Air Transport World

Megacarriers expand abroad slowly but steadily. (more American airlines have international service)

Megacarriers expand abroad slowly but steadily

After a highly successful 10-year fight to expand U.S. international air rights, the U.S. government faces a narrowing of negotiating possibilities. While the U.S. and its airlines continue to press for rights--operating and pricing flexibility, freedom to sell computer services--other countries' need to play catch-up will limit expansion, temporarily, to fine-tuning recent achievements.

A decade ago the Carter administration started pressuring its trading partners to permit more freedom for airlines to operate and price their products. Under President Carter, the policy was non-discriminatory. His administration didn't care which airlines provided the service, as long as passengers and shippers benefitted. The Carterites did expect U.S. airlines to outcompete foreign lines because of their lower costs and huge home market.

Major U.S. international lines, known at the time as the Gang of Five, complained about the consequences of this attitude. Their U.S. gateways became subject to more foreign and U.S. flag competition. They also watched the devaluation of operating rights abroad, either through expanded competition or, as in the case of the U.K. under the 1977 Bermuda II deal, through weak U.S. negotiation.

As a result the Reagan administration shifted emphasis. It continued to wave the competition flag. One would have expected nothing less from a White House that believed in free trade. And it continued negotiating for more U.S. and foreign gateway rights, and for more flexible pricing.

Business interpretation

But it reduced the price the U.S. government was willing to pay for expanded international authority. For example, there have been no gaffes of the proportion of Bermuda II under the current regime. And the Reaganites have put a business interpretation on their goals. They care more about carrier needs. They reason that more U.S. gateways equals more economic development more equitably distributed around the country. They're still interested in cheap tickets for U.S. citizens, they say. But cheap fares are lower on the priority scale. And anyway, they contend, create enough carrier and gateway competition and fares will take care of themselves, under the table if not on top of it.

Differences aside, the two administrations together have produced a significantly altered profile in the U.S. airlines flying abroad and the points they serve. Before the new negotiating policy was instituted, Pan Am, TWA, Northwest (in the Pacific) and Flying Tiger Line (cargo) dominated international authority. Others participated, but their services were limited.

Ten years have made a difference. American, Continental, Delta and United now have significant international systems and would like them to be bigger. Eastern was headed for a major international expansion in Europe and Latin America, especially after buying Braniff's Latin American routes. Then labor and cost problems intervened and Eastern was purchased by Continental parent Texas Air Corp. Before its demise, People Express built itself an international system. Piedmont started Charlotte-London service in June.

Of the major airlines, only USAir has no international flights outside North America and that will change when it completes the acquisition of Piedmont. In other words, all majors will be flying the U.S. flag, and not just across the borders to Canada and Mexico.

AMR Chairman Robert Crandall once told us informally that, if an airline wanted to go to Destination X abroad, then it was the responsibility of the government to get it there. It seems the government has done just about that, although foreign governments have a nasty habit of retarding the rate of progress.

The expansion is not geographically uniform, however. Emphasis is on Europe and the Pacific. Even in those regions, expansion isn't symmetrical. Southern Europe has resisted U.S. pleas to expand. Hong Kong is way below potential. So is Australia, which complains about U.S. capacity increases that it claims give the U. …

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