Millions of people are fleeing conflict in Syria, Iraq, Afghanistan and Ukraine, as well as persecution in areas of Southeast Asia and Sub-Saharan Africa. Why are people fleeing? Where are they going? How are host countries responding?Fleeing war-torn lands in search of safer, better lives, people have been leaving their native countries. A total of 9.6 million migrants fled the Middle East as of the end of 2015, up from 4.2 million in 2005 – a nearly 130% increase. This increase in emigration waves has been fuelled by arising conflicts mainly in Iraq, Syria, Yemen and Afghanistan creating the highest level of displacement since World War II. Worldwide migration pressures are expected to increase with the rise of war zones and demographic and economic differences between developed and developing countries. These waves of humanity will shape the future character of host countries.
Editor's Note: Although the publishing hiatus was planned for July and August, we simply could not resist writing a post on Brexit, so now the break will be in August and September. This time off publishing will be used to improve the website, launch a new airport service and relax a bit. We will be back in October with a new post. Until then!
I was originally scheduled to write a follow up to an earlier post on the increasing challenges airports are facing in attracting and retaining talent. This is an important issue, and it is the subject that is likely to occupy much of an airport executive's time and thoughts when he or she has a few moments and can think about almost anything (I always say that the best clue to what is important to you is what you think about when you can think about anything at all). And I know from experience that the search for talent is a subject very likely to be discussed when airport executives are having a drink together. But given the recent Brexit vote, and the Istanbul attack, I decided the talent piece could wait until after the summer.
Brexit Through American Eyes
The Brexit vote was barely a couple of weeks ago as I write this, and already a good deal of ink has been spilled by people writing about it (and given the backstabbing in the British Parliament, a good deal of figurative political blood as well). What I would like to do is to talk about it from the perspective of an American; and an American who has spent a great deal of time in, and dealing with, the EU and one who works in aviation.
What you first must understand about the reaction in the US to Brexit is this: It is about us. Here in America, it is always about us. While some of us (myself very much included) care deeply about what happens politically and economically in Europe and in Britain, the overwhelming majority of Americans want to know how it will impact them. The rest is just academic, elitist, detail (and in our newly populist politics, academics and elites are not very popular here, just as they have proven not to be in Britain).
So, when Donald Trump said that the falling British pound was a good thing because it would bring more people to his golf course, most Americans just shrugged their shoulders. He was looking at it the same way they were. Most Americans don't own a golf course, but those who might want to travel spent a lot of time looking at exchange rates and air fares.
Yes, the US stock market took a big hit the first couple of days. Ironically, the financial second quarter ended on June 30th and the quarterly retirement statements we get from our retirement accounts might have gotten some attention if they took a hit. This is where Brexit might have become real to us in a personal way. But the pre-Brexit stock market rally (when most people thought Brexit would fail), and the rally since have the market about where it was when this all started. So, people have started getting their statements and there was no negative impact in them. If three hundred million people shrugging their shoulders could make a noise, that's what you would hear. But shoulder shrugging is a silent activity, and there will be no noise. Indeed, those (like Trump) who thought Brexit was a good thing might even use this as evidence that post-Brexit economic fears are overblown. Your vacation is cheaper, your retirement account is fine. Nothing to see here. Move along.
Brexit and the Presidential Race
On the political side, again remembering that to most Americans it's all about us, Brexit is a sort of Rohrsbach Test. What you see and think largely depends on your predilections before the vote. If you love Donald Trump then it just shows that the elites and politicians are driving our countries into the ground and we need massive change and we need to "take our country back." If you love Hillary Clinton, you see it as more evidence that the world is an uncertain place and we need a steady hand at the tiller.
Another thing to look for going forward, though, is the extent to which Brexit leads to distasteful outcomes, whether economic, social or political. If it leads to economic distress and social meltdown; resulting in polls showing a lot of buyers remorse, it could persuade enough independent American voters who wanted to vote Trump to send a message, figuring he could never actually win, to reconsider that choice. As Eugene Robinson said in a Washington Post column recently, "catharsis is not a plan." Absent that, though, Brexit is likely to only reinforce whatever views and leanings Americans already had going in.
Oftentimes "off year" elections (such as those for Members of the European Parliament), are used as protest votes, resulting in unusual outcomes but minimal actual consequences. I wonder if the Brexit vote was such an occasion. Except this time consequences are real. I wonder if that may be a cautionary note for some who want to vote Trump seeking to send a message.
Everyone Hates Trade
Indeed, the major loser in the US presidential contest so far is not any one candidate, but the whole idea that international trade and commerce is a good thing. Candidates are racing to the fringes on this issue over here, and the Brexit vote and resulting rhetoric will do nothing to stop that. It is lousy economics, but right now it is good politics to be against trade and international commerce.
Everyone Loves Political Intrigue
One further thought on how Americans are viewing this: The betrayal, if that's what it is, of Boris Johnson by Michael Gove only adds to the enjoyment for Americans. For those who think Britain is all about Downton Abbey, this House of Cards element is quite juicy indeed. It may even elevate the reputation of Britain around here.
