Jeffrey Shane became general counsel at IATA in 2013, following several stints in private practice and at the US Department of Transportation. A week ahead of the IATA Legal Symposium in Washington, DC, he spoke to GTDT Aviation Law News about the industry group’s priorities, regulatory overreach and the global harmonisation of drone rules.
What are IATA’s priorities for 2017?
Our priorities cover all of the topics that you would expect, so environment, safety, security and making sure that IATA’s financial settlement systems are as tight and as efficient as they can be. That is all high on our agenda.
Ultimately, however, the biggest priority for IATA is the success of the industry. It benefits economies everywhere by connecting the world, facilitating trade and tourism, family connections, foreign investment and everything else you can imagine.
To the extent that there are impediments to the industry’s success in delivering those benefits, our job is to try to address them and minimise the obstacles that our members face.
What impediments need to be overcome?
One impediment is an increasing disposition of regulators to second-guess the design of the very product that our members are delivering. It is all well intentioned and designed to enhance the welfare of consumers, but quite often overreaching by regulators has the very opposite effect. It ends up stifling innovation.
Regulators often try to take a snapshot of the industry at a moment in time, to figure out what can be improved and what can be tweaked to enhance the benefits flowing to consumers from a particular aspect of the business. By doing that they lock the industry into a particular model or practice. That impedes the advancement of technology and innovation, thereby impeding product development and actually reducing competition and consumer benefits.
Distribution is the classic example, where US regulators are almost designing the advertising permitted by airlines. IATA has been working with the industry to overhaul the marketing and distribution of air services through its NDC initiative -- the New Distribution Capability. The idea is simply to deliver a retail shopping experience for airline customers comparable to the quality that most online retailers routinely deliver. Marketing through travel agencies today, the airlines can’t provide the quality and richness of information that consumers need. All they can tell you is where the flight departs from, the destination, the schedule and the price. That is pretty much it.
Airlines, like everyone else in the service business, are interested in product differentiation. They want to compete with each other on the quality of the product – but they can’t display for consumers what that product looks like. Regulators should be interested in this because the implications for competition are profound. That is the whole objective. The US Department of Transportation approved the IATA resolution that launched NDC some time ago, but other proceedings threaten to vitiate the potential benefits of the new approach by being over-prescriptive in the regulation of distribution. By getting in the way of enhancements the industry is trying to deploy, regulators are inadvertently impeding progress. So, that is one big challenge that IATA spends a lot of time working on.
In some cases, governments think that the airline industry should be treated as a cash cow. If somebody has enough money to buy a ticket, [governments often feel that] there is no reason they should not pay another $10, or $20, or $50 to the government to solve whatever social problem the government happens to be focused on. Fees unrelated to aviation violate well established international law principles.
Not every government pays sufficient attention to international law in this particular area, however, so our job is to remind them.
How do these priorities feed into your work and that of the wider IATA legal team?
When we decide with our member airlines that there are challenges that need to be addressed, we have two complementary avenues. On the one hand, we have our lobbying arm, which is in charge of all our advocacy efforts around the world and spends a lot of time speaking to regulators and other officials, urging the adoption of policies that make sense, not just for the benefit of our airlines, but for the benefit of their own economies.
Our legal services department supplies the other side of the advocacy coin. Thus, we will map proposed regulations against what we think the law allows in that jurisdiction. If there is a gap in what they are allowed to do under national law and what they are proposing to do, we will call their attention to that inconsistency. If there’s a gap between international law and what they are trying to do, we will bring that to their attention as well. We participate directly in many regulatory proceedings, and we will even challenge regulatory decisions in court where necessary. In other words, we look for legal tools to accomplish the same objectives that we’re trying to achieve through our lobbying efforts. In cases where the law favours us, as it often does, we can use it to enhance dramatically the prospects for success in achieving what our members need.
Are you able to point to any recent examples where regulators have not followed the law as accurately as they should have done?
In the most conspicuous recent example, the US Department of Transportation was considering banning the use of voice calls during flights once they have been cleared for use in the US as a matter of safety. Now most airlines have said they don’t plan to allow such calls even if they are permitted as a technical matter, but we felt that the proposal was a classic example of regulatory overreaching. We filed comments immediately – together with Airlines for America, our sister association in Washington, DC – reminding the DOT that its statutory authority to protect consumers is actually quite narrow. Specifically, it is charged by Congress to protect consumers only against unfair and deceptive practices. The idea that they would characterise the possibility of an airline allowing a voice call in the middle of a flight as an unfair or deceptive practice was a pretty big stretch. We thought they didn’t have the authority to do that.
