Report of the Select Committee on Air Route Licensing

REPORT OF THE SELECT COMMITTEE ON

AIR ROUTE LICENSING

REPORT OF THE SELECT COMMITTEE ON AIR ROUTE LICENSING

To the Honourable James Anthony Brown SHK, Speaker of the House of Keys, and the Honourable Members of the Keys.

PART 1. INTRODUCTION

1. BACKGROUND

At the sitting of the House of Keys on 12th March 2002, it was resolved that - That a Select Committee of three Members be established to investigate the feasibility and merit of the Isle of Man Government operating a route licensing system for passenger carrying aircraft using Ronaldsway Airport and to report not later than 25th June 2002.

After a ballot Mr Earnshaw, Mr Shimmin and Mr Singer were elected.

At the first meeting Mr Singer was elected Chairman.

The Committee has held eight meetings.

PART 2 STRATEGY

2.1 The Committee has interpreted the Resolution of the House of Keys to mean that it should enquire into the feasibility of establishing a Manx Air Transport Licensing Authority(ATLA) (broadly similar to those operating in Guernsey and Jersey) to grant licences (or permits) to airlines who wish to fly passenger (scheduled and charter) services to or from the Isle of Man.

2.2 The Committee resolved to investigate the feasibility of establishing a route licensing system in the following ways -

(a) Construct a list of possible merits and demerits for establishing a Manx ATLA.

(b) Prepare a thorough background paper on the current air transport licensing system and scheduled and charter air services within the United Kingdom, Isle of Man and Channel Islands.

(d) Seek the views of the air transport industry, including airlines serving Ronaldsway Airport, the Ronaldsway Airport Director, travel agents and travel companies offering package holidays to the Island.

(e) Seek views from members of the public by placing advertisements in the local press.

(f) Discussion with the Guernsey Transport Board and Jersey Transport Authority which are the Channel Islands bodies that licence airlines to fly into Guernsey and Jersey.

2 PART 3 DELIBERATION

3.1 MERITS AND DEMERITS OF ESTABLISHING A MANX AIR TRANSPORT LICENSING AUTHORITY

3.1.1 The Committee realises that exactly what the Authority would be able to do will depend on the exact powers it was granted under statute law. However, there are a number of possible merits in establishing an ATLA. These include:

(a) An Authority might protect a carrier that has invested heavily in developing a route, from a new carrier seeking to come onto that route and cream off the traffic especially during the busier periods.

(b) An Authority might threaten a carrier currently offering a poor level of service, or charging high fares, that its licence may not be renewed if the situation did not improve.

(c) An Authority might award a licence to a carrier that is proposing to offer more modem operating equipment rather than to another which is proposing a lesser standard of service.

(d) An Authority might refuse a licence to a carrier if it was considered that the route in question does not justify more than one operator and one already serves the destination.

(e) An Authority might award a licence to a second carrier on a particular route if the existing carrier is not providing an all the year round service or is only offering a poor frequency and the second carrier applies to operate the same route with a better level of service.

(f) An Authority might indirectly be able to influence fares. By granting a permit to a second airline on a route, the competition generated may reduce fares.

3.1.2 There are a number of possible demerits in establishing an ATLA. These include:

(a) An Authority might not have the power to force an airline to maintain an existing route.

(b) An Authority might not have the power to compel a carrier to open a new route.

(c) An Authority might have little control over the frequency of service or type of aircraft operated by a carrier once a licence had been awarded.

3 (d) An Authority is unlikely to have a great deal of control over the level of fares charged by a carrier.

(e) An Authority might essentially be seen as negative in an environment where competition is regarded as the desirable way ahead.

(f) An Authority would require legislation to establish and would have to operate within the framework set by the Civil Aviation Authority(CAA) in the United Kingdom. However with the development of the "Open Skies" policy the CAA framework is minimal.

3.1.3 The Committee will return to these arguments in the course of the Report.

3.2 BRIEFING PAPER

3.2.1 This paper demonstrated the trend towards de-regulation of air transport by introducing an "Open Skies" policy. "Open Skies" already permits airlines to fly routes within the European Union without the need for a specific route licence. Until recently routes from the United Kingdom to the Isle of Man and Channel Islands still required a specific route licence to be issued by the CAA. However the latest CAA proposals will mean that the need to obtain a specific route licence, from the CAA, to operate services between the United Kingdom and Isle of Man or Channel Islands will be removed. This puts these routes on the same footing as routes flown within the European Union (EU) and requires simply that the airline has an Air Operators Certificate and an Operators Licence. The former is chiefly a safety related document and the latter is granted subject to the airline having sufficient financial resources to operate routes within the EU without the need for a specific route licence being issued.

3.2.2 As a consequence the Committee felt that the introduction, at this time, of a Manx ATLA could be viewed as going against the general trend towards an "Open Skies" policy in air transport. The Committee therefore felt that there would need to be compelling reasons to create such a body.

4 3.2.3 The Committee notes that since the Briefing Paper was produced in March 2002 there has been some developments in the number of carriers serving the Isle of Man, principally through a new airline EuroManx commencing operations between the Isle of Man and Dublin and Edinburgh in August 2002 and from October 2002 also serving East Midlands. The service to Dublin is in direct competition with that offered by British Airways CitiExpress. At the beginning of October 2002 Flykeen introduced a scheduled service to Liverpool in competition with BA CitiExpress. In addition British North West Airlines did briefly seek to provide a service between the Island and Belfast (Aldergrove) and Blackpool. However that operator ceased flying after about eight weeks of operation.

3.2.4 A copy of the Briefing Paper is attached to the Report as Appendix 1.

3.3 VIEWS OF MEMBERS OF TYNWALD AND GOVERNMENT DEPARTMENTS

3.3.1 All Members of Tynwald were circulated with a letter inviting them to submit comments on the concept of establishing an ATLA.

3.3.2 Only four submissions were received. These responses divided, with two being in favour and two opposed.

3.3.3 A copy of the letter inviting Members to submit views and the replies received are attached to the Report as Appendix 2.

3.3.4 All Government Departments were circulated with a letter inviting them to submit comments on the concept of establishing an ATLA.

3.3.5 Only one Department replied, the Department of Health and Social Security. The Department did not object to the concept of an ATLA but was concerned that any such Authority should not interfere with the Department's ability to enter into contracts for the provision of emergency air ambulance flights.

3.3.6 A copy of the letter inviting Departments to submit views and the reply received are attached to the Report as Appendix 3.

5 3.4. VIEWS OF THE AIR TRANSPORT INDUSTRY: Including airlines serving Ronaldsway Airport, the Ronaldsway Airport Director, Travel Agents and travel companies offering package holidays to the Island.

3.4.1 In April 2002 the Committee wrote to all the airlines then operating scheduled passenger or freight services to the Isle of Man as of May 2002. These were Manx Airlines (British Airways CitiExpress), British European (now Flybe), Emerald Airways, FlyKeen Airways and British North West Airlines (who have subsequently ceased operations to the Island).

3.4.2 A response was received from Manx Airlines. The response was neutral to establishing a Manx ATLA, indicating to the Committee that the airline does not regard the issue as significant to it in maintaining or developing air services to and from the Island. The fact that several of the airlines did not reply to the request for views underlined to the Committee that it is an issue over which the operators are largely indifferent.

3.4.3 A copy of the letter inviting airlines to submit views and the reply received are attached to the Report as Appendix 4.

3.4.4 The Committee sought the views of the Airport Director. His reply clearly opposed the concept of establishing a Manx ATLA. He believes that such a move would run counter to the growing trend towards "Open Skies" and that a Manx ATLA would not be able to exercise any effective control over airlines since it could not compel them to maintain a particular route or develop new ones. A Licensing Authority could at best control access to Ronaldsway Airport but given that the Airport currently has plenty of spare capacity this is not a necessary control at the present time.

3.4.5 The evidence submitted by the Airport Director is attached to the Report as Appendix 5.

3.4.6 The Committee also sought to establish the views of travel agents and tour companies which provide package holidays to the Island. Two replies were received from travel companies and one from Richmond Travel (on behalf of

6 the local travel agents). The travel companies were of the opinion that such a development was unnecessary, potentially bureaucratic and based on their experience with the Channel Islands Licensing Authorities unlikely to produce any significant improvement to services. The clear feeling was that market forces should be allowed to decide the routes operated.

Richmond Travel believed a Licensing Authority could be desirable but only if it took positive action to improve services based on the principle of competition.

3.4.7 The letter inviting travel agents and travel companies to submit views together with the replies received are attached to the Report as Appendix 6.

3.5 VIEWS OF MEMBERS OF THE PUBLIC

3.5.1 Evidence was received from one member of the public, following the publication of the advertisements asking for submissions. This evidence suggested that a Manx Licensing Authority could be an important step in ensuring air routes to the Island are maintained at an adequate level.

3.5.2 A copy of the press notice inviting submissions and the reply received are attached to the Report as Appendix 7.

3.6 THE GUERNSEY TRANSPORT BOARD AND JERSEY TRANSPORT AUTHORITY

3.6.1 The Committee felt it particularly important to discuss the concept of air transport licensing with the Guernsey Transport Board and Jersey Transport Authority since these bodies were tasked to grant permits to airlines wishing to operate scheduled and charter flights to both Guernsey and Jersey. Consequently a visit was made to Jersey on 30th May 2002 for separate discussions with both bodies.

7 3.6.2 It was clear to the Committee that the primary reason for the establishing of air transport licensing regimes in the Channel Islands was to protect the vital inter-island service between Jersey and Guernsey. Since 1968 this had been operated by a local carrier, Aurigny Air Services, who operate at least an hourly flight . By the late 1990's, in the context of the developing "Open Skies" policy several other airlines operating from the United Kingdom and Europe to Jersey and then on to Guernsey (or vice versa) indicated that they may wish to start carrying passengers on the inter-island portions of their flights. The Governments of both Islands were concerned that the Civil Aviation Authority was prepared to grant licences to these companies to carry inter-island traffic which would make it difficult, if not impossible, for Aurigny to maintain the frequency of services upon which the two Islands had come to rely. Consequently both Islands decided, within the framework of CAA licensing then operating, to require airlines wishing to operate to or from the Channel Islands and between the Islands to apply to the respective Island Governments for permits to do so. This enabled both Jersey and Guernsey to ensure competition on the inter-island route was kept to a minimum and protect Aurigny's financial viability.

The Committee recognises that there is no parallel situation in the Isle of Man and therefore the primary reason for the Channel Islands taking this course of action is largely irrelevant to Manx air transport needs.

3.6.3 Further discussion revealed that a secondary reason for the establishment of the Jersey Transport Authority was to regulate summer charter flights to Jersey. Again there was a fear that airlines operating seasonal charter flights could take away passengers from the scheduled airlines thereby depriving them of the summer traffic peak which would reduce their level of profitability. A Licensing Authority would be able to regulate charter traffic to seek to protect all year round scheduled services. As the Isle of Man currently does not have such summer charter traffic from the United Kingdom another reason for the establishment of an ATLA, at present, is therefore removed.

