US DoT gives a tentative No to Delta-Virgin Blue group alliance

On 8 September 2010 the United States Department of Transportation (DoT) announced a draft decision to deny the application by Delta Air Lines and the Virgin Blue group for anti-trust immunity (DOT-OST-2009-0155) and issued a 13-page Order to Show Cause (see previous post).

The Australian Competition and Consumer Commission (ACCC) had previously approved this alliance (see previous post).

The German Departure Tax

Details of the German air transport departure tax (Luftverkehrsteuer or Luftverkehrsabgabe) are now available in a 1 September 2010 media release from the German Government and a legal text (both in German)(see previous post).

The tax, which will have three distance bands, is similar to the air passenger duty currently imposed in the United Kingdom.

A November 2009 study by SEO from the Netherlands of The Implications of the Irish Air Travel Tax commissioned by Aer Lingus, Ryanair and Cityjet suggests that such taxes can be counterproductive.

Singapore concludes "open skies" agreements with Barbados, Brazil, Jamaica and Rwanda

On 19 July 2010 the Civil Aviation Authority of Singapore (CAAS) announced that Singapore had concluded "open skies" agreement with Barbados, Brazil, Jamaica and Rwanda at ICAN 2010.

Air services arrangements between Fiji and Singapore were also modified to create new opportunities.

Further planned airline arrivals and departures in the New Zealand market

On 26 May 2010 Continental Airlines (CO) announced that it plans to operate its new B787-8 aircraft non-stop between Houston and Auckland from 16 November 2011. Auckland Airport also issued a statement welcoming its returning customer.

Continental and United Airlines (UA) announced on 3 May 2010 that they proposed to merge. On 27 May 2010 the US Government Accountability Office (GAO) issued a report on the issues raised by the proposed merger. Committees of the US Senate and House of Representatives have also held hearings. On 27 July 2010 the merger received a clearance from the European Commission but is still awaiting a decision from the US regulatory authorities, in this case the Department of Justice.

On 21 June 2010 Jetstar announced that Jetstar Airways would be operating non-stop services between Singapore and Auckland using A330 aircraft on behalf of Jetstar Asia (3K) from 18 March 2011.

On 28 July 2010 Aircargo Asia-Pacific reported that Cargolux (CV) is suspending it operations to Australia and New Zealand. The last flight will operate on 28/29 August 2010.

European Commission to propose a direct tax on aviation?

On 9 August 2010 the Telegraph reported that the European Budget Commissioner has floated the idea that the European Commission be granted the power to impose a direct taxes on financial transactions and air travel. The latter would seem to be in addition to the EU ETS. The United Kingdom Government is reported to be opposed to the idea.

Brazil opens access for airlines from the Gulf region

A 13 July 2010 report in Xinhua reports on the bilateral air services arrangements concluded by Brazil with 12 countries at the ICAO Air Services Negotiation Conference in Jamaica.

Notable new arrangements include those with countries in the Middle East. The fast growing airlines from the Gulf region in particular stand to benefit from the sixth freedom opportunities that this will create for carriage between Brazil and East Asia.

Pacific Blue to cease New Zealand domestic services

On 16 August 2010 the Virgin Blue group announced that Pacific Blue would be ceasing New Zealand domestic air services from 18 October 2010. Its B737-800 aircraft will be redeployed and would, among other things, be used to increase flight frequency on the BNE-HLZ, BNE-DUD and MEL-CHC trans-Tasman sectors.

Air New Zealand will be increasing its domestic frequency when it replaces its B737-300 aircraft with A320 aircraft from January 2011 (see previous post). A competitive response from Jetstar is also likely.

Although Pacific Blue boosted domestic air passenger numbers when it initially entered the New Zealand market on 12 November 2007, this boost did not last (see previous post).

Wellington rail patronage growth largely driven by petrol price changes

In a previous post linking to Greg Mankiw's cross-price elasticity of demand examples, I noted that the car park at my local railway station seemed fill up when petrol prices went up. I recently found the two data series and graphed the relationship to see if I could confirm this.

The graph below and the R-squared value of 0.76 indicate that the changes in petrol prices have in fact been quite strongly related to changes in Wellington train patronage. For each cent the average quarterly price of petrol rises Tranz Metro can expect to have seen patronage rise by just under 8,000 passenger journeys per quarter.

I downloaded the data series for the inflation-adjusted quarterly average price of regular petrol from here UPDATED on the New Zealand Ministry of Economic Development web site. The rail passenger numbers come from here UPDATED on the Metlink web site.

It would be interesting to see what the relationship is with respect to other urban rail passenger systems, particularly in Auckland.

