Special Report on Air Travel in The Economist

This week The Economist magazine contains a special report on air travel entitled Fear of Flying with eight articles on the subject.

I have personally subscribed to The Economist for many years and keep all the back issues. For clear and concise writing on many of the subjects that interest me it has few if any equals.

UK Office of Fair Trading Threatens Action on Air Fare Advertising

On 16 June 2007 the BBC reported on the threat of action by the UK Office of Fair Trading against the advertising of air fares that exclude such items as fuel surcharges and per passenger taxes.

As noted in a 9 June 2007 post, such action has already been taken in New Zealand by the Commerce Commission.

US DoT gives final approval to Virgin America

On 18 May 2007 the US Department of Transportation gave its final approval for Virgin America to start service.

UK-New Zealand passenger travel by sea - avoiding sin?

Last year the Bishop of London, Richard Chartris, was reported in the Sunday Times on 23 July 2006, as part of the Church of England's "Shrinking the Footprint" campaign, to say that taking a holiday by air was a "symptom of sin". (Subsequently the Bishop was reported to have travelled to Wittenberg in Germany by train, no doubt using nuclear-generated electricity.) The attack on this view by Ryanair Chief Executive, Michael O'Leary, as reported in the Irish Independent on 27 July 2006, was particularly robust.

Concern about the environmental impact of international air transport on the rise, but the only alternative means of international passenger transport for remote countries like New Zealand, Australia and those in the South Pacific would be by sea. It is still possible, but not cheap, to travel between the UK and New Zealand by sea with container ships offering a limited number of berths to paying passengers (see, for example, UK firm The Cruise People), as well as a few cruise ships like the QE2 operating annual round-the-world cruises. Of course, modern ships also have an environmental impact.

It was during the 1960s that air travel effectively replaced travel by ocean passenger liner as the main means of long-distance international travel and with good reason. Few people can now afford the time (what economists would call an opportunity cost) to spend weeks at sea getting to somewhere that would only take hours by aircraft.

In the 1960s, in the pre-containerisation days, I recall in Dunedin with my step-grandfather, Haxton Matthews, going on board a Union Steam Ship Company freighter that took a few passengers and was still serving the New Zealand-India route. He had served in the Royal New Zealand Navy during the Second World War and was taking a short trip by sea up the New Zealand coast. More recently I flew with my late father in a light aircraft over the QE2 as she passed down the East Coast of Northland, New Zealand - she was a truely magnificent sight.

Airline fuel surcharges illegal?

The Times of London has been reporting recently on the use of fuel surcharges by airlines and in particular British Airways:

"Airline drives up price of holidays" 9 June 2007

"BA chiefs face extradition over 'price fixing'" 27 May 2007

"Walsh says sorry for BA’s breach of price-fix standards" 19 May 2007

"BA admits it breached price fixing rules" 18 May 2007

According to a BBC story on 14 February 2006, an Associated Press story on 15 February 2006 and an Asia Times story on 22 February 2006, competition authorities from the European Commission, United Kingdom, the United States and Korea were investigating this issue in relation to cargo rates and searching airline offices.

A large number of class-action law suits targeting airlines followed in the United States, Canada and Australia. The Australian case taken by law firm Maurice Blackburn Cashman was reported in International Herald Tribune on 1 February 2007.

In New Zealand the Commerce Commission took court action on the airline practice of having separate fuel surcharges on top of advertised passenger fares and won its cases. In June 2006 Air New Zealand UPDATED was fined NZ$600,000 and in October 2006 Qantas UPDATED was fined NZ$380,000 over misleading advertising.

The "Food Miles" debate

Libertarian Liberty Scott has posted again on the food miles debate pointing to a 3 June 2007 Sunday Telegraph article that features Lincoln University research by Caroline Saunders, Andrew Barber and Greg Taylor on the carbon footprints of various food products sold in the UK.

The key message is don't assume that because food has been transported half way around the world the environmental impact is much worse than buying local European produce.

Scott is a transport expert and former colleague now based in London. Even if you don't agree with everything he writes, his weblog is well worth reading.

EU Transport Ministers endorse including aviation in emissions trading

Transport Ministers at the European Union (EU) Transport Council meeting on 8 June 2007 have concluded that aviation should be included of in emissions trading. EU member states will adopt a common position on the issue at the ICAO Assembly in September.

