NEXT week the annual meeting of the International Air Travel Association — the aviation industry’s global trade body — will be held in the Mexican city of Cancun. It will be a full agenda.
Overcapacity, challenging market conditions and the impact of new, more fuel-efficient aircraft have all added to the problems thrown up by governments, like laptop bans and visa restrictions, and by computers, which have wrought havoc at British Airways (BA) this week.
BA will probably want to hide away in the corner like a naughty schoolboy after the power outages that led to two days of cancelations on its global network, exacerbated by a woefully poor reaction from its communications team and senior management. The “world’s favorite airline” — according to its proud boast decades ago — used to have such good crisis management too.
But I hope the assembled delegates, once they have stopped laughing at BA, will take time to consider some recent rulings from the US Department of Transportation (DoT), which could signal the start of a significant shift in policy on the part of the American authorities.
For years the DoT would wave through joint ventures, alliances and mergers in the aviation industry, mainly on grounds that they made for a more efficient network and therefore a better offering to passengers.
Such deals between airlines account for big chunks of airline capacity. Some 76 percent of the traffic between the US and Europe is in the form of joint ventures (JV) and 37 percent of the business between the US and Australia.
But two recent rulings by the DoT are seen as a significant reversal of that trend. In May, Delta Air Lines completed a deal with Aeromexico to buy 32 percent of the Mexican carrier, with an option to go to 49 percent. It was a big deal financially — Delta paid $620 million for the shares — but faced several obstacles before it was clinched.
Delta had to apply to the DoT for “antitrust immunity” (approval for the deal on competition grounds) and while this was eventually forthcoming, the DoT insisted on some stringent conditions, primarily that Delta-Aeromexico give up 24 valuable slots at New York’s JFK airport and Mexico City International Airport.
Delta grumbled about these terms, which it said were “unprecedented, arbitrary and untethered to any potential alleged harm,” but eventually agreed to the slot divestiture, with few very minor changes.
At least Delta got its deal through, even with significant concessions. Another proposal, this time by American Airlines for a JV deal with Qantas of Australia, was refused antitrust immunity altogether, on grounds that it would “reduce competition and consumer choice,” and the deal was withdrawn.
The DoT, which is now under the administration of Elaine Chao, an influential Republican and confidant of US President Donald Trump, said the alliances would harm competition because the airlines would “exert market power,” and called for some of the JFK slots to be awarded to low-cost carriers because they would have the “greatest competitive impact.”
It added: “Disruptive outsiders are needed to achieve the necessary competitive discipline.”
Well, who would argue with that? Certainly not the Gulf airlines, which have for years been playing the role of “disruptive outsiders” in the global aviation industry.
Emirates, Etihad and Qatar Airways have not been competing via the low-cost market, that is true, but through offering a better product than their American rivals in the international market. Disruption comes in many forms. The DoT’s new stance is a significant straw in the wind on the other big issue in global aviation today: The continuing row over “Open Skies” policy between the Gulf airlines and some parts of the American aviation industry.
Delta, United and American Airlines have been lobbying the US government — first under former President Barack Obama, now under the new administration — to curtail the Open Skies agreements that allow Gulf airlines to fly to the US and vice versa. They claim that alleged government subsidies by the UAE and Qatar are unfair and make their airlines’ operations anti-competitive.
The Gulf airlines’ counterargument is that the American carriers have benefited from their own subsidies for many decades and are using their allegations as an excuse for their own inability to compete fairly in terms of passenger offering.
Some observers had thought that Trump, with his policy of “America First,” would give in quickly to the US lobby but that has not happened. Perhaps it is his newfound love for the Arab world, as evidenced by his recent trip to Saudi Arabia. Perhaps, as a hardheaded pragmatic businessman, he has been won over by the commercial merits of the Gulf case. Or maybe saner voices at the DoT have talked him back from the protectionist stance.
Whichever, the new attitude to aviation antitrust issues suggests that the American aviation lobby is not always going to get its own way under Trump.
Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai
—Courtesy: Arab News