A glance at the development of International Air Law

Extracts from “An Historical Survey of International Air Law” by McGill University

Public International Air Law

ICAO Convention 1944 (ICAO Doc 7300)

Signed by 52 states on 7th December 1944 at Chicago, it has 191 member states. It is commonly known as ICAO Convention. It has 96 articles and 19 technical annexes to it, which define Standards and Recommended Practices (SARPs) to promote safe, secure, efficient and economical air transport system. Whereas Standard are binding on the states, the Recommended practices are not. Even standards are not so binding as the states can deviate from them but states ought to inform ICAO about it.

International Air Services Transit Agreement (IASTA)

This agreements was also signed on 7th December 1944 by 26 member of 52 states that signed ICAO Convention. At present (2016) its members have increased to 130. The Agreement granted the conventional right of innocent passage for international scheduled flights to transit without landing or land for non-traffic purpose in the territory of other member states for non-traffic purposes, with previous consent. These first Freedoms of the Air are also called Technical Freedoms because these do not entail commercial exploitation of air transport industry of a foreign country.

The International Air Transport Agreement

This Agreement was signed by only 16 out of 52 states on 7th December 1944,This was also called “Transport” or “Five Freedoms” Agreement aimed at achieving freedom of air trade as advocated by United States of America. It entitled the airlines of its signatory states, in addition to “Technical Freedoms” of transit and stops for technical purpose, three “Commercial Freedoms” to discharge passengers and freight in a foreign country, to take them on from a foreign country, and to carry them from one foreign country to another.

This agreement did not last long as USA withdrew from it in 1946 because other countries refused to accept a ‘free trade enterprise system’. Remaining 15 signatories of that agreement also withdraw over time.

Technical Annexes

Unlike the Paris Convention 1919, the Chicago Convention itself does not contain technical rules for Air Navigation. These can be found in the 19 “Technical Annexes”, which do not require signature, and, therefore, are generally considered as simple recommendations without binding force. There is, however, an important exception: Article 12 of the Convention “over the high seas, the rules in force shall be those established under this Convention”. Such rules are essentially the “rules of the air” contained in Annex 2. Technical Annexes were of great importance for international air navigation.

There is a slight difference in degree between “standards” and “recommended practices” contained in the annexes. While the states shall conform to standards (uniform application of which is deemed necessary)

ICAO Organization

The main bodies of ICAO are the Assembly, the Council and the Secretariat.

The Assembly is the “sovereign body” of the Organization in which every member State has one vote. Decisions are taken by simple majority except in two cases: Admission of “other States”, by 4/5 Article 93; Amendment to the Convention, by 2/3 Article 94a. The Assembly holds annual “limited meetings”, and full scale meeting every three years. It has three “statutory” committees and may establish special commissions.

The Council is the “permanent governing” body consisting of 21 member States elected by the Assembly for a three-year period. A special position has been given to the President of the Council (He is elected for a three-year term term and is re-eligible, as a salaried official representing no nation and pledged to be influenced by none). Two subordinate bodies of the Council were provided for by Article 54 of the Convention: The Air Navigation Commission and The Air Transport Committee. in addition the Council has established a Committee on Joint Support of Air Navigation Services, and a Finance Committee; the Assembly has established a Legal Committee.

The Secretariat consists of five major divisions: the Air Navigation Bureau, the Air Transport Bureau, the Technical Assistance Bureau, the Legal Bureau and the Bureau of Administration and Services. It is headed by the Secretary General who is appointed by the Council (ICAO may be the only international organization, which appoints two permanent executive heads; the President of the Council and the Secretary General).

Functions of ICAO

The functions of ICAO are regulatory, judicial and executive.

Regulatory Powers: ICAO has regulatory power to adopt and amend the technical annexes (Article 37 of the Convention), exercised as a “mandatory function: by the Council (Article 54 (L&M) & Article 90). Although the annexes do not have the binding force on the States, and “notified departures” are possible, it is presumed that a State agrees to them if no notification is given to the contrary (Article 38. These “departures” are in fact a sort of reservation. Until now non of the annexes and amendments have been disapproved by a majority, or even by a large number of States).

