A Level Playing Field in the European Air Transport Sector? – a Belgian Case Study

A LEVEL PLAYING FIELD IN THE EUROPEAN AIR TRANSPORT SECTOR? – A BELGIAN CASE STUDY

Franziska Kupfer, Katrien De Langhe, Sérgio Domingues, Christa Sys, Eddy Van de Voorde, Thierry Vanelslander

University of Antwerp

1. INTRODUCTION

Air transport forms a crucial part of current passenger and cargo transport. It is often considered an industry that adds value to a country’s economy. That also shows in the fact that in the case of Belgium, the added value of the airports and the air transport sector amounted to about 1.8% of the GDP in 2009. To increase the competitiveness of the sector, a level playing field is necessary and desirable. However, in practise, a level playing field is not always given. Therefore, it is interesting and useful to investigate this problem more in-depth. Different topics that influence the level-playing field in air transport such as the European Emission Trading Scheme (see e.g., Scheelhaase, Grimme & Schaefer (2010) and Anger (2010)) and the rise of the Middle Eastern carriers (see e.g., Grimme (2011) and Lei & Parmar (2012)) have already been discussed in other academic papers. However, the specific problems concerning air transport in a country have not yet been analysed. Therefore, this paper focuses on the European and more particularly the Belgian air transport sector.1

This paper adopts the definition of a level playing field of Mendes de Leon (2012), where a level playing field is defined as “an environment in which all competitors in a given market must follow the same rules and are given an equal opportunity to compete in that market”. This definition corresponds to the specification of level playing field as a rule-based level playing field, where level is interpreted as the same rules for all firms in a market. Therefore, the playing field is un-level if different rules apply to different companies. A level playing field can also be looked at as outcome-based level playing field, where level is interpreted in the way that all companies in a market have the same expected profit. (Appelman, Gorter, Lijesen, Onderstal, & Venniker, 2003) As said, in this study the approach of a rule-based level playing field is followed. This means that a company in the air transport sector should be able to operate within the same rules as other companies in the sector.

The paper gives an overview of the specific problems that Belgian air transport companies face and that can be traced back to an un-level playing field.2 First, the differences in labour cost for the flying personnel between

European countries are address addressed. Second, problems in the training of pilots are brought forward. Furthermore, the application of VAT in the travel industry is discussed. Those topics are seen as specifically but not exclusively relevant to Belgium. Each of these problems is analysed in detail and solutions are presented to solve the un-level playing field.

2. LABOUR COSTS

One of the problems in the Belgian air transport sector is the high labour cost, which makes the country less interesting for airlines as a home base. Airlines that are already based in Belgium might consider moving their home-base activities and possible new air transport activities might be threatened due to the elevated cost. To maintain a healthy air transport sector in Belgium, measures are necessary to improve the attractiveness of the country.

In other sectors, specific international treaties are in place stating that employees have to pay taxes in the country of employment. However, in those treaties, an exception for the air transport sector is included. Because of the international character of air transport, taxes for cabin crew and pilots normally have to be paid in the country where the airline has its headquarter. This creates an un-level playing field as different airlines which operate in the same country have to follow different rules concerning taxes. Consequently this results in different labour costs for cabin crew and pilots.

Part of the problem concerning the labour cost in Belgium, was the high social contribution for pilots and cabin crew, which could amount to 50% of the gross salary. The reason for the high social cost for flying personnel was amongst others a special social contribution which has to be paid for the special pension scheme of the flying personnel (cf. Koninklijk Besluit of 3.11.1969; Koninklijk Besluit number 50 of 24.10.1967). This pension scheme implies that a member of the flying personnel could already retire at the age of 55, or even earlier in case of a career of 30 years (pilot) or 34 years (member of cabin crew). Moreover, the amount of pension was higher than that of a normal employee due to higher wage limits (Rijksdienst voor Pensioenen, 2011a). The extra contribution was thus used to finance those extra advantages.

