This Boeing 737 is few seconds away from completing one of many routes in the Euro Shuttle network of Air Berlin. AIR TRANSPORT: QUARTERLY REPORT NO.12 3rd QUARTER 2006 (July to September) 1. HIGHLIGHTS AND KEY DEVELOPMENTS........................................................................................................... 2 1.1 REGULATORY ............................................................................................................................................................... 2 1.2 CAPACITY..................................................................................................................................................................... 2 1.3 TRAFFIC........................................................................................................................................................................ 2 1.4 FINANCIAL RESULTS .................................................................................................................................................... 3 1.5 AIRPORTS ..................................................................................................................................................................... 3 1.6 MANUFACTURERS ........................................................................................................................................................ 3 2. SCHEDULED CAPACITY .................................................................................................................................................. 4 3. AIR TRAFFIC........................................................................................................................................................................ 6 3.1 PASSENGERS................................................................................................................................................................. 6 3.2 AIR CARGO................................................................................................................................................................... 9 4. AIRLINE FINANCIAL PERFORMANCE...................................................................................................................... 12 4.1 EUROPEAN AIRLINES.................................................................................................................................................. 12 4.2 OTHER MAJOR WORLD AIRLINES................................................................................................................................ 17 5. AIRPORTS ........................................................................................................................................................................... 18 5.1 GENERAL TRAFFIC TRENDS ........................................................................................................................................ 18 5.2 TRAFFIC GROWTH AT INDIVIDUAL AIRPORTS ............................................................................................................ 19 5.3 DEVELOPMENTS IN AIRPORT OWNERSHIP .................................................................................................................. 21 5.4 GENERAL AIRPORT DEVELOPMENTS .......................................................................................................................... 21 5.5 REGULATORY ISSUES ................................................................................................................................................. 22 5.6 AEA DELAYS.............................................................................................................................................................. 22 6. AIR TRAFFIC CONTROL ................................................................................................................................................ 23 SINGLE EUROPEAN SKY ATM RESEARCH (SESAR)................................................................................................................... 23 7. ENVIRONMENTAL DEVELOPMENTS ........................................................................................................................ 24 8. AIRCRAFT AND MANUFACTURERS........................................................................................................................... 25 9. SPECIAL TOPIC: LCC BUSINESS MODELS............................................................................................................... 27 Cranfield University: Quarterly Report Q3 2006 for DG TREN 1 1. Highlights and key developments 1.1 Regulatory • In July 2006 the Commission adopted a proposal to modernize the Single Market legislation for aviation. The aim is to ensure a consistent application of EU legislation in all Member States, thereby creating equal conditions for all airlines. The new proposed regulation requires that fares quoted should include all applicable taxes, charges and fees, and prohibits price discrimination between passengers on the basis of their place of residence within the EU. It is also proposed that the three existing regulations pertaining to operating licences, the rights to operate air services within the EU and the pricing of such services (collectively referred to as the Third Package) be replaced by a single regulation. The proposal also seeks modifications to the financial conditions that all EU airlines have to fulfill and to the monitoring processes in respect of the revoking or suspension of operating licences, the aim being to ensure consistent and correct application of the rules throughout the EU. Changes to the rules pertaining to Public Service Obligations are also proposed. • In July, the Commission opened a formal enquiry into restrictions to air services to Sardinia, as result of Italy having imposed a set of rules on 2 May 2006 covering sixteen Public Service Obligation (PSO) routes between three airports on the island and several large airports in mainland Italy. The Commission expressed serious doubts as to the conformity of the Italian PSO with the aviation market rules. The investigation will focus firstly on assessing the evidence that the routes are vital to the economic development of Sardinia and check that the obligations imposed do not unduly close the market, secondly on examining the conformity with existing Community legislation of the requirement imposed on tendering carriers to operate two sets of routes (each set comprising two routes), and thirdly on checking the legality of the distribution of routes between Air One, Alitalia and Meridiana. • By the end of July, a total of 426 bilateral air services agreements (ASA) between Member States and third countries had been brought into legal conformity. Of these, 342 resulted from the horizontal agreements reached between the Commission and 23 third countries, with the remaining 84 comprising those ASA modified during the course of negotiations undertaken by individual Member States with 40 third countries. 1.2 Capacity • Fifty-three new European routes were started by twelve LCCs in the third quarter of 2006. The level of demand on these new routes, and the seating capacity of the aircraft making up LCC fleets, means that a number are served at very low frequencies, down to a single flight per week. 1.3 Traffic • AEA member airlines reported annual passenger growth across their networks at 4.7% in the three month, June to August 2006. There were increases in passenger traffic in all regions, although the North Atlantic showed the weakest growth (up Cranfield University: Quarterly Report Q3 2006 for DG TREN 2 1%) while significant improvement continued on services to the Asia/Pacific region. Overall, the airlines improved their average load factor slightly to 80%. • IATA reported international traffic (RPK) up by 6.1% for the year to August 2006. European growth was slightly behind this at 5.3% growth. • The two largest European low-cost airlines, Ryanair and EasyJet reported Q3 passenger traffic up by 21.1% and 9.8% respectively. Easyjet improved its passenger load factor to match Ryanair’s maintained level of 89%. • Air cargo traffic carried by AEA members for January to August 2006 rose 2.3% overall, with the strongest growth (8.2%) between Europe and North Africa/Middle East. Traffic to/from South America declined, as did domestic cargo traffic. Traffic carried by the largest cargo airline, Lufthansa, advanced by 5% and the second largest, Air France by 7.5%. The third largest, Cargolux recorded a fall of 6.4%. 1.4 Financial Results • The latest financial results are for April to June of 2006. This was a good quarter in terms of the financial performance of Europe’s major airlines. With the exception of Alitalia, all those reporting quarterly figures recorded profits over the three-month period. 1.5 Airports • June’s passenger traffic at ACI Europe’s airports was 7% ahead of June 2006. For the first six months of the year, the top performing major airport was Dublin, up almost 16%. • In terms of passenger throughput, London’s Heathrow was the world’s third busiest airport in the first half of 2006, after Atlanta and Chicago. 1.6 Manufacturers • At Airbus a management review was initiated with the aim of restoring customer confidence in the A380 programme. • Boeing announced first half results with a 65% increase in earnings to $1.4 billion • Embraer announced healthy Q2 figures, with profits rising 67.6% to a record $139.1 million. Cranfield University: Quarterly Report