The impact of the new US Government on the travel industry

LONDON – With Barack Obama elected president and Democratic control of Congress expanded, a number of travel-related issues are expected to be addressed under his presidency.

Democrats have traditionally been against airline consolidation.

The new government is unlikely to permit additional mergers in the airline industry and may make it more difficult for airlines to receive anti-trust immunity, specifically American Airlines, British Airways and Iberia on transatlantic routes.

Furthermore, President-elect Obama has stated that he will not permit an increase in foreign ownership of voting rights over the current 25% stake, which is in accordance with labour unions who fear foreign owners will cut jobs.

This threatens the second round of the open skies agreement with the European Union. The second round is expected to begin no later than May 31, 2009.

While the European Union has taken a strong stance against limiting foreign ownership, it is unlikely that the agreement will be rescinded, especially after airlines have invested to acquire slots at Heathrow and modified their routes.

Instead, it may mean that the US concedes on other policy issues, perhaps even granting anti-trust immunity to British Airways, Iberia and American Airlines, but it is unlikely that the EU will re-implement bi-lateral agreements.

The US Travel Industry Association (TIA) worked hard during the presidential campaign to bring issues facing the travel industry to the forefront, with both candidates discussing their positions.

The Travel Promotion Act, which is pending approval from the US Senate, would create a not-for-profit entity, called the Corporation for Travel Promotion.

This corporation would be responsible for the international promotion of the United States as well as distribution of travel information to foreign visitors.

Its budget could range from US$10 million to US$100 million, funded by private donations and a US$10 fee levied on visitors who do not pay the US$131 required for a US visa.

Barack Obama is a co-sponsor of the act and has endorsed overseas destination advertising if it proves to offer a return on investment.

However, the TIA is not entirely optimistic that the Travel Promotion Act will receive the Senate’s approval before the session ends in January 2009 as the Senate focuses on the financial crisis and the economy.

If the Act is not passed during this session, it will have to start afresh in January.

While there may be enough support for the Act under President Obama, the timing is not ideal and resources and attention are likely to be diverted to other issues.

While the Travel Promotion Act may be relegated to the bottom of the list, government investment in transportation infrastructure is likely to remain at the top.

Government spending on projects in this area is seen not only as a way to improve an ageing infrastructure, but also as a means of producing economic growth through job creation and ease of transport.

President-elect Obama has expressed his support to modernise the air traffic control system in the US and to develop high speed rail networks.

He proposed the creation of a National Infrastructure Reinvestment Bank to supplement federal funding of these projects. The bank would receive US$60 billion over ten years to help with transportation projects through financing.

Given the state of the economy, the Democrats will likely look at spending on transportation infrastructure, but it remains to be seen which mode of transport would receive funding first.

The modernisation of the air traffic control system is a cyclical process. High traffic causes delays and complaints and thus creates renewed interest in improving air traffic control. Falling demand for flights and capacity cuts will lead to fewer delays and complaints, so interest in improving the air traffic control system may waver.

Alternatively, Congress is endorsing the development of rail transportation, and that is likely to continue under Obama.

Congress last month approved legislation to fund Amtrak, the nation’s passenger railroad, for the next five years. The legislation also included US$2 billion in grants for states to introduce new services, but the funds still need to be appropriated.

High-speed rail initiatives from the states are gaining traction as California voters approved a US$10 billion bond issue on 4 November 2008 to begin building a high-speed, electric rail network.

The network will connect Anaheim, Los Angeles, Fresno and San Francisco. The project would cost a total of US$45 billion, with the remaining funds coming from private, local, state and federal money. California expects to receive a third of that funding from the federal government. The state estimates that its construction will create 450,000 jobs. With Obama’s election, the federal government is likely to contribute its third.

Other states are expected to follow California’s lead. For example, the Midwest is looking to connect cities through a hub and spoke system with a hub in Chicago.

The Visa Wavier Program (VWP) is expected to continue expanding after including seven new countries (Czech Republic, Hungary, Estonia, Latvia, Lithuania, Slovak Republic and South Korea).

Obama has been a strong supporter of the VWP and, as Chicago has a large Polish community, it is expected that he’ll work closely with the Department of Homeland Security to help Poland make it onto the list. He has also mentioned that countries such as Greece and Brazil should be included in the program.

Obama has received strong support from unions. In particular, he criticised the government’s treatment of air traffic controllers and will work with the Federal Aviation Administration (FAA)to improve morale.

He also expressed support for the Employee Free Choice Act that allows unions to form after a collection of signed pledge forms from a majority of employees, eliminating the ability of an employer to insist on secret ballots.

Employees argue that the secret ballots lead to intimidation by employers while employers argue that open pledges could cause intimidation by other employees.

He would like to see the national minimum wage increase to US$9.50 an hour in the next three years and tie it to inflation.

As the travel industry is labour intensive, companies could see their labour costs rise as President Obama helps to improve the strength of unions and increases the minimum wage.

Despite having the second busiest airport in the world, Chicago ranks tenth in international arrivals to the US, with 1.3 million foreign visitors in 2007.

New York City and Miami, the top two cities for arrivals, received 8.8 million and 5.4 million respectively in 2007.

Many foreign visitors, when touring the US, skip over the Midwest and visit only the East and West coasts.

Obama’s election and his rally in Grant Park have generated invaluable international publicity for the city. It is expected that the number of visitors to Chicago will rise accordingly as foreign visitors visit the adopted hometown of the United States’ first African-American president, and the source of a dramatic shift in US governance and foreign policy.

It also expected to encourage more domestic tourism.

Obama’s election is also expected to place Chicago at the top of the list for the 2016 Summer Olympics. With a direct link to federal funds to improve its transportation, the city is at the epicentre for infrastructure in time for the Games.

In addition to catapulting Chicago into the international scene and possibly giving the city the Olympics, Obama’s presidency will have a long lasting impact on the city.

It is likely that his presidential library will be built in Chicago, giving the city a historic tourist attraction that will draw visitors for generations.

President Obama is expected to continue to embrace international visitors. It is also likely that the US will increase spending on transportation infrastructure to create jobs, boost the economy and make it easier to move people and goods throughout the country.

However, President Obama’s labour policies may not be welcomed by the industry as it will put pressure on costs, nor will he find friends in the airline industry at home or abroad if he restricts consolidation and foreign ownership.

While the US may attract more foreign visitors due to its historic election, the city of Chicago will benefit the most as it steps into the international scene.