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The European Union is a political and economic union comprising 27 states located primarily in Europe. The EU collectively represents the world's largest economy, with a GDP of USD15 trillion (2009), and counts some 500 million people within its borders. The EU operates as a single market, with a common system of laws and trade policies, with 16 states have forming a monetary union, adopting a common currency - the euro. The single market is based on the four freedoms of the EU: the free movement of labour, capital, goods and services. 22 member states have agreed to abolish passport controls between them, under an agreement known as the Schengen Agreement. Major institutions of the EU include the European Commission, the European Council, the European Parliament, the European Court of Justice and the European Central Bank.
The European Union was established in the aftermath of World War Two to bring peace, stability and prosperity to Europe. Key developments in its history include:
- 1951: The European Coal and Steel Community is established by the six founding members
- 1957: The Treaty of Rome establishes a common market
- 1973: The Community expands to nine member states and develops its common policies
- 1979: The first direct elections to the European Parliament
- 1981: The first Mediterranean enlargement
- 1993: Completion of the single market
- 1993: The Treaty of Maastricht establishes the European Union
- 1995: The EU expands to 15 members
- 2002: Euro notes and coins are introduced
- 2004: Ten more countries join the Union, establishment of the European Constitution
- 2007: Two more countries Join EU, member states sign Treaty of Lisbon.
- 2014: EU elects Jean-Claude Juncker as President for five-year term.
- 2015: Lithuania adopts the Euro as its currency, becoming 19th member of the euro area.
European Commission Vice-President, Siim Kallas, is responsible for Transport.
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At the ACI 26th General Assembly in Athens on 21-Jun-2016 the European Commission's DG Competition Henrik Mørch said that the EC has generally approved JVs but is closely watching consolidation trends. As reported in a CAPA news brief, Mr Mørch said that the EC is interested in how much consolidation can be justified with efficiency gains for the consumer.
He added that, while the European aviation market is more fragmented than the American market, taking the level of consolidation that exists in the US and applying it to Europe is "not necessarily something we would advocate for...there's too little competition in the American market in our view".
However, the level of concentration on the North Atlantic, the principal market where JVs have been approved by the Commission, is greater than in North America – the market that Mr Mørch considers too concentrated. Meanwhile, European fragmentation weighs heavily on its airlines' yields and holds back their profitability.
New cross-border operating alternatives in the international arena are emerging, as times change and the global balance of power shifts towards Asian markets. One option to preserve trans-border networks for airlines is to replicate the prolific Asian LCC JV networks that allow multiple licences in individual jurisdictions while maintaining a common brand. This is no easy solution, is not guaranteed and introduces challenges.
But, as the major EU LCCs review their options in the new environment, there is little doubt that the biggest losers if the UK were excluded from the single aviation market would not be the UK or the EU; those who suffer most will be Europe's consumers and regional economies.
The prospects for a continuation of the single market are good, yet the world is changing fast as Asia's airlines and investors and their governments increasingly gain a voice in shaping the future. For every step backwards that Europe - previously a leader in liberalisation - takes, so the Asian aviation influence accelerates. Mostly this is progressing in a more liberal direction, where Europe's likely course now is regressive.
The British exit from the European Union will have a negative impact on UK air traffic as a result of weaker GBP – an immediate effect – and a weaker GDP outlook. Air freight is also likely to be negatively affected by lower levels of international trade. The impact on air traffic is also likely to be felt in the rest of Europe, while economists are also warning that Brexit adds to the uncertainties facing the global economy.
European airline share prices have been hard hit since the UK referendum result was announced early on 24-Jun-2016, particularly those of easyJet and British Airways' parent IAG. This reflects the likely lowering of demand, but also the significant regulatory uncertainty surrounding the sector, particularly with respect to market access.
UK membership of the European Common Aviation Area would preserve existing market access and is the expected route. However, UK political turmoil and question marks concerning its ongoing commitment to EU principles may compromise its access in the future. Profit warnings from IAG and easyJet point to at least a slowing of profit growth. It is difficult to see the world airline profit cycle continuing the upswing of recent years.
The 23-Jun-2016 UK vote in favour of British exit from the EU came as an enormous shock to observers, despite strong warnings from pollsters. The first implication is for an unwelcome period of uncertainty. But, as with any major shock of this sort, the immediate warnings of disaster and market collapse normally dissipate as thinking adjusts. Having passed the political silliness of leaving such a major and complex decision effectively to chance, the bureaucrats will now begin to pick up the pieces and work around the complexities.
There are numerous potential implications for the aviation sector - the most serious being that the withdrawal of the UK from EU decision making will allow the protectionist forces in Germany and France to become more influential in formulating EU policy directions. Otherwise, many of the potentials can probably be worked around, over time. Meanwhile, uncertainty remains the order of the day, while the lengthy unravelling occurs.
For consumers, the single aviation market and the US-EU Multilateral open skies agreement are the most immediate issues. For European services, the likely outcome is for the UK to negotiate single market access, as Norway and others have, through the ECAA, despite not being EU members. This would broadly maintain the status quo from a consumer perspective and the UK's airlines would retain full market access. Ironically though, they would have to comply with associated EU regulations, despite having no say in their formulation - the opposite of Brexit's supposed objective in giving the UK greater independence. And the North Atlantic agreement has become so important, for liberals and protectionists alike, that a UK disappearance is most unlikely.
(This unamended CAPA report was first published on 22-Jan-2016.) Opinion polls are notoriously volatile and unreliable predictors. Nevertheless, a recent opinion poll* in the UK has indicated that voters favouring a British exit from the European Union now number more than those favouring the status quo. Whether or not the poll is totally accurate, it indicates that a so-called "Brexit" is a serious possibility.
UK Prime Minister David Cameron's Conservative government has promised UK citizens a referendum on this before the end of 2017. Meanwhile, he is attempting to renegotiate the UK's membership, so that he can then back a campaign to stay in the EU. He is now hopeful of securing a deal with the UK's European partners at EU summits in Feb-2016 or Mar-2016. This could pave the way for a referendum as soon as Jun-2016.
This Jan-2016 report considered the possible implications of a Brexit on the aviation industry in the UK and Europe, with a particular focus on airline traffic rights. Much will depend on how, and to what extent, a post-EU Britain chooses to replicate its existing access to the EU single market in aviation (and in other sectors). Suffice it to say - the situation is uncertain.
All objections and further comments on the tentative grant of a US foreign air carrier permit to Norwegian's Irish subsidiary Norwegian Air International (NAI) by the Department of Transportation (DoT), on 15-Apr-2015, have now been made. Not surprisingly, a number of labour organisations and some US senators filed to reiterate their opposition. Many supportive comments were also received.
The opponents' central contention is that NAI's business model contravenes the US-EU open skies agreement's Article 17 bis, aimed at upholding labour standards. This is merely a retread of the argument rejected by the legal counsels of the DoT and the US State Department, and by the Office of Legal Counsel. Some also repeat the unfounded claim that NAI poses a threat to safety. Both positions forget that NAI's employment and safety regulations are those of Ireland, an EU nation. They also forget that NAI will create new jobs in the US and EU.
It would be remarkable if the DoT were to reverse its tentative approval, reached after more than two years of deliberation. The US-EU agreement was designed to stimulate competition, to the benefit of consumers. Approval for NAI is essential to its ongoing credibility. A final decision now awaits.