Leveling the Global Aviation Playing Field

The airline industry in the United States is highly competitive, constantly changing, and is facing challenges from a global market that sustains many airlines directly over a distinct breaking point; between thin profits and bankruptcy.  The market place for air travelers shows many volatile qualities affecting ticket purchases that are hard to predict and can very easily be harmful to vulnerable airline companies.  As new competition enters the global market to compete with airlines in the U.S., they will face even greater threats to their ability to produce a profit.  Cost cutting reveals a competitive edge when used conservatively; unfortunately many airlines have over used this technique in an effort to sell more airfare at the cost of quality and service.  With thousands of factors combining to create elusive profits and a difficult environment for airlines and their employees, it is imperative changes be implemented that will provide long term relief and level the playing field for the American airline industry to have a fair competitive stance in a rapidly changing global market.

As the world is brought closer together with air travel increasing in both reach and capacity, airlines will need tempered relationships with foreign countries.  Early in the 1990’s the U.S. negotiated the first Open Skies Agreements (OSA) with foreign countries to expand flights and markets to other countries.  With the ultimate goal of creating more business for American employees in the airlines and reduce costs to air carriers, these agreements were made with the European Union, Japan, and India to name a few.  These agreements between nations allow commercial operations to conduct business with limited government intervention, free market competition, and fair and equal opportunities for companies to compete.  Some countries (such as the United Arab Emirates) provide their airlines tax free business benefits as part of national aviation policies; this creates a distinct disadvantage for any transient countries.  Promotion of these agreements as well as revision of already existing OSAs to identify these exploits would be a crucial task in creating more even footing in the competitive market.  Government regulation may be what is required to keep countries from taking advantage of these agreements that provides some airlines a distinct competitive edge through exploitation.

Another significant source of airline revenue loss is caused by Passenger Protection Regulations.  The Department of Transportation created these regulations in hopes of creating better travel experiences for the flying public and protecting passengers.  This regulation incurs penalties and costs on airlines (such as tarmac delays) without allowing for causes of delays that are not within the airlines control, such as weather or inadequate airport facilities.  Regardless of the cause of delays or routing changes, the airlines bear the fines and penalties.  These additional costs serve to drive up ticket prices and do not create a more positive experience for the traveler.  Revisions need to be made to create passenger protection within reason.  Airlines cannot be expected to control the weather, or pay the same fees regardless of aircraft size and type of operation.  Enforcement to control air traffic based on airport capacity and type of aircraft operations would serve to expedite air traffic with a more efficient use of limited airport property.  There are many factors this regulation does not account for and creates an unfair direct cost to air carriers who in turn increase ticket prices: negating the original intent of the regulation to protect the flying public.

Concerning the future of the airlines, The Export-Import Bank is going to be influential to the industry.  The Bank is responsible for financing deals both foreign and domestic that will promote American jobs and manufacture of goods on U.S. soil.  The Bank has a responsibility, however, to determine that any proposed financing will not potentially be harmful to American workers or their jobs.  Loans have been granted to foreign countries by the Bank for the purchase of aircraft from manufacturers such as Boeing.  While this is beneficial to aerospace workers in the U.S. in the short term, these aircraft are ultimately being delivered to foreign airline companies in direct competition with U.S. carriers.  Even though this has been considered an unintended consequence, it should be thought of as a form of negligence; these aircraft are being delivered to foreign airline competitors.  As a result our country’s air carriers may lose air routes and jobs creating a ripple effect to impact other aspects of the aviation industry.  Careful planning and research on the Bank’s part can support the U.S. economy and serve to level the playing field for our domestic air carriers, however it should not be allowed to subsidize foreign companies that pose direct competitive threats.

References

Driskill, M. (2013, April). Delta air lines inc. has sued the Export-Import Bank of the United States over loan guarantees given to support purchases of Boeing Co's widebody planes by certain foreign airlines, according to a court filing. Reuters. Retrieved from http://www.reuters.com/

Air Line Pilots Association, International (2013) Leveling the Playing Field for U.S. Airlines and Their Employees. Retrieved from http://www.levelingtheplayingfield.alpa.org

Micco, A., Serebrisky, T. (2006). Competition regimes and air transport costs: The effects of open skies agreements. Journal of International Economics, 70, 25-51.

Schoonover, M. (2011). Oversold, delayed, rescheduled: Airline passenger rights and protections. Journal of Law & Policy, 35, 519-545.