Shielding flag carriers ‘is killing airlines’

17.3.2008   (Guardian)

Governments shielding their national flag carriers are “killing” the aviation
industry, the head of the International Air Transport Association (Iata) has warned.

Giovanni Bisignani, chief executive of Iata, warned that protectionist attitudes
towards flag carriers were exacerbating the downturn. Soaring oil prices and slowing
economies are causing concern for airlines, which raised capacity by buying aircraft
but now struggle to fill them.

“Governments around the world … say they cannot lose their flag carrier. I
am always telling them that the flag on the tail is killing our industry, ” he

The Iata boss warned there would be “pain” this year.   Profit forecasts for the
industry for 2008 have been slashed from $7.8bn ( £3.9bn) to $5bn.   He said financial
difficulties were forcing one airline a month out of Iata, which now has 240 carriers.

Bisignani warned that the industry faced stagflation, with the oil price driving
up costs while a weak global economy pushed down earnings. “We have too much capacity.  
Yields [average ticket price] are down and we need to consolidate.”

Consolidation is impossible because countries such as the US ban majority ownership
of airlines by foreign firms.  British Airways has been barred from taking over
Spain’s flag carrier, Iberia, and had to join a Spanish-led consortium.

“The industry has lost $42bn since September 11 [2001]. The first profit we made
last year was $5.6bn. Without offending our members, that is peanuts.   It’s a
margin of only 1%.   We are the only business in the world where if you want to
export your goods you need an international treaty.”

Cross-border takeovers are often complicated because of clauses imposed by countries.
With Iberia, for instance, Latin American governments could withdraw flight agreements
if Spain’s national carrier were taken over by a foreign business. “We cannot
consolidate because we will lose our right to fly,” said Bisignani.

The next battleground is expected to be the second phase of the Open Skies agreement,
which liberalises air travel between the US and the European Union, and comes
into force this month.

Talks on the next stage begin in May and EU states can withdraw flying rights
from US carriers if they are dissatisfied with progress – with ownership changes
at the top of the agenda.   Asked if EU governments should ground flights by US
carriers, Bisignani said: “It’s the only way we could achieve a certain level
of compromise.”

Dissatisfaction over the first Open Skies agreement, which kept in place ownership
controls, has already led to clashes between Iata and Washington.  Bisignani accused
the US negotiator Jeff Shane of being “protectionist”, which he denied.

Bisignani said: “The role of governments must change. We were very disappointed
that we could not have ownership changes in Open Skies.”     He was backed by the
EU transport commissioner, Jacques Barrot, who said last week that US carriers
faced a curb on flights if they did not back down on ownership and other issues.

The Iata boss also criticised the Civil Aviation Authority after the UK watchdog
significantly raised landing fees at Heathrow and Gatwick. “You have a phantom
regulator … that allows a 40% margin at [airport owner] BAA, that allows Heathrow
to be the worst airport in Europe, he said.”

Shielding flag carriers ‘is killing airlines’