BOARD OF SUPERVISORS BUSINESS MEETING BOARD MEMBER INITIATIVE

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1 BOARD OF SUPERVISORS BUSINESS MEETING BOARD MEMBER INITIATIVE Date of Meeting: November 4, 2015 #R-2 SUBJECT: ELECTION DISTRICT: CRITICAL ACTION DATE: STAFF CONTACT: A Resolution of Support Recognizing the Importance of the current United States Open Skies Policy Countywide At the pleasure of the Board Robin Bartok, Staff Aide to Chairman York PURPOSE: To show support for the United States Open Skies Policy that has played a critical factor in the evolution of Washington Dulles as a major international gateway to the United States. The growing international reach from Washington Dulles has been a key factor in the County s economic development. RECOMMENDATION: Chairman York recommends that this Resolution be adopted by the Board of Supervisors. BACKGROUND:. Leverage and lead or restrict and decline is the choice facing President Obama s administration as it mulls a demand from the nation s three biggest and most profitable international carriers (U.S. Big 3 American, Delta and United) for protection from three popular Gulf State airlines, whose countries have Open Skies agreements with the United States. America s Open Skies Policy has produced unmitigated good for both our economy and the nation s international travelers, and it has been supported by every President, Democrat and Republican, since it was introduced by the George H. W. Bush Administration in Regions have added millions of jobs, U.S. aerospace manufacturers have gained billions in aircraft orders, our services sector has won overseas business and the increase in direct flights from other countries has stimulated tourism. At the stroke of a pen, new Open Skies agreements provide a stimulus package for job growth that costs the taxpayer nothing. A team at George Mason and Monash Universities, for example, measured the gain two years after launch of a transatlantic service between a new European market and a U.S. city. Adding service to a third European market was equivalent to a $300 million commercial investment in the U.S. region served; going from nine markets to ten yielded more than $600 million and 1,600 new high tech jobs. International flights are governed through bilateral agreements negotiated between the countries concerned. Before Open Skies, those agreements typically protected foreign airlines from U.S.

2 Item #R-2, A Resolution of Support Recognizing the Importance of the current United States Open Skies Policy Board of Supervisors Business Meeting November 4, 2015 Page 2 carrier competition by limiting the frequency of flights, the size of aircraft, the number of airlines and destinations, fare choices, and even the size of the airport counter space available to a U.S. carrier. A bilateral negotiation with South Korea in 1989 stalled over a herd of U.S. Army goats that grazed on Seoul s airport. Open Skies essentially deregulated the commercial aspects of international air travel country by country, eliminated the arcane and left governments to focus on safety, security and consumer protection. Open Skies had a secondary purpose. In 1992, after 14 years of domestic deregulation, U.S. carriers were the most efficient in the world. The policy positioned U.S. airlines to lead global networks forged through alliances with foreign carriers. The bait for foreign countries and their airlines was the grant of antitrust immunity to harmonize fares and schedules with foreign airlines based in Open Skies partner countries. Thus were born the United/Lufthansa Star and Delta/Air France-KLM Sky Team alliances, later joined by the American/British Airways oneworld alliance, that received immunity after the United States and European Union reached a comprehensive Open Skies agreement in Where the U.S. alliance partner had a domestic hub, new gateways developed, giving a huge boost to international flying at formerly neglected cities like Atlanta, Charlotte, Dallas/Ft. Worth, Denver and, yes, Washington. This began to change the economic geography of the United States, as historically, business has always grown at the crossroads of the world s caravan routes, and today those crossroads are major international airports. But successive waves of airline mergers have left us with most international gateways now dominated by just one alliance. When the U.S. airline and its alliance partner provide 80% or even 90% of the international service, there is little, if any, effective competition. In such a situation, travelers desiring a different carrier must take a domestic connection to another gateway airport. Washington Dulles, New York JFK and Boston Logan are the only east coast gateways that have retained a high degree of competitive choice, as under Open Skies they are served by multiple foreign carriers. In contrast, international services at gateways in Newark, Philadelphia, Charlotte, Atlanta and Miami are dominated by one of the U.S. big 3 airlines and their alliance partners, often in antitrust-immunized joint ventures. Without Open Skies, Washington Dulles would not have become one of the nation s top ten international gateways. In 1982, following four years of domestic deregulation, most carriers had pulled out of Dulles and concentrated their domestic services at National Airport, taking the domestic feed for international flights with them. Only British Airways and Pan American with nonstop services to London and Braniff with nonstop flights to Panama City remained. Northwest had a direct flight to Tokyo, but no direct return service. To take a trip to all other international destinations, one million local travelers had to take domestic flights, almost always from National, to another U.S. gateway. When local business and community leaders showed Pan American and TWA that nonstop flights from Dulles to London, Paris and Frankfurt would be profitable, the carriers declined, saying it was even more profitable for them to carry Washington passengers to Europe via New

