Popular revolt needed to break airlines stranglehold

First Published: 2003-12-06

Bahamasair has been flying for 29 years and never made a profit. The last two years alone cost the taxpayer 42.5 million in subsidies. The plan to spend 7 million on additional aircraft indicates a government that refuses to face the fact that a state run taxpayer funded airline is a loser.

There are alternatives, and changes in aviation travel are coming on fast. The numerous local small companies are already providing on time service at a lower fares than Bahamasair. Without the state monopoly in their way, they will blossom and all Bahamians will benefit.

In the increasingly competitive tourism environment, the Bahamas cannot afford to waste resources on losers when private suppliers can do better.

This weeks article by John Blundell opens our eyes to changes already underway in Europe and the U.S.A. Profitable low-cost airlines are running at full capacity. It is only a matter of time until the state monopolies of airlines and airports break down and the market has its way.

Popular revolt needed to break airlines' stranglehold

John Blundell writes in The Scotsman about the bureaucracy surrounding airlines

13 October 2003

WHEN the European nations first sailed out across the oceans they carried an economic fallacy. First, the Portuguese caravelas bobbed out in the Atlantic, followed by the French, Spanish, Dutch and Brits, with the Germans coming late to the game. Every nation applied a version of what we called The Navigation Acts, by which ships could ply only routes authorised by their national authorities. Colonial ports could trade only with their home country. The great achievement of Adam Smith (and the other writers of the Scottish Enlightenment) was to demonstrate that this protected trade system was absurd and impoverishing to everyone. We all know about The Boston Tea Party as a valiant first effort to throw off the imperial yoke. It was a tax revolt against the Royal Navy blocking non-British ships from entering the harbour – and stopping American trade being carried on the ships of other nations. Gradually the conspiracy to close sea traffic in this stupid bi-lateral manner dissolved. It was seen to be an intellectual error based on an erroneous assumption "exports" were virtuous but "imports" sinful. All trade is trade – ie mutually beneficial. If it weren’t, it would not happen. Yet the world’s airlines live under an extraordinary regime as wrong-headed as all the Navigation Acts. Airlines cannot fly where they want, when they want, charging what they want. They cannot freely buy other airlines. Not one in 1,000 politicians understands this. Those gleaming jets with the latest technical wizardry seem to be the very embodiment of modernity, but they fly through thick fogs of ancient bureaucracy. One joyful proof of this has been the emergence of the low cost airlines. Ryanair and EasyJet have amazed us all with their cut-price offers. The impediment is they cannot ply the most profitable routes. The "national flag" carriers enjoy subtle privileges few of us can appreciate. British Airways has the ownership of vast banks of "slots" at Heathrow and Gatwick airports. Slots are the right to take off and land. These prized properties were often awarded in the 1930s. It amazes me that services from Heathrow to the US are open to only four airlines – BA, Virgin, United and American have a stranglehold. We need a popular revolt against these bizarre restrictive practices. A few more events like the Boston Tea Party would do nicely. I want to be invited to The Heathrow Slots Party. All these themes are in play this week as the US government is opening negotiations with the European Union to liberalise the aviation industry. I think it worth noting that Britain has no say in this topic. The powers have all gone to the corrupt and undemocratic European Commission in Brussels. If Tony Blair or his Transport Secretary, Alistair Darling, wanted to blow away some of these cobwebs they could do nothing. The levers of power have all been given away. Osama bin Laden is still causing ripples. One reason the current discussions are underway is the evaporation of traffic in the skies after 9/11. The Iraqi war and the SARS scare have depleted the already wilting airlines further. Amazingly the planet’s airlines will clock up losses topping US$10 billion (?6 billion) between them this year. They only stay in their corporate airspace by a mixture of subsidies and cartels. One tenacious fight we never hear about is the permission to fly within another nation’s airspace. Why not let BA fly between, say, Denver and Chicago? Why not let Texas Air fly between Edinburgh and Heathrow? Leave it to the market. Our current frozen pattern of permissions was contrived when aviation was youthful. Each nation wanted to "nurture" its own flyers, and damn the passengers. I wonder if aviation technology would have evolved in an entirely different manner if taking off and landing incurred real fees? Is it possible vertical take off aircraft would have emerged? I know nothing of the technology, but it is argued coherently that airships could carry us aloft far more cheaply than jets. The regulations are still protecting us from the incineration of the Hindenberg, even though modern airship gasses cannot burn. I am told new hi-tech balloons could fly far more passengers than jumbos and they need none of the tarmac acres of runways. Dallas/Fort Worth Airport for example is bigger than Manhattan. Airships could take off and land almost silently from city centres. It is petty-fogging regulation that deters innovation. It seems to me to be an open scandal that a single company, BAA, owns most of the major British airports including Edinburgh, Glasgow and Aberdeen. Surely our airports should be competitors, not all bundled together in a cosy near monopoly? Several of the privatisations were botched. BAA may be the worst one. America has created a partial market in airport contracting. It has been a huge success. The cheeky low-cost airlines can deliver us only to second-rank airports. It is the major international hubs that need to be opened up to all comers. The airlines themselves have changed their thinking. They used to enjoy being patriotic emblems. Now they want to form transnational alliances. BA is a partner in the Oneworld team. British Midland is in the Star Alliance network. Only this month we have seen Air France take over the Dutch KLM. They’ll keep their liveries but are now one company commanding most of the slots a Charles de Gaulle and at Schipol. This all matters far more than ensuring we can fly more quickly and cheaply from Turnhouse on our holidays. Liberalising the global aviation industry would be a boost to every corner of commerce. More intangibly the market in ideas would get a boost. I never fail to visit the US without stumbling upon good ideas. I’m comforted my American friends, too, agree trips to Europe open their eyes alerting them to the dangers of socialised medicine if nothing else. We still think of tourism as a secondary industry but it is opening up hitherto obscure corners of the Earth. Who could have envisaged the Gambia or the Dominican Republic or Vietnam as tourist magnets 20 years ago? Opening up our skies by dissolving the antique and expensive impediments to trade will bring blessings we cannot even imagine. What may be lacking is a populist consumer led campaign. The airlines and their patron governments have enjoyed nearly a century of clever conspiracy against us all. How pleasing if governor Arnold Schwarzenegger were to free the airspace over California as his first act. Fantasy? Well, Hollywood actor governor Ronald Reagan broke the air traffic controllers’ stranglehold. He sacked the lot when they tried to hold him to ransom. Could airships really purr their way between Princes Street in Edinburgh to Buchanan Street in Glasgow in 15 minutes? Take away the bureaucracy and we’d soon find out. • John Blundell is the director general of the Institute of Economic Affairs

Institute of Economic Affairs, 2 Lord North Street, Westminster, London, SW1P 3LB

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