28 July 2008

Thailand and Australia expand air services opportunities

On 23 July 2008 the Australian Minister for Transport announced in a media release that Australia had reached a new air services understanding with Thailand. There will be a phased increased in capacity except for all-cargo operations where limits are removed.

With respect to fifth freedom operations, Thai airlines are not granted rights beyond Australia to the USA and Australian carriers are not granted rights beyond Thailand to China.

Australia negotiates expanded air services arrangements with Brazil

On 23 July 2008 in a media release the Australian Minister for Transport announced that new air services arrangements had been negotiated by Australia with Brazil. Capacity limits have been increased and most route restrictions removed.

23 July 2008

Cross-price elasticity of demand examples

Harvard economics professor Greg Mankiw on his weblog has been running a series of examples of how people respond to prices. Most relate to transport behaviour switches in response to the higher price of oil:

XIII NEW - switching from private jets to commercial airlines
XII NEW - switching to more fuel-efficient aircraft
XI - switching to golf carts on the street
X - switching to the train
IX - switching to small used cars
VIII - switching to on-line education
VII - switching to scooters
VI - switching to a home closer to a rail station
V - switching to mules
IV - switching to bicycles
III - switching to mass transit
II - switching to camels
I - switching to smaller cars

I have noticed the car park at my local rail station completely fill up since petrol prices started rising. Tranz Metro is responding to this by planning to increase rail fares from 1 September 2008 and ordering new trains.

20 July 2008

Canadian competition panel considers limits on foreign investment in airlines

In June 2008 the Canadian Competition Review Panel released its report Compete to Win.

Citing the situation in Australia and New Zealand where "ninth freedom" cabotage is permitted and the limit on foreign investment in an international airline is 49% (currently 25% in Canada), the panel urges the Canadian government to adopt similar regulatory measures.

News coverage of the report appeared in an article in the National Post on 26 June 2008 and an article in the Vancouver Sun on 27 June 2008.

Submissions on Australian aviation policy review

The period for public submissions on the planned Australian National Aviation Policy Statement has closed and they are now available NEW on the web (see previous post).

Notable submissions come from Qantas (188 pages), Virgin Blue (46 pages), Emirates (8 pages) and Singapore Airlines (12 pages).

With Australia being in close geographic proximity to New Zealand, some of the points made by Qantas about exchanging traffic rights are particularly interesting:

"1.1.4 Additional policy considerations


We recognise that increased competition has contributed to driving efficiencies and strengthening the competitive ability of the Australian aviation industry more broadly.

We note, however, that Australia’s policy contains a delicate balance of competing interests, and relies heavily on market efficiency principles that do not always recognise the harsh realities of international aviation, including the lack of a level playing field, and the complexity of the bilateral system. In particular, we believe that the Government should have regard to the following considerations when implementing policy to achieve further liberalisation. Australia has limited leverage

Australia’s market size and relatively remote ‘end-of-line’ location combine to limit the leverage it can bring to bear in seeking expanded market access rights for our airlines. Indeed, Australia has few “high value cards” left to play when trading rights of access under the bilateral system. It is important that this leverage be conserved and, when deployed, used to maximise commercial opportunities for Australian carriers. This principle should guide any future consideration of access to the trans-Pacific route. Hub carriers have significant natural advantages

Under the bilateral system, hub carriers such as Emirates, Singapore Airlines, Malaysia Airlines and Cathay Pacific can more readily combine third and fourth freedom rights in both directions to exercise sixth freedoms.

By contrast, Australian carriers, being end-of-line operators, often lack the rights needed from third countries to replicate many of the beyond point services operated by hub carriers. For this reason, reciprocal exchanges of rights do not necessarily result in equivalent improved commercial opportunities for Australian carriers.

This characteristic of the bilateral framework underscores the importance of careful sequencing of liberalisation. Qantas has consistently advocated liberalisation in end-of-line markets before hubs, to maximise Australia’s leverage and offset the hub carrier advantage inherent in the bilateral system."

19 July 2008

The Avro Vulcan finds a new fan at Farnborough

The 2008 Farnborough International Airshow is just finishing up with its usual displays of spectacular flying. One piece of writing about the Show caused me some amusement - a post by Flight International journalist Kieran Daly on his weblog Unusual Attitude:

"When I wrote on 18 August 2006 that 'I've got my own doubts about how much money can be justified to keep large jets flying' I may have inadvertently given the impression that I had doubts about how much money could be justified to keep large jets flying.

"Having spent a gloriously unproductive ten minutes at Farnborough this afternoon watching an Avro Vulcan fly ... I would like to assure readers that I think the amount of money appropriate for keeping Vulcans flying is, basically, whatever it takes.

I apologise for any confusion that may have been caused."

The ex RAF Avro Vulcan concerned is XH558 restored by the Vulcan to the Sky Trust. Video clips of the aircraft's flying displays are available on YouTube.

For the story of RAF Vulcans in action over the Falkland Islands I thoroughly recommend reading the book "Vulcan 607" by Rowland White.

I confess to mixed feelings about old aircraft being restored to fly. All too often they crash with tragic consequences. I was fortunate enough to attend the Farnborough Air Show in 1986.