Judicial Powers have been attributed to ICAO by Chapter XVIII of the Convention; The Council exercises a role of mandatory arbitration in disputes between member States relating to interpretation of Convention. In addition many bilateral and some multilateral agreements have conferred a similar power on the Council (IASTA Article III, International Air Transport Agreement Article VI, the Bermuda Agreement, Article 9, the Rome Convention of 1952, Article 15). The Council’s Rules of Procedure, revised in 1953 and in 1957, are rather similar to those of International Court of Justice, which served as a model (ICAO doc 7456, A8-P/2, 53). By virtue of Article 54 (n) of the Convention, the Council occasionally gives “advisory opinions”, if so requested by member States (See Article 9 Bermuda Agreement, also Pakistan request in 1951; shawcross suppl. 1952 para 298). The Council’s arbitration is subject to appeal either to an ad-hoc arbitral tribunal, or to the International Court of Justice (the Convention still refers to the old Permanent Court of Justice). Until now only one major dispute has been submitted to the Council (India vs Pakistan, 1952-53–India complained that Pakistan had established an unreasonable prohibited zone on the air route from New Delhi to Kabul) but after nine months of negotiation an amicable settlement was reached. Minor disputes involved Egypt and Jordan, and East European complaints on balloon flights.

Executive Functions: ICAO’s executive functions concern administrative, technical and economic matters. Among the administrative powers is registration by Council , of bilateral aviation treaties and agreements (Article 81 & 83). The technical functions consists of Technical Assistance to under developed countries (UNDP funded training programmes), Joint Navigation Plans and meetings etc. In the Economic field the powers of ICAO are restricted to requesting, collecting, examining, and publishing information and to conducting research (Article 54(i), 55(c), 67.

International Air Transport Association (IATA)

After the Chicago Convention had failed to resolve the economic question of commercial rights and rates, the air carriers themselves realized the necessity and the chance to cover the ground which had been left open by the governments. Air Carriers from 31 countries met at Havana in 1945 to establish a new “International Air Transport Association”. It set up its headquarters in Montreal and was incorporated there as a foreign corporation through an Act of Parliament.

The main function of IATA is the economic regulation of international air transport, concerning rates and service conditions. The regional traffic offices fix the international air rates by unanimous resolutions. If States do not object the rates become binding on the member airlines. violations of the fixed rates by “undercutting” are subject to heavy fines. The strict price control by a private association was one of the reasons why IATA was involved in a series of hearings before an Antitrust-Subcommittee of the U.S. Congress.

Another important, activity of IATA is the establishment of uniform air transport documents and “general conditions” for contracts of air carriage, in accordance with the interests of the carriers. Additional functions include exchange of information on accidents, operating practices, and airline cooperation with ICAO.

Bilateral Agreements

The main unfinished business at Chicago concerned the right of conducting trade. As the Multilateral Air Transport Agreement was rejected by majority of the States, bilateral negotiations became the only means by which “Commercial Freedoms” could be obtained.

The Chicago Convention final Act already contained a “Standard Form of Agreement for Provisional Air Routes”, which served as a model for bilateral agreements (therefore called “Chicago Type” agreement). Another type of agreements, called “British Type”, included provisions on rates, capacity and frequencies (The first “British Type” of Agreement is the UK-South Africa Agreement of October 26 1945, also Uk-Canada agreement of December 21, 1945).

In January 1946 USA and UK concluded an agreement which was to serve as model for all bilateral Air Services Agreements between other countries. it is also known as “Bermuda type” agreement because the two countries had met in Bermuda to conclude this agreement. This actually became a model for for agreements between other countries.

The Bermuda agreement was actually a compromise. Each nation granted to the air carriers of other nation the two “technical freedoms” to operate through the airspace of the other and to land for non-traffic purposes, subject to the right of the States to designate routes and airports, as defined in the Chicago Air Transit Agreement.