Following the submission of those comments, the DOT has come back and we are now in the process of looking at a new notice of proposed rulemaking. Happily, they have abandoned the proposed outright ban on cell phone use during flights, but they are now calling for every airline to notify every passenger whether cell phone use will be allowed during a flight or not, on the theory that if you should cross the threshold of an aircraft without having been made thoroughly aware that a cell phone might be turned on during the flight, you have been subjected to an unfair and deceptive practice. Again, while the proposal is more modest, we don’t think the DOT has the authority to require these notifications and we have just filed comments – again jointly with A4A – urging them to drop the proposal altogether and let the marketplace sort it out. It may seem like a silly example, but it illustrates the problem perfectly. And there are more serious examples.
The most egregious example of bad regulation is EU Regulation 261, which basically requires airlines flying in Europe to write cheques to passengers every time there is a delay or cancellation, regardless of whether it is occasioned by a mechanical defect or by concerns about the safety of passengers.
Anything that introduces financial considerations into safety-related decisions – if the captain has to weigh the cost to the company of delaying the flight in order to investigate a mechanical anomaly – that is the very quintessence of bad regulation. There should be no question about the importance of relying on the best technical safety judgment of the captain. There shouldn’t be any distortion of that judgment by reference to a potential cost imposed by regulators. ‘No good deed goes unpunished’ was never truer than in the context of EU Regulation 261.
I think there are many other examples in which well-intentioned regulators are unfortunately compromising the quality of the service we have.
Later this month, the IATA Legal Symposium will tackle several of the key legal topics and trends affecting the aviation industry. What have been the most significant developments in the aviation industry for aviation lawyers since the 2016 conference?
One example is antitrust. From the perspective of airlines, antitrust has traditionally been a challenge in the sense that airlines themselves are often accused of not competing robustly enough, so regulators look askance at the airline industry, particularly now airlines enjoy antitrust immunity in their global alliances – at least in many markets. There is constant discussion about whether there is sufficient competition in the industry.
What we’re looking at this year, however, is antitrust as a benefit to airlines, based on the theory that there is not enough competition among those supplying and providing services to airlines. If so, the cost of operating airline services is artificially high. So this year we will consider to what extent antitrust law is now the airlines’ friend.
One panel at the conference will examine the current state of drone regulation. Should there be harmonisation among regulators, offering an international consensus governing commercial drone operations?
IATA is certainly looking at that very closely. What the world needs very quickly are some harmonised standards for the regulation of drones. Drones represent a huge opportunity in terms of the technology of transportation, delivering a whole variety of services efficiently and cheaply. No one is challenging that. The real issue is making sure this important new technology does not compromise the safety of more traditional forms of flight. The challenge is to establish those assurances without slowing down further development.
The EU is examining harmonisation of drone regulation across its member states. On a more global level, to what extent is this possible, given the different attitudes of regulators?
To the extent that the EU is capable of delivering a set of best practices that work across the board, there is no reason to think they would not work in most other jurisdictions. It shouldn’t be necessary to reinvent the wheel.
What you are going to have, particularly among global retailers, is an effort to replicate the success they have enjoyed in one country in a multiplicity of other countries. To the extent that drones become part of the delivery systems of some retailers and service providers, there will have been a demonstration of best practices that will make it much easier for other countries to follow suit.
That is what accelerates development of the technology. There needs to be certainty, predictability, and stability in the regulatory framework. Those are axiomatic requirements for any regulatory regime and it is as true for a new technology like this as it is for anything else.
I would hope that there would be a lot of cross-talk between the US Federal Aviation Administration and its counterparts in Europe and elsewhere. They are all pretty good at what they do. They have manufactured a system of air transportation that continues to break all records in terms of safety, exceeding that of every other mode of transportation. It is an astonishing achievement. They obviously don’t want that record compromised, not just because they’re proud of themselves, but because people's lives are at stake.
The challenge now is to maintain that extraordinary record of safety while accommodating a technology that can bring untold benefits in so many other ways. I hope there will be a tremendous amount of cross-fertilisation among the more sophisticated regulators, because that will presumably throw off the best ideas and thus enhance the ability of all regulators.
The biggest challenge to regulators is always knowing where to make the cut in terms of safety. The classic example is that regulators could make cars absolutely safe by insisting that we never use anything less than three-inch-thick steel, that all cars operate on treads and they never travel more than 20 miles an hour. Obviously, we have chosen a different model. We know there are risks, but regulators have properly collaborated in the quest for an optimal level of safety.
That is the challenge here. The technology is here. Regulators have to figure out the appropriate balance in order to advance things without taking unnecessary risks.
The second part of this interview will be published in next week’s briefing.