[Congressional Record Volume 141, Number 148 (Thursday, September 21, 1995)]
[Senate]
[Pages S14081-S14083]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




            UNITED STATES/UNITED KINGDOM AVIATION RELATIONS

  Mr. PRESSLER. Mr. President, I rise today to express my great 
disappointment that an agreement further liberalizing United States/
United Kingdom aviation relations was not struck in London last week. 
Once again, I believe the British Government put the interests of one 
constituent above the best interests of British consumers.
  The United Kingdom is one of our largest and most important trading 
partners. For many years that trading relationship has flourished. Open 
market principles have been the engine responsible for its success. 
Without a doubt, the free flow of commerce between our two nations has 
significantly benefited both economies. Perhaps the biggest winners of 
all have been consumers on both sides of the Atlantic who have reaped 
the benefits of enhanced consumer choice and competitive prices.
  Regrettably, over the last few decades, the British have repeatedly 
rebuffed our attempts to extend our open trade relationship to include 
commercial aviation rights. In fact, the United States/United Kingdom 
bilateral aviation agreement is our most restrictive international 
aviation agreement. For good reason, that agreement, the so-called 
Bermuda II agreement signed in 1977, is widely regarded as being the 
high water mark for international aviation protectionism.
  In London last week, the United States and United Kingdom had an 
historic opportunity to further liberalize our aviation relationship. 
Instead of taking a major step forward, United States/United Kingdom 
aviation relations seem to have taken a giant leap backward. I am very 
concerned that the failure to reach agreement last week has squandered 
hard earned momentum from the phase 1 deal in June and resurrected 
mistrust between the countries that has plagued negotiations for years.
  Mr. President, despite these concerns, the United States and United 
Kingdom must press forward with 

[[Page S 14082]]
phase 2 negotiations. We owe it to consumers on both sides of the 
Atlantic. For far too long the United States/United Kingdom aviation 
debate has focussed primarily on the interests of passenger and cargo 
carriers. I urge negotiators on both sides of the table to resume talks 
with a broader focus, one which considers the significant stake 
consumers have in enhanced air service and more competitive prices.
   In a speech before the Aviation Club of Great Britain earlier this 
week, Gerald Greenwald, the Chairman and CEO of United Airlines, echoed 
this point. Mr. Greenwald called for a ``renewed concentration on 
consumers'' and quite accurately observed that the real losers under 
the restrictive Bermuda II agreement are consumers ``in the United 
States and United Kingdom alike.'' He is absolutely correct.
  I ask unanimous consent that Mr. Greenwald's speech before the 
Aviation Club of Great Britain to which I referred be inserted in the 
Record at the conclusion of my remarks.
  Mr. President, I hope benefits to consumers are factored into the 
equation next time American and British negotiators meet in phase 2 
talks. Perhaps then the need for liberalization of the United States/
United Kingdom bilateral aviation agreement will be clearer to the 
British. Undoubtedly, the benefits of liberalization will be more 
readily apparent.
  There being no objection, the speech was ordered to be printed in the 
Record, as follows:

  Gerald Greenwald; Aviation Club of Great Britain, Chairman and CEO, 
                            United Airlines