8 3.6.4 It was also apparent that neither the Guernsey Transport Board or Jersey Transport Authority had the power to prevent an airline from ceasing to operate a route. Thus both Jersey and Guernsey had lost their links with Heathrow and their respective authorities were unable to prevent this. In the case of Guernsey great effort was now being placed on seeking to persuade British Airways and British European not to withdraw their links to Gatwick, although in the end the Board accepted this would be a commercial decision by the carriers concerned and all the Board could do was try to persuade.

The Committee understood that part of the reason for establishing a Manx ATLA might be to seek to protect a particular service. However it is plain that such a body would not be able to prevent a carrier from withdrawing its services whenever it wished. Had a Manx ATLA existed, it is recognised that it would have been unable to prevent Manx Airlines withdrawing its Heathrow link in March 2002, or scaling down frequencies on other routes such as to Belfast and Dublin.

3.6.5 Discussion with the Guernsey Transport Board and Jersey Transport Authority also plainly indicated that a licensing body was unable to make any carrier operate a new route to the Islands. Both organisations referred to the lack of applications from carriers to open new routes, particularly because of the poor yield carriers expected to earn from them. It is clear therefore that market forces are the prime issue in the provision of new and maintenance of existing air routes.

3.6.6 The Committee also identified that both bodies issued licences for scheduled services for indefinite periods. The fact that licences were issued for indefinite periods would of course reduce the power of a licensing body to threaten any carrier offering a poor level of service that its licence may be awarded to another airline when it came up for renewal. If a Manx ATLA were to be created, the Committee believes it would have to be given the power to issue licences for specific periods only to enable it to have some power to ensure that airlines offered a reasonable level of service. However it is also appreciated that airlines may be less keen to develop routes if they believed there was any prospect of a licence not being renewed at the end of a period of time.

9 3.6.7 In the course of discussions it became clear to the Committee that rarely had either Channel Islands body revoked a licence or refused an application, even on a "lifeline" route. Where a licence had been removed it was usually because the airline concerned had asked the Civil Aviation Authority to revoke its Operators Permit. The existence of an Operators Permit is a prerequisite for the issue of a route license by both Channel Islands transport bodies.

In the case of Jersey, only two instances of refusing a licence to seek to ensure the viability of a "lifeline" route have occurred. Both of these involved the Jersey to Southampton route. On the first occasion an airline applied to fly the route in direct competition with an existing carrier on the service. The Jersey Transport Authority turned down the application because it accepted the argument of the existing airline that there was insufficient traffic to sustain two companies operating between Jersey and Southampton. On the second occasion, KLM /UK withdrew their service between Jersey and Southampton and both British European and British Airways applied for the route. The Authority awarded a licence to British Airways again because it felt there was insufficient traffic to sustain two carriers.

In the case of Guernsey, the Board had refused to award a licence to carry mail to Alderney, to an Alderney based carrier in preference to Aurigny, even though the Alderney carrier had submitted a lower quote. This was both to preserve the income from carriage of mail for Aurigny and therefore enable Aurigny to maintain aircraft availability at Alderney overnight for air ambulance duties.

There have been a very small number of cases where a licence has been refused to avoid favouring one operator on a London route. The Guernsey Transport Board indicated that Aurigny and British European both applied for a licence to fly to Stansted. The Board decided to award a licence only to Aurigny, primarily because British European already operated to Gatwick. However the Committee also noted that subsequently the Board had licensed British European to fly from Guernsey to London City.

10 3.6.8 Discussion with the two bodies also indicated that on occasions both had licensed more than one operator on a route. Thus the Guernsey Transport Board had licensed both Aurigny and British Airways to operate to Manchester, while the Jersey Authority had licensed both British Airways and British European on the Gatwick route. It was felt that market forces would then operate to determine whether two operators remained on the route.

In the case of the Guernsey to Manchester service this has proved to be the result with British Airways reducing their direct services in the summer of 2002 to only 2 flights a week, while Aurigny have increased theirs to a maximum of 23 flights a week.

The Committee observes that Channel Islands experience indicated that market forces ultimately determined which carrier continued on which route, irrespective of the existence of a licensing authority.

3.6.9 Low cost carriers like Ryan Air and Easyjet, had not opened services to either Channel Island. With regard to Guernsey, the runway limitations made low cost carriers unlikely to wish to use the airport because of payload restrictions which would be imposed on their aircraft. In the case of Jersey, the operation of a low cost carrier had become a major local political issue, with the JTA receiving considerable adverse publicity for not securing low cost carriers. Ryan Air had recently approached the States of Jersey with regard to a possible route to Stansted although no formal application for a permit had been received. The Jersey Transport Authority indicated that should any application for a permit be made it would be likely to grant one.

The Committee felt that the experience of the Jersey Transport Authority in relation to low cost carriers suggested that the existence of a Manx ATLA would not have a significant impact on attracting low cost carriers to serve the Isle of Man. A Manx ATLA could licence such carriers but whether they applied for such licenses in the first place would (from experience elsewhere) depend on whether they were offered significant concessions on airport charges which would be a matter of direct negotiation between the Department of Transport and the carriers concerned.

11 3.6.10 The Committee also noted that the two Channel Islands licensing bodies had little control over fares charged by carriers. In the case of Guernsey, the Board did have a sole operator agreement with British European on the Southampton route which made British European the only carrier on the route in return for a given percentage of seats to be sold below a fare agreed from time to time between the airline and the Guernsey Transport Board. However the Board agreed that its capacity to enforce this agreement was severely limited in practice. Generally speaking fares were left to be set by the airlines based on competition and market forces.

3.6.11 The Jersey Transport Authority also drew to the Committees' attention the issue of competition policy. A new law was being passed through the States of Jersey to promote competition. The law would extend the mandate of the existing Jersey Regulatory Competition Authority to transport matters and this would mean reassessing the role of the Air Transport Licensing Authority. The functions of the Jersey Transport Authority (which is about to have its functions transferred into the Economic Development Committee) will have to be reconciled with the new Competition Law. The Jersey Transport Authority indicated that it did see a role for licensing of airlines within the new Law, for example seeking to ensure that on those routes operated by a single carrier, that airline had to re-apply for a licence every three or so years and may not have its licence renewed if it was felt to have exploited its monopoly position.

Whilst there is currently no competition law proposed for the Isle of Man, such a development may well occur at some point in the future and render the operation of an ATLA more difficult.

3.6.12 During discussion with the Jersey Transport Authority, the Committee explicitly enquired whether, in the light of experience, such a body would be established today if Jersey was beginning again. The Jersey Transport Board gave a cautious affirmative to this question.

3.6.13 Summary notes of the meetings held with the Guernsey Transport Board and Jersey Transport Authority are attached to the Report as Appendix 8.

12 PART 4 OTHER IMPORTANT CONSIDERATIONS

4.1.1 The Committee has also considered the nature of the air transport industry and appreciates that it is a highly competitive and ever changing one. Airlines generally provide services only where they consider there to be a reasonable likelihood of achieving a return on their investment. Consequently while the economy is buoyant there will be carriers who may consider operating services to the Island, but if the economy down turns the number of companies wishing to operate to the Island, or the route networks flown, may well contract. An ATLA could do very little to counter this situation. The experience of the Channel Islands Licensing bodies has confirmed this. The tourist element of the economies of both Guernsey and Jersey has shown a reduction in recent years which has been reflected in a falling number of passengers using both airports and inevitably a decline in the number of carriers operating, routes served and frequencies offered.

On the other hand the Committee recognises that in an economic downturn a carrier might persist with its operations in the hope that when the economy began to turn upwards it may face less competition.

4.1.2 In addition although the Isle of Man is not in the EU, the general direction of economic policy in the EU is definitely towards free competition. It may not be in the best interests, internationally, for the Isle of Man to be seen to establish a body which might be viewed as reducing competition.

However, the Committee does realise that within EU competition policy it is possible for such a body to operate. Regulation (EEC) 2408/92 Article 4 does provide that on certain routes only one operator may be licensed in order to ensure that route is provided with an adequate level of service, with such restriction on competition being reviewed every three years.

13 4.1.3 In considering whether an ATLA is necessary the Committee noted the existence of the Steam Packet User Agreement between that company and the Manx Government. The User Agreement gives the Steam Packet Company certain rights with respect to the use of port facilities in Douglas in return for various guarantees. This does not prevent other shipping companies having access to the port. It is designed to ensure the life line service provided by the Steam Packet is maintained at an adequate level.

The Committee considers that this agreement has no direct parallel to air transport licensing because:

(a) The likelihood of attracting another shipping company to the Island is probably far less than that of attracting other airlines.

(b) Air links to and from the Isle of Man are in the hands of several companies, unlike passenger shipping, and therefore the need for such an agreement is lessened. The Committee recognises that British Airways are the main service provider but alternative services are offered by Flykeen, Euro Manx and principally Flybe who actively promote and develop their Manx routes and offer, from time to time, low cost tickets.

(d) An ATLA is unlikely to be able to insist on a minimum number of flights offered on any route and could not compel an airline to continue to fly a route if it did not wish to do so.

14 PART 5 CONCLUSION

5.1.1 Having considered all the available evidence, and particularly in the light of the information gained from the Channel Islands, the Committee does not feel that at the present time any significant benefit would be gained for the Isle of Man by establishing an ATLA. The experience of the Channel Islands has to be taken seriously since these bodies are the only ones within Europe which have any similarity with a proposed Manx ATLA.

5.1.2 The Committee feels that the theoretical merits of establishing an ATLA have not been borne out either by the experience of the Channel Islands or from the evidence the Committee has received. In particular:-

(a) There is very little evidence that such a body is necessary to protect a carrier which has heavily invested in a route, from a new carrier coming onto that route and "creaming off" the traffic, especially during the busier periods. In the case of the Isle of Man, like the Channel Islands, there are few new carriers wishing to open services in direct competition with existing operators on established routes, largely because the routes that do exist are not sufficiently lucrative to support a second carrier.

(b) There is no evidence, from the experience of the Channel Islands, that a licence has been revoked and awarded to another carrier on the basis of the existing airline offering a poor level of service and a new one proposing a better one. Indeed there are examples of awarding of licences to carriers that are proposing a poorer level of service, eg Aurigny were awarded the licence to fly from Guernsey to Stansted even though the type of aircraft to be used was inferior to that being proposed by British European.

15 (c) There is only very limited evidence, from the experience in the Channel Islands, of licences being refused because the Licensing Authority believes there is insufficient traffic to justify two operators. In general all licence applications are granted and the market is then left to resolve the situation.

