Airlines push for liberalisation

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Liberalisation and the need for it to apply to aviation as it does to other global sectors is the word on every airline's lips. The desire for carriers to freely invest in and ­accept investment from airlines in other countries is perhaps stronger now than it has ever been, as airlines face up to what is expected to be a lengthy and painful global recession. Airlines appear to be jumping the regulatory gun in certain cases, one key example being British Airways' recent merger talks with Qantas Airways. But what does 2009 have in store on the liberalisation front, and will airlines start to see real progress in this area?

One of the most talked about liberalisation moves in aviation is the ongoing negotiation between the European Union and the USA for a full Open Skies agreement. After implementing Phase One of the deal, both sides put second-stage negotiations on ice to await the outcome of the US Presidential elections, which were held in November. But with President-elect Barack Obama set to take ­office on 20 January, EU and US negotiators are now ready and willing to attempt to thrash out a Phase Two agreement.

houdoni, getty images 
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Daniel Calleja, director of the European Commission's air transport directorate and Europe's lead Open Skies negotiator, is ­optimistic that progress will be made on reaching a second-stage deal over the coming year, and he calls 2009 "a very important year for liberalisation".

"We have an historic first-stage agreement and we would like in 2009, or if necessary in 2010, to complete the second stage," says Calleja, highlighting the "deadline" set in Phase One. This deadline states that if no second-stage agreement can be reached by 2010, either side has the right to withdraw the traffic rights ­secured under Phase One.

"With the new US Administration, [meeting this deadline] has to be possible because it's in the interests of airlines, airports, ­labour and passengers to move forward," says Calleja. He adds: "I am very confident that we will be able to succeed. I don't think we can seriously suggest that the way forward for aviation is going backwards."

But Calleja's fierce optimism is met by a more muted response from the US side. John Byerly, US deputy assistant secretary of state for transportation affairs and the country's chief negotiator on Open Skies, indicates that there is still a long road ahead and the US will not be pressured by deadlines. "Negotiations are not going to be concluded in one round - there are lots of issues and there's a lot to work through. We view the talks as an opportunity to look at some tough and important issues, once we have guidance from President Obama and the officials he appoints," he says. "We're more inclined instead of deadlines and threats to focus on the difficult issues and to make progress. We're not negotiating because we have a deadline."

Ownership Restrictions

Europe is looking for an easing of US ownership and control restrictions, a thorny issue in the US particularly among labour representatives. In an attempt to ­assuage labour's fears, the EC ­recently held a labour forum in the US in order to open up ­dialogue on liberalisation issues. Byerly applauds the forum and says that "while there were no hard conclusions, it did lead to a better understanding". He adds that the US has "a willingness to use the negotiations to discuss the issue of ownership and ­control and see if the US can see advantages of moving forward with this". The US will also use the talks to push for more rights for its cargo carriers and to ­express its annoyance at the ­expansion of night flight curfews at EU airports.

"We expect to resume a third round of negotiations some time later in spring 2009," says Byerly, adding that "it will take a period" for the new US Administration to develop a "crisp and clean perspective" on Open Skies.

IATA director general Giovanni Bisignani says it will be "astonishing but very pleasant to see a deal" next year, adding that "we now have to wait and see what the new Administration's policy will be". Bisignani has written to President-elect Obama, asking him to "go for a real Open Skies agreement" with ownership and control restrictions lifted.

Aside from pressing ahead with Round Two of EU-US Open Skies, both sides will also be busy in 2009 negotiating air services liberalisation pacts with other countries. "Liberalisation is very much at the heart of EU aviation policy because the EU itself is an example of open markets," says Calleja. "We expect in the coming years to reach [Open Skies agreements] with 58 countries and 1 billion citizens." Calleja points to the "landmark agreement" ­recently reached between Europe and Canada, which will begin a four-stage implementation in the first half of 2009.

Complete Freedom

Under the initial stage any airline will have complete freedom to operate between any point in the EU and any point in Canada. ­Traffic rights, particularly for cargo carriers, will be further extended in the second stage of implementation, once Canada raises its foreign ownership cap to 49% from 25%. The third stage will enable passenger airlines to fly onward to third countries when investors from each side can establish and control new operators in the other's market. Under the final stage, which will come into effect once ownership restrictions are completely lifted, cabotage services will be permitted.

The EU is in negotiations with Australia and New Zealand to forge similar deals. "We'd like to have liberalisation of ownership and control between Australia, New Zealand and the EU in the same way as we have with Canada," says Calleja, adding that the EU wants to reach a deal with Australia "as soon as possible" and preferably in 2009.

The US also has a "very busy agenda" on liberalisation, says Byerly, and the country is keen to "negotiate Open Skies agreements wherever we can". Key nations with which the US wants to ­negotiate liberalisation pacts include Japan, Brazil, Mexico, ­Algeria, Israel and Russia.

IATA, which has long ­campaigned for aviation to be treated like any other industry when it comes to liberalisation, stepped up its efforts this year by organising an "Agenda for Freedom" summit in Istanbul. The aim is to expand airline access to markets and to global capital, and one of the ways of doing this is to allow countries that sign up for it to waive their right to refuse ­service by a foreign carrier that is owned and controlled by a third country. A total of 14 countries plus the EC attended the summit, and Bisignani says the US and the Europe were "the most eager to achieve something".

In fact, the US has put forward a similar proposal of its own, which it refers to as the Multilateral Convention on Foreign Investment in Airlines. Byerly explains how it would work using the following example: "If New Zealand, Australia and the US all sign up and if all three put the other two on their list of partners, then if Qantas takes over Air New Zealand, Air New Zealand would still be able to fly to the US." He adds that "the risk of losing the right to fly to other countries is a big impediment to cross-border investment".

Good News

If this proposal came to fruition, it would be good news for an airline such as LAN, which has expanded its brand across Latin America to include LAN Ecuador, LAN Argentina and LAN Peru. At the recent Latin Airline Leaders' Forum in ­Cancun, LAN chief executive ­Enrique Cueto reacted positively to the proposal when it was ­outlined by Byerly.

It seems that as regulators drag their feet in opening up the ­airline industry to cross-border investment, carriers have started to ­become impatient. For instance, BA and Qantas announced they were in tentative merger talks despite the current Qantas Sale Act limiting ownership of the Australian flag ­carrier by individual foreign ­airlines to 25%. However, these talks have since ended without an agreement.

Speaking before the talks were called off, Byerly said it would have been "a very novel approach to have a merger or close integration of airlines so far apart. It's a signal that airlines are looking to new options - options that are similar to those taken in other global sectors."

To read our earlier feature on EU-US Open Skies, go to:flightglobal.com/openskies2