The Associative Principle

its application in the air transport industry

 

 

by Francis Tate (Frank Thomas Smith)

 

 

Author’s note: This article was originally published in Interavia, a leading Geneva based aviation trade magazine, in May 1975. At the time, the international airlines met regularly to set fares, conditions of travel and practically all elements of international air transportation. This was done within their trade organization, the International Air Transport Association (IATA). Fare setting was possible because IATA had been granted exemption from anti-trust laws. If this sounds unusual today, it did not seem strange then, because air transportation was still considered to be a public service and therefore needful of special government protection. A few years after the article was published, however, the U.S. government rescinded the anti-trust exemption and most other governments were eventually forced to follow suit.

The result, “open skies”, resulted in a savage dog-eat-dog competition, finally culminating in the bankruptcy and disappearance of many airlines – most of them United States flag carriers. To name a few: Panam, Panagra, TWA, Eastern, Braniff. Most non-U.S. carriers were government owned and/or protected, and better able to survive, although even state owned Latin American airlines succumbed: Viasa, Aeroperu, Varig (recently), etc. In Europe Sabena, and even I was surprised when Swissair, arguably the best airline of all, disappeared. Airline travelers who are old enough to remember will not have to be told about the sharp decline in passenger service, the increase in delays, missed connections, etc., despite much improved technology.

I cannot say I foresaw the totality of the disaster, but I did think that the anti-trust immunity could not last (there were already rumblings about it), so I wrote the following article. As an employee of IATA, I was contractually obliged to submit the article to top management for approval. The Director General at the time, Knut Hammarskjold, who apparently personally agreed with the sentiments expressed, finally agreed, but with the proviso that it not appear under my name. (IATA could not appear to be endorsing a concept with the airlines themselves would probably not accept.) Therefore it appeared as having been written by “Francis Tate”, without the usual bio.

I am not republishing the article now in order to say “I told you so”, but merely to suggest that the “Associative Principle” is still valid, not only for the airline industry, but for industry in general.

FTS

 

 

Almost overnight, consumerism has become a household word integrated into vocabularies of the world's languages. The consumer has become aware of his rights and of the influence which he is in a position lo exert on the economic process trough concerted action. In the air transport field the consumer-passengers have begun to organize and demand their rights – even to the extent of over-reaction in the form of emotionalism, headline-hunting and court actions against airlines, travel agencies and even governmental regulatory bodies. The airlines and, to a lesser extent, the travel agents, who have had things their own way for a long time, are beginning to realize that it takes three to tango in economic enterprises: producers, distributors and consumers.

 

Trade associations

 

The producer-airlines have long had their own trade associations, principally the International Air Transport Association (IATA) and the US domestic Air Transport Association (ATA), while other regional associations have more recently appeared on the scene. These are unique organizations within which, at least in the case of IATA, member airlines are allowed to meet regularly and openly fix fares, cargo rates and other conditions of transportation in spite of strict anti-trust laws. The explanation for this extraordinary situation is that governments recognize the importance of the public service nature of air transport, as well as the great complexity of the international relations which are involved in its make-up. The individual states, even those which own their national carriers outright, are obliged to concede the indispensability of these associations because they are aware that their own bureaucratic nature prevents them from performing the functions of an IATA themselves. Most are conscious of the fact that if there were no IATA, the political states would have to take over its functions, and the ensuing chaos is eminently predictable.

The distributor-travel agents also have their trade associations on a local, regional and international level. It is only recently however, that a spirit of cooperation has become visible in the relations between the international airline and agent bodies. The airlines fear that organized agents might eventually succeed in squeezing more and / or unreasonable commissions out of their already bleeding pocketbooks. On the other side there has been considerable resentment amongst agents, who have felt that the airlines have been acting arbitrarily in refusing even to discuss this point seriously with them. The situation has evolved however, to the point where IATA and UFTAA (Universal Federation of Travel Agents Associations) are having regular contacts and where even the president of UFTAA, P. Bamberger, has expressed "high hopes and beliefs" that acceptable solutions will be found to differences between the two organizations. In a recent meeting of the IATA Industry Policy Committee, chaired by IATA's Director General, Knut Hammarskjold, member airlines finally decided to meet the commission question head-on, by recommending that their Traffic Committee continue discussions with travel agency organizations with a view to coming to an agreement concerning commissions as well as other outstanding airline-agency questions such as joint market development, cooperative advertising, wholesaler compensation and even compliance, which has long been an irritating factor. The Policy Committee went so far as to say that in its opinion "the Traffic Committee should consider any short-term solution in relation to a long-term policy...".

      Once the differences are resolved however, or even before, it will be necessary to work together-not to merely stop fighting. An outstanding example of what can be achieved through cooperation is the IATA/UFTAA jointly sponsored Agents' Professional Training Course which, as it gradually expands over the globe, is greatly increasing the degree of professionalism in the travel industry. These beginnings are to be applauded, but much more is needed for the development of a truly rational air transport policy: the third corner of the triangle is empty and the consumer-passengers are still on the outside looking in.