(d) The ability of a Licensing Authority to influence fares is also extremely limited. In the case of the Guernsey to Southampton service, where the Guernsey Transport Board has an agreement with British European that a certain percentage of seats should be offered below a fare agreed from time to time, the Board admitted its ability to enforce the agreement was very limited. In general lower fares were likely to result from granting licences to competing carriers and leaving the fare structure to be determined by the airlines through competition with each other.

5.1.3 The Committee feels that the theoretical demerits of establishing a Manx Licensing Authority have been borne out in the cases of Guernsey and Jersey. There has been no ability to enforce a carrier to maintain a route or particular level of service, there has been no power to force a carrier to open a new route, there has been very little control over fares, and now in the situation of Jersey a developing competition policy is calling into question the way the Jersey Transport Authority operates.

5.1.4 Furthermore the Committee feels that there may be public misconception over the function of an ATLA should a Manx ATLA be established. The public may believe that such a body has wider powers than it does and that it has the ability to solve all the Island's air transport needs, when it quite plainly does not.

5.1.5 The evidence gained by the Committee suggested strongly that it is market forces which play the dominant role in determining which routes are operated, at what frequency and by how many carriers. In the light of this there is little point, at present, in establishing a Manx ATLA.

16 5.1.6 Leaving things entirely to market forces may not be wise since there is always the danger, in a period of economic downturn, of monopolistic practices developing. However, the Committee is of the opinion that the establishment of a Manx ATLA is not likely to be the best way of helping to ensure the Island is well served by air transport.

5.1.7 The Committee therefore believes that the best solution, at present, to preserving and developing air transport links from the Isle of Man lies with the Department of Transport engaging in positive, detailed and continual discussion with airlines and offering to them, as incentives, fees and charges that might encourage the further development of routes from the Island. The Committee notes that the Department of Transport is already actively pursuing this course of action.

PART 6 RECOMMENDATION

6.1 Your Committee recommends that at this time, it is not necessary to establish an Air Transport Licensing Authority.

L I Singer (Chairman) A J Earnshaw J P Shinunin

November 2002

Appendix 1

Briefing Paper A Summary of Air Transport Licensing History and Regulations

Committee Remit:

The Committee focus is on the issue of whether the Isle of Man should establish an Air Transport Licensing Authority to grant Permits to airlines to operate scheduled and regular charter services to and from the Island. It is possible for a Manx route licensing authority to be established within the scope of the CAA Regulations, as the Channel Islands have successfully illustrated. To establish a Manx authority would involve the passage of legislation through Tynwald. Both Jersey and Guernsey passed Acts to establish their licensing authorities. A copy of the Jersey Law has already been circulated.

Types of Licenses:

1. The UK Civil Aviation Authority(as International Civil Aviation Authority contracting state) has responsibility for civil aviation regulation within the UK, Channel Isles and Isle of Man. This responsibility extends in particular to the issue of licenses to airlines. In 2002 the CAA has amended its licensing regulations. This paper is written in the light of these changes, which are likely to come into force in April or May 2002.

2. There are three types of licensing:

(a) Operators License. This was introduced in 1993. An Operators License is issued by the CAA in the UK and is designed to ensure an airline is fit to operate scheduled or regular charter services. It cover issues like financial viability, fitness to operate(this is largely a financial issue, no Operators License will be granted to a carrier if any of the persons managing it are undischarged bankrupts) and adequate insurance. No carrier will be issued with an Operators License unless it has already obtained an Air Operators Certificate. An Air Operators Certificate is primarily a safety related document.

There are two sorts of Operators Licenses:

(i) Class A for carriers using aircraft of more than 20 seat capacity.

(ii) Class B for carriers using aircraft of less than 20 seat capacity.

Under the EU "Open Skies" policy the possession of an Operators License enables a carrier to operate almost anywhere within the EU without the need for a specific route license. (b) Route License. Route licenses are required for UK registered airlines to fly routes wholly or partly outside the EU. These route licenses are issued by the CAA.. The CAA publishes applications made for route licenses and allows 21 days after publication for objections to be made. A hearing then takes place and a decision is published as quickly as possible. If an application is uncontested a decision will be reached very quickly without a hearing.

The CAA may also grant a dispensation for a carrier to operate a route before a Route License has been issued, for example when a company ceases to operate a route and another is willing to step in at short notice. This happened on the Blackpool-IoM route when Platinum Air 2000 ceased operating a dispensation was given to allow the route to continue pending the award of a Route License.

(c) Air Transport Licenses. This type of license applies to operators which are registered or have their principle place of business in either the Channel Islands or Isle of Man.

There are 2 types of Air Transport License:

(i) The basic Air Transport License which is similar to an Air Operators License.

All carriers registered in the CI or IoM require an Air Transport License and it authorises the holder to operate to and from the CI and IoM to EU destinations without the need for a specific Route License. It is in effect allowing an "Open Skies" Policy.

(ii) For flights beyond the EU a second type of Air Transport Route License is required. This is similar to the Route License see (b) above.

3. These changes replace the previous system by which operators of services to and from the CI and ToM had to have specific Route Licenses and were not covered by the "Open Skies" Policy. Now in effect the "Open Skies" policy has been extended to the CI and IoM .

However, despite the new CAA Regulations, operators to and from Guernsey and Jersey still require Permits issued by the relevant Island's Transport Board.

4 Airport Slots. These have no direct bearing on the Licensing or "Open Skies" policies and are merely a device to control the flow of traffic and minimise congestion. Some larger airports, like Heathrow, Gatwick allocate slots to operators and a service cannot begin without such an allocation but this requirement does not apply at others eg Ronaldsway, Blackpool, Liverpool. These airfields may allocate a slot time on a particularly busy day but not on a regular basis eg Ronaldsway usually allocates slot times on Senior Race Day because there is so much traffic but almost never at other times.

The History of Route Licensing Since 1993:

1. The Civil Aviation Authority introduced "Open Skies" in 1993 as a direct requirement of the EU liberalisation regulations on civil aviation (EC 2408/92 'Access For Air Carriers to Intra-Community Air Routes') This document basically sought to de regulate the airline industry to allow any airline within the EU to operate a scheduled or charter service to any point within the EU without the need for a Route License. It was anticipated that such de- regulation would improve competition, lower fares and improve services. It has lead to airlines based in one EU country operating services between other EU states, eg Azzura Air of Italy now operate a charter flight programme from Manchester to Spain and Finland.

2. The "Open Skies" Regulations were not welcomed by the Channel Islands who both established Transport Authorities to issue Permits to airlines to fly in and out of Guernsey and Jersey. The rationale behind this decision was to ensure that the Islands were provided with all year round services and not just services during the summer peak. The CI feared that charter airlines might "cream off" the summer peak tourist traffic and drive scheduled carriers off routes thereby depriving the Islands of all year round services. Airlines wishing to fly either charter or scheduled services in the CI have to apply to the relevant Island for a Permit. Full details of the legal background and aims of the Jersey Transport Authority have already been circulated.

3. The arrival of "Open Skies" was welcomed in the Isle of Man. Its situation is very different from that of the Channel Islands because:

(a) There is no pronounced summer peak in traffic; and

(b) There are no charter services operating into the Island which could "cream off 'traffic from scheduled operators.

Consequently when the new CAA Regulations came into effect in 1993 the IoM did not opt to follow the CI model of a Transport Licensing Authority. This position was supported by the airlines then using Ronaldsway Airport who all favoured deregulation and liberalisation.

4. The matter has been the subject of debate since then on several occasions:

(a) In 1993 the Airport Director and the Chief Executive of the DHPP produced a paper for the Council of Ministers in response to the press reports that Jersey were to establish a licensing authority. It concluded this was not relevant for the Isle of Man.

(b) In 1998 and 1999 the Department of Transport produced further papers for the Council of Ministers reaching the same conclusion. The 1998 document also contains useful information about developments at Ronaldsway between 1993-98.

3 (c) In 2000 Mr L Singer MHX introduced a motion in the January sitting seeking to establish a regulatory body to control air traffic routes to and from the island. This debate included some interesting arguments on both sides and the full Hansard debate is included for Members wishing to read it. The motion failed as did an amendment by Mr Karran to establish a 3 man committee to investigate the proposal. 5. The announcement by Manx Airlines in February 2002 that the company was to withdraw its link with Heathrow and lose its separate identity has brought the matter to the fore again. 6. Given the changes about to be introduced by the CAA, to remove the specific need for route licenses to be awarded for services to the Isle of Man and Channel Islands, the need of a Manx licensing authority is clearly again a relevant subject for consideration. 7. Some of the advantages and disadvantages of a Manx route licensing body were included in the preliminary briefing paper circulated to the Committee before its first meeting.

Manx & CI Air Transport Comparison

Route Networks:

1. A chart is enclosed showing the network of scheduled services currently operating, or about to operate, from Ronaldsway. Chart enclosed.

2. There are currently no seasonal services from the Island. However some routes do have modest increases in frequency during the summer, eg Liverpool, London City, Bristol and Southampton.

3. Jersey represents a considerable contrast with many seasonal services operating for example to Newcastle, Teeside, Gloucester/Cheltenham, Bournemouth, Cork, Inverness, Humberside, Norwich. Guernsey also has a range of seasonal routes for example to Cardiff, but these tend to be less extensive than those from Jersey.

4 International routes. There is currently only one scheduled international service from Ronaldsway, to Dublin.

Both Jersey and Guernsey have a range of international destinations including year round services to Paris, Dinard, Amsterdam, Rotterdam and Zurich. There are also seasonal services to other destinations particularly in Germany.

5. Changes to the route network in the last 20-25 years have been enormous. 25 years ago there were numerous seasonal services using Ronaldsway during the summer. For example Dan Air flew services from London Gatwick, Aberdeen, Prestwick, Carlisle, Bournemouth, Gloucester/Cheltenham, Teesside, Bristol, Cardiff, East Midlands. It actually maintained its own staff at Ronaldsway to handle these flights in the summer months.

4 Manx Airlines have also tried various routes over the years, often on a seasonal basis, which are no longer included in its schedules, eg to Cardiff, Newcastle and Cork. A route to be dropped in the near future- is the direct link with Jersey flown by Manx Airlines. However, there are of course new routes to the Isle of Man. For example to Leeds/Bradford and Luton ( Manx Airlines), Bristol and London City (British European) and from early April Newcastle (British European). 6. In the case of Jersey, over the last 25 years the route network has expanded considerably. For example new routes operating from Jersey have included Enniskillen, Londonderry, Sheffield, Dundee and Prestwick which are seasonal weekly charter services, and London City which is scheduled daily year round services. The last 25 years have also seen a major expansion in routes to Europe. In 1975 the only international routes from Jersey, apart from the link to Dinard, were to Paris and Amsterdam. A summary chart showing all charter and scheduled routes from Jersey is attached. 7. Routes from Guernsey have also seen a growth in the last 25 years, with major new services being launched to Stansted and recently London City, and the development of international routes such as to Zurich. 8. Like the Isle of Man, both Jersey and Guernsey have lost their Heathrow

Guernsey was the first to do so when KLM UK disposed of their slots. The Jersey-Heathrow service ceased in 2000. In addition the Jersey to London (Stansted) scheduled service has also been dropped recently although charter services still operate. Competition on Routes: 1. There is currently only one route from the IoM with two operators, that to Belfast City. However competition can be said to exist on services to London with Manx Airlines flights to Heathrow (soon to be Gatwick) and Luton competing with British European flights to London City. However, indications are that there is to be a second carrier on the Blackpool route shortly, British North West Airlines. At the time of writing (28th March) details are as yet unclear. This carrier is also intended to operate from the IoM to Belfast (Aldergrove) thereby providing further competition on the Belfast route. 2. The other examples of competition over the last 5 years were: Emerald Airways flew scheduled passenger services to Liverpool in direct competition with Manx, between 1996-1998 Aer Arran briefly operated a Dublin-Isle of Man service in direct competition with Manx, over the winter of 2000/01. Corned Aviation who operated from the Island to Belfast City between 1999-2001, in direct competition with British (then Jersey) European.

