Aviation in Europe has a PR problem, which is not helped by the fragmentation of industry representation. Efforts to consolidate representation have so far not yielded material results. Europe's five largest airlines are now attempting to seek common ground, prompted by the European Commission's consultation on a new aviation policy. However, they are avoiding obvious sticking points such as protectionism with regard to competition from Gulf-based airlines. By contrast, airport representation is unified in ACI Europe, which has also responded to the Commission with a liberal set of policy proposals.
Recent changes in the membership of Europe's main airline representative bodies have seen ELFAA become its biggest airline association, measured by its members' passenger numbers, ending the previous hegemony of AEA. IAG's legacy airlines defected from AEA to ELFAA due to differences of opinion over market liberalisation.
There has never been a greater need for a single voice on issues such as taxation and the infrastructure provision (both on the ground and in the air). Aviation needs to argue its case and more effectively promote its benefits to the public.
IAG took BA and Iberia out of the Brussels-based Association of European Airlines, traditionally the main body representing legacy airlines, in mid Apr-2015 due to differences of opinion with other leading members of the association over what IAG saw as protectionism. The group's LCC subsidiary, Vueling, was never a member of the AEA.
IAG said: "We believe global liberalisation of our industry is fundamental to our future growth and we are not willing to compromise on this fundamental matter" (Financial Times/Wall Street Journal 16-Apr-2015). In particular, IAG objected to the stance taken by Air France-KLM and Lufthansa towards competition from the Gulf super-connector airlines Emirates, Qatar Airways and Etihad.
Where IAG led, others followed. Both airberlin and Alitalia also left AEA later in Apr-2015.
airberlin Chief Executive Officer, Stefan Pichler said, "We see no future in a protectionist aviation policy in Europe. On the contrary; the liberalisation of bilateral agreements will promote further consolidation and new, innovative business models, thereby benefitting all passengers".
In airberlin's view, the AEA was "not fulfilling these ideas, but allowing itself to be driven by airlines which desperately try to erect a new wall around Europe". Pichler argued that new investment in European aviation from other regions would be good for jobs and that increased competition would offer greater consumer choice.
As previously reported by CAPA, Alitalia said in late Apr-2015: “Alitalia believes that European airlines can be successful in the global market only by accepting the challenges of liberalisation, while developing investment, jobs and new services for global consumers. The radically different approach pursued by other AEA member airlines has led Alitalia to take this decision.”
Between them, the airlines that left the Association accounted for 30% of its passenger numbers in 2014, both within Europe and on intercontinental routes. Without these departing airlines, total AEA passenger numbers would have been 258 million in 2014, compared with the reported figure of 369 million.
IAG airlines then joined the European Low Fares Airline Association
After leaving the AEA, the IAG companies BA, Iberia and Iberia Express joined the European Low Fares Airline Association, where sister company Vueling was already a member. Willie Walsh, CEO of IAG said: “We look forward to working with ELFAA and its member airlines on a full range of policy and regulatory issues including the pursuit of further aviation liberalisation”.
The IAG airlines' impact on ELFAA's traffic figures is significant. They would have added 24% to its overall 2014 passenger numbers to give it a total of 292 million, more than the reduced AEA figure. Moreover, ELFAA members now also carry more intra-European passengers than are carried by AEA members. In addition, BA and Iberia now bring intercontinental traffic to ELFAA for the first time (not counting the small numbers of passengers flying with its members to North Africa and the Middle East).
AEA and ELFAA: 2014 passenger numbers (million) before* and after** membership changes
All of the airlines that left the AEA have Gulf airline investors in their share capital and so it could be argued that, in making this move, they are just serving their new masters. This argument carries less weight in the case of IAG. The UK-Spanish group is 10% owned by Qatar Airways and the two oneworld alliance partners are also developing a closer commercial relationship, but IAG entered into partnership with Qatar Airways from a position of relative strength.