Meanwhile another factor is currently influencing rail passenger demand in Wellington. Service disruptions, while the system goes through a massive upgrade, are driving down demand as some rail commuters resort to more reliable alternatives transport modes (see Dominion Post story dated 13 August 2010).

BA/AA Okay

On 20 July 2010 the United States Department of Transportation announced that it had granted anti-trust immunity to an 'integrated' alliance between American Airlines (AA) and four of its oneworld partners, British Airways (BA), Iberia, Finnair and Royal Jordanian. The docket number is DOT-OST-2008-0252. The airlines only had to surrender four pairs of slots at London Heathrow (LHR) airport.

In a 15 July 2010 post Aviation Law Prof Blog covers the European Commission approval of the alliance given on 14 July. The BBC also carried a report. The Commission required the surrender of 49 weekly slots at LHR.

This brings to an end a lengthy process that started over a decade ago. The first attempt by AA and BA to gain approval dates back to 1997 while a second attempt was also knocked back.

The alliance had long been opposed by Virgin Atlantic. I recall seeing their aircraft painted with the slogan No way BA/AA.

Productivity growth in the New Zealand transport and storage industry

A June 2010 report into Industry Sector Productivity Statistics 1978-2008 released by Statistics NZ confirms that the Transport and Storage sector has a very good story to tell in this regard (see in particular Figure 2.1 on page 6).

What is particularly interesting to note though is Figure 14.2 on page 93. I suspect that it could be concluded that the transport reforms in the 1980s were a major contributing factor to the productivity growth in the decade or so following. The more recent productivity performance of the sector has not been so impressive.

Australia and Papua New Guinea expand airline capacity arrangements

On 3 June 2010 the Australian Minister for Infrastructure announced that air services negotiations between Papua New Guinea and Australia had reached an understanding to increase the passenger and cargo capacity able to be provided by the international airlines of the two countries for services between them.

Airline code-share approvals in Papua New Guinea

For some years Qantas has left operations to Papua New Guinea to its local partner Air Niugini. It is sometimes instructive to see how the regulatory authorities in other countries deal with applications from airlines seeking to cooperate.

Here are the 59-page, 18 December 2009 Determination of PNG's Independent Consumer & Competition Commission renewing approval of the Qantas/Air Niugini code-share arrangements and the 37-page, 11 November 2008 Determination approving the Pacific Blue Airlines (Aust)/Airlines PNG code-share arrangements.

On 1 July 2010 QantasLink commenced operations to Port Moresby from Cairns. This is the first international service for QantasLink.

Alternative view on the location of the World's Economic Centre of Gravity

Danny Quah from the London School of Economics has produced a paper The Global Economy's Shifting Centre of Gravity, dated August 2010, presenting an alternative view as to the location of the World's Economic Centre of Gravity (WECG) to that of Grether and Mathys (see previous post).

This has the WECG located just south of Izmir, Turkey (rather than north of Norway) and moving East. Maybe this provides a partial explanation for the current success of the rapidly growing airlines Emirates and Turkish.

New Zealand Emissions Trading Scheme covers transport fuels from today

It would be remiss of me not to note that from today, 1 July 2010, the New Zealand Emissions Trading Scheme (ETS) covers all domestic modes of transport, including aviation, that use liquid fossil fuels.

Once again New Zealand is leading the world.

Australian Infrastructure Minister addresses IAC in Washington DC

On 30 June 2010 the Australian Minister for Infrastructure, Hon Anthony Albanese, delivered an address on aviation policy to the International Aviation Club (IAC) in Washington DC.

Some of the very good points he makes about the implications of Australia's geographic location in terms of air services arrangements, particularly the critical importance of fifth freedom rights, apply equally to New Zealand.

WTO makes public its Air Services Agreement Projector

On 14 June 2010 the World Trade Organization (WTO) made available its Air Services Agreement Projector (Flash application) based on its QUASAR database (see previous post).

I know that this is the culmination of considerable hard work by a small dedicated team at the WTO Secretariat, as well as the work of the International Civil Aviation Organization (ICAO) Secretariat in Montreal who maintain DAGMAR.

The database is only as good as the information feed into it and this is primarily reliant on ICAO member states fulfilling their obligations to deposit copies of their air services agreements.

Already this data is being used for economic research (see previous post).

The Economist on Aviation in the Gulf

On 3 June 2010 The Economist published a briefing on Aviation in the Gulf "Rulers of the new silk road" and related editorial "Super-duper-connectors from the Gulf", focussing on the rise of network airlines Emirates, Etihad Airways and Qatar Airways, and their hub airports.