5 3. In the case of the Channel Islands limited competition does exist on several routes, for example both British European and BA City Express operate from Jersey and Guernsey to Gatwick. London is served by services to Gatwick, Stansted, Luton and London City therefore providing indirect competition.

4. However in general most routes have only a single scheduled operator eg to Southampton (BA City Express from Jersey and British European from Guernsey) or Manchester (British Airways City Express from Jersey and Aurigny from Guernsey). The Jersey Transport Authority and Guernsey Transport Board have been keen to ensure that two operators are not granted Permits on routes which are vital to the Islands but would not sustain two carriers, such as Southampton.

The Guernsey Transport Board did issue a Permit for British Airways Regional to operate a service to Southampton in competition with British (then Jersey) European), but only at a modest frequency and BA Regional soon withdrew the service anyway. Charter Flights:

1. There are currently no charter flights bringing visitors into the Island. There are inclusive holidays offered to the Island, but those travelling by air are accommodated on scheduled services.

2. However, there are a limited number of charter flights taking Manx residents abroad, such as the weekly winter charter for skiers to Chambery (British European operate the route for Crystal Holidays) and short series to Malta, Faro and other destinations. There does seem to be some increase in this type of traffic in 2002.

3. Again Jersey represents a considerable contrast. There are numerous charter flights bringing tourists to Jersey during the summer months. Some of these flights operate on routes which also sustain all the year round scheduled operations such as Southampton, Birmingham, Manchester, Luton. However many are seasonal charter only services such as those to Cambridge, Gloucester, Manston, Southend, Londonderry, Dundee, Prestwick and Sheffield. A summary sheet showing all scheduled and charter services from Jersey is attached. 4. Guernsey has generally been less favourable towards pure charter flights and most inclusive holiday visitors fly on scheduled services. The current policy of the Guernsey Transport Board is to allow them on routes which do not have a year round scheduled service but generally not to grant them on routes that do. 5. There are charter flights for Jersey and Guernsey residents to the continent on a more regular basis than there are from Ronaldsway. For example it is planned in the summer of 2002 to operate regular charter services FROM Jersey to Funchal, Malaga, Palma and Tenerife. 6. Guernsey has a less extensive programme of this type of service since its runway (at only 4,800 feet) is too short to take many jet aircraft.

Passenger Numbers:

1. Figures showing the volume of passengers using Ronaldsway are attached on a monthly basis for the last 13 years. These show that: (a) Total passenger traffic has increased by about 200,000. This reflects mainly the boom in business and residential traffic.

(b) The Summer holiday peak has reduced. In 1988 the traffic in August was virtually double that in February, while in 2001 the difference in traffic levels amounted to about a 40% increase. 2. Channel Islands traffic shows a much greater summer peak. 60% of the 1.65 million passengers handled at Jersey in 2001 were handled in the two month summer peak! A brief statistical summary comparing IoM and CI passenger numbers is attached. 3. Passenger numbers for the Channel Islands are showing a decline. In the case of Jersey there has been an average 2% decline per annum for every year since 1998.

Number of Airline Operators: 1. The number of airline operators flying scheduled passenger services from Ronaldsway is currently three: Manx Airlines (to lose its separate identity from 1st September 2002 after which it will be BA City Express) British European FlyKeen Airways British North West Airlines (from early April) Love Air (potential operator on the Jersey route, target starting date is at present May 2002) A statistical summary showing scheduled air services from Ronaldsway Airport as at 280302 is attached. 2. Over the last 25 years there have been many scheduled passenger operators using Ronaldsway that either no longer serve the Island or no longer exist. These include: Aer Lingus Aer Arran Air UK ( and its predecessors BIA etc) Corned Aviation British Midland Air Furness Capital Airlines Knight Air Loganair Platinum Air 2000 Dan Air Emerald Airways (now operating a freight only service).

7 3. Operators from Jersey (scheduled and regular charter) are more numerous and currently include:

British Airways (including its various associate companies) British European European Air Charter British Midland Eurowings Austrian Airlines SAS Aurigny Sterling Airways Crossair Air Acores VLM

4. Operations from Guernsey are conducted by many of the carriers that use Jersey, although frequencies are generally lower.

5. However, in both Jersey and Guernsey there have also been numerous airlines that have served these destinations, although they no longer do so. This is generally because the company has ceased to exist or been taken over by another carrier which continues to serve the Islands. This demonstrates the very fluid nature of airline operations. Freighter Services:

1. The Isle of Man is served by scheduled and contract charter freighter services operated by Emerald Airways. These cargo service required Route Licenses under the old CAA Regulations but will not under the proposed changes.

2. Jersey and Guernsey are similarly served by Channel Express.

3. Considerable quantities of freight are also flown on scheduled passenger services especially by Manx Airlines. Executive Charter Carriers:

1. There are two such carriers based at Ronaldsway, Island Aviation and Woodgate Aviation, who offer aircraft of about 8 or 9 seat capacity for • charter.

2. These carriers did not require Route Licenses under the old CAA Regulations as they do not operate scheduled flights. They do of course require an Air Operators Certificate.

3. In Jersey and Guernsey there are similar facilities offered by companies such as Aviation Beauport. Air Ambulance Flights:

1. Air Ambulance passenger flights are operated on a 24 hour "as required" basis from Ronaldsway using aircraft provided by Woodgate Aviation. These flights are operated under contract to the DHSS.

2. A similar provision is provided from the Channel Islands by Aurigny and other small carriers. Airport Charges:

1. Ronaldsway Airport is introducing a new system of charges from April 2002.

The main purposes of this new charging system are:

to help protect and retain existing routes; and

- to promote route development and low fare initiatives.

The basic details of this are:

The seating capacity on each flight will be split into four bands, the first 20% of seats being Band 1, the second 40% Band 2, the third 20% Band 3 and the final 20% Band 4.

However, the Bands can be varied, so for example an operator starting a new route may be given a higher percentage of seats in Band 1 and a reduced level in Band 2 with the effect of lowering charges.

The basic aim is that Band 2 will pay the highest level of charge, Band 1, a lower level, Band 3 a still lower level and Band 4 the lowest level. It is hoped that the Band 4 charges might encourage airlines to offer more lower priced seats. The decision on whether the full rate or a discounted rate is charged will depend on the route and the fares being offered.. Thus a new route may attract lower levels of charges in all bands than a mature route with few cheap seats.

Airlines currently using Ronaldsway are content with these changes as they fit easily into their yield management system of selling various numbers of seats at different fares on the same flight.

2. Jersey Airport is also reviewing its charges. It currently collects about £14 million a year from landing fees and its 1.65 million passengers. Its proposing to increase fees and charges amounting to an increase of about £3 per passenger. It is also considering the possibility of an additional charge on passengers in the peak season. 3. In the last financial year by way of comparison, Ronaldsway collects £4.9 million from about 700,000 passengers while Jersey collects £14.1m from 1.65 million passengers. This works out at about £7 per passenger movement (that is £7 per arriving and departing passenger) in the IoM and £8.55 in Jersey. PLB 28th March 2002

Scheduled and Charter Routes Operating from Jersey Summer 2002

Aberdeen Schedule British Airways Alderney Schedule Aurigny Antwerp Schedule VLM Belfast Schedule British European, British Midland Bergen Charter Braathens Berlin Charter VLM Birmingham Schedule, Charter British Airways, British European Bournemouth Charter British European, European Air Charter Bristol Schedule, Charter British Airways, British European Cambridge Charter Aurigny Cardiff Schedule British Airways Cork Schedule British Airways Dinard Schedule Aurigny Dortmund Schedule, Charter Eurowings Dublin Schedule, Charter British Airways, British European Dundee Charter British Airways East Midlands Schedule, Charter British European, British Midland Edinburgh Schedule, Charter British Airways, British European, British Midland Eniskillen Charter British Airways Exeter Schedule British European Funchal Charter Air Acores Glasgow Schedule, Charter British Airways, British European British Midland Gloucester Charter Aurigny Guernsey Schedule Aurigny, British European Humberside Charter VLM Isle of Man Schedule Love Air (Proposed) Leeds Schedule, Charter British Midland Liverpool Schedule, Charter British Airways, British Midland London City Schedule British European, VLM London Gatwick Schedule British Airways, British European London Stansted Charter British Airways Londonderry Charter British Airways Luton Schedule, Charter British European Malaga Charter European Air Charter Manchester Schedule, Charter British Airways, British European Manston Charter Aurigny Munchengladbach Charter VLM Munich Charter VLM Newcastle Schedule, Charter British Airways, British European Norwich Charter British Airways Oslo Charter Braathens Palma Charter European Air Charter Paris Schedule VLM Prestwick Charter British Airways Rotterdam Schedule VLM Sheffield Charter British Airways Southampton Schedule, Charter British Airways Southend Charter Bruitish European Stockholm Charter SAS, Sterling Teesside Schedule British Midland Tenerife Charter European Air Charter Zurich Schedule Crossair NB The title British Airways has been used for all flights operated by the whole range of British Airways companies for convenience. Scheduled Air Services from Ronaldsway Airport as at 280302

Destination Flights Per Week Airline/s Comment Belfast City 12 Manx Airlines This is the only 16 British European route on which there are currently two operators. Birmingham 12 Manx Airlines Frequency to be increased from 290302 Blackpool 12 FlyKeen Airways

Bristol 6 British European

Dublin 14 Manx Airlines

Glasgow 8 Manx Airlines

Heathrow 19 Manx Airlines To transfer to Gatwick 280302 Jersey 6 Manx Airlines To be withdrawn 280302 Leeds/Bradford 7 Manx Airlines

Liverpool approx 35 Manx Airlines

London City 18 British European Frequency 1 to be increased shortly

Luton 7 Manx Airlines

Manchester 22 Manx Airlines

Newcastle 5-7 British European New route likely to be launched April 2002 Southampton 1 Manx Airlines

In addition Emerald Airways operate a scheduled all freight service to Liverpool 5 days a week as well as contract mail and parcels services to Liverpool and Coventry for Royal Mail and Data Post.

