December 20 - BTC Letter to White House, State, Transportation, and Commerce Departments


Dear White House, State, Transportation, and Commerce Department Officials,

Open Skies Agreements At Risk

OpenSkies.Travel, a Business Travel Coalition initiative, is concerned upon learning that U.S. airline CEOs are endeavoring to schedule meetings in late January with the White House and the Secretaries of the State, Transportation and Commerce Departments to begin a push for modifications to hard-won Open Skies agreements that would erect barriers to foreign airline entry and expansion in over-priced and underserved overseas to U.S. markets. In seeking to erect obstacles to more and better service, these airlines are emulating some European airlines that have successfully pressured their regulators in Brussels and at the national levels into the view that commercial protectionism is preferable to market liberalization. There are indications that U.S. airlines intend to endorse language based upon a European Commission (EC) initiative – a new “Fair Competition” clause for existing and future aviation agreements.

The legal gambit is that the EC has formally recommended that this new provision be added to its current aviation agreement with the Gulf States. (See EC Fair Competition Clause at http://btcnews.co/1uHeFkN.) At paragraph 9 it authorizes a Party (i.e. a country) that  "finds that an airline is being subject to discrimination or unfair practices... and that this can be substantiated" to "submit observations" to the other Party; if consultations do not yield "a resolution of the matter," the first Party "shall have the right to suspend the exercise of the rights specified in this Agreement by the airline(s) of the other contracting Party by refusing, withholding, revoking or suspending the operating authorization/permit, or to impose such conditions as it may deem necessary."  

Cutting through the legalese, here’s how incumbent U.S. major airlines could and would abuse this new provision. Suppose the U.S. persuades the United Arab Emirates to insert this change in the current bilateral Open Skies agreement, and let's further postulate that Emirates Airline announces plans to up-gauge its Washington Dulles International Airport service from a Boeing 777 to an Airbus 380. United Airlines then complains (and Delta Air Lines and American Airlines join in); the U.S. government requests consultations about the potential “unfairness” of state investment in the airline; talks are held but there's no clear outcome after 30 days; the U.S. Department of Transportation (DOT) then either leans on or unilaterally directs Emirates Airline to delay the introduction of the Airbus 380. Many cities that have lost substantial access to international markets in the last six years of U.S airline mergers and capacity cuts could anticipate being victims of the same airline tactics. That would represent the antithesis of Open Skies agreements and consumers would be greatly harmed by a restraint on capacity and full-throttled competition. 

Consumers - individuals as well as corporations, universities and governments that purchase commercial air services - have a huge stake in preventing this airline scheme from succeeding because in a radically consolidated U.S. airline industry, new airline entry is one of just a few available remedies (along with the need for enhanced DOT consumer protection rules and reforms to or abandonment of the preemption doctrine in the Airline Deregulation Act - legal immunity that denies aggrieved travelers any judicial remedies for airline service failures and even for unfair and deceptive acts) to protect against high fares and a loss of customer service and innovation, to say nothing about replacing lost scheduled services to many cities and creating new jobs.

Newly omnipotent mega U.S. airlines would appear emboldened to reduce price transparency, undermine DOT’s consumer-protection and Open Skies authorities and erect an iron curtain around the U.S. to frustrate new entry and expansion by foreign carriers. Indeed, in this case, airlines’ newfound monopsony power is being projected not in the traditional practice against supply chain participants, but rather against DOT, their regulator.

Examples include:

1- drafting and then railroading through the House of Representatives H.R. 4156, the Transparent Airfares Act of 2014, to obfuscate prices and undermine DOT’s consumer protection authority;

2- blocking Norwegian Airlines International’s application to provide new low-cost services to the U.S. by endeavoring to intimidate DOT and seeking Congressional intervention to block foreign carrier new entry; and

3- pressuring the Obama Administration into modifying Open Skies agreements in order to further frustrate competitive entry and protect the status quo.

Most U.S. airlines fight hammer and tongs to block “government intervention” in the marketplace to create or enforce consumer protections, but they lobby for the most heavy-handed and pernicious kind of intervention – old-fashioned commercial protectionism, which greatly harms consumers and the competitive structure of an industry.

The White House and the State, Transportation and Commerce Departments should reject this protectionist scheme and uphold our country’s commitment to Open Skies for the benefit of our consumers, communities and economy.

Sincerely,

Kevin Mitchell

Chairman

Business Travel Coalition

Phone: (610) 999-9247

Mitchell@BusinessTravelCoalition.com

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OpenSkies.Travel, formed by the Business Travel Coalition, is a broad and active coalition of global stakeholders the mission of which is to support robust new airline entry and an acceleration of the benefits of Open Skies agreements. Visit http://BusinessTravelCoalition.com.

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