The International Air Transport Association looked and acted like a cartel last week when member airlines dicided to raise internationl air fares by 7 percent.
But look again.Pan American World Airways-one of the two largest international airline along with Aeroflot that it doesn't plan to raise fares by any more than the 4 percent it already has asked for. Delta Airlines and Northwest Airlines aren't members either. Neither is Aeroflot.
It's not even clear that the governments of the major airlines that do belong to IATA will go along and approve all the fare and cargo rate increases agreed upon. Although board members are unlikely to deny increases attributable to fuel and other rising costs that carriers can prove, the Civil Aeronautics Board here has been in no mood to rubber-stamp all proposed fare increases the airlines come up with. In the last few weeks, for example, it has turned down several requests from airlines for increases in regular economy fares across the Atlantic.
And there is some indication that other governments are more sensitized to their citizens' interest in lower fares as a result of the widespred publicity giben recent U.S. experiences, and therefore may be looking more carefully at their airlines' fare requests. Just before agreement was reached by IATA airlines in Geneva, for instance, Great Britain's Civil Aviation Authority shocked British Airways, an IATA member, by turning down its proposed 7.5 percent increase on domestic services.
For all its trappings-its international network, working committees and traffic rate conferences-IATA's effectiveness as a cartel in the classic sense (defined in the dictionary as a "a combination of independent commercial enterprises designed to limit competition") has been diminished vastly over the last few years.
The reasons are many. For one, airlines were faced with open rate situations several times in the last few years when they failed to arrive at the unanimous decisions necessary for approval of rate changes, so carriers were more or less free to set their own. Even though they played follow the leader, they weren't sitting down in rooms together and deciding on the fares.
Another major factor was the change in United States aviation policy which under the Carter administration has been directed toward signing new bilateral agreements that allow the U.S. to add competition-especially low-fare, non-IATA competition-on routes throughout the world.
And some carriers-notably the U.S. airlines-began to complain abouth the cumbersome nature of the traffic conference machinery and made it apparent that they were considering dropping out.
The changes did set into motion a move within IATA membership-now 100 airlines flying the flags of 85 nations-to adapt the organization to this changing world in order to survive. The real blow to IATA, however, and the action that accelerated its move to regroup, was the start of a Civil Aeronautics Board proceeding last summer to determine whether IATA activities should continue to receive U.S. antitrust immunity.
The board's staff had begun to look at IATA traffic conference agreements the prior fall when if became clear the board would be powerless to rescind its approval of IATA carriers' low-fare responses to Lake's low-fare Skytrain service even if the carriers' fares turned out to be predatory and damaging to Laker or the charter airlines.
But the form of the board's action sent back waves through the international aviation community. In effect, the board made tentative findings that the IATA agreements were anticompetitive, and it asked interested parties to justify continued CAB approval of the IATA agreements on prices worked out in their traffic conferences, as they are called.
Should the CAB make final its order removing IATA's antitrust immunity, U.S. airlines effectively would be prohibited from participating in the rate conferences because the sessions would amount to illegal price fixing. In additionm any international airlines that fly to the U.S. would be subject to antitrust prosecution if they met to fix prices on routes to the U.S.
Referred to in aviation circles around the world only as "the show-cause order" with no other description needed, it was viewed as a fait accompli by other governments and airlines, an attempt by the CAB to force its policy unilaterally on the rest of the world, a world that doesn't share the U.S. penchant for-or at least rhetoric in favor of-free competition.
"let's face it," says one CAB source privately. "The show-cause order is crude as hell; It was done to get their attention."
It did. Though they often deny that pressure from the U.S. was the cause, IATA members moved quickly to restructure the organization, allowing airlines to opt out of the rate-setting mechanisms altogether and just participate in the traditional trade association functions. They also acted to introduce some flexibility into the way the traffic conferences work, for instance, assuring carriers the freedom to launch competitive responses to the low fares of others.