British North West Airlines are proposing to introduce a route to Blackpool and Belfast from early April, and Love Air may re-open the Jersey route possibly in May. Summary of Passengers Using Jersey, Guernsey and Ronaldsway 1999-2001

1999 2000 2001 January August Total 1999 January August Total 2000 January August Total 2001

Jersey 86,055 200,751 1,785,064 87,118 210,918 1,724,006 81,902 191,940 1,613,459

Guernsey 47,969 94,790 859,174 47,723 98,306 884,284 50,196 92,427 862,927 Isle of 44,023 68,032 685,552 45,514 67,717 711,985 47,812 70,085 702,080 Man Appendix 2

OFFICE OF THE CLERK OF TYNWALD Legislative Buildings, Douglas, Isle of Man, British Isles, IM1 3PW

Our Ref:

29th April 2002

To all Members of Tynwald

Dear Member Air Transport Route Licensing

At its sitting on Tuesday 12th March 2002 the House of Keys voted to establish a Select Committee to investigate the feasibility and merit of the Isle of Man Government operating a route licensing system for passenger carrying aircraft using Ronaldsway Airport.

The Committee would be pleased to receive your reply by 31st May 2002, and to know whether you would be prepared to giving oral evidence to it. If you are willing to do so, please indicate whether you would rather give evidence in public or private. The Committee appreciates that some matters may be commercially sensitive and therefore is willing to offer the opportunity to give evidence in private.

If you would like further information or clarification on this issue please feel free to contact me.

Yours sincerely

Malachy Cornwell-Kelly Clerk of Tynwald

Telephone: (01624) 685500 Email: [email protected] Fax: (01624) 685504 isle of Man Government ltp San %Iv* THE OFFICE OF THE CHIEF MINISTER oik yil Ard-sbirveisbagb Tel No: (01624) 685702 CHIEF MINISTER: Government Office, Douglas Fax No: (01624) 685710 Hon R K Corkill, B.Pharm. M.R.Pharm.S. MHh Isle of Man, IM1 3PG email: [email protected]

Our Ref: CM 17 June 2002

Mr M Cornwell-Kelly Clerk of Tynwald Legislative Buildings DOUGLAS IM1 3PW

I write further to your letter of 29 April 2002 on behalf of the Select Committee to investigate the feasibility and merit of the Isle of Man Government operating a route licensing system for passenger carrying aircraft using Ronaldsway Airport.

I apologise of the delay in replying but have been considering the matter in some detail and discussing the issue with colleagues.

I am now in receipt of a copy of the reply to you from the Airport Director on the matter. I have no further comments which I could usefully add other than to endorse his observations. In addition I do not believe there is anything which I could usefully add by giving oral evidence. I do however appreciate being given the opportunity.

Yours sincerely,

Hon R K Corkill, B. Pharrn. M.R. Pharm. S. MHK Chief Minister >z:

LEGISLATIVE BUILDINGS ISLE OF MAN IM I 3PW

Our Ref: RWH/ejm 7 May 2002

Mr M Cornwall-Kelly Clerk of Tynwald Clerk of Tynwald's Office Legislative Buildings Douglas

Dear Mr Cornwall-Kelly Thank you for your letter dated 29 April 2002 regarding Air Transport Route Licensing and evidence, to the House of Keys Select Committee, to investigate the feasibility and merit of the Isle of Man Government operating a route licensing system for passenger carrying aircraft using Ronaldsway Airport. I haven't got much evidence to add to Mr Singer's original debate and his views advanced in Tynwald, and at least one other occasion in the past 4 years. Suffice to say I am in full support of the ideas that Mr Singer has put forth in relation to Air Transport Route Licensing. I think now, with the demise of Manx Airlines, the take-over by British Airways and their treatment of this Island, it is quite evident that we need to be addressing the situation of air routes and the needs of our resident community and business consumer traffic in a much more positive and pro-active way, ensuring that the needs of our community and business are fully met as best we can. This in turn obviously helps to positively support the business travellers essential to our economy and community alike. The demise of the Heathrow slot and routes from this Island is the obvious classic example of the need to do something. I am of the very strong opinion that at the very least, the Isle of Man Government should be putting feelers out to seek an operator who is willing to base at least part of their operation from the Isle of Man and take on a "Manx" role and adopt the Island as its partial base. I think in considering the issues of Route Licensing, the Committee should look at the issue of Government commitment and motivation to innovative ideas that will produce a variety of solutions to this situation, ones that are more than the usual "bog standard", but imaginative and provide businesses and our community in general with a choice and something that will benefit the Island and enhance our economy and commuter travel in general. -2-

I think with these stated points I feel there is no need to give oral evidence to the committee and that this document is sufficient for my submission of evidence.

Thank you.

Yours sincerely

R W Henderson MEEK ,.•

The. Hon S A Brown SHK .i)eaNer of the House of Keys Legislative Bailding: .6oayreyder y Chiare- Teed Mr M Cornwell-Kelly, Douglas isle of Iviwi Clerk of Tynwald, lAli $P141 Office of the Clerk of Tynwald, Brirish Isles Legislative Buildings, DOUGLAS.

14th May 2002

Dear Malachy,

Ref: Keys Select Committee - Air Transport Route Licensing.

Thank you for your letter of the 29th April 2002 regarding the above matter.

I would advise that in my opinion the idea of introducing a 'Air Transport Route Licensing system' into the Island would be detrimental to the Island and travellers using Manx routes.

The present system and policy of the Manx Government of retaining an 'open skies' policy secures the option of competition. There is no doubt in my opinion, that if the Island had had a policy of Route Licensing then we would not have seen the introduction of the London City service, which is operated by British European, and we still would have lost the London Heathrow service operated by Manx Airlines/British Airways.

The reasons for the loss of the London Heathrow route is purely self - commercial interest and no licensing system would have stopped the decision being made by British Airways. Would the Island have then refused to agree to a licence to operate a service to and from London Gatwick — I think not!

An independent localised route licensing system will only work successfully if you have a situation where your options are limited and you are not dealing with a market, which is competitive; in other words you licence to attract and secure a service which may well not have been retained at a desirable level.

For example, the system, which operates in relation to the Steam Packet, is successful because we do not have operators 'queuing up' to provide Passenger Sea services in the Irish sea area, i.e. there is a lack of a competitive industry. The area that is competitive in relation to sea services is freight however, if we permitted anyone to operate a Ro-Ro freight service only, then we would be unlikely to have any meaningful passenger sea services.

However,/

Telet:hoi;c:1.11()3,' L.

However, the case in relation to air services is considerably different and we should not allow ourselves to become confused or attracted by offers of 'secure monopolised' services in what is a very competitive industry. In the present commercial Air service industry, there is no such thing as a 'secure' service unless the terms are fully in favour of the service provider and then only whilst it is to their financial benefit i.e. providing substantial financial incentives. Just check out for example, EasyJet and Ryanair and the basis of their agreements with the airport operators.

When Manx Airlines offered to provide 'security' of services into the London area they required a total monopoly of the London air space area and I am sure that after the initial period of the route license the case would have been made to still move from London Heathrow. One thing is very clear though, if we had agreed to such an agreement then we would not have seen the introduction of the London City service. Where would the Island be then?

Air services are a 'modem' fomi of transport and competition on routes where it has applied has in recent years proved to be responsible for developing considerable growth and keener prices for the traveller.

I would urge the committee to reject any proposal to introduce an Air Transport Licensing system, as the only winners will be the airline(s) and the looser, certainly in the longer term, will be the travelling public.

In my opinion, especially in the present climate, the only realistic option for the Island is for the Department of Transport to retain the 'open skies' policy, encourage new business as appropriate, and to keep the matter of air services constantly under close scrutiny to safeguard the Islands interests.

Yours sincerely,

The Hon J A Brown SHK and Member for Castletown. LEGISLATIVE. BUILDINGS ISLE OF MAN IM1 3PW Our Ref: REQ/ecw

10 June 2002

Mr M Cornwell-Kelly Clerk of Tynwald Clerk of Tynwald's Office Legislative Buildings DOUGLAS

Dear Malachy Air Transport Route Licensing

I regret the delay in responding to your letter dated 29th April 2002 concerning the subject matter.

At present an airline wishing to operate a service to and from the Island may do so subject to Civil Aviation Authority approval, which is primarily concerned with the airline's financial fitness and the aircrafts' operational fitness. This may not take full or proper account of this Island community's needs and, competition apart, the cost of the services provided by the airline.

To some extent a parallel can be drawn with the current air passenger services and sea passenger services prior to the introduction of the User Agreement. While the User Agreement with the Isle of Man Steam Packet Company Ltd represents an improvement, it falls short of a Statutory Franchise which operates elsewhere.

If the Isle of Man were to licence air services operating to and from the Island they may be able to influence the routes operated, frequency and cost of services. Air services could be licensed on a single route basis or as a package of routes.

Should an Isle of Man air service licensing system offer the advantages that I anticipate, it would be for consideration that a single airline should be granted a User Agreement for the key routes. Similar obligations could be placed on the selected airline to those presently imposed on the Isle of Man Steam Packet Company Ltd.

I regret having been unable to research this matter in depth, but trust the Select Committee will take account of these views.

Yours sincerely

R E Quine MHK

Appendix 3

OFFICE OF THE CLERK OF TYNWALD Legislative Buildings, Douglas, Isle of Man, British Isles, 1M1 3PW Our Ref: 29th April 2002 Mrs C Christian Minister for Health and Social Security Markwell House Douglas Dear Minister Air Transport Route Licensing At its sitting on Tuesday 12th March 2002 the House of Keys voted to establish a Select Committee to investigate the feasibility and merit of the Isle of Man Government operating a route licensing system for passenger carrying aircraft using Ronaldsway Airport.

In connection with this investigation the Committee is keen to canvass the opinions of interested parties. In accordance with the wishes of the Committee I am writing to ask if you would like to submit written opinions to the Committee for its consideration. In particular the Committee wishes to know what your opinions are on the issue of establishing a Manx Air Transport Licensing Authority which would award route licenses to airlines wishing to operate scheduled or regular charter services to Ronaldsway Airport. The Committee would be pleased to receive your reply by 31st May 2002, and to know whether you would be prepared to giving oral evidence to it. If you are willing to do so, please indicate whether you would rather give evidence in public or private. The Committee appreciates that some matters may be commercially sensitive and therefore is willing to offer the opportunity to give evidence in private. If you would like further information or clarification on this issue please feel free to contact me. Yours sincerely

Malachy Cornwell-Kelly Clerk of Tynwald

Telephone: (01624) 685500 Email: [email protected] Fax: (01624) 685504 Department of Health and Social Security Rheynn Slaynt as Shickyrys Y Theay

From the Minister Minister's Office Markwell House isle of Man Market Street Government Douglas, 'Isle of Man 1M1 2RZ Peaty; filen Vannfrl Telephone (01624) 685002 Fax (01624) 685130 E-Mail [email protected] Web Site www.gov.im/dhss

Ref: 5-007/A: 9-004

21' May 2002

Mr M. Cornwell-Kelly Clerk of Tynwald Office of the Clerk of Tynwald Legislative Buildings Douglas

Dear Clerk of Tynwald

Air Transport Route Licensing

This responds to your letter of 29th April.

