Given the recession and continuing economic woes of the airline industry, is House Transportation and Infrastructure Committee Chairman James Oberstar, D-Minn., going in the wrong direction as he seeks to tighten foreign ownership limits and increase antitrust scrutiny of global airline alliances? Or can the airline industry be profitable and serve the interests of the traveling public without greater government intervention?
Responded on April 13, 2009
James C. May, President and CEO, Air Transport Association
HR 831’s approach to antitrust immunity is absolutely the wrong way to go. It will harm airline service, consumers and employees, as well as cause a negative ripple across the travel and tourism industry at a time when the U.S. economy is already suffering. The best way for U.S. airlines to flourish (and not simply become a feeder service to foreign carriers) is with less government intervention in the airline business, not more.
Based on airline member data, ATA estimates that this legislation could cost as many as 15,000 airline jobs. In the absence of antitrust immunity, numerous routes and frequencies would be instantly rendered nonviable. For an industry that already shed 28,000 jobs in 2008 with thousands more expected this year, this bill could not come at a worse time.
We are pleased that the Obama administration recognizes the importance of antitrust immunity for U.S. airline participation in international airline alliances. In a recent order, DOT wrote, “[Granting antitrust approval]... would be in the public interest because it would support increased levels of service in international markets served by the carriers, give consumers more travel options and shorter travel times, and reduce fares.”
Not only does antitrust immunity help the United States in meeting its economic stimulus objectives, it also ensures that U.S. airlines can compete globally, strengthens open skies relationships with other countries, improves the customer experience and increases the stability of the workforce.
Responded on April 13, 2009
Robert L. Crandall, Retired Chairman and CEO, AMR and American Airlines
These are three different questions. Let’s do one at a time.
No, I do not think Chairman Oberstar is going the wrong way on either Alliances or Foreign Ownership, although many in the industry will doubtless disagree.
In my view, an objective observer would have to look very hard to find a way in which alliances have benefited consumers. In the major markets now dominated by alliances -- U. S. / Paris and U. S. Frankfurt for example -- there is far less competition now than there was in pre-alliance days. And that is exactly as one would expect, since any non-alliance carrier serving those markets can offer far fewer origin-destination markets than the alliance carriers with which they compete.
Additionally, the alliance approval process has become extraordinarily political -- as if anything isn’t, of course. Still, since the alliances serving both Paris and Frankfurt already control a higher percentage of slots at those airports than American and British Airways would control at Heathrow if their proposed alliance were approved, it’s very hard to believe that the approval criteria being used are objective.
In addition, I think airline Alliances have been far more beneficial for international airlines than for U. S. carriers, and for that reason alone, I think they should be disallowed.
As to Foreign Ownership, I’d ask “Why”. Do offshore airlines or entrepreneurs really want to compete in an industry which has never been able to earn its cost of capital? Does the U. S. have a capital shortage relative to the rest of the world? Or could it be that international airlines might have some motive other than serving the U. S. market for seeking ownership?
I think the answer is that international carriers -- most of whom are run by smart folks -- have little interest in serving U. S. domestic markets in which U. S. airlines have been unable to earn satisfactory profits. But they would very much like to gain control of the facilities, routes, aircraft and personnel needed to funnel long haul international passengers more effectively to their own operations. So, to my mind, the likely by product of changing the foreign ownership rules would be even less domestic service -- hardly an attractive prospect.
As to the prosperity of the industry, I have long thought -- and still believe -- that the airline industry cannot prosper without a higher level of oversight than is presently in place. I think the airline industry, like our utilities, provides an essential service, and needs the kind of oversight we have traditionally provided for companies which do so.
Should we go back to the way we regulated in 1978? No, I don’t think that’s either practical or desirable. But I think government needs to do more, and make different choices, than it has in the past.
Some examples:
• It makes no sense to allow our Air Traffic Control System to fall behind world standards. Providing the needed capital, and political resolve, is a governmental responsibility which has been shirked for too long. We need to get the next generation system built now!
• It makes no sense to allow airlines to schedule more flights into a given airport than its facilities can accommodate. Doing so creates delay which consumes unnecessary fuel, raises airline costs, and irritates customers.
• It makes no sense to let airlines send planes offshore for heavy maintenance. Doing so may save money, but has cost the country a very substantial number of high skilled blue collar jobs. In my view, that’s a bad trade.
• It makes no sense to sustain labor and bankruptcy laws which are clearly ill suited to the industry’s needs.
• And, to return to question 1, it makes no sense to foster alliances which reduce competition and disadvantage U. S. carriers.
I think we have been off track for many years, and I welcome Chairman Oberstar’s initiative. A fresh look may provide some fresh answers.
