Aviation Exam
1. Explain how the freedom of air sometimes restricts aviation freedom rather than promoting aviation freedom.
The expression freedom of the air has been used in the parlance of the international air transport since the Chicago Conference on the International Civil Aviation of 1944 (Haanappel, 2003). The freedoms of air are considered as vital in the entire international route network today. There are five basic freedoms that are more or less recognized by all countries, two others are less widely accepted, while one hardly accepted at all (The Travel Insider, n.d.).
In the process of negotiating traffic rights, all of the governments focus on the market shares in order to secure their own national carriers. It can be observed that some of the protectionist governments maintains their position to limit the foreign share of 50%, while there are some liberal government that are willing, within limit to let the market shares be determined by the competition of airline. Thus, it results to the fact that the bilateral agreements must be a result of the equitable exchange of the benefits in terms of economic and financial aspects. The said situation opens several questions regarding how the freedom of air can affect the entire aviation freedom.
The issue regarding the equitable exchange is one of the most debatable subjects, more specifically if the large country is negotiating an agreement with a small country. As a result, the market shares is considered as one of the major causes of mot of disputes, because many of the agreements have included different restrictions regarding the airline capacity levels, specifically with connection to the fifth freedom services. Thus, the traffic rights are exchanged in mercantilist manner, and the governments are expecting reciprocity. The said situation is a problem for most of the government of small countries, that generates small traffic, but with big ambitions for their national flag carrier (Hanlon, 1999, p. 88).
Another important issue is the fifth freedom that is considered as very prolonged due to the fact that there are three countries that are involved. Thus, due to the fact that the fifth freedom rights need and entail the simultaneous agreement of the three or more nations, as a result, only small proportion of rights that have been traded can be used. In addition, sometimes, the fifth freedom carrier is restricted to carrying of not more than a small proportion or about 10% – 15% of the total capacity that is being offered by the third and fourth carriers. This commonly result in the blind sector rights, where in the country has the fifth freedom rights only for the sake of the stopover traffic (Hanlon, 1999).
2. The European Union subscribes to the concept of emissions trading which sets a limit on the amount of a pollutant that can emitted by a country. The European parliamentary is demanding that airlines pay for their carbon footprints on every route they fly to and from Europe beginning in 2012. Argue for and against such a policy.
The European Union reached a landmark agreement that will recap the emissions from aircraft that will help to regulate the global greenhouse gases. The first requirement focuses on the rule that all airlines that are arriving and leaving from airports in the European Union will be required t buy the pollution credits that will begin in 2012, that will lead them to join the other industrial polluters that are involved in the European emissions market. The said decision will includes some of the non-European carriers including American Airlines as well as the Singapore Airlines (Kanter, 2008). Under the policy, all airlines will be allocated with the carbon credits that they use in order to pay for their respective CO2 emissions in annual manner. Thus, airlines that have come in under the quota will end the year with the extra credits that they can sell on the carbon market, on the other hand, those airlines exceed their yearly allowance will have to buy their additional credits (Demerjian, 2008).
The said policy is considered as the boldest decision by Europe to trample their environmental policies on the rest of the world (Kanter, 2008). The main advantage of the said decision or policy is that it will focus on the environmental and health issues of the country. Thus, it can help to sustain green living of the people in the country, by helping emitting the different hazardous substances and gases to the environment, which is considered as one of the primary issues in the world. It can help to reduce the aviation-generated carbon emissions in Europe. And as of mentioned, it can help to support the policy of Europe regarding other industries that are engaged in the carbon trading since 2005.
On the other hand, there are different organizations that are against the said policy, particularly those US airlines. The American officials warned that the said requirements can be consider as illegal under the convention that governs the international civil aviation (Kanter, 2008).
In addition to that, it is also important to consider the cost of buying the permits in order to comply with the said European emissions regulations. It will cost the airline industry of more than billion. Thus, the said rule is somewhat wrong timing due to the fact that during this time, the entire aviation industry in the region is expected to lose more than .1 billion this year due to the global financial and economic problems (Kanter, 2008).
Above all, the said decision has a great impact over the consumer. This is due to the fact that the said rule will mean further increase. The International Air Transport Association said that at the end of the day, the people who travel from and to Europe will have to pay more under the new system, because the initial reaction of the airline company is to raise their fair in order to come up with the emission system (Kanter, 2008).
