June 14 - Don’t Poke The Bear!


INDUSTRY ANALYSIS 

Never in the 20-some years that I have been advocating the interests of the managed-travel community in Washington, London, Brussels, Tokyo, Paris, Bern and other important capitals has the issue of cabotage been brought up so many times, in just a short period of time and so passionately. Cabotage, of course, is a right, under an air services agreement between two countries, or with legal entities like the European Union, for a foreign airline to transport paying passengers between two points in another country. Among those that are raising the issue are independent commercial airlines, all-cargo airlines, consumer groups and bipartisan think tanks (http://btcnews.co/1QXiY1O).   

Cabotage has historically been off the table in Washington as a policy consideration principally due to commercial protectionism as well as Labor and U.S. Department of Defense concerns. However, the Big Three U.S. carriers are so over-the-top with their attacks on foreign carrier new entry and specifically their war against the Gulf carriers - Etihad Airways, Emirates and Qatar Airways - that the U.S. Government-enabled massive structural benefits that the Big Three enjoy are now being seriously questioned in many quarters. Here are the top three benefits under discussion:

CABOTAGE

Virtually all the concerns raised over the years about cabotage could be adequately addressed except for the obvious objection of the Big Three that they would face additional competition. However, due to Big Three-engineered domestic U.S. consolidation many thousands of routes are now monopolized and many mid-size communities’ airports have been abandoned by the Big Three impairing economic development and job creation. Against this backdrop, endeavoring to block new international and domestic competition is a high-risk gambit that is attracting much unnecessary attention – from an airline perspective.

ANTITRUST IMMUNITY

Antitrust immunized global alliances and metal-neutral joint ventures have bestowed enormous benefits on the Big Three. As linked to Open Skies agreements, the underlying premise in granting this immunity is that there must be the opportunity for robust domestic and international airline new entry. Now that the Big Three have their consolidation and antitrust immunities, they want to pull up the “Drawbridge” and lock down “Fortress America” first by politically blocking Norwegian Air International’s application to serve the U.S. under our Open Skies agreement with the EU and then by seeking to freeze the Gulf Carriers’ expansion into the U.S. Consequently, more and more industry participants are calling for review of these grants of immunity at regular intervals with a U.S. Department of Transportation docket for public comment.

FEDERAL PREMPTION

U.S. consumers and their State Attorneys General (AGs) representatives are unable to sue the airlines for unfair and deceptive practices, which has the effect of enabling the Big Three to run roughshod over consumer interests. Virtually all other industries are disciplined in their practices toward their customers by the threat of individual and class action lawsuits. It would only require very simple legislation to enable the restoration of the right of private action for consumers in commercial aviation.

One last point, which helps inform why the Big Three are waging an all-out-war on foreign carrier new entry, is that when most people think of Open Skies agreements they focus on additional competition on international routes and access to new foreign destinations. However, foreign carrier code-share passenger feed can enable domestic new entry where otherwise there would be insufficient traffic to justify such entry.

For example, Emirates code shares with JetBlue at Boston Logan. That feed from Emirates enabled JetBlue in 2014 to enter the Boston to Detroit market, monopolized by Delta Air Lines, and to lower average prices by some 40 percent. The need for and importance of this model for new domestic competition, in a radically consolidated industry, cannot be overstated.

Likewise, foreign carriers can also enable new U.S. cross-boarder entry. Emirates will begin service to Orlando this fall helping to drive economic development and job creation. Because of this entry and passenger feed, its code-share partner JetBlue will be able to implement services between Orlando and Mexico further helping the Orlando-area economy and supporting President Obama’s goal of increasing annual international visitors from 75 million today to 100 million by 2021.

To conclude, the Big Three have been waging a war on price transparency, consumer protections and new entrant competition under the mistaken belief that now that they control the market, and have acquired greater political power, that has somehow immunized them from public scrutiny and accountability. When AGs awaken, and connect all the dots, and see that their citizens are being financially harmed each and every day – and that they are legally unable to intervene - they will find very willing partners to wage an unrelenting campaign for reforms. Consumer groups, airports, travel agencies, corporate travel managers, industry associations and many more interested parties will step up and join such a campaign.

It is in the Big Three’s strategic interest to abandon their reckless anti-competitive, anti-consumer campaign - which is harmful to U.S. interests; appreciate and continue to leverage their unique competitive and structural advantages; and upgrade their overall management, product and customer service to compete with 21st century innovative, customer-focused foreign competitors.

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