March 31 - Commentary Regarding Open Skies & ATI Legislation


Commentary

Consumers and competition will suffer if legislation proposed by the venerable Chairman of the House Transportation Committee, Representative James L. Oberstar, is enacted. That legislation would require the General Accountability Office (GAO) to undertake a year-long study of U.S. policy regarding immunized alliances and Open Skies agreements. Existing authorizations for immunized alliances would be “sunseted” three years after enactment and American Airlines, British Airways and Iberia’s application for immunization before the Transportation Department could enter a state of political suspended animation.

In a normalized trade environment airline alliances would not be needed as participants would be free to merge, pursuant to competition authority reviews. Alliance immunization, as a proxy for mergers, has been effectively used as an incentive by our State and Transportation Department negotiators to encourage some 90 governments to open up their markets to U.S. airlines through Open Skies agreements. The most recent and prominent is the EU-U.S. agreement. This policy prescription has facilitated the development of the global alliance model; today there are three such alliances. However, to optimize benefits for consumers, communities and all stakeholders there must be effective competition among all these alliances.

Senator John D. (Jay) Rockefeller IV, Chairman of the Commerce Committee understands this and recently stated in a letter to Transportation Secretary Ray LaHood, “As our [U.S.] aviation industry currently exists within global alliances, we must take steps to foster healthy competition among them.” He went on to explain, “Such alliances, when DOT has determined them to be in the public interest, provide consumers greater flexibility in pricing and access to more destinations.”

The Senator raises an important point. The worst outcome for consumers would be if only two of the three alliances were immunized. Not wanting to offend Chairman Oberstar, DOT might freeze its review of oneworld members’ application, pending GAO study results. This would have the perverse effect of diminishing competition and cementing the market dominance of SkyTeam and Star.

The implications for the 90 Open Skies agreements would likewise be serious. With immunizations sunseted, and little visibility to their reauthorizations in three-year’s time against modified approval standards, it could simply spell the end of the alliance model. Alliance members would be resistant to new investments in improved or expanded services or co-location of airport facilities amidst such uncertainty. What’s more, corporate travel buyers would have little confidence in negotiating agreements with alliances that may not be able to fulfill contractual obligations.

The political fallout from such an arbitrary U.S. move would be considerable. The powers of EU Parliamentarians cannot be underestimated; they are elected by Europeans and are not responsible to career officials at the European Commission in Brussels. This sunseting proposal, if enacted, would push the new EU-U.S. Open Skies agreement to the brink of renunciation. An industry that will hopefully be recovering by 2010 could find it itself in an aviation trade war.

Importantly, immunization, as a tool of U.S. international aviation policy, is the reason Minneapolis-Saint Paul, Congressman Oberstar’s home market, receives the envious level of international air services it currently enjoys. Without immunized alliances, the smaller airports and communities in U.S. airlines’ networks would not have efficient connectivity to the world’s important business centers and would lose considerable economic benefits, including jobs.

Thoughtful review of immunized alliances and Open Skies policy should be in the larger strategic context of developing a coherent U.S. national air transportation policy, which we do not have, and which is why we seem to lurch from one aviation crisis to the next often making poor policy choices. A sunseting provision would foist great damage on an increasingly fragile industry at the worst possible time. The GAO study proposed by Chairman Oberstar would be very useful in laying out the intellectual framework for the development of a national air transportation policy.

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