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Co-existence of scheduled and charter services in public air transport
Published online by Cambridge University Press: 04 July 2016
Extract
While my own views are the product of long association with the airline industry, I would not wish to ask the airlines—or any one of them—to assume responsibility for such personal views and conclusions as may be put forward in this paper. Having added this caveat, I am hopeful that what I have to say reflects at least the opinion of some within the airline industry.
- Type
- The Air Charter Market and the Restrictive Effects of Current Bilateral Agreements
- Information
- Copyright
- Copyright © Royal Aeronautical Society 1973
References
Notes
1 Frank E. Loy. Bilateral Air Transport Agreements: Some Problems of Finding a Fair Route Exchange.
2 These privileges—the First and Second Freedoms of the air —were elaborated in the International Air Services Transit Agreement which had 80 participating states as at 10th December 1971.
3 These privileges can be summarised as follows:
Third Freedom: the right to carry passengers, cargo and mail from the carrier's country to another country;
Fourth Freedom: the right to carry such traffic into the carrier's country from another country;
Fifth Freedom: the right to carry such traffic between two countries other than the carrier's country.
An International Air Transport Agreement, embodying these three Freedoms as well as the two transit privileges mentioned earlier, was signed at the same time as the Chicago Convention, but has not had much practical effect, as at 10th December 1971 only twelve states were parties to this Agreement and only two of these became parties after 1947.
4 A word of explanation about Sixth Freedom may be useful. For example, BOAC has traffic rights from New York to London (Fourth Freedom) and from London to New Delhi (Third Freedom). It does not enjoy traffic rights directly between New York and New Delhi. However, BOAC may pick up passengers in New York, disembark them in London, put them on another aircraft and carry them to New Delhi. In his recent book Aspects of Air Law and Civil Air Policy in the Seventies, H. A. Wassenbergh writes:
“This kind of traffic developed as national carriers built their networks around their home countries with their home bases as the hubs of their services. In the home country, traffic is transferred from one service of the airline to another for onward international air travel.“
5 For example, the USA/Mexico bilateral, last amended in 1970, specifies 19 different routes on which US carriers may operate into Mexico and 20 routes on which Mexican carriers may operate into the USA. By contrast the France/USSR agreement (1970) gives the designated carriers only one route in each direction.
6 Frank E. Loy, op. cit. and cf. the US/Canada agreement of January 1966, article 1(b), according to which the bilateral allocation of routes and traffic rights should result in an “equitable overall exchange of economic benefits derived from the establishment of air services between every two countries, including equitable opportunity for the airlines of the two countries to serve the needs of the travelling and shipping public” (Quoted in Wassenbergh, op. cit., p. 12). Frank Loy, in the paper referred to, notes that a fair commercial exchange need not be the only criterion for the exchange of air transport rights. He distinguishes various alternative approaches to the allocation of such rights: (a) as part of a “package deal” covering a whole range of economic benefits; (b) in exchange for political or other noncommercial advantages (e.g. a defence treaty or voting support in the UN); (c) most-favoured nation treatment; (d) exchange of routes identical in appearance (“visual reciprocity“).
7 The inter-relationship between the initial question of “access to the market” (routes) and the capacity to be offered, was well illustrated by the bilateral revision negotiations in 1965 between USA and Mexico. The crucial questions at issue were: (a) whether US carriers should have access to Acapulco (previously denied to them) and (b) whether the designated carriers would have the right to determine without restriction the number and type of flights to be offered (under previous arrangements between the two countries, capacity was predetermined). In the event, the American negotiators were almost wholly successful in obtaining what they wanted. See generally H. Max Healey, Revisions to the Mexico-United States Air Transport Agreement 1965, J.A.L.C.Spring 1966.
8 The Bermuda capacity principles are essentially contained in paras. 3 to 6 inclusive of the Final Act of the Bermuda Conference, wherein the two Governments agreed:
(3) That the air transport facilities available to the travelling public should bear a close relationship to the requirements of the public for such transport.
(4) That there shall be fair and equal opportunity for the carriers of the two nations to operate on any route between their respective territories (as defined in the Agreement) covered by the Agreement and its Annex.
