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Liberalisation of Air Transport - A European Perspective

Mr. Klaus GeilAir Transport Directorate

Directorate-General for Mobility and TransportEuropean Commission

Institution for Transport Policy Studies – Lecture MeetingTokyo – 3 June 2010

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Presentation Outline

The Single EU Aviation MarketEU Aviation Policy ChallengesA Few Key EU Aviation Policy AreasEU External Aviation Policy –Liberalising Beyond EuropeBenefits of Open Aviation MarketsEU Relations with Asia and the Significance of Japan

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The Single EU Aviation Market

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The EU Today

• 27 Member States• 500 Million Inhabitants • One Single Market

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The EU Single Market

The territory of the 27 Member States represents one Single Market (in fact larger: Norway, Switzerland, Iceland)

Freedom of establishment & provision of servicesFreedom of movement of goods, capital etc.No barriers to trade (technical harmonisation of standards)Firms have unrestricted access to 500 million consumers

EU law has primacy over national law

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Before 1987: national markets within the EU were protected and fragmented through restrictive bilateral air service agreements between EU Member States

1987-1992: Three packages of market integration and liberalisation

After 1992: One Single market without restrictions on market access and pricing

Common EU rules in all areas of aviation

The world’s largest and most successful example of regional market integration and liberalisation in air transport.

From 27 National Air Transport Markets to 1 Single European Aviation Market

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From National Air Transport Markets to a Single EU Market

Results:

Non-discriminatory air carrier licensing across Europe (from national to EU carriers with equal rights and obligations)Market access: no capacity restrictionsFull cabotage since 1997Free air fare settingAny EU carrier can now operate on any route within the EUComprehensive body of EU legislation in relation to all key aspects of aviation

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Single Market – Common EU RulesBut open markets need coherent regulatoryframework and common, non-discriminatory andtransparent standards …

Common requirements for licensing Strict application of competition and state aid rules (EU Treaty)High safety standards (and creation of EASA)High security standardsConsumer protection – Passenger RightsCommon, non-discriminatory rules for allocation of slotsHigh standards on noise emissionsSingle European Sky and its SESAR project“Public service obligations” possible for routes to peripheral or development regions or “thin” routes when “vital” for the region.

Work still in progress!

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What Have We Achieved?Successes of the Single Market

…more competition…

Intra-EU routes with more than 2 carriers have increased by 310% between 1992 and 2009

…and…

Number of Intra-EU27 routes with more than 2 carriers

0

50

100

150

200

250

300

350

400

450

500

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: OAG summer schedules

Rou

tes

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What Have We Achieved?Successes of the Single Market

…new entrants…Emergence of market for low-cost air services(now over 1/3 of the Intra-EU market. Japan: 9% in 2009)

…and…

Supply by carrier type within EU27

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1

2

3

4

5

6

7

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: OAG w inter schedules

Wee

kly

seat

s av

aila

ble

(mill

ions

)

IncumbentOthersLow cost

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What Have We Achieved?Successes of the Single Market

…more choice …Number of Cross-border Intra-EU routes has increased by 220% (1992-2009).

Number of international Intra-EU27 routes

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500

1.000

1.500

2.000

2.500

3.000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: OAG summer schedules

Nbr o

f rou

tes

(city

to c

ity)

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EU Aviation Policy Challenges

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Unprecedented Challenges

1. Global economic downturn2. Volatile fuel prices3. Increasing environmental pressure4. Security measures5. Increasing costs from congestion – on land and

in the air6. Most recently: volcanic ash

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Key Objective Driving EU Policy: “Ensuring Sustainability of the Sector’s Growth”Means:

1. Continue to lead towards highest safety and security standards – a pre-condition for growth

2. Competitiveness of the industry Cost reductions, efficiency and consolidationNo bail-out – but accelerating structural reformRemoval of out-dated ownership and control restrictions

3. Tackling the capacity crunchAvoid/reduce bottlenecks on the ground and in the air

4. Ensure environmental sustainabilityComprehensive approach

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No bail-out. Strict application of competition and state aid rulesIncreased vigilance with safety oversight and financial viability Rationalisation and ConsolidationTemporary flexibility (e.g. freeze of “use-it-or-lose-it” rule for slots)Acceleration of the Single European SkyCharges and taxes under scrutinyExternal policy to ensure fair competition and equal opportunities (level playing field)

The Economic Crisis and Aviation- The EU Responses:

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Medium/Long-Term Challenge: Tackling the Capacity Crunch

Despite the current downturn, traffic is expected to double by 2020. 2025 could see up to 2.5 times the 2003 traffic.In 2025, over 60 airports could be heavily congested and the top 20 airports could be constrained 8-10 hours per day.Only 25% of airports would have a possibility to add new runways in the next 20 years.The Capacity Crunch poses a threat to safety, efficiency and competitiveness of the entire air transport supply chain.

