Jeffrey N. Shane, IATA’s former General Counsel, put aviation on the road to liberalization during his previous roles. As he retires, he cautions governments not to stray from this path

Jeffrey N. Shane’s career spanned five separate stints at the US Department of Transportation (DOT), several countries, and notable industry firsts.

His retirement on 30 June 2020 was well-deserved. But Shane admits that, with hindsight, he wouldn’t have chosen this moment to step down from his role as IATA’s General Counsel. “My heart is still in the industry and I would have liked to see it back to a more solid footing,” he says. “But my retirement date was set almost a year in advance.”

Shane is under no illusions about the enormous challenges ahead for air transport. He points to the decimation of the capital base and the slow return of demand as just two of the more obvious issues. “But for creative people, it is the opportunity to implement innovative and world-leading solutions,” he notes.

And that is something Shane knows a thing or two about.

I got a reply the next day with a single note in the margin, saying go for it”

More competition

IATA’s former General Counsel didn’t start out with the intention to change the industry. He was working in Thailand when the Carter Administration deregulated the domestic US market in 1978 and the news largely passed him by. As a specialist in international law, it was not his prime concern.

Even when he returned to the US DOT in 1979 as Assistant General Counsel in International Law, it was only of peripheral interest when he became involved in aviation bilateral negotiations.

It was apparent, however, that the basic idea was to introduce more competition into aviation markets and Shane was happy to take that line.

Gradually, aviation began to take center stage in his career and in 1985 Shane was put in charge of US bilateral negotiations. “These are tough whether you are talking about nuclear disarmament or a route to Zurich,” he says. “The same dynamics are at play.”

At that stage, the basic problem was that airlines were afraid of losing market share. Heavily regulated markets had been the norm for so long that a limited access mindset had become entrenched. And it was still generally accepted that most cities wouldn’t have direct services to other continents and travelers would have to connect through certain gateway cities.

Even though Shane was employed to pursue a basically traditional approach, he was beginning to see things differently. The numbers supported him. Aviation liberalization in the United States was leading to growth and, for airlines, a smaller share of a large pie was worth more than a larger share of a small pie.

Slowly but surely, he worked to change the airline mindset from one focused on the relationship with governments—as they held the key to new routes or potential competition coming in on existing routes—to one concentrated on the customer.

Shane’s position also put him into direct contact with local Chambers of Commerce throughout the United States. That provided direct evidence of the impact air connectivity had on businesses, the economy, and job creation.

“At one point, Swissair were pushing for a service into Atlanta, but it wasn’t possible because the United States was having a few aviation business issues in Switzerland,” Shane explains. “The people in Atlanta weren’t happy because they understood the value of the connection and they weren’t concerned about the flag on the tail of the aircraft.”

When Shane became Assistant Secretary at the DOT—a position appointed by the President and approved by the Senate—it gave him the authority to make some bigger decisions and aviation liberalization topped his agenda.

As Shane recalls: “I had an excellent boss, Sam Skinner, who also wanted to accomplish things. I explained to him that I believed air transport liberalization worked, that it created jobs, boosted the economy, and even gave airlines greater opportunities for sustainable success. I sent him a memo saying this could be a great time to break the mold, fully expecting the memo to take the usual course—which is to say a delayed and predictable response that advises a meeting or a workgroup to study the matter further.

“But I got a reply the next day with a single note in the margin, saying, go for it.”

120 There are now more than 120 open skies agreements in the United States alone and many more than that around the world

Fundamental change

The result was the Underserved Cities Program. Airlines were still sceptical, but airports and cities were fully supportive.

The program represented a fundamental change for aviation even though Shane modestly describes it as “an idea whose time had come.” With bilateral negotiations, when a foreign carrier wanted to fly into a country, the almost universal policy was to wait until such a time as the host country wanted something in return. In other words, the reply was “let’s wait and see.”

Shane’s efforts meant the United States at least was going to say “welcome!”

KLM’s was the first application, to fly to Baltimore. Shane remembers attending the first flight and was amazed to see a Boeing 747 in the KLM livery, a direct result of his memo. “Because Baltimore had also just opened up a new interstate highway that went straight to the airport, I said in my speech that Baltimore now had a highway to Europe,” says Shane. “That got put on billboards.”

The Underserved Cities Program expanded rapidly, and the positivity encouraged Shane to go further. Open Skies was born. Regulated prices, schedules, and types of aircraft were all to be confined to the history books. Now, these would be commercial airline decisions, made according to demand. Open Skies was finalized in 1992 and the US agreement with the Netherlands was an industry first.

Connectivity must be restored in a sensible manner that allows airlines to respond to demand”

Weathering storms

There are now more than 120 open skies agreements in the United States alone and many more than that around the world. It has become an accepted strategy and Shane believes it has allowed airlines to weather more storms than they would have in a regulated market.

It would get airlines through the industry restart too, but Shane is concerned that the global zeitgeist means governments are backing away from liberalization in a post-COVID world.

The United States, for example, was quick to give its carriers financial relief. Access to the money was governed by a table of specified flights, however. “It was almost channelling the spirit of the Aeronautics Board, which we discontinued in 1984,” quips Shane.

Though the authorities are now easing the requirements, the move hints at both the importance that airlines have to the economic recovery and the desire of governments to control that process. But the two are not necessarily compatible, warns Shane.

“Connectivity must be restored in a sensible manner that allows airlines to respond to demand,” he suggests.

Around the world, air service is being encouraged or permitted to certain markets and Shane says it may take some time before airlines are completely free to devise a network of their choosing.

He also notes that many governments got equity in return for financial relief and are now invested in airlines in every sense of the word. That may lead to a desire to protect their assets, a move that isn’t consistent with open skies. 

Virtual meetings haven’t shown people that there is no need to travel but rather that there is nothing that can replicate a face-to-face encounter”

Single entity

Shane also sees efforts to ease ownership restrictions being put on the backburner. To be a US carrier you must be substantially owned by US citizens and that is true for many countries around the world.

Shane’s solution in the 1990s naturally followed on from open skies; antitrust immunity. Though early movers Delta and KLM couldn’t be a single entity it was possible to largely replicate that structure through antitrust. Shane signed that first antitrust order.

“At first, we said they had to compete on routes where they were already competing, but it became clear that wasn’t necessary,” he notes. “For consumers to benefit, the airlines had to be able to operate as a single entity.”

The move eventually led to the establishment of alliances and the many benefits for consumers. Though many of the impediments to ownership rules have been circumvented, Shane sees work in this area plateauing at best.

And, for now, cabotage rights are a long way off. There is little appetite from governments to have foreign carriers operating domestic services.

Despite these obstacles, Shane is optimistic about the future. “I don’t know what the future will hold but I do know people have an instinctive desire to travel,” he says. “Virtual meetings haven’t shown people that there is nothing that can replicate a face-to-face encounter.”

He stresses that this does not mean that the industry will get back to business-as-usual at some point in the future. Rather, new people and new initiatives will form a fresh approach to air travel. “Aviation has grown enormously and there is far more interest in the industry now,” says Shane. “That is attracting good people and I am fascinated by that. I saw it at IATA. There is diversity and there is quality.”

The industry is also moving toward greater transparency in its marketing. Many travelers still don’t know what aircraft they will be flying on, what food they will eat or what entertainment will be available. New Distribution Capability is the start of the journey toward solving these issues. “This is an industry on the cusp of great change,” he concludes.

But it may need a new Jeffery N. Shane to push those changes through.