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Liberalisation of Air Transport - A European Perspective Mr. Klaus Geil Air Transport Directorate Directorate-General for Mobility and Transport Institution for Transport Policy Studies – Lecture Meeting

Tokyo – 3 June 2010 1 z Presentation Outline

9 The Single EU Aviation Market 9 EU Aviation Policy Challenges 9 A Few Key EU Aviation Policy Areas 9 EU External Aviation Policy – Liberalising Beyond 9 Benefits of Open Aviation Markets 9 EU Relations with Asia and the Significance of Japan

2 z

The Single EU Aviation Market

3 z The EU Today

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

4 z The EU Single Market

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

9 Freedom of establishment & provision of services 9 Freedom of movement of goods, capital etc. 9 No barriers to trade (technical harmonisation of standards) 9 Firms have unrestricted access to 500 million consumers

ƒ EU law has primacy over national law

5 From 27 National Air Transport Markets z to 1 Single European Aviation Market ƒ Before 1987: national markets within the EU were protected and fragmented through restrictive bilateral air service agreements between EU Member States ƒ 1987-1992: Three packages of market integration and liberalisation ƒ After 1992: One Single market without restrictions on market access and pricing ƒ Common EU rules in all areas of aviation ƒ The world’s largest and most successful example of regional market integration and liberalisation in air transport. 6 z From National Air Transport Markets to a Single EU Market

Results:

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

7 z Single Market – Common EU Rules But open markets need coherent regulatory framework and common, non-discriminatory and transparent standards … 9 Common requirements for licensing 9 Strict application of competition and state aid rules (EU Treaty) 9 High safety standards (and creation of EASA) 9 High security standards 9 Consumer protection – Passenger Rights 9 Common, non-discriminatory rules for allocation of slots 9 High standards on noise emissions 9 Single European Sky and its SESAR project 9 “Public service obligations” possible for routes to peripheral or development regions or “thin” routes when “vital” for the region.

Work still in progress! 8 z What Have We Achieved? Successes of the Single Market

Number of Intra-EU27 routes with more than 2 carriers

…more 500 competition… 450 400

350

300

Intra-EU routes with 250 Routes more than 2 carriers 200 have increased by 150 310% between 1992 100 50

and 2009 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 …and… Source: OAG summer schedules

9 z What Have We Achieved? Successes of the Single Market

Supply by carrier type within EU27 7 …new Incumbent 6 Others entrants… Low cost 5 Emergence of market for low- 4 cost air services 3 (now over 1/3 of 2 the Intra-EU market. Japan: (millions) available seats Weekly 1

9% in 2009) 0

96 98 01 03 06 005 08 010 1995 19 1997 19 1999 2000 20 2002 20 2004 2 20 2007 20 2009 2 …and… Source: OAG w inter schedules 10 z What Have We Achieved? Successes of the Single Market

Number of international Intra-EU27 routes …more 3.000

choice … 2.500

Number of 2.000 Cross-border Intra-EU 1.500 routes has increased by 1.000 Nbr of routes (city to city) 220% (1992- 500 2009). 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: OAG summer schedules

11 z

EU Aviation Policy Challenges

12 z Unprecedented Challenges

1. Global economic downturn 2. Volatile fuel prices 3. Increasing environmental pressure 4. Security measures 5. Increasing costs from congestion – on land and in the air 6. Most recently: volcanic ash

13 Key Objective Driving EU Policy: z“Ensuring Sustainability of the Sector’s Growth” Means: 1. Continue to lead towards highest safety and security standards – a pre-condition for growth 2. Competitiveness of the industry ƒ Cost reductions, efficiency and consolidation ƒ No bail-out – but accelerating structural reform ƒ Removal of out-dated ownership and control restrictions 3. Tackling the capacity crunch ƒ Avoid/reduce bottlenecks on the ground and in the air 4. Ensure environmental sustainability ƒ Comprehensive approach

14 The Economic Crisis and Aviation z - The EU Responses: ƒ No bail-out. Strict application of competition and state aid rules ƒ Increased vigilance with safety oversight and financial viability ƒ Rationalisation and Consolidation ƒ Temporary flexibility (e.g. freeze of “use-it-or- lose-it” rule for slots) ƒ Acceleration of the Single European Sky ƒ Charges and taxes under scrutiny ƒ External policy to ensure fair competition and equal opportunities (level playing field)

15 z Medium/Long-Term Challenge: Tackling the Capacity Crunch

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

16 z Capacity Crunch and Airport Policy

2007 Communication on Airport Policy and the Action plan :

ƒ Optimising the use of existing capacity; ƒ Improving the planning framework for new airport infrastructure ƒ Promoting co-modality ƒ Development and implementation of new technology ƒ Consistent approach to safety at airports ƒ Creation of an Airport Observatory (2008)

