When the US government first began promoting Open Skies agreements, the concept met considerable opposition from airlines. Many carriers were accustomed to restricted-entry markets, had made major investments in building lucrative international markets, and feared inroads into their home markets, where they often enjoyed dominance. Governments were quite used to trading for a balance of benefits, leading often to tit-for-tat—you want something for your carriers, we get something for ours. Consumers were often left behind.
Open Skies not only relaxed pricing and capacity controls, but also made it possible to serve many more points behind the previously restricted number of international gateways. In doing so, it reduced the proportion of beyond-gateway domestic connections. Another by product was to enable much more extensive sixth freedom operations internationally.
US leadership across Administrations to forge Open Skies agreements transformed air travel. Prices dropped. Alliances were formed. Both legacy airlines and low cost carriers entered new markets. New routes were opened, many that would have never been possible without Open Skies and metal-neutral alliances with antitrust immunity. Open Skies spread throughout Europe, to Canada, Latin America, Asia Pacific, and Africa. Cargo carriers established new distribution hubs in the Middle East and Asia, with few access constraints. Airlines have available a wide array of open skies markets with fifth (and sometimes seventh) freedom rights, although, outside North Asia, the rights are rarely exercised.
But have we witnessed the zenith of international liberalism in aviation, with protectionism rearing its head. Will the drum beating in Washington DC for international trade wars with China, Russia, and others spill over into aviation? Will Middle East politics serve to isolate some countries, with winners and losers? Will calls from Big 3 US airlines for retaliation against alleged airline subsidies in the Middle East lead to more than consultations? Will cargo and fifth operations be targets? In a broad atmosphere of economic nationalism and Trump Administration calls for tariffs, with a willingness to endure trade wars with one of its largest trade partners, what does the future hold for Open Skies?
In Europe, the EU is also sharpening its competition tools to face Gulf carrier challenges. The EC appears set to revamp laws enabling it to impose duties on non-EU airlines or suspend flying rights if it finds unfair trade practices involving subsidies, slot allocation, ground handling services, airport charges, refuelling, etc.
France, Germany and Italy appear more protective than the UK, which has typically led the liberalisation charge. And as the UK exits the EU under Brexit, and its future role remains unclear, will the EU position change?
This subject was an underlying theme through the recent CAPA – Centre for Aviation Americas Aviation Summit 2018 in Houston, Texas, USA and The Blue Swan Daily has collated all the key comments and observations on the subject into this round-up.
US likes to determine ‘who plays in our sand box’: US DoT
US Department of Transportation (DoT) director office of international aviation Brian Hedberg said when the US negotiates an agreement with another country it is a bilateral agreement and the US is usually the bigger partner. Mr Hedberg added that the US likes to determine “who plays in our sand box”. GoldSpring Consulting partner Neil Hammond added the US aviation industry is a “good sand box” for foreign investors to play in. He said maybe when other countries have a nice “sand box to play in” the US Government may consider relaxing airline ownership regulations.
Delta Air Lines praises current US Government for ‘addressing open skies issues’
Delta Air Lines MD government affairs Robert Letteney said “this administration needs a lot of credit for addressing open skies issues”. He emphasised “the skies have not fallen… where all going to be ok here”. He also said there is confidence a new post Brexit agreement will be “worked out” and does not anticipate a disruption.
FedEx Express: Operating around Russian airspace would be ‘very expensive’ for airlines
FedEx Express MD regulatory affairs Nancy Sparks said it would be “very expensive” for airlines to operate around Russian airspace if a new air service agreement is not reached. Ms Sparks explained the issue the US faces with Russia, stating: “Against a back drop of large geopolitical concerns you have aeropolitical concerns”.
US DoT says discussions with UAE are ongoing, Qatar agreement reached
US Department of Transportation director office of international aviation Brian Hedberg, speaking at the CAPA Americas Aviation Summit, confirmed (17-Apr-2018) an agreement was reached with Qatar and discussions with the UAE are ongoing. Delta Air Lines MD government affairs Robert Letteney added the Qatar agreement offers a “good template” for a deal with the UAE.
FedEx Express: US-Middle East Open Skies debate developed into unnecessary ‘politicised debate’
FedEx Express MD regulatory affairs Nancy Sparks said the US-Middle East Open Skies debate developed into an unnecessary “politicised debate”. She noted an administrative procedure exists to address issues of unfair competition but the airlines choose to follow a more politicised path.
US DoT notes interest in China from US airlines; while it is working ‘very hard’ for ‘normalised’ relationship with UK
US Department of Transportation director office of international aviation Brian Hedberg said “there is a lot of interest in China right now” in respect to Open Skies agreements. He said “both countries are hitting limits on capacity”. He also confirmed the DoT is working “very hard” to establish a “normalised” relationship with the UK as a bilateral partner after its relationship with the EU no longer applies. He emphasised that it is in “nobody’s interest to disrupt operations across the trans-Atlantic”. He added the DoT is unsure how Brexit is going to evolve and confirmed the DoT does not have a deadline on reaching a new post Brexit air service agreement (ASA) with the UK.
Delta Air Lines is ‘strong supporter’ of Open Skies
Delta Air Lines MD government affairs Robert Letteney said that regardless of what many people may think, Delta is a “strong supporter” of Open Skies. He said what the airline is not in favour of is “governments providing massive subsidies to state owned airlines”. He noted these subsidies create “market distortions”, resulting in an unfavourable environment for the consumer. He added the airline is also “fine with fifth freedom flying… the issue is the subsidies,” and noted airlines in Asia are probably also concerned about market distortions created by Middle East carriers “particularly if you talk to our friends in Japan”.
GoldSpring Consulting wants to see US airlines open up to foreign investment
GoldSpring Consulting partner Neil Hammond said from a consumer perspective he wants to see US airlines open up to foreign investment. Mr Hammond stated he is not seeing competition everywhere he would like to see it. US Department of Transportation director office of international aviation Brian Hedberg said it is hard to know what direction US Congress will take in regards to US airline ownership policies, stating “the crystal ball is very, very foggy right now”.
FedEx Express: Airlines need to watch trade policies ‘very carefully’; ‘We want our fifth freedoms’ as minimum
FedEx Express MD regulatory affairs Nancy Sparks said airlines need to be watching US President Trump’s trade policies “very carefully…we don’t want to be traded off for bananas”. On Brexit, she said the airline is keeping a “close eye on what’s going on in the US-UK context”, noting the airline has 12,000 UK based employees. On the airline’s market wishes she said: “We want our fifth freedoms. We want to operate in the future how we operate now”. Ms Sparks emphasised that FedEx operates in a very different manner to airlines – “fifth freedoms are important to us”. She added that FedEx would also like opportunities to operate seventh freedom cargo services.
ALPA acknowledges that transnational airlines ‘are with us now’
Air Line Pilots Association International executive administrator Rick Dominguez said transnational airlines “are with us now, and that’s something that us as labour unions need to wrap our heads around”. Mr Dominguez believes while it is unlikely there will be any changes in foreign ownership rules for US airlines by 2021, “we will be talking more about transnational airlines”.
FedEx Express has ‘long been an advocate for change in ownership rules’ in the US
FedEx Express MD regulatory affairs Nancy Sparks said FedEx Express has “long been an advocate for change in ownership rules in the USA”, so long as there are “reciprocal benefits”.