Beginning of the end for rigged aviation markets?

Don’t bet on it. The ‘open skies’ agree­ment now being nego­ti­at­ed between the USA and the EU is not as big a break­through as the boost­ers say. ‘Open skies’ agree­ments don’t nec­es­sar­i­ly give for­eign air­lines access to domes­tic avi­a­tion mar­kets or to ‘cab­o­tage’ between domes­tic des­ti­na­tions in each oth­ers’ mar­kets. This is not, unfor­tu­nate­ly, a step toward the cre­ation of a glob­al avi­a­tion mar­ket but just anoth­er step in the aggre­ga­tion of big­ger bilat­er­al deals.

The Finan­cial Times cor­re­spon­dent offers a breath­tak­ing prospect:

Such a deal could break the log jam block­ing the con­sol­i­da­tion of the glob­al avi­a­tion indus­try, which has lagged far behind oth­er sec­tors from telecom­mu­ni­ca­tions to cars and phar­ma­ceu­ti­cals in the pace of merg­ers and acqui­si­tions. Con­tro­ver­sial­ly for the UK a US/EU deal would also open up Lon­don Heathrow to more com­pe­ti­tion.”(FT)

But the real­i­ty is more mun­dane. Although the term “Open skies” is a tri­umph of mar­ket­ing spin, such agree­ments are to avi­a­tion ser­vices what ‘hub and spoke’ free-trade agree­ments are to mer­chan­dise trade.

They are bilat­er­al access agree­ments for the air­lines of two trad­ing part­ners to each other’s exter­nal trav­el ser­vices mar­ket. They do away with a lot of the mum­bo-jum­bo of the Inter­na­tion­al Air Trav­el Asso­ci­a­tion (IATA) ‘rights’ allo­cat­ed to each car­ri­er from each point of ori­gin to each des­ti­na­tion. But, typ­i­cal­ly, they don’t open up a com­pet­i­tive mar­ket among all car­ri­ers serv­ing either end of the ‘open skies’ agree­ment and they don’t offer access to domes­tic trav­el mar­kets or oth­er ‘feed­er’ mar­kets.

The EU is now nego­ti­at­ing an ‘open skies’ agree­ment with the USA only because the Euro­pean Court dis­al­lowed the nation­al ‘open skies’ agree­ments reached between the USA and indi­vid­ual mem­ber coun­tries. If the two sides reach agree­ment this will open a seri­ous­ly big market—with greater poten­tial com­pe­ti­tion with­in Europe for Heathrow (as the FT notes).

A for­mer senior EC offi­cial in charge of avi­a­tion, Fred­erik Sorensen, says – The future of ‘wide open skies’ by Fred­erik Sorensen, For­mer Head of Air Trans­port Pol­i­cy, Euro­pean Commission.pdf that the EC want’s to go fur­ther in this nego­ti­a­tion, open­ing up access to inter­nal trav­el­ers and domes­tic air­ports. But the USA remains res­olute­ly opposed to ‘cab­o­tage’, as far as I know.

The com­men­ta­tor with great­est insight into the glob­al avi­a­tion ser­vices issue, in my view, is Prof Christo­pher Find­lay at the Aus­tralian Nation­al Uni­ver­si­ty. If you’re inter­est­ed in this ‘open skies’ issue, read a few of Chris’s papers: par­tic­u­lar­ly his 2003 paper on “Pluri­lat­er­al agree­ments on trade in air trans­port ser­vices: the US mod­el” (pdf file, about 100k).

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