Prospects for Development of Air Transport Sector Services IN THE REPUBLIC OF MOLDOVA in the Context of Negotiating the Future Free Trade Agreement between Moldova and the EU RADU BEZNIUC Chisinau 2010 The views expressed in this study are solely those of the authors and do not necessarily refl ect the opinion of the fi nancing institution. © Fundaţia Soros-Moldova Content ABBREVIATIONS.............................................................................................................4 EXECUTIVE SUMMARY ..................................................................................................5 INTRODUCTION ............................................................................................................. 8 PART 1 FEATURES OF AIR TRANSPORT IN MOLDOVA ..................................................9 1. Regulations and policies on air transport .................................................................................9 2. Airport infrastructure .............................................................................................................. 10 3. Airlines ..................................................................................................................................... 12 4. MOLDATSA: degree of current integration in the SINGLE SKY process via EUROCONTROL ..................................................................................................................... 13 5. Fuel supply companies ............................................................................................................ 14 PART 2 LIBERALIZATION PROCESS OF THE EU AIR TRANSPORT MARKET ...............15 PART 3 ASSESSMENT OF THE MARKET LIBERALIZATION IMPACT ON THE MAIN AC- TORS FROM AIR TRANSPORT MARKET IN MOLDOVA .................................... 18 1. International airports .............................................................................................................. 18 2. Airlines .....................................................................................................................................23 3. Navigation and air traffi c service (MOLDATSA) ...................................................................28 4. Passengers ...............................................................................................................................29 5. State Budget .............................................................................................................................32 6. Comparative aspects ................................................................................................................ 35 PART 4 AIR TRANSPORT SERVICES SECTOR REFORM UNDER LIBERALIZATION. OP- TIONS FOR STATE ENTERPRISES ....................................................................38 1. Institutional reform .................................................................................................................38 2. Airport reform .........................................................................................................................39 3. State airline reform ..................................................................................................................40 CONCLUSIONS AND RECOMMENDATIONS..................................................................46 BIBLIOGRAPHY ........................................................................................................... 48 METHODOLOGY............................................................................................................49 3 Abbreviations CAA Civil Aviation Authority ACI Airports Council International ACMI Aircraft, Crew, Maintenance & Insurance ASAC/SACA State Administration of Civil Aviation BAO British Airport Operator EIB European Investment Bank EBRD European Bank for Reconstruction and Development EC European Commission ECAA European Common Aviation Area ELFAA The European Low Fares Airline Association ENAC Italian Civil Aviation Authority EUROCONTROL European Organization for the Safety of Air Navigation EUROSTAT Department of European Economic Statistics IATA International Air Transport Association ICAO International Civil Aviation Organization JAA Joint Aviation Authorities JAR Joint Aviation Requirements MFAEI Ministry of Foreign Affairs and European Integration SESAR Single European Sky ATM Research EU European Union WTO World Tourism Organization YM Yield Management 4 Executive summary The general subject-matter of the study is to evalu- determined by the economic crisis that affected ate the impact of air market liberalization process the EU itself. on the main actors in the fi eld. The main aircraft operators registered in the Re- The study clearly shows that liberalization of air public of Moldova are Air Moldova, Moldavian transport services in the Republic of Moldova will Airlines, Tandem Aero. Each company’s share of lead to greater competition between air companies passenger traffi c for 2009 in Chisinau Airport, ac- and will create additional opportunities for air- cording to information provided by ASAC, is as fol- ports, fi nal consumers – the passengers, and also lows: 49.8% for Air Moldova, 4.4% for Moldavian for other industries of national economy, which Airlines and 2.6% for Tandem Aero. will be indirectly affected by this process. Due to its statute of state-owned airline company, The most diffi cult task falls to the national airlines. Air Moldova was nominated, almost in all bilateral They have to give up the protective umbrella pro- agreements, as the operator on behalf of the Re- vided by bilateral agreements and confront a liber- public of Moldova with commercial rights to per- form fl ights. Thus, Air Moldova has always had a alized competitive environment. 50% market share. The institutional reform in the sector, launched in The process of liberalization represents a gradual February 2009, is still incomplete. This leaves its abolition of limits on designation, capacity, fre- mark on the overall industry condition and is also quency and tariff setting in civil aviation. It aims refl ected in the audit reports on compliance with to create an effi cient air transport structure based ICAO standards issued by international special- on free market mechanism where all the decisions ized bodies (ICAO). The suspension of the process are taken as a result of a mutual interaction of sup- of institutional reorganization has created impedi- ply and demand. The role of national governments ments to ASAC activity (Civil Aviation Administra- is limited to safety and security. tion of the Republic of Moldova), which led to inef- fective functioning of the oversight system of fl ight Liberalization will help to create the conditions safety and aviation security (according to ICAO for a stepping up of competition between airlines audit in November 2009 and May 2010). on air transport services market in the Republic of Moldova. This will lead to a diminishing of in- In order to ensure a coherent process of air trans- comes per seat obtained by air carriers for fl ights port liberalization in the Republic of Moldova, the to ECAA destinations, but will also lead to an in- institutional reform in the sector needs to be con- crease in sales volume. cluded. The impact of air transport liberalization in the Passenger traffi c is concentrated in the only Republic of Moldova on international airports reg- Moldova’s airport which operates regular fl ights istered in the country will bring along an inten- - Chisinau International Airport. Following a pe- sive growth – leading to an increase in passenger riod of growth for the period 2000 – 2008 (from air traffi c through Chisinau International Airport, 245,000 to 845,000 passengers per year), passen- and an extensive growth – by stimulating the in- ger traffi c through Chisinau airport has recorded terest in at least one regional airport on the part of in 2009 a decrease of 4.7% as compared to 2008, aircraft operators and investors. 5 Radu Bezniuc In the probability of accelerated passenger traffi c The direct positive effect for government budget is growth, as a consequence of air transport market the reduction of work-related travel expenses in- liberalization, airports in the Republic of Moldo- curred by public sector employees. Work-related va will be main benefi ciaries of liberalization. If travels, specifi c to ministries, hold a big enough liberalization is to be advanced, the passenger share of each institution’s budget, and the aver- fl ow through Chisinau airport can reach up to age tariff reduction on air transport market, in the 1,500,000 people per year in the second year fol- wake of air transport services liberalization and lowing liberalization. competition enhancement, will be refl ected in to- tal transport expenditure of given institutions. The Regional airports will become a focal point for in- representatives of national airlines think that the vestors, and Balti airport can reach a traffi c level of price reduction of fl ight tickets for offi cial travel is over 30,000 passengers a year in its second year feasible at the present time by signing direct con- of operation. tracts with operators designated on specifi c routes, The major impact of air transport liberalization on by removal of intermediaries represented by travel airline companies operating to and from Chisinau agencies that cannot ensure a certain price level. airport will be an increase in the level of compe- The negative impact on government budget might tition. The abolition of restrictions