“After [deregulation in] 1978, competition democratized air travel,” said Joe Leonard in a speech before the Aero Club of Washington D.C. “It is time for more competition, and a level playing field,” said Leonard. “It is time to phase out the subsidies, lower the barriers to exit, open up access, watch mergers and alliances, and slash taxes and fees.” In a free market, he continued, the biggest winners are consumers.
Leonard directed some of his remarks to U.S. government officials, saying, “We’ll need other competitive carriers spreading the word. We’ll need friends of the free market in this city to take a long view, ask the tough questions, and reconsider come current assumptions. For now, our government is buying trouble. As taxpayers, we are subsidizing failure, and we’re getting more of it.”
As a domestic, low-fare carrier, AirTran’s CEO called for drastic action that could affect legacy carriers with substantial international operations. He said legacy carriers were being propped up in three ways: the U.S. Bankruptcy Code, government subsidies and special breaks, and “subsidies” from elements of the industry.
Carriers are using bankruptcy as a routine part of business planning, as a means to duck credit obligations and avoid dealing with marketplace realities, said Leonard. He claimed that the struggling legacy carriers continue to go to market with “failed, discredited business models” that haven’t worked in years and won’t work in the future. “Instead of cutting costs and running efficiently, these carriers are getting by on public assistance, riding on the backs of America’s taxpayers.”
Though Leonard never specifically referred to “Open Skies” talks between the U.S. and E.U., some of those same competition issues were bound to be on the agenda of visiting E.U. Transport Minister Jacques Barrot. Barrot was meeting with U.S. Transportation Secretary Norman Mineta in hopes of advancing stalled talks to open the North Atlantic air transport market. The E.U. wants to open routes and also wants the U.S. to raise the current limit on foreign ownership of a U.S. airline, which stands at 25%.
Cabotage, the right for a carrier to serve internal, domestic markets, has been a sticking point with U.S. regulators. Though there was no direct reference to cabotage in Barrot’s remarks prior to his meeting with Mineta, that issue has been linked to ownership of U.S. airlines. One argument against allowing foreign ownership suggests foreign carriers could effectively operate a U.S.-based subsidiary through their holdings and compete in the domestic market as well as on international lanes. Barrot has focused on gaining the right for European airlines to fly the route of their choice.
Currently, airlines are only permitted to fly to and from a U.S. destination from their home market and not from other E.U. origins. The E.U. gained the right to negotiate for all member states after the European Court forbade bilateral agreements by member states. In essence, this places the E.U. in a negotiating position similar to the U.S. It can take London, Paris, Frankfurt and other key market destinations to the negotiating table just as the U.S. can bring New York, Chicago and Los Angeles into the negotiations. Previously, the U.S. would negotiate with U.K. authorities on London and other U.K. routes and with French officials on routes to and from Paris.
Cargo interests have supported a more open agreement, including cabotage for freight. Some in the industry have suggested separating cargo negotiations from passenger issues.
Additional coverage of Open Skies issues: