Despite the recession-borne rhetoric about protectionism, trends around the world indicate there is increasing liberalization surrounding airlines, according to the University of Amsterdam’s Professor JG De Wit who spoke before the recent International Center for Competitiveness Studies in the Aviation Industry (ICCSAI) conference. However, he noted much remains to be done to obtain the type of liberalization that will foster growth.

De Wit noted the relaxation of foreign ownership rules in India and Australia as well as new air service agreements being cut worldwide, most notably, the new EU-Canada agreement that will ultimately allow full cross-border ownership as well as 7th freedom cargo and passenger rights if milestones are met.

However, these trends are countered by such protectionist moves in Europe as the suspension of the use-it-or-lose-it slot rule which hampers competition along with the optimal use of airport and airspace capacity. De Wit also noted the relaxation of state aid rules as well as investigations into the efficacy of alliances on both sides of the Atlantic. Also cited were the Virgin America investigation to ensure that all management positions are held by U.S. citizens as well as the House FAA reauthorization legislation which calls for alliances to sunset every three years. Finally, De Wit said the U.S. is risking retaliation should provisions in both the Senate and House bills on intensive inspections of foreign repair stations become law.

“From the political perspective, the US will not want to see the creation of global carriers unless it feels its airlines are the hunters, not the hunted,” he said, quoting Ian Giles of Norton Rose.

Such moves, he said, threaten the Stage 2 US-EU Open Skies negotiations involving increasing harmonization of security and environmental measures. As for environmental issues, he noted the EU cap-and-trade scheme is based on CO2 output of aircraft, while in the U.S. is it based on fuel consumption resulting in a carbon tax on jet fuel.

The Aviation Global Deal Group (ADG) – Air France-KLM, British Airways, Cathay Pacific, Virgin Atlantic, Finnair, Qatar and The Climate Group – want aviation treated separately with individual CO2 targets rather than combined with national allocations in order to maintain competitiveness between airlines. Their cap-and-trade system would be based on fuel’s carbon content, not just fuel burn.

But the U.S. Air Transport Association members oppose the “sectoral” approach in favor of waiting for an International Civil Aviation Organization (ICAO) program. Meanwhile, he said, ICAO is awaiting the outcome of the Copenhagen conference in December, and is otherwise torn between the differing positions among its disparate members. The International Air Transport Association, on the other hand is proposing its four pillars program focused on technological, operational and infrastructure measures as well as carbon offsetting.

Of particular concern is the allocation of revenues from these schemes. Aviation interests want such revenues to go toward aviation initiatives such as ATC modernization which will cut emissions rather than go to some general fund. European interests indicate there is little chance of prying such revenues out of the political assumption that it is just a windfall.

De Wit turned his attention to the restrictions surrounding fortress hubs and what it does to passengers and airlines. Major hubs and their monopoly power present a mixed picture, he said making long-haul carriers and their long- and short-haul business passengers largely captive while local airlines – European carriers that are shorter-haul and long-haul leisure travelers – are less reliant on these hubs. Home-based carriers, he said, are further encumbered with legacy traffic rights and investments in hub operations, making them less flexible than their counterparts. The result is the growing market power of airport authorities such as BAA.

He called for increasing regulation of airport charges, noting that the recently eliminated Dutch ticket tax only served to drive passengers across borders to avoid it. Instead, airports should focus on cutting costs rather than imposing new taxes, he said.

###