What does the airline industry need? Deregulation
Goverments must re-commit themselves to the ideals of airline deregulation and the free market, the International Air Transport Association (Iata) said. Deregulation should be permitted for the industry to continue to deliver the benefits of global connectivity that make the $2.2 trillion worth of economic activity possible, it said. “Airlines are the transit system for the global economy. 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, “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 liberalising domestic and international air transport, seems to be moving forward into the past. The net result is not just bad for airlines, but for air travellers and the economy.” Tyler cited four areas where the market is not being permitted to operate efficiently – regulation, distribution, consolidation and taxation.
“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.”
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. “We believe an NDC standard will enhance the air travel shopping experience for passengers. NDC will operate within the same privacy laws that govern every other business. But, by giving travel agents more information, there will be greater transparency. It will enable much richer comparison shopping for travel products, not just the base fare, but the entire spectrum of offerings,” said Tyler.
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 travellers as well, because it means airlines have the financial wherewithal to invest in their products and services. Airlines face higher hurdles than other businesses when it comes to mergers and acquisition, despite improved services to customers on punctuality and baggage delivery.”
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 per cent of the average US domestic ticket and totalled $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.