 

What about the Consumer?

 

      One of the basic principles of economic enterprise - the Associative Principle - is mostly overlooked and only partially practiced in certain public service industries, although conditions make it so clearly appropriate that one wonders why those responsible are not more conscious of it. Perhaps, as is so often the case, because it is so obvious.

      The Associative Principle is based upon another, largely unrealized fact of life: that work is essentially of a fraternal nature. This can be clearly seen, as an example, at a modern assembly line, where the division of labour has been carried to such an extreme that the workers have become, in a sense, its victims. Each worker usually performs one or few actions which, together with many other sim ilar actions by other workers, eventually results in a finished product, whether it be a pair of shoes, a suit, an automobile or an aircraft. Other contributors to the production of the end-product are the designer, the engineer, manager, clerical workers and so on. The answer to the question: For whom did they produce the aircraft or the shoes? is: not for themselves, but for others. This working for others is a fraternal process, be it conscious or not, and these "others" have acquired a specific designation in economic terminology: consumers.

      The fraternal nature of the air transport industry is often expressed differently. It is called a public service industry, which it certainly is, and this public service consists of providing safe, regular and economic air transportation to the public, that is, to "others". If we recognize that the reason we occupy ourselves with selling air tickets or servicing aircraft or flying them or writing about all these things, is to serve the needs of the consumer-passengers, then we must look for a method of performing this activity which is not only the most efficient, but which also corresponds to the fraternal nature of the activity. The appropriate method is the Associative Method, a phenomenon which has already appeared on the horizon, but which is not yet clearly recognized.

 

The principle

 

      In the air transport industry we have:

      1. airline associations;

      2. travel agents' associations;

      3. Passengers’ associations (consumer groups).

     

The Associative Principle indicates that the producers, the distributers and the consumers, the three groups directly involved in any economic process, should associate in order to arrive at the solutions to their common problems. Each is equally important and should have an equal voice in the decision-making process. (Efforts to "eliminate the middle man" in order to bring prices down are sheer nonsense. The middlemen perform a function which in fact causes prices to be lower in the long run than they otherwise would be, since neither the producer nor the consumer can consistently perform it as efficiently as they can).

      Presently, with the exception of the example cited above, the three types of associations are generally engaged in fighting against each other in egotistic self-interest, instead of cooperating with each other for the benefit of the common interest. As separate, unassociated (with each other) groups, this is the type of conduct which must be expected from them. No passenger, as things stand, when the airlines offer him a fare of 100 dollars is likely to object, "No, that is too little for your needs, After all, you must pay off the debt incurred because of these new aircraft you bought, not to mention agents' commissions, landing fees, navigation fees, excessive fuel prices, inflation and God only knows what else. I will pay 120 dollars". This is perhaps a grotesque example. Nevertheless, in integrated associations all three sides will be able to survey the overall picture and work together for what their new insight will show them to be the best possible course of action, even though one group's immediate profit may be sacrificed. The common interest will be seen as the essential element in the decision making process.

      The general, but not absolute, tendency of airlines as producers of air transportation, like all producers, is to favour higher prices. (In the case of the non-scheduled charter operators which have opted for lower prices, we have a situation in which these carriers have taken advantage of the fact that the scheduled airlines were already performing the real public service of operating regularly scheduled flights, and the undercutting of fares was possible only because they themselves were not required to perform this service.) The passengers tend to favour lower prices and the travel agent is in the middle, knowing that low fares enable him to sell more, but realizing at the same time that the higher the fare, the larger his commission will be. He would therefore tend to assume the mediator's role on the fares question in an association comprised of the representatives of the three groups.

The passenger would assume the mediating role in such questions as agency commissions and productivity norms, and the airlines would take it over when such problems as inclusive tour services, credit arrangements, cargo agents' disbursement fees, etc., are discussed.

 

Ideally...

 

      Human reason could make its debut. For instance, no knowledgeable passenger representative would demand a fare which is economically unviable if he is present at the moment of decision on what the fare should be and participates in that decision, instead of merely being informed of the fare he must pay after it has been unilaterally decided upon by the airlines. In the open and fraternal atmosphere of an integrated association, each group's demands would be agreed to only to the extent they are justifiable and are seen to contribute to the mutual benefit of all concerned.

      It should be noted that once the consumer-passengers are in a position to represent their own interests as members of integrated associations, it will no longer be necessary for political states to act as defenders of their interests. Therefore, an extremely important side-effect of the Associative Method is the reduction of governmental influence and interference in what is essentially an economic and not a political enterprise.

      The necessary elements for the realization of the Associative Principle are already with us in the form of separate associations of airlines, travel agents and passengers. When these three basic groups form integrated associations, then a giant stride toward a healthy air transport industry will have been taken.



This article may be freely reproduced with the condition that the source be given.

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