3. Cathay Pacific Airways Ltd applied for license to fly from Hong Kong to Shanghai/Beijing/Xiamen, and vice versa in 2002. Dragon Air opposed the application by Cathay Pacific Airways. Analyze the arguments put forward by both airlines.
It is important to consider that the license for Cathay Pacific Airways Ltd to fly from Hong Kong to Shanghai, Beijing and Xiamen, and vice versa can help the said company to compete as a global airline, and it cannot be done if it will not serve the major cities in the country where it based, together with the absence of the China operations. In addition, it can also help for the Hong Kong to become one of the most leading aviation hubs in the world that represent a natural gateway to China, as the heart of a burgeoning 21st century Chinese aviation market. Above all, it can help to increase competition in the aviation market that will bring terms of choice and price for the consumers (THB, n.d.).
On the other hand, the Dragonair strongly show their distrust and doubt regarding the statement of Cathay Pacific, due to the fact that the said application is not constant with the criteria that have been prescribed by the Regulation 11 of the Air Transport or the Licensing of Air Services Regulations, Cap. 448A. In addition, Dragonair believe that the said application will upset the long-standing as well as well-working relationship between them and the Cathay Pacific. In terms of financial aspects, it can also harm the financial implications for Dragonair, thus it will create an unfavorable and poor economic implications for Hong Kong. Above all, it can spill over into an increase in the tension in the aviation relations between the Mainland China as well as the Hong Kong SAR (THB, n.d.).
The primary concern of the Dragoinair is their position in the aviation market, together with their financial position; the company said that they will lose a total of 558,909 if Cathay will be allowed in the said important routes. The said total figure can be broken down from 2002 levels into 313,674 on the Shanghai route, 221,327 on the Beijing route, and 23,908 on the Xiamen route. The said estimation is based on the QSI Model (). That’s why with accordance to the said figure, there is no doubt that it can affect the entire performance of the airline company. On the other hand, according to the estimation that was made by Cathay Pacific using their own stimulated growth model, their entry in the three routes will result to reduction of 228,384 total passengers for the Dragonair. It is considered as 40% of the projection of Dragonair. As a result, based on the methodology that was used and applied by both the airline companies, it can be said that the estimates that was released by Cathay Pacific is much accurate. This is due to the fact that the QSI model and its result do not constitute a reliable indicator if Cathay must be permitted to enter the said markets; this is due to the fact that the theoretical assumptions that were employed do not appear to be realistic and fairly weighted (THB, n.d.).
Thus, the said figure is connected with the financial impact towards Dragonair. Dragonair believe that there will be a massive financial crisis inside the organization showing a great loss of revenue of HK billion or ,000 million. On the other hand, Cathay Pacific accepted the fact that there will be a financial impact if the said application will be successful, however the company believe that the impact will be in different order and will be less than the impact that was showed and believed by Dragonair (THB, n.d.).
Thus, in the end, it can be said, that Cathay had been able to use vital and applicable methodology in analyzing the current and future situation.
References
Demerjian, D. (2008, April 24). EU Tells US Airlines to Pay for Their Carbon Emissions or Lost Flights to Europe. Codenet. Retrieved December 8, 2008, from http://blog.wired.com/cars/2008/04/post.html
Haanappel, P. (2003). The Law and Policy of Air Space and Outer Space: A Comparative Approach. Kluwer Law International.
Hanlon, J. P. (1999). Global Airlines: Competition in a Transnational Industry. Butterworth-Heinemann.
Kanter, J. (2008, June 27). Europe Tells Airlines to Pay for Emissions. The New York Times. Retrieved December 8, 2008, from http://www.nytimes.com/2008/06/27/ business/worldbusiness/27air.html
The Government of the Hong Kong Special Administrative Region of the People’s Republic of China, THB. In the Matter of a Route Licensing Application Under the Air Transport (Licensing of Air Services Regulations (CAP. 448A) Before the Air Transport Licensing Authority). Retrieved December 8, 2008, from http://www.thb.gov.hk/tc/boards/transport/air/decision.pdf
The Travel Insider. Freedoms of the Air. Retrieved December 8, 2008, from http://www.thetravelinsider.info/info/freedoms.htm
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