Freedoms of the Air (with Sh*tty Animations)

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The freedoms of the air are a fascinating topic on aviation law that I first came across thanks to this informative video on YouTube. The following is my attempt at explaining the freedoms of the air complete with sh*tty animations created using Powerpoint. Flight paths mapped using Great Circle Mapper.

 

BACKGROUND

The freedoms of the air are a set of aviation rights that govern scheduled international air services. According to the book Foundations of Aviation Law by Michael W. Pearson and Daniel S. Riley, the US urged delegates at the 1944 Chicago Convention to adopt the freedoms of the air but other countries, wary that the dominant US aviation industry would monopolize world air travel if such broad aviation rights were enacted, declined to incorporate these rights into the Convention on International Civil Aviation. Instead, the freedoms of the air were placed in two separate agreements called the International Air Services Transit Agreement and the International Air Transport Agreement

The International Air Services Transit Agreement, also called the Two Freedoms Agreement, provides for the multilateral exchange of rights of overflight and non-traffic stop for scheduled air services among its Contracting States. The International Air Transport Agreement, also known as the Five Freedoms Agreement, establishes five freedoms of the air for scheduled international air services but includes no provisions on fair competition or for the regulation of capacity or fares and rates. 

I go over the nine freedoms of the air in the following examples. The country mentioned is really just another way of meaning an airline registered in that country. For example, Canada would mean an airline registered in the country (Air Canada, Westjet etc.) Australia would represent an airline like Qantas, and so on.

 

First freedom

The first freedom is the right granted by one country to another to overfly its territory without landing. Think of a flight from Canada to Mexico that would have to cross US airspace. The first freedom thereby grants Canada the right to overfly American airspace on route to Mexico without landing in the US. 

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1st Freedom.gif

Second freedom

The second freedom is the right to land in a country for technical reasons, such as refueling or maintenance, but not for commercial reasons. Second-freedom rights are not utilized as much as they used to be. Prior to the advent of long-range jetliners, airports such as Anchorage, Alaska, Shannon, Ireland and Reykjavik, Iceland were commonly used as refueling airports.  

Consider a flight from Canada to Germany that stops in Shannon for refueling. The second freedom would grant Canada the right to stop in Ireland on its way to Germany. 

Freedom 2.gif
2nd freedom.gif

Third freedom

The third freedom of the air is the right for one country to land for the purposes of disembarking passengers who boarded in the originating country. Put another way, this covers the majority of international commercial aviation. Australia granting Canada the third freedom would allow for passengers to board a flight from Canada bound for Australia. 

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3rd freedom.gif

FOURTH FREEDOM

The fourth freedom is the flip-side of the third freedom, allowing an airline from one country to land in another for the purposes of enplaning passengers to return to the airline's country of origin. The same flight we looked at under the third freedom would be allowed to pick up passengers in Australia and fly them to Canada. 

To be clear, Air Canada flying passengers from Canada to Australia is covered by Australia granting Canada the third freedom. That same Air Canada flight flying passengers from Australia to Canada is covered by Australia granting Canada the fourth freedom.

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FIFTH FREEDOM

From here on out is where things get a little tricky. The fifth freedom allows one country to land in a second country, pick up new passengers in the second country, and take them to a third country. 

For example, Singapore Airlines flight 26 from Singapore to New York-JFK has a stop in Frankfurt. Singapore Airlines has the right to transport passengers solely between Frankfurt and New York-JFK, meaning passengers can book the Frankfurt-JFK sector only without continuing to Singapore. A great compilation of fifth freedom flights can be found here.

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5th freedom.gif

SIXTH FREEDOM

The sixth freedom is the right to carry passengers from one country to another, with a stop in the airline’s home country. A great example is Icelandair carrying passengers between North America and Europe through its Keflavik hub in Iceland. The ME3 carriers (Emirates, Etihad and Qatar) also operate sixth freedom flights by routing passengers through their hubs at Dubai, Abu Dhabi and Doha. 

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6th freedom.gif

SEVENTH FREEDOM

The seventh freedom of the air is similar to the sixth, except that there is
no stop in the airline's home country; in other words, an airline of country A could pick up passengers in country B and disembark them in country C.