For example, in 1986 when the special pension scheme was introduced, flying personnel had to pay 30% above normal social security contributions due to this special contribution. As this led to very high labour costs in the sector, the contribution was systematically lowered (Rijksdienst voor Pensioenen, 2011b). Also, in 1995 an exemption was introduced that suspended the special contributions. This exemption terminated on 1 July 2007 after which the special social security contributions where gradually reintroduced. (Baker & McKenzie, 2007)

Figure 1 shows the special social retirement contributions between 1999 and 2010. The figure shows clearly the end of the exemption: after 2007, a very strong increase in special social security contributions can be observed, although the number of employees paying the contributions stayed more or

less stable (see also Table 1). While in 2007, a member of the flying personnel paid on average 1,300 euro per person, this contribution increased to more than 4,600 euro in 2010.

Figure 1 - Special retirement contributions of pilots and cabin crew in Belgium between 1999 en 2010

16.000.000

14.000.000

12.000.000

Exemption from special 10.000.000 contributions

8.000.000

6.000.000

4.000.000 Strong growth,

Contributions in euro in Contributions although number of 2.000.000 flying personnel stayed about constant

2002 2000 2001 2003 2004 2005 2006 2007 2008 2009 2010 1999 Source: Own composition based on data from Rijksdienst voor Pensioenen (2011a)

In Figure 1, also the impact of the bankruptcy of Sabena in 2001 becomes clear, as the special retirement contributions were cut by half between 2001 and 2002 and the number of pilots and cabin crew in Belgium also decreased by more than 50%.

Table 1 - Share of cabin crew and pilots in special retirement contributions

Year Number % cabin crew % pilots 1999 5,058 69.65% 30.35% 2000 5,467 68.98% 31.02% 2001 5,426 67.21% 32.79% 2002 2,657 58.56% 41.44% 2003 2,633 57.35% 42.65% 2004 2,701 57.72% 42.28% 2005 2,563 57.20% 42.80% 2006 2,718 55.30% 44.70% 2007 2,886 53.85% 46.15% 2008 3,039 57.88% 42.12% 2009 2,991 53.83% 46.17% 2010 2,951 55.17% 44.83% Source: Rijksdienst voor Pensioenen (2011a)

In 2010, a total of 13.75 million euro of special social contribution was paid by 2,951 people, which indicates that on average every member of the flying personnel had to pay 4,658 euro as extra social security.

The Belgian social security regulation of flying personnel did not only create an un-level playing field, but it also initiated pilots to work as pseudo self- employed or to apply to foreign carriers to bypass the high social security contributions.

As a step in the right direction, the Belgian government decided to abolish the special pension scheme from 2012 and therefore also the special social security contribution. (sdworx, 2012)

2.1. International Comparison of Labour Costs

Comparing the labour costs between different countries, it becomes clear that Belgium has in fact a competitive disadvantage.

Table 2 shows the differences between the gross salary cost of an employer and the net earnings of the employee. For easy comparison, a hypothetical gross salary of 100,000 euro was assumed. The results show that the difference between the gross cost of the employer and the net earnings of the employee is almost twice as high as in countries such as Luxembourg, Ireland and the UK.

Table 2 - Comparison of labour costs between Luxembourg, Ireland, the UK and Belgium (2007)

Luxemburg Ireland UK Belgium Gross salary € 100,000.00 € 100,000.00 € 100,000.00 € 100.000,00 Social security € 11,509.00 € 10,750.00 € 10,626.86 € 38.375,00 contribution by the employer Social security € 10,788.00 € 3,820.00 € 5,254.10 € 18.717,00 contribution by the employee Income tax liability € 17,059.00 € 26,577.00 € 26,617.58 € 34.987,55 Net earnings of the € 72,153.00 € 69,603.00 € 68,128.32 € 46.295,45 pilot Gross cost for the € 111,509.00 € 110,750.00 € 110,626.86 € 138.375,00 employer Difference between € 39,356.00 € 41,147.00 € 42,498.54 € 92.079,55 gross cost employer and net earnings employee Source: Baker & McKenzie (2007)

We expect that an updated calculation for Belgium would show two different developments visible. On the one hand, the social security cost increased in the years after 2007 due to the gradual reintroduction of the special social security contributions. On the other hand, the income tax is expected to show a decreasing trend because the airline employees increasingly work in shifts or temporary employment and therefore have to pay less social security on

their wages. Therefore, an updated calculation of the labour costs for Belgium would have to show whether these two contradictory movements are leading to a decrease or even increase in the difference between the gross cost of the employer and the net earnings of the pilot. The fact that the calculations show large differences between countries in 2007, a time when the special social security contributions were not entirely reintroduced, shows that the problem can not only be attributed to those contributions. A different reason for the high labour cost, and especially, the high social security costs of the flying personnel is that many countries apply a maximum for the social security contributions. In Belgium, this is not the case. Therefore pilots, who usually belong to a high income class, pay much higher social security contributions in Belgium than in other countries.

