Ministry of Transport and Communications Published by: Norwegian Ministry of Transport and Communications Consultation paper on Public institutions may order additional copies from: Norwegian Government Security and Service Organisation E-mail: [email protected] globalisation and increased Internet: www.publikasjoner.dep.no Telephone: + 47 222 40 000 competition in civil aviation Publication number: N-0559 E Print: Norwegian Government Security and Service Organisation Challenges and possible consequences for norwegian aviation 06/2016 – Impression 30 4 Photo: Labunskiy Konstantin Ministry of Transport and Communications March 2016 Consultation paper on globalisation and increased competition in civil aviation Challenges and possible consequences for norwegian aviation Contents SUMMARY . .7 1. BACKGROUND – TERMS OF REFERENCE – WORK METHODOLOGY . 15 2. AVIATION MARKET – NATIONAL AND INTERNATIONAL . 19 2.1 Market – competition . 19 2.2 Regulation of aviation competition . 21 2.3 International aviation market. 25 2.4 Aviation market in Norway . 33 3. SURVEY OF THE AVIATION INDUSTRY IN NORWAY . 36 3.1 Introduction . 36 3.2 Airlines . 37 3.3 Airports etc. 44 3.4 Aircraft maintenance . 46 3.5 Handling, catering, air freight and recruitment . 47 4. PAY AND WORKING CONDITIONS IN NATIONAL AND INTERNATIONAL AVIATION . 49 4.1 Introduction . 49 4.2 Salary, wages and other remuneration. 49 4.3 Working conditions and employment contracts . 52 4.4 Organisation of employers and employees in Norwegian aviation . 54 4 5. FRAMEWORK CONDITIONS MANDATED BY THE AUTHORITIES IN CERTAIN SELECTED AREAS . 57 5.1 General. 57 5.2 Aviation safety . 58 5.3 Employment conditions and the working environment . 62 5.4 Social security rights for fl ight crews in international service . 70 5.5 Application of working environment and social security regulations in some practical cases . 77 5.6 Immigration regulations – residence permit requirement etc.. 79 5.7 Income tax and employer’s social insurance contributions . 80 5.8 Competition and market regulation. 82 5.9 Procurement of air services (PSO) . 83 5.10 Investments in airports. 83 5.11 Air traffi c charges . 84 5.12 Consumer rights . 85 6. ASSESSMENTS AND RECOMMENDATIONS . 89 6.1 Introduction . 89 6.2 Assessments and recommendations. 89 5 6 Photo: Fotolia SUMMARY 1. Background – terms of The presentation of the facts in the consultation paper is based to a large extent on information collected reference – work methodology from industry actors. This applies in particular to the information in chapters 3 and 4. Aviation is developing The Government has pointed out in its political platform rapidly, and this may entail that some of the factual that high quality infrastructure is a fundamental pillar of a information is not completely up-to-date at present. modern society, and that the Government will make this a competitive advantage for the nation. The Government Norway will undertake a contingent obligation to reduce will continue to pursue a competitive aviation policy based greenhouse gas emissions by at least 40 per cent by on the understanding that air traffi c is a central element 2030, compared with the 1990 level, cf. Report no. 13 of the Norwegian transport network. Eff ective competition (2014-2015) to the Storting. Norway will negotiate joint contributes to effi cient use of society‘s resources, keeps fulfi lment of this obligation together with the EU. If the costs down and provides lower prices and better quality. negotiations with the EU are successful, Norway will be given a quantifi ed emission target for the non-quota At the same time, increased globalisation represents new sector in 2030 through negotiations. If the negotiations challenges for the transport system, including aviation. are not successful, the Government will subsequently The airlines have an increasingly global perspective, and consult the Storting for stipulation of a national target for we are seeing increased use of personnel from so-called the non-quota sector. Reduced emissions in the transport low-cost countries, among other things. sector, which also encompasses domestic aviation, has been designated as one of the Government’s fi ve priority As a result of increased competition and globalisation, the focus areas for climate policy. While road transport is Stoltenberg II Government decided to conduct a study to the largest source of emissions in the non-quota sector, illustrate the problematic issues for Norwegian aviation. most of the emissions from domestic aviation and The Ministry of Transport and Communications has been aviation between EEA countries is subject to quotas. The tasked with conducting and coordinating the study that regulation of emissions from international aviation is a has involved several ministries and external resources. topic discussed in the international climate negotiations and the International Civil Aviation Organisation (ICAO). The Ministry of Transport and Communications is now publishing a consultation paper on the study. The Ministry of Transport and Communications would This consultation paper will be part of the basis like to have a broad range of input material before any for determining how aviation in Norway should be fi nal conclusions are drawn. The consultative comments developed, with special emphasis on the problems that will form the basis for the Ministry’s continued eff orts to arise due to globalisation and increased competition facilitate a development of civil aviation that promotes with respect to the development of the aviation market, the primary objectives that apply to Norwegian and the pay and working conditions for employees. transport policy. 