Today the Frontier Centre for Public Policy issued Nationalism in the skies: the square peg in a round world, authored by Mary-Jane Bennett.
Nationality in a global business like aviation has made little sense
Convened in 1944 by U.S. president F.D. Roosevelt to establish “world routes and services” in international aviation, the participants at the Chicago Conference rejected the U.S. proposal of a free trade in the skies. Since that time, countries have dealt with each other on a country-to-country basis creating a nationalist system of aviation. The nationalist underpinning of a bilateral trade in air services has its drawbacks.
Each negotiation not only carries with it the possibility of igniting a diplomatic stand-off, such as the shuttering of a staging base for the Canadian military and the new visa requirements which accompanied the denial to grant Emirates enhanced service to Canada in 2010, but economic inefficiency, higher consumer prices and a poor environmental record are equally its by-products. “For an industry traditionally earning razor-thin profit margins, nationalism’s prohibition on international airline mergers makes little sense” Ms. Bennett said.
Beginning in 1992, work-arounds to the constraints of nationalism began. The combined Open Skies agreement between the U.S. and the Netherlands and the granting of anti-trust immunity to its airlines, KLM and Northwest, created a virtual merger. This set in motion the alliance strategy with the Star Alliance emerging in 1997, Oneworld in 1998 followed one year later by Skyteam.
The alliance strategy was followed by the metal neutral joint venture. A complicated and layered dynamic, it is viewed as a temporary solution to genuine airline rationalization.
World events have rocked the foundation of the bilateral system: the E.U. single aviation market, the U.S. and E.U. Open Skies negotiation and the strength of the Gulf carriers have all chipped away at the bilateral system.
The solution, although problematic, lies in a free market in the skies.
View the entire study here: http://archive.fcpp.org/posts/nationalism-in-the-skies-the-square-peg-in-a-round-world