Each nation also granted to the other the “three commercial freedoms” for entry and departure to embark and disembark traffic in the territory of the other; but in contrast to technical privileges, these commercial privileges are valid only at airports named in the agreement, and on routes generally indicated (Annex III, ), and in accordance with certain general traffic principles and limitations. These principles are:

  • Government approval of rates (annex Article II of Bermuda Agreement refers to the rates fixed by IATA, but also provides for an open rate situation, where IATA rates would not be applicable),
  • Adequate traffic capacity (Fifth freedom traffic was understood to be secondary only and related to “traffic requirements”),
  • An “ex post facto review” of the carriers as to their compliance of with these principles (To be exercised by ICAO’s Council, if consultations between the governments could not settle the dispute–Article 9 of the Agreement and Article 11(g) of the annex)

The United Kingdom had waived her prior insistence o direct international control of traffic, frequencies, and capacity. The United States for the first time conceded a certain amount of control “ex post facto”, and granted fixed routes across her territory, to foreign carriers.

Bilateral Air Transport Agreements are considered a serious problem to International Law, as they serve as an instrument of economic discrimination.

Attempted Multilateral Air Transport Agreements

The system of bilateral bargaining is far from satisfactory. Following the failure of Chicago Transport Agreement, PICAO continued its efforts to find a multilateral solution.

Two more attempts were made in 1946 and 1947 by ICAO to draw up a Multilateral Air Transport Agreement, but by then USA and United Kingdom had successfully concluded bilateral Air Services Agreement commonly know as Bermuda type Bilateral Air Services Agreement, and being satisfied with its effects in practice did not want multilateral agreement to replace it

The consequence of this has been the development of a system involving thousands of bilateral air services agreements. This has been a resource intensive process and, while the agreements and related understandings generally follow a standard pattern, the degree of standard language is not as great as it could or should be.

Open Skies Agreements

The last twenty-five years have seen significant changes in airline regulation. The United States began pursuing Open Skies agreements in 1979, and, by 1982 it had signed twenty-three bilateral air service agreements worldwide, mainly with smaller nations. That was followed in the 1990s by agreements with individual European states.

A huge step was taken in 1992 when the Netherlands signed the first open skies agreement with the United States, in spite of objections posited by European Union authorities. The agreement gave both countries unrestricted landing rights on each other’s soil. Normally landing rights are granted for a fixed number of flights per week to a fixed destination. Each adjustment takes a lot of negotiating, often between governments rather than between the companies involved. The United States subsequently granted antitrust immunity to the alliance between Northwest Airlines and KLM Royal Dutch Airlines which started in 1989 (when Northwest and KLM agreed to code sharing on a large scale) and which actually is the first large alliance still functioning. Other alliances would struggle for years to overcome transnational barriers or still do so.

While in recent years there has been an encouraging trend towards liberalising air services arrangements, any such arrangements outside of the bilateral framework are generally being reached on an exclusive regional basis:


In 2001 the United States signed the Multilateral Agreement on the Liberalization of International Air Transportation (MALIAT) with Brunei, Chile, New Zealand, and Singapore. The United States has enjoyed a powerful negotiating position but the European Commission, as a supranational body, negotiated with the United States government on a community Air Service Agreement. These negotiations led to the text of an agreement being initialed on 2 March 2007. Contending issues are:

  • cabotage — opening up the hub and spoke networks on both sides of the Atlantic would be contentious;
  • the U.S. rules on foreign ownership. These are partly designed to protect their own carriers but also to satisfy the U.S. military which maintains the Civil Reserve Air Fleet by drawing on commercial fleets for airlift during national emergencies. The airlines, as a quid pro quo, benefit through a priority over the carriage of military and government personnel.
  • (tackling of) the tax-free position of EU-U.S. aviation.
  • the provisions of the Fly America Act.
  • there might also be problems in harmonising the framework of antitrust policy (e.g., to protect against predatory behavior).

