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CAPA TV | September 30, 2020

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The Great Debate: The Future Of Open Skies Agreements

CAPA
  • On April 26, 2018

When the US government first began promoting Open Skies agreements, the concept met considerable opposition from airlines. Many carriers were accustomed to restricted-entry markets, had made major investments in building lucrative international markets, and feared inroads into their home markets, where they often enjoyed dominance. Governments were quite used to trading for a balance of benefits, leading often to tit-for-tat—you want something for your carriers, we get something for ours. Consumers were often left behind.

Open Skies not only relaxed pricing and capacity controls, but also made it possible to serve many more points behind the previously restricted number of international gateways. In doing so, it reduced the proportion of beyond-gateway domestic connections. Another by product was to enable much more extensive sixth freedom operations internationally.

U.S. leadership across Administrations to forge Open Skies agreements transformed air travel. Prices dropped. Alliances were formed. Both legacy airlines and low cost carriers entered new markets. New routes were opened, many that would have never been possible without Open Skies and metal-neutral alliances with antitrust immunity. Open Skies spread throughout Europe, to Canada, Latin America, Asia Pacific, and Africa. Cargo carriers established new distribution hubs in the Middle East and Asia, with few access constraints. Airlines have available a wide array of open skies markets with fifth (and sometimes seventh) freedom rights, although, outside North Asia, the rights are rarely exercised.

But have we witnessed the zenith of international liberalism in aviation, with protectionism rearing its head. Will the drum beating in Washington DC for international trade wars with China, Russia, and others spill over into aviation? Will Middle East politics serve to isolate some countries, with winners and losers? Will calls from Big 3 US airlines for retaliation against alleged airline subsidies in the Middle East lead to more than consultations? Will cargo and fifth operations be targets? In a broad atmosphere of economic nationalism and Trump Administration calls for tariffs, with a willingness to endure trade wars with one of its largest trade partners, what does the future hold for Open Skies?

In Europe, the EU is sharpening its competition tools to face Gulf carrier challenges. The EC appears set to revamp laws enabling it to impose duties on non-EU airlines or suspend flying rights if it finds unfair trade practices involving subsidies, slot allocation, ground handling services, airport charges, refuelling, etc.France, Germany and Italy appear more protective than the UK, which has typically led the liberalisation charge. As the UK exits the EU under Brexit, and its future role remains unclear, will the EU position change? This panel will explore these and other questions, including:

  • How important is it that governments work to ensure a level playing field in aviation?
  • Could US airlines take greater advantage of the market access opportunities they have available under existing agreements?
  • Is the dispute among the Gulf Carrier States, Europe, and the US likely to spill over to other trade or geographical areas, or trigger a retrenchment against Open Skies?
  • What impact will President Trump’s trade policies likely to have on aviation?
  • As China becomes a major market, is an Open Skies agreement likely – or necessary, to secure JV authority?
  • Is there a global trend to rolling back open skies?
  • What is the likely outcome of UK-EU and UK-US Open Skies’ talks?

Moderator: Baker McKenzie, Partner, Kenneth Quinn
Panel:

  • Delta Air Lines, Managing Director, Government Affairs, Robert Letteney
  • FedEx Express, Managing Director, Regulatory Affairs, Nancy Sparks
  • U.S. Department of Transportation, Director, Office of International Aviation, Brian Hedberg
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