On September 27, 2012, European Commission Vice President Siim
Kallas presented the EU Commission's analysis paper on the EU
External Aviation Policy Package, called "New Horizons for EU
Aviation."1
Mr. Kallas, the European Commissioner responsible for transport,
said: "It is of strategic importance that Europe maintains a
leading global aviation industry at the centre of a network that
connects the EU with the rest of the world. We have created huge
economic benefits over the last decade as a direct result of the
new business opportunities from our EU external relations. But the
current systems no longer deliver what is needed. We urgently need
a step change. Faced with the dramatic changes in global aviation,
Europe must respond and adapt rapidly or be left
behind."2
Three Major Challenges Facing the European Aviation Sector
The "Kallas" paper describes aviation as key to
Europe's competitiveness. European aviation as a whole is still
a world leader; however, its position is under threat from a number
of new challenges.
Growth Toward Other Regions of the World. The
demand for air transport, which is driven by economic growth and
prosperity, will likely shift from Europe toward other regions of
the world' in particular to Asia and the Middle East. The Asia
Pacific Region will overtake the U.S. as a leader in world traffic
by 2030. Due to below-average growth rates, EU carriers will be
losing market shares to non-EU airlines in most regions. In 2003,
EU carriers had a market share of 29 percent of all
intercontinental capacity in the world. By 2025, this share is
expected to have fallen to 20 percent.
Intense International Competition. Non-EU
carriers are reinforcing their global position. For example, the
fastest regional traffic growth in the world is expected to be in
the Middle East, where by 2030 the region's airlines will
represent 11 percent of world traffic, up from 7 percent in
2010.
Infrastructure and Investment. The third major
challenge is characterized by under-investment in airport hub
infrastructure, as a result of which the largest EU hubs are
increasingly congested. This hampers the European hubs' ability
to compete with major new hubs developing in other parts of the
world. The airport capacity crunch must therefore be efficiently
addressed if European competitiveness is to be maintained.
The "Kallas" paper concluded that investments in airport
infrastructure and development of hubs must be enabled because they
are justified by a strong and sustainable demand and are crucial
for enabling European aviation to compete with airports in other
parts of the world.
The European Commission's Proposals
The European Commission is proposing to move ahead on three
fronts:
New Agreements with Neighbors and International
Partners. To give the EU aviation industry better access
to business opportunities, the Commission is proposing to: (i)
conclude EU-level air transport agreements with key and
increasingly important aviation partners such as China, Russia, the
Gulf States, Japan, India, and ASEAN countries in southeast Asia;
and (ii) complete, by 2015, EU-level aviation agreements with
neighboring countries such as Ukraine, Azerbaijan, Tunisia, Turkey,
and Egypt. To accelerate this process, Member States should grant
the Commission a general negotiating mandate for the remaining
neighborhood countries.
In addition, industrial and technological agreements should be
signed with key partners and other countries in areas such as air
traffic management ("ATM") 'including cooperation
with the EU's SESAR program' and safety, including the
certification of aeronautical products.
Fair Competition. The EU considers open markets
as the best basis for developing international aviation relations
and embraces competition. Nevertheless, competition has to be both
open and fair.
In order to safeguard fair competition, the Commission is
proposing to develop, following consultation with stakeholders, new
and more effective EU instruments to protect European interests
against unfair practices. The existing EU Regulation3 in
this respect has proven impracticable, and a new instrument needs
to be put in place that is better adapted to the realities of
today's global aviation sector.
As an additional safeguard measure, the Commission is proposing to
develop EU-wide standard "fair competition clauses" to be
agreed upon and included in existing bilateral air services
agreements between EU Member States and non-EU countries.
Investment. Current ownership and control
restrictions, applied by most countries, deny carriers access to
important sources of new capital. The Commission wants to address
this issue more vigorously and take the additional steps envisaged
in the EU-U.S. air transport agreement to liberalize airline
ownership and control in order to allow airlines to consolidate and
attract the investment they need. This should also be pursued at
ICAO level, including at the March 2013 ICAO Air Traffic
Conference.