17 z Airport Observatory

ƒ Made up of Members States and relevant authorities and stakeholders (Airports; Airlines; Local authorities; Environmental protection associations; ; SESAR;…) ƒ To exchange and monitor data and information on airport capacity as a whole, and advise the Commission on the implementation of the “action plan for airport capacity, efficiency and safety in Europe”, as well as on any matter relating to airport policy ƒ 3 Working Groups: ƒ WG1: Capacity (inventory, capacity assessment methodology…) ƒ WG2: “Gate-to-Gate” (slot allocation process and SES2) ƒ WG3: Inter-modality ƒ Chaired by the Commission, and set up for a period of five years ending on 31 October 2013 18 z Allocation of Slots

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

19 z

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

20 Market Integration – Also in the Sky: z Towards a Single European Sky ƒ Modernising the operation of the European air space ƒ Reduce fragmentation (from 60 control areas to 9 Functional Airspace Blocks), congestion and waste ƒ On average, aircraft fly 49 km longer than strictly necessary due to airspace fragmentation. ƒ ATM and airport operations all together could reduce emissions by 10% of the average flight ƒ Ambitious new generation of technology (SESAR) ƒ Performance regulation (criteria: safety, quality of service, cost-effectiveness and environment) ƒ Towards a European ”network manager” for air space

21 z Ensuring Sustainability of Aviation ƒ Air transport accounts for around 2-3% of global GHG emissions and is growing ƒ Aviation must make fair contribution to fight against climate change ƒ The EU adopts a comprehensive approach: ƒ New standards (e.g. new aircraft CO2 standard in ICAO) ƒ Research and development of green aircraft technology (e.g. Clean Sky, sustainable alternative fuels) ƒ ATM modernisation (Single European Sky, SESAR) ƒ Market-based measures, i.e. inclusion of aviation in the EU Emissions Trading Scheme (ETS) from 2012 ƒ Emissions trading ƒ The most cost-effective market-based instrument, compared to taxes or charges ƒ Allows aviation to grow through trading with other sectors22 Towards a Global Framework for z Aviation and Climate Change ƒ EU ETS contains flexibility mechanisms: ƒ Scheme may be adapted if: ƒ 3rd country takes equivalent measures ƒ Agreement reached on global measures ƒ But climate change is a global problem and needs a global solution – and international aviation needs a global sectoral approach ƒ EU participating actively in ICAO to seek global agreement ƒ DGCIG – Directors General Informal Climate Group ƒ ICAO Assembly 2010 is a key opportunity ƒ Ready to work with Japan to find solution

23 z

EU External Aviation Policy – Liberalising Beyond Europe

24 Going Beyond Europe: The Three z Pillars of the External Dimension

I. Bringing existing bilateral agreements into line with Community law II. The creation of a “Common Aviation Area” with neighbouring countries ƒ Parallel process of market opening and adoption of EU legislation (“acquis”) III. Conclusion of ambitious global agreements with key partners (US, Canada, Australia, New Zealand, India, China, Russia, Brazil…….Japan?).

25 z Pillar I: Progress on the EC designation

ƒ 104 non-EU states have accepted Community designation ƒ Nearly 900 Bilateral ASAs (around half) have been brought into conformity with Community law (representing 70% of extra-EU traffic) ƒ 43 “Horizontal” Agreements covering 725 ASAs (since September 2004) ƒ Negotiations/talks on-going with remaining countries.

26 z Pillar II: A Wider Common Aviation Area

58 States – Approx. 1 Billion inhabitants 27 z Pillar III: Comprehensive Agreements ƒ With key and like-minded partners ƒ Aim: to “normalise” aviation by combination of: ƒ Market opening ƒ Removal of investment barriers (airline ownership) ƒ Regulatory convergence ƒ EU-US Agreement (1st and 2nd stages) ƒ First stage agreement has been in effect since 30 March 2008 ƒ Second stage agreement initialled on 25 March 2010 following eight rounds of negotiations which started in May 2008. ƒ EU-Canada Agreement ƒ Phasing in of full Open Aviation Area (OAA) ƒ All market aspects covered ƒ Investment & regulatory convergence key ƒ Australia and New Zealand (Negotiations started in November 2008) ƒ Next: Brazil (Negotiating mandate requested 5 May 2010)

28 z What Are “Open Skies”?

29 z

30 z Conclusions: EU External Aviation Policy

ƒ EU external aviation dimension has evolved from the internal EU market ƒ Extension of the single aviation market and EU “acquis” in aviation ƒ The EU as such increasingly recognised ƒ Considerable benefits from EU external aviation policy – for the EU and its partners! ƒ External policy still evolving ƒ Regional integration and liberalisation may offer benefits also in other world regions including Asia.

31 z

Benefits of Open Aviation Markets

32 z An Example of Liberalising Beyond Europe: EU-Morocco.