The only issue which, as Minister for Health, I would bring to the Committee's deliberations is the matter of ensuring that should any route licensing system be put in place it should not interfere with the current ability of the Department to enter periodic contracts for the provision of emergency air ambulance services between the Island and destinations anywhere in the British Isles. Nor should any system interfere with the performance of such contracts.

This represents a fundamental principle which I think is reasonably clear but nevertheless if the Committee feels that I may be able to add to it through oral evidence I will be more than happy to attend before the Committee.

Yours sincerely

Clare Christian, BSc MLC Minister for Health and Social Security

01+10E OF THE CLERK OF TYNWALD Legislative Buildings, Douglas, Isle of Man, British Isles, an 3PW Our Ref: 2' May 2002 Mr M Bathgate Commercial Director Manx Airlines Viscount House Ronaldsway Airport Ballasalla Isle of Man Dear Sir Air Transport Route Licensing At its sitting on Tuesday 12th March 2002 the House of Keys voted to establish a Select Committee to investigate the feasibility and merit of the Isle of Man Government operating a route licensing system for passenger carrying aircraft using Ronaldsway Airport. In connection with this investigation the Committee is keen to canvass the opinion of interested parties. In accordance with the wishes of the Committee I am writing to ask if you would like to submit written opinions to the Committee for its consideration. In particular the Committee wishes to know: (a) what your views are on the establishing of a Manx Licensing Authority (b) whether you have any general observations to make as a result of any experience you may have had in dealing with the Jersey and Guernsey Air Transport Licensing Authorities The Committee would be pleased to receive your reply by 31st May 2002, and to know whether you would be interested in giving oral evidence to it. If you are willing to do so, please indicate whether you would prefer to give evidence in public or private. The Committee appreciates that some matters may be commercially sensitive and therefore is willing to offer the opportunity to give evidence in private. Yours sincerely

Malachy Cornwell-Kelly Clerk of Tynwald

Telephone: (01624) 685500 Email: enquiries*tynwald.org.irn Fax: (01624) 685504 Manx Airlines Limited Isle of Man (Ronaldsway) Airport May 2002 28th Isle of Man • IM9 2JE

Mr M Cornwell-Kelly Clerk to Tynwald Office of the Clerk of Tynwald Legislative Buildings Douglas IM I 3PW

Dear Mr Cornwell-Kelly,

Air Transport Route Licensing

In reply to your letter of 29th April seeking written opinions of the feasibility and merit of the Isle of Man Government operating a route licensing system for passenger aircraft I would offer the following comments.

1. One of the potential merits of establishing a Route Licensing system is to provide the 10M Government with advance notice of potential new operations. Such notice can give incumbent operators the opportunity of expressing their views on the likely impact that any new operations may have on existing services. With such a system it is possible for existing airline(s) to draw attention to the IOM Government the risk that any new services may have on the potential withdrawal of an existing operation. This could be to the long-term detriment of the IOM economy.

2. Any route licensing system would have to be established with the clear objectives in mind of considering only the national interest of the Isle of Man. It should not take into account any potential commercial impact on any of the existing airlines likely to be affected by additional competition.

3. Experience dealing with the Jersey Transport Authority suggests that one of their main reasons for maintaining a licensing system has been to avoid the over-extension of summer charter services to the Island that could hinder the long-term viability of year-round scheduled services. The processes that they use for dealing with applications is efficient, transparent and one by which all interested parties are able to express opinions during the decision processes.

4. Manx Airlines does not specifically support any planned establishment of a licensing system, but, if the Government were to be in favour of developing such a system then Manx Airlines would be willing to offer views on the means by which a system could be facilitated.

Tel: (01624) 826000 • Fox: (01624) 826001 REGIONAL TELEPHONE SALES • Tel: (01624) 824313 or 08457 256256 • Fox: (01624) 826031 WORLD WEBSITE: rnanx-oirlines.com • E-MAIL: [email protected]

NOM a! the Ye. DDTESTOL Di PEOPLE :goo Registered Office: as above • Registered No: 1042

OFFICE OF THE CLERK OF TYNWALD Legislative Buildings, Douglas, Isle of Man, British Isles, IM1 3PW

18th March 20002

Mr P Pain Airport Director Ronaldsway Airport Ballasalla Isle of Man

Dear Mr Pain

House of Keys Select Committee on Air Transport Licensing

As you have no doubt heard, the Keys decided at their sitting on March 11th to establish a three man committee to look into the issue of establishing some sort of licensing authority to license airlines operating services into Ronaldsway. I know that the issue has been investigated before, but the Committee have asked me to contact you with a request for help in their early deliberations on a number of matters.

Firstly, the Committee is keen to obtain a list of all scheduled services currently operating from Ronaldsway, including destination, frequency and operator. I have drawn one up from the information available to me and enclose a copy. I would be grateful if you could make any amendments which are necessary. I have taken the date for this table as being March 28th simply as this is the date which marks the end of the winter season.

Secondly the Committee would be pleased to receive from you a simplified summary of the new charging policy to be implemented at Ronaldsway from April 1st 2002.

Thirdly I have discovered that the CAA is considering changing the licensing regulations. However I have not managed to find out exactly what these changes are, or how they may effect the Island. Any help you may be able to give would be most welcome.

Telephone: (01624) 685500 Email: enquiriesOtynwald.org.irn Fax: (01624) 685504 Lastly the Committee wish to have a summary of all scheduled services operated from Ronaldsway over the last 20 years, so that they can gain an impression of which routes and carriers have endured and which have not. As an aviation historian myself, I appreciate the enormity of this task and understand that it may prove entirely impossible to provide.

I am very grateful to you for help on these matters.

Yours sincerely

Phil Lo Bao Third Clerk of Tynwald Isle of A20/PP/tal 28th May 2002

Mr M Comwell-Kelly Clerk of Tynwald Office of the Clerk of Tynwald Legislative Buildings Douglas Isle of Man IM1 3PW

c+ • .

Air Transport RouteliDensinq

Thank you for your letter of 29th April 2002, inviting me to submit my opinions to the Select Committee, regarding airline route licensing, and the possibility of establishing a Manx Air Transport Licensing Authority.

The Committee has already received copies of previous papers that I have written on this topic, in my role of advising my own Department. Therefore, it would seem to be unnecessary to repeat those papers, at length. Instead, I will summarise my own opinions, as follows, with particular emphasis on the historical context:

1) When British civil aviation resumed after WWII, it consisted of State owned and run airlines such as BOAC and BEA. Similarly, routes and airfares were part of a centralised state planning process. There was no competition on air routes and independent airlines were marginalised and restricted to charter flights, or operated some regional air services on behalf of the State.

2) This State-run system did little to encourage the growth of air travel, or make it more accessible to the general public. The only real growth occurred in the independent charter sector, where package tour holidays came to represent good value in the late 1950's and 1960's.

3) In contrast, scheduled air services remained closely regulated well into the 1980's. Specific permission was required for everything that a scheduled airline offered to the public, and it was not even possible to vary the type of air fares or ticket prices. If any airline proposed something new, then other airlines could object and force matters through a lengthy hearing process, with the possibility of appeals to the Secretary of State etc. Government bodies could also submit objections, and the whole process was highly politicised.

4) Air Services with other countries were subject to additional restrictions, and only designated State owned airlines were allowed onto routes between major European cities. None of this was conducive to the concept of a European Common Market, and therefore the EU initiated a "liberalisation" process, designed to create "open skies" with no anti-competitive restrictions.

Ballasalla, Isle of Man IM9 2AS Telephone (01624) 821600 Fax (01624) 821611 Internet: www.iom-airport.com This Airport is operated for the Isle of Man Government by the Department of Transport Rheynn Arraghey Page 2

5) This European liberalisation process was also influenced by the political pressure being exerted by secondary airlines such as British Midland, who sought the right to compete on major trunk routes such as London-Paris. The Chairman of British Midland was also (at this time) the Chairman of Manx Airlines; namely Sir Michael Bishop. This is relevant to the Isle of Man situation, because Sir Michael actively supported and promoted the CAA changes to route licensing, which were promulgated around 1993. Thus, neither British Midland nor Manx Airlines objected to the introduction of the new measures, which effectively opened the door to unrestricted competition on any air route to or from the Isle of Man.

6) The new regime ended the "procedural manoeuvring" that had characterised air transport licensing to/from the Isle of Man before 1993. Until then, new applications to serve the Isle of Man would be objected to by the incumbent air carriers, and the CM would then be obliged to call a full Hearing, in London. Political pressure would be exerted by incumbent airlines, seeking to persuade the Isle of Man Government to object to the new proposals. Often the CAA Hearing would be cancelled before it was held, probably because the airlines concerned had reached "an accommodation". In this respect, there was sometimes a feeling that Airline "A" would object to Airline "B's" application, and in response, Airline "B" would then object to the next application submitted by Airline "A".

7) The great difficulty, for both the CAA, and the Governments involved (including the Isle of Man), was the difficulty of knowing who to believe. The airlines involved would make claim and counter-claim, but without ever fully revealing their financial information or operating economics. Claims were often made that particular flight frequencies would be flown, or attractive fares made available, but it was very difficult to subsequently verify that the "promises" had been fulfilled.

8) In turn, this sometimes led to suggestions that binding legal agreements should be drawn up, so that guarantees regarding services and fares could be obtained. However, the price to the Community for such agreements would have been the complete exclusion of other air carriers from key air routes. This was rightly judged to be unacceptable and anti-competitive.

9) It is the case that the new liberalised regime has largely taken the Isle of Man Government "out of the loop" regarding air transport licensing and our role is reduced to that of being consulted rather than having any sort of veto over new applications. However, the same now applies to all other Governments throughout Europe, and arguably the system is better for it. In other words, a new air carrier firstly has to prove that they are fit to fly, and they have to obtain their Operating Licence. But once they are up and running as an airline they can then enter any market and compete freely to win customers. The subsequent growth of "low cost carriers" is proof that the new liberalised regime has produced significant benefits for the consumers, and many regional economies.

10) Even for the Isle of Man, the new regime has produced benefits, in that new small air carriers have been able to enter the market. Also, Emerald Airways were able to enter the Liverpool market with a resulting 40% increase in passengers on the route in the first year. More recently, British European have been able to very quickly react Page 3

to the changes announced by British Airways, and have introduced additional capacity, new services and lower fares.