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Capacity Crunch and Airport Policy

2007 Communication on Airport Policy and the Action plan :

Optimising the use of existing capacity;Improving the planning framework for new airport infrastructurePromoting co-modalityDevelopment and implementation of new technologyConsistent approach to safety at airportsCreation of an Airport Observatory (2008)

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Airport Observatory

Made up of Members States and relevant authorities and stakeholders (Airports; Airlines; Local authorities; Environmental protection associations; Eurocontrol; SESAR;…)

To exchange and monitor data and information on airport capacity as a whole, and advise the Commission on the implementation of the “action plan for airport capacity, efficiency and safety in Europe”, as well as on any matter relating to airport policy

3 Working Groups:WG1: Capacity (inventory, capacity assessment methodology…)WG2: “Gate-to-Gate” (slot allocation process and SES2)WG3: Inter-modality

Chaired by the Commission, and set up for a period of five years ending on 31 October 2013

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Allocation of Slots

Slots never negotiated between states as part of bilateral negotiations on traffic rightsAllocation of slots is made on the basis of neutral, transparent and non-discriminatory rules by an independent slot coordinatorCapacity situation at airports should be subject to analysis and consultation in particular with the airport usersAllocated slots have to be used for at least 80 % (“80-20 rule”); unused slots return to the “pool”Slots in the pool shall first be allocated to new entrantsAllocation twice a year: summer season + winter seasonSecondary trading possible

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A Few Key EU Aviation Policy Areas-ATM – Single European Sky-Aviation and Environment

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Market Integration – Also in the Sky: Towards a Single European Sky

Modernising the operation of the European air spaceReduce fragmentation (from 60 control areas to 9 Functional Airspace Blocks), congestion and wasteOn average, aircraft fly 49 km longer than strictly necessary due to airspace fragmentation.ATM and airport operations all together could reduce emissions by 10% of the average flightAmbitious new generation of technology (SESAR)Performance regulation (criteria: safety, quality of service, cost-effectiveness and environment)Towards a European ”network manager” for air space

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Air transport accounts for around 2-3% of global GHG emissions and is growingAviation must make fair contribution to fight against climate changeThe EU adopts a comprehensive approach:

New standards (e.g. new aircraft CO2 standard in ICAO)Research and development of green aircraft technology (e.g. Clean Sky, sustainable alternative fuels)ATM modernisation (Single European Sky, SESAR)Market-based measures, i.e. inclusion of aviation in the EU Emissions Trading Scheme (ETS) from 2012

Emissions tradingThe most cost-effective market-based instrument, compared to taxes or chargesAllows aviation to grow through trading with other sectors

Ensuring Sustainability of Aviation

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EU ETS contains flexibility mechanisms:Scheme may be adapted if:

3rd country takes equivalent measuresAgreement reached on global measures

But climate change is a global problem and needs a global solution – and international aviation needs a global sectoral approachEU participating actively in ICAO to seek global agreement

DGCIG – Directors General Informal Climate GroupICAO Assembly 2010 is a key opportunity

Ready to work with Japan to find solution

Towards a Global Framework for Aviation and Climate Change

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EU External Aviation Policy –Liberalising Beyond Europe

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I. Bringing existing bilateral agreements into line with Community law

II. The creation of a “Common Aviation Area”with neighbouring countries

Parallel process of market opening and adoption of EU legislation (“acquis”)

III. Conclusion of ambitious global agreements with key partners (US, Canada, Australia, New Zealand, India, China, Russia, Brazil…….Japan?).

Going Beyond Europe: The Three Pillars of the External Dimension

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Pillar I: Progress on the EC designation

104 non-EU states have accepted Community designation

Nearly 900 Bilateral ASAs (around half) have been brought into conformity with Community law (representing 70% of extra-EU traffic)

43 “Horizontal” Agreements covering 725 ASAs (since September 2004)

Negotiations/talks on-going with remaining countries.

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Pillar II: A Wider Common Aviation Area

58 States – Approx. 1 Billion inhabitants

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With key and like-minded partnersAim: to “normalise” aviation by combination of:

Market openingRemoval of investment barriers (airline ownership)Regulatory convergence

EU-US Agreement (1st and 2nd stages)First stage agreement has been in effect since 30 March 2008Second stage agreement initialled on 25 March 2010 following eight rounds of negotiations which started in May 2008.

EU-Canada Agreement Phasing in of full Open Aviation Area (OAA)All market aspects coveredInvestment & regulatory convergence key

Australia and New Zealand (Negotiations started in November 2008)Next: Brazil (Negotiating mandate requested 5 May 2010)

Pillar III: Comprehensive Agreements

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What Are “Open Skies”?

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Conclusions: EU External Aviation Policy

EU external aviation dimension has evolved from the internal EU marketExtension of the single aviation market and EU “acquis” in aviationThe EU as such increasingly recognisedConsiderable benefits from EU external aviation policy – for the EU and its partners!External policy still evolvingRegional integration and liberalisation may offer benefits also in other world regions including Asia.