In a statement announcing the decisions the German Transport Minister, Wolfgang Tiefensee, who chaired the meeting noted that "aim of the conclusions was to convince the other ICAO countries of the need to include aviation in emissions trading ... there was likely to be a heated debate at the next ICAO Assembly in the autumn on the issue of including third countries with or without their consent."

IATA AGM

The Annual General Meeting of the International Air Transport Association (IATA) was held in Vancouver, Canada this week. A feature of the meeting was the 4 June 2007 State of the Air Transport Industry speech by IATA Director General Giovanni Bisignani.

A key theme of the AGM was responding to concerns about the impact of aviation on climate change. Bisignani made a statement that included setting a very challenging goal - "Air transport must aim to become an industry that does not pollute—zero emissions."

Swissair Trial Verdicts

On 7 June 2007 the BBC reported that all 19 defendants in the Swissair collapse trial have been found not guilty. The court in Bülach near Zurich also announced damages of SFr3 million (US$2.45 million) in favour of the defendants.

I previously posted about the trial on 20 and 24 January and 10 March 2007.

Ernst & Young and York Aviation Report on EC ETS proposal

After being commissioned by key players in the European aviation industry, Ernst & Young and York Aviation have completed a report dated 1 June 2007 entitled "Analysis of the EC Proposal to Include Aviation Activities in the Emissions Trading Scheme". The Executive Summary and full report are now available on the Association of European Airlines web site as is a related aviation industry press release.

I previously covered the European Commission's proposal in a post on 11 January 2007.

"Open skies" being considered in Japan

On 13 May 2007 the Yomiuri Shimbun had an editorial that covered consideration in Japan of the possibility of adopting an "open skies" policy, noting that the two key airports that serve Tokyo, Narita and Haneda, are already operating at capacity.

The editorial noted recent consideration of the issue by the Council for the Promotion of Regulatory Reform, the Council on Economic and Fiscal Policy (see the provisional translation of the Expert Members' Paper Toward the Promotion of Aviation Liberalization (Open Sky) NEW), and the Council for the Asian Gateway Initiative.

On 17 May 2007 Japan Today carried a report on one of the proposals covering Kansai and Nagoya airports.

Qantas currently Australian owned and controlled

In an 8 May 2007 post I touched on the question of whether the Qantas Sale Act had been breached during the recent bid.

On 30 May 2007 Qantas issued a media statement advising that it "believed the level of foreign shareholding in the company was below the regulatory requirement of 49 per cent." It went on to say that Qantas was "working with lawyers and other advisers to investigate alternative methods of monitoring foreign shareholding in line with the requirements of the Qantas Sale Act."

Air New Zealand and the Environment

Just as the issue of aircraft noise did some years ago, the issue of the impact of aviation emissions is now a major one for the international airline industry. It is of particular significance for countries that rely on aviation to meet their international passenger transport needs.

Air New Zealand has just published a booklet (1.86mb .pdf) on it commitment to the environment.

A 25 May 2007 article by Steve Creedy in the Australian reported on the views of Rob Fyfe, the airline's Chief Executive, on this issue.

An update on Emirates

The rapid growth of new international airlines based in the Gulf region of the Middle East are being closely followed by many in the aviation industry. An article by Jens Flottau published in the 21 May 2007 issue of the US industry magazine "Aviation Week & Space Technology" provide an interesting update on developments at Emirates (EK).

"The Leading Edge - An Adventure Story" by Dick Georgeson and Anna Wilson

I have recently finished reading this excellent autobiography. Dick Georgeson, the nephew of famous jet boat inventor Bill Hamilton, grew up in the South Island high country and was a pioneer glider pilot in New Zealand. He set many gliding distance and altitude New Zealand and world records as he explored the mountain waves that form in the lee of ranges. The stories of coping with extremes of heat, freezing cold, turbulence and flying in cloud are somewhat awe inspiring. Breaking records is not easy! The Mackenzie Country in South Canterbury where Dick Georgeson often flew has subsequently come a world-class centre for soaring.

A Listener article published in 2003 provides some more information about Dick Georgeson that was not included in the book.

