Deregulation Could Bring Big Prizes


A free-for-all to stop the free-fall to mounting losses. That is one of the å‘flying doctorå’ remedies being championed to revolutionise the changing face of the airline industry outlined by Alex Plant, head of international aviation policy with the Civil Aviation Authority during World Travel Marketå‘s provocative debate on the future of air travel.
With the European Union and the United States in discussion over a liberalisation service agreement there is a vision of unrestricted skies - a go-anywhere plan that allows carriers access to routes and airports which have traditionally been off limits.
“This, in my view,” says Alex Plant, “is one of the biggest prizes on offer for the aviation market as a whole. It is the biggest single market, in value terms, across the world. De-regulation could bring very big prizes.
“The CAA has long been an advocate of the vision of an open area. That means full liberalisation, sweeping away all those restrictions on market access.”
Some of the key issues, he explains, which need to be resolved include ownership control; the fact that the US Department of Defence say all US Government business has to fly on American airlines. Those civilian airlines, in turn, provide cover should they be required in emergency situations. Plant said:“They have been nervous about whether any change to the market was going to damage their ability to have these programmes in place. They may be softening on this. We will have to wait and see. Competition is going to be a major topic but ought to be solvable. State aid ,though, might be a sticking point.
“Heathrow access is going to be one of the main cards in EU hands. Getting as much leverage from that will be key in negotiations.
“Changing the way the bi-lateral agreements work can’t solve the problem. This is something that will have to be dealt with outside the Open Air negotiations themselves.

“United States pressure to allow more fluid marketing slots may help to move the debate along in Brussels where the UK has long been an advocate for legitimising at least secondary trading.

“Ownership control is perhaps the single biggest issue.

“It must be recognised that there are restrictions in national law both in the US and EU which also require there to be majority ownership control of airlines by nationals. These need to be got rid. It is probably deliverable within the EU but a real problem in the U.S where congress recently strengthened some of the existing protectionist policies.

“I am an optimist on the subject of whether we are going to get anywhere. Otherwise it would be difficult to turn up at my office every morning!”
He additionally felt that the legacy left by the Chicago Convention Agreement set out a protectionist one where airlines could not fly anywhere unless permitted to do so by the so-called ‘freedoms of the air.’ “That system”, he says, “has actually harmed the market.

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“It has restricted growth, led to inefficient allocation of capital and use of capital assets. It also prevents airlines from realising the benefits of scale and scope which they could otherwise achieve. So this could be one reason why aviation has failed to make a return on capital.

“I’m not saying this is the panacea for all ills. Clearly there is a huge amount to be done; the challenges facing aviation and airline sectors go beyond simply looking at liberalisation. But in my view, getting the geo-political surrounds right is an important part of our process of fundamental change.
“We can look back to recent history to see some of the benefits to both airlines and consumers of de-regulation, initially in the United States which perhaps led the way in trying to move their domestic industry away from a very tightly regulated situation into a more liberal one. We witnessed the low-cost entry offering new choices onto the market and a hub and spoke system generally considered to have produced a more efficient market structure for consumers.

“With studies showing a 25% reduction in fares, the low-cost has been a major element in the change in the European market with new routes, new offers. It has changed the way the market is perceived by the public.

“There is though a real problem in how effective the EU on its own can be. There is still no ability for a rationalisation of the market in terms of exit. The bi-lateral system basically prevents the rational responses you might otherwise see through mergers or market exit.
“The single market cannot unravel a system which is still rooted in national airlines that have to be owned and controlled by nationals of that country.

“To my mind it’s an odd starting place compared with other global industries. Here the reverse is true. Participants can do what they want in their marketplace unless there is some overriding public interest against it.
“With aviation it ended up with a network of bi-lateral agreements - rooted in national ownership - between governments. That created conditions in the way the market can operate.”
It has prevented a climate of merger and acquisition. ”

Other speakers at the final session of the two day The Future of Air Travel: The Way Ahead” conference at World Travel Market, organised by Airline Business in partnership with leading technology supplier Amadeus, included Jean Claude-Baumgarten, President World Travel and Tourism Council and airline analyst Chris Tarry.
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