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The Challenges China Faces under the Liberalizationof International Air Transport and Countermeasures
2005-12-16
Lin Fayuan
Against the backdrop of globalization, air transport liberalization has already become an irreversible trend in the international airline industry. International air transport liberalization is useful for the domestic market of each country. At the same time, it will bring a set challenge to the corporate and government management of our national airline industry. It is important to the development of Chinese aviation to know how to grasp the developing trends and fundamental implications of airline transport liberalization, seize opportunities, welcome challenges, and adopt proper policies in response.
I. The Implications of Air Transport Liberalization
Air transport liberalization refers to an adjustment in which the management of the airline transport industry shifts from detailed management by the government to greater reliance on market forces, giving the airline transport industry with greater autonomy and flexibility. Air transport liberalization includes both domestic air transport liberalization and international air transport liberalization.
Domestic air transport liberalization refers to the basic elimination (relaxed management) of government interference in a country’s domestic airline industry and the introduction of market-management principles in areas like market access, pricing and route allocation so that business activity in the industry is basically unconstrained. International air transport liberalization involves liberalization at the bilateral, regional or limited-multilateral and global scopes.
Bilateral liberalization refers to an agreement between two sides permitting the other to enter the domestic (or regional) market. It is currently an important way of expanding international airline services in each country. The most prominent expression of bilateral liberalization has come about through the drastic increase of "Open Skies" agreements. This agreement regulates market access, and relieves restrictions on designation of airline firms and airline powers, shipping strength, flight numbers, code name sharing and other areas.
The basic goal of regional or limited multilateral liberalization is to raise market access and services between relevant member states. Currently the world has more than ten of these multilateral regional liberalization agreements, covering Europe, Central and South America, Africa, the Middle East and Southeast Asia.
The 5th Worldwide Air Transport Conference held by the International Air Transport Association in 2003 passed the "Declaration of Principles for International Air Transport", setting out the management structure for the advance of liberalization, including measures to guarantee fair competition, security, and effective protection for developing countries to continue to participate in the international air transport system. This was done in order to promote the course of global liberalization, and satisfy the demands of the global economy and mass travel. This Declaration essentially responded to the changes brought about by international air transport liberalization, and is playing a guiding role in promoting the course of international air transport liberalization.
II. The Development of Air Transport Liberalization
Air transport liberalization was started in 1944 with the founding of the International Air Transport Association. At that time the United States proposed that the international airline industry implement the "Open Skies" accord, however this suggestion was not welcomed by other countries which almost universally managed their domestic airlines strictly.
Starting in the 1970s, the progress achieved in economic theories and practices caused people to gradually realize that the domestic airline industry was actually much more competitive, and therefore countries with developed airline industry and represented by the United States began to implement deregulation and liberalization policies.
In 1978, the United States began to implement the Open Skies policy, resulting in many changes in its domestic airline industry. This also influenced the international airline market tremendously. On the basis of domestic management relaxation, and according to the needs of its industry, the United States carried out a liberalization policy. It requested mutual open markets in bilateral and multilateral airspace agreements that would permit access for its domestic airline industry. In 1992, the United States and Holland signed the first "Open Skies" bilateral agreement. After this, the momentum of air transport liberalization accelerated.
In Europe, the head of the European Civil Aviation Conference (ECAC) proposed relaxing the European civil aviation management system, including partial liberalization of carrying capacity and ticket price restrictions included in international air transport agreements. On that basis, several countries in Europe began a course of air transport liberalization, gradually eliminating existing barriers to market entry and competition, and creating a single market. On January 1, 1993, the "Third Package for Liberalization" took effect. It drew in the concept of the "European Union Air Carrier" and superseded pre-existing restrictions of national-rights and controlling rights. The European Union Air Carrier directs that the majority of stock or controlling rights in airline companies in Europe must be held by member states of the European Union or their citizens. Any airline that satisfied this condition needed only meet safety and property standards and get registered in a European Union state before it could begin operations on any route in the European economic zone. It could also set prices according to its own business judgment.
Countries in America, Africa, Central America and elsewhere also began to implement liberalization measures for the air transport industry, resulting in many different modes of liberalization: a Central American style for sixcountries, an Indian style, an Australian-Singapore style, and a South American "Andes Group" style, etc.
Currently, air transport liberalization has already been accepted by the majority of states worldwide.
III. The Course of Chinese Air Transport Liberalization and its Challenges
China began air transport liberalization relatively late, yet has made rapid progress in recent years. Before 2002, protection was the emphasis of civil aviation in China. Even though China had signed bilateral civil air transport agreements with 89 countries by the end of 2002, but only a few contained liberalization measures. These measures were such as permitting multi-destination flights from Singapore, the Philippines and other countries and multi-origin flights from China to Japan, Germany, Korea and other countries. Before 2002, there were limits on many factors such as the number and destinations, etc. of foreign flights flying to and from China.
However, starting in 2003, the focus of China’s civil aviation industry shifted from protection to a general consideration of the national and social interests, industry interests, and the interests of the airline transportation firms. This quickened the course of liberalization. In March 2003, Yang Yuanyuan, Director of the Civil Aviation Administration of China, stated at the 5th Worldwide Air Transport Conference that China would streamline its course of liberalization, and actively, orderly, smoothly, and in a guaranteed fashion impel the course of air transport liberalization according to the needs of Chinese economic construction and the development of the civil aviation industry. Afterwards, the pace of liberalization in Chinese civil aviation has clearly quickened. In May 2005, the Xiamen airport became the first airport to liberalize the "fifth flight right" on a trial basis. Hainan shortly afterwards opened the third, fourth and fifth flight rights. The Xiamen and Nanjing trials expanded the opening of the fifth flight right for the shipment of goods. Until the beginning of December 2003, 23 foreign countries at Shanghai airport had already received the "fifth flight right". In 2003, China signed new flight rights arrangements with Mongolia, Austria, Australia, Holland, France, Japan and 12 other countries, thus making new strides forward in expanding airport access.
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