What Impact Will the Obama Administration Have on the Airline Industry?

Locations in this article:  Atlanta, GA

President-elect Barack ObamaEconomic policy may have been front and center, but transportation policy often seemed a mere addendum to the election battles.

Some industry officials and analysts think President-elect Obama’s policies will be more supportive of organized labor, less inclined to move forward with auctioning takeoff slots at airports, and may speed up the modernization the nation’s antiquated air traffic system.

Obama will also likely maintain limits on foreign ownership of U.S.-based airlines.

The head of the AFL-CIO said that he expects the Obama administration to “live up to its strong commitment to not only support, but strengthen, the collective bargaining rights of workers.”

A mediation board headed by Obama officials would likely allow unions begin strike actions sooner, which would give unions greater leverage in talks over wage increases and work rules.

On the issue of auctioning flight slots at major New York airports, trade group representatives say Obama will be unlikely to push forward with the unpopular program, which is opposed by a congressional majority. The first auctions are set to begin in January 2009 before Bush leaves office, but are currently being challenged in court.

The head of the ATA said that air traffic controllers had a “favorable relationship with the last Democratic administration,” and hope to see that continue.

Obama will likely work cooperatively with the air controller’s union on issues such as contracts and wages, which will result in better pay or working conditions. He is also expected to make at least incremental improvements to the nation’s ailing air traffic control system.

Obama has pledged to maintain the status quo on limiting foreign ownership of U.S. airlines. The law currently allows foreign companies to make up 25 percent of voting stock and 49 percent overall ownership.

Sunset airplaneOn all four issues Obama would differ substantially from outgoing president George W. Bush. For example, Bush’s national mediation board was not known for its union-friendliness, and tended to make decisions friendlier to airline management rather than unions.

Obama, on the other hand, is seen as a supporter of unions, and will likely take steps to discourage airlines from sending maintenance work overseas to save money. The Teamsters union has long opposed the outsourcing of airline maintenance, and has called for a public database that would allow consumers to see where maintenance was performed on specific planes.

With regard to auctioning flight slots, the Bush administration’s policy reportedly seemed to be “driven by ideology,” according to some analysts. In addition, air traffic controllers were not pleased with the Bush administration after it imposed a contract on their union in 2006 which led to a 30 percent starting pay cut. Bush also faced opposition from Congress in his quest to raise the voting-stock limit for foreign airline ownership to 49 percent.

Whether or not Obama would be receptive to airline mergers is unknown. The Bush administration seemed to flip-flop on the issue over its eight year reign, blocking some mergers in its early years, and allowing others after the 9/11 attacks.

The recent Delta-Northwest merger was approved after a Justice Department study concluded that it would not hurt prices or competition, but a growing body of academic research seems to suggest the opposite.

Studies show that after the US Air-Piedmont merger in 1987 and the temporary period of coordination between Aloha and Hawaiian Airlines after 9/11, prices rose and consumers were left with fewer route choices. The results of this research would provide the Obama administration with plenty of justification to reject future airline mergers if it deems fit.

Link: Bloomberg, USA Today, Atlanta Journal-Constitution

By Karen Elowitt for PeterGreenberg.com.

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