The Freedoms Of Air And The Airline Industry Engineering Essay

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The freedoms of the air were introduced in 1944 as a result of the Chicago convention. It was designed to help regulate the rapidly growing air travel industry, and help make international travel simpler for all nations involved. Prior to the Chicago convention, agreements between individual states had to be agreed on an individual basis to allow air carriers of one country to fly over the land of another. Without such agreements, any flight could have been seen as a hostile flight into foreign territory, particularly due to the political unrest from the first and second world wars. Although many countries wanted regulations to restrict open flight as a matter of national security, others such as the USA wanted a more open system allowing unrestricted flights. There was also a concern over competition from US operators due to their firm presents within the air transport industry [1]. It was agreed to introduce the freedoms of the air, inspired by the freedom of the seas, which provided a framework which nations can sign up to allowing air transport to be opened up.

The freedoms are governed within the International Air Service Transit Agreement and the International Air Transport Agreement. It applied to all states who signed the agreement, however not all states have agreed to it such as china [2] who still rely on agreements between governments to manage international flights. Originally there were five freedoms at the time of the convention, however as the industry developed, a further four have been informally conceived. The freedoms are granted between nations, giving an airline the freedom to operate between them.

The first freedom allows a carrier to fly over a foreign nation without landing. The second allows traffic to land in a foreign nation only for non-commercial reasons such as refuelling or maintenance. These two freedoms are governed primarily within the Air Service Transit Agreement and helps set the underlying foundation of international flights. International air travel relies on flying over foreign land to be a practical form of travel; however the agreement still allows individual states to control its own airspace, whether or not it had an aeronautical industry which was more of a concern back in the early days of air travel [1]. As of 2007 129 states have signed up to this basic agreement [2].

Within the Air Transport Agreement, the original five agreements are outlined, which include the first two freedoms described above [2]. The third freedom allows the carrier of one nation to land in another nation and deplane traffic from the home nation. The fourth freedoms allow a carrier to pick up traffic from another nation and transport it to the home nation of the carrier. The fifth freedom allows traffic to be boarded and deplaned at an intermediate point in a third nation on a flight from the home land to a second nation. An example of a fifth freedom flight would be a British Airways flight from London Heathrow to Sydney which stops in Singapore to load and unload passengers [3].

Although only the first five freedoms are officially incorporated within the two agreements, as the industry developed, further freedoms were developed overtime to reflect the current needs of the growing air transport industry. The sixth freedom follows on from the fifth freedom; however it allows a carrier to commence a flight in foreign territory, to another foreign nation, so long as the flight transits through his home land. The seventh freedom further extends on this, allowing a carrier to operate between points in two foreign nations without flying into its home land.

The last two freedoms deal with the issue of cabotage; where the carrier of one nation operates a service between two points within another nation. The eighth freedom allows cabotage providing the flight originates or terminates in the carriers home land. The ninth freedom extends this further, allowing pure cabotage, where the flight operates solely between two points in a foreign nation without taking off or lading in its home land. An example of a ninth freedom flight is an Easyjet flight between Paris, Orly and Nice, which operates solely within France without entering the U.K, the home nation of Easyjet [4].

The last two freedoms have not been granted widely due to fears over competition over national routes. Allowing foreign carriers to fly a local route increases competition for the nation’s local carriers, hence many nations refuse to grant these freedoms to protect their nation’s carriers. Under an UK-USA open skies agreement formed in 2007 (under the EU), UK carriers will be able to fly cabotage routes in the US in 2010. Within the EU, many states have agreed to allowed cabotage routes between EU member states. This is part of an on-going vision to open up services between EU member states. This allows Easyjet to fly cabotage routes in France as mentioned earlier.

The freedoms of the air aimed to open up air travel across the industry. They provided a structure that was agreed by various member states allowing international air travel to grow into the multibillion dollar industry it is today. It aims to open air travel between countries, whilst still giving each nation control over its own airspace. The freedoms have evolved with the industry to incorporate the developing marketplace, allowing airlines to compete internationally on a variety of routes. Although not all countries have signed up to all, if any, of the freedoms, they have still changed the industry by providing a firm structure whereby countries can form bilateral, or multilateral agreements between nations, allowing the air transport industry to keep moving forward.

