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Posts Tagged ‘regulation’

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The outbreak and rapid spread of the H1N1 swine influenza virus in Mexico and now the United States puts policymakers and business leaders in a difficult position vis-a-vis air travel. Pandemics exploit all the virtues of the air travel boom of the past few decades — a system that transports people and goods for travel, commerce, and economic opportunity suddenly becomes a primary agent of deadly disease. It’s the downside risk of international economic and cultural integration. Such integration still pays handsome benefits, however, and the risks can be mitigated by a multilateral public health infrastructure poised to go into action.

We are now in a critical moment for U.S. and World Health Organization (WHO) policymakers and the international aviation industry. To declare a pandemic right now and impose travel restrictions (as the U.S. and WHO have not done) might overstate the threat from swine flu and excessively impair travel to Mexico and U.S. border regions. But this outbreak appears to be unusually aggressive, with high mortality, suggesting that policymakers should nip it in the bud regardless of the cost to the travel industry. As the first case was reported in Europe, EU authorities issued travel advisories for the United States and Mexico. The danger to the aviation industry from either an over-aggressive response or from a widespread pandemic is high. In April and May 2003, at the height of the SARS epidemic in Southeast Asia and Canada, air traffic in the Asia-Pacific region dropped 45 and 51 percent, respectively. U.S. carriers with extensive routes in Asia — Northwest and United, especially — also suffered. This is an even worse problem in a recession, in which the prospect of future growth after an epidemic-related contraction is limited.

Part of the problem for policymakers is that U.S. citizens are inexperienced with pandemic response procedures. We are used to frequent and easy travel, not only by air but also locally, for work, school, or recreation. With deadly infectious diseases like smallpox and polio eradicated, we have become lazy. Less than half the number of people for whom the annual flu vaccine is recommended get it. Activists play on fear to spread the unproven belief that ingredients of children’s vaccines can cause autism, and their success in misinforming the public is correlated with a spike in pediatric measles infections (Megan McArdle referred to parents who decline to vaccinate their children as “twee BoBo sociopaths“). Our cities are unaccustomed to quarantines. How would you react to an order to stay indoors except for essential business? Would you obey it? The discipline of disease control is honed over time and cannot be immediately adopted with success. Moreover, the scale of the United States is also unsuitable for a concerted public health response. It’s one thing to isolate SARS in a tiny enclave like Hong Kong (which is extremely vigilant, at any rate) or on an island like Taiwan (unconscionably prohibited by Beijing from receiving WHO support during epidemics, by the way).

Whether or not this swine flu outbreak becomes an epidemic or a pandemic, policymakers and airline industry leaders need to be prepared for the dark side of global integration. Preventing the spread of epidemic diseases should be at the top of any government’s list.

Further reading:

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I’ve done several off-blog items on the subject of international airline alliances lately. Here they are:

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TEMPE — Echoing Doug Parker’s plea for the government to “do no harm” to the airline industry, C. A. Howlett, US Airways’ top government affairs officer, outlined the challenges the industry — and US Airways in particular — face in the policy environment. His primary focus was the pending FAA reauthorization bill. Put off since 2007, the bill has been passed by the House but no action has been taken in the Senate. “We will maybe get this in calendar year 2009 but no one is betting anything heavy on that particular forecast,” he quipped.

Howlett is in no rush to get the House bill passed, because it has several provisions that give US Airways and other airlines pause. The bill increases the Passenger Facility Charge (PFC) from $4.50 to $7.00. PFCs are used to fund airport improvements but are levied by airlines when passengers buy tickets. This, Howlett said, would add $2 billion to the airline industry’s costs. “Airports have the ability to raise revenues by raising our landing fees and charges,” he added. “Not all airports are the same. . . . [Raising landing fees is]a better way to finance projects.” Besides, he said, airports got $1.1 billion in the stimulus bill, plus $1 billion for security improvements.

Also of concern in the House’s FAA bill are labor issues regarding collective bargaining procedures, the passenger’s bill of rights provisions, and limitations on foreign repair stations. Howlett said that there is a provision inserted at the behest of the firefighters’ union that would cost US Airways alone $15 million per year at their hubs. (more…)

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TEMPE — US Airways chairman and CEO Doug Parker opened the airline’s annual media day with remarks on the state of the airline industry, pointing out financial, political, and labor-related challenges in the year ahead and calling on airline managers to change the way they think about industry competition.

Parker has long been an apostle of consolidation in the industry, leading America West to take over US Airways in 2005 and attempting to take over Delta in 2006-07. He pointed out today that no single airline has more than a 25 percent share of the U.S. airline market. “In a network business, that’s a lot of fragmentation. It’s a fragmentation that makes it hard to produce returns for shareholders,” he continued. “More [integration] will produce even more value.” He said that US’s hostile takeover of Delta attempt spurred the Delta-Northwest merger, and he added that whether US Airways is in mergers or not,  the airline will benefit: “Where the real value occurs is the reduction of fragmentation.”