There are some of us, though, who are a bit more thoughtful about this. The Brexit vote leaves me very concerned about the future of Britain. There is a lot of focus on what Scotland might do, rightly so. Perhaps a more interesting question lies in Ireland. Once this is implemented, that is where Britain's only land border with the EU will be located. As border control seems a major motivating factor in the Brexit vote (and seems a major motivating factor in Michael Gove deciding to throw Boris Johnson under the bus) it is hard to imagine that big changes will not be coming in Ireland. I greatly fear for the roll back of progress that has been made there over the years.
Demography is Destiny
If you had told me 30 years ago that Britain would take this vote and that there would be a major disagreement between young and old on the outcome, I would have guessed the split would be exactly the opposite of what occurred. Given the success of the EU in transforming a war torn continent, and the memories my contemporaries and those older would have of the post-war years, I would have guessed they'd vote to stay, while younger people who may take their freedoms to work and travel for granted, might vote to leave. That, in the end, it was exactly the opposite, is an interesting subplot. Those who opposed the outcome the strongest have to live with it the longest. (yeah and only 30% of the young voted!)
US - British - European Engagement
This vote should call into question the wisdom of those who think NATO has outlived its usefulness. Even those in the "Leave" camp said that NATO keeps Britain and the US tied together with Europe in the most meaningful way. I would guess Hillary Clinton will try to point this out to Donald Trump (who has called NATO outdated and said the US should reduce or even end its involvement); but I don't think most people will care.
On the aviation side of things, I know the US State Department had a meeting with key stakeholders the day after the vote to talk about what might happen from here. Will Britain have to revert to Bermuda II? Can Britain be covered by the EU agreement, or some hybrid? ACI Europe has called for the internal aviation market to continue to include Britain. Several airline leaders have said the same. Indeed, airline CEOs were among the most prominent "Remain" supporters. In the end, Britain will leave the EU, but it is hard to believe the aviation landscape will be allowed to change much. But then again, a lot of things have happened this year that are hard to believe.
Many of the European low cost carriers are reassessing their plans, and even the countries in which they hold operating certificates, after the vote. For Americans this will become very interesting since many use those airlines (Easyjet, RyanAir, Vueling etc) to get around Europe on their holidays.
I recall a conversation with a friend who works for the EU commission. I said to him that it took the US two centuries to go from a country with a barebones Constitution to one that started regulating what can go into certain foods if they were going to be called certain things. Europe was attempting to do this in a few decades. I wondered if Europe was moving too fast; especially since Europe does a poor job of explaining itself to people and getting their buy-in. My concerns were dismissed by my friend, but I do think this is a lesson.
In a more recent discussion, I was speaking with an American friend who is much more conservative than I am. He was reading into the Brexit vote what he wanted to see, that it is a vote against elites and a vote to take their country back. To him, the EU was a faceless mass of regulations. I pointed out to him the role the EU has played in changing the political face of Europe. That in the decade before they joined, Greece, Spain and Portugal had all been dictatorships, and obviously the Eastern European members were part of the Soviet bloc (to me, this is the EU's greatest achievement). He hadn't even stopped to consider any of this; may not even have been aware.
The Brexit vote is a story of self-inflicted wounds. Cameron's disastrous decisions. The EU's reluctance to better explain itself. The untruths and distortions during the campaign on all sides. But this American thinks those wounds will have ramifications for years to come, that it is not all about whether my upcoming trip will be cheaper, that the achievements of the past are never assured, and that the future looks a bit murkier than it did a couple of weeks ago.
I can't sign off without at least mentioning the Istanbul attacks. I have previously written on security twice in this space and have always stated that attempts to ensure some kind of perfect security were a fools errand that would only mislead the public.
In my aviation security post and aviation security update I have made the point that many of the steps we take to provide "more" security are counter-productive and will only serve to provide terrorists with new and even richer targets of opportunity. In other pages, I have also criticized the media for hyping the fear we are all supposed to feel, and for feeding a sense that someone should be able to provide perfect security every day. Every now and then I get criticized for these points. Especially after an attack.
But there is no perfect security. Everything we do to improve, the terrorists study and try to beat. That will go on forever. Now, some people want to move the security perimeter further away. All this does is move potential targets around, indeed by creating new bottlenecks in harder to secure areas, it actually creates softer targets.
One of the most frustrating moments in the post-Istanbul coverage in the US was hearing a CNN anchor express surprise that the Istanbul airport was open the day after the attack. How could they be so....resilient?! I saw a tweet from a local reporter in Washington that included a picture of an empty Turkish Airlines ticket counter the next morning. The tweet noted the Istanbul airport is open but the ticket counter is empty. It did not note that the one daily flight from Washington to Istanbul wouldn't leave for 12 hours and that's why the ticket counter was empty.
One of the best American commentators on homeland security is a woman named Juliette Kayyem. She is the author of a new book called Security Mom, and is a welcome presence on CNN, where she provides commentary. She is a welcome antidote to the voices of so many who insist we can have perfect security and must find blame when we don't. Her message is that there is no such thing as perfect security (unless we want to become North Korea or unless we just stay home, in which case incidents of bathtub falls and accidental gunshot wounds would likely spike anyway). That we must allow for our freedom and for our country to function, while providing the best security we can. And that when something happens, we must learn from it and keep improving.