A simulation of the labour costs in other European countries was performed. The labour costs in Germany were calculated by making a hypothetical booking with an accounting program. Table 3 shows the calculation for Germany for 2010, based on a gross salary of 100,000 euro for an unmarried employee without children.

Table 3 - Calculation of labour costs in Germany (2010)

Gross salary €100,000 Social security contribution by the employer €12,028 Social security contribution by the employee €11,597 Income tax liability3 €32,518 Net earnings of the pilot €55,884 Gross cost for the employer €112,028 Difference between gross cost employer and net earnings €56,143 employee

Source: own composition

The unavailability of additional data prevented us to also take specific regulations for the air transport sector into account. For example, an extra compensation for work during the night, the weekend or in shifts is in place in Germany, which could not be integrated into the calculations. The extra compensation for work during the night, the weekend or in shifts is particularly beneficial to the employee as the compensations are only subject to a limited social security contribution. For example, Lufthansa employees received in 2010 an extra compensation of 16.3% of the base salary. This percentage can differ from company to company. (Vereinigung Cockpit e.V., 2011)

Comparing the calculations of labour costs in Germany with the calculations of Baker & McKenzie (2007) is not obvious. First, the calculations concern two different years, that is 2007 versus 2010. Moreover, not all advantages like the extra compensation for work during the night, the weekend or in shifts are taken into account in the calculations for Germany. However, as the differences are quite large we can still conclude that the difference between

the gross cost of the employer and the net earnings of the employee is smaller in Germany than in Belgium.

An approximation of the labour costs of pilots in France was made using information of Cityjet, accompanied with additional desk research. Table 4 shows the results of the calculations. For these calculations we also worked with the assumption of a gross salary of 100,000 euro for a pilot who is not married and does not have children.

Table 4 - Calculation of labour costs in France (2010)

Gross salary €100,000 Social security contribution by the employer €37,865 Social security contribution by the employee €13,578 Income tax liability €23,538 Net earnings of the pilot €63,184 Gross cost for the employer €137,865 Difference between gross cost employer and net earnings €74,681 employee Source: own composition

Pilots and cabin crew members employed in France also pay a special retirement- and insurance contribution. In 2010, the social security contribution share for the employer amounted to 14% and for the employee to 8%, of which the retirement contribution amounted to 12% and 6% respectively. However, the flying personnel also profited from a discount on the social security contribution. The calculation of the contribution is not based on the full gross salary but a discount of 30% is incorporated, which means that the contribution is based on 70% of the gross salary. This rule is allowed up to a yearly discount in social security contribution of 7,600 euro. Above this limit, the social security contribution is further calculated on the full gross salary of the pilot. This discount is also applied for other professions such as artists, but then the specific discount percentage varies4.

2.2. Discussion of the Problems, Possible Solutions and Recent Developments

The previous section made it clear that the difference between the gross cost of an employer and the net earnings of the employer is especially high in Belgium. This large difference derives amongst others from high social security contributions which pilots and cabin crew have to pay.

The best solution to the problem would be a unification of the social security system for flying personnel in Europe so that a level playing field can be achieved5. As this can only be achieved in the long term, a solution that provides help on the short term has to be found. Such an option would be for example that the employer retains a significant percentage of wage taxes.

This regime is already applied in a number of sectors in Belgium such as the sports sector (70% retention) and the R&D sector (65% retention) (Baker & McKenzie, 2007).The example with the highest impact of such a regime can be found in the maritime sector with the introduction of the European “State Aid Guidelines” which allows European Union members to introduce fiscal regulations. For example, in Belgium, shipping companies are for 100% exempt from paying the advanced levy on the salary of shippers and the employer contribution of social security. However, it is very doubtful whether those measures could be adapted to air transport as the European basis for allowing those exemptions is lacking . Furthermore, the comparison with the maritime sector is not really valid as the problem in the maritime sector concerns differences in cost between European countries on the one hand and countries outside Europe on the other. The problem in the aviation sector also concerns cost differences between European countries.

