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Governments’ wake up call: Is aviation a strategic imperative or a pariah to be taxed?

25-Oct-2010

One very salient – and on this occasion, uncontroversial – message that emerged from the recent (and future) battle between the alliance legacy carriers on one side and Emirates and the other Gulf carriers on the other involved the impact of government policy on the industry. The differences were night and day.

Paul Griffiths, CEO of Dubai Airports, responding to suggestions of government subsidies and preferential treatment of Emirates, stated the issue succinctly: “The only thing Dubai is guilty of is providing an environment that actually supports aviation. Most governments around the world treat aviation as a pariah, choking its growth with costly, misdirected regulation, instead of adopting policies that recognise its considerable socio-economic benefits and support its sustainable growth. They then compound the problem with parasitic forms of taxation that usually flow straight out of the sector. In Dubai aviation is embraced as a strategic imperative.”

The message has been picked up in the Association of European Airlines (AEA), as well as its regional equivalent, the European Regions Airline Association (ERA). AEA’s chairman and CEO of British Airways, Willie Walsh, put the message to Europe’s leaders: "It's about time Europe makes up its mind what it wants from its airline industry. The liberalisation of the market has brought about huge efficiency benefits, a stream of product innovations, lower prices and consumer choice. Yet all along the line these benefits are being eroded by heavy-handed and inappropriate regulation in some areas, and a reluctance to tackle structural deficiencies in others.

"Our success is Europe's success. But if we are weighed down by taxes and charges at home, we can't compete to the best of our ability abroad. We cannot compete sustainably for passengers, if, as a result of government intervention, non-European hubs benefit, thereby drawing passengers, cargo, employment and economic growth away from Europe."

On a slightly different tack, but still bemoaning the costly, often poorly conceived and unhelpful regulatory process of the EU, ERA Director General Mike Ambrose highlighted the lack of consultation and the credibility gap between what the problem was and the regulatory solution. He offered to the European Commission seven steps to good regulating. Two of these, importantly, were to “establish whether regulatory action is necessary … and, if so, why”; and to “identify the minimum legislative action that is necessary”.

The recent wave of activism by Europe’s airlines appears to be coordinated, if pragmatically and will set the framework for the EU’s Aviation Summit in late Oct-2010, which the AEA airlines hoped would further develop the key themes which influence the sector’s contribution to European prosperity. 

One important issue to be pursued here will undoubtedly be that of industry actions to reduce emissions. Preparing the way for that discussion too, AEA Secretary General Ulrich Schulte-Strathaus stressed that there was no “business as usual” for airlines when it comes to the reduction of emissions.  “Contrary to the belief of some, there will not be a 300% growth of airline emissions by 2050. The airlines’ CO2 emissions will have been halved relative to their 2005 levels by 2050.”

Noting the AEA airlines “investments in the development of sustainable alternative fuels”, which can reduce aviation’s CO2 levels by up to 80%, he urged the Commission “to pursue the successful path of international negotiations on a workable regulatory scheme, and to avoid a single focus on punitive economic instruments and adopt a parallel approach to stimulate innovation. One cannot tax an industry  to sustainability. Innovation is key.”

Unfortunately too, there will be loud voices raised against the industry in this area at least. As a platform for the more extreme versions of anti-aviation activist, the EU has been a double edged sword when it comes to intelligent management of an extraordinarily valuable industry.


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