I couldn't find examples of this freedom outside the EU's single aviation market. A seventh freedom flight would be Ryanair, which is an Irish carrier, operating a flight from Cologne, Germany to Barcelona, Spain.

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7th freedom.gif

EIGHTH FREEDOM

The eighth and ninth freedoms of the air protect the right of cabotage and are less commonly accepted than the sixth and seventh freedoms. Cabotage is the carriage of goods or passengers within a single country by an airline of a foreign country. The eighth freedom of the air guarantees the right of an airline from country A to stop at two locations in country B before returning to country A.

A hypothetical example would be a Qantas flight that flies between Melbourne, Vancouver and Toronto. The eighth freedom would allow Qantas to pick up passengers in Vancouver on their way to Toronto. 

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8th freedom.gif

NINTH FREEDOM

Finally, the ninth freedom, also known as stand alone cabotage, guarantees the right of an airline to conduct domestic operations within a foreign country without connecting to the country of origin. For example, Ryanair operates flights between Seville and Barcelona in Spain while being an airline registered in Ireland. 

Freedom 9.gif
9th freedom.gif

 

FINAL THOUGHTS

The freedoms of the air and the accompanying transport agreements provide some great perspective on the regulations that dictate the routes airlines are allowed to fly. They make sense, given that governments try to protect their aviation sector. Agreements on capacity and frequency are covered under individual air transport agreements between countries. For example, the agreement between Canada and the UAE can be found on the Canadian Transport Agency's (CTA) website here. The agreement allows for each country to operate six weekly flights regardless of aircraft size. Both Emirates and Etihad each operate 3 weekly flights to Toronto while Air Canada operates a thrice-weekly flight between Toronto and Dubai. 

It's interesting to learn about the rules that go behind determining who can operate certain routes and I have a better understanding of the politics of aviation thanks to the freedoms of the air. 

The Case for Vacation Fund

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I first came across Vacation Fund via a TravelTechTO event back in May which, unfortunately, I could not attend; however, I did watch the company's pitch on YouTube. More recently, I was able to participate in an online Canadian Demo Day hosted by The Founder Institute that included Erica Pearson, Co-founder & CEO of Vacation Fund.

I've been following Vacation Fund ever since that first TravelTechTO event. The idea behind the company is extremely appealing to me and I wanted to take a deeper look into Vacation Fund and the following highlights why I believe it makes sense in today's workplace. 

 

THE IDEA

I like to think of Vacation Fund as a kind of RRSP for vacations. More specifically, it is an employee benefit that allows employees to direct a portion of their paycheque towards a separate account (the vacation fund) with employers matching a portion. Specifics around how much the employer matches, how long employees need to be with the company and whether the saved amount can be carried forward depends on individual employers. Erica mentioned most employers match up to $500 for employees that have been with the company at least 6-months-to-a-year and with no carry-forward, thereby ensuring employees are incentivized to take a yearly vacation. 

The idea for the company came to Erica while working in Capital Markets in downtown Toronto. While the pay was great and Erica could see a clear path to career growth, the job came with long hours, weekends and always being on-call with the added expectation of being reachable during vacations. It's unclear to me whether Erica quit her job to start Vacation Fund or because the job took its toll but regardless, Erica saw a way to help employees take a break from their busy work lives by helping them save for a vacation. The initial idea was a B2C play, but feedback from company CEOs that Erica pitched to suggested a B2B made more sense as employers wanted to offer this benefit to their employees. Vacation Fund launched its website in December of 2017 and has already secured an impressive pipeline of interested employers. The following are slides from Erica's pitch. 

THE CUSTOMERS

Vacation Fund currently has 5 companies signed onto its pilot program, 13 with which it's having ongoing discussions and a further 46 on the wait list. The table below outlines the companies at their respective stages along with number of employees. Employee size was determined using either Angel.co, LinkedIn or the company's website. While 46 companies are on the wait list, Vacation Fund's slides only outlined 15 out of the 46 companies.

Also included is a pie chart showing the breakdown of the interested companies by employee size. A majority (approximately 81%) of the interested companies fall in the under 200 employee count. Of course, companies like MNP, BDC and Indigo that might make up a smaller percentage of Vacation Fund's customer list will inevitably account for a larger share of revenue simply because of their employee counts. 