       London--September 19, 1995. Thanks, all of you for this 
     warm welcome. Let me salute Allan Winn, Chairman of the 
     Aviation Club of Great Britain, along with the many leading 
     lights of Great Britain's aviation industry--public and 
     private sector alike--whom I am honored to address today.
       I promised Allan I would refrain from any ``commercial'' 
     plugs for my company, although temptation, of course, is 
     great. But Allan was kind enough to ask--as people often do 
     when a visitor arrives--how was my trip?
       I want to assure you: The flight over in United's new 777 
     was quite comfortable. I enjoyed the full 64 inches of leg 
     room, the five star first-class service--and what must be the 
     most courteous flight attendant and pilot crew in the 
     business.
       So Allan--thanks for asking.
       I appreciate the opportunity to address you today. I see 
     this as a chance to advance a dialogue that must take place 
     if any of us, on either side of the Atlantic, are to prosper 
     in our new environment. This industry has to look ahead--this 
     industry has to change because its growth--needs to outpace 
     that of the world economy.
       The fact is, at no time since the Second World War has the 
     airline industry been presented with market forces more 
     conducive to profitable growth. The demand for thinking for 
     the future is almost overwhelming. And that is what I want to 
     talk about today because, as an industry, we are not meeting 
     the challenge, not doing justice to our customers.
       But I didn't come here to talk to you about what everybody 
     else talks about--the way everyone in our industry is 
     mesmerized by the growth in air traffic. That kind of looking 
     inward--that fixation on ourselves--is a kind of corporate 
     indulgence we can't afford: Short-term gain for long-term 
     grief.
       I came here to make the case for change in focus--for a 
     renewed concentration on the customer.
       We're slow to recognize what the customer wants from the 
     travel experience.
       Back on my side of the ocean, the travel agents are 
     fighting with the airlines . . . the airlines are fighting 
     with one another . . . and meanwhile, the customer stands 
     alone at the counter.
       It's as if we grow so accustomed to our place in the 
     market--to our sheer size and staying power--that we forget 
     who has the power to bring us down.
       I'm not talking about a competitor . . . or another company 
     . . . or some amorphous notion such as ``competition'' . . .
       I'm talking about the consumer. The most powerful economic 
     factor in the world.
       It's a concept we grasp quite easily in political 
     dimension. But the freedom of choice at the ballot box has 
     its parallel in the economy as well: In every consumer's 
     checkbook choice--the freedom to take his or her business 
     elsewhere.
       Now, provided we put the customer first--the fundamentals 
     are in place for a very positive forecast. Consider the state 
     of our industry.
       The fundamentals are there for a very positive forecast. 
     Consider the state of our industry.
       In the beginning of this decade, in 1990, worldwide airline 
     revenues totaled $211 billion.
       Estimates now predict industry revenues--both business and 
     leisure travel--will reach $350 billion by the year 2000.
       To put that in perspective, consider the world's total GDP 
     will rise 50 percent between 1990 and the year 2000. Over 
     that same timeframe, airline revenues will rise an even 
     faster 60 percent.
       All told, it's an impressive record. A century that began 
     with mankind's first powered flight--a span of 120 feet 
     lasting 12 seconds--ends with the movement of 1.2 billion 
     passengers on 17 million flights across 24 time zones at 
     every hour of the day and night.
       So if all of that's true--and it is--why do so many of us 
     want to grimace rather than grin?
       Because we know the rest of the picture. We know that 
     revenues, however great, are not profits--and growth, no 
     matter how rapid, is not necessarily a reflection of success 
     or superior service.
       Granted, this industry has grown. But too many airlines 
     have lost too much money for their shareholders and the 
     taxpayers who support them. Too many customers regard what 
     they get from us with a combustible combination of cynicism 
     and suspicion.