The symbols of nationhood

For some time I have been looking for the origin of a sometimes used quote about "flag" carriers. This from Time magazine in an article on 12 October 1970, reporting on Austrian Airlines and Swissair (since replaced by Swiss International after the latter made massive losses) is the earliest that I have found so far:

"Along with a flag and an anthem, the symbols of nationhood all too often include a money-losing national airline. Since 1950, the number of "flag" carriers has proliferated to the point that there are almost as many as there are countries in the U.N."

If anyone finds a similar earlier quote please let me know.

17 July 2008

New Zealand Commerce Commission investigating alleged air cargo rate fixing

On 16 July 2008 the New Zealand Commerce Commission issued a media release announcing that it was filing criminal charges against Cathay Pacific Airways, Singapore Airlines Cargo and Aerolineas Argentinas. These airlines are alleged to have not provided information and documents during an investigation into allegations of price-fixing and other anti-competitive conduct in the air cargo industry.

The New Zealand Herald carried a report about this action on 16 July 2008, including comments from Cathay Pacific and Air New Zealand.

On 28 June 2008 the Herald reported on a related very large settlement reached by some international airlines with the US Justice Department described as
"the highest total amount of fines ever imposed in a criminal antitrust investigation."

ICAO resources on the economic regulation of international air transport

Buried in the International Civil Aviation Organization (ICAO) web site are some very useful resources for those interested in studying trends in the economic liberalisation of inter-government restrictions on international airlines. These have been prepared by ICAO's Montreal-based Air Transport Bureau.

For example, in an Economic Regulation section of the web site there is the updated 7 March 2008 version of a 13-page paper "Overview of Trends and Developments in International Air Transport".

In a Databases and Studies section there are, for example, the results of a survey of member States on Airline Ownership and Control and databases on Economic Regulation. The latter includes liberalization case studies, a new summary of regulatory actions on major international airline alliances (complete with links), a list of regional/plurilateral agreements and arrangements for liberalization and a list of government-owned and privatized airlines.

Airlines looking for government support in hard times

With the price of jet fuel having doubled in 12 months and a weakening global economy, the international airline industry is "battening down the hatches" by cutting services, laying off skilled staff and grounding older, less fuel-efficient aircraft.

It will not necessarily always be a case of "creative destruction" or "survival of the fittest." Past history would suggest that many "flag" carriers will again look to survive through government intervention. All around the world there are already signs of this happening:

In South America - on 17 July 2008 Reuters reported that the Argentine government is to takeover Aerolineas Argentinas from the Spanish travel group Marsans.

In Asia - on 10 July 2008 The Times reported that it understood Air India is seeking a "rescue finance package" from the Indian government of UK Pounds 270 million.

In Oceania - on 14 July 2008 Pacific Magazine reported on the latest developments with respect to the finances of Air Tahiti Nui. Note the reference to the airline's 16th recapitalisation being approved last year.

In Europe - on 15 July 2008 Reuters reported that the European Commission has received a reply to its concerns about the Euro 300 million loan from the Italian government to Alitalia.

In Africa - on 16 July 2008 SABC News reported that South African Airways says it needs another Rand 5.7 billion in government funding to reduce its debts.

In North America - the US Air Transportation Stabilization Board continues its existence and Chapter 11 bankruptcy protection provides a safeguard for US airlines.

Meanwhile in the Middle East some of the major Gulf airlines simply do not report their losses and their aircraft orders continue unabated. A 15 July 2008 Wall Street Journal article, with some more positive news from the global airline industry, suggests that Etihad Airways will miss its target of breaking even by 2010.

Finally, tongue in cheek, referring to this poster about a government funded air service means that I have all continents covered!

ICAO aviation carbon emissions calculator

The Environmental Unit of the International Civil Aviation Organization's Air Transport Bureau has a couple of noteworthy resources for those interested in aviation and the environment issues.

In April 2008 an ICAO Carbon Emissions Calculator was released. It provides a calculation for the carbon foot print of a passengers based on entering the city of origin and destination, and class of travel. It will be interesting to see what uptake there is of this.

To me what was of more interest was the 14-page methodology paper that was released when the calculator was launched (see previous post).

Another resource available on the ICAO web site is the 260-page ICAO Environmental Report 2007 (this is an 11.31 MB download).

10 July 2008

European Parliament votes to include international air transport in emissions trading system

On 8 July 2008 the European Parliament voted 640 to 30 in favour of including international civil aviation within the European Union's Emissions Trading System (EU ETS) confirming the agreement reached between the Parliament and the Council in June (see previous post). A press release from the Parliament outlines what was decided and the text as adopted is now available on the European Parliament's web site.

A press release from the European Commission welcomed the second reading vote. Reactions from IATA, the Association of European Airlines (AEA), the European Low Fares Airline Association (ELFAA) and, more colourfully, from Ryanair were less positive to put it mildly. Of more interest will be the reaction of the United States government, given that it has questioned the legality of aspects of what is proposed.

01 July 2008

Australia negotiates new air services arrangements with Kenya and South Africa

A 28 June 2008 statement by the Australian Minister for Infrastructure, Hon Anthony Albanese, has announced that Australia has negotiated its first air services agreement with Kenya and substantially expanded the route and capacity rights in its air services arrangements with South Africa (see recent post).