That's the true lesson from Istanbul and Brussels. Learn what happened. Get better. Stay vigilant. Ensure intelligence is of the highest order. But maintain our freedom. Resolve to be resilient. Keep moving forward. And remember that terrorism doesn't truly work if we don't provide the "terror" in response to these ghastly acts.
Dedicated to Brussels Airport
President Donald Trump.
Got your attention?
For the past eight months a reality TV star, businessman, celebrity, whatever other word you want to use, has been leading the race for the presidential nomination of one of the two major parties in the United States. There is a lot to be alarmed and surprised about. But as I thought about this post, while watching another in an endless series of interviews, debates, town hall meetings with the candidates, I started thinking about…Open Skies. Seriously.
Trump has spoken a lot of words in this campaign. And a huge (his favorite word) percentage of them have been about international trade deals. About how the United States is getting ripped off by China, Japan, Mexico, you name it. Indeed, this is his major global organizing principle. It permeates everything he talks about. Why does he want Japan and South Korea and Saudi Arabia to have nuclear weapons (he has said this by the way, or at least said he’d be good with it)? Because they beat us at trade, have a bunch of our money, and can afford it, while we can’t afford to help them so much any more. Why does he want to re-negotiate NATO (yes, he’s said this too)? Same reason. In fact, just before I hit the send button on this piece he said that he was basically going to invoice NATO members he does not feel spend enough on defense. He believes the United States has been taken advantage of, we have been losing economically, that it is because we have had weak leaders, and he will change all of that. It is his organizing principle and he fits his views on any number of international issues into it.
Clinton and Sanders Don’t Like Trade Either
Donald Trump isn’t the only one. A candidate on the Democratic side, Bernie Sanders (a self proclaimed Democratic Socialist, believe it or not) has talked almost as much about unfair deals, poorly implemented. He has even started to pull Hillary Clinton in his direction on some of those issues.
So, you would think, given the rhetoric of many U.S. airlines about the supposedly unfair deals between our country and Qatar and the United Arab Emirates (or to be more precise, the unfair way in which some U.S. airlines say those countries are implementing them), that Trump would be all over this; saying it is an example of American fecklessness. This issue seems to be teed up for Trump, and for Sanders as well.
Indeed, Trump often talks about the airports in Dubai and Doha and compares them unfavorably to those in the United States (something he has in common with U.S. Vice President Joe Biden). You might recall that U.S. airlines often like to point to the level of investment in those very airports as evidence of unfair trading practices.
So, how much do you think Trump talks about this? Well, the next time he talks about it will be the first time, to my knowledge. If the situation was even a fraction as bad as some U.S. airlines like to claim, he would be all over this. And remember, this is a guy who does not normally have much nice to say about Muslims and Muslim countries either. Again, this seems perfectly teed up for him. But…..silence.
Anti Open Skies Issue has No Political Traction in U.S.
Why is that? In retrospect, it is one of the most surprising things about this presidential campaign, and it has been a campaign long on surprises. Add to this that Trump once owned an airline and was part of the industry. It’s just kind of incredible to me.
Maybe the reason is this: there is so little to the argument some U.S. airlines are making that not even Donald Trump will join in!
At this point it is useful to recall some things I said in an earlier post about this. I first wrote about this topic in April, 2015, Open Skies: What U.S. Airlines Really Want. I pointed out then that when the airlines were using this issue largely to position themselves to gain advantage in legislative and regulatory fights, their campaign made some sense. And I think they may have gotten someplace. But, as I wrote in July, 2015, Open Skies: An Update they started to take themselves way too seriously, started to believe their own propaganda, forgot the larger context in which U.S. relations with these countries exist (Iran, terrorism, ISIS, etc.) and they also made it personal. Well, maybe that last one would not have scared away Donald Trump. But they have so over-played their hand that they are not taken seriously any more, even by Donald Trump.
Sure, they maintain a twitter account and, I guess, a Facebook page (I’m not on Facebook). But the major aviation legislation for the year has been introduced in both houses of the U.S. Congress with nary a mention. No one seems to be paying attention. The airlines pushing this are getting nowhere fast. They can’t even get Donald Trump interested!
What I do sometimes hear these days is U.S. airlines using the subsidy issue; not as a way to get new routes, or lower government taxes, or a better regulatory outcome; but as a way of explaining to their customers why their own service is so much poorer than that offered by the Gulf carriers (or by other foreign carriers, for that matter). We don’t get billions in government aid, they say. So we can’t have nice lounges and spacious comfortable cabins, or high end food and beverage. Don’t get me wrong, U.S. airlines are actually making some strides in these areas, including in their airport lounges (though some of that is from competition by the likes of American Express which has opened Centurion lounges in several major airports. It is a terrific product, by the way). But their product remain inferior to that of many international carriers, especially in the Gulf and in Asia.
In retrospect, it is almost funny that so many were so concerned a year or so ago about how this debate might turn out. I suppose there may still be some life in the argument, and no one pushing it has done anything close to surrendering. But for those who worried that the United States was in danger of overturning the entire international aviation regime, and setting back a quarter century of aviation liberalization; well you don’t have to worry about that so much any more.
