Aviation in the Americas: Opportunities, Challenges, and a Few Clouds on the Horizon
Keynote Address by John R. Byerly
Strategy Summit – Routes Americas in Denver
February 1, 2015
v It’s an honor to participate in Routes Americas in the great city of Denver. Thanks for inviting me!
v I see so many friends here and look forward to catching up with you during the breaks and at the reception tonight.
v For my remarks, I’ve chosen the title, “Aviation in the Americas: Opportunities, Challenges, and a Few Clouds on the Horizon.”
v Fortunately, I see the opportunities as enormous, the challenges as difficult but surmountable, and the clouds on the horizon as a sign of turbulence that, with a clear sense of direction, we can fly through unscathed. Let me explain.
v In my view, there are extraordinary opportunities in the coming years for expanded air service throughout the Western Hemisphere.
Ø I recognize that many markets in our hemisphere are not doing well right now, for reasons that range from remittance issues in Venezuela to a cooling in the Brazilian economy.
Ø At the same time, the economy in the United States and in a number of other counties in the region have put the mega-recession of 2008 in the rear-view mirror. Employment is on the rise, and GDP is growing.
Ø Our citizens have some money to spend from new jobs, not to mention the diminished cost of gas at the pump.
Ø And more cash in the pocket, as all of you know, is a great thing for air travel, for airlines and airports, and for tourism.
v Moreover, as we look to the future, the middle class is growing in our hemisphere. And as we’ve seen in every country—be it Brazil or Mexico or farther away, in China or India—middle class citizens want to fly to new destinations, visit with family, see new sites, experience the world first-hand.
v Alex de Gunten, in a 2013 presentation to the International Aviation Club in Washington, noted that during the seven preceding years, 31 million people—let me repeat that, 31 million people—had become part of the middle class in Brazil alone. And in 2011, 10.7 million Brazilian passengers were first-time-ever air travelers.
v In short, economic growth in our hemisphere provides a strong case for optimism about the opportunities for expanded air transport.
v And this fundamental economic case for optimism is buttressed by the current policies of many of our governments.
v As never before, countries around the world have recognized the benefits to their economies and their citizens when they lift the heavy hand of regulation and allow market forces to respond to the needs and desires of air travelers.
v This focus on deregulating international aviation markets is evident in the growth of Open Skies and other liberal air services agreements throughout our hemisphere.
v As many of you know, one of the earliest achievements in U.S. Open Skies policy was the negotiation of a set of bilateral Open Skies agreements with the countries of Central America in 1997, during the tenure of President Bill Clinton. These agreements led to a big expansion in the number of city-pair routes and frequencies and, in my view, contributed to the rapid growth and success of COPA and the TACA Group.
v Even before that, an open trans-border agreement in 1995 between Canada and the United States unleashed market growth and consumer benefits of enormous proportions.
Ø A U.S. Department of Transportation analysis found that within only three years of signature of that agreement:
§ Total U.S.-Canada passenger traffic had increased 37.2%, versus only 4.3% in the three years prior to the agreement;
§ In 1994, there were 54 nonstop Canada-U.S. markets with annual traffic of more than 50,000 passengers. In 1997, the number of such markets had increased to 77.
v In a recent peer-reviewed academic study, Cliff Winston of the Brookings Institution found that U.S. Open Skies agreements “have generated at least $4 billion in annual gains to travelers and that travelers would gain an additional $4 billion if the U.S. negotiated agreements with other countries that have a significant amount of international passenger traffic.”
v When I left the State Department in late 2010, the United States had negotiated Open Skies agreements with 99 countries. I am delighted to report that in the four succeeding years, that number has risen to 114.
Ø New partners in our hemisphere include Columbia, St. Kitts, Suriname, and Guyana.
Ø Brazil and the United States have also negotiated an Open Skies agreement which awaits ratification by the Brazilian Congress. I hope that happens this year.