A second-best solution could be to introduce a special status for flying personnel. In 2008 in Belgium a special status for professional athletes was already introduced, which allows taxing athletes with a fixed income tax of 16.5% or 33%. Applying this regime to the air transport sector would yield direct advantages for pilots and cabin crew and would make it more attractive to work for a Belgian airline. In reality though, companies would not enjoy lower labour costs as the gross salary of the flying personnel is quite rigid. (Baker & McKenzie, 2007) The abolishment of the special social security contributions by the Belgian government from 2012 was already a good second-best solution. Nonetheless, the above mentioned solutions would in general not be sufficient to create a level playing field.

Europe also discussed a partial solution to the labour cost problem in the air transport sector. On 25 June 2012, regulation no. 465/2012 of the European Parliament and the Council entered into force, amending regulations no. 883/2004 and 987/2009. With this amendment, pilots and members of the cabin crew have to pay their social security in the country of their home base. ‘Home base’ is defined as the place where the personnel normally begins or ends its periods of duty and where the employer is not responsible for the accommodation of the crew. However, the regulation also states that existing crew members have to apply to be covered by these new rules. If they fail to do so, the previous rules will continue to apply for a maximum of 10 years. (European Commission, 2012) This amendment is a step in the right direction, but the problem of high labour cost in Belgium remains. Furthermore, it is to be seen how this regulation will influence the Belgian air transport sector. Airlines for example could re-organise their route network such as to avoid Belgium as a home base for their personnel. Moreover, as described, in certain cases the airlines can still pay social contributions in the country of their headquarters and not in the country where their staff is based and that for a time of 10 more years.

In Belgium the labour cost of the flying personnel is since long a topic of debate. On 12 December 2012, the government decided to reserve 20 million euro for the air transport sector to fight unfair competition. The money is meant for amongst others educating personnel as well as

decreasing labour cost. Airlines such as Brussels Airlines, TNT Airways, Jetair and Thomas Cook will be able to profit from this decision. First, the government raised the possibility of a partial retention of social security for work performed outside Belgium. With intercontinental flights, where pilots and cabin crew are also paid during their stay abroad awaiting the return flight, the employees will receive an extra contribution on which no social security will need to be paid. With the second measure, the Directoraat- Generaal voor de Luchtvaart6 is planning to reimburse pilots who train their colleagues, which happened in the past often without any form of payment. The last measure includes the “maximisation” of the retention of the wage tax. (Meeussen, 2012)

3. PILOT TRAINING

Next to the high labour cost for pilots and cabin crew, different problems concerning pilot training in Belgium came forth. This paper especially focuses on problems concerning pilot education that fall under the regulation of the Joint Aviation Requirements (JAR) of the European Aviation Safety Agency (EASA) and the supervision of the Directoraat-Generaal Luchtvaart.

A scarcity of pilots on the one hand and few well-trained pilots on the market on the other hand, can lead to problems in the air transport sector. Although in Europe, in 2013, sufficient pilots are available due to the economic situation, the Regional Airline Association (RAA) identifies the supply of pilots as a long term challenge for the growth of regional air transport. A lack of financial support and training capacity, increased rules and regulations, retirements/attrition, and declining pilot career perceptions are according to the association only some examples of future limitations (Costely, 2012). From an international perspective, the retention of pilot training opportunities in Belgium is also desirable. Due to the growth of air transport in the future, according to Boeing (2012), 460,000 extra pilots are needed. Also Belgian training organisations can play a role in the education of those pilots.

To be able to work as a pilot, special training is needed. The different types of training requirements are divided into training for a Private Pilot Licence (PPL), a Commercial Pilot Licence (CPL), an Airline Transport Pilot Licence (ATPL) and Type Rating. The different types of training programs enable the trainee to fly specific aircraft with a commercial or private purpose. In Belgium in 2010, one could follow training for a PPL in 50 registered facilities, for a CPL or ATPL in 11 flight training organisations and type rating was organised in 5 organisations. In total, in 2010, 2,437 pilots were holder of a Belgian PPL, 1,029 pilots of a Belgian CPL and 1,560 pilots of a Belgian ATPL. (Directoraat-General Luchtvaart, 2011; Federale Overheidsdienst Mobiliteit en Vervoer, 2011)

In this paper we will focus specifically on the training for an ATPL, as this licence enables pilots to operate aircraft for scheduled commercial flights.