11) In any volatile free market environment there are likely to be spectacular failures or changes from time to time. That is the nature of open competition, but the consumers can take comfort from the knowledge that competition exists which keeps prices low, and forces airlines to be as efficient as possible. Even where existing airlines still retain a monopoly position on a particular air route, they can not abuse that position, because to do so, would increase the chance of a competitor entering the market. A good example of this is the Liverpool route, where the incumbent airline has to keep high capacity and lowish fares in place, otherwise a low-cost carrier could find it attractive to come onto the route, using Boeing 737s based at Liverpool. Thus, even though Emerald Airways did not remain on the route as a competitor, Emerald have left a legacy of higher seat capacity and lower fares on the route.

12) In my view the (re)-introduction of any form of Isle of Man Licensing regime would be likely to repeat the mistakes of the past, as described above. It would introduce procedural "hurdles" which would discourage new airlines from considering the Isle of Man, especially as they could deploy their aircraft anywhere else in Europe, without restriction. It would allow other air carriers to object to applications, which, in turn, would place the Manx Authority in the impossible position of having to judge the relative merits of submissions, but without access to the necessary commercial information upon which to take an informed decision.

13) Neither should it be assumed that the Manx Authority could effectively "place conditions" on the grant of any licence. If the conditions were too onerous, then the consumer would end up paying for the Institutional inefficiency" that was created, as the airline would pass on the cost, one way or the other.

14) Having said all the foregoing, there may nevertheless be limited circumstances in which State intervention is justified. There are established mechanisms within Europe for allowing this to happen; namely Public Services Obligations (PSO). A typical example may be an uneconomic air route to a remote Scottish Island. The State (i.e. the Scottish Government) will invite tenders for any airline to fly the route. The lowest tender wins. Performance standards such as frequencies and fare levels can be set. There will be a State subsidy, but the tender process should keep this subsidy to a minimum. However, the European rules do not allow PSOs to be created where there is already a viable commercial air route, so a PSO could only be created in respect of Isle of Man air routes where (for example) there was no airline willing to fly any commercial air service to Ireland.

15) The call to look at the feasibility of introducing Manx Air Transport Licensing, was prompted by the British Airways takeover of Manx Airlines, and the subsequent loss of the Heathrow air route. However, it is difficult to see any way in which a Manx Licensing Authority could have prevented this from happening. Airlines are driven by global economic factors, and they will always be free to withdraw services for commercial reasons. Heathrow was not a route licensing issue, but rather it is a very scarce resource caused by a failure to provide additional runway capacity at the most popular airport in the British Isles. A Manx Licensing Authority could have required the replacement Gatwick air route to go through a licensing process, but the only Face 4

airline with ready access to scarce Gatwick runway slots, is British Airways. It would have been unwise to have made it difficult for this airline to have made a seamless switch from cre route to another. Quite simply, a Manx Licensing Authority cannot exercise any form of effective control, when it does not control the resources at the far ends of our air routes, nor does it control the airlines who have the aircraft resources.

16) A Manx Licensing Authority could, at best, control or restrict access to airport facilities on the Isle of Man. However, our airport has spare capacity and can accept more air services. Our consumers keep seeking lower fares; additional services; and new destinations. These aspirations will only be met by encouraging competition; striving for efficiency (lowest cost); and promoting the Island with the help of tangible incentives. It would therefore seem perverse to introduce "hurdles" which would work against competition; efficiency; and promotion.

I trust that these opinions will be of assistance to the Select Committee. I have no objection to this paper being made public, as it does not contain any commercially sensitive information. Similarly I would be willing to give evidence in public, subject to any commercial confidences being taken in private session.

Yours sincerely

1 r\ P Pain k Airport Director Appendix 6

OFFICE OF THE CLERK OF TYNWALD Legislative Buildings, Douglas, Isle of Man, British Isles, 1M1 3PW

Our Ref:

29th April 2002

Dear Air Transport Route Licensing

At its sitting on Tuesday 12th March 2002 the House of Keys voted to establish a select committee to investigate the feasibility and merit of the Isle of Man Government operating a route licensing system for passenger carrying aircraft using Ronaldsway Airport.

If you would like further information or clarification on this issue please feel free to contact me.

Yours sincerely

Malachy Cornwell-Kelly Clerk of Tynwald

Telephone: (01624) 685500 Email: [email protected] Fax: (01624) 685504 7 C.,:uernsey isle ,7A Man C. TRAVEL Pf 0 1-3. i C-f• V Heron House, Jersey Airport, St. Peter, Jersey JE1 1BW, Channel Islands. Ter,: (01534) 746181 Fax: (01534) 747434 • V. 3 Etatlord Drive, Broxboume, Harts EN10 7JT, England. Tel (01592) 445390 Fax: (01992) 467208

17 May, 2002

Office Of The Clerk Of Tynwald Legislative Buildings Douglas Isle of Man IMI 3PW

Dear Mr Cornwell-Kelly

Air Transport Route Licensing

I refer to your letter of 02 May, 2002 addressed to Travel Services IOM Lmited which is wholly owned by our company.

Thank you for seeking our views and we are pleased to make the following comments.

a. Our first reaction to the establishment of a Manx Licensing Authority is "is it really necessary". We are not aware of any serious problems brought about by the absence of such an authority. As the trends are for more and more competition and an ever improving offer to the consumer, we feel that the days of restricting services are very limited indeed if they have not gone entirely. Perhaps if a licensing authority was established it should be on the basis of an appeal for intervention rather than creating what could become a significant bureaucracy in the establishment of licensing for every route.

b. With regards to your request for our general observations as a result of our experience in dealing with the Jersey and Guernsey Air Transport Licensing Authorities, we would like to comment in confidence. We do not feel there has been significant improvements in the market conditions as a result of any intervention. Intervention has been limited and we would therefore query whether the total cost of the department really warrants the result. On the Southampton to Jersey route the licensing process caused considerable grief to British European and it is our view that the consumer would have been better served by a free market. In our view there was never any question of a loss of both carriers requiring "life line route" consideration. The other intervention concerned the sea carrier "Condor" being restricted from carrying cars from Jersey to St Malo in

WWSERSVANSMYCOVpld Aix Tampon Rowe Lioloneincla

Recislerec* Office: 6 Hill Street, St. Helier, Jersey JE4 8YX. .Ari, moral s competition with Emeraude. This has resulted in high consumer prices and local residents completely unable to understand why they have to travel without their cars to St Malo on Condor.

It is also perhaps difficult for an island to seek a lower inflation rate through higher competition and the provision of more products and services by open market activity when at the same time it practices a restrictive regime in another direction. The holiday booking is made up of the involvement of Travel Agents, Tour Operators, and hoteliers all of whom have no licensing requirement that restricts the capacity they can offer. It does not seem logical in this day and age that sea and air carriers should need to have their supply restricted by licensing.

Should you wish us to elaborate on any of these comments the writer will be pleased to do so preferably in writing or by telephone.

I have been asked to advise you that the views expressed above are also those of Premier Holidays/Everymann and should you wish to confirm this please contact Mrs Sue Papworth on 01223 516216 .

urs sincerely

Peter L Drew Chairman & Managing Director

c.c. Mrs Sue Papworth, Director, Premier Holidays

HAUSER$VANENT1)0001 Air Tmapon Roseic Licuningdac 2

Premier Holidays Limited Westbrook Milton Road SP/HP Cambridge CB4 1YG England Telephone 01223 516516 20 May 2002 Fax 01223 516615 www.premierhofidays.co.uk email: [email protected]

Mr M Cornwell-Kelly Clerk of Tynwald Legislative Buildings Douglas Isle of Man IMI 3PW

Dear Mr Cornwell-Kelly

RE: AIR TRANSPORT ROUTE LICENSING

Many thanks for your letter dated 02 May 2002 regarding the above, and our apologies for the delay in replying.

Having discussed the matter with Peter Drew of IOM Travel Services and we are in full agreement with the comments made in his letter to you of 17 May 2002.

Should you require any further information, please do not hesitate to contact.

Yours sincerely OLIDAYS LTD

--2unaramok,

171 san Papworth Deputy Managing Director

AOv,./4 A BTA Registered Office. Westbrook Milton Road Cambridge C134 1YG The Premier Travel Group Of Companies Established 1936 2713 Registered Number 1791598 England 26 Duke Street Douglas Isle of Man NI 1 2AY

Mr Malachy Cornwell-Kelly E-mail [email protected] Clerk of Tynwald Legislative Buildings vvvvw.richmoncitravel.co.uk Douglas Leisure Travel 13/11 3PW Tel: (01624) 621770 Fax: (01624) 663543

23 May 2002 Business Travel Tel: (01624) 621799 Dear Mr Cornwell-Kelly Fax: (01624) 616786

Air Transport Route Licensing

Further to your letter of 29 April concerning the above, I have contacted other senior members of the travel agency industry on the Isle of Man and would make the following comments :-

The consensus of opinion was that provided that there was some positive action envisaged by the new body in terms of providing or helping to provide a wider range of services from the Island or encouraging competition on those routes regarded as trunk routes off the island , that such a committee would be desirable .

There was a train of thought amongst several of the people that I contacted that the committee in itself should not be the judge of what or how many airlines operated on any particular route based purely on competition.

I hope the above is of use to you , and I would be willing to appear before the committee — preferably in private .

Yours faithfully

George Aaron

/.114 10 Directors: G. Aaron. (Managing). Mrs H. Aaron ABTA Registered in the isle of Man No. 23186 52607 VAT No. 000 5862 18

Appendix 7

SELECT COMMITTEE OF THE HOUSE OF KEYS ON AIR TRANSPORT ROUTE LICENSING

In February 2002 the House of Keys established this Committee to investigate the feasibility and merit of the Isle of Man Government operating a route licensing system for passenger carrying aircraft using Ronaldsway Airport. The Committee would like to hear the views of interested parties or individuals on the question of establishing a Route Licensing Authority which would grant licences for airlines to operate scheduled passenger or regular charter flights to the Isle of Man. Any member of the public who wishes to submit written evidence is invited to do so by 5.00 pm on Friday 31st May 2002. Written evidence should be submitted to Malachy Cornwell-Kelly at the address below. Malachy Cornwell-Kelly Clerk of Tynwald Office of the Clerk of Tynwald Legislative Buildings, Douglas Isle of Man 1M1 3PW

TO: Classified Advertising Section

Could you please insert the above in the Public Notices section of the next issue of the Courier Examiner and Independent newspapers. Please invoice Clerk of Tynwald, Clerk of Tynwald's Office, Legislative Buildings, Douglas.