       Some of our passengers take us for granted. Other 
     passengers think every time they buy a ticket--as we say in 
     America, we're taking them for a ride.
       It's hard in that kind of atmosphere to build the bonds of 
     trust--to establish the loyalty that keeps customers coming 
     back. That's the central challenge in a service industry such 
     as ours--a challenge United is working to meet as the world's 
     largest employee-owned company.
       And we are a new company--a new United--since Steve Wolf 
     stood before you just over a year ago. What we're about isn't 
     just a phrase--it's a deep-felt philosophy: A solid sense 
     that of all the measures management can take to improve 
     productivity none has more up-side potential than empowering 
     our workforce. And what better way than turning employees 
     into owners? As Peter Drucker has observed, the only 
     sustainable corporate advantage in the new, open, global 
     marketplace--is people.
       When we entered into our employee-ownership (ESOP) 
     agreement, we were banking on more than a structural shift in 
     our organization--we were counting on a change in corporate 
     culture to take us to a more competitive level. And in a 
     service industry, employee satisfaction shows--in the 
     finished product--in the face we present every day to our 
     passengers.
       And we're seeing that change in culture translate into 
     strong results. You're used to hearing about Returns on 
     Investment--well, our ESOP's delivering what I call Return on 
     Ownership:
       Fewer sick days: Down 21 percent last month--in our year-
     over-year comparison. And increased ``dependability'' means a 
     savings of about $52 million.
       Fewer grievances: Down 75 percent year-over-year. And 
     again--that's an opportunity to resolve differences without 
     costly and time consuming procedures--energy that could be 
     spent on serving our customers.
       Overall, it's part of the positive numbers United's putting 
     on the board:
       Revenue is up $729 million--6.7 percent over last year.
       Operating earnings are up--our operating margin is up. So 
     are net earnings and net margin. And unit revenue is 
     outpacing unit cost.
       Let me give you just one market example. Thanks in part to 
     our new Shuttle by United, the Los Angeles region is solidly 
     profitable.
       Our departures are up 73 percent in the last 4 years--and 
     we're serving more major domestic and international 
     destinations from L.A. than any other carrier.
       All of the changes we've made within our company are moving 
     us in the right direction. But there's still the matter of 
     the environment around us--the system in which we--and all 
     our competitors--have to operate.
       And that is where external factors dictate the difficulties 
     we face--in the form of a system that stops us from serving 
     our customers as well as we could. And that system is my 
     subject today.
       What do I mean? Let me ask: How many of us would maintain a 
     fleet of DC-7s or Lockheed Constellations--how many of us 
     would want to sell passengers on the virtues of an 15 hour 
     crossing of the Atlantic, or only a handful of domestic 
     flights to our country's largest cities?
       In other words, how well do we think we'd fare with a 
     1950's fleet in our 1990's world?
       Yet we're struggling along with an equally antiquated 
     structure governing our flights/our routes/and our schedules. 
     Simply put: The structure of our industry is not adapting to 
     the needs of the new customers, new nations, and new regions 
     we serve.
       If this industry is to reach its potential--if we are to 
     continue not simply to expand but to excel--we have to 
     change. We have to raise our standards--raise our own 
     expectations to a level above and beyond that of the 
     customers and the countries who rely on us. We have to stop 
     talking about today's weather and create a new climate.
       Because in the end, there is only one route to customer 
     service--and that is competition.
       Nothing could be further from that ideal than our present 
     World War II vintage system of bilateral regulation. Created 
     in an era when national frontiers were also market 
     boundaries--when economies were isolated entities, self 
     contained islands of commerce--Conceived at a time when 
     Churchill roamed Number 10 Downing Street, and both 