Personally I have been up in a glider twice on trial flights but while I was flying powered light aircraft wasn't tempted to take up gliding as a hobby. My wife was involved in a gliding club in England when she was younger.

"The Southern Octopus - The Rise of a Shipping Empire" by Gavin McLean

I recently finished reading this very good history of the Union Steam Ship Company covering the period from the company's founding in Dunedin by James Mills in 1875 until it was purchased by P&O in 1917. The book was, I think, adapted from Gavin McLean's PhD thesis.

What struck me were the parallels between some of the issues facing international shipping in the late nineteenth century and international aviation in the late twentieth century. New technology, alliance arrangements, competition regulation and management performance all loomed large albeit with the shipping fleet moving at about one thirtieth of the speed of modern jet aircraft.

The book is also a good reminder that Dunedin was once the commercial capital of New Zealand.

I studied history at the University of Otago a year behind Gavin and very much respected his thesis supervisor, Associate Professor Gordon Parsonson. Gavin has gone on to be a prolific author of New Zealand history.

GAO report on implications of the A380

When the huge Airbus A380 does finally enter into commercial service it will have significant implications for airports. Many of the larger airports around the world have been preparing for some time for that day. A report entitled "Commercial Aviation: Potential Safety and Capacity Issues Associated with the Introduction of the New A380 Aircraft", published on 20 April 2007 by the US General Accounting Office (GAO), touches on many of the issues.

A graphic on page 17 of the full report illustrates the separation distances that other aircraft must maintain from a landing A380. In a 1 April 2007 post I noted the A380 capacity issue of slots at congested airports such as London Heathrow. At this stage at least, it seems clear that airlines operating the A380 to congested, slot-controlled airports will not be able to do a simple one-for-one swap with existing take-off and landing slots that they hold.

Having flown light aircraft at Wellington Airport, I am very conscious of the dangers of wake turbulence for smaller aircraft. Of course just about every other aircraft is smaller than an A380!

China and US agree to more than double air capacity by 2012

US Transportation Secretary, Mary Peters, announced on 23 May 2007 that agreement has been reached for air transport capacity for US and Chinese airlines to be increased in phased steps to 23 flights per day by 2012. Limits on dedicated air cargo capacity will be removed by 2011. Negotiations towards an "open skies" agreement will recommence in 2010.

New South Africa-Switzerland Air Services Agreement

On 8 May 2007 South Africa and Switzerland signed a new Air Services Agreement replacing one signed in 1959. A press statement from the South African Department of Transport gives some details.

South Africa is pursuing a new "Airlift Strategy" that was given Cabinet approval on 26 July 2006 (see posting on 18 March 2007).

Vanuatu ratifies the PIASA

Vanuatu has become the fifth country to ratify the Pacific Islands Air Services Agreement (PIASA) according to a press statement released on 15 May 2007 by the Pacific Islands Forum Secretariat. Only one further ratification is now required to bring the PIASA into force. (See also related posting on 20 March 2007.)

"747 - Creating the World's First Jumbo Jet and Other Adventures from a Life in Aviation" by Joe Sutter

I have just finished reading this excellent book completed in 2005 by the legendary "father of the B747" aeronautical engineer Joe Sutter. Born in 1921, he still works as a consultant for Boeing. I found the book hard to put down and finished all 263 pages around 24 hours after I purchased it.

It tells a superb story about the development of the Boeing 747 placed in the context of other aviation developments from around that time - the original B747 first flew on 9 February 1969. In addition, the book offers concise technical insights into airliner design.

Another fascination in the book are the "warts and all" stories of the office "politics" at Boeing. I had wondered why this book had not been written some years ago. This latter content may not have been included if it had been!

Randy Baseler from Boeing, after reading the book, published on his weblog two interviews with Joe Sutter last year, posted on 22 August 2006 and 16 August 2006.

"The Soulful Science - What Economists Really do and Why It Matters" by Diane Coyle

For those who studied economics over 20 years ago or have a stereotypical view of economic theory as being out of touch with reality (an unfair criticism these days) but think that they understand the basics of the subject, this book is well worth reading for an update on recent developments across the discipline (without the mathematics). Diane Coyle holds a PhD in Economics from Harvard and has worked as a journalist - she was Economic Editor of the Independent - which shows in her clear and concise writing style.

