Too much whine and too little service: US airlines protectionism

by Geoffrey Lipman, 
June 2015

I didn’t want to write this article, on the lessons of history, but the constant stream of studies, claims, and counter claims on the question of airline subsidies and open skies has finally got to me.

I may just be one of the few people left in the industry who was actively engaged in the US and EU deregulation and open skies strategy. And a little bit of historical perspective might just show how hypocritical and self-serving the US Carrier and Union initiatives are.

I was Head of Government Affairs at the International Airline Transport Association (IATA) in those days when the US government and its airlines embarked on their open skies strategy in the late 1970’s – using every diplomatic and commercial avenue to mount a crusade against what they called the protectionist Bermuda-based bilateral and cartelistic IATA tariff systems. At first the aviation community lined up against them – and we were in the front row of the battle – arguing the case for “progressive change,” moderation, the comity of nations, and the agreements they had painstakingly negotiated for three decades. We debated in national and international regulatory fora and public conferences, we hired K street lawyers and consultants. We argued that the US had a huge protected domestic market base, chapter 11, and restrictive ownership shelters that gave it a competitive advantage. We pointed out that airlines of smaller states wouldn’t be capable of competing. We fought the legal attacks point by point.

But slowly we lost the battle as the US put more and more bilateral pressure and concessions into play. As they argued the open skies case for passengers and for communities. As they extolled the trade benefits. They picked up strategic partners in Singapore, Amsterdam, Tel Aviv, Amman, and London or picked off weak sisters with deals or political pressures. And they were smart; after 10 years the EU started to move in the same direction, and its de Kroo Commission (on which I served as President of WTTC) called for a clear target-based strategy to open market entry, price, and capacity in the same direction. Competition, regardless of flag, became the order of the day and open skies the dominant regulatory regime. But most important was the fact that it became obvious that the US was right to push vigorously for more competition because customers like low fares, more choice of services, and what they called more “price/quality options.” And airlines need that push to force them out of cosy oligopolies. But above all the world community, with its many socio-economic challenges, needs a strong and expanding Travelism (Travel & Tourism) system to boost trade, jobs, and investment flows.

Then the international competitors got wise, took advantage of their new freedoms and began to create alliances, hubs, and improved products. They accepted the challenges of open skies – often because they had no alternatives – and in some cases like the UAE, nation states began to capitalise on their global position in international aviation passenger flows and the global economic pivot to Asia. They invested in their airlines and airports. Their carriers bought the most modern aircraft with the lowest pollution levels. And above all, they delivered the best service in the skies and on the ground as a core product.

The US carriers with their massive, commoditized, totally protected domestic market generally failed to respond adequately to the changing competitive international service and quality dynamics. In flight and on the ground they did not meet the strategic investment, product, and human resource innovations of foreign competitors.

So now, the champions of open competition and choice in the market turned 180 degrees and launched their protectionist legal barrage. And careless of passenger, destination, or societal interest, they want the rules of the game changed again. Because the competitive heat in the kitchen they designed, built, and pushed around the globe just got too hot to handle.

A read of the claims and responses makes it very clear that open skies is a better bet for the world community and for passengers, as well as the US economy. The country that has successfully sold this now globally recognised concept to the world is faced with two choices: be bold and stay with your vision or be weak, because some of your airlines don’t like the consequences, and sink into the abyss of protectionism. This is no real choice; in fact if the US wants to maintain its aviation leadership role, it should take a serious look at further liberalising its ownership and control provisions, as well as its protected massive domestic base to bring more foreign investment and innovation, to boost its aviation, tourism, and trade marketplace. And if it really wants to be a strategic leader in a world where green growth will become the new norm, because we need growth for inclusive socio-economics and green to fight the existential threat of climate change, it should look at innovative regulatory frameworks that create better market opportunity for those carriers, domestic or international, who operate with the lowest carbon footprint.

This piece first appeared on eTurboNews.

Professor Geoffrey Lipman was Executive Director of the International Airline Transport Association (IATA), the first President of the World Travel and Tourism Council (WTTC), and Assistant Secretary General of the United Nations World Tourism Organization (UNWTO).

  Print Email

Tag: , , , ,