Ø In another positive development, Mexico and the United States completed the negotiation in late 2014 of an agreement that, while falling a bit short of full Open Skies, will, upon ratification, represent a huge pro-consumer, pro-tourism, pro-growth leap forward in one of the world’s largest bilateral aviation markets.
v Finally, I want to mention the progress made in aviation relations between the United States and Cuba. An initial expansion early in President Obama’s tenure in the number of airports open to charter air service has now been followed in the last few weeks with a plan to allow scheduled air service and to loosen the restrictions on travel by American citizens.
Ø It’s difficult to offer a confident assessment of what the future holds. Progress will come in steps and in an always politically challenging environment.
Ø But I, for one, am an optimist that air travel can expand more quickly than some predict and that the American people will make clear their support for moving beyond a Cuba policy that has not achieved its objectives despite a half-century of trying.
v I apologize for focusing so much on the United States. Frankly, others in our hemisphere are doing their share to create the foundations for the growth of aviation and travel.
v Let me offer a particular word of admiration for Chile. The Chilean Government has been at the forefront of air services liberalization for at least two decades. Chile’s aviation policy is, if anything, more liberal and more market-oriented than that of the United States. And Chile has reaped the benefits of that policy in its economy.
v Moreover, the Chilean experience demonstrates that, over the long run, a country’s airlines thrive, not when they are protected, but when they must face the competitive rigors of an open market. The success of LAN is testimony to this fact.
v I also want to note that Latin America and the Caribbean are world leaders in surmounting the artificial barriers to cross-border airline cooperation and mergers. The TACA Group, the subsequent merger of Avianca and TACA, the merger of Caribbean Airlines and Air Jamaica, and the creation of LATAM are prime examples. These mergers and cooperative arrangements allow efficiencies of scale and scope and help ensure that the participating airlines are well-positioned for success on a global scale.
v I’ve spoken so far of opportunities, but let me say a few words about challenges, especially the insufficiency of airport and air traffic control infrastructure.
v I wish that Cuba was the only example in our hemisphere where we face this problem. Sadly, that’s not the case.
v The World Economic Forum has surveyed the quality of air transport infrastructure in 140 countries. I’m pleased to report that Panama and Barbados rank in the Top 10. Canada comes in at Number 23, the United States at 30, and Chile at 39. Not great, but not that bad either.
v Unfortunately, others in our hemisphere rank much lower. For example, mentioning just some of the major national economies, Colombia ranks 105th, Argentina 113th, and Brazil—I regret to say—comes in at Number 131 out of 140 in the survey published by the WEF in 2013.
v Moreover, the trend is not good. In 2007, Colombia ranked 53rd, Argentina 84th, and Brazil 57th.
v All of us who have studied the infrastructure deficiencies in our hemisphere know that more must be done and done quickly. The opportunities for the growth of air services and for the prosperity that aviation offers our citizens can slip away if we don’t act.
v The problems of insufficient infrastructure range from inadequate airport capacity to antiquated air traffic control.
v But there are some bright stars in the infrastructure sky.
Ø For example, Denver is a city that, with foresight, built a new, modern, and future-focused airport to facilitate aviation growth.
Ø I’d add that the Federal Aviation Administration wisely tapped Denver Mayor Michael Hancock to be a member of its prestigious Management Advisory Council.
Ø To our north, NavCanada has demonstrated what a new, success-oriented paradigm for air traffic control can deliver.
Ø Although the United States led the world with airline deregulation, it has not been at the forefront of rethinking old and inefficient models of air traffic control.
Ø I know that U.S. officials, Members of Congress, airline executives, and trade association and union representatives have traveled to Ottawa to see what the NavCanada experience can teach the United States.
Ø Congressman Bill Shuster, who chairs the Transportation and Infrastructure Committee of the U.S. House of Representatives, has spoken publicly about his desire for transformative change in U.S. air traffic control. Although there are differences of view on some issues, I hope a large majority of U.S. aviation stakeholders will recognize that we have the opportunity this year to accomplish something of enormous importance for the decades to come.
v Summing up, we face major challenges but we can also see where solutions lie. What we need is political will throughout our hemisphere.