2.3. Cost of Pilot Training

The cost for the training to receive an ATPL is very high for students and can often exceed the amount of 100,000 euro.7 One possibility for students to lower the cost for the pilot training is to follow subsidised courses. However, those courses only cover the theoretical training. The practical training, such as flight hours, still makes up the largest share in the cost.

In the following sections, some problems concerning the cost and financing of pilot training are discussed. First, the problem of contributions and taxes to governments is sketched. Then, the cost of ATPL training is compared on an international level. Finally, solutions to make it easier for students to finance their pilot training are discussed.

Contributions and taxes to governments

A part of the cost that students have to pay to the pilot school comes from contributions or taxes that directly flow back to the government. In Belgium in 2010 the government received back about 25% of the training costs for the student in the form of VAT, passenger taxes, landings taxes, taxes on fuel and contributions paid to the Generaal-Directoraat Luchtvaart (for more specific information see Kupfer et al. (2012)).

Especially the VAT and the taxes on fuel are a problem for the level playing field in pilot training. The 77/388/EEC directive of 17 May 1977 states that for training with a commercial character VAT has to be paid. Therefore, in Belgium, a percentage of 21% is applied on the price of pilot training. However, in some countries exceptions seem to exist. Many pilot training facilities in Germany for example do not levy VAT for their training. This exception stems from the German Turnover Tax Act (UStG), which states that specific training programs which are for professional purposes and which are recognised by the federal states are not subject to VAT. (§4, 21a, bb Umsatzsteuergesetz, 1979) As this is only applicable for training programs that have professional purposes, only the integrated ATPL training programs8 qualify for the exemption from VAT. Furthermore, the regulation is only valid for the flight and theory training, not for example for landing rights. (FFH Südwestdeutsche Verkehrsfliegerschule, 2011; FMG-FlightTraining, 2010) However, this forms a distortion in the level playing field of pilot training.

Another problem in the cost for pilot training programs are the taxes that have to be paid on the fuel. As the fuel taxation for training flights is different in the various European countries, this contributes to the un-level playing field.9

International Comparison of Costs for ATPL Training Programs

The prices for an integrated ATPL training program from pilot schools from Belgium, Germany, France, Italy and The Netherlands, clearly show large differences (see Table 5). The cheapest pilot training program could be found in Spain for 59,000 euro, while the most expensive program is more than twice as much and can be found in The Netherlands. However, the prices depend on whether the landing charges are included, the type of simulator training (Boeing, Airbus or General Aviation) and whether other costs such as accommodation and costs for exams are included.

Table 5 - International comparison between costs for ATPL-training programs (2011/2012)

Country Training Facility Price Belgium CAE/Sabena Flight Academy € 85,0001 Belgian Flight School (BFS) € 79,0001 BAFA € 86,5001 Germany LGM Luftfahrt GmbH ca. € 75,0001 InterCockpit € 67,9001 FFH Südwestdeutsche € 66,891 - € 69,1352 Verkehrsfliegerschule FMG Flight Training € 60,186.90 France Aeropyrennees € 67,051.20 Cannes Aviation € 76,0003 ESMA € 79,500 Italy Aeroclub of Varese € 62,8944 The ASL Flight Academy € 110,8005 Netherlands KLM Flight Academy € 122,0001 Dutch Flight Academy € 115,500 EPST € 118,0004 Stella Aviation Academy € 107,0006 AIS Flight Academy € 112,500 Spain Adventia € 71,500 Panamedia € 59,000 (Mallorca) of € 62,900 (Valencia)7 Gestair € 72,000 UK Oxford Aviation Academy £ 79,0001 (ca.€ 92,700)

Remarks 1 Part of the training takes place in the US. 2 Price depends on the choice of profile (General Aviation, Boeing or Airbus) 3 Price of enrollment in 2009 4 Price including accommodation 5 Price including extra hours in simulator 6 Participation Job Guarantee Programme costs € 10,000 extra 7 Price differs according to place of training Source: based on information of the different pilot training facilities

Noteworthy is the Job Guarantee Programme of the Stella Aviation Academy, which costs an additional 10,000 euro on top of the cost for the ATPL training.

