International Air Services

FURTHER LIBERALISATION

RECOMMENDATION 9.3

The Commission recommends that Australia should seek to negotiate reciprocal ‘open skies’ agreements on a bilateral basis. …

AGREE.

…which would remove restrictions on:

• capacity and frequency to, from, between and beyond Australia and the bilateral aviation partner;
• code sharing on each other’s airlines;
• routes, including points of access to the Australian and bilateral partner’s markets, intermediate and beyond points;
• multiple designation of airlines by Australia and the bilateral partner;

AGREE. We agree that bilateral ‘open skies’ arrangements should be pursued with like-minded countries. The PC considered that the sequencing of negotiations is central to maximising Australia’s national interest. The Minister for Transport and Regional Services will manage negotiations in the national interest by taking into account the views of all stakeholders, including the tourism industry, the aviation industry, State Governments, exporters and importers, airport operators and foreign policy interests. Where ‘open skies’ cannot be achieved, or is not in the national interest, the Minister will pursue the most liberal arrangements possible.

Unrestricted own stopover rights would also be included in a liberal ASA negotiated in accordance with this recommendation. The actions of the airlines designated under an ASA of this type would still be governed by the application of local competition laws.

Australia has already made significant progress in freeing up capacity, route and traffic rights, code share and regional access. Multiple designation has been Government policy since 1989 and Australia’s liberal approach to air freight, domestic aviation reform, airports, ownership and control and alliances are already at or beyond the limit of many of our bilateral partners’ tolerance. Maintaining the momentum of microeconomic reform in this sector will allow greater inroads for increased competition, lower prices and better ability to satisfy demand for international air services.

• ownership as a basis for airline designation; and…

AGREE. There is some limited scope to negotiate more flexible ownership provisions in ASAs including recognising ownership structures such as place of incorporation, principal place of business or other evidence of commitment to providing air services from the territory of the other country to substitute for the current standard substantive ownership and effective control provisions. There is also some scope for liberalisation of controls on the ownership of Australian carriers within Australian domestic law. However, given the commercial risk of international carriers being denied access to a market because their ownership and control structure is seen as too liberal, the proper forum for far-reaching ownership and control liberalisation is the GATS (see response to recommendations 9.1, 9.2 and 9.6).

• prices.

AGREE. This recommendation reflects Australian practice of not interfering with the market price of tariffs. To bring the proposal fully into effect will require changes to both current bilateral arrangements and domestic regulations.

Such reciprocal agreements should also contain restrictions on Government subsidies where these are significant. …

AGREE, provided that the overall benefit of any bilateral arrangement is not jeopardised by insisting that the deal not be done because of the presence of a foreign Government subsidy.

Australia should also be prepared to negotiate, on a case by case basis, removal of restrictions on cabotage…

DISAGREE. The PC states that this recommendation will provide only marginal economic benefits. Recent public discussion of this issue has also shown that there is a possibility of major Australian domestic carriers withdrawing from regional routes if cabotage access for foreign carriers is introduced.

… and the development of ‘stand alone’ services between the bilateral partners and third countries (so called seventh freedom services).

AGREE. Australia has already sought seventh freedom services in bilateral negotiations and is prepared to consider them on a case by case basis.

RECOMMENDATION 9.5

Australia should invite like-minded countries to discuss the formation of an open club of nations committed to liberalising international aviation through a common plurilateral ‘open skies’ agreement.

AGREE. Australia should be prepared to discuss the formation of an open club committed to liberalising international aviation. This would require a substantial multilateral statement of support before such a move could be negotiated. It is likely that many of our major trading partners would remain opposed to ‘open skies’ in any form.

RECOMMENDATION 9.6

The Australian Government should promote discussion within the WTO membership to determine a process for including all air services in the GATS.

AGREE. It is important that Australia participates in this process. There are a number of significant aspects of aviation reform, including ownership and control of international airlines, non scheduled services and dedicated freight services which lend themselves specifically to the GATS process.

RECOMMENDATION 9.1

The Australian Government should join with other like-minded governments to have the ICAO Secretariat’s 1994 proposals to liberalise ownership and control requirements for national designation reconsidered for adoption on a plurilateral or multilateral basis.

In the meantime, Australia’s own ASAs should be negotiated to incorporate a more liberal means of designating airlines, which does not rely on ownership restrictions.

RECOMMENDATION 9.2

The Australian Government should invite neighbouring countries to develop, and seek ICAO recognition for, a regional arrangement that would enable relaxation of ownership and control criteria. Countries to be considered should include New Zealand and the South Pacific Forum island nations.

AGREE. Australia should be prepared to negotiate to incorporate a more liberal means of designating airlines which does not rely on ownership restrictions. However, care needs to be taken in the implementation of this policy. Ownership and control is a universal feature of bilateralism and is not readily amenable to piecemeal solutions.

Australia agrees that there is a need to reform access by international investors to the sector, but believes that this is best done in a forum with universal application like the WTO where there is at least some chance of carrying reluctant players. This submission has also recommended that Australia be prepared to incorporate more liberal means of designating airlines.

REGIONAL REFORM PACKAGE

RECOMMENDATION 9.4

As a step toward the further liberalisation of international air services, the Commission recommends reforms to ASAs to benefit regional Australia, encompassing both bilateral and unilateral elements:

Bilaterally, Australia should offer unlimited capacity to fly to all airports other than Sydney, provided that Australian carriers are offered the same routes on a reciprocal basis by their bilateral partners. The Australian Government should take up the British offer of similar opportunities.

