Opinion: Trump Presidency and aviation
The remarkable victory of Donald Trump in the US Presidential election this week has resulted in the inevitable speculation of what a Trump Presidency means for many industries, including aviation. As a non-American focused blog, with limited skin in the game, we thought we’d jump on the bandwagon and share some thoughts on it.
We expect that much of impact with be through foreign and trade policy rather than a direct policy and/or regulatory impact.
Geo politics
Russian airspace access: Many political commentators argue that Trump will bring a reset to the American-Russian relationship. This may allow a reopening of Russian airspace to US carriers and have practical implications. Removing the operational challenges of flying around Russian airspace will bring about an immediate benefit to US carriers flying to/from Asia.
These operational challenges have had considerable sequelae, increasing flights times and fuel burn, resulting in reduced operations by US carriers to and from Asia. This has been a contributing factor to slow US capacity returns to China and India, giving Chinese and Indian carriers a substantial advantage. Some have even argued that this has led to the rapid expansion of Air India’s US routes although that is just as likely supported by the rapid growth in demand between the countries.
While this may benefit US carriers, it’s unlikely that European and other Western countries will join this reset with Russia anytime soon.
Tariffs: President-elect Trump campaigned on raising tariffs targeted at protecting US manufacturing. If implemented, these will have considerable effects on commercial aviation, affecting supply chains and manufactured products.
While aircraft may be assembled in the Seattle or Toulouse, the supply chains are truely global. For example, approximately 21% of major structural components of the B777-8/9 are sourced from Japan. Boeing sources its inputs from 65 countries, everything from primary commodities to highly specialised components with a clear bias towards Europe. Tariffs will increase the cost of these inputs to Boeing who will have limited scope to adjust supply chains in the short term. Adapting to US made components will generate higher costs, while Boeing’s contemporary challenges likely make this adaptation more challenging. Boeing will have to pass on these costs to customers and will have global implications.
Secondly, tariffs may be imposed on aircraft assembled outside of the US, primarily affecting Airbus. This will likely results in a tit-for-tat reaction with Europe imposing tariffs on American assembled aircraft as was the case in 2020. Arguably, this advantages Airbus with their ability to assemble some narrowbody aircraft in the US, somewhat limiting the impact. While the impact will vary aircraft-to-aircraft and country-to-country, the simplistic outcome is that tariffs will affect aircraft prices and result in considerable risks to already vulnerable supply chains.
Airline and market regulation
Bilateral air services agreements: The US has been a global force for good in the proliferation of open skies agreements. It has championed multilateral open skies agreements (e.g. US-EU and MALIAT) and has approached bilateral air service negotiations with open skies as the de facto starting point, even if there are no flights or little prospect of flights between the US and the counterparty. As a result, the US has open skies with 135 countries and territories (as of November 2024), yet by our calculations there are only direct passenger flights connecting 55% of those countries.
In the context of Australia, we’ve argued that comparing the approach of Australia and US to open skies is didactic. The US will seek open skies with almost any country and will seek open skies with any country that it signs a bilateral agreement with (except for China). The broad scope of their diplomatic relationships and capacity inflates the numbers. On the other hand, Australia’s relatively limited diplomatic scope requires a prioritisation and limits open skies to major trading partners. In this context, open skies with the Republic of the Congo would have zero application or benefit for Australia, yet the US have had an open skies agreement since 2018 with no direct flights between the countries and little prospect thereof. These open skies agreements generate a significant benefit as a strong normative statement, advancing the liberalisation of the global architecture of air rights and increasing market access.
During the first Trump Presidency, the administration lent an ear to aggressive lobbying from American Airlines, Delta and United to block additional market access to Emirates, Etihad and Qatar to the US despite open skies agreements with both countries, resulting in a de facto withdrawal from the open skies agreements. The US carriers argued that Emirates, Etihad and Qatar received unfair government assistance in the form of direct and indirect subsidies, and that these violated the open skies agreement. The US carriers also objected to Emirates operating fifth freedom flights between Europe and the US.
The Trump administration took on the issue, however it came to nothing with a resolution with both Qatar and the UAE that reaffirmed the open skies agreements but agreed to a concession to apply globally accepted accounting standard to heir financial statements. This was a phyric victory and had no impact on the airlines. Rhetoric was overcome by Trump’s transactional nature with global and domestic politics playing out. On the domestic front, Qatar and the UAE were backed by JetBlue and Federal Express. JetBlue benefited from a codeshare agreement with Emirates, while Fedex operates a hub in Dubai significantly exploiting fifth freedom privileges there. On the global front, sanctioning Qatar or the UAE would undermine more important diplomatic and military ties, and compromise US exports, including Boeing aircraft.
While we expect rhetoric on the topic, we don’t expect much action.
Competition (antitrust) policy: After decades of an enabling airline mergers and acquisitions, the Biden administration put the brakes on further consolidation in the sector, blocking a joint venture between American Airlines and JetBlue, and blocking JetBlue’s proposed acquisition of Spirit. Trump has provided no clear direction on the topic, however it is an area to watch. Given the clear change in direction by the Biden administration it will be important to learn if the Trump administration favours a return to the pre-Biden status quo or continuing the Biden administration’s greater scrutiny of airlines.
Holding airlines to account: Following on from this greater scrutiny on airlines, the Department of Transport under the leadership of Pete Buttigieg turned the screws on airlines. In some high profile cases, the DOT levied significant fines on airlines for a range of consumer rights issues including discrimination against passengers with disabilities and operational failures. Furthermore, Buttigieg has championed a new compensation scheme for flight delays and cancellations that will be implemented in early 2025. Trump has campaigned on rolling back Biden era legislation and regulation; will this go with it?
Infrastructure: During Trump’s first term, he tried and failed to pass an a major infrastructure spending bill. The Biden administration saw greater legislative success, passing the Infrastructure and Investment and Jobs Act in 2021. This included significant funding of $56 billion for airport infrastructure. As expected, Trump aggressively opposed it, but it’s not clear if this was simply generic opposition.
However, there are much greater aviation infrastructure challenges that await the Trump administration, particularly ATC that’s been suffering from years of underinvestment and understaffing. During his first term, Trump had a somewhat confrontational relationship with controllers after proposing to privatise ATC. Major investments and reforms are required, and it’s questionable whether Trump’s typically aggressive approach can generate the broad consensus required between Congress, unions and industry. However, Trump is also transactional enough to give away everything and still claim victory!
More questions than answers
While a Trump administration is likely to generate significant challenges to trade with increased tariffs, most policy areas will likely see little change to the status quo. There are several areas where the administration may affect policy but we haven’t heard much from Trump on these topics during the campaign. Does this mean a continuation of the status quo with relatively low prioritisation? Or are we in for some surprises?