Submission by ICTP on Airline Subsidies and Protectionism

POB 208 Haleiwa, HI 96712-0208 USA T +1-808-566-9900

The Honorable John F. Kerry, Secretary of State

U.S. Department of State, 2201 C Street, NW Washington, DC 20520

The Honorable Anthony Foxx, Secretary of Transportation

U.S. Department of Transportation 1200 New Jersey Avenue, SE, Washington, DC 20590

The Honorable Penny S. Pritzker, Secretary of Commerce

U.S. Department of Commerce, 1401 Constitution Avenue, NW, Washington, DC 20230

Dear Secretary Kerry, Secretary Foxx, and Secretary Pritzker,

ICTP, a US based organization for global destinations and stakeholders committed to

Green Growth and Quality, www.tourismpartners.org submits the following from its

President on the question of airline subsidies, open skies and protectionism.

I may just be one of the few people left in the industry who was actively engaged in

the US and EU deregulation and open skies strategy. And a little bit of historical

perspective might just show how hypocritical and self-serving the US Carrier and

Union initiatives are.

I was Head of Government Affairs at IATA in those days when the US government

and its airlines embarked on their open skies strategy in the late 1970’s– using every

diplomatic and commercial avenue to mount a crusade on what they called the

protectionist Bermuda based bilateral system & the cartelistic IATA tariff system. At first the aviation community lined up against them – and we were in the front row of

the battle – arguing the case for “progressive change”, moderation, the comity of

nations and the agreements they had painstakingly negotiated for 3 decades. We

debated in national and international regulatory fora and public conferences, we hired

K street lawyers and consultants. We argued that the US had a huge protected

domestic market base, chapter 11 and restrictive ownership shelters that gave it a

competitive advantage. We pointed out that airlines of smaller states wouldn’t be

capable of competing. We fought the legal attacks point by point.

But slowly we lost the battle as the US put more and more bilateral pressure and

concessions into play. As they argued the open skies case for passengers and for

communities. As they extolled the trade benefits. As they picked up strategic partners

in Singapore, Amsterdam, Tel Aviv, Amman and London or picked off weak sisters

with deals or political pressures.

And they were smart – after 10 years the EU started to move in the same direction –

and its de Kroo Commission (on which I served, as President of WTTC), called for a

clear target based strategy to open market entry, price and capacity in the same

direction. Competition, regardless of flag, became the order of the day and open skies

the dominant regulatory regime.
Submission by ICTP on Airline Subsidies and Protectionism

POB 208 Haleiwa, HI 96712-0208 USA T +1-808-566-9900

But most important was the fact that it became obvious that the US were right

to push vigorously for more competition because customers like low fares, more choice of services and what they called more “price/quality options”. And

airlines need that push to force them out of cosy oligopolies. But above all the

world community with its many socio-economic challenges needs a strong and

expanding Travelism (Travel & Tourism) system to boost trade, jobs and

investment flows.

Then the international competitors got wise, took advantage of their new freedoms

and began to create alliances, hubs and improved products. They accepted the

challenges of open skies - often because they had no alternatives - and in some cases

like the UAE, nation states began to capitalize on their global position in international

aviation passenger flows and the global economic pivot to Asia. They invested in their

airlines and airports. Their carriers bought the most modern aircraft with the lowest

pollution levels. And above all they delivered the best service in the skies and on the

ground as a core product.

The US carriers with their massive, commoditised, totally protected domestic market

generally failed to respond adequately to the changing competitive international

service and quality dynamics. Inflight and on the ground they did not meet the strategic

investment, product and human resource innovations of foreign competitors.

So now, the champions of open competition and the choice of the market turned 180

degrees and launched their protectionist legal barrage. And careless of passenger,

destination or societal interest they want the rules of the game changed again.

Because the competitive heat in the kitchen they designed, built and pushed around

the globe just got too hot to handle.

A read of the claims and responses makes it very clear that open skies is a better bet

for the world community and for passengers, as well as the US economy – and the

country that has successfully sold this now globally recognized concept to the world is

faced with two choices – be bold and stay with your vision or be weak - because some

of your airlines don’t like the consequences - and sink into the abyss of protectionism. This is no real choice - in fact if the US wants to maintain its aviation leadership

role, it should take a serious look at further liberalizing its ownership and control

provisions, as well as its protected massive domestic base to bring more foreign

investment and innovation, to boost its aviation, tourism and trade marketplace. And if it really wants to be a strategic leader in a world where green growth will

become the new norm - because we need growth for inclusive socio-economics

and green to fight the existential threat of climate change. It should look at

innovative regulatory frameworks that create better market opportunity for

carriers, domestic or international, who operate with the lowest carbon

footprint.

Geoffrey H. Lipman

Professor Geoffrey Lipman, President ICTP 24/05/2015