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EU single air transport market under threat? The solution requires more than just a new trade defence instrument

March 20, 2017

 

Over the last two decades, the single and fully liberalised European market for air transport has brought multiple benefits such as new entrants in the industry, more choice for consumers, additional markets being served and more EU and regional connectivity. These achievements  have all contributed to the success of the aviation industry, the traveling public and European society. One of the key elements is that competition flourishes and that the market decides who survives and who doesn’t. Overall, it is fair to conclude that the single air transport market has lived up to expectations.

 

The past couple of years, however, this model has come under pressure as a number of European airlines are convinced that they are required to compete with players who do not play by the single market rules and benefit from unfair competition and state subsidies. The prime targets of the concerns are the three large airlines from the Middle East – Emirates Airlines, Etihad Airways and Qatar Airways – and, to a slightly lesser extent, also Turkish Airlines. Similar claims against these airlines have been made by a few US air carriers as well.

 

EU Regulation 868/2004 was developed as the main trade defence instrument for the European airline industry in the wake of the 9/11 attacks. It’s objective is to protect against subsidisation and unfair pricing practices causing injury to EU airlines in the supply of air services by airlines from outside the EU. A key element of the Regulation is the possible imposition of redressive measures to offset this behaviour. However, the stipulated process which is to be followed is long and tedious. In addition, merely imposing duties on a non-EU air carrier – as the Regulation mentions - is not regarded as an effective deterrent. It is for these reasons that to date Regulation 868/2004 has not been called into action at all.

 

In December 2016, the European Council agreed on a proposal to modernise the EU’s trade defence instruments to better respond to unfair trade practices and increase transparency and predictability. The European Commission has also stepped up its game. It is currently working on a legislative proposal (effectively rewriting Regulation 868/2004) to tackle unfair competition in the air transport industry, provide the Commission with more investigative powers, impose significant fines and – as a last resort – possibly suspend traffic rights of non-EU airlines. The Commission is expected to launch its proposal this spring, although dates have shifted forwards a couple of times. This will mark the starting point of what will undoubtedly be a long and difficult institutional and political process, due to the sensitivity and contentiousness of the issue.

 

Unfortunately, and worrisome at the same time, is that the entire focus and priority setting has now shifted to what the Commission’s proposal will look like and whether it will indeed be an improvement compared to Regulation 868/2004. This shortsightedness runs the risk of looking at a few external events only to mitigate the negative effects on the European airline industry. The European air transport community and stakeholders need to focus on the situation within the single market as well. 

 

Although some of the elements were already mentioned by the Commission in its Aviation Strategy for Europe in 2015, there are many urgent European issues at hand, which need to be addressed effectively if the international competitiveness of European airlines is to be improved. Challenges include insufficient airport infrastructure in Europe, low entry- and high exit barriers to the single market, security costs which are currently borne by the industry, burdensome legislation and red tape, inefficiencies and high costs in the aviation value chain, labour strikes at ground handling, airlines and ATC, taxation, lack of availability and of research and development funding for alternative fuels, limited progress on the Single European Sky and strongly politicised discussions. 

 

Obviously, whether or not a ‘modernised Regulation 868/2004’ will be an efficient and effective trade defence instrument for the airline industry remains to be seen. It depends on what the final Regulation will look like once the institutional and political process between the Commission, the European Parliament and the Council has been finalised. It is by no means a given that the end result will reflect what the Commission set out to achieve in the first place.

 

However - and irrespective of the outcome - if the EU institutions, politicians and the air transport industry believe that merely rewriting and repolishing one of the current trade defence instruments will be sufficient to enhance and secure the international competitive position of the industry for the future, they are all sadly mistaken. Enabling a flawless European single air transport market itself should remain a key target.

 

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