Fifth and Eighth Freedom Rights. Let us do the math.
Published on Wednesday March 5 2008
Albert Garcia and Diana Mitcham
Fifth and Eighth Freedom Rights - Let's do the math. There has been much talk between some members about whether the name Northwest Airlines can or will remain once we merge. The genesis of this is due to the myth that as a result of our Fifth Freedom rights in Asia, we must keep the name in tact in order to continue having Fifth Freedom Rights. This is just not true. The name change can occur as a result of a transfer or transaction and we need to go no further then the sale of Pan Am Fifth Freedom Rights to United in 1985.Let's go back a few years. In 1952, under the U.S.-Japan bilateral aviation treaty, Northwest and Pan American were the two U.S. flag carriers awarded rights to fly not only from the U.S. to Japan, but to pick up and carry passengers beyond Japan, also known as Fifth Freedom Rights. Current US-Japan civil aviation regulation is based on this treaty concluded in 1952. This treaty has three main features. First, it allows designated carriers unlimited capacity rights. That is, the carriers can increase or decrease flights per week or type of aircraft without limit or need for prior approval. Second, the treaty designates gateway cities. Carriers can depart from any home city but are required to land at only designated cities in the partner country. Lastly, the treaty grants US designated carriers unlimited "beyond rights". That is, the US carriers are not restricted to carrying traffic originating in the United States on flights beyond Japan. Not all carriers have the rights stated above. Carriers given rights under the 1952 treaty are known as incumbent carriers. Those carriers which subsequently acquired rights in memoranda of understandings (MOUs) signed in the 1980s are called MOU carriers.
Currently, there are five general categories of carriers: US incumbent carriers - United Airlines (UA), Northwest (NW) and Federal Express (Fed Ex); one Japanese incumbent carrier - Japan Airlines (JAL); US MOU carriers - American Airlines (AA), Delta, Continental and United Parcel Service (UPS); Japanese "MOU" carriers - All Nippon Airways (ANA) and Nippon Cargo Airways (NCA); and those carriers currently with no rights to fly in the region. No where in this treaty does it stipulate that a name change as a result of a transaction or even a simple change like Northwest Orient to Northwest Airlines would mean that the treaty would be null and void. Plain and simple, the name can change.
The real concern for all of us in the industry should be another Freedom Right and that is the Eighth Freedom Rights, also known as cabotage. This is a right that almost no country permits, but we are in danger of seeing these rights become a reality in our country as a result of Phase I of the Open Skies Treaty that went into effect March 1, 2008 between the U.S. and the European Union. this treaty allows for European carriers to fly between any point in Europe and any point in the U.S. The treaty also allows U.S. carriers the ability to fly from any point in the U.S. to any point within the European Union. Phase II of this treaty is scheduled for 2010 and at that time our government will be deciding whether to grant foreign carriers a higher stake in American carriers. Talks about Phase II could begin as early as May of this year. Granting a higher stake in American carriers to foreign carriers could potentially result in our industry being owned outright by foreign carriers. Imagine if Air France was allowed to own a controlling interest in Northwest? We could end up being a domestic feed carrier for Air France and they would call the shots from what we make to what airplanes we fly etc. Richard Branson, CEO of Virgin Atlantic has already said that if the U.S. eliminates the current regulations of 25 percent ownership, he would increase his stake in Virgin America by 25 percent or more - basically controlling Virgin America. At some point in the future European carriers may want the treaty expanded to allow them Eighth Freedom rights and this is something that would change our industry as we know it.
Airline cabotage or Eighth Freedom Rights is the carriage of air traffic that originates and terminates within the boundaries of a given country by an air carrier of another country. An example of this would be an airline like Virgin Atlantic operating flights between Chicago and New Orleans. You can imagine what this would do to competition in our country when foreign carriers with a much lower cost structure than U.S. carriers would be allowed to compete with us in our own turf. So not only do we risk losing control of our industry, but we also face the possibility of foreign carriers taking our routes within our country. You do the math.
So what can we do?
We can begin by telling our legislators that they should fight all efforts to allow this to happen in our country. Increasing foreign ownership is unacceptable. Eighth Freedom Rights or cabotage is unacceptable. If we think bankruptcy was bad for our industry, nothing will compare to the changes that competing with low cost carriers like Ryanair in our country will do to us. Click on finding your Senator and Congressman and email them your concerns over the current Open Skies Treaty leading to cabotage. We can also begin to educate ourselves on what the Presidential candidates say about the Open Skies Treaty. Sen. John McCain (R-AZ), the Republican nominee for President of the United States has publicly stated that he supports the Open Skies Treaty and would support increasing foreign ownership. Sen. McCain has also publicly endorsed base ball style arbitration during labor disputes for airline workers. In essence making it impossible for us to strike. Again - you do the math.