The EU-U.S. Open Skies Agreement was one of the most significant open skies agreements concluded in recent years, applying to civil aviation traffic between two of the world’s three largest markets.

ASEAN Mulitlateral Agreement

The ASEAN Multilateral Agreement on Air Services and the ASEAN Multilateral Agreement on the Full Liberalisation of Air Freight Services which were simultaneously approved on May 20, 2009 in Manila, Philippines are multilateral air transport agreements among the ten-member Association of Southeast Asian Nations. These two agreements which took effect January 1, 2010, call for a calibrated and gradual implementation in each contracting state, to allow countries with less developed airline industry to cope up with more developed ones. It is part of the broader ASEAN Air Transport Integration and Liberalization Plan.

ASEAN Open Sky Agreement

The ASEAN Open Sky Agreement is the Southeast Asia’s major aviation policy. It is geared towards the development of a unified and single aviation market among ASEAN members in Southeast Asia projected to begin 1 January 2016, though all agreements have not been signed.

Key Open Skies Provisions:

Most of the existing civil agreements include:

  1. Free market competition,
    No restrictions on international route rights; number of designated airlines; capacity; frequencies; and types of aircraft.
  2. Pricing determined by market forces:
    A fare can be disallowed only if both governments concur — “double-disapproval pricing” — and only for certain, specified reasons intended to ensure competition.
  3. Fair and equal opportunity to compete:
    For example:

    • All carriers—designated and non-designated—of both countries may establish sales offices in the other country, and convert earnings and remit them in hard currency promptly and without restrictions. Designated carriers are free to provide their own ground-handling services—i.e., “self-handling”—or choose among competing providers. Airlines and cargo consolidators may arrange ground transport of air cargo and are guaranteed access to customs services.
    • User charges are non-discriminatory and based on costs; computer reservation system displays are transparent and non-discriminatory.
  4. Cooperative marketing arrangements
    Designated airlines may enter into code-sharing or leasing arrangements with airlines of either country, or with those of third countries, subject to usual regulations. An optional provision authorizes code-sharing between airlines and surface transportation companies.
  5. Provisions for dispute settlement and consultation
    Model text includes procedures for resolving differences that arise under the agreement.
  6. Liberal charter arrangements
    Carriers may choose to operate under the charter regulations of either country.
  7. Safety and security
    Each government agrees to observe high standards of aviation safety and security, and to render assistance to the other in certain circumstances.
  8. Optional seventh freedom all-cargo rights
    Provide authority for an airline of one country to operate all-cargo services between the other country and a third country, via flights that are not linked to its homeland.

While the Chicago Conference in 1944 made great progress in establishing the basis for the very safe and secure civil aviation system that we benefit from today, it failed to reach agreement on a widely accepted exchange of air rights. Of particular contention was the issue of fifth (and also sixth) freedom rights – whether and to what extent third-country airlines should have access to markets.

Commercial Freedoms: 3rd/4th and Fifth freedoms are called commercial freedoms. 3rd/4th freedoms grant the right to the airlines of one country to set down and pick up traffic from another carry it back to home country for remuneration purposes. 5th freedom allows an airline to stop in a third country for traffic purposes.

Private International Air Law defines the obligations of the states, signatory to relevant International Conventions, to ensure compensation, as stipulated in these Conventions pertaining to international passengers liability & third party liability, in case of an air accident/incident, and baggage/cargo loss.

Implementation Status ‘Public International Air Law’:

International Air Services Transit Agreement (IASTA):

The treaty was signed at Chicago on 7 December 1944. It entered into force on 30 January 1945. There are 130, out of 191 ICAO member states, have signed and ratified it so far.  The treaty grants right of innocent passage, without landing, and landing for non-traffic purposes (First two freedoms also known as technical freedoms) for scheduled flights of IASTA member states. Non-IASTA member states of ICAO resort to bilateral Air Services Agreements which usually include commercial freedoms (3rd/4th & 5th) as well.



