Eight years since the US-EU open-skies agreement ushered in what was heralded as a new era in liberalisation, the rhetoric has changed – and perhaps the reality has too.
This change in rhetoric is exemplified by the Netherlands' state secretary, who oversees air transport, warning she will block further entry of foreign carriers if they come "too much at the expense of Dutch carriers". And much of Europe seems delighted by such talk.
It is hard to tell where rhetoric ends and reality begins. Willie Walsh, chief executive of IAG, admits that Stage 2 of the US-EU agreement – aimed at relaxing US limits on airline ownership and control – is going nowhere. "I think we could sit here 10 years from now and still be talking about ownership," Walsh warned in October 2014. "I really don't see any significant changes taking place in the short to medium term."
So, instead of discussing how to relax ownership rules, US and EU officials argue about Washington's resistance to Norwegian Air International. The pendulum seems to have swung from liberalisation to protection.
But law professor Brian Havel, director of DePaul University's International Aviation Law Institute in Chicago, is not convinced it has swung all the way. The open-skies agreement between Brazil and the USA is due to take effect in October, he notes, while the new USA-Mexico agreement lifts all restrictions on third and fourth freedoms.
"The Latin American region has turned toward liberalisation in recent years and many Asian states have undertaken a similar shift, though perhaps at a slower place," says Havel. "In Europe and North America, liberalisation remains a policy objective in most contexts, though each can be guilty of apostasy in particular situations."
The European Commission's recent probe into ownership and control of European carriers may reflect such apostasy. Previously, Commission officials had criticised ownership and control rules because they obstructed access to capital. But in response to the new European attitude, Swiss regulators are demanding changes in Etihad's governance of Darwin Airline.
Liberalisation continues to face resistance elsewhere. In Hong Kong, for instance, local carriers still oppose licensing JetStar Hong Kong because, they claim, it is effectively controlled by Qantas. In response, Australian regulators have said they would not allow Cathay Pacific more access into Australia until Hong Kong approved JetStar. All this illustrates is the time-honoured use of ownership and control rules to block rivals, and for horse trading.
At the multilateral level, liberalisation definitely looks to have stalled. South American carriers blame Argentina for the failure of the Forteleza agreement, which was supposed to allow unlimited cross-border access to secondary cities. The Multilateral Agreement on the Liberalisation of International Air Transportation (MALIAT) has added no new members since Mongolia joined – for cargo only – seven years ago. Five years have passed since any nation joined IATA's Agenda for Freedom initiative.
Even where liberalisation appears to have gained ground, that may be illusory. IATA touts its Agenda for Freedom because the 12 nations and the European Commission that have adopted it represent 60% of global aviation. Even without any new members, that sounds like progress. But Alan Khee-Jin Tan, professor of aviation law at the National University of Singapore, argues that both the Agenda for Freedom and MALIAT look a lot better on paper than in reality.
"The Agenda for Freedom provides for states that sign up to it to waive nationality requirements for airlines from other states on a reciprocal basis," says Tan.
"MALIAT replaces the substantial ownership requirement with that of principal place of business. Hence, MALIAT-contracting states agree to recognise airlines designated by another contracting state even if those airlines are not majority-owned in that state, as long as the principal place of business and incorporation and effective control remain in that state."
However, neither agreement has made any practical difference, says Tan. Because so few countries have accepted either one, "airlines from accepting states still need to be majority-owned by their own nationals in order to continue operating to the non-accepting states".
He adds: "Thus, while Singapore and the US might allow a Singapore carrier that is not majority-owned by Singapore nationals to operate between them, this carrier would face problems flying to a third country such as China. This effectively results in national ownership requirements remaining firmly entrenched."
MALIAT poses another problem. As Tan says: "Many states avoid it is because it provides for unlimited fifth-freedom rights among all state parties. With the US and Singapore being MALIAT parties, any other state party would have to give up fifth-freedom rights through their cities for US and Singapore carriers."
This immediately clarifies why Australia, for instance, has avoided MALIAT. Says Tan: "These states thus see little reciprocal benefits for their own airlines, and prefer to negotiate bilaterally in order to exercise maximum control over traffic rights and to continue protecting their airlines."
He concludes: "No airline from those states that have accepted MALIAT or the Agenda for Freedom have actually departed from traditional nationality requirements."
The Association of Southeast Asian Nations (ASEAN) may be offering another illusion of headway. Last year, ASEAN took what looked like a big step toward its goal of a single aviation market. Indonesia, by far the largest market in the group, finally accepted protocols opening Jakarta to full third, fourth, and fifth freedoms with other ASEAN capital cities. But Jakarta's congested Soekarno-Hatta airport has no available slots, so Indonesia's stated willingness to liberalise is, in Tan's words, only "in principle".
Moreover, Indonesia has yet to accede to another protocol needed to open secondary ASEAN cities to third-, fourth-, and fifth-freedom flights. With the Philippines and Laos also holdouts on one or both of these protocols, it is uncertain whether ASEAN will meet its 2015 target for a single aviation market.
Tan attributes these delays to "uneven levels of development" among ASEAN nations and "sensitive concerns on sovereignty".