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Benefits of Open Aviation Markets

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An Example of Liberalising Beyond Europe: EU-Morocco.

The EU-Morocco agreement has clearly demonstrated the benefits of open markets.

Growth of passenger traffic between EU and Morocco/Tunis

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1.000.000

2.000.000

3.000.000

4.000.000

5.000.000

6.000.000

7.000.000

8.000.000

9.000.000

10.000.000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: Eurostat

MoroccoTunis

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EU-US First Stage: Big Competitive BenefitsA transformative agreement for Europe and the USEarly results:

8% more EU-US flights scheduled in summer 2008 than 2007.>20% more Heathrow-US flights. An increase of 18 daily services. Further large increases in services from Ireland (doubling) and Spain.

European airlines operating from outside their home country: AF: Heathrow to Los Angeles.BA’s “OpenSkies”: Paris (CDG) and Amsterdam to New York.

Anti-trust applications: Sky-Team Alliance: approved. Star Alliance: approvedOneworld Alliance: under consideration

Additional transatlantic investment: Virgin Group’s 25% investment in Virgin America, May 2007.Lufthansa’s 19% stake in JetBlue, February 2008.

Forecast:First five years: 25 million extra pax; €12 billion benefit; and an extra 80,000 jobs in the US and EU (Source: Booz-Allen-Hamilton Study).

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o 'The Parties commit to the goal of continuing to remove market access barriers…including enhancing the access of their airlines to global capital markets.'

o Annual review of progress towards legislative change on investment and in the area of European noise restrictions,

o Senior level consultations and possible sanctionsif no progress is made by a party.

o Community carrier principle

o Limited 3rd country carrier investment opportunities (mainly Africa) for EU

Investment

o Additional cargo and passenger 7ths, and 3rd

country carrier investment opportunities to incentivise legislative change.

o Immediate access to Fly America (contractor traffic) for EU.

o No limits on direct and connecting flights (1st-5th freedoms)

o Cargo and limited passenger 7ths for EU

Commercialfreedoms

o Deepened cooperation, particularly on the environment, the social dimension, security, and competition

o Reciprocal clarity on information exchange regarding noise restrictions

o Enhanced role for the Joint Committee

o Comprehensive coverage of regulatory issues

o Commitment to 2nd

stage talks

Regulatorycooperation

Second stageFirst stage

EU-US Second Stage: a Future-Looking Agreement that Secures the Benefits of Stage One

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EU Relations with Asia and the Significance of Japan

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EU-Asia Aviation RelationsEU-Asia markets growing rapidly (except Japan)Asian countries recognise EU law and EU designation in aviationInterest in going furtherSiberian overflight restrictions and payments artificially hamper EU-Asia market development

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1.000.000

2.000.000

3.000.000

4.000.000

5.000.000

6.000.000

1999

2000

2001

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2003

2004

2005

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2007

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South-KoreaJapanChina

Passenger Traffic Between EU and Asia

1999-2008:Japan: +7%Korea: +147%China: +278%

Forecast 2008-2013 (IATA):Japan: +2.6% p.a.Korea: +3.6% p.a.China: +7.4% p.a.

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EU-Japan Aviation RelationsJapan a key market for the EUJapan has traditionally been very restrictive (counting capacity in “units” not frequencies)Japan now recognises the EU and EU designation – significant for our relationsSummit leaders at the 18th EU-Japan Summit (4 May 2009) welcomed this progress and expressed their intention to expand and deepen cooperation in all areas of aviation including safety, security and ATMJapan developing its aviation policyTowards a Horizontal Agreement?More comprehensive cooperation/agreement should be the ambition for Japan and EU.

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Japan’s Evolving Aviation PolicyAsian Gateway Initiative – May 2007Growth Strategy Panel Report – May 2010:

Open Japan’s sky to the world and Asia (promotion of full open sky)Strengthening Tokyo’s airports

Increase capacityOpen Haneda for day time flights for long-distance Asian, EU and US

Drastic reforms of management of airportsStrengthening of Kansai International AirportMaintain essential air transport networkPromoting entry of LCCs to the benefit of consumers

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Conclusion: The EU Approach in a Nutshell

Market integration: from national to single EU marketMarket liberalisation: Gradual but completeHigh standards: a sine qua non for growthCommon rules: level playing field, simplicity/clarityPooling resources: European institutions (EASA) and ambitious EU projects (SESAR)Share successes and benefits with neighbours and key partnersAviation is international/global by its very natureStates and World regions share the same key challenges in aviation (so do Japan and the EU)International cooperation will help us meet the challenges.

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Thank you for your attention!どうもありがとう。 Dōmo arigatō!

Klaus.Geil@ec.europa.euhttp://ec.europa.eu/transport/air_portal/international/index_en.htm