The German Airlines' Reaction to the
"Kallas" Paper
The German airlines have, in a press release issued by the
German Airline Association, welcomed the analysis of the challenges
and the Commission's recognition of the need to disburden the
European airlines to improve competitiveness.4 The
airlines highlighted the burdens of European emissions trading, air
travel taxes, and the lack of success in completing a Single
European Sky. Lufthansa was even more specific in mentioning
burdens, such as the German unilateral action of introducing
an air travel tax; the EU unilateral action of introducing
emissions trading; the restrictions on the operation of airports,
in particular the ban on night flights at the Frankfurt airport;
and the expected increase in air navigation
charges.5
Let's take a look at the burdens German airlines are facing
and how those are being addressed by the new European
initiative.
Air Travel Tax. On January 1, 2011, Germany
introduced an air travel tax (air passenger duty) levied on
passengers departing Germany. The tax is between â,¬7,50
and â,¬42,80 per flight, resulting in roughly
â,¬1 billion tax revenues per year in 2011 and 2012.
Doubts have been raised as to whether the implementation of the tax
is legal and whether the tax fulfills its goal. The airlines are
claiming that the tax has massive negative effects on German
aviation by discouraging passengers from traveling from German
airports. Passengers of German airlines have contributed 60 percent
of the tax revenues. The remaining 40 percent was shared among
roughly 100 foreign airlines.
Meanwhile, the political climate seems to be changing; in November
2012, representatives of the German States requested that the
federal government withdraw the tax.
Emissions Trading. The European Commission's
decision to put the application of the EU emissions trading system
partially on hold until the end of 2013 helped prevent greater
damage; the decision avoided a trade war between the EU and the
U.S., China, and other countries. While the EC decision is a step
in the right direction, the present situation of applying emissions
trading only to flights within the European Union has a damaging
effect on all European carriers. It goes without saying that
European carriers, such as the German airlines with their hubs
located inside the EU, have a substantially higher percentage of
flights that are affected by the present application of the
emissions trading scheme. Competitors that have a hub in, for
example, the Middle East can fly all passengers to their respective
hubs and from there to anywhere else in the world, without being
subject to European emissions trading. The European airlines'
flights to and from their respective European hubs are always
subject to emissions trading. This creates a disadvantage for
European airlines.
Furthermore, it still remains to be seen whether it will be
possible to reach a compromise on the overall issue of European
emissions trading in October 2013.
Restrictions on the Operation of Airports. In a
decision of April 4, 2012, the Federal German Administrative Court
confirmed a general ban of night flights at Germany's major
airport in Frankfurt. After London's Heathrow and Paris's
Charles de Gaulle, Frankfurt am Main is the third largest airport
in the European Union. As of 2012, this airport will not be allowed
to operate flights between 11:00 p.m. and 5:00 a.m. This puts the
Frankfurt airport and the airlines operating out of this airport at
a significant disadvantage compared to airlines operating without
such restrictions.
In addition, flight paths at many German airports have recently
been subject to restrictions imposed as a result of
litigation.
Failure to Ensure Adequate Airport
Infrastructure. The "tragedy" around the
delayed, delayed, then again delayed, and again and again delayed
opening of the new Berlin airport ("BER") is only the
latest and most visible problem when it comes to the inadequacy of
providing airport infrastructure in Germany. An airport project in
Germany seems to have become nearly impossible to undertake. Strong
opposition in German public opinion to new infrastructure projects
is not the only obstacle to airport projects. As BER illustrates,
inefficiencies and the unhealthy mingling of interests when
governments on the federal, regional, and municipal level try to
build, own, operate, and regulate airports at the same time further
hampers airport projects.