DISAGREE. Although capacity is negotiated ahead of demand, it remains an important element of the overall packages we negotiate and while we remain in the bilateral framework we need the ability to trade access to Sydney, Melbourne, Brisbane and Perth particularly as leverage to obtain access to third country markets.

Australia will consider the UK offer during negotiations scheduled to commence later this year.

Unilaterally, Australia should offer, within negotiated capacity:

• removal of restrictions on the number of points to be served and designation of all cities in Australia other than Sydney, Melbourne, Brisbane and Perth;
• unrestricted rights for foreign carriers to code share to all points in Australia on Australian domestic airlines; and
• unrestricted rights for foreign carriers to carry their own-stopover traffic.

AGREE. This could facilitate the development of new and more innovative air services to regional Australia. Regional economies and the tourism industry could benefit, at little cost to Australian airlines. In order to reap the full benefits of this reform the recommendation should also be extended to include open capacity, code share and own stopover rights to centres other than Sydney, Melbourne, Brisbane and Perth.

INTERNATIONAL AIR SERVICES COMMISSION

RECOMMENDATION 7.1

Contested capacity should continue to be allocated by the IASC using a public benefit test.

AGREE.

RECOMMENDATION 7.2

The objectives of the International Air Services Commission Act 1992 should be amended to:

‘enhance the welfare of Australians by promoting economic efficiency through competition in the provision of international air services’

AGREE. This is a restatement of the current role of the IASC.

RECOMMENDATION 7.3

The IASC should not be involved in assessing the viability of airlines, or anticipating approvals by other Government agencies.

DISAGREE. The Government must be convinced that an entity it licences is capable of performing the services it is licensed to provide. There is both a moral hazard and consumer deception if this process is absent from licensing. Arrangements can however be streamlined.

RECOMMENDATION 7.4

When international capacity becomes available, or is applied for, it should be advertised by DTRD.

AGREE.

Where an application is uncontested (that is, only one applicant), or capacity is not constrained, the allocation of that capacity should be approved automatically by DTRD.

It should be the responsibility of the airline to meet all other regulatory and financial requirements before the commencement date.

AGREE. But determinations should still be subject to these requirements being met.

Where an application is contested, the IASC should determine the allocation of capacity.

AGREE.

RECOMMENDATION 7.5

Submissions should not be called for unless a contested application is referred to the IASC.

AGREE.

RECOMMENDATION 7.6

The criteria used by the IASC to allocate contested capacity should be simplified to focus on benefits from competition.

AGREE with caution. As the PC notes in its report, there is a risk in oversimplifying the criteria for allocating contested capacity, particularly if viability tests have been removed. Current criteria also allow the IASC to target examination of the benefits of competition.

RECOMMENDATION 7.7

The start up provisions should be removed from the Minister’s policy statement.

DISAGREE. Where capacity is constrained under an ASA, start up criteria do at least provide a ‘one off’ chance to introduce Australian competition on the route through allocating an initial new entrant a level of capacity appropriate to the development of efficient, economically sustainable services.

RECOMMENDATION 7.8

Capacity allocations should be made in perpetuity and the IASC should be rigorous in enforcing the use-it-or-lose-it provisions.

DISAGREE. The present review process of determinations is based on the proper assumption that these scarce rights are not ‘owned’ by the carriers. It provides the necessary transparency for all parties concerned as well as the opportunity for capacity to be reallocated should market and policy conditions change.

AUSTRALIA’S AVIATION POLICY AND PROCESSES

RECOMMENDATION 5.1

The Commonwealth Government should publish, and keep up to date, a statement of its aviation policy.

AGREE. The Minister for Transport and Regional Services will publish a consolidated statement on international aviation policy.

RECOMMENDATION 5.2

DTRD should develop a formal direct consultation process which encompasses all major interested parties to obtain their views on ASAs being negotiated and ensure that it provides timely and informative feedback on the outcomes of the ASA negotiation process.

AGREE. The Minister for Transport and Regional Services will establish a twice yearly International Aviation Conference, to provide advice on the Government’s negotiating priorities. New feedback mechanisms have also been trialed with the outcomes of our most recent air services discussions.

RECOMMENDATION 5.3

An interdepartmental committee, chaired by DTRD, should be established to consider and endorse all proposals relating to Australia’s air services negotiating position. The committee should include the Departments of Prime Minister and Cabinet, Treasury, Foreign Affairs and Trade, and Industry, Science and Tourism.

DISAGREE. An interdepartmental committee to endorse a negotiating position would impose another layer of decision making and add little value. DFAT and DIST (now DISR) are already direct participants in the process of determining the negotiating position for air services negotiations.

Air services negotiations happen in real time and the consultation process required to modify a negotiating position would remove the flexibility currently available to negotiators and increase the number of rounds required to obtain an outcome.

RECOMMENDATION 5.4

Confidentiality of ASAs should be limited strictly to those parts of the arrangements required specifically by other Governments. The reasons for granting confidentiality of ASAs should be scrutinised closely. All other arrangements should be made public and easily accessible.

AGREE.

INQUIRY INTO AIRPORTS

RECOMMENDATION 8.1

The Commonwealth Government should commission an inquiry into airport capacity, access and pricing in 2001. Such an inquiry should, as a minimum, examine;

• constraints that airports are imposing on Australia’s air services;
• peak load pricing;
• regulation of aeronautical charges;
• the potential for the introduction of a market for slots; and
• legislated access provisions.

DISAGREE. The review has the potential to generate uncertainty amongst bidders for Sydney airport and have a negative impact on its value.