By contrast, airberlin and Alitalia took fresh investment from a Gulf airline in order to survive. Etihad Airways owns 30% of airberlin and 49% of Alitalia. It would be no exaggeration to say that these two loss-making carriers would likely have gone bankrupt without the investments that they have received from the Abu Dhabi-based airline.
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- Airberlin's new codeshare with Alitalia is no substitute for the loss of Etihad codeshare routes
The position of the AEA itself was broadly in favour of liberalisation, although it has attempted to tread a careful line between the differing views of its members by arguing for the liberalisation agenda to be negotiated with other regions, rather than for Europe to take unilateral action. Moreover, the AEA believes that European Union rules on market access, ownership and control should be adhered to.
The AEA published a paper in Jun-2015 in response to the new EU Transport Commissioner Violeta Bulc's consultation on a new EU aviation strategy. Much of this paper provides common ground across all airlines, such as its call for infrastructure improvements, such as the implementation of the Single European Sky, the enhancement of airport capacity, further liberalisation of ground handling and measures to ensure cost-efficient airport charges.
In addition, its support for a global (rather than European) solution to the problem of aviation CO2 emissions, for developments in safety and security regulation and passenger rights are unlikely to divide the industry.
The AEA's proposals on ensuring "a level playing field" to "get rid of distortions and discrimination" also contains much that is supported by the vast majority of airlines, regardless of the association to which they belong. The abolition of national or local aviation taxes, for example, is a universally popular aim among airlines
However, also under the "level playing field" banner, the area of social and labour legislation provides some potential for differences of opinion. The AEA paper notes that "the emergence of new employment models" has given rise to "diverging views among regulators, governments and the airlines' management". The AEA stops short of calling for harmonised legislation, but calls on the Commission to adopt a "pragmatic approach" to find a long-term solution, while maintaining the competitiveness of European airlines.
The subject of "fair competition" can also be a divisive one. The AEA seeks a regulatory framework which ensures "fair and equal opportunities to compete in the long term". It calls on the Commission to work with organisations such as WTO and ICAO to define a global framework on fair and open competition.
It also calls for the adoption "without delay" of a revised Regulation 868/2004. This regulation, which has never been implemented, deals with unfair pricing (pricing below cost) by, and subsidies to, non-EU airlines. This part of the AEA paper certainly has the potential to divide European airlines, since it could lead to attempts to use the regulation against the Gulf airlines.
Consistent with its past stance on ownership and control, the AEA calls on the European Commission to relax the restrictions, but on a reciprocal basis, to ensure "normal market shareholder behaviour" by foreign investors and to "address" investment in EU airlines by non-EU airlines. These measures could be used to delay any liberalisation of ownership and control and to prevent, or reverse, inward investment in EU airlines from outside the bloc. As a result, they are prone to being used by those seeking to slow down, or reverse the liberalisation of the industry.
On market access, the AEA says it is committed to an open market where "all actors are able to compete on a fair and equal basis" and support "a level playing field for carriers operating in the European market". It requests the Commission to ensure fair competition between the EU and other countries when operating fifth freedom to/from EU member states. This also seems to give those with protectionist instincts ammunition with which to slow down the process of liberalisation.
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There is much in the AEA paper to unite Europe's airlines and it does appear to be seeking further liberalisation in areas such as ownership and control and market access. Nevertheless, it also seems to have allowed its understandable desire to keep everyone happy on these issues to open up plenty of space for those opposing such liberalisation.
The Association certainly feels aggrieved that it has been linked to supporting protectionism, pointing to its long track record of promoting the liberalisation of air transport. It seems that the AEA was caught in the middle of the two sides of the liberalisation debate, with the issue of competition from Gulf carriers providing the demarcation line.
The main divide was IAG versus Air France-KLM and Lufthansa
In particular, IAG felt that the airlines of Air France-KLM and the Lufthansa Group were seeking to raise protectionist barriers to restrict this competition. Their influence can be seen in the wording of some of the AEA paper outlined above.