Question 2

The US Deregulation Act of 1978 set out to remove some of the government restrictions on the air transport industry to promote competition and start-up airlines across the US. Prior to this act coming into force, the industry in the US was highly regulated to prevent excessive competition on existing routes [1]. Legislation created many barriers for routes to entry in the air transport industry, including high start-up cost, and restrictions on desirable routes. Although in the US there were no government-owned airlines [1], the US still enforced heavy regulations in order to protect existing airlines from increased competition.

Lack of competition stifles creativity and efficiency from existing players in the market. This leads to poor customer service, and high prices, even though fares were regulated by the government. In order for the industry to grow, changes were needed to encourage airlines to fly less demanding routes, and reduce the cost of flying, to make it more accessible to the wider public. In 1978, the act came into force, allowing new airlines to fly on new and existing routes, increasing competition throughout the industry. The industry saw a rise in the number of new carriers, creating new routes and allowing market forces to reduce fares across the industry. There was also an increase use of secondary airports as new airlines set up routes between smaller hubs. The act still emphasized the importance of safety in aviation and maintained the Federal Aviation Administration (FAA) to regulate safety across the industry.

As a consequence of the act, the industry saw a rise in low cost carriers as the preferred method of running an airline. They offered cheap flights by cutting cost, utilising the aircraft heavily, and providing little to no benefits to passengers such as food or frequent flyer programs. By reducing the operating cost of the airline, savings could be passed onto passengers, allowing cheap flights. Generally such airlines operate single aircraft types on short haul flights from secondary airports which help keep cost to a minimum. They also aim to maximise revenue with a varying price structure to maximise revenue during periods of high demand. The service on low cost carriers can vary between airlines, with some offering minor frills such as a small meal or snack, complementary beverages, or flexible bookings. Others provide the bear minimum service in order to keep cost at an absolute minimum.

The rise of low cost carriers has changed the industry. Increasingly full service carriers have to compete with lost cost carriers. The incentive of low cost flights, even with reduce services, has attracted the public to fly with low cost carriers. This has forced full service carriers to reduce fairs and cut cost, to attract as much business as possible. These days it is possible to find first tier airlines selling tickets across Europe for less than £100. This would not have been the case had it not been for the low cost carriers changing the way the industry operates.

However there were many issues within the industry as a result of deregulation. Whilst the government aimed to open up the market, this resulted in many airlines being taken over or merging with other airlines. People Express was an US carrier which began rapid growth following deregulation, acquiring new aircraft, routes and airlines. However the growth was unsustainable and it did not generate a profit, even though its revenues were increasing year on year, and were later taken over.

The increase competition from deregulation also hit the workforce. In order to survive, non-unionised workers were replacing existing staff as a cost cutting measure, forcing workers to work for less or risk losing their jobs altogether.

Further deregulation was brought in with the open skies agreement, which allowed unrestricted access to all routes for all airlines. It opened the market up further, increasing competition on existing routes which may have been dominated by a small number of airlines. The government had release restrictions on the capacity of routes and the airlines that can fly them; allowing natural market forces dictate the frequency of flights as well as the fares on those routes.

Deregulation in the US had undoubtedly changed the way the aviation industry operated across the world. By removing government control restricting competition, it allowed the market to battle for business between them, increasing efficiency. More importantly for the passenger it drove down prices with increased competition on new and existing routes. It also saw the boom in low cost carriers which has changed the way airlines operate around the world, making air travel more accessible. However with freedom comes responsibility and oversight is needed to ensure that airlines are competing fairly and equally, without exerting their dominance in the market on new airlines. Regulations are still needed to ensure operators are competing fairly in order to protect new airlines, as well as customers and workers of the airlines. Competition laws are common place across the world to protect business and workers from events such as those experienced by airlines following deregulation. Competition is healthy for the industry, so long as everyone plays fairly, which is where regulation is still needed.