Abstract
In the face of the continued increase of the number of airlines and the expansion of their services, and the introduction of aircraft with ever bigger capacity, governments are inclined to ever further regulate airline competition, as a defensive reflex.1
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References
Cf. e.g. ICAO Assembly, Buenos Aires, 1968, Doc. A16-WP/33-EC/5, 8/7/68, p. 5 B: “Exchange of Commercial Rights”.
Cf. US Senate, S. Report No. 1875, 84th Congress, 2nd Session, Report of the Ctee on Interstate and Foreign Commerce, passim, Washington D.C. April 30, 1956.
Cf. Frank E. Loy, “Bilateral Air Transport Agreements: Some problems of finding a fair route exchange”. McGill University, Montreal November 1967: “What we are looking for is the value (in terms of access to market) which a carrier obtains from an agreement, and this value is either there or not, regardless of the freedom category of the passenger.” Loy reasons that the value of most franchises is heavily dependent on what he calls the “accident of geography”. (p. 18).
Cf. Stephen Wheatcroft in his excellent book on “Air Transport Policy”, 1964:
scheduled air transport is not a homogeneous commodity, but a different commodity on each route, in other words each route is a separate market.“ (p. 55). 6 Cf. also Mel Brenner (TWA) in ”Discussion of Airline Load Factors and Capacity“, August 1969, commented in Aviation Daily of September 4, 1969: ”Every schedule is a separate, distinct product… has its own specialized appeal to a portion of the market.“
Cf. for a very clear and objective view on the problems of the Bermuda principles, Albert W. Stoffel “American Bilateral Air Transport Agreements on the Threshold of the Jet Transport Age,” the Journal of Air Law and Commerce, Vol. 26, 1959, No. 2, North Western University.
Cf. ICAO Doc. 7586 C/883 June 24, 1955, p. 65: “It should be noted that in the US view sixth freedom is merely a designation given to a specific type of fifth freedom traffic and it is subject to any provisions of bilateral agreements which relate to the fifth freedom.”
Cf. Foreign off-route charter service investigation (Docket 7173, p. 8): “The Board has always construed the foreign air carrier permits as authorizing, and the carriers have regularly scheduled flights from a US point named in the permit to a point beyond the homeland terminal, provided the flights are operated via the described homeland terminal.”
Cf. CAB Permit Investigation, Docket 12063, Order E-16288, Jan. 18, 1961. Recommended Decision of June 21, 1962. See, however, pp. 28 and 103.
Cf., however, Charles Murphy, Chairman of the CAB, before the Aero Club in Washington on March 1, 1966: “Although more than 60% of all international air passenger traffic to and from the USA consists of the travel of US nationals, US flag carriers handle less than 49% of this traffic. In the important market between the US and Europe, the US citizens account for 61% of the travel, yet the US flag carriers receive only 40% of this market. It is extremely difficult to establish and maintain arrangements with other countries which give US flag carriers an equal opportunity to participate in the traffic.” Cf. also ITA Study in ECAC/ECO-II/2-WP/3 of September 1969: in 1968 US citizens represented 62.4% of the total traffic between the US and Europe; US airlines performed 46.1% of the passenger traffic, against 40.4% in 1964. (P. 9 )
Cf. S. 3197 and S. 3198, 89th Congress, 2nd Session, April 6, 1966. Neither of the Bills was enacted. tervention in and direction of economic life as necessary to promote the prosperity of the State. In the international sphere this theory is bound to lead to power politics.
Cf. Javier Rubio Garda-Mina in “Iniciación al estudio del mercado de Transporte Aéreo,” IV (E), Ingenier£a Aerondutica, July/August, 1965, p. 15.
It may be interesting to note that the traffic carried by KLM in 1967/68 consisted for about 60% of third and fourth freedom traffic, about 19% of fifth freedom traffic and 21% sixth freedom traffic. These percentages are calculated on the basis of ticket coupon origin and destination statistics.
Cf. Journal Officiel de la République Française, No. 20, Dec. 1, 1967, page 871.
