Empowering Aviation to Deliver more Value

The International Air Transport Association (IATA) urged governments to re-commit themselves to the ideals of airline deregulation and the free market, so as to permit aviation to continue to deliver the benefits of global connectivity that make possible $2.2 trillion worth of economic activity.

“Airlines are the transit system for the global economy; and they have transformed commerce every bit as thoroughly as the automobile transformed America. But our ability to meet the growing demand for connectivity is at risk,” said Tony Tyler, IATA DG and CEO. Addressing the Wings Club in New York, Tyler said the threat does not come from market forces. “Our biggest challenge comes from governments that are engaging in what I would broadly describe as regulatory backtracking.”

“This is a global issue, but it is particularly distressing to find that the United States, where this industry was born and which led the world in liberalizing domestic and international air transport, seems to be moving forward into the past. Apparently policy makers in Washington no longer trust the invisible hand of the marketplace to maintain a vibrant, competitive industry—despite overwhelming evidence that the market is working. The net result is not just bad for airlines, but for air travelers and the economy.”

Tyler cited four areas where the market is not being permitted to operate efficiently.

Regulation

“The airline industry may be deregulated to the extent that carriers are permitted to set their fares according to demand. But regulators aim to design the details of competition in a manner that is wholly at odds with how other industries are treated and with the workings of the free market. In particular, they appear determined to hold commercial aviation to a different business standard than they impose on any other form of transportation—or consumer facing activities,” said Tyler.

“It is totally appropriate to set simple minimum customer service standards. But that’s not what’s happening. Regulators are micro-managing our businesses, telling us how we may advertise our services, how long we must hold a reservation that has not been paid for and how we are to manage operational disruptions regardless of the cause. These regulations impose a huge penalty on the economy and ultimately raise the cost of air travel for all consumers.”

Airlines are committed to ensuring the safety and comfort of passengers and recognize the need for passengers to have access to basic protections during their journey. To that end, IATA members recently affirmed a set of core principles on consumer protection that aim to strike a balance between protecting passengers while maintaining industry competitiveness and recognizing the power of the marketplace.

Distribution

The threat of a new US Department of Transportation regulation that would mandate how and where airline ancillary products are displayed continues to overhang the industry. But the market is already moving to give consumers a more transparent air travel shopping experience through an IATA initiative called the New Distribution Capability (NDC). “NDC is about bringing the same level of capability to display and sell additional products and services through the travel agent channel that already exists on airline websites. That’s not the case today. On an airline website, you may have access to a wide range of add-ons and fare packages that are not offered elsewhere,” said Tyler.  IATA is working with other industry stakeholders to develop an XML-based messaging standard for electronic exchanges between airlines and travel agents.

“Standards enable innovation and efficiency and make it possible for incumbents and new entrants to work from the same blueprint. We believe an NDC standard will enhance the air travel shopping experience for passengers. But, let me assure you of a few things. NDC will operate within the same privacy laws that govern every other business. That is no change from today. But, by giving travel agents more information, there will be greater transparency. The NDC standard will enable much richer comparison shopping for travel products, not just the base fare, but the entire spectrum of offerings.”

Consolidation

Tyler argued that aviation needs to be treated like other industries when it comes to consolidation. “It is a fact that consolidation has resulted in a healthier, more profitable industry and that is good news for travelers as well, because it means airlines have the financial wherewithal to invest in their products and services. And US government data show that service is improving on the things that matter most to customers such as punctuality and baggage delivery. Yet airlines face higher hurdles than other businesses when it comes to mergers and acquisition.”

“We recently were reminded of this when the Department of Justice (DOJ) announced it would sue to prevent the merger of American Airlines and US Airways. I am not an expert on US antitrust policy, but I do know something about the airline industry and I have to agree with those in the investment community and elsewhere who have found DOJ’s arguments to be faulty and unpersuasive.”

Taxation

Aviation is taxed at levels far exceeding those of most other activities, but too little of that money finds its way into infrastructure investment. “Fees and taxes represent around 20% of the average US domestic ticket and totaled $18.9 billion last year, according to data from Airlines for America. And Administration proposals for the 2014 fiscal year include a slew of tax increases and new fees adding further billions to the cost of air travel,” said Tyler.

“In a little less than 100 years, commercial aviation has transformed the world. This year, we expect airlines to carry more than 3 billion passengers—equivalent to around 44% of the Earth’s population and we make possible $2.2 trillion worth of economic activity. By value, over 35% of the goods traded internationally are transported by air. Within the United States, aviation contributes some $669.5 billion of gross value added (GVA) annually, equivalent to 4.9% of GDP, and supports 9.3 million jobs. Our message is ‘Let us make the second century of air transport even more remarkable than the first.’”