TBO.com - TBO is Tampa Bay Online

Foreign Aid Could Rescue Domestic Air Travel

ADVERTISEMENT

By TERRENCE GUAY Special to the Tribune

The Tampa Tribune

Published: June 13, 2008

Airlines in the United States - and their customers - are in a difficult spot. Skyrocketing fuel prices are forcing cost cuts elsewhere, so airlines are grounding planes, trimming jobs, and nickel-and-diming passengers for everything from snacks to checked bags.

While U.S. airlines made a combined profit of $5 billion in 2007, the industry lost $32 billion over the previous six years, during which time Delta, Northwest, United, and U.S. Airways all filed for bankruptcy.

Is it any wonder then that merger talks abound? Delta and Northwest announced plans to merge earlier this year, pending regulatory approval, creating the country's largest airline. United and U.S. Airways ended talks recently to merge, which would have catapulted the carriers ahead of a Delta-Northwest combination. Consolidation among the major airlines likely will not benefit many travelers, especially those who live in smaller cities, since a key justification for mergers is to cut overlapping costs. Passenger options will be reduced and fares will increase as a result of less competition.

But there is another option that receives little consideration: permitting foreign airlines to acquire or merge with U.S. airlines. Foreign airlines like British Airways are permitted to fly to a U.S. destination to pick up or drop off passengers, but cannot provide direct service between U.S. cities. Relaxing the restrictions on foreign ownership would allow British Airways and other foreign carriers to serve U.S. locations that are underserved now. It also would avoid the reduction in routes and elimination of cities served when two U.S. carriers merge. And for anyone dreaming of decent meals and better service - even in economy class - foreign airlines have a lot to offer, as almost anyone who has flown abroad can attest.

So why isn't this already happening? One reason is that the Federal Aviation Act of 1958 requires that, for airline corporations, 75 percent of the voting interest must be held by U.S. citizens, and two-thirds of its board of directors must be U.S. citizens. Such restrictions seem absurdly arcane 50 years on, in a far more interdependent global economy than was the case during the Eisenhower administration. Unions representing pilots, flight attendants, and maintenance workers also are wary of losing jobs. But this is a concern for any merger - either domestic or foreign. And it is highly unlikely that All Nippon Airways will use an entirely Japanese flight crew, or that Lufthansa would be bringing over many German mechanics to work at U.S. airports.

Perhaps most important is the message of hypocrisy that protectionism over the U.S. airline industry sends to the rest of the world. At a time when our own trade representatives are demanding that other countries open their financial, retail, and other service industries to competition, we refuse to open our airline market to others. Yet, this is the best strategy to improve the financial health of U.S. airlines, while also allaying the concerns of travelers in smaller cities.

Terrence Guay is associate professor of international business at Penn State's Smeal College of Business.

Loading Comments...

Email Print

ADVERTISEMENT