The Effects of Open Skies on Airlines, Local Economies and Customers

On November 20, 2000, New Zealand and Australia sanctioned an open skies agreement with the main aim of liberalizing air travel between the two nations and beyond. Earlier in 1992, the two had completed an MOU (Memorandum of Understanding) to lift capacity limitations across the Tasman region. The MOU also introduced multiple designations and a double disapproval tariff rule. Besides, there was the launch of a gradual liberalization process towards fully accessing the trans-Tasman market and eventually, greater beyond rights. The memorandum also contained a provision for a commitment to confer with others regarding the eventual full exchange of cabotage and beyond rights. However, Australia pulled out from its obligation in 1994. Two years later in 1996, the two nations went ahead to successfully sign the SAM (Single Aviation Market) arrangement which was later integrated into the CER Protocol. The deal allowed a carrier in the SAM agreement to conduct their activities without limitations trans-Tasman and domestic operations in either of the states. However, unlimited beyond rights were not included in the latter arrangement. They continued to be under the governance of the bilateral air services pacts and the MOU of 1992.

            While the prior arrangements paved way for the open skies agreement in 2000, officially signed in 2002, the latter served as the formalization of the provisions set out in the SAM agreement. The signing of the deal eliminated restrictions of beyond rights, subsequently allowing Seventh Freedom rights for all the cargo services. These arrangements were further loosened up by Australia in 2006. During this period, the Civil Aviation Legislation Amendment Act (Mutual Recognition with New Zealand) was effected. In essence, this legislation permitted selected airlines from New Zealand to conduct their operations within the Australian boundaries but must be subjected to the safety standards of New Zealand (Govt.nz).                  

History of the Open Skies Agreement

            The affiliation between New Zealand and Australia is one longstanding relationship, with the free flow of people being at the core of the relations, in particular from the 1920s.  Since 1973, the unofficial Trans-Tasman Travel Arrangement

gave room for the unrestricted movement of citizens from each of the countries to the other.  However, individuals with pending warrants or a history of criminal activities and who were considered undesirable and dangerous for the country of migration and its residents were an exception to the travel benefits. On reaching Australia, holders of New Zealand passports are given special category visas, while those with Australian passports get residence class visas upon arrival in the New Zealand territory. Recent decades have seen an influx of New Zealanders in major Australian cities including Melbourne, Sydney, Brisbane, and Perth. Most of these New Zealanders are referred to as Maori Australians.

Australia has experienced more immigration from New Zealand than Australians have moved to New Zealand. In 2001 for instance, the number of New Zealanders residing in Australia was eight times higher compared to the Australians in New Zealand. In 2006, it was approximated Australia’s income per capita more than 30 percent higher than in New Zealand or any of its territories.  Therefore in spite of the inter-country visits exceeding the one million mark in 2009, there were approximately half a million New Zealanders in Australia and not more than 70, 000 Australians in New Zealand. These statistics have led to numerous complaints from stakeholders about the clearly evident brain drain from New Zealand to Australia. To date, further statistics continue to show that those born in New Zealand form the second largest source of Australian immigrants, translating to 11 percent of the entire permanent additions in 2005–06. In June 2006, New Zealanders accounted for 2.3 percent of the Australian population, with, an estimated figure of 566,815 being present in Australia as at June 2010.

Besides immigration, the two nations have strong economic ties, especially since Britain’s demise as a trading partner upon joining the European Economic Community in 1973. With effect from January 1983, the two nations completed the Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA). The treaty’s key purpose was to allow each of the countries to freely access each other’s markets (Truxal, 2013).

Effects of the System on Airline Competition, Local Economies, and Customers

            With the open skies agreement between the two nations, the realized benefits included economic and traffic impacts resulting from the liberalization of the two air markets.  These are measured based on pricing and capacity restrictions, airline designation, authorized points, co-operative arrangements and fifth freedom rights. Considered a significant step in bilateral relations between the two, this was Australia’s first air travel agreement that hoped to create new trade opportunities for the country’s airline operators and their consumers. Further, the treaty allowed the international carriers from both countries to run their activities across the Tasman and beyond without limitation. Prior to the agreement, beyond services were only limited to a maximum of twelve weekly Boeing 747s to not more than 11 countries. The international airlines also acquired the mandate to run freight services using ‘seventh freedom rights’ which allows them to carry out their operations from an international airport of their choice to third countries. This initiative provides a great opportunity for exporters (Govt.au).

            By agreeing to get acquainted with the each other’s aviation safety approvals, the two get to gain from the benefits that come with integration, including the combination of fleets to improve efficiency and competitiveness.

            The countries experienced significant changes in international arrivals. For instance, before the in the mid-1990s, New Zealand had signed several ASAs with a number of countries. However, the competition was largely restricted to national carriers with limited constraint. With the new found relationship with Australia, there were increased international arrivals from the two countries as well as from beyond. In 2003-04, the trans-Tasman routes experienced an influx of new entrants, leading to a capacity growth of more than 50 percent. Virgin Blue introduced trans-Tasman services by launching Pacific Blue Airlines, a fully owned subsidiary in New Zealand. A Dubai airline, Emirates, began operating extensive fifth freedom flights between New Zealand and Australia after adopting innovative strategies in marketing and investment. Jointly, the two airlines acquired a market share of 15-20 percent. Besides expanding its low-cost segment, the ANZ employed a low-cost concept to its trans-Tasman routes in reaction to the situation. In the following year, 2005, Qantas launched Jetstar, a household low-cost subsidiary serving the two states Cali, Karen & Velde, 2008).             

               A proposed alliance between ANZ and Qantas where Qantas would assume a 22.5 percent stake in ANZ was rejected in 2003 by the NZCC (New Zealand Commerce Commission) and ACCC (Australian Competition and Consumer Commission). The following year, a decision by the ACCC overrode by the Australian Competition tribunal was also rejected by the New Zealand High Court on appeal. A further denial of a modified agreement by the ACCC forced the ANZ and Qantas to relinquish their tie-up.  

References

Australian Government. Australia’s Air Services Agreements/ Arrangements. Retrieved from https://infrastructure.gov.au/aviation/international/agreements.aspx

Cali, M., Karen, B. & Velde, D.W. (2008). The Contribution of Services to Development and the Role of Trade Liberalization and Regulation. Overseas Development Institute

Gosche, M. (2000). Australia and New Zealand Sign Open Skies Agreement. Retrieved from  https://www.beehive.govt.nz/release/australia-and-new-zealand-sign-open-skies-agreement

Parliament of Australia. Australia-New Zealand Open Skies Agreement. Retrieved from http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id:%22media%2Fpressrel%2FV2W26%22

Truxal, S. (2013). Competition and Regulation in the Airline Industry: Puppets and Chaos. Routledge