Although the controversial rate-setting gets most of the publicity, IATA Director-General Kunt Hammarskjold says it amounts to a very small part of IATA's work and that 80 percent of its time and attention is concerned with a multitude of functions under the umbrella term of facilitaion. These include work in technical, safety, engineering, legal security, customs and immigration areas, facilitating the use of simplified and standard tickets, baggage arrangements and so on. "That cooperaion is necessary for a safe, integrated air transportation throughout the world," he said in a recent interview.
But even on the rate setting, Hammarskjold contends that IATA is not the villain it has been made out ot be. "People say the reason there were no low fares is the terrible cartel," he said. "It's not true." Less than 10 years ago, the CAB was turning down low fares proposed by the IATA carriers in order to protect its charter airlines, causing enormous damage to both consumers and airlines, he said.
"Now they say our institution is wrong," he says. "I say, 'No, you have a short memory. You have refused low fares 10 years and now you're inventing the wheel.'"
Hammarskjold and other international airline and government representatives contend that IATA actually serves to minimize more restrictive actions that governments might take worldwide in its absence, and that American removal of the antitrust exemption, for all its good intentions, could backfire.
"it seems to me that a U.S. decision to withdraw acceptance of the IATA traffic conferences system might force many governments into the trenches," Richard Burke, the European Economic Community's Commissioner in charge of transport, said here recently. "If IATA were dissolved, it might be even more difficult to liberalize the system of bilateral agreements because many governments might feel obliged to step in and discuss tariffs bilaterally, with the airlines in many cases almost becoming part of the government delegations."
They contend that the CAB itself ironically has prevented IATA so far from putting its new rules into operation. Using a medical metaphor, Hammarskjold argues that the U.S. seems to want to insist on its prescription of curing the illness through radical surgery on the advice of a single physician, without convening a conclave of doctors to contribute opinions and without consulting members of the family, when some medicine might work. "The patient itself has begun a sincere program of rejuvenation," he says.
Many others who would be affected by the U.S. action agree. "At the very least, the new scheme should now be given an opportunity to be tried and tested in practice," Werner Guldimann, director of Switzerland's federal office of aviation, told the International Aviation Club here last month. The U.S. position in face of an already weakened IATA reminded him of the story of the man whose mother-in-law had died in Brazil and who, when asked how the remains should be disposed of, cabled back: "Embalm, cremate and bury-take no risks."
IATA filed a petition with the CAB Friday asking for expeditious considertion of its earlier request for interim approval to the revised IATA so that it can begin operating under its more liberal rules while the board decides what to do overall. "The airlines are getting restless because they put so much time and effort into it," says one IATA source. "They are beginning to feel that the board is using inaction as a weapon to achieve its goals. Ducking the issue here really is action, an obstructionist action."
The CAB was bombarded by comments on its show cause order, which the staff is analyzing. The vehemence of reaction by other governments and foreign airlines caused the State and Transportation departments to urge the CAB to go slow and at least initially to let IATA function under its modernized rules with interim approval.
The Justice Department, however, has remained strongly opposed to the CAB grant of antitrust immunity, arguing that IATA and its members have failed to make a case that it is essential to allow price fixing.
It is unclear what the board will do next, but more "process" is almost a certainty. It's considered very unlikely that the board would act to remove the antitrust immunity without allowing additional comments and probably an oral argument, even if board members want to pursue that course.
The CAB staff is grappling with the application for interim approval as well as its recommendations on how to proceed-for instance, whether to continue immunizing the myriad of IATA agreements that don't have to do with rates but instead set up standard baggage handling and the like. There is some sentiment that those agreements don't need CAB approval because they wouldn't violate the antitrust laws but that withdrawing the immunity would upset U.S. trading partners unnecessarily and to no real advantage.
Although the board's staff thinks it should focus on the economics and effects of IATA's price fixing, foreign policy questions will have to be considered, one CAB source concedes. But he contends that charges from abroad that the U.S. is trying to force its policies on others is, in a way, a poly. "Their bottom line, however they talk, is not extraterritoriality," he says. "They want to keep price fixing." CAPTION: Picture 1, KNUT HAMMARSKJOLD . . . CAB has a short memory; Picture 2, WERNER GULDIMANN . . . wants test of plan