I enjoyed this book. My one disappointment was that there were some areas of the subject, such as economic geography and international trade theory, that were barely covered, something that the author freely acknowledges. I was left thirsting for more.

US may not push China so hard for "open skies"

An 8 May 2007 report in Aviation Daily suggests that the US is likely to give greater priority to securing agreement for more flight frequencies with China.

Proposal to include aviation in EU emissions trading scheme generates controversy

On 10 May 2007 the New Zealand Herald has a good article written by Brian Fallow on the controversy being generated by the European Commission's proposal to include aviation in its emissions trading scheme.

UK consultations on proposal to include aviation in EU emissions trading scheme

On 30 March 2007 the United Kingdom Department for Transport released a consultation document about the European Commission's proposal to include aviation emissions within the European Union Emissions Trading Scheme (EU ETS). Submissions are due by 1 June 2007.

No agreement yet from China-US air services negotiations

Aviation Daily has a 1 May 2007 report on the latest round of negotiations between China and the United States held in Chengdu in late April.

Qantas bid "definitely dead"

After Qantas shares were suspended from trading on 7 May 2007, on 8 May 2007 the Sydney Morning Herald was reporting that the current Qantas bid was "definitely dead." Qantas has issued a statement.

Qantas Sale Act breached?

In a 7 May 2007 media statement Australian Transport Minister Mark Vaile has in effect questioned whether the Qantas Sale Act has been breached (see 23 December 2006 posting) during the recent share-market activity associated with the bid for Qantas. Articles in the Australian and the Sydney Morning Herald on 8 May 2007 give some background on the issue.

It is important to understand that this issue is not primarily about some xenophobic dislike of foreign investment in a national icon. International airlines generally operate under bilateral air services agreements - treaties between governments - that in this case would allow Qantas to be denied operating authorisation by many other countries if it was found that the company was not "substantially owned and effectively controlled" by Australian nationals. This is designed to safeguard against the circumvention of these bilateral arrangements.

This was a live issue in 2001 when the New Zealand Government was considering proposals from Singapore Airlines and Qantas to invest in Air New Zealand at a time when major shareholder Brierley Investments had moved its head office to Singapore (see papers available on the NZ Treasury web site, in particular a report dated 16 July 2001 from the NZ Ministry of Transport). Unlike in the case of Australia, New Zealand has made considerable progress in getting the "substantial ownership" criterion removed from many but not all of its air services agreements. Prior to partial renationalisation, Air New Zealand had a share structure with 'A' and 'B' shares, with 'A' share only able to be purchased by qualifying New Zealand nationals.

Qantas bid off again?

According to a 6 May 2007 report in the Sydney Morning Herald the latest twist in the saga is that the Takeovers Panel has blocked the deal by deciding to decline to consider the matter.

Jamaica-UK air services negotiations

A 6 May 2007 article in the Jamaica Observer reports that a new air services Memorandum of Understanding has been concluded between Jamaica and the United Kingdom.

Economic life on the Antarctic Rim

While New Zealand is often described as one of the economies on the Pacific Rim - by implication part of the fast-growing Pacific region in contrast to a supposedly sclerotic European economy - and is accordingly a member of APEC, the Pacific is a vast geographic region covering over a third of the surface of the earth. A country can be located on the Pacific Rim yet still be very remote from the centres of global economic activity.

I can't recall exactly the first time that I heard New Zealand described as being on the "Antarctic Rim" but think it was while I was still working at the Treasury in the mid 1990s. It is a description with some telling implications and points to the importance for New Zealand of having excellent international transport links.

As a history graduate and someone who was very impressed with Professor Geoffrey Blainey's book "The Tyranny of Distance: How Distance Shaped Australia's History", the phrase Antarctic Rim is one that has stayed with me and it is encouraging to read that economists are increasingly taking account of geography in their theoretical research.

The phrase was used by Professor Wolfgang Kasper in an address to the New Zealand Economic Association on 27 June 2002 in which he discussed New Zealand's economic growth record in the context of advances in growth theory. He does not think that New Zealand's remoteness has been holding New Zealand back.