[[Page S 14083]]
     the Democrats and Republicans were competing to see who ``liked Ike.''
       Our bilateral system was a Frankenstein, stitched together 
     when colonialism was fading, nationalism was coming to the 
     fore--and a protectionist system of managed trade seemed the 
     best we could muster.
       And that bad beginning got steadily worse--reaching bottom 
     with the so-called Bermuda II agreement in 1977.
       It's a wonder the system served us as well as it did, as 
     long as it did.
       Today--we must all agree--the system is slowly strangling 
     us.
       What we have now is a kind of controlled chaos--an industry 
     impasse in which no one is comfortable with the system as it 
     is, but no one can make the move to the more competitive 
     system we need.
       Take United's position as a case in point, squeezed by the 
     straight-jacket we call Bermuda II. Geographically, the U.K. 
     is key to United: A gateway to the entire continent of 
     Europe--and beyond, a critical crossroad in the global 
     aviation market.
       While we are one of only two U.S. carriers allowed to serve 
     Heathrow, if we look at United's major hubs in the U.S.--
     every one carries tight restrictions on capacity to Heathrow:
       At Washington, DC, we have been running load factors to 
     Heathrow of 92 percent for the last three months--and yet we 
     were just turned down for two extra frequencies a week.
       At Chicago, our largest hub, after a four-year struggle, 
     last week we finally gained access to Heathrow--and yet it's 
     limited to seven weekly flights in a 767. Let me emphasize--
     this is from the world's busiest airport to the world's 
     largest international destination. But even that is better 
     than Denver, our second largest hub--where we can provide no 
     service at all to Heathrow. Of all the major country-to-
     country agreements to which the U.S. is party, none is more 
     restrictive than Bermuda II.
       But as bad as I believe Bermuda II is--this much I know: 
     The real losers are the consumes. In this, Bermuda II claims 
     its casualties on both sides of the Atlantic--hurting 
     consumers with higher prices and poorer service in the U.S. 
     and the U.K. alike.
       So what's the solution? Certainly not the 1950's thinking 
     that argues that the way to build your carrier's market share 
     is to handicap the competitiveness of the others.
       Market shares in aviation should be driven by customer 
     choices--just as they are in most areas of trade today. I 
     submit there is only one answer for the 1990s--working 
     together for change--working together to open the skies of 
     Europe, America, Asia and every point in between--to 
     competition.
       Now, I want to be clear: Just as the current bilateral 
     constraints increasingly serve no one--competition, too, has 
     its costs. Not all airlines will succeed--not all will even 
     survive. But the alternative--the price of sticking with the 
     status quo--is truly like two scorpions in a bottle. Neither 
     will come out alive.
       Why tinker at the margins managing trade? Why not simply 
     throw open the doors--and let the competition begin?
       Anything less than full competition really doesn't do 
     either of us a favor--because in an industry as global as 
     ours, we really can't hide from competition anyway.
       What do we need? Liberalization--as much as possible, as 
     soon as possible. A beginning today that we can build on 
     tomorrow.
       As our target, we ought to take an example from outside our 
     industry: From the world of telecommunications. When you pick 
     up a telephone and dial an international number or send a fax 
     to an international destination--you don't want to negotiate 
     with each of the different companies that carries the signal 
     or routes the call.
       It doesn't matter to you whether it crosses the ocean floor 
     by cable or skips over by satellite--what you care about is 
     getting through to the other end. Yet our current system of 
     air travel does just that to our customers--confronting them 
     with a bewildering array of barriers and bottlenecks between 
     them and their destination.
       To their credit, both the U.S. and Britain have recently 
     taken significant steps toward the liberalization of air 
     transportation between our two countries. The differences 
     seem to be over the pace of that movement, not the ultimate 
     objective.
       And, as I have pointed out to the U.S. government, in 
     recent months--to give credit where credit is due--it has 
     been the British side that maintained the momentum toward 
     liberalization, while the U.S. (and United) was all but 
     immobilized by our own internal squabbles.
       To be candid, our struggle to launch direct Chicago-London 
     service last week was impeded as much by vested interests in 
     the U.S. as in the U.K.
       Now of course, our small steps forward have been 
     accompanied by two steps back--away from the negotiating 
     table. We must all hope our two governments get back to the 
     table--and resume the Phase II talks that are the only path 
     to progress and to open skies.
       There is a mystery I cannot comprehend: And that is how the 
     U.S. and the U.K.--two countries that literally live by 
     international trade--and with the possible exception of 
     Japan, endure the rockiest bilateral relationship in the 
     aviation industry.
       The plain fact is--liberalization can't be limited. On the 
     other side of the world--as across the Atlantic--the 
     principle of consumer choice must prevail. The principle I 
     hope will soon be put in practice for our two countries 
     should apply equally to the opening of new routes in Asia.
       Few tasks will be tougher. Japan's Ministry of 
     Transportation, for example, seems fixated on a protectionist 
     path--marching in one direction while the rest of the world 
     moves in another.
       What Japan seems to want in 1996 is a replay of the mistake 
     the U.S. and the U.K. made in 1976 when we started down the 
     path of Bermuda II. And as a recent editorial in the Far 
     Eastern Economic Review noted, you can't open an issue of the 
     Orient Airlines Association magazine without finding a list 
     of reasons why competition is bad.
       Much of the air service industry there remains locked in a 
     mercantilist mindset. And that's unfortunate because Asia and 
     Asian consumers are not exempt from the adverse consequences 
     of attempts to limit air traffic.
       There's no free lunch: When Japan's Ministry of 
     Transportation imposes regulations to protect their 
     carriers--consumers pay the price. It's an iron law of 
     economics: One company's windfall is the consumer's downfall.
       Competition is consumer friendly. It's a notion we haven't 
     quite grasped yet. Take the recent positive steps toward 
     opening more Japan destinations to Federal Express.
       In the industry, people are asking--Who won? Japan or the 
     U.S.? I'll tell you who won. The consumers--of both 
     countries!
       As for United, we're ready right now to take interim steps 
     toward the broad liberalization that will ultimately serve 
     all of us best. In Japan, as we did in Germany, we are 
     prepared to accept a period of constrained growth--to give 
     JAL breathing space. But our ultimate aim at the end of that 
     period must be--once again, as it was in Germany--a market 
     driven regime.
       In the end, freeing up competition--evolving an open skies 
     approach--is in every country's interest. Liberalization and 
     internationalization go hand in hand. And they are essential 
     in today's economy.
       And that really is my message today.
       Gone are the days when we could chart a future built on 
     cozy arrangements and back-room bilateral deals. The one 
     covenant that counts--is the promise we make to the people we 
     serve.
       Thank you.

                          ____________________