These airlines and airports, as well as enjoying the active support of their governments, are just about in the perfect geographic location for serving international air transport needs with ultra-long-haul aircraft. This is illustrated in a range chart centred on Dubai for the Boeing B777 family of aircraft.

On 10 June 2010 Airbus announced that Emirates had ordered a further 32 Airbus A380 aircraft to take its total order to 90 of these giant airliners. Jon Ostrower, in his excellent weblog FlightBlogger, on 10 June 2010 commented: "With RPK - the measurement of actual passenger traffic - set to double in the next 20 years, makes you wonder whether or not Emirates is hoping to carry it all themselves." Jon was joking wasn't he?

WTO report on US complaint against Airbus

On 30 June 2010 the Geneva-based World Trade Organization (WTO) released its massive report on the United States complaint about subsidies given to Toulouse-based aircraft manufacturer Airbus.

Media statements in response have been released by:

• Airbus
• Boeing
• European Commission Trade
• Office of the United States Trade Representative

Regardless of the final outcome it seems highly desirable that there continue to be at least two global-scale manufacturers of large airliners driving innovation through competition.

Brief mention in UK Budget on replacement of Air Passenger Duty

The UK Budget Report released on 22 June 2010 (see page 36) made only a brief mention of the replacement of the Air Passenger Duty (APD)(see previous post):

"1.123 The Government will explore changes to the aviation tax system, including switching from a per-passenger to a per-plane duty, which could encourage fuller planes. Major changes will be subject to public consultation."

Perhaps more significant is the line in Budget Table C11 (see page 100) from the new Office of Budget Responsibility which has revenue from APD doubling over the next six years. We can assume that they do not have a doubling of passenger numbers in mind!

Air Vanuatu "rescue"

On 21 June 2010 Radio New Zealand International reported on the "rescue" of Air Vanuatu involving an around US$30m loan to the company.

A 19 June 2010 article and a 25 June 2010 article in the Vanuatu Daily Post provide further background.

There is still a web site seeking proposals for the airline's restructuring.

There can be no doubt that operating a small international airline with a limited network of long, thin routes is very challenging to put it mildly. One might contemplate the governance implications of replacing politicians with civil servants as board directors and where the incentives lie. The company now has only four directors whereas at one point it had 28 directors (see paragraph 68 of this 2005 Pacific Islands Forum paper on Public Enterprises).

LAN using MALIAT rights to code share on Cathay Pacific to Hong Kong

On 17 May 2010 the Chilean airline, LAN started code-share services to Hong Kong (HKG) from Santiago (SCL) using the operations of its oneworld global alliance partner airline, Cathay Pacific (CX) for the sector to HKG. The services are via New York (JFK), Los Angeles (LAX) and Auckland (AKL).

LAN's code sharing beyond the United States and New Zealand to Hong Kong uses Chile's air rights under the MALIAT and separately Chile's air services arrangements with Hong Kong.

South America and East Asia are on opposite side of the globe so the great circle distances involved in the three air routings are not that different, although travel via AKL is shorter:

• SCL-JFK-HKG 21,193km
• SCL-LAX-HKG 20,647km
• SCL-AKL-HKG 18,829km

The calculations were made using Great Circle Mapper.

Canada concludes new air transport arrangements with Cuba, El Salvador, Ethiopia, Morocco and Tunisia

In recent months Canada has announced new air services arrangements with:

• El Salvador (29 April 2010) - "open skies-type ..."
• Ethiopia (1 March 2010) - first agreement
• Tunisia (1 March 2010) - first agreement
• Morocco (9 February 2010) - expanded agreement
• Cuba (7 February 2010) - expanded agreement

Botswana negotiates air services agreement with Ethiopia

The Southern Times reported on 14 July 2010 that, at negotiations held in Addis Ababa on 26-27 May 2010, an MoU was signed concluding a bilateral air services agreement.

The Botswana CAA is reported to be planning to hold negotiations this year with Angola, Egypt, Singapore and South Africa as part of a liberalisation programme.

Singapore and the Philippines expand their air services arrangements

On 13 May 2010 the Singapore Government's Ministry of Transport announced that it had agreed with the Philippines to expand their bilateral air services arrangements by allowing for greater capacity, measured by flights per week (see previous post).

Singapore announces new air services arrangements with Greece

On 17 June 2010 the Singapore Government's Ministry of Transport announced that the previous day it had agreed with Greece to expand their bilateral air services arrangements.

These new arrangements are another example of agreeing to take a more liberal approach to dedicated freighter services than to passenger services.