3 Item #R-2, A Resolution of Support Recognizing the Importance of the current United States Open Skies Policy Board of Supervisors Business Meeting November 4, 2015 Page 3 York. Instead of serving the market directly, Pan American and TWA, together with their labor unions, sought to use the bilateral agreements to control the market and restrict competition. Other growing U.S. cities whose airports handled 75% of domestic air travel experienced similar treatment. These airports and the Washington Airports Task Force formed a coalition for liberalization United States Airports for Better International Air Service (USA-BIAS) in 1989, asking the federal government to consider city economic needs equally with airline mercantile desires when negotiating bilateral agreements. This led to the Department of Transportation s path-breaking Cities Program in 1990 and ultimately to Open Skies. Today, as Delta, United and American lobby for protection, their stockholders, unions and President Obama s administration should remember what happened to Pan American and TWA. It is virtually impossible to protect a company back to prosperity. Brazil, for example, tried to do this for decades, only to witness the extinction of Varig, Transbrasil and VASP. Today s successful Brazilian airlines TAM, GOL and AZUL were formed in the crucible of open markets and vigorous competition. Open Skies guarantees equality of opportunity, not equality of individual airline results. FedEx used the Open Skies agreement with the United Arab Emirates to build a hub in Dubai for the distribution of cargo to many cities in the Middle East, India and other countries in the subcontinent. Similarly, the Gulf carriers have used their geographic location between east and west, plus the range capabilities of the newer airliners now available to do the same for passengers. The U.S. Big 3 passenger carriers, however, left it to their alliance partners to cover those markets from their European hubs, thus creating a major market opportunity for the young Gulf carriers to exploit, which they are doing very effectively. The U.S. Big 3 (who, incidentally, are making record profits), having ignored these growing markets for years, now are lobbying the federal government for protection by demanding modification of the Open Skies agreements with those Gulf nations. Tinkering with the widely-accepted U.S. Open Skies platform would be playing with fire, as other countries would surely seek renegotiation of their agreements with us when their carriers were threatened, leaving the whole system vulnerable to a rebirth of protectionism, to the significant detriment of the U.S. carriers and our economy. Smaller U.S. domestic carriers, such as JetBlue and Alaska Airlines, increasingly are providing domestic connections to foreign carriers at international gateways such as Boston, JFK, Dulles and Seattle. People who in the past might have flown American or Delta to Europe and onward with British Airways or Air France to Africa or Asia, might now fly JetBlue and Emirates instead. Why shouldn t consumers have that choice? JetBlue s CEO Robin Hayes asks. Further, the addition of even very small numbers of international travelers to domestic flights from smaller cities helps sustain air service from communities in danger of falling off the air service map. The Washington region s high tech labor force and the world s largest customer, the federal government, continue to draw companies to the Washington metropolitan area, but where they

4 Item #R-2, A Resolution of Support Recognizing the Importance of the current United States Open Skies Policy Board of Supervisors Business Meeting November 4, 2015 Page 4 locate in the region has been mostly governed by access to Dulles Airport with its reach to world markets (44 nonstop foreign destinations as of August 2015). That likely will expand as BWI develops its international potential beyond leisure travel. Thus, for the Washington-Baltimore region, the need for Open Skies is vital to sustain economic growth. The U.S. Big 3 s concern with the Gulf Carriers is nothing more than growing pains in the ever changing airline industry, with the pain felt most acutely by those reluctant to embrace that change. A federal decision to ignore those growing pains should be obvious, considering the broad economic benefits the Open Skies Policy has delivered, not just to U.S. airlines, but also to cities, businesses and consumers across the country. But in a pre-election year campaign, contributions and union commitments have strong leverage with politicians. Department Secretaries John Kerry (State), Anthony Foxx (Transportation) and Penny Pritzker (Commerce) thus face a hard choice between mercantile support for three financially strong U.S. carriers or the maintenance of our country s full commitment to the highly successful Open Skies Policy. It s a case of leverage and lead, or restrict and decline. The Washington Airport Task Force (WATF) worked very hard creating the Open Skies policy that brought to Dulles and a lot of other cities significant international air service that otherwise would not be there. The WATF has been pushing for a speedy review and resolution of the claims by the Big 3. One risk that they see is a potential for a ratcheting back of their Open Skies policy and that would be a very bad thing for our region. DRAFT MOTION: I hereby move that the Loudoun County Board of Supervisors adopt this resolution of support recognizing the importance of the current United States Open Skies Policy. ATTACHMENTS: 1. Resolution DOT Final Order in the matter of defining Open Skies

5 COMMONWEALTH OF VIRGINIA COUNTY OF LOUDOUN BOARD OF SUPERVISORS A Resolution of Support Recognizing the Current United States Open Skies Policy WHEREAS, the United States Open Skies Policy, adopted in 1992, was a critical factor in the evolution of Washington Dulles as a major international gateway to the United States; and WHEREAS, the growing international reach from Washington Dulles has been a key factor in the County s economic development; and WHEREAS, researchers at George Mason University have measured the many millions of dollars that these international services have enabled the County to add to its economic activity each year with a beneficial impact on jobs and salaries; and WHEREAS, maintenance of the U.S. Open Skies Policies is highly desirable for a continued growth of the Loudoun County economy; and WHEREAS, the County s IT, aerospace, defense, communications, service and tourism sectors all benefit significantly from the Open Skies services at Washington Dulles International Airport; and WHEREAS, approximately one hundred overseas companies have expanded their business in Loudoun County, largely because of the availability of international services. NOW, THEREFORE, BE IT RESOLVED, that the Loudoun County Board of Supervisors recognizes the importance of the current United States Open Skies Policy and wishes the significant benefits of Open Skies to the County s economy to be made known to the United States Secretaries of State, Transportation and Commerce, and to members of the County s Congressional delegation. Scott K. York, Chairman, At-Large

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