If there are any queries please contact Mrs Julie Wild on 685500. Isle of Man Route Licensing Commission submission

Submission to the Tynwald Route Licensing Commission relating to the Establishment of an Isle of Man Route Licensing Authority

31st May 2002

Background

The aviation industry is a major area of growth internationally. Within Europe, over the past 20 years, aviation has shown the most dramatic increase of all forms of transport. Notwithstanding the decline within the industry due to the events of 2001, aircraft movement figures are predicted to double within the European Civil Aviation Conference (ECAC) area before 2020. In the context of this growth many initiatives have been commenced within the ECAC area. A number of these have been initiated under the auspices of the European Union notably the "Single European Sky" policy and liberalisation of the air transport market.

N.B. : For the purposes of this paper it is noted that the Isle of Man is not a part of the European Union and its relationship with the Community is governed by Protocol 3 to the Act of Accession. This Protocol gives access to the Community market for agricultural products and products processed therefrom. Other rights-enjoyed within the United Kingdom are not affected by the Ad of Accession. However Community provisions relating to the free movement of persons and services are not extended to the Isle of Man.

EU negotiation of air services agreements.

Most air service agreements between EU States and external States have been dealt with on a bilateral basis todate. However it is the European Commissions stated aim that the EU member States will negotiate air services agreements as a united group and not on a bilateral basis. The competence for the Commission to negotiate these agreements extends from Article 113 of the Treaty of Rome.

The likely impact on the Isle of Man of this policy may be viewed two ways.

1. That the Isle of Man for aviation purposes is considered as part of the EU. This would entail a revised agreement between the Isle of Man and the EU being introduced as Protocol 3 does not cover such situations. 2. That the Isle of Man is considered as external to the EU and, therefore, will be required to negotiate air service agreements with the EU.

Scenario 1 may require an alteration of Protocol 3 which, in being revised, may lead to additional Constitutional problems. Scenario 2 will require that the Isle of Man has some form of Air Route Licensing Authority.

Liberalisation of Air Transport in the European Union.

Liberalisation of air transport in the European Union was completed in three stages. The final stage of liberalisation was reached with the third package operational since 1993 culminating in April 1997 in the liberalisation of cabotage (the right for a Member State carrier to operate a route within the territory of another Member State).

M. Griffin 31/05/02 isle of Man Route Licensing Commission submission

Freedom of access to the market is laid down in Regulation (EEC) 2408/92. This enables unrestricted access to international intra Community routes for Community licence holders. However there is an important safeguard contained within the Regulation concerning public service obligations. This safeguard is contained in Article 4 of the Regulation and relates to airports serving a peripheral or development region or on a thin route to any regional airport, any such route being considered vital for the economic development of the region in which the airport is located. This obligation may be to the extent necessary to ensure on that route the adequate provision of scheduled air services satisfies the fixed standards of continuity, regularity, capacity and pricing which standard air carriers would not assume if they were solely considering their commercial interest. The regulation allows for limited access to the route to only one air carrier for a period of up to three years after which a review shall take place.

Again two scenarios exist, 1. That this regulation is adopted on a voluntary basis by the Isle of Man. 2. That is does not apply to the Isle of Man as it is external to the EU.

In scenario 1 the adoption of the principles contained within the Regulation still allows locations such as the Isle of Man to restrict access to operators on a particular route for public services reasons. In this case a Route Licensing Authority is required. The use of Article 4 may be well justified in relation to certain routes too/from the Isle of Man.

In scenario 2, as the liberalisation of air transport does not apply in an EU context a Route Licensing Authority is necessary to ensure that the interests of the Isle of Man are best served.

Conclusion

The changing situation with relation to air services in Europe introduces a number of considerations for the Isle of Man. Many changes have not, at this stage, impacted the Island to a large degree. However, recent events relating to Manx Airlines have indicated that the Island is vulnerable to change. To best position itself to ensure that air services are maintained at an adequate level the establishment of a Route Licensing Authority should be seen as an important step.

M. Griffin MSc Airport Planning, MCIT, MILT Avenue des Chenes 56 1180 Uccle pp Brussels Belgium Tel 00322 375 3955 pa 272- 2-1-0i 3acki-L.

M. Griffin 31/05/02

Appendix 8

Summary Notes on Meeting with Mr Richard Kirkpatrick, Chief Executive Guernsey Transport Board held at Jersey Airport 30th May 2002

Why had Guernsey established a Transport Board?

1. With advent of the Civil Aviation Authority "Open Skies" policy the CAA were likely to licence any operator for operating inter-island services between Jersey and Guernsey. This could jeopardise the viability of the high frequency "bus-stop" style service flown by Aurigny. Therefore both Jersey and Guernsey decided to establish Licensing Authorities to regulate inter- island traffic.

2. Secondary purpose was to seek to ensure a viable all year round service to London and Southampton.

How does the licensing procedure work?

1. When the Board was established, all existing carriers received licences for the routes they were operating.

2. An airline applies for a licence. The Board then advertises this in the CAA weekly notices and the local press and invites written submissions of views.

3 If the objection is contested a hearing will be held, at which interested parties will be asked to submit views in writing. The Board then deliberates on these and reaches a decision.

4. Applications which are not contested have a licence issued without a hearing.

5. Licences for year round scheduled services are issued without a time limit, licences for seasonal scheduled services are issued each season. Charter licences are issued for each series of charter flights, although there are comparatively few of these in the case of Guernsey.

Does the Board ever licence two operators on the same route?

1. Yes, it has fairly recently licensed Aurigny to fly to Manchester in competition with BA, largely because the BA service was reduced and the day return facility withdrawn. Aurigny were willing to offer a day return facility.

2. The Board felt that market forces would then operate to determine whether two operators remained on the route.

Has a licence application even been refused?

1. Refusals are very rare. There have been three:

(a) British European and Aurigny applied for a licence to operate from Guernsey to Stansted. The Board awarded a licence only to Aurigny on the grounds that British European already operated between Guernsey and Gatwick, and had a licence to fly from Guernsey to Luton. The Board was anxious not to allow concentration of air services to London Airports in the hands of one carrier. The licence to Aurigny was awarded even thought the type of aircraft was not as modern and seat capacity lower than that offered by British European.

NB Subsequently the Board has licensed British European to operate a Guernsey-London City service.

(b) Two operators applied for a licence to operate from Guernsey to Southampton, and only one (British European) was awarded the licence. It was given sole operator status on the route in return for agreeing that that a given number of seats should be sold below a set fare agreed from time to time between the carrier and the Board.

(c) The Board has very recently awarded the licence to carry mail to Alderney to Aurigny despite a lower bid from an Alderney based carrier (Le Cocqs Airlines), because the Board felt that the loss of this income would be a serious blow to Aurigny who maintain an aircraft in Alderney every night for emergency air ambulance duties.

Would the Board ever revoke a licence?

1. It has never done so, although in theory it could do so.

What about charter flights?

1. These have to be licensed but in the case of Guernsey there are very few, with tour companies buying seats on scheduled services.

2. What charters there are generally operate only from airports without scheduled services to Guernsey such as Bournemouth. These are therefore not controversial.

What problems has the Board encountered?

1. The inability to prevent a carrier from ceasing to operate a route, eg KLM/UK gave up its Heathrow service. the Board is also afraid that BA and British European might withdraw from the Guernsey-Gatwick route (because the slots are so valuable), and is seeking to encourage both carriers to retain the route. However it realises that ultimately there is nothing it can do to stop them.

2. Its ability to encourage new operators to use Guernsey is very limited, although it has just been granted £600,000 to use in some way to encourage new carriers and keep existing ones. At the time of the meeting the Board had not decided how to use this money.

2 If Guernsey was starting again would it still create a Licensing Board?

1. Yes, if only to preserve the inter-island link, and possibly the link with London.

2. The Board's work load, with regard to Air Transport Licensing procedures, is not great because airlines are not queuing up to apply for licences to fly to Guernsey.

Summary Notes on Meeting with the Jersey Transport Authority held at Maritime House St Helier 30th May 2002

Why had jersey established a Transport Authority?

1. To protect Aurigny from competition on the inter-island route between Jersey and Guernsey. Other carriers operating through both islands were wishing to carry inter-island traffic which may have undermined the profitability of Aurigny.

2. Also to prevent summer only and charter operators from "creaming off' traffic making the all year round operators services potentially unviable.

How does the licensing procedure work?

1. In a similar way to that in Guernsey, see the notes on the Guernsey meeting.

2. The number of contested applications (ie ones where an airline has applied for a licence and this has been objected to by another) has been very few in recent years. In the last 3 years there have only been 2 contested applications.

Has a licence application even been refused?

1. Refusals are very rare. While KLM/UK were operating the Jersey- Southampton route a second carrier did apply and had its application turned down because there was insufficient traffic to support two operators. When KLM/UK withdrew from the Jersey-Southampton route, BA and British European both applied for the licence. It was awarded only to BA on the grounds that the Authority accepted the argument that there was insufficient traffic for two operators.

Would the Board ever revoke a licence?

1. It is most unlikely, although in theory it could do so.

What about charter flights?

1. Jersey has numerous charter flights from UK airports. Each of these needs a licence for the duration of the charter period.

2. No charter application has ever been refused.

3. The Authority pointed out that charter flights were decreasing more rapidly than scheduled flights. What problems has the Board encountered?

1. The Authority has encountered the problem of public expectation. The public expect the Authority to be able to deliver low cost air fares and maintain routes. However the Authority has no power over either. It does not control fares and it cannot stop a carrier withdrawing from a route (eg BA to Heathrow) and it cannot make an airline open a route.

2. Low Cost carriers. This is an aspect of public expectation. The low cost carriers claim that the Authority is preventing them from operating into Jersey. In fact this is not the case. Easyjet was granted a licence to fly from Luton some years ago and never used it, and Ryan Air and GO have never applied for licences. If they did the Authority would grant them. The expectation of low cost carriers that they would receive preferential treatment with regard to landing fees at the airport is not within the remit of the Authority. To allow low cost carriers reductions in airport charges would create a situation which existing carriers would find unacceptable.

3. Competition Policy. Jersey is in the process of adopting a competition policy which may restrict the future operation of the Authority. Licensing is essentially negative and is not in line with encouraging competition policy and de-regulation.

However a Competition Authority could still have a role in air transport licensing by allowing a single operator on a route but regulating the service it provides to ensure that it does not exploit its monopolistic position. For example, a licence may have to be renewed every three years.

If Jersey was starting again would it still create a Licensing Board?

1. Yes, the situation of the inter-island link would make it necessary. Recent events have proved this, British European applied to carry passengers on inter-island flights. To protect Aurigny they have only been allowed to do so on a very restricted basis. They can take standby passengers and at no more than half an hour before departure.

2. The system has worked quite well and there is no evidence that it has put off any airline from flying to Jersey.

3. The lack of applications for licences is more due to the fact that airlines see no economic benefit in flying into Jersey than the existence of a Licensing Authority.

Parliamentary Copyright available from:

The Tynwald Library Buck's Road DOUGLAS Isle of Man IMI 3PW British Isles November 2002 Tel: 01624 685520 Fax: 01624 685522 e-mail libraiy©isle-of-man.org.im Price: £4.40