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ICAO - Big Ideas

Aviation is gearing up for the 2013 Air Transport Conference 6, an ICAO meeting that could have far-reaching consequences for the industry

Liberalization is never off the aviation industry’s agenda. Exactly how it will be achieved is a complex issue, however, and global agreement is hard to come by. Nevertheless, ICAO will again attempt to promote this sensitive topic at the 2013 Air Transport Conference 6. The exact discussion points for the meeting will be determined by the forthcoming Air Transport Symposium, being held in April 2012 in Montreal.

A look back at the most recent Air Transport Conference, held in 2003, reveals the road already traveled has contained many twists and turns. “Speeches about normal commercial freedoms were generally well received,” says Mike Comber, IATA Director for ICAO Relations. “But fundamental differences remain between the states about exactly what the industry should aim for and how it should achieve its goals.”
On the crucial ownership and control issue, the 2003 Conference agreed that this should proceed at each state’s pace and discretion. It was noted that the time was not ripe for a global multilateral agreement. At the same time, however, ICAO called for a harmonized approach to ensure the liberalization process doesn’t become fragmentary.

A paper by Pakistan was typical of the objections being raised by smaller and developing nations. It called for a mechanism for maintaining healthy competition to prevent what it called price and capacity dumping. “The general view was that greater liberalization would lead to the increasing use of competition laws to ensure fair competition, and that the extra-territorial application of such laws could lead to controversy and conflict between the states,” says the paper.

ICAO reiterated its intentions to deal with the issue. It promised to deal with economic regulation in a way that would facilitate liberalization and also accepted that further guidance material, including workshops and seminars, would be necessary. There was also widespread support for ICAO templates that dealt with air service agreements, designed specifically to enhance the harmonization of liberalization efforts.

“The extremely high number of participants and extensive contribution from contracting states and organizations shows the deep commitment of the world aviation community to shape a global regulatory structure that can ensure the growth of civil aviation for decades to come,” said then ICAO Council President, Dr Assad Kotaite.

Ten years on

Liberalization has moved on since the 2003 Conference. Open Skies arrangements have taken place around the world and the ICAO templates have played their part. The ASEAN countries have agreed on a liberalized framework. But there remains the fundamental objection of an uneven playing field, the latest manifestation being tensions surrounding the growing power of the Gulf carriers.

There is good evidence that liberalization would yield positive results. Mergers since the most recent Air Transport Conference, for example, have made several carriers stronger. Air France and KLM, United Airlines and Continental Airlines, British Airways and Iberia, and Delta Air Lines and Northwest Airlines are all making upbeat comments about their respective tie-ups. Chinese consolidation and the proposed LAN Group deal show this is a worldwide phenomenon.

“Few in the industry disagree that consolidation is a necessary tool for the future sustainability of the industry,” says Comber. “What needs to be discussed is how we progress from mergers within regions to true cross-border consolidation.”

The symposium agenda

Discussions on liberalization, and much more besides, are on the Air Transport Symposium agenda. Although the final program is yet to be decided, time has been set aside for a liberalization panel as well as a look at consolidation trends. Ownership and control will again be a fundamental theme, and interesting views are expected to be presented. Another element that has already been added to the 2013 Air Transport Conference agenda is barriers to entry and exit. It is the latter, of course, that most concerns the industry with many calling for market forces to prevail.

 “This symposium is an excellent opportunity for ICAO and industry stakeholders to take a careful look at air transport today, examine emerging trends, and address the challenges posed to the sustainable development of air transport,” says Secretary General Raymond Benjamin.

Exactly what constitutes sustainable development will doubtless crop up in all the debates. It is often confused by an environmental definition but for aviation sustainability will include a number of elements, including social and economic.

The point is also made that most other comparable industries—shipping is a case in point—operate in a fully liberalized environment, meaning fewer barriers to exit and consolidation, and limiting the power of customers and suppliers.

Whatever the outcome, most observers note that something needs to happen. The airline industry competes with pre-liberalization company structures in a post-liberalization market place.
“Much progress in liberalizing international air transport industries has been made in the past decade or so, mainly via bilateral air services agreements,” says Dr. Tae H Oum, UPS Foundation Chair Professor at the Sauder School of Business, The University of British Columbia in Canada, and President of the Air Transport Research Society.

“The bilateral negotiation between each pair of countries is a very inefficient, costly, and time consuming process, unfit for the modern society.

“The world needs a better and more efficient air transport system. The bilateral approach also creates inefficient air transport service networks within each continent and inter-continentally. EU-style continental open skies are very much needed in order to serve the rapidly globalizing trade, business, tourism, and economies more effectively. GATS (General Agreement on Trade in Services)-style globalized liberalization of international air transport is our goal. Therefore, it is important to discuss international air transport liberalization issues in open forums such as those facilitated by ICAO, IATA, and even the WTO.”

 

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