THE NEED

The need for Vacation Fund and the value it brings employers and employees can be summarized below. Vacation Fund helps:  

1. Increase employee satisfaction and productivity (by helping reduce employee burnout)
2. Clarify company messaging around vacations (by encouraging employees to take vacations)
3. Retain talent (by offering a benefit that is attractive to the modern workforce)
4. Give employees the gift of travel (by automating savings with employer contributions)
 

1. Increase employee satisfaction and productivity - The rationale here is that job stressors contribute to physical, psychological and behavioural strains, which in turn affect employee satisfaction. Unsatisfied employees are unhappy and therefore unproductive employees. A respite from workplace stressors (in the form of a vacation) should contribute to a reduction in the aforementioned strains, thereby leading to an increase in employee satisfaction and productivity. Straightforward, sure, but Vacation Fund cites its program as a research-backed benefit, so I decided to look at existing research on the effect between vacations and employee burnout.

I came across a study by Mina Westman and Dalia Etzion titled "The Impact of Vacation and Job Stress on Burnout and Absenteeism" published back in 2001. The research's main focus was on the effect that vacations have on burnout and absenteeism, the hypothesis being that "an organizational vacation, which affords employees the opportunity of distancing themselves from the job’s stressors, ought to bring relief, at least temporarily, from chronic job stress and, consequently, from psychological and behavioral strain." 

The study focused on 87 employees in a food company in Israel during the 10-day Passover vacation shutdown. The employees completed stress and burnout questionnaires on 3 separate occasions - 10 days before the vacation, 3 days after the vacation and 4 weeks after the vacation.  Absenteeism was measured objectively by accessing the organization's database and a distinction was made between absenteeism for health reasons and absenteeism for other reasons. 

The results are shown below. Plotted values are the mean recordings across the 3 occasions. We clearly see a drop in job stress, burnout and absenteeism (with the exception of absenteeism associated with health reasons) for the Postvacation 1 period which is defined as the 3 days after returning from vacation. 

Source : Etzion, D. and Westman, M. 2001. The impact of vacation and job stress on burnout and absenteeism.  Psychology and Healt  h , Vol.0, pp. 95-106

Source: Etzion, D. and Westman, M. 2001. The impact of vacation and job stress on burnout and absenteeism. Psychology and Health, Vol.0, pp. 95-106

The study concluded that:

  • Vacations alleviated perceived job stress and burnout as predicted, replicating findings that a respite from work diminishes levels of strain to lower than chronic, on-the-job levels, and 
  • Vacations contributed to a decline in burnout immediately after and a return to prevacation levels four weeks later, and a similar pattern with regard to absenteeism.

The benefits of taking a vacation in reducing stress and burnout are indeed backed by research.

 

2. Clarify company messaging around vacations - Speaking from personal experience, a barrier to taking vacations is the misconception that employees who take time off are not as dedicated to their work. Indeed, Project:Time Off's State of American Vacation 2018 found that "while Americans are increasingly realizing the value of vacation time, challenges remain particularly when it comes to workplace optics." A total of 52% of employees in America reported having unused vacation days at the end of the year. Of those with unused vacation days, 61% cited the fear of appearing less dedicated or even replaceable as a barrier to taking vacations. Employers with a dedicated benefit program that funds employee vacations will clear any misconceptions around vacation policy. 

Source : Project:Time Off,  State of American Vacation 2018

Source: Project:Time Off, State of American Vacation 2018

3. Retain talent - The premise here is that Millennials make up a larger portion of both the existing and available workforce. If travel and work-life balance are things Millennials value, it follows that a benefit like Vacation Fund will help employers attract and retain Millennial talent. 

The Pew Research Center found that Millennials are already the largest generation in the US labour force, overtaking Gen Xers in 2016. As of 2017, Millennials made up 35% of the workforce compared to Gen Xers at 33% and Boomers at 25%. 

Millennials became the largest generation in the labor force in 2016

On travel, a survey of 1,000 Millennials by Airbnb found that travel is deeply important to Millennials, more so than purchasing a home, paying off debt or purchasing a car. Millennials also feel that travel is core to their identity with 70% saying that "travel is an important part of who I am as a person," and over 65% saying that "regular travel is an important part of my life." 

