Explainer: cabotage and why foreign airlines don’t fly domestic

Foreign airlines are currently not permitted to fly domestic routes in Australia. Bas Bogers/Flickr, CC BY-NC

Later this month federal Cabinet will consider whether to allow foreign air carriers to fly domestic Australian routes in Northern Australia. The right for foreign carriers to operate domestically is known as “cabotage”, and it is one of nine “freedoms of the air”.

It is also a right, or a freedom, that is rarely granted or exchanged between countries. Australia already leads the world in terms of liberalisation of its domestic aviation market, so why would it propose to get even further ahead of almost every other country?

The Australian cabotage proposal

The proposal that will reportedly be taken to Cabinet would allow foreign airlines to carry domestic passengers between Australian airports in northern Australia above the Tropic of Capricorn. For example, this could mean foreign airlines carrying passengers from Darwin to Townsville or from Broome to Cairns.

The rationale for the argument appears to be an expected boost to tourism.

It’s a peculiar argument to make. Cabotage rights (as with other air traffic rights or freedoms) are traded on a reciprocal basis, and even then they are traded very rarely.

It appears from various media reports that the domestic Australian cabotage proposal is a unilateral one, and that no international carrier has raised it, though the Harper review did recommend cargo and passenger cabotage on poorly served routes and for certain areas.

Neither Virgin Australia or Qantas, needless to say, support such a proposal, arguing it would have damaging consequences for them.

Qantas has also said:

“This would be the thin edge of a very large wedge, with overseas carriers willing to render point-to-point domestic routes unprofitable in order to increase their traffic in-and-out of Australia.”

Air services agreements

Countries have exclusive sovereignty over the airspace above their territory. As set out in the 1944 Chicago Convention on international civil aviation, states grant “special permission” or authorisation to other states to operate scheduled international air services. These permissions are granted in bilateral air services agreements (ASAs). Countries then exchange treaty rights bilaterally with one another that allow airlines to fly internationally.

Without such exchange of treaty rights, airspace would be “closed for the operation of international scheduled air services”.

There are over 3,000 bilateral ASAs in place that regulate international aviation. They include provisions dealing with routes (or traffic rights), capacity (the number of flights and the number of passengers), airline ownership and control provisions, and prices or tariffs. The Australian Government has negotiated 90 bilateral air services agreements and associated arrangements.

There are also a small number of multilateral ASAs concluded between groups of countries. The Multilateral Agreement on the Liberalization of International Air Transportation (MALIAT), for example, which entered into force in 2001, has nine parties including New Zealand, Singapore and the United States (Australia is not a party).

Freedoms of the air – and cabotage

Within the nine “freedoms of the air” variously exchanged in ASAs, the third freedom provides for the right to carry passengers from the airline’s home country to another country. The fourth freedom provides for the right to carry passengers from another country back to the airline’s home country. The fifth – and very important – freedom sets out the right to carry passengers from a destination in a foreign country to a destination in another foreign country, such carriage related to third and fourth freedom traffic.

In terms of cabotage, the eighth freedom of the air is the right to carry passengers from one point in the territory of a foreign country to another point in the same country as part of a flight which originated (or terminated) in the airline’s home country (also known as consecutive cabotage). The ninth freedom is the right to originate a flight in a foreign country and carry passengers to another point in that foreign country (stand-alone cabotage).

The Chicago Convention, however, provides that a state:

“shall have the right to refuse permission to the aircraft of other contracting States to take on in its territory passengers … destined for another point within its territory. Each contracting State undertakes not to enter into any arrangements which specifically grant any such privilege on an exclusive basis to any other State or an airline of any other State, and not to obtain any such exclusive privilege from any other State.”

Australia is a party to the Convention.

Given it seems foreign carriers are not arguing for domestic Australian cabotage rights, the current debate is even more peculiar.