Outside view of U.S. market
A call for more global cooperation in the air cargo industry
By W.R. Christopher Foyle, Chairman, British Cargo Airline Alliance
November 2000
In
the past two years, this group of four British cargo
airlines has attempted to get cargo issues considered
as an important part of the Open Skies talks going on
between the U.K. and U.S. governments. We?ve been raising
important trade issues which must be addressed if any
new aviation treaty between our two countries is to
be fair and balanced. And we?ve made progress —
support from airlines, airports, shippers, politicians,
and the media.
I
want to ask, ?What should the role of government be
in ensuring that the vital services these airlines provide
can be provided as efficiently as possible so that world
trade can be assisted and promoted??
In
the view of the BCCA and many other airlines, the straightforward
answer is that government should stop regulating. It
should stop treating aviation differently to any other
form of world trade. It should stop manipulating the
hopelessly outdated bilateral negotiating system to
the economic advantage of its own airlines. It should
allow the market to govern the supply and demand for
aviation and air services in the same way that it allows
the free market to operate in almost every other area
of economic life.
Clearly,
government has a role to play in ensuring that safety
levels are protected. It also has a legitimate role
in protecting its national interests against criminal
and terrorist activities. However, government should
treat the airline industry just like any other form
of international business.
HOW
AVIATION IS TREATED DIFFERENTLY
First, it is regulated internationally by a system that
dates back to 1944 (the Chicago Convention) and was
created in a way that reflected politics at that time.
Currently, the aviation regime between any two countries
is governed by bilateral treaty.
Aviation
— that most global business of all businesses,
whose very raison d?etre is to cross boundaries, break
down barriers, facilitate communication and enable the
free transportation of people and goods — is hampered
by an antiquated system of international regulation
that ties up millions of dollars of airline resources
in government affairs departments.
LET MARKETS DECIDE
My suggestion to government is to relieve yourself of
the responsibility of telling airlines when and where
they may fly their aircraft. Let the market decide.
There
is an obvious way in which this could be achieved. You?ve
already done it within the U.S. market just as we?ve
done it within the European Union since 1993. We?ve
both created ?common aviation areas? within our respective
geographic areas. Now we can join them together, creating
all the benefits of liberalization and deregulation
all over again, to the benefit of airlines, passengers,
shippers, and the economy as a whole.
Join
the U.S. area to the European aviation area, creating
a Transatlantic Common Aviation Area (TCAA), covering
half of the world?s aviation business and creating a
free market in which airlines can offer the services
people and shippers want without government interference
in purely commercial issues.
This
idea has already been put forward by the European Union
but, unfortunately, it has not been welcomed very warmly
by the U.S. government. We can understand a fear of
change — it was present in the U.S. before domestic
deregulation and it was there in Europe before we liberalized
— but experience shows that the overall effect
of such changes is beneficial even if the short-term
effects can sometimes be unexpected.
KEY CONSIDERATIONS
I?ll touch on four key areas where the U.S. exhibits
a closed mind to truly Open Skies. Areas in which government
should now look to facilitate rather than inhibit progress.
The
first is rules on ownership and investment. McDonald?s
can sell burgers in Moscow and Virgin can open a megastore
in any U.S. city. Why should we have rules on the nationality
of the people owning airlines? Yet we do. Not just here
in America where the most restrictive rules exist, limiting
non-U.S. ownership to no more than 25 percent. But also
in other countries, including the European Union, where
we allow only 49 percent foreign investment.
It
stifles investment; reduces shareholder value; and results
in a plethora of alliances, codeshares, and other devices
designed to work around the limits, but which have the
effect of misleading our customers.
The
ownership rules should go.
The
second area is government subsidies. Abolish them.
If
airlines can?t pay their way in the market, let them
fail. In Europe, the legal processes which prevent State
subsidy are now well established. You may think this
isn?t an issue in the U.S.; you?d be wrong. Policy under
which U.S. government-controlled passenger and freight
traffic is reserved for U.S. carriers is a form of State
subsidy. In 1997, U.S. carriers benefited to the tune
of more than $600 million.
The
U.S. government (justifies this) as matters of national
security. No one has satisfactorily explained how the
carriage of civil mail from the U.S. is a matter of
national security. Neither have they explained why airlines
from allied countries cannot participate.
The
third area in which government needs to relax its grip
is domestic market access. The U.S. currently lets no
foreign airline operate in the U.S. domestic market.
And yet U.S. airlines already have the right to operate
extensively between points in the European Union. The
U.S., in its Open Skies talks with European countries,
demands full access to our unified single domestic market
but resolutely refuses to open up access for our airlines
in the American market.
The
fourth area of contention is wetleasing — the renting
of an aircraft and crew by one airline to another. This
is a business with enormous worldwide significance and
is reckoned to be worth some $4 billion a year in revenues
to wetlessor airlines. The members of the British Cargo
Airline Alliance are wetlessor airlines, flying for
carriers like British Airways, KLM, Lufthansa, Finnair,
and others.
No
airline from outside the U.S. is allowed to wetlease
its aircraft to U.S. airlines. Even more unfairly, if
a U.K. airline leases to KLM or Luft-hansa and then
tries to operate for that airline to or from the U.S.,
the U.S. refuses to recognize the wetlease arrangement.
This effectively establishes U.S. wetlessors with a
regulatory advantage so huge that an Atlas Air type
of operation is virtually unthinkable outside of the
U.S.
Our
view is that the wetleasing market — which allows
airlines to adapt their capacity levels to short-term
demand requirements and allows them to innovate with
experimental new services and routes without immediately
committing to new equipment — should be opened
up.
No
one could seriously claim that the differences between
detailed regulations in the U.S. and Europe make one
inherently safer than the other. JARs and FARs are moving
ever closer together. European airlines fly U.S.-built
aircraft; U.S. airlines fly European-built aircraft.
Joint certification and mutual recognition of each other?s
standards are now commonplace.
*
* *
The
role of government in the future of the cargo airline
business? Put simply, deregulate. Minimize the nationalistic
protection that stifles growth and puts barriers in
the way of trade. Free up the movement of aircraft and
airline capital. Allow us to be innovative.
Let?s make a real effort to remove government from the day-to-day running of airlines. Let?s do it through a new regime, starting with the Trans-atlantic Common Aviation Area and expanding to admit new countries as they sign up to the liberal ideas such a concept embodies.