In looking at what it takes to attract and retain Millennial professionals, Robert Walters, a recruitment agency, conducted a survey of 302 hiring managers and 228 working professionals. The study found that while Millennials place the lowest importance on improved work-life balance when considering a new job compared to other generations, it is not to say that Millennials do not value work-life balance. Indeed, 90% of the surveyed regard policies that encourage a good work-life balance as one of the best things about their jobs. The study concluded that while a good work-life balance is important to ensure job satisfaction among Millennials once they are employed, it is not an effective strategy to recruit them. 

Millennials prioritize travel, value work-life balance and already make up the largest workforce compared to other generations. An employee benefit like Vacation Fund directly aligns with what Millennials value.

 

4. Give employees the gift of travel - Much has been written about the financial state of Millennials. A 2017 GoBankingRates survey found 46% of Millennials had $0 in their savings account. Another survey of Millennials by Abacus Data found 40% who thought their generation is mostly or much worse off compared to their parents, 30% who said they didn't have any savings and 22% who had less than $5,000. Going back to the Project:Time Off study, 56% stated a lack of coverage at work as a hindrance to taking a vacation with another 53% citing the cost of travel as a barrier. 

I've read a lot of books on personal financial management and one of the most important lessons is the concept of paying yourself first which means directing a portion of your paycheque towards savings. The key is to automate this process so you're forced to live off what's leftover. RRSPs work this way where contributions are automatically deducted from your paycheque. Vacation Fund, too, automates the saving process with the added benefit of matched employer contributions, helping employees save towards their vacation goals. 

 

THE COMPETITION

In her pitch, Erica mentioned a couple of direct competitors that have popped up recently, one in Toronto and another in Orlando. No names were mentioned and a Google search turned up empty, however, I did come across Adestinn and 401(play). The former is based in Minneapolis and the latter in Tucson. 

 

Adestinn

Founded in 2009, Adestinn is a wellness program that guarantees employees a 50% matched credit through its Vacation Savings Match Program. The credits can only be spent at Adestinn's partner hotels and resorts which include Hilton, Hyatt, DoubleTree etc. Employees can contribute a maximum of $400 a week with employers paying "as little as $1 per employee per month." I'm curious to know how Adestinn can offer to boost employee contributions by 50% while charging employers so little. My guess is that the company has cut a deal with its hotel and resort partners, even though its website states it does not charge hotels any commissions. Adestinn has also partnered with insurance companies and benefits brokers, so it could be that the employer, hotel and insurance company are all in part contributing to the 50% additional credit. 

The limitations with this program are that the accumulated credits can only be applied towards a limited number of hotel or resort (no plane tickets, for example). Destinations are also limited based on Adestinn's hotel partners (see map below). Finally, should employees want to withdraw their saved funds, any matched credits are non-refundable. 

Figure 4 : List of Available Destinations - Adestinn

Figure 4: List of Available Destinations - Adestinn

401(Play)

401(Play) was founded in 2013 as a program to encourage employees to save for their vacations by setting aside a portion of their paycheque. While I love the name, I fail to see the value this provides to either employer or employee; there is no employee matching - from what I can tell - so this seems like nothing more than a simple savings account with the only benefit being the ability to make automated payroll deductions.  

The following table highlights the differences between the 3 providers. I wouldn't classify either Adestinn or 401(Play) as direct competitors, although they both offer services claiming to help manage employee stress, burnout etc.  

Figure 5 : Table comparing the 3 Providers

Figure 5: Table comparing the 3 Providers

THE WAY AHEAD AND FINAL THOUGHTS

Vacation Fund aims to grow its users by the numbers shown in the figure below, fulfilling 1 million travel dreams by 2021 in the process. The company expects to expand to the US this year and be cash flow positive within 24 months. It also expects to grow its current team from 4 to between 8 and 12. Side note - If someone from Vacation Fund is reading this, I know a great guy who will be graduating right around the time you'll need to expand the team.

Figure 6 : Vacation Fund's Goals

Figure 6: Vacation Fund's Goals

Vacation Fund is an innovative benefit that helps increase employee satisfaction and productivity, clarify company messaging around vacations, retain talent and give employees the gift of travel. It will be interesting to see how successful the company can be in differentiating itself from other wellness programs. My previous employer, through our benefits provider, allowed employees a set amount of funds to spend on a predetermined list of wellness programs (golf clubs, yoga classes, gym memberships etc.) How much value a dedicated vacation fund brings to justify a separate program remains to be seen, but I believe there's a case. Erica also mentioned interest from travel companies on targeted, unpublished offers through Vacation Fund's platform, so I'm curious to see how the company monetizes all the data it collects as it onboards more users. Regardless, the company has an exciting future and I wish it all the best. 