(5) That, in the operation by the air carriers of either Government of the trunk services described in the Annex to the Agreement, the interest of the air carriers of the other Government shall be taken into consideration so as not to affect unduly the services which the latter provides on all or part of the same routes.
(6) That it is the understanding of both Governments that services provided by a designated air carrier under the Agreement and its Annex shall retain as their primary objective the provision of capacity adequate to the traffic demands between the country of which such air carrier is a national and the country of ultimate destination of the traffic.
The right to embark or disembark on such services international traffic destined for and coming from third countries at a point or points on the routes specified in the Annex to the Agreement shall be applied in accordance with the general principles of orderly development to which both Governments subscribe and shall be subject to the general principle that capacity should be related:
(a) to traffic requirements between the country of origin and the country of destination;
(b) to the requirements of through airline operation; and
(c) to the traffic requirements of the area through which the airline passes after taking account of local and regional services.
9 The Bermuda text “was accepted because it is incomprehensible and because, for this very reason, it provides its negotiators and those who are entrusted with its implementation (as long as there is no disagreement) with the possibility of placing upon it the interpretation they prefer. In fact, the very men who bear the responsibility for this difficult and meritorious Bermuda Agreement realise the excessive vagueness of its capacity clauses”. (Development of a Multilateral Agreement on Commercial Rights in International Civil Air Transport, May 1947; Extract from Discussion of Commission No. 3 of First ICAO Assembly; intervention by delegate of France). See also Wassenbergh, op. cit., p. 22.
10 Sir George Cribbett, before the Royal Aeronautical Society, London, 28th September, 1950, in part said the following: ”… The main difference of substance between the United Kingdom final plan advocated at Chicago and the Bermuda Agreement is that capacity, frequencies and associated matters are subject, in relation to a virtually common code of principles, to ex post facto review instead of a priori determination. At Chicago the United Kingdom advocated the predetermination of capacity necessary to meet the estimated traffic potential and the division of this capacity equally between the two countries entitled to carry Third and Fourth Freedom traffic, subject to the escalator provision which allowed the operator who attracted the traffic to increase his capacity, within defined limits, to meet the public demand. One of our difficulties was to fix a constant load factor to determine the point at which escalation might commence. A fixed load factor of universal application, irrespective of the route or conditions of operation, would clearly give rise to anomalies. The point at which an operator is turning away traffic must vary from route to route and according to conditions, and the only true criterion is the actual turning away of traffic at the booking office of the operator…
“Consequently in the Bermuda Agreement the escalator provision of Chicago was substituted by the more practical and flexible principle of ‘fair and equal opportunity’ provided that the services of one airline do not affect unduly the services of the other…
”… The Bermuda Agreement … gives freedom to airlines to adjust requirements to meet the traffic demand, in accordance with a code of sound principles, and provides machinery to rectify abuses of this freedom in the form of unfair or uncommercial practices or attempts to impinge unduly on the legitimate minimum rights of the other party…“