The enormous and potential growth of the aviation industry and the
expansion of export trade in aircraft after the War made urgent the problem of the international validity of rights in aircraft. Aircraft were so costly that credit terms had to be arranged. The problem was to ensure protection to creditors where the aircraft and equipment secured were situated abroad or where the registration of the aircraft was changed from the register of one State to that of another. It was difficult if not impossible to predict the extent to which property rights and security interests in aircraft would be recognized in foreign countries.

At the Chicago Conference of 1944, a resolution was passed recommending
the conclusion of a convention “dealing with the transfer of aircraft””‘ to be based on two draft conventions that the Comittee International Technique d’ExpertsJuridiques Arien (CITEJA) had adopted as early as 1931.  (The Conventions dealt with (i) mortgages, other real securities and aerial privileges, and (ii) the ownership of aircraft and the aeronautic register.)

A draft “Convention on the International Recognition of Rights in Aircraft” was prepared and subsequently signed by twenty States at the 1948 meeting of the ICAO Assembly held at Geneva between the 19th and 25th of June.

The general objective of the convention is the facilitation of the financing of aircraft employed in international carriage. More specifically, the objectives can be said to be four:

(i) the protection of secured creditors who lend money on the security of aircraft; (ii) the protection of third parties dealing in or with aircraft against hidden charges; (iii) the definition and protection of “privileged” and “priority” claims against aircraft; and (iv) the facilitation of the transfer of aircraft from one nationality to another.

An attempt was then made to produce an internationally acceptable form
of words to cover all the types of charges on aircraft or, more accurately, rights in aircraft to be recognized by contracting States. This was found to be impossible and so an enumeration of four types of rights was resorted to. These are rights of property in aircraft; (i) rights to acquire aircraft by purchase coupled with possession of the aircraft; ( the “conditional sale” where the lender pays the manufacturer and takes over its’ position
as against the purchaser. (ii) The propery remains in the lender, and passes on payment of the purchase price. (iii) rights to possession of aircraft under leases of six months or more.’ (iv) mortgages, hypotheques (equivalent of mortgages in French language) and similar rights  in aircraft which are contractually created as security for payment of an indebtedness. Two conditions are required before a right is recognized and enforced

First, it must be constituted according to the law of the Contracting State
in which the aircraft was registered as to nationality at the time of its
constitution. The basic philosophy of the convention is reflected in this
provision which leaves each State free to develop its own law as to charges
on aircraft.

Secondly, the right must be recorded in a public record of the contracting
State in which the aircraft is registered as to nationality.


The draft was submitted to the first post-war conference on
Private International Air Law which took place in Rome from 9th September to 7th October, 1952. Twenty-eight States and seven International organizations’ were represented.
Apart from the desire to unify a plethora of national laws on the subject,
the conference had two main objectives. (i) It was necessary, on the one hand, to ensure adequate compensation for damage caused on the surface by foreign aircraft to innocent persons who were subject to a risk which they could neither foresee nor prevent. (ii) It was necessary, on the other hand to secure the operator against the ruinous consequences of a “catastrophe” by providing for a limitation on his otherwise strict liability and for his insurance against a risk which it was thought he ought to bear.



Status of Pakistan with Regard to International Air Law Instruments: Please click ICAO website below:


Current lists of parties to multilateral air law treaties: Please click ICAO website link below:



I am moving from a startup to a Fortune 100 company in a senior role, how should I prepare myself to survive and succeed? Request


Start to invest in research and development. Only innovation and creativity will keep you ahead of others.

Attract best human resource from the market and retain it.

Focus more on the quality of product, customers needs and wants, the bottom line will take care of itself.



How do airlines compensate for lost baggage?

I will speak out of my experience as an Airport Manager as well as as a head of Consumer Protection responsible for implementation of Air Passenger Rights.