A Few Dark Clouds on the Horizon
v Let me turn to the last part of my presentation, the bit about a few dark clouds on the horizon. Those clouds have appeared in the United States.
v I’m a firm believer that Open Skies and the vigorous competition it fosters are the best way to secure for American consumers, airports, and communities the benefits of more international routes, more tourists, lower prices, and enhanced quality of service.
v Unfortunately, some in the U.S. aviation community have started to beat a different drum, an increasingly threatening war tocsin against Open Skies.
v Having secured the benefits of Open Skies for themselves, some of the largest U.S. airlines, together with the Air Line Pilots Association, have suggested over the past year that it’s time to adopt a policy of “fair skies,” not Open Skies.
v They have aimed their attacks at the Gulf carriers and at Norwegian Air International, which is seeking approval from DOT to exercise the rights granted to every licensed European Union carrier to operate transatlantic service.
v With respect to the Gulf carriers, a recently published study by Professor Martin Dresner of the University of Maryland and several colleagues demonstrates convincingly that Emirates, Qatar, and Etihad have succeeded in the U.S. market, not because they are “stealing” traffic from U.S. airlines, but because they opened new markets to places like India, Africa, and the Middle East that U.S. airlines largely ignored.
v It’s disturbing—at least it’s disturbing to me—to learn that a troika of the CEOs of Delta, United, and American met on Wednesday and Thursday of this week with two members of President Obama’s Cabinet and with other senior Administration officials for a reported further salvo in their war against Open Skies. According to one report I received, they are calling on the Administration to freeze the number of flights that the Gulf carriers may operate, to renegotiate the Open Skies agreements with Qatar and the UAE to impose severe capacity restrictions, and if renegotiation doesn’t succeed, to terminate the agreements and allow growth in the future only if U.S. carriers wish to expand service.
v I don’t need to remind you that these three airlines are raking in unprecedented profits in the billions of dollars each. (What Southwest CEO Gary Kelly referred to, with understatement, as “handsome profits unlike they have done in a generation.”)
v I don’t object to airline profitability at all. But I do object when an unholy alliance of powerful carriers files joint pleadings before the Department of Transportation to prevent Norwegian Air International from operating to the United States. So far, they and their powerful, politically connected labor unions have succeeded in delaying a long-overdue DOT decision. Indeed, the European Union has formally objected to this unprecedented delay as a breach of the U.S.-EU Open Skies agreement.
v And I object when they band together to demand that the United States turn its back on Open Skies agreements where, through their own lack of foresight and initiative, they lag behind in the market.
v What is all too apparent is that these opponents of Open Skies want to maintain full opportunities for U.S. airlines where it is to their advantage but to close the door in markets where competitors pose a challenge. Having grown and prospered using Open Skies rights, they now want to pull up the ladder and deny others the same opportunity.
v Some supporters of competitive aviation markets and Open Skies have begun to question whether our country made a mistake in allowing extensive airline consolidation and whether it is correct to continue grants of antitrust immunity for these airlines to set fares and capacity jointly with their foreign airline partners in the SkyTeam, Star, and oneworld alliances.
v I’m not prepared quite yet to endorse that view. But it is deeply worrisome when the U.S. mega-carriers and their alliance partners shift their focus from competing in the marketplace to persuading our government, and governments abroad, to limit market access by carriers that aren’t part of their chummy club and don’t follow their rules of so-called capacity discipline.
v These anti-Open Skies efforts are anti-consumer, anti-growth, and anticompetitive. These efforts may well bolster the troika’s profits and pump up the salaries of their executives and pilots. That, however, cannot be the goal of our country’s aviation policy.
v In closing—and by way of full disclosure—let me state that I currently am an advisor to both Emirates Airline and Norwegian. I chose to work for them because they represent innovation, a willingness to contest markets, and a commitment to finding success through competition and not by persuading regulators to throw up the walls of protectionism.
v Yes, there are some clouds on the horizon, but I’m an optimist at heart. I am convinced that, by following the compass of good public policy and simple common sense, we can fly through this anti-competitive turbulence with our Open Skies principles intact.
v Thanks for listening to me. I’d be very interested to hear your comments or questio