When I wrote the aviation security post last year I had several people suggest to me that I was maybe a bit too glib - too willing to take risks. Some suggested I may not have learned enough from past terrorist attacks.
In the wake of the Paris attacks, the San Bernardino, California attacks, attacks in Turkey and elsewhere I am guessing some of the same people may wonder if I would like to take back anything I said in the original piece.
I'm sorry to disappoint, but if anything I believe the past year has only gone to further prove my point.
I never said that we should not do all we can to find terrorists, uncover their plots and stop them. We should absolutely do that. But we should be smart about it, and we should resist the temptation to take steps that would get press attention or satisfy some urge, but would do nothing to make us safe. I also ended the article by saying that our fear, and the associated rhetoric, is the oxygen upon which the terrorists depend; and I expressed the hope that we would deprive them of that oxygen and not allow the terrorists to breathe.
Right now, I think, the terrorists are having no trouble catching their breath. Certainly in the United States, the images and rhetoric are full of fear, and of "ideas" that would not make us safer. Some want to get rid of visa waiver and various trusted traveler programs that in reality allow us to focus on the most dangerous people and waste precious little time on folks that do not need our attention. Indeed, these programs provide us better information on travelers, and in the case of visa waiver, allow better information sharing between and among countries. Getting rid of such initiatives does not make us safer.
And then of course there are proposals such as that about banning Muslims from even entering the country. It is "ideas" such as this that provide ISIS not just with oxygen but with a massive shot of adrenaline.
I said that we have lost the ability to avoid being terrorized by every incident. That is not to say that people should not be concerned or anxious. Indeed, a major mistake President Obama has made has been not doing enough to understand that anxiety. In this, he could use a bit of Bill Clinton empathy.
But that is different than being, and remaining, terrorized. Two deranged idiots killed 14 people at a holiday party and posted a message saying they pledged their allegiance to ISIS. This is the kind of thing that should concern counterterrorism officials, and the kind of thing that presents a major challenge. But, as President Obama said in his State of the Union address, it is not an existential threat and it does not mean that ISIS is "on the move." And it should not lead to rhetoric or actions that will actually make us less safe, and will give the terrorists that oxygen they crave.
Many of the things I said a year ago I was concerned about have come to pass in the United States, and our presidential election has served to magnify them. We are, in many ways, less safe than we were then. Not because of what happened in Paris or San Bernardino. But because of the way we might be reacting to those, and other, incidents.
So, let's keep in place programs that work. Let's avoid rhetoric or actions that allow the terrorists to say to those they are trying to convert that we are acting just as they say we will act. Let's surprise them. And then let's suffocate them.
These are difficult and controversial issues, worthy of discussion and debate. Please let me know your thoughts. I look forward to discussing them with you.
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The liberalization of ASEAN’s aviation sector will be a major catalyst for the region’s economic growth by 2030 - Liow Tiong Lai, Malaysian Minister of Transport
The Malaysian Minister of Transport’s thoughts are backed by strong arguments as aviation plays a vital role in developing business, trade, sales, innovation, investments and tourism, all facilitating economic growth. With South East Asia being one of the most dynamic areas in the world, a boost in tourism and trade should have astonishing effects and bring countless opportunities - and challenges - for all aviation players. Latest news indicate that the Single Aviation Market (SAM) is due to be signed by this year.
South East Asia Aviation Market
The Association of South East Asian Nations (ASEAN) is a political and economical organization gathering ten countries and about 9 percent of the world’s population or 625 million people. Taken as a whole, ASEAN would rank 7th in terms of GDP, before Brazil and India.
ASEAN’s core countries are Indonesia, Thailand, Malaysia, The Philippines, Singapore and Vietnam and are home to the biggest airlines in the region. Among them are rather large full service carriers (FSCs), most being under restructuring, like Garuda Indonesia followed by Singapore Airlines as ASEAN’s biggest. But ASEAN's aviation market is being dominated by low cost carriers (LCCs), the major being Air Asia Group and Lion Air Group, both on their way to reach a milestone of 50 million passengers carried per year.
Despite ASEAN's capacity growth shrinking from 30% in 2013 to 13% in 2014 in light of overcapacity concerns, LLCs account for about 60 per cent of the market and are growing faster than their full service carrier counterparts. Even if astonishing growth rates might get lower as markets get more mature, Southeast Asian carriers account for 15% of global aircraft orders (almost 2000 airplanes). In other words, nobody plans to leave the battlefield, no matter how large the cake will grow, and airlines have faith in their ability to grow and compete even beyond their borders.
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Contrary to Europe and the US where LLCs mostly emerged after full liberalization (in 1978 with the Airline Deregulation Act in the US, and in 1997 in Europe), ASEAN airlines’ ability to expand beyond their borders is still very much government-regulated. A major step was taken in 2008, when airlines based in a country member of ASEAN were granted the right to fly between the region’s capitals without restrictions. And in January 2011, this right was extended. Airlines of any of the ten countries were granted the right to continue to an extra destination of the country’s capital they are flying to (fifth freedom).