As for government affairs, Parker said that “this is a business that is overtaxed, that is in many ways overregulated.” In what I interpreted as a veiled reference to House transportation chairman Jim Oberstar (D-Minn.), who has declared war on airline consolidation and networking, he said: “We have many in congress who view aviation as a public good.” Airlines have to focus on little issues like service to individual congressional districts. Congress, he said, wants to harness the industry to serve its own interests. [Not unlike most other industries, these days –ed.]  The regulatory picture looks bleak, he said. “This one is probably not going to get better. . . . The best we can do on this one is hold the line. . . . Our message through 2009 is ‘do no harm.’ Let us compete, leave us alone.” (more…)

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TEMPE — US Airways’ media day program is about to begin, but I wanted to share this non-US related interview by Loren Steffy from the Houston Chronicle:

Larry Kellner served me a cup of coffee with the aplomb of a veteran flight attendant, and then, a few moments later, served up a stunning comment about the airline industry.

“If the government wanted to re-regulate the business, I wouldn’t be opposed to it,” he said.

While he didn’t mean the wholesale regulation of yesteryear, it’s still a surprise coming from the chief executive of Continental Airlines, the nation’s fourth-largest carrier by traffic.

Thirty years ago, airline executives battled fiercely to preserve government control of routes and pricing. Former American Airlines chairman Bob Crandall, then a rising executive, declared profanely that deregulation would ruin the business.

Fast-forward to today, and Kellner, agrees, at least up to a point.

“What we’ve got today doesn’t work,” he said in an exclusive meeting with me and several Chronicle colleagues. “It isn’t creating a stable industry.”

Kellner isn’t calling for a return to the good old days when fares were so high most people took the bus. Airline deregulation has always been about price, and in that sense, it’s been a roaring success.

Where it has failed, though, is on the cost side. Most airlines today have a cost structure that’s changed little since deregulation, which impedes consistent profitability. . . .

Read the whole article. It’s a good reminder that corporations are not inimical to regulation of their industry as long as it protects their profits and limits new entrants (for example, banks have been fighting tooth and nail to keep non-bank companies like Wal-Mart from horning in on their business, lest competition trim margins). The leading opposition to airline deregulation came from established national airlines and labor unions. Deregulation was (and remains) a consumer-friendly reform.

(H/T: ATW Daily News)

UPDATE, later today. Perry Flint of Air Transport World asked US Airways CEO Doug Parker about Kellner’s remarks. Parker said he had not read what Kellner said but that he would “disagree” about the need for reregulation. Indeed, he said, “I would hate to see us start moving back in the other direction at this point. . . . We’re still in the process of getting ourselves through a very lengthy deregulation process.” As part of this, he wants to ditch airport perimeter rules at DCA and LGA and reduce “barriers to investment.”

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Since fuel consumption and greenhouse gas emissions correlate nearly exactly, U.S. airlines have a financial incentive to improve their environmental performance. According to officials at the Air Transport Association, the national trade group for commercial airlines, environmental performance continues to improve and other initiatives are on deck.

Speaking in a conference call with several aviation bloggers, ATA vice president for environmental affairs Nancy Young identified environmental performance, improving the nation’s air traffic control infrastructure, and energy policy as the airlines’ top policy priorities. The desire for fuel efficiency leads to greenhouse gas emissions reduction, she said: “We couldn’t be more motivated to do the right thing there.” Among these initiatives are alternative, environmentally and food-supply friendly fuels. Young said that it is much harder to develop this kind of fuel for air-based engine units. A 50/50 synthetic blend is currently being tested, she said, with the aim of having 50 percent of the jet fuel supply in alternatives by 2025.

ATA has also adopted an industry-wide goal of improving fuel efficiency by 30 percent by 2025. This can be done, she said, by upgrading fleets, investing in new aircraft (e.g., replacing American Airlines’ MD-80s with B-737s) and enhancing current aircraft (such as fitting them with winglets). John Heimlich, ATA’s chief economist, added that more efficient air traffic control navigation — such as optimal flight paths, continuous descent, and the like — would improve both operational and environmental performance. Heimlich also defended the recent spate of baggage fees as an environmental initative: “When the customer is imposing a fuel penalty on us, as with baggage, we pass that cost on to them.” The airlines are cutting down on fuel use by modifying passenger behavior. (more…)

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I don’t know why the blogosphere has erupted over this just now (I saw several posts on the subject in my non-aviation-related categories on Google Reader), but I’ll mention it: the Canadian Transport Agency’s January ruling on obese travelers was challenged by Air Canada and WestJet, upheld by a lower court, and appealed to Canada’s high court, which declined to hear the case, meaning that the CTA’s rule stands. According to a blog post I wrote in January, the regulation requires airlines to give an extra seat to a person who needs it due to being “functionally disabled by obesity for purposes of air travel.” But as I wrote then, the rule is sneaky: it specifically excludes “persons who are obese but not disabled as a result of their obesity.” But then defines “functionally disabled by obesity” according to Southwest Airlines’ practice of “screen[ing] for entitlement to an additional seat by determining whether a person can lower the seat’s armrests.” Basically, anyone who spills over the armrest gets an extra seat. And there are plenty of functional folks who meet this criterion.

So . . . it looks like Derrie-Air won’t be flying to the Great North anytime soon. . . .

Top court backs free seat ruling for some disabled, obese travellers [CBC]
Canada rules obese get second seat free on flights in Canada [WalletPop]

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