Cf. Zambia, which in 1967 required the payment to Zambian Airways of 15% of the net revenues derived by foreign carriers from the exercise of third and fourth anid fifth freedom traffic rights in Zambia, pending the exercise of reciprocal rights by Zambian Airways.
Cf. Agreements between the US and Sweden, Denmark and Norway, effected by Exchange of Notes signed at Washington, June 7, 1966. TIAS 6026.
Cf. e.g. US CAB Proposed Rulemaking July 27, 1967, Parts 216 and 375, Explanatory Statement: “A beyond-homeland point would not, however, be considered as unauthorized.” In the adopted regulation ER-525, effective Jan. 15, 1968, Part 216, 1(a) (Note), however, the CAB changed this wording (as a result of an objection of PANAM that by implication foreign air carriers would be entitled to conduct through single plane flights from beyond homeland points), by speaking of “authorized beyond homeland traffic”; thus the CAB avoided the issue.
Caledonian Airways (Prestwick) Ltd. Order E-19710, June 17, 1963 (temporary permit). Order E-22978, Dec. 5, 1965, adding inclusive tour authority. Order E-24413 amended permit, served Nov. 16, 1966, and Order E-25017, served April 21, 1967.
Cf. Order E–25017, served April 21, 1967 and on Petition for Clarification Order E–25392, served July 10, 1967, and Order 68–9–62, served Sept. 16, 1968, Docket 19252, Opinion p. 6, note 4, and p. 7, note 5, and Permit as amended, condition (1). Cf. also Order E–26146, Dec. 18, 1967, Martin’s Permit para (2), Docket 18016.
Cf. John H. Crooker, then Chairman of the USCAB in an Address before the International Aviation Club, Washington D.C. June 9, 1969.
Cf. East Coast Points — Europe Service Investigation, Docket 19255, August 8, 1969, p. 3, Note 1.
Cf. Loy and Cherington before the International Aviation Club in Washington in April and May 1969. (Aviation Daily, April 25, 1969 and May 16, 1969 ). Cf. also the Edwards Report, pp. 89 ff.
Even the South American countries, for example, allow 25% of their intra-continental traffic to be carried by fifth freedom carriers.
Cf. e.g. US CAB Docket 15073 served Nov. 5, 1965. Order E-22851, p. 3: “As an additional protection (besides a reporting requirement) against undue reliance upon fifth freedom traffic DLH’s permit will be subject to the condition that flights serving points south of New York shall originate or terminate at a point in Germany. This condition is designed to ensure that the service is, in fact, a through service from Germany by prohibiting practices that would be inconsistent with such a service: no use of equipment south of New York having capacity greater than that of equipment used between Germany and New York, no scheduling of undue layovers (overnighting), no use of different flight numbers, etc.
Economic and political considerations affecting international air transport,“ speech, delivered at Geneva, Oct. 1966 XLV Convention, International Institute of Communication.
Frank E. Loy (USA) McGill University, November 1967, “Bilateral Air Transport Agreements: Some problems of finding a fair route exchange” pp. 8, 13/14.
Cf. US CAB Order E-23446, which authorizes DLH to combine on the same aircraft traffic moving in air transportation over the Germany-USA-Chile route with traffic between Germany and Colombia although Bogota is not a point on that route, because “Bogota is clearly within the path of the route granted DLH.” DLH sought neither traffic rights between New York and Bogota nor stopovers in New York. The CAB denied an Iberia Petition in 1966 asking for reconsideration of its 1965 refusal of a permit to operate Spanish registered aircraft in scheduled service between New York and Mexico City. The CAB argued that nothing in the existing air agreement contemplated the combination of transit and traffic rights to provide a service of the type proposed. The rights of overflying and making technical stops are provided separately (in the multilateral Air Services Transit Agreement of 1944) and cover totally different types of operation, according to the CAB.
Cf. also DLH Permit Order E-26515 approved March 15, 1968, allowing DLH to add Bogota and La Paz as additional intermediate points on a route between Germany and points in South America via New York.
