F
R

9
-
2
0
0
0

COMMON AIR TRANSPORT MARKETS?

The last time John Byerly was in Phoenix, Arizona, it was as a young civil servant in the mid-1970s, when he chaired a hearing which took several days to decide the issue of which airline should be granted the rights to fly the Phoenix-Albuquerque route. At that time matters such as this had to be decided at the highest level in the state. The inefficiency of the procedure became evident when the airline chosen after a lengthy process, Hughes Airwest, went bankrupt shortly afterwards.

In the early summer of 2000 John Byerly, now a high-ranking aviation expert in the US State Department, returned to Phoenix to exchange views with two dozen experts from all around the world on the future of air transport. In the two decades which have passed since his first visit, market conditions have changed out of all recognition.

Air transport has come of age in the USA and in Europe. Gone are the days when every tariff and every route had to be approved by the state. The American air transport market was deregulated in October 1978, while since April 1997 airlines have ceased to be subject to restrictions within the European single market of the EU as well. This means that in two out of the three most important air traffic areas in the world the free market rules, while in the Asia-Pacific area national governments continue to set the tone. But in the meantime air transport policy makers in the USA and the EU have already turned their minds to the question of how their two internal liberal models can be linked up with each other  to the benefit of both airlines and passengers, as they emphasise.

Their vision is of a single open market reaching from Athens to Anchorage, in which every airline can fly anywhere and set up operations anywhere, with tariffs determined by the market rather than by governments. Since the Association of European Airlines (AEA) presented a policy document on the same subject in September 1999, everyone in the industry has been talking about the Transatlantic Common Aviation Area (TCAA).

Meanwhile the USA has taken the initiative in pushing forward its declared aim of concluding bilateral open skies agreements for completely free air transport with as many countries as possible. John Byerly too is convinced that this is the way to go. "Open skies means tearing down market barriers in the interests of consumers," he explains. Today such open skies agreements already exist with 46 countries world-wide, especially in Europe.

However, two Old World countries have still not signed up - the United Kingdom and France. Germany concluded an open skies agreement with the USA back in 1993, thus paving the way for the successful code share agreement between Lufthansa and United in the Star Alliance. "We are assuming that by the end of the year we will have a new agreement with London and will then be able to turn to the issue of the common open market," says Bradley Mims, US Deputy Assistant Secretary for Aviation and International Affairs. However, he stops short of euphoria: "We are really ready to talk about it, but we are not yet in a position to implement it."

It is the Europeans, well represented in Phoenix, who are the driving visionary forces. "When we embarked on the process towards a common European single market in 1978, it seemed unattainable. Why don't we just given to try?" asks Frederick Sörensen, head of the air transport policy section at the EU Commission in Brussels. His colleague René Fennes takes the same line: "It will not be simple, but there are no legal problems standing in the way of the TCAA."

The main hurdle on the path towards the common market he sees as the rules relating to transatlantic equity holdings in airlines, which up to now have been very restrictive. The USA is the worst offender, currently allowing only silent minority holdings by overseas investors supposedly in the interests of national security. Most experts believe it is this restrictive stance on the part of the USA which has been the driving force behind the recent flurry of alliances, which merely serve as a temporary measure rather than achieving the real goal of company mergers.

The Europeans are especially aggrieved over the "Fly America" policy of the US authorities which force all government employees to fly on US carriers for official journeys. "This rule is a particularly tasteless form of state subsidy," complains Barry Humphreys, Richard Branson's right-hand man at Virgin Atlantic Airways. The British multi-millionaire has been trying in vain for years to found a "Virgin USA" domestic airline. In addition, "we would like to be able to fly direct to America from the European mainland," says Humphreys. But as things stand neither of these objectives is possible. Still he remains optimistic. "The trend towards more transatlantic liberalisation is unstoppable."

Another injustice of the present legal situation is a particular source of annoyance to the freight carriers. "US companies are at present not allowed to wet-lease any aircraft from foreign airlines," complains Steve Guynan of the British Cargo Airlines Alliance, "whereas American companies do a staggering $700 million of business per year from wet-leasing operations in Europe." But a complete overhaul of the legal framework would seem an illusion. "What we need above all is the political will and changes to the legislation on both sides of the Atlantic," says René Fennes of the EU Commission, "but it is not necessary that both sides pursue exactly the same aviation policy."

So far all this visionary talking has met with little enthusiasm from employee representatives of the air transport industry. "Complete liberalisation of the market will mean mega-mergers, and the synergy effects which these are aimed at achieving will lead to substantial job losses," Ingo Morawsky, federal representative for flying personnel at the German Public Services and Transport Workers Union, fears. According to Morawsky, conditions such as are already found today at Deutsche BA will then become the industry norm: "cheap tickets and poorly paid jobs without collective wage agreements, resulting in a fluctuation of around 20% of staff per year." By contrast, pilot representative Giancarlo Crivellaro of the European Cockpit Association complains about the lack of harmonisation in the areas of social security and safety. "There is no European air safety authority which is the equivalent of the FAA."

Despite all this, no one seriously doubts that the common transatlantic market will arrive some time. "But at the moment there are more questions than answers," sums up Paul Matsen, a senior manager with Delta Air Lines. Andrew Cahn, Director Government Affairs at British Airways, is even more sceptical and does not believe he will live to see the day - but then Cahn is in his mid-forties.

From page 40 of FLUG REVUE 9/2000