In a sense, ASEAN represents a struggle that is being replayed around the globe. Ever since the Chicago Convention, stronger airlines and their governments have driven the push for liberalisation because they could see its benefits. Smaller, weaker airlines and their unions have feared that open skies and relaxed ownership and control would bring foreign domination. They have urged their transport ministers – as Mexican aviation unions did during negotiations over the new USA-Mexico bilateral – to favour "gradualism and reciprocity", while couching their concerns in terms of "level playing fields" and "sovereignty". Before Israel and the EU had even signed their open-skies agreement, Israeli unions took to the streets.
Airlines and their unions view liberalisation through different lenses. Sometimes they disagree outright. At other times, they are sceptical of each other. Unions representing US flightcrews have criticised American carriers for using open skies to gain anti-trust immunity for alliances instead of expanding their networks. Anti-trust immunity, union leaders claim, leads to more flightcrews based overseas and more foreign metal with foreign crews flying US routes.
ALPA, the US pilot union, opposed the transatlantic alliance between American Airlines, British Airways and Iberia for these reasons and later formed a parallel alliance with flightcrew from those airlines "to help ensure a fair distribution of job opportunities among our respective pilot groups". The Transport Workers Unions of America and Australia formed a similar alliance for the same reasons.
However, airlines and their unions occasionally find themselves on the same page. Michael Goldman – aviation lawyer with Silverberg, Goldman & Bikoff in Washington DC – characterises the opposition of US carriers and aviation unions to expanding the definition of open skies or relaxing ownership and control rules as "a unity of interest". Because neither airlines nor unions want to change the rules, neither does the US government.
"From an industry point of view, the [US] airlines are quite comfortable with the status quo [on ownership and control], so they are not advocates for any change," says Goldman. "Labour is a strong supporter of [US] Democratic administrations, and that's a key interest group that Democrats don't want to offend."
Instead of starting a battle that no one wants, Goldman predicts that "the administration will be trying to work with a Republican Congress. It has several important legislative priorities in transportation – reauthorisation of the FAA will be its aviation priority."
The "short answer", he says, is that "nobody in the administration or Congress is really in favour of liberalising the ownership and control rules".
He adds: "The Europeans are still pressing on Stage 2 – or maybe it should be called 'Stage 2½' or 'Stage 2-plus'."
But he wonders how much European carriers, given their own financial troubles, are really interested in taking stakes in US airlines: "I don't get a sense that it's a strong priority for them."
With no one in the USA wanting to change nationality rules, and European airlines offering only token support to the European Commission, it is small wonder that Willie Walsh predicts nothing will happen.
THE GULF IMPACT
Perceptions about winners and losers have always informed the debate over liberalisation. Those who expect to benefit favour it; those who foresee the benefits going elsewhere oppose.
The most dramatic shift in these dynamics over the past eight years has been accompanied by the rise of the big Gulf carriers. Blessed by geography, supportive government policy, foresight and the benefits of liberalisation, they have turned their Middle Eastern hubs into the sixth-freedom crossroads for much of the world – and that has changed attitudes about liberalisation in the rest of the world.
The European Cockpit Association calls the rise of the Gulf carriers one of the "unintended consequences" of liberalisation. It and other pilot groups now seek "fair skies" instead of open skies.
Goldman agrees that the rise of the Gulf carriers "is a big concern" in Europe: "At the instigation of their carriers, there's been an effort in Europe to adopt interpretations of existing bilaterals that are more restrictive, and to oppose further liberalisation."
That is certainly how the Middle East views it. At a November 2014 conference in Dubai, Qatar Airways chief executive Akbar Al Baker charged: "Europe is much worse than the US when it comes to protectionism."
But the USA could lean more in Europe's direction. Besides the vocal opposition of unions such as ALPA, North American airlines are clearly worried about the Gulf carriers.
"In a kind of groping fashion," Goldman says, "US carriers have suggested that there may be need for some kind of provision to address unfair competitive conditions on an individual basis so that carriers can respond – some kind of sanctions and control on a specific Middle East carrier that is perceived to do something unfair or anti-competitive, whatever that might be."
He adds: "There's been some suggestion that maybe the US should use the TTIP [US-EU Transatlantic Trade and Investment Partnership] negotiations to include an unfair competitive practices provision that would be broad enough to apply to the Middle East carriers."
Details have since emerged of American, Delta and United meeting recently with US aviation officials to suggest what they claim is a need for “fair” rather that open skies with the Gulf countries.
"Ultimately, protectionism creates higher prices for air travellers and prevents air transport from reaching its full economic productivity," Havel says.
But he also recognises the challenges inherent in trying to change the status quo. "Transitioning away from protectionism has costs, and governments are often responsive to those concentrated groups that stand to lose from liberalisation despite the greater benefits that will accrue to the broader population," he says. Havel is not referring to specific nations or regions, but his views resonate with Tan's about ASEAN, and with Goldman's observations from Washington.
Havel blames the current state of liberalisation not only on local interests and perceived threats by super-carriers, but also on broader economic conditions: "The best antidote for Europe would probably be an improved economy overall – recessions tend to breed protectionism."
Eight years since what was touted as the launch of liberalisation, it remains very much a work in progress.
Source: Airline Business