11 British Overseas Airways Foreign Permit Amendment 29 CAB 583 (1959).
12 Hungary-Finland, 16th February, 1962.
13 “The Germany-UAR bilateral of 16th February, 1960, 464 UNTS 233, which denies the German carrier Fifth Freedom traffic between the UAR on the one hand and Lebanon, Saudi Arabia and Sudan on the other hand. The Czechoslovak- Iraq bilateral, llth March, 1960, 464 UNTS 267, denies the Czech carrier Fifth Freedom traffic between Iraq on the one hand and Lebanon, UAR, Iran, Saudi Arabia, Jordan, Kuwait, Bahrein and Turkey on the other hand. Under Japan-UAR Bilateral, 10th May, 1962. 498 UNTS 69, the Japanese carrier cannot carry Fitth Freedom traffic between Cairo-Kuwait, Athens, Rome, Frankfurt, Paris. The France-Rumania bilateral 18th May, 1962, 498 UNTS 155 limits Fifth Freedom of the French carrier between Bucharest-Hungary and Czechoslovakia; and of the Rumanian airline between Paris-Italy and Yugoslavia. The Czechoslovak- Ghana agreement, 2nd August, 1961, 465 UNTS 249, denies the Czech carrier Fifth Freedom between Accra on the one hand and Lagos, Bamako and Tripoli on the other hand, while Ghana has no Fifth Freedom between Prague and Moscow. Under the Ghana-USSR bilateral, 6th April, 1962, 498 UNTS 41, Ghana has no rights beyond Moscow and no Fifth Freedom rights between Moscow-Warsaw, Prague and Budapest, while the Soviet carrier cannot carry Fifth Freedom traffic between Accra-Lagos, Bamako, Conakry. The Greece-Poland bilateral, 21st December, 1963, 538 UNTS 155 limits the Polish carrier's frequency on the Warsaw-Athens route to two weekly flights, and beyond Athens to Cairo, to Damascus, Baghdad-Kabul also to two weekly flights (Annex, Art. II). The route of the Greek carrier was not described in the agreement. When the India- USSR bilateral of 2nd June, 1958, 393 UNTS 3, was amended by exchange of notes, 13th November 1962, 497 UNTS 368, extending air services of Air India and Aeroflot beyond Moscow and New Delhi on the original Delhi-Tashkent- Moscow route ‘to points outside the USSR to be indicated later,’ and beyond Delhi to Rangoon and Djakarta, Fifth Freedom traffic beyond the respective capitals to the new points was prohibited.” The Balance Sheet of Bilateralism, Francis Deak, Chapter II. The Freedom of the Air, 1968, Page 170.
14 This Agreement, after repeating the Bermuda concepts of “close relationship” to public requirements, “fair and equal opportunity” and the “primary objective” of providing for Third and Fourth Freedom traffic, goes on to state that “the privilege granted to the designated airlines of each Contracting Party of embarking and disembarking, in the territory of the other Contracting Party, traffic destined for and coming from third countries on the specified air routes shall be exercised only by utilising part of the capacity duly provided in conformity” with the Agreement.
15 For example, the South Africa-Portugal Agreement of 7th May 1963.
16 As in some South American countries. See South American Attitudes towards the Regulation of International Air Transportation, by Eduardo Jimenez de Arechaga (The Freedom of the Air, Chapter 6. Page 76). But the Argentine-Uruguay Agreement in 1965 provides a quota of 7000 passengers per week and in practice reserves this traffic almost exclusively to carriers of Uruguayan and Argentine nationality.
17 See for example bilateral agreement between India and Australia signed llth July 1949, Article IV, Paragraph A.
18 (a) In the United States, Part 208 of the CAB Economic Regulations governs the conditions under which US carriers are authorised to engage in supplemental air transportation. Part 212 of the Economic Regulations lays down analogous rules and limitations for charter trips (on-route and off-route) by foreign air carriers.
(b) In the United Kingdom, Article 73 of the Air Navigation Order 1970 lays down the general principle that foreign aircraft require permission to operate charters. But within this broad framework government policy has varied: thus in the Summer of 1971 the British Government temporarily banned Fifth Freedom charter flights by foreign airlines which involved aircraft seating more than 252 passengers. This in effect excluded the use of Boeing 747s.
(c) Under most national laws, foreign carriers require (in principle) special permission to operate charters, but these regulations applied very variously.
19 ICAO Document 7278-C/841, 10/5/52: “A scheduled international air service is a series of flights that possesses all the following characteristics:
(a) it passes through the air space over the territory of more than one State;
(b) it is performed by aircraft for the transport of passengers, mail or cargo for remuneration, in such a manner that each flight is open to use by members of the public;
(c) is is operated, so as to serve traffic between the same two or more points, either
(i) according to a published timetable, or
(ii) with flights so regular or frequent that they constitute a recognisably systematic series.“
20 This tendency is illustrated in the three charts attached to this paper as Figs. 2, 3 and 4.
21 Statement before the Sub-committee on Aviation of the US Senate Committee on Commerce, 21st October 1971.
22 Page 76, CAB Brief to the Court of Appeals for the District of Columbia in NACA v. CAB et al., No. 23988.
23 22nd June 1970. The relevant paragraphs from this Policy Statement read as follows: “Since 1963 international charter services by scheduled and supplemental carriers have grown in importance, have been increasingly accepted by the public, and now form an integral part of some markets …
“Scheduled services are of vital importance to air transportation and offer regular and dependably frequent schedules, provide extensive flexibility in length of stay, and maintain worldwide route, including routes to areas of low traffic volume. Substantial impairment of scheduled services could result in travellers and shippers losing the ability to obtain these benefits. Accordingly, in any instances where a substantial impairment of scheduled services appears likely, it would be appropriate, where necessary to avoid prejudice to the public interest, to take steps to prevent such impairment.
