The Golden Egg may be Goosed
From the Australian today -
United reminds Jetstar that protectionist policy cuts both ways
The US airline is pushing its case for open skies, writes David Stone
August 08, 2006
QANTAS and the Government have been confronted by a sharp reminder that airline protection is a double-edged sword.
To shore up the case against opening the Los Angeles route to Singapore Airlines, Transport Minister Warren Truss initially made much of Virgin Blue's aspirations to fly the Pacific route. Virgin Blue CEO Brett Godfrey has not hidden the low-cost carrier's need for considerable lead-in time - apart from anything else, it has to acquire the suitable long-range aircraft - and he has kept to his February 2008 timeline.
Virgin Blue also says it needs to operate daily for the service to be viable. But as the current entitlement under the US-Australian bilateral air services agreement provides for only four services a week by a newly designated carrier, it has urged the Government to negotiate a capacity increase with the US.
A similar situation now faces Qantas's low-cost subsidiary Jetstar, which has included Honolulu in the destinations listed for the airline's initial international services, but was unable to announce the Honolulu fare level along with the others last week.
Jetstar wants to fly five services to Honolulu from December - three services a week from Sydney and two from Melbourne. The bilateral agreement only allows four.
Undeterred, on May 26 Jetstar proceeded with an application to the US Department of Transportation (DoT) for a "foreign air carrier permit" setting out the services it intends to operate, but then found itself ambushed by United Airlines.
Under the usual US consultation and submission process, the American carrier correctly pointed out to the DoT that the services for which Jetstar sought approval exceeded the relevant Australian entitlement.
United wanted to ensure that if DoT approved a permit for Jetstar, it was not thereby approving the airline's "extra-bilateral service proposal".
United asserted that capacity was limited under the US-Australia agreement "because the Government of Australia and its carriers (particularly Qantas, the owner of Jetstar) want it that way", adding that "the US opposes such anti-competitive limitations".
Summing up the situation, United said: "Now that Australian carriers apparently find themselves hoist on the regulatory petard constructed by their own protectionist policies, the US should use the leverage created by this situation to achieve an end to all anti-competitive restrictions."
It proposed that instead of offering an incremental exception to the capacity limits to accommodate Jetstar's schedule, the US should offer Australia and its carriers the opportunity to operate without any restriction by entering into an open skies agreement.
That would allow Jetstar to operate the services it proposed, and also to increase them in line with market demands, without having to comply with "complicated and restrictive" arrangements like those currently in place.
United argued that the US should not dissipate the leverage it needed to obtain Australian acceptance of open skies by allowing selective exceptions to the present capacity regime to benefit Australian carriers.
It backed up this argument by reminding DoT that previously Australia had refused to allow United to exceed restrictions similar to those now facing Jetstar - a reference to United's plan some years before to operate a daily service over the North Pacific route included in the agreement.
United concluded that it would be "unfair to US carriers and inconsistent with a sound aviation policy to allow Australian carriers to deviate from agreed capacity limits when Australia has not allowed US carriers to do so".
In response, Jetstar argued that the reference in its application to the five services was required by the relevant US regulations. DoT could issue a permit without approving this "illustrative service proposal", which was not a "request for a specified number of frequencies".
It claimed that DoT had "consistently issued US-Australian economic authority without reference to specific bilateral provisions". What it did not tell the DoT is that when Qantas obtained from the Australian International Air Services Commission the right for Jetstar to operate capacity previously allocated to itself alone, it referred specifically to Jetstar's intention to operate the five services referred to in its US application.
Nor did Jetstar indicate that the five Honolulu services were given widespread publicity in Australia.
Over the past six weeks there has been no further public development concerning the Jetstar application, though it is likely that the Australian Government has been trying to get the US to agree to negotiate a resolution to the capacity restrictions issue affecting Jetstar and Virgin Blue.
There appears to be growing support for the liberalisation of international air services from tourism, airports and other business. But given Qantas's legendary ability to successfully lobby the government of the day to protect its interests, will open skies with the US be any more likely than with Singapore?
In the current situation, the US will almost certainly require at least a compromise from which its own carriers can also benefit.
David Stone has been involved with international air transport for the past 17 years, as a senior public servant and as an independent writer and consultant
It will be very interesting to see how the midget bullies, GD and AJ, handle this one.