For airlines, it was not enough. To fulfill their desire of expansion in other countries, foreign airlines had no choice but to create local companies in joint venture with local partners, and to gain a national airline operating certificate (AOC) in the respective country. This allowed competition to develop even more rapidly, as shown for instance by Malindo, Indonesia’s Lion Air subsidiary in Malaysia which launched in March 2013. Malindo claims a 10%-market share on the Malaysian domestic market (versus 45% for rival AirAsia and 38% for Malaysia Airlines), where it operates 13 domestic routes and 13 international routes. Thus, despite various forms of protectionism observed in the past, airlines have been able to significantly expand beyond their borders. For Air Asia, which initiated this trend, international operations are now larger than its historical activity in Malaysia.
But this has come at the price of enormous complexity. Presently, there are 24 LLCs in Southeast Asia, 8 of which are affiliated to AirAsia and operate in more than 17 hubs in five countries. With a single aviation market, these local entities would no longer be needed, nor would be a local partner and AOC. Carriers could be more agile, hence opening new routes. As an example, the number of routes between Japan and Taiwan increased 5 times since an open skies agreement between Japan and Taiwan was signed three years ago, and in the European Union, the number of routes have been multiplied by more than five in twenty years of deregulation.
New ASEAN Competition
Beyond the opportunity of reuniting all local subsidiaries with their parent company with full ownership, an opened market will open doors for mergers and acquisition. This already started in the Philippines with the purchase of Tigerair Philippines by Cebu Pacific. Similarly, the strongest carriers in the region could take the lead and grab the opportunity to become bigger through external growth. But there aren't many. One can count less than five profitable LCCs in the region (for 24 actors), and barely ten FSCs (roughly 40 players). Some like AirAsia, which has only its Malaysian and Thai subsidiaries profitable, initiated a paradigm shift from growth to profitability. FSCs like Thai Airways are also undergoing cost cuts, while others are working hard to develop their low cost subsidiaries (currently six in the region). To say the least the airline industry in the region is not in its best health to welcome an increased level of competition. Yet, with liberalization, the possibility given to carriers to open new routes, and to easily switch planes to their most profitable markets, could help raise profitability and diminish fears of overcapacity. There are also underpenetrated markets like Myanmar. It has a low cost penetration rate of 27% and the country’s tourism is booming, which make it an easier market to conquer. The extra competition will not come without opportunities for the region’s carriers, even though the outcome (with airlines that could as well be stronger, even more aggressive and reluctant to cut capacity as fuel costs slump) will be interesting to watch.
An airline industry massively losing money is not the only matter to monitor as the Single Aviation Market arrives. Infrastructure use, including airport, runway, or air traffic systems capacity will feel a more intense pressure, while being extremely saturated in some countries already like in Indonesia. Lack of safety will be a worse bottleneck than national regulation and protectionism now.
Recently, Air Asia CEO repeatedly said that a change in mindset regarding infrastructure management in ASEAN is needed urgently. Tony Fernandes reminded everyone that his airline attempted to invest in infrastructure several times over the past years, but was always blocked by authorities. The creation of regional aviation regulatory bodies could help make things move forward, otherwise airport space and slots could be used as traffic rights, as Jetstar CEO recently warned.
ASEAN and Asia aviation in general are already among the world’s most competitive markets with 75% of the routes operated by more than three carriers. Besides enhancing direct competition and making air travel more affordable, open skies agreement deals in the past have enabled a huge increase in terms of city pairs flights. This is key to unlock new markets, and LLCs will probably fiercely want their slice of the cake. LLCs play a vital role in allowing a growing part of these countries’ middle class to fly. While most LLCs are losing money, the demand will stay strong: 7.7% on average for the coming 20 years.
With a single sky market, airlines can strategically choose their operational bases, and increase competition between national infrastructure providers. All in all, this matters a lot in this deal: with a single market comes the need for all the ASEAN countries to collaborate.
Hopefully, there will be a regional answer to current infrastructure problems. And other outcomes, such as the opening of bilateral negotiations to increase competition on long haul markets (which stand far behind competition levels seen on the regional market) will follow.
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In April 2015, I wrote about the fight brewing in the U.S. between the three major international air carriers (American, Delta and United) and the three Gulf carriers (Qatar, Emirates and Etihad).
My thesis was that this was part of a strategy to get better treatment from the U.S. government in a variety of areas, and to attain a favorable outcome during consideration in the US Congress of legislation to reauthorize the Federal Aviation Administration (the legislation includes many of the taxes and fees airlines and their passengers must pay). While there were some wild statements from both sides, I believed this was a more limited strategy. And if you read, for example, the speech given by Airlines for America CEO Nick Calio at the International Aviation Club in Washington last Fall, there is much evidence for that.
What Has Happened Since?
In my view, the US airlines have taken a strategy that was plausible and pretty well considered and made a hash of it. They began to believe their own rhetoric, a cardinal sin of such campaigns. The fact that several major European carriers joined in just spooled them up further. They made new enemies along the way including the cargo carriers and some of the other passenger carriers and they even questioned the motives and integrity of some of the individuals involved (another cardinal sin, don’t make new enemies along the way and don’t make it personal). They also failed to understand that in the rapidly changing Middle East, their issues would pale in comparison to Iran and ISIS (as Benjamin Disraeli once said, “a leader must know himself and the times in which he lives.” (The airlines made the cardinal sin of forgetting this).
