Sunday, 22 March 2015

And now the EU protectionists join the Gulf debate.

Following swiftly in the wake of our post earlier yesterday about the dead hands of old fashioned protectionism rearing their anti competitive heads in the USA,Routesonline reports that the EU is joining the fray by agreeing a "Joint Approach" to the Gulf airlines and others. No surprises that France and Germany are leading the charge in an attempt to wrap a blanket around Air France and Lufthansa.

This is dismal news. They seek to ensure "fair competition", for which read "as little as possible", between the EU carriers whose histories are littered with many kinds of government assistance and the brassy, ambitious and challenging newcomers. In EU-Think how dare these challenge the established high cost, largely unadventurous establishment airlines ? What right have customers got to expect competition, lower fares, more routes, better service?

The implications are serious. Lengthy considerations, studies, and negotiations can drag on for years. They are the meat and rink of administrators everywhere. They ensure job continuity and gatherings in exotic places. The more complications the better. In the meantime the future is put on hold.

The new airlines have invested billions in US and EU built aircraft and engines. They will continue to do so. The A380 programme would be dead without Emirates. Would the US and European legacy carriers have invested in similar sized fleets and expansion if the newcomers didn't exist? Most unlikely.

The history is that liberalisation of  air service agreements is relatively recent and in some places still fragile. There are predicable rearguard actions by "national"airlines and governments now that what looked good when they were dominant doesn't look quite so good with the arrival of new competitors who could eat into business previously regarded as rightfully belonging to the encumbents,- even if they wouldn't have developed it anyway.

 Until around twenty years ago national laws relating to bilaterals forced airlines to apply IATA dictated terms and conditions to air travel. When smaller newer  carriers in particular started "cheating" from the 1960s onwards (They had to. How else could they compete with Pan Am, TWA, BA, Air France etc?) there were repeated attempts by the majors to bring the recalcitrants back into line via "Yield Improvement Programmes" and similar. Anti Trust laws prevented US airlines from officially taking part but they tended to follow the outcomes. Any ideas that price competition stimulated the market or was good for customers were dismissed by the big legacy national carriers as they manned the defensive barricades. IATA controlled the price of everything from the spend on each meal to what constituted a sandwich. Creative Scandinavian had some problems with the latter. Airline staff were told to fear the shadow of the IATA inspector and exercise no discretion. (To their credit many airlines and individual staff deployed common sense on the day). Member airlines faced fines for violations. That was before the arrival of Malaysia-Singapore and others on the long haul scene in the 1970s. They shattered the mould. Eventually IATA micro regulation was overwhelmed by the tsunami of newcomers with their nett fares, pricing by day and flight, different approaches to catering, service and almost everything else. Despite that some legacy attitudes still lie close to the surface of governmental and old airline thinking.

The EU transport ministers now claim that the Gulf fraternity and Turkish are benefitting from "major subventions and government guarantees". That's just like their national carriers used to do and many would argue still do many subtle ways. Routesonline quotes Violeta Bulc, the EU Transport Commissioner, as saying "Aviation (for which read primarily the legacy national carriers) is very much challenged by competition right now and we need to address it in a more comprehensive way". For which read "kill it". Another transfer of national powers to the centralist one-size-fits-all Commission is proposed leaving the EU's operatives to negotiate with the governments of the new upstarts, including Brazil, China and Turkey and any other irritating emergent countries wishing to play in the airline game. That is dangerous for any EU member states with more liberal attitudes.

The whole prospect is retrogade and nightmarish. It treats airlines as some sort of national interest business to be treated differently from almost any other commercial activity. Illogically it places the interests of old fashioned airlines above other more dynamic employment and wealth generators especially the highly successful  aircraft manufacturers and tourism related industries. It also places customer interests right at the back of the line for consideration.

Rather than go back to the trade barriers of old, the US and Europe need to tell their once dominant airlines that nationalistic protectionism (a state subsidy in itself) is outdated and it's up to them how they compete for business and whether or not they survive. The UK no longer has a national airline. BA, the national brand is owned by a Spanish company and if it disappeared tomorrow something else would take its place. The same is true almost anywhere and certainly goes for the US majors and the EU nationals. The airline industry is one of the most vigorous and successful innovators on the planet. The days of US and European domination of the international business are long gone .The balance has shifted eastwards.  Twenty or more years ago the oriental airlines pushed their way to the front. Now it is the turn of the Middle Easterns. In ten or twenty years time it may be something or somebody else. Do the customers want to go back to where they were with the dead hand of unsmiling authorities dictating who goes where, how often ,with what service levels and at what price? The answer from the EU Commission appears to be "Yes". Hopefully before going too far down the moralising and defensive path someone in Brussels will realise that choking off traffic rights is a totally unproductive way to go and that politically being at loggerheads with much of the world south and east of Rome over the issue is not worth the ongoing political aggravation it would cause the EU.

 Ideally the whole concept of government control of these would go in the bin and thousands of regulatory jobs with it. Aviation would just be another global business. Unfortunately that is not likely to happen soon. Meanwhile all eyes will be on the US to see how their government reacts to the airline lobbying. While the EU seems to have ignored Airbus ("Different department, not Transport") in the US no doubt Boeing will making the manufacturers' voice heard. Others should be shouting too.

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