DOT Official Calls For Easing Of Global Air Rules

<B> DOT Official Calls For Easing Of Global Air Rules</B>

By Barbara Cook

<I>Washington</I> - The Department of Transportation's top aviation policy advisor has advocated an open dialogue on cabotage and foreign investment in U.S. airlines in a speech that called for the United States to work toward removing the remaining restrictions that inhibit a global free market.

Speaking at a conference marking the twentieth anniversary of airline deregulation, DOT assistant secretary for aviation and international affairs Charles Hunnicutt said that the United States wants to provide for a "single, open worldwide" aviation market by making open skies agreements the norm.

To get things moving in that direction, Hunnicutt said, "It's time to think about liberalizations that go beyond our existing aviation agreements. We have worked together to dismantle many of the restrictions that some other countries have placed on international airline services. I think the time has come for all of us to ask questions about restrictions that many countries, including the United States, continue to impose on them. Do those restrictions continue to make sense in light of the globalization of markets for goods and services?"

Hunnicutt suggested that the U.S. and foreign governments consider removing restrictions that now impede the free flow of capital in the travel industry--including the substantial government controls over foreign investment in national airlines; rules that prohibit airlines from establishing bases in each other's territory for services to third countries (seventh freedom rights); those that prohibit foreign airlines from carrying traffic moving exclusively between points in another nation's territory (cabotage); and those that limit official government travel on airlines of another country (the Fly America Act), including restrictions that exist in practice in addition to those mandated by regulations.

Hunnicutt noted that while he "appreciates the arguments for and against market reforms that might modify cabotage restrictions," he also thinks "we would all benefit from an open and public dialogue on the subject."

In his remarks, Rep. James Oberstar (D-Minn.) praised the achievements of the airline industry during 20 years of deregulation, but said the United States now is beginning to see "cracks in the positive face of deregulation." What members of Congress hear from their constituents about the "inadequacies" of deregulation "will set the way for the next 20 years," he said.

Oberstar pointed to a report issued by the General Accounting Office earlier this year that cited substantial regional differences in fares and services, with destinations that have little competition showing a decline in the quality of air service coupled with an increase in fares since deregulation.

He also noted that DOT and Congress have uncovered instances of predatory practices against new entrant airlines. DOT has "rightly and modestly" proposed competition policy guidelines to address these predatory practices, he said.

Oberstar said another major concern is the control by certain carriers of airport gates and landing slots, CRS systems and frequent flyer award plans.

He listed industry concentration as a third "disturbing trend," saying that it is "a fiction" that regional carriers are independent. He praised DOT for going after Mesaba and Express I when they shut down during the Northwest strike, arguing that the airlines couldn't operate without the services of Northwest.

Dr. Alfred Kahn--widely considered the father of airline deregulation for his successful efforts that redirected the activities of the Civil Aeronautics Board and convinced Congress that deregulation was possible--told the conference, "It is important to recognize that problems remain" with competition in the industry.

"We must grapple with them within the philosophy of deregulation," Kahn said.

He pointed specifically to "reconcentration" of the industry, saying the trend may be "worrisome" because it modifies the nature of competition over different hubs. He also noted the decline in the number of carriers per route, adding that he has had calls from airports complaining that they are now down to service by a single airline.

Further, Kahn said he has heard "a growing sense of frustration" about the level of unrestricted fares.

Kahn, who advised DOT on its current--and controversial--attempt to write competition policy guidelines, said he is not suggesting reregulation. But he did underscore that "what enforces pricing is free entry." He said the industry should "applaud" DOT for its proposed competition policy guidelines, adding that the department is proceeding under its authority to deal with exclusionary tactics.

"In our wave of self-congratulations (about the success of deregulation)," he said, "we must recognize there are problems that deserve attention."

Also at the conference, DOT deputy secretary Mort Downey said the department's role has shifted "from being an economic regulator to a referee," where "we don't call the plays; we set the rules."

In a luncheon address, DOT Secretary Rodney Slater called for the industry to establish an agenda for aviation in the 21st century, explaining that he wants to set the framework for next year, "when the new Congress takes up aviation reauthorization, in much the same way they took up surface transportation reauthorization this year."

Slater declined to list the issues that he thinks should be on that action agenda, stating, "That's not my job. The era of big-daddy government is over. We don't have all the answers and we are not going to pretend that we have them. We need to do this together.