Recently I participated in a panel discussing foreign ownership of U.S. based airlines. In order to prepare some thoughts on this, I held some private discussions with some of my airline contacts and we also prepared a short survey, which many of you were kind enough to participate. Putting that all together, what did I learn?
For background, the current restriction on foreign ownership in the U.S. is 25%. For comparison, many other markets, including Europe have moved to 49%. Latin America has relaxed restrictions resulting in the consolidation of 2 regional players, Avianca and LATAM.
Opinion is evenly split on whether the easing of these restrictions would benefit the U.S. consumer. My own thoughts are that the U.S. consumer would likely benefit from the continued rise of stronger mid-market players (Alaska and Jet Blue). We would also potentially see some larger foreign players outside the main alliances seek to develop a U.S. domestic network by fueling the growth of these carriers with some capital investment.
58% of you think that the easing of restrictions would be beneficial to the current U.S. carriers and the airlines largely agree with you. Certainly raising the cap to 49% would not be cause for any concern. The increased investment in fleet, infrastructure and the traveler experience was cited as a benefit for all.
About 2/3rds of you would be in favor or easing the restrictions, paradoxically this means that a few you are in favor despite seeing no advantage for the consumer nor the airline. But can you guess who would not be in favor of seeing greater ownership and control of U.S. airlines? Yes, you probably figured it out. The unions are firmly opposed to such a move as they would lose leverage in collective bargaining and are concerned about the outsourcing of crew and pilot jobs to foreign-based employees.
Almost all of you think that despite the restrictions, the airlines will find creative ways to circumvent the restrictions. There are a number of case studies where the market appears to be leading the regulations with lawmakers in the U.S. and Europe not appearing overly concerned.
Finally, the majority of you agree with me that overall the Joint Venture Partnerships tend to reduce market competition.
So putting all this together we probably won’t see a dramatic change in regulation. In order to have a positive impact on market competition, we would need to see a number of other hurdles to be overcome at the same time, namely free skies agreements along with a means to open up slot availability in some key hub markets to new players. With air travel set to double over the next 20 years, key infrastructure will struggle to meet demand in these areas, let alone exceed it which would be needed to stimulate more competition. So increased foreign ownership whilst a necessary step, would not alone be a sufficient condition to meet all of our dreams.
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