A measure of the remoteness of fellow Antarctic Rim country Australia from an economic perspective is contained in a number of papers published by the Australian Treasury including:

"Measuring recent trends in Australia’s economic remoteness" UPDATED by Robert Ewing and Bryn Battersby (March 2005)

"International Trade Performance: The Gravity of Australia’s Remoteness" UPDATED by Bryn Battersby and Robert Ewing (June 2005)

The New Zealand Treasury has also touched on the issue in its series of working papers including:

"Economic Geography - Key Concepts" UPDATED by Sarah Box (2000)

"Geography, Trade and Growth: Problems and Possibilities for the New Zealand Economy" UPDATED by Philip McCann (2003)

"Global Connectedness and Bilateral Economic Linkages - Which Countries?" UPDATED by Jim Rose and Wayne Stevens (2004)

The gravity model of international trade - taking into account distance and market size - would seem to have applicability when it comes to examining international air passenger transport but I have yet to track down any academic studies using the model for this purpose. One such paper that focuses on air cargo is:

"Infrastructure, Competition Regimes and Air Transport Costs: Cross Country Evidence" by Alejandro Micco and Tomás Serebrisk (2004)

I suspect that it would make for some interesting further econometric research provided that care is taken with the data sets used.

The Qantas takeover bid attempt

Respected New Zealand Herald business journalist Fran O'Sullivan has a 6 May 2007 article on the takeover attempt. There are also articles in the Sydney Morning Herald and the Times that give some background to how the 50% minimum was reached only after the 7.00pm Friday deadline for acceptances had closed.

Qantas bid may yet go to the next stage?

On Saturday morning, 5 May 2007, ABC was reporting that, following an acceptance received from a large investor after the bid deadline, Airline Partners Australia will go to the Takeovers Panel to see if the bid can still proceed.

Bid for Qantas fails?

On 5 May 2007 the Australian and Sydney Morning Herald were reporting that the Airline Partners Australia bid for Qantas had failed to secure the necessary 50% acceptance for it to proceed. A successful bid would have resulted in A$4.5bn being "stripped off the balance sheet."

The Qantas share-price reaction on Monday will no doubt be the subject of considerable interest.

The "insane" world of bilateral international aviation regulation

A 20 December 2003 weblog posting by Michael Jennings on samizdata.net has some minor factual errors but makes some good points, particular about the implications of the way the exchanging of "freedoms of the air" works in practice in what he describes as the "bizarrely anachronistic" way international aviation is regulated.

Australia-Brunei air services arrangements expanded

On 26 April 2007 the Australian Minister of Transport Mark Vaile announced the expansion of capacity and routes available under the air services arrangements between Australia and Brunei Darussalam.

Speech by John Byerly on US-EU aviation relations

On 24 April 2007 John Byerly, Deputy Assistant Secretary for Transportation Affairs at the US State Department and the leader of the US delegation at the numerous rounds of ultimately successful air services with the European Commission, gave a speech to the International Aviation Club of Washington DC. He paid tribute to the many people involved in bringing together the historic "open skies" arrangement between the European Union and the United States and also looked forward to the next set of negotiations scheduled to begin by the end of May 2008.

Sadly one of the visionary architects of the new EU-US agreement, former EC Commissioner for Energy and Transport, Loyola de Palacio, did not live to see the agreement signed. She died of lung cancer at the age of only 56 on 13 December 2006.

ECJ rules against the Netherlands-US air services agreement

Following an opinion dated 16 November 2006, in a judgement dated 24 April 2007 the European Court of Justice (ECJ) has ruled against the Netherlands concerning its bilateral air services arrangements with the United States (Case C-523/04). The case was brought by the European Commission.

EU-US "open skies" agreement signed

Reuters reports that the new "open skies" Air Transportation Agreement between the European Union and the United States was signed in Washington DC on 30 April 2007. A transcript of remarks made at the signing ceremony has been released by the US State Department.

Canada and Ireland conclude "open skies" air services agreement

On 30 April 2007 Canadian Ministers announced that Canada had concluded an "open skies" agreement with Ireland. The new agreement replaces one concluded in 1947 and has immediate effect. This is the third such agreement concluded under Canada's new Blue Sky policy.