“The intellectual battle is over – open skies is the way forward.” So says Alex Plant, head of economic policy and international aviation at the Civil Aviation Authority (CAA). But he admits the battle is still being fought over restrictons on ownership and control that are the other elements to a totally liberalised industry.
Speaking at a briefing in London this week he outlined the the primary obstacles to achieving this freedom – concerns over safety, non-reciprocity and regulatory convergence. And in a bid to open up the debate he says: “We felt it time to seek an objective view of the various issues.”
In a discussion paper Ownership and control liberalisation the CAA points out the lack of commercial freedom in international aviation compared with other comparable global industries such as financial services and even highly sensitive sectors such as utilities and defence, and asks: “Why should airlines be so special when it comes to ownership and control?”
The CAA believes that there are likely to be substantial benefits from liberalisation and sets out a pathway for reform, which, it says, “should lead to safer, more efficient and cheaper international aviation”.
It believes that liberalisation of ownership and control would bring benefits for safety and also for all participants in the industry – the airlines, their staff and the people who fly with them.
With regard to safety, greater market opportunities would act as incentives for countries’ safety authorities and their arlines to improve safety performance, the CAA believes, while reform would facilitiate cross-border investment, lower financing costs and attract innovative management. Freer flows of capital would “allow a more financially stable industry structure to emerge and structural changes, such as consolidation and the growth of airlines with a significant presence in more than one continent, are made easier”.
For consumers, lower prices and greater choice should result, while multinational airlines could offer new routes that are not possible at the moment. Airline staff have not been left out – the CAA believes they should have nothing to fear from reform. “A more flexible and responsive sector enabled by liberalisation should increase demand for the industry’s outputs, with positive effects on employment,” it insists.
With such a win-win situation envisaged one can only wonder why it is taking so long to achieve, and who is standing in the way?
Oasis Hong Kong Airlines, which could become the poster child of the until now untested long-haul/low-cost model, finally got off the ground yesterday, much to the relief of chief executive Stephen Miller.
The carrier, which originally aimed to launch in November 2005, has encountered a series of delays over the last year but the last one was the most surprising and frustrating. Just as its inaugural flight was ready to leave the gate at Hong Kong for London Gatwick on 25 October, its pilots were informed the airline had not been cleared by Russian authorities. Flying non-stop from Hong Kong to London can only be achieved by flying several hours over Russian airspace so Steve Miller had no choice but to delay the inaugural flight.
“We really don’t know why. We had a route code and had paid the fee,” Miller says, adding passengers waited for four hours as Oasis tried to fix the problem with Russian authorities.
Russian approval was finally received just after midnight, too late to take of that day but allowing Oasis to finally get off the ground the following morning. He says the embarrassing and highly publicised delay on the inaugural flight may not be all that bad because it gave Oasis extra exposure.
“If nobody knew who we were three days ago, they know who we are now,” Miller jokes.
“We had a set back on our flight but the reaction has been very good,” he adds
But Miller still cannot breathe too easily. The long-haul low-cost model is unproven, which makes Oasis’ venture risky to say the least. The London-Hong Kong sector is also extremely competitive, with six carriers operating non-stops between the two cities from 30 October, when Air New Zealand (ANZ) launches a daily service on the route. The other four are all heavy hitters that generally react aggressively to new competition: British Airways, Cathay Pacific, Qantas and Virgin Atlantic.
To stimulate the market, Oasis is offering a £75 ($142) one-way air fare from London and a HK$1000 ($129) one-way fare from Hong Kong. Business class fares start at just £470 and HK$6,600. It is now operating four weekly frequencies with one Boeing 747-400 seating 278 in economy and 81 in business class but will upgrade the service to daily in late November after it receives its second 747-400.
Miller is not concerned about the competition and he says the initial fares are only short-term promotional. “The competition is evidence of the strong market. It’s one of the strongest long-haul markets in the world,” he says, pointing out the average load factor is 85%.
He adds Oasis is not targeting BA, Cathay or Virgin passengers and these airlines “have not come back at us with ultra-competitive fares”. Oasis is more targeting passengers who have been flying the dozen or so airlines that offer one-stop services between London and Hong Kong at lower fares. Oasis is also pursuing independent businessmen and small companies who are willing to pay a bit more for business-class but believe the current business class fares on major carriers are too pricey.
ANZ chief executive Rob Fyfe, also in London this week ahead of the launch of its London-Hong Kong service, is equally unworried about all the competition. He says most of ANZ's traffic will be carrying on to New Zealand and says it chose a Hong Kong stopover for its second daily London-Auckland service because London-Hong Kong is currently not served by any Star Alliance carrier.
ANZ general manager for Europe Scott Carr points out ANZ will offer one-stop services to Hong Kong with other Star partners to European cities that currently have no direct connections from Hong Kong, such as Brussels. “Our traffic mix will be different,” Carr says.
Read our chief executive interview with Stephen Miller