Cf. proposed rulemaking EDR-121 for a new Part 216 of the Economic Regulations based on the jurisdiction of the CAB under Sec. 1108(b), to require special authorization for “revenue traffic carried by a foreign air carrier on a flight operating in air transportation, which is enplaned at one foreign point and replaned at another foreign point, where at least one of such points is not named as a terminal or intermediate point in the carrier’s applicable foreign air carrier permit.” Part 216 was adopted by Rule ER-525, January 15, 1968, effective Febr. 19, 1968. The CAB made no distinction between traffic carried across the US and “extra-territorial” traffic. The wording makes it questionable whether the Regulation would apply to a foreign carrier wishing to combine its services to different US points authorized to be served on separate routes. It seems, however, that special Sec. 402 authorization from the CAB will be required in that case.
Cf. Doc. 8185, ECAC/4–1, App. 3, p. 82, subpara (v). “A blind sector occurs between two points on a route when an airline is prohibited, on one or more of its services, from carrying traffic coming from one of these points and going to the other.” Cf. e.g. Docket 18154, BOAC, served September 6, 1967: no stopovers permitted at Chicago on the West Coast route; cabotage rights cannot be given: if trip originates inside the country — no stopovers are permitted; if trip originates outside the country there is no cabotage and stopovers are permitted. Sec. 1108 (b) covers navigation in the US and (with Part 375) traffic not moving in air transportation e.g. non-revenue traffic, emergency and other such traffic, and therefore would seem not to be applicable here.
The Board’s jurisdiction under Sec. 402 is limited to air transportation and the carriage of traffic between foreign points, not being air transportation, is beyond such jurisdiction. The CAB’s jurisdiction under Sec. 1108(b) is limited by its terms to the navigation of foreign aircraft in the US. Expressly excluded from the CAB’s jurisdiction under this Section are operations pursuant to a permit under Sec. 402.
Cf. Part 216 of the CAB’s Economic Regulation, p. 4. N.B. The regulation is also applicable to foreign carriers. It excludes “the carriage of authorized `beyond homeland’ traffic.” Part 216.1. Note… This wording implies that sixth freedom traffic may be specifically authorized in a carrier’s permit, something which is not usually done, as the sixth freedom normally is not covered and therefore freely authorized under bilateral agreements.
Cf. also Memorandum of PANAM in opposition to the application of KLM for Statement of Authorization pursuant to Part 216, April 3, 1968, pp. 9 ff. The grant of blind sector permission is a decision which is essentially of a “horse-trading” nature according to PANAM. “There is no public policy favoring freedom of blind sector operations. The US aviation policy has properly tended to discourage either the acquisition or the grant of such partial rights, preferring to see the international air transport system develop on a pattern of full traffic rights where these can be justified.” (p. 11). One could reason that this US policy to grant full traffic rights a fortiori allows what PANAM calls partial rights (blind sector permission). It should be noted, however, that in the Exchange of Notes between the governments of the US and the UK, May 27, 1966, the US inserted traffic restrictions applicable to the routes of the designated air carriers of the UK by not granting traffic rights between Jamaica and Miami on a route between British Honduras or the Cayman Islands to Miami; nor between Okinawa and Japan on a route from Hong Kong to Japan. Treaty Series No. 43, 1966, Washington, May 27, 1966. More recently, in an Exchange of Notes between US and France on April 5, 1960, as “collateral understanding,” blind sector rights were exchanged expressis verbis.
Cf. CAB member Whitney Gillilland: “The role of the CAB in licensing foreign air carriers.” 3rd Inter American Law Conference, University of Miami Law Center, March 22–24, 1966.
Cf. cases cited by G. Nathan Calkins Jr. in Acquisition of operating authority by foreign air carriers: the role of the CAB, White House and Department of State. pp. 82 and ff. Mr. Calkins criticizes the change of policy of the CAB (in 1960) and the application of Sec. 1108 (b) extra-territorially to counter the threat of unequal competition, the foreign carrier being able to mount more frequencies by combining the traffic of two different routes. Journal of Air Law and Commerce, Spring issue 1965. It should be noted that the CAB itself emphasizes that this regulation does not represent a new or changed policy of the Board. ER-525 p. 7.
