30 May 2010

Top 10 airlines almost all have relatively small home markets

When I saw the list of the top 10 airlines in the world announced by Skytrax as part of its annual World Airline Awards on 20 May 2010, I was immediately struck by the fact that I had recently compiled a short list of countries that contains virtually all of these airlines' home countries, the exception being Korea. This was my research last year into the ratio between airline industry RPKs and home market GDP (previous post).

Here is the list of the 2010 top 10 airlines with in brackets the ranking of their home market in terms of that ratio:

1. Asiana Airlines (19)
2. Singapore Airlines (4)
3. Qatar Airways (3)
4. Cathay Pacific (6)
5. Air New Zealand (7)
6. Etihad Airways (1)
7. Qantas Airways (8)
8. Emirates (1)
9. Thai Airways (13)
10. Malaysia Airlines (9)

There is even a rough correlation in some of the rankings.

A further correlation that would be interesting to examine would be whether there is a relationship between perceived product quality and profitability but to get a complete picture we run into the problem that Qatar Airways, for example, does not publish its financial position.

I note that all of these top 10 airlines are long-haul carriers and it has yet to be conclusively proved that a "no frills" approach to such services can succeed so the 10 airlines have to position themselves at the quality end of the market. Short-haul leisure travellers are more likely to be focussed on price rather than product quality.

A simple conclusion would be that to succeed in the international airline business outside of a large open aviation market and attract so much sixth freedom passenger traffic (the exercise of fifth freedom rights is relatively rare) an airline has to offer a high-quality product.

Might the flip side of that be that airlines with larger home market, protected by the lack of domestic competition because of the rareness of cabotage rights exchanges, tend to take customers in their home markets a little too much for granted? Or could it partly be explained by the fact that for other lower quality ranked airlines the ratio of short- to long-haul services is higher? Food for thought and perhaps further analysis.

29 May 2010

New UK Government planning to replace APD with a per-flight duty

In its May 2010 coalition agreement, The Coalition: our programme for government, the new United Kingdom Government, in the Energy and Climate Change section, has confirmed that:

"We will replace Air Passenger Duty with a per-flight duty."

This follows election manifesto commitments to:

"- reform Air Passenger Duty to encourage a switch to fuller and cleaner planes." Conservative Party manifesto (page 23)

"Ensuring pollution is properly taxed by replacing the per-passenger Air Passenger Duty with a per-plane duty (PPD), ensuring that air freight is taxed for the first time. We will also introduce an additional, higher rate of PPD on domestic flights if realistic alternative and less polluting travel is available." Liberal Democrat Party manifesto (page 14)

Related media coverage appeared in The Independent and the Daily Mail on 13 May 2010, and The Telegraph on 14 May 2010.

This issue was the subject of a similar proposal in 2007 (previous post). Following consultations the idea was rejected by the previous Labour Government.

The design details of how the per-flight duty would work has yet to be announced.

How closely the amount of revenue collected reflects the environmental costs (previous post) and whether it would be adjusted in light of the extension of coverage of the EU emissions trading system to cover international aviation remains to be seen.

US airlines to challenge legality of EU ETS covering international aviation

On 28 May 2010 GreenAir Online reported that US airlines have secured UK High Court agreement to take their case against the extension of coverage of the European Union's emission trading system (EU ETS) to the European Court of Justice.

A news releases was made by the US Air Transport Association.

In a 17 March 2010 post Aviation Law Prof Blog commented on the issues involved.

More information about the plans to extend the EU ETS to cover aviation is available here on the UK Environment Agency web site.

Air New Zealand/Virgin Blue group alliance New Zealand application

On 28 May 2010 a public version of the application seeking authorisation from the New Zealand Minister of Transport to form an Australasian Alliance was posted on the New Zealand Ministry of Transport's web site (previous post).

23 May 2010

European Commission seeking to negotiate air services agreement with Brazil

On 6 May 2010 the European Commission announced that it is seeking a mandate from its member states to negotiate new, comprehensive air services arrangements with Brazil. This follows completion of an economic study by booz&co. quantifying the benefits.

Brazil is one of the major countries that has not negotiated an "open skies" agreement with the United States.

Outside of its immediate neighborhood, the European Commission has negotiated new air services arrangements with Canada and the United States, and has negotiations underway with Australia and New Zealand.

MIT thesis on the trans-Atlantic air transport market

I recently found available for download a June 2009 MIT thesis The Evolution of Network Competition in Transatlantic Aviation and the Effects of Regulatory Liberalization by Alexander Cosmas. The thesis has an interesting analysis of stakeholder interests in the market. I will leave it to others to comment on the econometrics.

What was of particular interest to me was the concise presentation of the eight freedoms of the air in one diagram (see Figure 1 on page 24) which was sourced from Michael Francesconi at UPS. Usually multiple diagrams are used. The diagram does not distinguish between the eight and ninth freedoms and in an international context (rather than in the US context) I would question the comments that the sixth freedom is "Generally prohibited" and that cabotage is "Always prohibited".

Also I had not come across this quote before from musician Frank Zappa: "You can't be a real country unless you have a beer and an airline."

Review of airline competition law developments in 2009

Australian law firm Minter Ellison has published Airlines - 2009 world wide competition law review. In what promises to be a valuable resource if it becomes a regular publication, the Review outlines the various ways that competition law around the world cover the international airline industry.

It also points to issues with Chile's method of allocating limited international air rights between Chilean airlines.

Japan and Indonesia expand bilateral air services arrangements

A 26 April 2010 weblog post on Airline Route reported on the expansion of capacity, route and code sharing opportunities for Japanese and Indonesian airlines.

An official press release in Japanese details the outcome of the air services negotiations that were held in Jakarta on 20-22 April 2010.

Air New Zealand and Virgin Blue seek to form trans-Tasman alliance

On 3 May 2010 Air New Zealand and the Virgin Blue group announced that they are seeking regulatory approval from the New Zealand Ministry of Transport and the Australian Competition & Consumer Authority (ACCC) to establish an alliance covering their trans-Tasman routes. The application to the ACCC is available here.

Papers from the last major application of this type, the proposed international alliance between Air New Zealand and Qantas in 2006 are still available here on the Ministry of Transport's web site.