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Civil Aviation in an Age of De-Regulation

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Civil Aviation in an Age of De-Regulation Civil Aviation in an Age of De-Regulation Social Risks and Benefits Darragh Golden and Anders Underthun AFI-rapport 2016:09 AFI-report series 2016:09 ARBEIDSFORSKNINGSINSTITUTTETS RAPPORTSERIE THE WORK RESEARCH INSTITUTE'S REPORT SERIES © Arbeidsforskningsinstituttet, Høgskolen i Oslo og Akershus, 2016 © Work Research Institute (AFI) Oslo and Akershus University College of Applied Sciences © Forfatter(e)/Author(s) Det må ikke kopieres fra denne publikasjonen ut over det som er tillatt etter bestemmelsene i "Lov om opphavsrett til åndsverk", "Lov om rett til fotografi" og "Avtale mellom staten og rettighetshav- ernes organisasjoner om kopiering av opphavsrettslig beskyttet verk i undervisningsvirksomhet". All rights reserved. This publication or part thereof may not be reproduced in any form without the written permission from the publisher. ISBN 978-82-7609-375-9 ISSN 0807-0865 Arbeidsforskningsinstituttet Work Research Institute (AFI) Høgskolen i Oslo og Akershus Oslo and Akershus University College of Applied Sciences Pb. 4 St. Olavs plass P.O.Box 4 St. Olavs plass 0130 OSLO N-0130 OSLO Telefon: +47 23 36 92 00 E-post: [email protected] Web: www.afi.no Publikasjonen kan lastes ned fra http://www.afi.no eller trykkes på bestilling. The report is available for downloading on http://www.afi.no. Printed copies can be made on order. Arbeidsforskningsinstituttet/Work Research Institute r2016:09 i ARBEIDSFORSKNINGSINSTITUTTETS RAPPORTSERIE THE WORK RESEARCH INSTITUTE'S REPORT SERIES Temaområde/Topic Rapport nr/report number.: Employment relations in the civil aviation industry 09/2016 Tittel/title: Dato/Date: Civil aviation in an Age of De-regulation August 2016 Social Risks and Benefits Forfatter(e)/Author(s): Antall sider/Number of pages: Darragh Golden and Anders Underthun 75 Resymé/Abstract: The objective of this report is to assess important developments in the global aviation industry and how this affects civil aviation in Norway and Europe. The challenges brought about by deregulation and the emergence of low cost carriers (LCCs) as well as more recently, the ‘Middle East 3’ airlines (Emirates, Etihad Airways and Qatar Airways), call for major political attention from a range of stake- holders. With this in mind, the report draws on a wide literature, both geographically and chronologi- cally speaking, with a view to drawing insights from experiences of deregulation and how this may entail both social benefits and costs. Emneord / Key words: Civil Aviation, Deregulation, Employment Relations Arbeidsforskningsinstituttet/Work Research Institute r2016:09 ii Preface This report has been funded by the Norwegian Confederation of Trade Unions (LO) with a mandate of providing a comprehensive academic review of the consequences of deregulation in civil avia- tion. As such, the report is based in its entirety on secondary sources. The work was carried out from June 2016 until the end of August 2016. Darragh Golden is the main author of the report, with Anders Underthun as a supporting author. The authors are very grateful for the important feedback we have received in the process of developing the report, and would particularly like to thank Yngve Carlsen and Katinka Sporsem from Norsk Flygerforbund and Kenneth Sandmo from LO. We would also like to thank Silje Handeland, Olaug Ha- gen and Arild H. Steen at the Work Research Institute, Oslo and Akershus University of Applied Sci- ences, for their help in the process of finishing the report. Oslo, 31st of August 2016 Darragh Golden Anders Underthun Arbeidsforskningsinstituttet/Work Research Institute r2016:09 iii Table of Contents Preface Executive Summary Introduction ........................................................................................................................................ 1 Structure of Report ............................................................................................................................. 3 SECTION I ................................................................................................................................................. 4 1.1 The Regulation and Deregulation of the Aviation Industry .......................................................... 4 1.2 Deregulation of Aviation: The American Experience .................................................................... 5 1.3 Deregulation: The European Experience .................................................................................... 20 1.4 The Norwegian Context and Experience of Deregulation .......................................................... 21 SECTION II .............................................................................................................................................. 24 2.1 LCCs and Airport Competition ..................................................................................................... 24 2.2 Implications of Service Reductions and Base Abandonments .................................................... 31 SECTION III ............................................................................................................................................. 32 3.1 Airlines and Industrial Relations: An Overview ........................................................................... 32 3.2 LCCs and Four Employment Models ........................................................................................... 33 3.3 Employment Models: Discussion ................................................................................................ 43 3.4 Labour Relations and Different Business Models ....................................................................... 45 3.5 Fragmented Business and Employment Models and the Question of Oversight ....................... 48 3.6 Overseeing Aviation in Norway ................................................................................................... 52 3.7 Domestic Aviation in Norway ...................................................................................................... 53 SECTION IV ............................................................................................................................................. 55 4.1 The Gulf Carriers and the Question of Fair Competition ............................................................ 55 4.2 Bilateral and Multilateral Aviation Agreements: Lessons for TTIP ............................................. 57 4.3 Developments at the European Level ........................................................................................ 60 4.4 Recommendations ...................................................................................................................... 61 4.5 Safety in Aviation ........................................................................................................................ 63 4.6 A Level Playing Field ................................................................................................................... 65 4.7 ME3s and the Need for a European Aviation Strategy ............................................................... 66 4.8 Meeting Demand with Quality .................................................................................................... 67 4.9 Discussion and Possible Scenarios .............................................................................................. 67 References ............................................................................................................................................. 69 Arbeidsforskningsinstituttet/Work Research Institute r2016:09 iv Executive Summary The objective of this report is to assess important developments in the global aviation industry and how this affects civil aviation in Norway and Europe. The report is based on an academic literature review and other secondary sources. The challenges brought about by deregulation and the emer- gence of low cost carriers (LCCs) as well as more recently, the ‘Middle East 3’ airlines (Emirates, Etihad Airways and Qatar Airways), call for major political attention from a range of stakeholders. With this in mind, we have drawn on a wide literature, both geographically and chronologically speaking, with a view to drawing insights from experiences of deregulation. An appraisal of the American deregulation experience is provided, which results in various unintended consequences whose ripple-effects con- tinue to shape the sector. In particular, we point to changes in the field of labour, in the broad sense, and the network infrastructure. With regard to the former, it is apparent that a job in aviation no longer carries the prestige it once did. Intense competition has led to increased labour productivity and wage cuts. The example of Colgan Air bears out some of the risks identified with increased pressures and strains in aviation. However, it would be spurious to assume a connection between inferior labour conditions and LCCs. In terms of network and infrastructure, research identified so-called ‘pockets of pain’ where fare prices remain high while connectivity remains relatively low. Also, airline consolidation has not delivered the certainty purported by the economic theory. Despite initial innovations by LCCs, these airlines, in terms of service and fares, are now largely indistinguishable from their U.S. legacy counterparts. Today, we can speak of four major U.S. airlines. Consequently, yet another industry is deemed ‘too big to fail’ and its costs, some of which can be the result
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