Airport Charges. Airport charges in Germany have
always been on the expensive side. Germany recently amended its
Aviation Law6 to implement European Law7 and
for the first time introduced legal criteria for the approval of
airport charges. Despite recent changes, the legislator failed to
ensure that the government entity that approves the airport charges
take appropriate account of the interests of the users, i.e., the
airlines. Furthermore, the approving government entity often
belongs to the same entity that holds a major stake in the
respective airport.
Groundhandling Services. Previous attempts to
liberalize groundhandling services at German airports have failed.
For years, German airports have done nothing but the bare minimum
required under the European Groundhandling Directive8 by
admitting only one independent service provider besides the airport
itself. The one alternative groundhandler that was admitted was
admitted only for a period of seven years. The limited admission
time period has prevented the independent service provider from
seriously competing with the incumbent airport operator.
Recent Europe-level attempts to find a compromise for an amendment
on the Groundhandling Directive would at least provide for some
improvement. The proposed amendment would enable one additional
independent groundhandler (for a total of three, including the
airport operator) to be admitted at each community airport.
Air Navigation Charges. Air navigation charges
are a substantial cost for airlines. Current plans provide for an
increase of these charges in Germany in 2013 by 11.8 percent.
Recent charges already increased charge costs by 5.1 percent in
2012. The newest increase would burden airlines taking off and
landing in Germany with more than â,¬100 million per year
of additional charges. The Eurocontrol charges applied to flights
passing German territory are also likely to increase. The planned
increase is in direct opposition to the European target to
harmonize such charges via an annual decrease of 3.5 percent.
Passenger Rights Regulation. Finally, payment of
compensation under the Passenger Rights Regulation9 is
gaining more and more practical and economic importance. Situations
in which airlines are unable to control the facts leading to
cancellations or delays of flights (e.g., airport congestion) are
increasing. There appears to be a trend in the case law of Member
States and even more so in Europe to expand the scope of
application of the Passenger Rights Regulation. The case law
stretches the Passenger Rights Regulation beyond its originally
intended scope while at the same time narrowing the airlines'
ability to make use of the already narrow exemptions to the
Regulation. This, of course, concerns all airlines, but this
development will have greater significance for airlines with a
higher percentage of European flights.
Conclusion
The European Initiative addresses only a few of the challenges
airlines are currently facing. The Commission's proposal, when
finally implemented, will only be a small step in creating a level
playing field for European airlines. The value of the current
European Commission "Kallas" paper lies in recognizing
the significance of air transport to Europe's economic future
and the challenges European air transport will be facing in the
years to come. The "Kallas" paper will hopefully help
national governments realize that more needs to be done to actively
preserve the interests of aviation and that imposing new
restrictions or burdens on European players in this global industry
will help competitors elsewhere.
Footnotes
1. European Commission MEMO/12/714.
2. According to the European Commission's Press Release of September 26, 2012, IP/12/1027.
3. Regulation (EC) No 868/2004 of the European Parliament and of the Council of April 21, 2004 concerning protection against subsidization and unfair pricing practices causing injury to Community air carriers in the supply of air services from countries not members of the European Community. Official Journal L 162 , 30/04/2004 p. 1-7.
4. http://www.bdf.aero/downloads/1209261305PMBDFKOM-PapierEU-Luftverkehr.pdf .
5. According to the Lufthansa Policy Brief 1/2013, the German Federal Transport Minister Peter Ramsauer calls these special levies and taxes a "toxic quartet."
6. Section 19b of the Aviation Act' Luftverkehrsgesetz - LuftVG' as amended by the 14th law for the amendment of the Aviation Act BGBl. I S. 1032, as of May 12, 2012.
7. Directive 2009/12/EC of the European Parliament and of the Council of March 11, 2009 on airport charges. Official Journal L 070 , 14/03/2009 p. 11-16.
8. Council Directive 96/67/EC of October 15, 1996 on access to the groundhandling market at Community airports. Official Journal L 272 , 25/10/1996 p. 36-45.
9. Regulation (EC) No 261/2004 of the European Parliament and of the Council of February 11, 2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights. Official Journal L 46, 17/02/2004, p. 1-8.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.