When students participate in this program, the Stella Aviation Academy commits to finding a job for them within 36 months after the student finishes the program. If the academy fails to do so, the students will retrieve their paid tuition. (Stella aviation academy, 2011) In Germany, the student can also apply for study financing (BAFöG), with which the student receives up to 350 euro on a monthly basis, which does not need to be paid back. (FMG- FlightTraining, 2010)

Problems and Possible Solutions in Financing ATPL training

Not only the cost for the training, but also its financing is a problem in the sector. Often, students cannot give the guarantee that is asked by banks when applying for a loan. In many cases, the parents will then give the guarantee, but this is also not always possible. Many training facilities try to help students with their financing, for example by showing the students the way to special loans offered by banks to finance the pilot training.

Another good example in order to help the students finance their pilot training are the special funds set up by Dutch pilot training organisations and a bank, often the Dutch ABN AMRO. Examples of such funds are the collaboration between the European Pilot Selection & Training (EPST) with ABN AMRO, between the Martinair Flight Academy with ABN Amro and the Friesland Bank, as well as between the AIS Guarantee Fund and the KLM Flight Academy Guarantee Fund. In each case, the guarantee fund is an independent organization.

The guarantee fund covers all the costs for the pilot training and partially for the accommodation without the student or the parents needing to provide a guarantee. Moreover, the fund covers the interest as well as the insurance when failing the training, with the exception of the case that the student quits the training voluntarily, he/she does not show enough effort to finish the training or gross negligence (such as theft). The guarantee fund also covers the payback of the monthly rates if the students cannot earn enough money to pay back the loan after one or two years (depending on specific guarantee fund) after the training is finished. However, those payments have to be paid back when the student finds work as a pilot again. Moreover, the payment by the guarantee fund is restricted to maximum 4 years.

As the guarantee fund covers the financial risks of the training, the selection procedure for the pilot training programs is a very strict one, for which the future pilot needs to fulfil certain requirements. As the cost of the guarantee fund is incorporated in the price of the training, pilot programs incorporating a guarantee fund belong to the most expensive ones in Europe (see Table 5). Contact with Dutch pilot training facilities shows that each student contributes about 5,000 euro of the price of the training to the guarantee fund.

Other examples of guarantee funds outside the air transport sector are the MEDIA Production Guarantee Fund (MPGF) and the Flemish Guarantee fund for small and medium sized companies. The latter supports small and

medium-sized business to get a loan and is since a number of years quite successful in stimulating investments in those businesses (Kupfer et al. (2012), PMV (2011)). The MPGF on the other hand is organised at a European level and was launched to facilitate loans for small film producers.10

As a conclusion, the foundation of a guarantee fund in Belgium based on the Dutch guarantee funds for pilot training or one of the other guarantee funds, would limit the financial risks of students in Belgium for a large part. This would make pilot training much more interesting for students and keep know- how in the country.

4. VAT REGIME ON THE ORGANISED TRAVEL SECTOR IN BELGIUM

A third aspect concerning the level playing field in Belgium is the VAT regime on the organised travel sector. The organised travel sector is an important generator of added value and employment in Belgium. In 2011, the members of the Association of Belgian Tour Operators (ABTO), which have a market share of 90% concerning the organised travel sector in Belgium, generated a revenue of 2 billion euro and a direct employment of circa 1,750 people. (ABTO, 2012). The problem lies in the different applications of the 77/388/EEC directive of 17 May 1977 concerning VAT in the organised travel sector. In general, this directive says that the VAT of the different parts of a holiday/journey is paid in the country where the service is used. However, the VAT that travel agencies pay on their margin has to be paid in the country where the travel agency is established.

