Research Paper on "International Regulatory and Representative Bodies"

Research Paper 20 pages (5296 words) Sources: 10

[EXCERPT] . . . .

Airline Industry

Over the past decade the airline industry has experienced a great deal of turmoil as a result in decreases in the demand for flying. Over the past two years the condition of the airline industry has continued to deteriorate and as a result airline industry is now facing serious issues that will be difficult to overcome. The purpose of this discussion is to discuss the fundamental changes are necessary in the industry to prevent wide-scale disintegration of companies in the airline industry and destruction of shareholder value, loss of community air services and other catastrophic effects. The research will draw from information provided by the industry's international regulatory and representative bodies such as International Civil Aviation Organization (ICAO), International Air Transport Association IATA, Federal Aviation Administration (FAA) and JAA. The investigation will also explore the manner in which these agencies dictate or fail to dictate the manner in which the airline industry functions. A PESTE analysis will also be conducted. The discourse will also provide a strategy, a financial analysis for overcoming the problems that are present in the airline industry.

Background

According to Borenstein & Rose (2007) during most of the history of passenger air service, the airline industry was shaped by government policy and not market forces. The authors further explain that government regulations of the airline industry developed following World War I because governments throughout the world began to understand the military benefits associated with a successful domestic aviation division. Additionally during the beginning of the industry's existence the interest in the area of aviation was greater than the financial capacity of the deteriorating airlines. In addition the economic depression of 1930s caused governments all over the world to become even more active in intervening in the functioning of the airline industry. During the early days of the airline industry the barriers to entry were actually quite low and there were many government subsidies which both encourage many small providers to enter the industry.

Eventually pressure mounted to encourage the creation of strong national carriers in the United States. This effort was propelled through the heavy regulation of the small carriers and through substantial subsidies to the large national carriers. Additionally in the United States the Post Office actually has some control over the industry because it had the ability to control airmail contract awards which led to the economic regulation of both entry and price through an independent regulatory agency in 1938. There was, however, a continuation of indirect and direct subsidies via airmail rates were still an aspect of the regulation. In addition the authors explain that

"International service was governed by tightly controlled bilateral agreements, which specified the cities that could be served and which carriers were authorized to provide service, typically a single carrier from each country. In many cases, these agreements negotiated market allocations across carriers that were enforced through capacity restrictions or revenue division agreements. Prices generally were established jointly by the airlines themselves, under the auspices of the International Air Transport Association (IATA), subject to approval by each carrier's government (Borenstein & Rose (2007)."

As it pertains to the market based aviation industry that is present today, the research indicates that this transition to the market based industry took place in the United States in the middle part of the 1970s (Borenstein & Rose 2007). The 1978 creation of the Airline Deregulation Act forever changed the U.S. airline industry (Borenstein & Rose 2007). The main purpose of this act was to eliminate price and entry regulation domestic airline industry.

This act also provided for ultimate closure of its regulatory agency, the Civil Aeronautics Board (CAB) (Borenstein & Rose 2007). Additionally there were ensuing privatization efforts that reassigned many carriers from state-owned enterprises to the private sector (Borenstein & Rose 2007). However, the U.S. And many other nations still claim a national interest in domestic ownership of airlines operating within their borders (Borenstein & Rose 2007). The article further asserts that "While there has been relaxation of regulation in some international markets, restrictive bilateral agreements continue to limit competition in most markets and most nations continue to limit foreign ownership of domestic airlines. The notable exceptions are within the European Union (EU), where formal restraints on commercial aviation have been liberalized considerably over the past 15 years with the creation of an open intra-EU aviation market, and a limited number of "open skies" agreements.3 Apart from the EU market, however, carriers continue to be prohibited from competing for passengers on flights entirely within another country (so-called "cabotage" rights) (Borenstein & Rose 2007)."

Regulatory Agencies and Governing Bodies

International Civil Aviation Organization (ICAO) is a specialized agency of the United Nations. This body serves as the international forum on civil aviation. The purpose of the ICAO is to promote safety, security and sustainable development of civil aviation by collaborating with member States including the United States ("Strategic Objectives of ICAO"). To this end the ICAO has the six following strategic objectives

1. Safety - improve civil aviation safety throughout the world

2. Security - improve civil aviation security throughout the world

3. Environmental Protection - decrease the negative impact of international civil aviation on the environment

4. Efficiency - Increase the effectiveness of aviation operations

5. Continuity - preserve the stability of aviation procedures throughout the world

6. Rule of Law -- fortify the laws that influence international civil aviation ("Strategic Objectives of ICAO")

International Air Transport Association (IATA)

Like the ICAO, IATA is also an international organization. The IATA is actually an international trade body established more than 60 years ago by a group of airline carriers ("Mission"). The association has been responsible for the development of the commercial standards upon which the global airline industry operates. Currently the IATAs mission is to represent, lead and serve the global airline industry ("Mission"). There are 230 airlines that are part of IATA. In fact IATA represents 93% of scheduled global air traffic ("Mission").

As it relates to representation IATA works to enhance the relationship in the industry among decision makers ("Mission"). The association also desires to increase awareness of the advantages that aviation produces for both the global and national economies ("Mission"). The IATA is also designed to fight for companies in the airline industry throughout the world. The IATA is known for questioning rules and charges that seem irrational, providing accountability for regulators and governments, and encouraging reasonable regulation ("Mission"). As it relates to leadership association reports that

"IATAs aim is to help airlines help themselves by simplifying processes and increasing passenger convenience while reducing costs and improving efficiency. The groundbreaking simplifying the Business initiative is crucial in this area. Moreover, safety is IATAs number one priority, and IATAs goal is to continually improve safety standards, notably through IATAs Operational Safety Audit (IOSA). Another main concern is to minimize the impact of air transport on environment ("Mission")."

Lastly, as it pertains to service that IATA makes a concerted effort to guarantee that both people and goods can be transported throughout the world through the international airline network ("Mission"). The IATA is also responsible for providing the professional support to various stakeholders through a broad range of products and services including publications, training and consulting ("Mission"). IATAs financial systems also assist airline companies increase revenues ("Mission"). There are several benefits associated with being an IATA member. These benefits are as follows:

For consumers, The IATA is responsible for making easier travel and shipping processes for consumer and keeping costs low ("Mission").

The association permits airlines to function safely, strongly, proficiently and economically governed by the necessary rules ("Mission").

IATA serves as a mediator between airlines and passengers. The association also as well as cargo agents via neutrally applied agency service standards and centralized financial systems ("Mission").

A significant network of industry suppliers and service providers developed by IATA supplies know-how to airlines in the form of many different industry solutions ("Mission").

IATA works to ensure that International governments, are made aware of the complication associated with the aviation industry to guarantee better, long-term decision-making ("Mission").

Federal Aviation Administration (FAA)

The Federal Aviation Administration is a branch of the United States Department of Transportation. The FAA is responsible for enforcing laws that have been enacted through governmental regulations. The primary mission of the administration is to supply the safest, most efficient aerospace system in the world. The FAA also endeavors to reach the next degrees of safety, efficiency, environmental responsibility and international leadership ("FAA Mission). The FAA is also accountable to the American public and stakeholders ("FAA Mission). The FAA is based on the following values

"Safety is our passion. We work so all air and space travelers arrive safely at their destinations. Excellence is our promise. We seek results that embody professionalism, transparency and accountability. Integrity is our touchstone. We perform our duties honestly, with moral soundness, and with the highest level of ethics. People are our strength. Our success depends on the respect, diversity, collaboration, and commitment of our… READ MORE

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