Majority of the passengers do not know that airlines are bound to compensate passengers for the loss, theft and damage to the checked-in baggage. This has been mandated by various jurisdictions in line with Private International Air Law such as Montreal Convention 1999 or WARSA Convention 1929. Some States have not signed Montreal Convention 1999 as yet, therefore they follow WARSA Convention 1929.

Airlines tend to exploit on the ignorance of passengers and play down the compensation part as much as they can. in a recent survey only 1/3rd of the European passengers actually knew about air passenger rights.

WARSA Convention 1929 as amended by Hague Convention 1955 entitles passengers to the compensation for loss, theft or damage to the baggage at the rate of US$ 20 per Kg upto 20 kgs maximum. It is not based on the value of the contents packed in the baggage.

Then there is Montreal Convention 1999, the States that have signed and ratified this Convention pay upto 1000 SDR (Special Drawing Rights) for the loss, damage or theft of checked baggage.

An SDR is artificial basket currency of IMF. It is roughly equal to US$1.35, but its value keeps varying as the Dollar itself. Compensation, in this case, is not based on the weight of the baggage but its value. However, the value must not increase the limit of 1000 SDRs. If it does then it must be declared at the time of check-in. The airline may accept it after charging additional amount for the insurance.

The report must be made to airlines within 7 days of the missing or damaged baggage, which ought to be returned to the passengers within 21 days. Thereafter even if the baggage has been found, the compensation shall have to be paid in full.

Some jurisdictions have mandated that the airlines must pay some amount to the passenger an interim relief. This may be upto US$ 200 or more.



Why don’t airlines offer super cheap, last-minute deals to help fill empty seats?

Airlines actually do so in lean seasons, or when the time left is too short to fill all empty seats. On one occasion, I was actually perplexed to note that seat available for immediate flight, say after four hours, was cheaper than the seat available in the next flight.

Usually, the demand for last few seats is far more than the demand for first few seats. Businessmen who need to travel on a short notice are willing to pay the premium and airlines exploit this to make up for the losses as a result of selling seats below cost to fill the aircraft.

Ever since flexible pricing system has been introduced, ticket prices change from day to day, hour to hour, and even minute to minute. The system itself is a complex computer algorithm programme that takes into account the number of seats available and the time left to sell them, and, therefore, keeps varying the prices automatically. The prices would tend to be higher if available seats are fewer and there is more time available to sell them.



Is it wise for start up airline to start the operation with ultra long haul flight (cross pacific oceans) by leasing A380?

A 15 hours flight between Sydney to Los Angeles costs over $300,000. A return trip would cost twice as much i.e $600,000. To achieve breakeven at 80% seat factor (440 seats occupied including first class and business class), average ticket price should be about $700 one way and $ 1400 return.

How would a start up carrier fill 80% seats at the desired price of $1400 per ticket for the return trip. The markets are already saturated and supply is already more than demand in lucrative markets. And remember empty seats are perishable, therefore, operating an empty aircraft would cost almost as much as the passengers on board. This is because various operating cost categories are fixed.

To fill up your aircraft, you will have to sell seats well below operating cost to attract passengers from other airlines competing on the same route. A chain reaction of cut throat prices would soon drive out the start up from market as old ones have more financial staying power than the new ones, with limited finances.

It is very important for the entrepreneurs to understand the dynamics of airline business and its operating costs before they jump into this business. Please also read an answer to the similar question at the following link:

Muhammad Afsar Malik’s answer to If airlines are such a bad business model then why do businessmen keep lining up to start them?

If you still insist to go ahead with your desired project then here is what you need to do:

  • Arrange about a $ 300 million worth of working capital, minimum 02 A380s aircraft on lease, to operate daily flight between Sydney and Los Angles, for a period of at least one year.
  • Start selling seats at half the seat-mile cost. your competitors will probably not react until they start to lose their market share significantly.
  • When you hit a stable seat factor of 90% or above, then gradually start to increase the price of ticket, which remains at least 20% below the competitors, no matter how low they stoop to drive you out of market. Maintain this strategy until end of the year. With $300 million, you have enough working capital to operate daily flight for the whole year, even without any passenger on board.