The more attention they got, the more they overplayed their hand. And now, with the Justice Department opening an investigation into their pricing and capacity practices, the going has gotten a whole lot harder. (Though I am not sure how much there is to these allegations).
The US airlines were, in fact, gaining some traction with their arguments. As a tactic in an overall strategy to get what they saw as better treatment from the government and Congress, their plan was starting to work.
But just as it was starting to work, they overplayed their hand and committed three cardinal sins of such campaigns. They:
- Began to believe their own rhetoric.
- Made it personal and started to make enemies.
- Forgot the larger context.
It is not too late for them to realize this and change tactics.
But there is little in the history of such fights to lead me to believe this will happen.
Today, we welcome Nadine Itani, a new guest contributor who writes an opinion post about open skies.
Gulf carriers, such as Emirates Airline, Etihad Airways, and Qatar Airways, have expanded enormously and have established an intense global competitive network. These carriers’ future growth prospects depend on their ability to gain access to markets in Europe and America. Existing bilateral air agreements and the US incumbent carriers lobby hamper the Gulf carriers' expansion plans through restricting market access.
US Carriers to US Government: Reform Open Skies
Competition between Gulf carriers and the ageing big international US carriers has broken out in the open again in recent months, with US carriers filing a claim to the US administration that the Gulf airlines are not playing fair and are endangering US air carriers’ sustainability and threatening US aviation employment opportunities.
In March of this year, the three major US carriers American Airlines, Delta Air Lines and United Airlines made public the document that supposedly claims their Gulf competitors are operating successfully due to more than $40 billion subsidies from their governments.
Related article by Greg Principato: Open Skies: What U.S. Airlines Really Want
The big three US carriers confirm that they support “open skies” but they simply believe that the competition with Gulf carriers is not being “fair”.
A Compelling Argument?
Reading between the lines of the US carrier CEOs press conference reveals the real incentive behind this peculiar campaign. When the three biggest international US carriers unite and get the support of their union groups, then one should look up for the true story.
First, protecting jobs is a sound case to defend, but isn’t it the same as competition, and shall be defended reasonably through a solid argument?
Second, why did the US carriers spend too much time (2 years) to produce the document that contains the super “breakthrough” financial data of the Gulf carriers? Unfair competition is a crucial accusation, when a party owns evidence against its rivals; it shall be promptly taken to court. And, if the findings were so harmful, why was this report not announced publicly earlier, instead of exchanging confidential papers around the White House and US Government agencies?
Third is on the perspective of subsidy. It is generally known that subsidy is a sum of money granted by the state to help an industry or business keeps the price of a commodity or service low. The problem is that what US carriers fight against under the name of subsidies is being practiced in the US under Chapter 11. Chapter 11 is a “one of a kind” exit plan that allows US airlines passing through critical financial situations to hold off its credit payments, get rid of debts and embark in a restructuring process. International observers define Chapter 11 as a subsidy, while US carriers insist that it is not. As a personal opinion, how you explain subsidy is insignificant, and allowing it when it suits the US context while suing international competitors for it is a huge sin. If Chapter 11 and antitrust immunity systems are not to be considered facilitating any form of subsidy, then what explains the huge investments of American Airlines (the world’s largest carrier) in new fleet and products while the carrier has just came out fresh of “bankruptcy protection”.
Gulf Carriers Defend Position
We are not here to take down other airlines, and Emirates contributes to the U.S. economy, through the aircraft orders.
The Big 3 US carriers may first want to check their own balance sheets. Since 2006, they transferred billions of dollars of pension liabilities directly to US government while leaving creditors holding the bag for billions more through multiple bankruptcies. They received billions in cash payments and guaranteed loans in a direct government bailout while enjoying the advantages of antitrust immunity to fix transatlantic fares with their European partners.
As Tim Clark promised a “robust, fact based, point-by-point rebuttal” of the charges, he delivered on 30 June in Washington, a hard-hitting document to answer the claims laid against his airline (and against Etihad Airways and Qatar Airways) by the US carriers. The document – entitled “Emirates’ response to claims raised about state-owned airlines in Qatar and the United Arab Emirates” – runs to nearly 400 pages and it has been prepared by an in-house team at Emirates led by Clark himself and advised by lawyers, financial consultants and industry experts.
Until today, US airlines don’t seem to have a compelling case, and it is unclear whether their claims are real about subsidies threatening their ability to compete vigorously and fairly on the international stage.
US airlines should simply “stop complaining and start competing!”
More Related Articles Rebuttal of the Emirates to US accusations Emirates’ response to US open skies claims – allegation by allegation Emirates CEO Tim Clark Blasts Big Three U.S. Airlines, Especially Delta -- Since 'Delta is Delta' Competition from Middle Eastern carriers may mean lower fares to Europe, Middle East
Image credit: Vitor Azevedo
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The Beginning: Open Skies, An American Initiative
In 1992, Jeff Shane (currently General Counsel at the International Air Transport Association and then a senior official in the United States Department of Transportation) negotiated the first “open skies” agreement with The Netherlands. As odd as it may seem now, the reaction to this development (after people asked “what is open skies?”) was largely negative.
