disproportionately pursue market discipline strategies. This presumably explains patterns of executive compensation, which are tied more closely to industry performance, and the lack of increased economic output relative to recent profit levels.
Recent interest in this theory has been sparked by an econometric study of the U.S. airline industry finding airline fares to be 3-5% higher because of horizontal shareholdings by institutional investors. Posner and Weyl concisely summarize the findings and conclude that the U.S. congress should respond with legislative changes to the tax treatment of horizontal shareholdings by mutual funds. More recently, Elhauge has released a draft of a paper arguing that existing antitrust law provides sufficient authority to challenge horizontal shareholdings without legislative changes.
There is no indication yet that the DOJ is pursuing this theory in its current investigation of airline collusion, and the theory has critics who are skeptical that the government would take action that so directly threatens the very existence of index funds. Still, it remains an issue worth watching.
Monday, August 17, 2015
Last week Reuters reported that the United States and China held exploratory talks in May about revising the countries' existing bilateral air services agreement. The report indicates that no changes are imminent, formal negotiations will not begin until certain preconditions are met, and significant liberalization does not appear to be under discussion. The report quotes a Chinese official as being more interested in opening markets than in prior years, but that appears to be primarily motivated by a concern that the U.S. and Chinese passenger carriers are approaching the maximum number of weekly flights permitted under the current agreement between the U.S. and Beijing, Shanghai, and Guangzhou (160 round-trip flights for the U.S. carriers, 160 for the Chinese). The reported possibility of adding flights to and from those three major cities while decreasing the number of flights permitted to smaller markets is hardly indicative of a philosophical shift toward liberalization. The U.S., for its part, seems to be willing to play hardball as it is refusing to enter formal negotiations to revise the air services agreement until China addresses U.S. concerns over its slot allocation process at major airports, indicating that adding flights is a greater priority for the Chinese carriers than their U.S. counterparts.
Thursday, August 6, 2015
Tuesday, August 4, 2015
A conflict between French and European law concerning France's failure to recover incompatible state aid to airlines within the four month time frame required by EU regulations appears headed to the European Court of Justice. Last year, the European Commission found that multiple French airports had provided violated community limitations on state aid to airlines in their attempts to attract low-cost carriers such as Ryanair. The French government was directed to recover the approximately 10 million euros in illicit aid from the recipient airlines, but has not yet done in accordance with French law which suspends recovery actions while the matters are being appealed in French courts. European case law requires that France recover the funds within four months regardless of pending appeals.
Monday, August 3, 2015
Katherine Calhoun of SmithAmundsen has an interesting write up of the implications of a recent Seventh Circuit decision. Boeing sought to remove claims against it related to the 2013 Asiana Airlines crash in San Francisco to federal court. The Seventh Circuit determined that claims stemming from a flight operating over water could potentially create the basis for removal to federal court on the basis of admiralty jurisdiction.