At the end of an year, one of the two things would have happened. Either one of the two or three competitors in the would have left the market or reduced its capacity on the route, equal to the capacity floated by your start up airline. You can then start to operate at breakeven seat factor of around 80% and hope that no one else repeats what you have done to capture the market.

The big question is how will you arrange $300 million, unless you already have very deep pockets? Assuming that you have them then it would also require a very large heart to lose it all within a period of one year.




What are some e-commerce trends in the airline industry?

The degree and use of e-commerce determines an airline’s ability to compete in the market. Hence all airlines use it as an effective marketing tool, to cut the cost and increase efficiency. Some airlines may be ahead of others in the effective use of e-commerce. However most of the airlines are adept in its use in the following areas:

They all have websites, which allow customers to book a seat online from home or office. This also allows the customers to compare the prices being offered by various competitors, so that they are able to buy the cheapest ticket.

Airlines also offer online facility the facility to choose the desired seat: window , aisle or bulkhead in some cases.

The trend of mobile check-in is also picking up the pace among many airlines, saving passengers the hassle of standing in a line for check-in. Self check-in kiosks also cuts down passengers’ check-in time.

Frequent Flyer Programmes (FFPs) are being managed online by almost all airlines.

It is also helping airlines reach out to the customers in case the flight is delayed or advanced.

Introduction of new products or a new destinations and price discounts etc are also be advertised on company website and social media like twitter and facebook etc.

Online customer feedback and complaints are helping management better administrate the affairs of airlines.

Introduction of RFID system has substantially lowered the airlines losses on account of baggage loss.

Revenue management system is the most effective user of e-commerce. It changes prices from day to day, hour to hour and even minute to minute, all automatically taking into account the time left for the flight and number of seats available.

Very soon e-airway bills may be a reality.

Airlines are able to find out, soon after take off, whether or not a particular flight is profitable.

For further information kindly check link below, which is an excerpt from Michael’s upcoming book titled “Airline E-commerce: Log on.Take off” . He can be reached at[email protected]. .

Airline e-commerce

How financially rewarding can a job at the aviation industry (excluding airline pilot) be?

The jobs of Air Traffic Controllers and Airport Managers are financially rewarding.

The job itself may be extremely challenging, such as the job an Air Traffic Controller (ATC). It may be far more stressful and demanding than an Airline pilot’s job. A research paper published by university of Verona explains that. No wonder that Air Traffic Controllers all over the world make as much money as the airline pilots on the average.

Airport Managers’ job though not as stressful as an Air Traffic Controller’s is, but it can be as much financially rewarding an ATC. I say this because I have experience of both.

Air Navigation Services Providers and Airport Services Providers are usually financially stable organizations in comparison to Airlines and therefore these are in a good position to reward their employees handsomely. The reason for their financial stability is two folds:

  • Airports and ‘Air Navigation Services’ are natural monopolies;
  • Both services are absolutely necessary for safe and secure operations of airlines and passengers, who pay for the cost of operations of these two services, including cost of labour.

The fees and charges are not raised arbitrarily though by the service providers, exploiting their monopolist position. The point of comfort for the airlines and passengers is that the profit limits of Air Navigation Service Providers and Airport Service Providers are capped by the Economic Oversight Department of the State in line with International Civil Aviation Organization (ICAO) guidelines (Doc 9082). The formula usually applied by the regulators is WAAC (Weighted Average Cost of Capital). I have experience of this one too.


Why hasnt competition in the airline industry made services cheaper and seats more comfortable?

Mergers, acquisitions and Alliances of major airlines in USA and elsewhere in the world in the recent past has substantially reduced competition in certain markets. Airlines are, therefore, in a position to rationalize access capacity floated on these routes to improve average seat factor and reduce losses on account of perishable empty seats. Some airlines, however, may have gone a step further to increase prices at the same time squeezing economy seats more and more to accommodate more number of passengers.. This is the logical result of lack of competition. Anti Trust department may like to review the policy of allowing mergers, acquisitions, alliances and code share etc.

