International Aviation Developments
Airline Economics & Competition
Airline economics and competition are considered to be separate and distinct from SAFETY. It is an axiom that no carrier manager would ever sacrifice safety to reduce costs or stated conversely to increase the margin of risk as a trade-off for lower expenses. Those statements remain true, but it would be naïve to discount that pressure on the bottom line puts every marginal expense under scrutiny—do we need to have that many spares in inventory; can the maintenance base reduce the AMT overtime by X%; does record-keeping really need that many MX clerks on staff? Those discussions do not venture into topics like: lower quality replacement parts; unjustified increases in mean time between overhaul; drastic reduction in pilot simulator training time; etc.
Thus, it is instructive to review significant issues on the money-making side of airline ventures:
The US carriers have expressed their concerns about the Gulf Carriers and the economic benefits which they “receive” from their governments. The group’s lobbying might well have resulted in the US DoT’s fining Qatar for “violations” which did not touch American airspace and passengers. Etihad, which already has equity positions with four European and two Pacific carriers, is now seeking a controlling interest (51%) in Italy’s national airline.
Alitalia has been in dire economic straits for 20 or more years; so, the EU might well be tempted to reconsider its definition of what is required to claim the EC flag. That news would have repercussions on this side of the Atlantic.
The vote by the electorate of the UK to depart the EU shocked its own prognosticators and the world. The actual impact of BREXIT on aviation, specifically the authority of the Kingdom’s carriers to fly on the Continent and of its aerospace OEMs to integrate their products on EASA certificated aircraft, has been the subject of some debate. [There are signs that some English companies bridled at some of EASA’s overreach.]
The experts at the Air Law Group of Royal Aeronautical Society’s London headquarters symposium involved people with high qualifications, but few definitive answers, gave the following opinions:
- Marko Ninkovic, head of marine and aviation claims for Brit Insurance, said, “There is no doubt that Brexit could be hugely disruptive to aviation from an operational and regulatory perspective.”
- “…how will UK-based commercial operators be able to fly for hire within the EU if they lose their cabotage rights?”
- “Will the UK remain a member of the European Aviation Safety Agency? If not, how will it replace EASA regulations with its own?”
- “…the lack of guidance so far from the UK government concerning aviation matters and the likely nature of the environment in which the post-Brexit UK aviation industry will find itself.”
- “Compounding the problem is that the Brexit phenomenon is without precedent: to date only the territories of Algeria, Greenland and Saint Barthélemy have left the European Union since its precursor organization was established by the Treaty of Rome in 1957. Never has such an economic powerhouse as theUK opted out of such a major economic and political alliance.”
- “Tim Marland, a barrister at Quadrant Chambers, remarked, ‘The harder the Brexit, the greater the potential impact.’”
- “That view is underlined by analysis conducted by IATA Not only is the shock to economic certainty huge in the case of Brexit—and to a lesser extent in the election of President Trump—but the ‘hardness’” or otherwise of Brexit has an effect on the rate of future growth.”
- “’The easiest way forward is just to replicate all the EU laws in the UK,’ remarked Professor Richard Williams, associate professor of Swansea University’s Institute of International Shipping and Trade Law, ‘which then begs the question: why have we done it?’ Similarly, gaining access to EU markets via the separate mechanism of the European Economic Area (EEA) is also an unlikely route as it fails to meet the specific aims of the Brexit movement.”
- “Regarding the continued openness of aviation in Europe, John Balfour, consultant at Clyde, suggested that the UK’s best hope is ‘to convince the rest of the EU that’s in their interests. We should persuade our EU colleagues that it’s good for them too.’ But a key worry for EU members at both the higher political level and in aviation is that the UK’s trade deals with other nations—notably the U.S.—could come into conflict with the Union’s interests when negotiating its own deals with the UK, especially if protectionist tariffs are introduced.”
- “’The prevailing feeling in Europe is that it’s lose-lose,’ is how Dr. Peter Urwantschky, a partner at Urwantschky Dangel Borst, described the effects of Brexit on aviation at the seminar. ‘TheUK’s leaving is seen as a great loss in Europe as it has pushed aviation in a liberal direction. This will be missed. Protectionism is a disease.’ Urwantschky noted that the initiative to harmonize European air traffic will be diminished without the UK, and that the UK was also a positive driving force within the EASA. ‘Overall there’s regret, but no thought of retaliation,’ he concluded, but warned, ‘that could change if the UK enters into an anti-EU alliance with Trump.’”
- “According to Richard Mumford, chairman of the UK’s BACA air charter association, the potential loss of traffic rights and uncertainty about how the country’s aviation industry will be regulated post-Brexit are the biggest concerns. ‘We don’t know what will happen, and we will have to wait until the end of the Brexit negotiations to be sure,’ he told AIN. ‘But there is going to be an impact and it could make things more difficult and expensive [for UK operators].’”
After reviewing all of these opinions, it is fair to say that the prognosis is to “stay tuned.”
The former Chairman of KLM/Air France, now the CEO of the International Air Transport Association (IATA), Alexandre de Juniac, gave a speech at the U.S. Chamber of Commerce Aviation Summit. His message, before the audience and on a panel filled with US airlines CEOs, was a call for free trade and open borders. His exact words were:
“We are sending the message to all governments, not only to the Trump Administration, that we think open borders are good for the industry and by the way, good for the economy as well. The message is please, do not close borders to people and trade.”
If the EU allows Etihad to acquire control of Alitalia and the Gulf Countries open their “nationality’ rules, that might place some pressure on the American aeropolitical policy makers. Quare: how likely are either of those Continents to allow US companies to own their flag carriers? About as likely as the avowedly isolationist US President is to permit foreign ownership of his home country’s airlines.
The point of these articles is that the immediate prospects for aviation is CHANGE. The global airline system is subject to efforts to radically redefine what the rules will be. As an Executive Vice President of Operations, a Senior Vice President of Maintenance, and/or Chief Pilot, it would be a good idea to build reserves in your 2017 budgets to add to your inventory, to advance your C and D Checks, to schedule more cockpit crew training time and otherwise create a cushion for 2018 and beyond. In a industry known for competition, the intensity of the battle for passenger revenues is likely to escalate.
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