“Charter services by scheduled and supplemental carriers have been useful in holding down fare and rate levels and expanding passenger and cargo markets. They offer opportunities to exploit the inherent efficiency of planeload movement and the elasticity of demand for international air transport … If it appears that there is likely to be a substantial impairment of charter services, it would be appropriate, where necessary to avoid prejudice to the public interest, to take steps to prevent such impairment.
“Additional uniformity and simplification of charter rules is desirable, and an effective charter enforcement programme should be maintained …
“Licensing tools (geographic limitations, charter definitions, volume restrictions, etc.) can be utilised to adjust the competition between scheduled services and charter services. However, the widespread public acceptance of charters warrants care in taking restrictive actions …
“The foreign landing rights for charter services should be regularised, as free as possible from substantial restriction. To accomplish this, intergovernmental agreement covering the operation of charter services should be vigorously sought, distinct, however, from agreements covering scheduled services …“
24 CAB Docket 23055, 30th December 1971: Under a new name, this proposal closely follows the Board's earlier notice (29th January 1971) regarding “Non-Affinity Charter”. Essential features of the Travel Group Charter would be groups of 50 or more persons, formed at least six months before flight departure, each group member paying a 25% nonrefundable deposit, limitation on the percentage of replacement passengers, no mass media advertising. (The legality of this proposed new rule is not free from doubt in US Law.)
25 It is fair to add that the US Government has on occasion unilaterally imposed limitations on capacity. See Order 71-8-91 of 19th August 1971, approving Agreement CAB 22496 between American Airlines, TWA and United Airlines to reduce scheduled capacity for 12 months on four domestic sectors, to improve load factors of the three carriers. In its Order the CAB is careful to emphasise the “highly unusual and limited circumstances” which led it to approve the capacity- reduction Agreement.
26 Civil Aviation Policy (Cmnd. 4213), November 1969. The White Paper contains the following:
“35. The independent airlines have progressively increased their share of a rapidly growing air transport market, mainly by developing inclusive tour and other charter services. This evolution has been encouraged by various forms of vertical integration between airlines and organisers of group travel; in this way economies of scale and of specialisation have been gained. The Committee forecast a continuing expansion in these sectors, especially for long haul services. Freight charter services will also become increasingly important. The Government forsees a promising future for airlines specialising in these sectors, provided that they have the necessary financial strength and managerial competence.
“36. The changing nature of the market, to which the Report draws attention, implies a continuing evolution in the character of air services and a progressive change in the balance between scheduled and charter services on international routes. The main scheduled carriers will engage increasingly in charter operations, either directly or through subsidiaries. Conversely, the scope for specialist non-scheduled carriers will increase through changes in pricing policies and in the character of services needed on particular routes.“
27 Within Europe, on the other hand, their policy has been quite liberal with respect both to legitimate affinity charters and inclusive tours.
28 Another proposal, submitted to ECAC by the Australian Government, explicitly proposed a new class of low-fare service to be operated by carriers designated under bilateral agreements.
29 Speaking on 25th January 1972, Mr. Charles Tillinghast. Chairman of TWA, told journalists that scheduled international services by US airlines could come to an end within five years if the new “travel group charter” rules proposed by the CAB were to come into effect in their present form. He said: “The number of people who would pay the premium required to support scheduled service on international routes would be the definite minority in the market. If scheduled service is supported internationally only by those who have the need for regular service and the ability and willingness to pay for it, the traffic would be inadequate to cover the costs.“
30 See Footnote 29.
31 Sir William Hildred, Statement before the Anti-Trust Sub-Committee of the Judicial Committee of the US House of Representatives, 1956.