New Zealand's provincial international airports

Aviation pioneer isn't a phrase one hears very often these days with respect to recent aviation industry developments, but I would describe Ewan Wilson as one in the New Zealand context. In the mid-1990s with Kiwi Travel International Airlines (1995-1996) he established the first regular non-stop international services between Hamilton, Palmerston North, Dunedin and Australia. Serving on a point-to-point basis, in what was about to become in 1996 the Australia-New Zealand Single Aviation Market (SAM), Kiwi used leased aircraft from a number of international aircraft operators in what proved to be an ultimately undercapitalised venture when faced with competition from Air New Zealand's new no-frills subsidiary, Freedom Air (1996-2008).

In those days the global security environment was more benign and it was easier to establish border facilities at an airport for international flights, although the cost of processing passengers on a per-passenger basis compared with at New Zealand's three main international airports was very high.

The following graph illustrates the subsequent rise and fall on international passenger movements through Hamilton (HLZ), Palmerston North (PMR) and Dunedin airports (DUD), and the growing success of Queenstown (ZQN), which now has Air New Zealand, Jetstar, Pacific Blue and Qantas competing. The graph disguises the fact that HLZ temporarily lost its international services until Pacific Blue entered the market, while in the winter of 2009 for some weeks DUD only had one Air New Zealand international service per week. Rotorua (ROT) has only recently secure international services operated by Air New Zealand, while Invercargill (IVC) has for many years sought to attract international operations.

Again the data for the graph comes from Statistics NZ's excellent Infoshare.

The challenge for these provincial airports is that while they offer air passengers the convenience of non-stop point-to-point services, the frequency of international air services available is inevitably much greater at the three main airports and all these provincial airports enjoy good connecting domestic air links. In the case of HLZ there is the added challenge of competing with an improving road link between Hamilton and Auckland Airport.

Today Ewan Wilson is back in the travel industry operating escorted tours under the Grand Journey brand.

Dramatic changes in purpose of visits to New Zealand

The following graph indexes overseas visitor growth to New Zealand by purpose back to the year ended March 2004.

What it clearly shows is that the weakening growth in overall visitor numbers to New Zealand contains within it three interesting trends:

• Strong growth in visiting friends and family (VFR), perhaps connected with related long-term migration
• A lack of growth and a cyclical pattern in holiday visitor numbers
• A collapse in business visitor numbers since 2007

The data source for this graph is the entry cards visitors fill in when passing across the New Zealand border. These are processed by Statistics NZ.

Germany planning to introduce new duty on aviation

On 7 June 2010 Bloomberg reported on the German Government announcement that it would be introducing a tax on air travel to raise one billion euros a year as part of its efforts to reduce its budget deficit. For those that speak German, some further information is available here about what is described as a national ecological air traffic charge on all passengers.

Reaction from the airline industry included:

• Association of European Airlines
• International Air Transport Association

On 17 June 2010 the Brussels-based NGO Transport & Environment posted a story that suggests that it is not yet clear what will happen to this tax when international air transport is covered by the EU Emissions Trading Scheme (ETS).

More background sources on the UK Air Passenger Duty

As we wait to see what the UK Budget on 22 June 2010 will say about the replacement of the current UK Air Passenger Duty (APD) with a Per Flight Duty (previous post), here are some more sources of information about the existing UK APD:

• HM Revenue & Customs releases monthly data that includes information about the total revenue raised for each distance band.
• HM Revenue & Customs published a 10-page regulatory Impact Assessment on the last set of reforms to the APD.
• The UK House of Commons Library has produced a briefing paper on Air passenger duty : recent debates & reform (last updated 14 May 2010).

Fiji negotiators heading for ICAO meeting in Jamaica

On 17 June 2010 the Fiji Times reported that Fiji is sending an air services negotiation delegation to the third ICAO Air Services Negotiation Conference at Montego Bay, Jamaica from 28 June to 2 July 2010. One of the objectives of the Fiji delegation is to continue negotiations with the United Arab Emirates (previous post).

Recovery in New Zealand domestic air passenger numbers

Almost a year ago I posted graphs of domestic passenger numbers through AKL, WLG and CHC airports that clearly showed the impact of the start of domestic (cabotage) services by Pacific Blue and the subsequent impact of the economic recession. I have continued to update this data and the graphs now show growth returning to the New Zealand domestic market.

Recent news from: Air New Zealand on 25 May 2010 that it will be boosting domestic capacity by 3.8% for the Northern Winter 2010 schedule season; Jetstar, which is reported by the NZ Herald on 5 June 2010 to be adding a seventh A320 to its New Zealand-based fleet, and Pacific Blue which is reviewing its New Zealand domestic operation, however, suggests that the supply side of the New Zealand domestic air transport market will be in for some changes.

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.

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).

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.