Liberalisation-Open Markets, Open Skies, & Beyond Jonathon R Nield

The Case For and Against Regulation Tight regulation up to 1970s Civil Aeronautics Act of regulate competition While air transport is not a natural monopoly, "unregulated competitive forces may have adverse consequences for the public at large. (Richmond 1971).

The Case For and Against Regulation Airlines have non-differentiated product Low barriers to entry No significant economies of scale

The Case For and Against Regulation Air transport is a public utility The nature of the benefits of the airlines could not be jeopardized Strategic, Social, and Political implications o Countries developed one national carrier o Free international competition would put national carriers at risk.

The Case For and Against Regulation Rapid development of non-scheduled air traffic 1960s-1970s Chartered services would potentially jeopardize scheduled services

The Case For and Against Regulation Regulation limited pricing freedom and product differentiation, restricted capacity growth, excluded new entrants Benefits of a competitive environment: o lower fares o innovatory pricing o product differentiation Airlines forces to improve efficiency and productivity Some inefficient airlines may be forced out of certain markets

The Case For and Against Regulation Fear of getting locked-in within industry o Equal market share and prices below sustainable levels Arguments against the airline industry being different than any other industry regarding need for consumer protections.

Mounting Pressures for Liberalisation Carter administration in the 1970s abolished CAB and the airline market was deregulated European airline markets soon followed with the mounting pressure from the rapid US deregulation Internation Air Transport Negotiations (Carter) : US began many bilateral negotiations to encourage competition in international markets

Open Market Phase of Liberalisation Countries wanted increased access to US market US-Netherland Bilateral agreement set tone for future policy: o Multiple designation accepted o 5th Freedom Right o Dutch only given 5 points o No restrictions on frequency or capacity o No restrictions on the 6th freedom o Unlimited charter rights o Country of origin sets tarriffs- Double Disapproval Pressure on other European countries

Open Market Phase of Liberalisation UK-Netherlands bilateral agreement in sets stage for Europe Succession of agreements and treaties removed many of the restrictions on routes, capacity, frequency, and pricing.

Open Market Phase of Liberalisation JAL in Japan ended its monopoly in 1986 (ANA) Southeast Asian countries saw multiple new airlines startup Asiana-South Korea Eva Air- Taiwan Dragonair- Hong Kong Qantas- Australia (Continued as deregulated sole Intl carrier)

Open Market Phase of Liberalisation US-European bilaterals often unbalanced Intra-European bilaterals balanced US offered more 5th freedom rights than the Intra- European bilaterals Most US bilaterals allowed unlimited charter flights from any point Unlimited or multiple designation rights Break of gauge rights Removal of limits on the frequecy of flights Removal of capacity limits Double disapproval

US Pushes for 'Open Skies' 1992 to Present Arguments against bilateralism grew Airlines should be able to operate as any other international industry Market opportunities only as great as the least liberal state Maturing nature of the industry and difficulty of operating within the confines of bilaterals

US Pushes for 'Open Skies' Maturing nature of the industry and difficulty of operating within the confines of bilaterals o Growing concentration of US carriers (American, United) o Airline alliances and mergers internationally were becoming more prevalent o Privatization of airlines Morphing marketing conditions created need for successful airlines Airlines in US were pushing for more deregulation (American, Delta, United) European Community>EU also pushing for open skies

US Pushes for 'Open Skies' US and Netherlands signed first 'open skies' agreement New features in version 2.0 of the deregulation: o Open route access o Unlimited 5th freedom rights o No tarriff controls UNLESS too high/low o Code-Sharing o Break of gauge

US Pushes for 'Open Skies' US pushed for open skies first with like-minded states Reluctant states had implied threat of counter- measures KLM filed for anti-trust immunity to better exploit the code-share with Northwest By 2007, over 60 'open skies' agreements Some countries (Italy) introduce open skies in phased bilaterals Only two countries without open skies, UK and Japan

European Common Aviation Area Europe moving toward open skies Different structural approach Unlike bilateral approach of the US, Europe took a multi-lateral approach

Clouds in the Open Skies Despite the progress of the US and EU in open skies agreements, most countries still had traditional bilateral agreements Cabotage still not allowed Seventh Freedom still not allowed o Flying between two points outside airline's operations Airline ownership control o 25% max in US Still said to be US biased

European Court Changes Rules European Court of Justice 2002 ECJ was only entity able to negotiate bilateral air service agreements Traditional nationality clauses infringed upon Article 43 of European community. Airlines with foreign ownership could be designated to fly between states Bilaterals with the US needed to be renegotiated Open Skies to Clear Skies

Trans-Atlantic Common Aviation Area European Commission wants to further liberalise the international arena. US political structure and law makes certain desired freedoms difficult to attain Airlines are seen as a component of national security Civil Reserve Air Fleet (CRAF) March European Council of Ministers of Transport opened 5th freedom rights to/from US and any point within EU member states Other efforts broke down

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