Growth of passenger traffic between EU and Morocco/Tunis

10.000.000 Morocco 9.000.000 Tunis

8.000.000

7.000.000

6.000.000

5.000.000

4.000.000

3.000.000

2.000.000

1.000.000 Source: Eurostat

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

The EU-Morocco agreement has clearly

demonstrated the benefits of open markets. 33 z EU-US First Stage: Big Competitive Benefits A transformative agreement for Europe and the US

Early results: ƒ 8% more EU-US flights scheduled in summer 2008 than 2007. ƒ >20% more Heathrow-US flights. An increase of 18 daily services. Further large increases in services from Ireland (doubling) and Spain. ƒ European airlines operating from outside their home country: ƒ AF: Heathrow to Los Angeles. ƒ BA’s “OpenSkies”: Paris (CDG) and Amsterdam to New York. ƒ Anti-trust applications: ƒ Sky-Team Alliance: approved. ƒ Star Alliance: approved ƒ Oneworld Alliance: under consideration ƒ Additional transatlantic investment: ƒ Virgin Group’s 25% investment in Virgin America, May 2007. ƒ Lufthansa’s 19% stake in JetBlue, February 2008. Forecast: ƒ First five years: 25 million extra pax; €12 billion benefit; and an extra 80,000 jobs in the US and EU (Source: Booz-Allen-Hamilton Study).

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

Regulatory o Comprehensive o Deepened cooperation, particularly on the cooperation coverage of regulatory environment, the social dimension, security, and issues competition o Commitment to 2nd o Reciprocal clarity on information exchange stage talks regarding noise restrictions o Enhanced role for the Joint Committee

Commercial o No limits on direct and o Additional cargo and passenger 7ths, and 3rd freedoms connecting flights (1st- country carrier investment opportunities to 5th freedoms) incentivise legislative change. o Cargo and limited o Immediate access to Fly America (contractor passenger 7ths for EU traffic) for EU.

Investment o Community carrier o 'The Parties commit to the goal of continuing to principle remove market access barriers…including o Limited 3rd country enhancing the access of their airlines to global carrier investment capital markets.' opportunities (mainly o Annual review of progress towards legislative Africa) for EU change on investment and in the area of European noise restrictions, o Senior level consultations and possible sanctions if no progress is made by a party. 35 z

EU Relations with Asia and the Significance of Japan

36 z EU-Asia Aviation Relations ƒ EU-Asia markets growing rapidly (except Japan) ƒ Asian countries recognise EU law and EU designation in aviation ƒ Interest in going further ƒ Siberian overflight restrictions and payments artificially hamper EU-Asia market development

37 z Passenger Traffic Between EU and Asia

6.000.000

5.000.000

4.000.000

3.000.000

2.000.000

South-Korea 1.000.000 Japan China 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1999-2008: Forecast 2008-2013 (IATA): ƒ Japan: +7% ƒ Japan: +2.6% p.a. ƒ Korea: +147% ƒ Korea: +3.6% p.a. ƒ China: +278% ƒ China: +7.4% p.a. 38 z EU-Japan Aviation Relations ƒ Japan a key market for the EU ƒ Japan has traditionally been very restrictive (counting capacity in “units” not frequencies) ƒ Japan now recognises the EU and EU designation – significant for our relations ƒ Summit leaders at the 18th EU-Japan Summit (4 May 2009) welcomed this progress and expressed their intention to expand and deepen cooperation in all areas of aviation including safety, security and ATM ƒ Japan developing its aviation policy ƒ Towards a Horizontal Agreement? ƒ More comprehensive cooperation/agreement should be the ambition for Japan and EU. 39 z Japan’s Evolving Aviation Policy ƒ Asian Gateway Initiative – May 2007 ƒ Growth Strategy Panel Report – May 2010: ƒ Open Japan’s sky to the world and Asia (promotion of full open sky) ƒ Strengthening Tokyo’s airports ƒ Increase capacity ƒ Open Haneda for day time flights for long- distance Asian, EU and US ƒ Drastic reforms of management of airports ƒ Strengthening of Kansai International Airport ƒ Maintain essential air transport network ƒ Promoting entry of LCCs to the benefit of consumers

40 z Conclusion: The EU Approach in a Nutshell ƒ Market integration: from national to single EU market ƒ Market liberalisation: Gradual but complete ƒ High standards: a sine qua non for growth ƒ Common rules: level playing field, simplicity/clarity ƒ Pooling resources: European institutions (EASA) and ambitious EU projects (SESAR) ƒ Share successes and benefits with neighbours and key partners ƒ Aviation is international/global by its very nature ƒ States and World regions share the same key challenges in aviation (so do Japan and the EU) ƒ International cooperation will help us meet the

challenges. 41 z

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

[email protected] http://ec.europa.eu/transport/air_portal/international/index_en.htm

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