7 2. Aviation market – national six per cent annual growth in Asia Oceania). Substantial consolidation is taking place in several parts of the and international aviation industry. Among the fi ve largest airline groups, there are four American and one Asian. Lufthansa, British For short distances, there are many forms of transport Airways and Air France come directly after these airlines. that compete. Air transport is the most relevant for long distances. Aviation is sensitive to economic fl uctuations. Medium-sized network carriers are structurally under Traditionally, there have been two route strategies: “Point- pressure between major networks on the one side and to-point” (directly from A to B), and “network system” low-cost carriers on the other side. KLM has become a (from A via hub B and continuing on to C). The network major actor to and from Norway, with more transfers to carriers (such as, Lufthansa, KLM and British Airways, and from Amsterdam than SAS has in Copenhagen. The with Frankfurt, Amsterdam and London, respectively, as Nordic region distinguishes itself somewhat from the their hubs) are essentially oriented towards the business general consolidation trend, with two smaller networks market, which has a relatively high willingness to pay. (SAS and Finnair) and the growth of a new low-cost “Point-to-point companies” have a strong focus on low carrier that has been successful (Norwegian). costs and generally concentrate on fl ying directly from/to their bases. In practice, the boundaries between the two Roughly speaking, there are currently four trendsetting route strategies can be somewhat blurred. European low-cost carriers: Ryanair, easyJet, Norwegian and Wizz. There are signs that the growth potential for Scheduled air service has developed from being dependent low-cost carriers in Europe is about to disappear. The on public permits (licences) to becoming liberalised (in the business models for the network and low-cost carriers are US from 1978 and in Europe from 1986 and beyond). In approaching each other. Norwegian has moved into the order to operate a scheduled service from one country to long-haul market. another, airlines must have traffi c rights that are based on an aviation agreement. States are the parties to such Norwegian aviation has seen strong domestic and agreements, and it is the states who designate which of its international growth for decades. There are now airlines are to serve the negotiated routes. signs of domestic traffi c growth fl attening out, but continued growth is expected for international traffi c. An airline domiciled in an EU/EEA country can operate Avinor operates 46 airports with scheduled service. routes within the EU/EEA area without being dependent OSL is clearly the largest airport in Norway with on a special public permit. This also applies to Norwegian 24.6 million passengers out of a total of just over 53 airlines. The EEA Agreement, however, does not apply to million for airports within and outside of Avinor in third-country relationships. The aviation agreements that 2015 (for example, off shore and transit). There is now the EU has entered into with third countries do therefore competition between SAS and Norwegian on most of not apply to Norwegian airlines. SAS nevertheless benefi ts the main routes. Ticket prices have declined 17 per greatly from the EU agreements with third countries, since cent nominally on average during the period from SAS can also operate as a Swedish or Danish company. 2003 to 2011. According to a survey conducted by Via Egencia, however, the prices that business travellers pay A Norwegian airline can establish itself (directly or increased 9.9 per cent to Norwegian destinations during via a subsidiary) in any EU/EEA country. The migrated the fi rst quarter of 2015, compared with the same operations are then subject to the supervisory period last year. Statistics Norway‘s price statistics for authorities in the EU/EEA country in question, and they transport show that passenger air transport increased can fl y according to the aviation agreements this county 12.7 per cent in the fourth quarter of 2014, compared has acceded to. with the same quarter in the previous year. The state will procure regional air services for approximately North America, Europe and Asia Oceania currently NOK 811 million in 2016, with Widerøe as the clearly represent three practically equivalent markets with dominant actor on the tendered routes.