In the competitive markets, on the other hand, airlines are forced to operate around breakeven seat factor, which is around 80% on the average. The net profit, on sales, in such markets, is usually between 1%–2% on the average. Their rate of return is usually below Weighted Average Cost of Capital (WACC).

As per IATA research, Unit Cost of air transport, adjusted for inflation, has dropped by about 30% since 1970. IATA link below is a presentation and its slide # 14 depicts it in the form of a chart. you could also link it with slide # 15.


The price of air travel has in fact been reducing consistently since 1970s, when US airline industry was deregulated, followed by rest of the world. With the introduction of Revenue management system one can buy a ticket at almost half the price if booked well in advance. This was not the case when there was no competition and airlines were free to pass on the cost of inefficiencies to the passengers and also make desirable profits by fixing prices.



Why are Charter Operators not allowed to carry out Scheduled Operations?

Air Charter is the business of renting an entire aircraft (i.e.chartering) as opposed to individual aircraft seats (i.e. purchasing a ticket through a traditional airline). While the airlines specialize in selling transportation by the seat, air charter companies focus on individual private aircraft and itineraries, urgent or time-sensitive cargo, air ambulance service, and other forms of ad hoc air transportation. Some air charter companies offer a large variety of aircraft, such as helicopters and business jets.


Most of the countries in the world restrict Air charter companies to operate scheduled services on routes being frequently served by Regular Public Transport carriers (airlines) to protect their economic interests ensure regularity and punctuality on these routes protect them economics of operations.

Scheduled Operators (airlines) ought to be protected against non-scheduled operators (Air Charter companies) to ensure regularity and punctuality on the routes being served by airlines. Not doing so will adversely affect the economics of airlines and they will not be able to continue schedules services on the said route.

There is a clear difference in the operating economics of the two categories. Airlines are bound to maintain a degree of regularity and punctuality,  which does not apply on charter operations. Because airlines have to maintain regularity and punctuality they cannot wait to fill the aircraft before take off.

Air Charter companies usually have far less ‘Minimum Paid up Capital’ requirements and Minimum fleet requirements in comparison to Regular Public Transport Operators (Airlines). The difference in some countries is 1:10. Hence the cost of doing business in case of airlines is much higher than Air Charter Operators. Both serve primarily serve two different categories travellers i.e. business travellers and leisure travellers.

For Businessmen punctuality and regularity factors are extremely important and they are willing to pay the premium for this. Airlines’ business model is designed around this type of market. whereas leisure travellers look for cheaper tickets and can wait for longer time. Air Charter companies meet these requirements.

Minimum Paid Up Capital requirements for Airlines is usually 10 times higher than Air Charter companies because of the peculiarities of the regular scheduled operations. Fleet requirements of airlines is also much higher than air charter companies.

Airlines’ average seat factor is, therefore, about 80%. If charter operators were to be allowed to enter the market specified for scheduled operators without meeting the essential requirements of regularity and punctuality,

in comparison to chartered aircraft’ 100% in case the entire capacity is sold to on or two tour operators. The tour operator would wait until all seats are full and then allow the aircraft to take off. The Tour Operator would therefore be in a position to sell cheaper tickets, if allowed to operate scheduled operations in comparison to airlines whose 20% seats on the average remain empty. Empty seats being perishable, the airlines  would be clearly at a disadvantage.

Travelling needs of businessmen and leisure travellers are different. The businessmen

Regularity and punctuality are the essential requirements of businessmen and airlines are required to do that as opposed to leisure travellers who plan their tours months in advance. Travelling needs of both category of travellers are therefore different.  needs t not only the requirements of the business travellers but also for the airlines themselves as they aircraft being flown has to operate on other sectors as well at the specified times.