Note, however, that in the Canada-Trinidad/Tobago bilateral agreement of August 1969, express authorization is given for transportation of traffic between carrier’s country and specified intermediate points on the agreed routes.
Cf. the “Show Cause” Order E-25823, served Oct. 13, 1967, Docket 19103, directing Alitalia to show cause why the Board should not, subject to the approval of the President, amend Alitalia’s permit so as to incorporate interalia the requirement to file for approval all schedules which are or will be operated by Alitalia, including applications to conduct on-route charter flights. Italy had denounced the US-Italian air agreement which consequently had terminated on a year’s notice on May 31, 1967, to be replaced by unilateral permits. The Italian government had restricted the frequencies of the US carriers providing all-cargo aircraft schedules in the US-Italian market.
Cf. ECAC/CBS Report, 6/12/67, p. 7. The CAB argument that commingling could significantly increase the frequency and capacity of services, was countered by some experts by pointing at the possibility under Bermuda type agreements to control capacity ex post facto. It was further noted that in a number of bilaterals the right to include new points on a given route (without the right to carry local traffic between such point and the territory of the other party) is expressly mentioned as not requiring separate negotiations.
Cf. also letter from the President of ECAC to the Chairman of the CAB, February 16, 1968, App. I ECAC/DGCA-Report 15/2/68: “… the meeting concurred in the opinion that a national regulation could in no way affect existing rights, except as provided in procedures laid down in the international agreements, bilateral or otherwise. The CAB regulation which has been introduced unilaterally in the US consequently cannot as such be binding on foreign governments.”
Cf. also M. Jacques Boitreaud: “L’Europe doit être organisée pour faire face dans les négociations de droits de trafic, aux pays massifs comme les USA et l’URSS.” La Vie des Transports, page 7, March 4, 1967.
On November 17, 1967 the CAB decided to reopen the Transatlantic Route Renewal Case by setting down for hearing the East Coast Points — Europe Service Investigation, Docket 19255, to determine the need for direct services by US carriers between East Coast cities and Europe without reference to New York, the principal funnel for connecting traffic and through flights to and from other points.
See, however, Jamaica-US bilateral air agreement, October 2, 1969, when the US exchanged routes for US carriers from ten US points to Jamaica and beyond for routes for Jamaican carriers from Jamaica to five US points and beyond.
Cf. also M. A. Bradley (Canada) in his report to the International Chamber of Commerce, Commission on Air Transport, ICC Doc. 310/223, April 244, 1968: “The actual and potential revenues which will accrue to the airlines, and the equal opportunity to match the earnings of the airlines of the other party are mentioned as being factors which may determine the balance.”
Cf. also J. E. Landry, ATA: “Problems of bilateral arrangements,” 1968: “… a fair and equal opportunity does not mean an artificial division such as a 50/50 split of the market involved. There is to be no holding of the promotion and development of a market to the capabilities and desires of a lowest denominator.”
Cf. Frank E. Loy: “Bilateral air transport agreements- Some problems of finding a fair route exchange.” Mc.Gill University, November 1967.
Cf. also the Comments by John H. Spencer, p. 86/87 in The Freedom of the Air, 1968, Sijthoff, Leyden. For a large traffic generating country like the US such a geopolitical theory is not surprising, though hardly justifiable.
Cf. also Carl Nilsson, then President of SAS, in American Aviation, September 1967, p. 57: “… our share of world aviation is in conformity with our traffic potentials. Denmark, Norway and Sweden have about 4.9% of the world trade. SAS has a 1.8% share of the world traffic.” Under the present system, SAS would have little chance to increase its share of the world traffic.
Cf. on the other hand, Paul W. Cherington: “The US proportion of the world passenger market was only 22.8% in 1968.” Aviation Daily, May 16, 1969. The US share of world trade was 19.8%.
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© 1970 Martinus Nijhoff, The Hague, Netherlands
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Wassenbergh, H.A. (1970). Chapter Two. In: Aspects of Air Law and Civil Air Policy in the Seventies. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-8852-4_2
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