Why, many people, including many airline executives, asked would we sign such an agreement with a place like that. “We have literally dozens of cities one might fly into in the United States,” (never mind that international traffic was then heavily concentrated in just a few gateways), people said. “There is really only one city in The Netherlands anyone in the U.S. would want to fly to. This agreement seems terribly unbalanced, a giveaway.” This is the sort of thing that was heard over and over in those days.
What the critics didn't fully understand at first was that the U.S. government had a strategy in mind. The critics did not understand that this was but the first is a series of agreements to be negotiated across the globe as part of an effort to blow open a highly restricted international aviation market. And that, if the United States was successful, then surely others would follow resulting in a new era of global choice and competition for travelers and shippers.
In the years since, the United States has negotiated 111 such agreements, with nations large and small. The U.S. has been open to signing agreements with nearly any willing partner. One aviation industry insider even joked that if the Pope had a plane, the U.S. would negotiate open skies with the Vatican.
In time, more liberal agreements were being negotiated around the world by all sorts of countries. When something like open skies wasn't available, countries were still willing to liberalize their markets to some extent (as happened with the 1998 U.S. - Japan agreement, a development I participated in as an industry representative and which resulted in a nearly 40% increase in the size of the U.S. - Japan market).
In the United States, this policy has been hugely successful, helping bring international service to a growing number of American cities and, through the power of imitation, has resulted in a global air transportation system more liberal than any dared imagine a generation ago. NO ONE truly wants to squander these gains. Even the carriers pushing the open skies with the Gulf carriers the loudest.
Obviously, some nations, and some airlines, have made better use of this new regime than others; that is the nature of the beast. The United States has greatly expanded service to and from a number of countries, and many American cities that did not previously have international service were able to get it. The airport community in particular played a huge role in promoting these developments (airlines promoted them when a particular airline wanted to get into a certain country, or expand its offerings, while other airlines would oppose certain agreements if they weren't interested or, more likely, if they had a nice little monopoly under the old regime and wanted to keep it. In which case, they accused the U.S. government of giving away the store. A bit more history to keep in mind).
In 1993, the National Commission to Ensure a Strong Competitive Airline Industry, which was made up of key aviation, business, government and labor leaders essentially endorsed the open skies approach in its report (Disclosure: I served as Executive Director and wrote the report). This report became the basis for the official U.S. government aviation policy that was developed in the time after that report. (Given my role on the commission, I unofficially consulted with the government while the policy was being formed). This seemed to put an end to the debate over whether open skies was a good idea.
US Airlines Were For Open Skies Before They Were Against Open Skies
The three largest U.S. airlines: Delta, United and American, have launched a campaign to reassess the open skies arrangements with Qatar and the United Arab Emirates. Qatar Airways, Etihad and Emirates have become so successful as international carriers, being held up as models of service and style; that they are now seen as threats to the U.S. airlines. To make matters more interesting, these airlines have consciously set themselves up to operate a global hub and spoke system, similar to that pioneered by U.S. airlines in our domestic market after reauthorization, but with a worldwide reach.
More to the point, they are also a convenient (and politically potent) way for U.S. carriers to argue that U.S. government policy puts our carriers at a disadvantage they cannot overcome. They argue that Qatar and the United Arab Emirates are supportive of their carriers in a way the U.S. government is not, and that this will cost U.S. jobs and the place of our carriers in global education. At one time, the argument made by U.S. airline executives was that the U.S. government should do the same for them. Indeed, I have even heard executives from U.S. airlines state that they wish their government would support them the way the governments in Qatar and the UAE support their airlines. Finally having concluded that this argument was not going to gain traction, the airline executives are now arguing that open skies with Qatar and the UAE gives their carriers an unfair advantage. They have even commissioned a slick and lengthy “White Paper” on the subject; full of footnotes and soundbites. And, even after having to retreat over impolitic comments by the CEO of Delta, they seem to have a little bit of momentum. So, it is important to understand what they are doing, and what they hope to accomplish.
What's in the Open Skies White Paper, What's Not and Why
First of all, as already mentioned, the White Paper is slick and well put together. It is written by smart and credible people. It is very careful in what it alleges, and in what it doesn’t. It hits certain key points, while ignoring others. You might get the impression reading it that the three airlines are only ordering Airbus planes, for example, the word Boeing doesn't seem to appear. The paper never really comes out and says the three airlines and two countries are violating the open skies agreement, because they are not.
Any industry figure who wanted to pick it apart could do so. The paper alleges the two governments subsidize their airlines because they do not charge enough for their airports. As a former President of Airports Council International – North America (ACI-NA), that one nearly made me fall off my chair. Airlines are always complaining that airports need to charge less and less; the amount can never be low enough. And in the United States, last time I calculated it, airlines pay less than a third of the capital and operating costs of airports. No matter, where you stand depends on where you sit, as they say, and the argument that Gulf region airlines do not pay “enough” for airport infrastructure is strongly made. There is even a complaint that the airports in Doha, Dubai and Abu Dhabi do not charge connecting passengers their equivalent of what we in the U.S. call a passenger facility charge, or PFC. Never mind that then PFC equivalent in those airports is about $20 US (in the United States it is capped at $4.50) and that almost no airports in Canada (as one example) charge connecting passengers the equivalent fee.