The directive also provides an exception for travel packages outside the EU (article 26,3), on which, according to the exception, no VAT has to be paid. However, countries can choose whether to apply this exception. Here, Belgium is the only country that still levies tax on packaged travel outside of Europe. On the other hand, countries also have the possibility not to tax travel inside the EU. Examples for the latter option are Denmark and Ireland where also organised travel packages are not taxed. Because of the different applications of the regulation in the different countries, organised travel packages in Belgium are more expensive than in other countries and therefore the market penetration of tour operators is quite low.

Due to a change in the market for organised travel, the problem for Belgian travel agencies of this un-level playing field grew during the years as the sector became more exposed to foreign competition. The reason for this is that nowadays more and more travel packages are booked via the internet. Therefore, it is much easier to compare prices from different travel agencies/tour operators and also book travel packages via the internet and in other countries than in Belgium.

5. CONCLUSIONS

The present paper focuses on several issues related to the competitiveness of companies in the aviation sector. In this paper, problems that occur specifically, but not exclusively, in Belgium are identified and possible solutions proposed.

It could be observed that currently, Belgium has a competitive disadvantage in terms of labour costs. One of the reasons is, that the labour cost in Belgium is generally higher than in other regions. In addition, until 2012 the flying personnel had to pay high special social contributions. To correct the un-level playing field concerning the differences in taxation of pilot wages in various European countries, the European Union already took some first steps in the last year. Also Belgium took a first step when abolishing the special social security contribution. Nevertheless, large differences still exist between countries. Consequently, it leads to more personnel costs for airlines based in countries with high taxation and social security, which distorts the level playing field and gives them a disadvantage competing with other airlines.

Regarding the difficulties concerning pilot education financing and costs, it is clear that the education of a future pilot can be very costly. Thus, many students are struggling to finance their training. In addition, the differences between European countries regarding the prices for a pilot license (ATPL) are quite high. It becomes clear that in countries such as The Netherlands pilot training is especially costly while the education is less expensive in e.g. Spain. To make the step to pilot training easier for future pilots, it seems desirable to establish guarantee funds in Belgium. This could be done analogously to the Flemish guarantee for SMEs or in consultation with the pilot schools and banks.

Also the VAT regime for the organized travel industry leads to competition distortion. The difference in VAT rate and the principles of taxation are the base of this distortion. Furthermore, online purchases face growing interest, which might lead to people booking their travel online with tour operators outside of Belgium. Here, the abolishment of VAT for travel outside of Europe may give a new impetus to this sector and an increase in organized tours booked in Belgium.

Throughout this paper it was shown that there is an un-level playing field in different areas of air transport. Therefore, it is important to get rid of the competitive disadvantages as they prevent the development of a sustainable future for aviation in Belgium. By paying more attention to the issue of labour costs and pilot training, Belgium can help ensure that in the future sufficient qualified aviation personnel will be available. This reasoning does not only apply to Belgium, but also to other countries experiencing similar problems.

This study is particularly relevant for policy makers, given that it provides an overview of some problems influencing the level playing field in Europe and especially Belgium. It also brings forward solutions that policy makers can apply to create a more level playing field in air transport.

NOTES

1 The paper reports the findings of a policy paper drafted by the Policy Research Centre on Commodity and Passenger Flows (see Kupfer et al. (2012)), which is supported by the Belgian Minister of Public Works and Transportation. 2 The list of specific problems originated from discussions in the working group “level playing field” of Flanders Air Transport Network, to which the Policy Research Centre contributed. 3 Including solidarity surcharge. 4 A list with the different discount percentages can be found in article 5 of annex IV of the „Code général des impôts”. 5 Results from discussions during the working group „Level Playing Field“ of Flanders Air Transport Network (FAN). 6 The Directoraat-Generaal voor de Luchtvaart is the government entity in Belgium that oversees different aspects of air transport in Belgium. 7 In the past, this was not the case in Belgium. Until 1993, the training for commercial pilot on scheduled flights could be followed at the Belgian Aviation School (BAS) without or with only a small tuition. 8 An integrated ATPL training program is a training program which integrates the training for a PPL, CPL and ATPL in one program. 9 For more information on the differences in taxation on fuel for aviation training see Kupfer et al. (2012). 10 For more information about the MPGF see L’institut pour le Financement du Cinéma et des Industries Culturelles (IFCIC) (2011) and Audiovisual SGR (2011).

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