North American Airports Ranked by 2018 World Cup Destinations Served

Denver International Airport recently tweeted the following, which I thought was brilliant marketing. The tweet capitalizes on the 2018 FIFA World Cup by asking followers to guess how many countries the airport serves via nonstop flights. It is topical, interactive and effectively highlights the international destinations served by the airport and got me thinking about how the largest airports in Canada and the US fare when it comes to World Cup destinations. 

NOTES

  • I only selected the top 10 airports in the US and the top 8 airports in Canada based on annual passenger traffic. Data sourced from ACI's statistics for 2016
  • In determining whether the airport serves a destination via nonstop flights, I simply looked at their respective websites. The Canadian airports do a good job at this; the US airports not so much. Rather than looking up individual routes, I relied on the airport's Wikipedia page
  • Seasonal flights were included. For example, Air Canada's flight from Calgary to Tokyo-Narita is seasonal, but I have included it as a destination served by Calgary. 
  • Flights that currently operate but will be terminated soon were included. For example, Norwegian's flight to Las Vegas McCarran airport from Stockholm will be terminated later this year but I have still counted it as a destination served by LAS
  • There is a distinction between nonstop and direct flights. Nonstop means the aircraft will not make a stop between 2 points, whereas direct means the aircraft may make a stop between the 2 destinations. For example, Qantas' flight between NYC and Brisbane, Australia stops in Los Angeles. For the purposes of this exercise, however, I have treated nonstop and direct as the same
  • The ranking does not take into account capacity, frequency or number of cities served within a country and is based on a simple yes/no. For example, YVR serving 3 cities in Australia is treated the same as SFO serving 2 cities

 

RESULTS

Table 1 shows the ranking of airports by destinations served, whereas Table 2 is the flip side showing World Cup participating countries and number of airports serving them via nonstop flights. The tables and figures are interactive and allow you to sort the data by # of destinations, %, annual traffic etc. Things to note on the results:

  • JFK holds the top spot serving 27 out of the 32 countries participating in the 2018 World Cup
  • Despite being ranked #9 by annual traffic, YYZ is #2 by World Cup destinations. This means that either, 1) Toronto is an excellent hub for international traffic, or 2) the US airports rely heavily on domestic traffic to boost their annual numbers, or a combination of (1) and (2). Of course this assumes the World Cup participating countries are a good representation of, well, the World. Indeed, data from ACI shows that Toronto is the 2nd ranked airport in North America by international passenger traffic, second only to JFK
  • Montreal outranks Vancouver (5 vs 9) despite carrying almost 6 million fewer passengers. Vancouver is also outranked by Los Angeles and San Francisco despite all cities serving as gateways to the pacific
  • The world's busiest airport, Atlanta, drops to 6 serving less than half the countries via nonstop flights
  • Mexico is served by 100% of the airports in my list. This makes sense given its proximity to Canada and the US and it being a popular sun destination. England, too, is served by all airports thanks to massive hubs at Heathrow/Gatwick
  • Much has been made of Iceland's first appearance in the World Cup with its tiny population, but it is also served by 67% of the airports thanks to both Icelandair and WOW Air routing transatlantic traffic through Keflavik
  • 2 countries - Iran & Nigeria - are not served by any airport. North American traffic to these destinations is routed through European hubs 
  • There are 5 countries served by a single airport - Serbia (JFK), Croatia (YYZ), Tunisia (YUL), Uruguay (MIA) & Senegal (JFK) 

The sheet below shows all airports. Destinations that are served by a nonstop flight are indicated by an "x". 

I undertook this to see how many top airports serve the 32 World Cup countries with nonstop flights. I realize the limitation in my approach by not accounting for capacity or frequency, but this was merely a fun exercise in determining how "international" airports are. I was surprised (and proud) to see Toronto hold the second spot after JFK. It was also interesting to note the disparity between annual traffic and international traffic.