There is no mention of the fact that many U.S. open skies agreements around the world resulted in about the most uncompetitive thing you can think of: anti-trust immunity for major carriers from each country, arrangements that all three of the major U.S. international carriers benefit from.
There is no mention of the system of government grants and tax breaks, at the federal, state and local levels that benefit U.S. airlines, their passengers and the airports they serve.
There is no mention of U.S. bankruptcy laws, which most in the world including in Europe view as a form of state aid, and through the use of which all three major U.S. international carriers have shed billions of costs and obligations and without which none of them would have survived.
There is no mention of developments in China, for example. According to The Economist the Chinese are building an airport and surrounding aerotropolis from scratch in an inland provincial capital called Zhengzhou, with ambitions that this airport will have five runways and handle 70 million passengers (equivalent to Heathrow today) by 2030. Clearly, not all of those 70 million people are going to/from Zhengzhou and the planned airport will serve as an Asian hub for Chinese carriers. Granted we do not have an “open skies” agreement with China, but the principle still holds. Yet, China is a lucrative future market for our carriers and there will be little or no appetite for upsetting that apple cart.
In other words, this very clever paper, while quite well done and persuasive to the inexperienced eye, has a fair number of holes in it. This fact has caused some to sputter, and some to reach for a strong drink. Blood pressures are on the rise. It is even being pointed out that Qatar and the UAE are important factors in U.S. policy on such key issues as ISIS, Iran and Yemen; so there seems little chance the administration will poke its fingers in the figurative eyes of these countries right now. So I think it is important to understand why this effort is being undertaken.
For the sake of balance and full disclosure we have added information from those who put the white paper together in the accompanying box.
Who is the US Open Skies White Paper For?
To begin, it is important to understand the audience for this white paper, and this campaign. It is not aviation experts. The audience is not an academic one, this is not an academic paper. The audience is editorial writers and reporters. It is public officials and their staffs. It is the 2016 political campaign already beginning in earnest in the United States. If you think the audience is an expert one, you will think the paper is not up to standard. If you understand the audience is a political one, you will see that it is quite clever.
Remember what I said earlier. The argument about the Gulf carriers has been made by U.S. airlines and their labor groups for some time now. They understand that these carriers have an effective business strategy, and that they cannot match the level of service and, frankly, elegance, offered by these carriers. The argument used to be that these carriers are fortunate to have governments who understand that their airlines are a national asset and act accordingly, and that the U.S. government ought to emulate them. As this effort to change U.S. government policy did not work, the argument is now being turned around to say that these two nations are behaving unfairly, depriving U.S. carriers of opportunities and U.S. workers of jobs, and so the U.S. government needs to change its policy to account for that.
While I am certain that news of the U.S. government renouncing these agreements would be greeted joyfully in the boardrooms of Delta, United and American; and that news of a request for re-negotiation or even consultation would be most welcome; I think the real goal is to influence the FAA Reauthorization legislation that will be considered by Congress this year (there is a deadline of 30 September to reauthorize the agency, including the taxes and fees that fund it and the aviation system in this country). U.S. airlines have pointed out, with some reason to be fair, that the current system of a dozen and a half taxes and fees that fund the system is not terribly efficient, is more costly than it needs to be, and should be modernized. And if the system were modernized, we could have a more efficient system that would cost the airlines less. As a secondary strategy, I also believe U.S. airlines are using this campaign as a way of explaining why they could never offer service as pleasant and luxurious as the Gulf carriers – it simply costs too much. The message here is that such service is simply not possible in a fair and open economic environment.
Still, in my mind, the main element of their strategy is to influence the debate over the FAA authorization legislation and to gain sympathy for the argument that U.S. government policy leaves U.S. airlines at a competitive disadvantage in the world, and that our policies and laws must change. The strategy is largely about obtaining a more favorable regime of aviation taxes and fees (as is the U.S. airline strategy toward the future of the air traffic control system in this country, but that is a subject for another time).
Is US Open Skies Policy in Danger?
As written earlier, the deadline for this legislation is 30 September of 2015. But it is important to recall that last time around the law was finally reauthorized four and a half years after the initial deadline, and after 23 temporary extensions. My somewhat educated guess is that we will need an extension or two before a final law is passed, quite likely lasting well into 2016. So be prepared for more white papers, television commercials, overheated rhetoric and political pressure on the issue of U.S. open skies policy. By the time the law is fully reauthorized, we will have had our fill of all that. The airlines either will, or will not, get some traction on their taxes and fees argument (I predict they will get some traction but not as much as they would like). They may or may not get something in the legislation calling for consultations or re-negotiation with Qatar and the UAE "I predict consultations. Already the U.S. Departments of Transportation, State and Commerce have opened a file on the matter and requested industry and public comment".
But U.S. open skies policy will remain intact.