IATA (International Air Transport Association)
Last modified: March 11, 2021 | By Anjana Sharma (Admission Counselor)
The IATA (International Air Transport Association) is a trade association of the world’s airlines founded in 1945. IATA has been described as a cartel since, in addition to setting technical standards for airlines, IATA also organized tariff conferences that served as a forum for price-fixing.
IATA was formed in April 1945 in Havana, Cuba. It is the successor to the International Air Traffic Association, which was formed in 1919 at The Hague, Netherlands. It’s founding, IATA consisted of 57 airlines from 31 countries. Much of IATA’s early work was technical and IATA provided input to the newly created International Civil Aviation Organization (ICAO), which was reflected in the annexes of the Chicago Convention, the international treaty that still governs the technical of international air transport today.
The Chicago Convention did not result in a consensus on the economic regulation of the airline industry. According to Warren Koffler, IATA was formed to fill the resulting void and provide international air carriers with a mechanism to fix prices.
In the late 1940s, IATA started holding conferences to fix prices for international air travel. IATA secretary J.G Gazdik stated that the organization aimed to fix prices at reasonable levels, with due regard being paid to the cost of operations, in order to ensure reasonable profits for airlines.
In 1947 at a time when many airlines were government-owned and loss-making, IATA operated as a cartel, charged by the governments with setting a fixed fare structure that avoided price competition. The first Traffic Conference was held in 1947. in Rio de Janeiro and reached a unanimous agreement on some 400 resolutions. IATA Director-General William Hildred recounted that about 200 of the resolutions at the Rio de Janeiro conference were related to establishing a uniform structure for tariffs charged for international air transportation.
The American Civil Aeronautics Board did not intervene to stop IATA’s price-fixing, and in 1954 law professor Louis B. Schwartz condemned the board’s inaction as an “abdication of judicial responsibility”. The Economist lambasted IATA’s connivance with governments to fix prices and compared IATA with medieval guilds.
In the early 1950s, IATA’s price-fixing regime forced airlines to attempt to differentiate themselves through the quality of their passenger experience. IATA responded by imposing strict limits on the quality of airline service. In 1958, IATA issued a formal ruling barring airlines from serving economy passengers sandwiches with “luxurious” ingredients. The economist Walter Adams observed that the limited service competition permitted by IATA tended to merely divert traffic from one air carrier to another without at the same time enlarging the overall air transport market.
From 1956 to 1975, IATA resolutions capped travel agent commissions at 7% of the airline ticket price. The legal scholar Kenneth Elzinga argued that IATA’s commission cap harmed consumers by decreasing the incentive for travel agents to offer improved service to consumers.
In 1982, IATA was described as “the world aviation cartel”. IATA enjoyed immunity from antitrust law in several nations.
In 2006, the United States Department of Justice adopted an order withdrawing the antitrust immunity of IATA tariff conferences.
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