Against the backdrop of an anti-Gulf campaign by the leading US airlines, who favour restricting the access of Emirates, Qatar Airways and Etihad to US markets that has been granted under open skies agreements, Air France-KLM and Lufthansa also appear keen to use bilateral air services agreements to limit these competitor's traffic rights.
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Nevertheless, the AEA finds itself representing airlines with a smaller share of passenger numbers than that of ELFAA members. Although its share of total ASKs is still higher than that of ELFAA, the AEA is now smaller than its rival association within Europe in both passenger numbers and ASKs. This reduction in size undoubtedly weakens its voice on important industry issues when lobbying in Brussels and other regulatory venues.
AEA and ELFAA: 2014 available seat kilometres (ASK, billion) before* and after** membership changes
For its part, ELFAA has seen its position strengthened by the membership changes. Its Secretary General, John Hanlon, said in a statement in Apr-2015 that the "new members will further strengthen our credentials as the major stakeholder group on European legislative and regulatory matters".
In a pronounced change of tone from the early days of LCC versus legacy rhetoric, he added that ELFAA was "pleased and proud" to welcome British Airways, Iberia and Iberia Express, referring to them as "respected and successful airlines".
According to its own publicity material, ELFAA’s primary objective is to ensure that European policy and legislation promote free and equal competition to enable the continued growth and development of low fares into the future, thereby allowing a greater number of people to travel by air.
Although leading members of ELFAA, such as Ryanair, remain keen to highlight IAG's much higher fares, the association has no plans to change its name. ELFAA now less clearly represents LCCs, but perhaps this is a further illustration of the so-called hybridisation of business models.
For IAG, throwing its lot in with ELFAA does not mean that it plans to convert BA and Iberia into no-frills, low fare airlines. Rather, it signals that it identifies with ELFAA's more liberal approach to competition and shows a degree of leadership and progressive thinking. It displays a more flexible mindset, one that embraces competition on both long haul and short haul.
Interestingly, the Air France-KLM group, which is one of the AEA members that has a markedly different view on Gulf competition, has a foot in both camps. We can only guess at how its LCC subsidiary Transavia reconciles its membership of ELFAA with its parent's membership of AEA, given the sharp difference of opinion between members of the two associations on this issue. IAG's legacy airlines left AEA to join its LCC Vueling in ELFAA and to distance itself from the likes of Air France-KLM. Will Transavia feel obliged to move in the opposite direction?
airberlin has so far not moved into another association, but says that it will continue to be involved in European aviation policy and will "actively promote its own initiatives in Brussels".
For the industry as a whole in Europe, the changes in the continent's two biggest airline representative bodies are only part of the struggle to find a representative voice.
In addition to AEA and ELFAA, Europe's charter airlines are represented by the International Air Carrier Association (IACA); its regional airlines by the European Regions Airline Association (ERA); and business aviation operators by the European Business Aviation Association (EBAA).
There has been chatter in Brussels about possible plans for two or more of these associations to merge, for example AEA and IACA, but it looks very unlikely that the big two, AEA and ELFAA, will join together.
Interestingly, given this fragmentation - and, possibly, because of it - the CEOs of Europe's five largest airline groups recently issued a joint statement on regulation. In response to the European Commission's consultation on a new EU aviation strategy, the leaders of Air France-KLM, easyJet, IAG, Lufthansa Group and Ryanair set aside their differences to call for policies that support growth and jobs and give passengers lower fares and more choice.
Specifically, and taking care to avoid mention of competition from the Gulf, the five called for a simple, efficient regulatory structure; reform of the Airport Charges Directive to ensure effective regulation of airport charges and to ensure that security charges are efficient; the provision of reliable and efficient airspace through lower ATC charges, measures regarding ATC strikes and the resetting of the Single European Sky strategy; and the removal of passenger taxes and "unreasonable" environmental taxes.
They also "confirmed their support for the liberalisation of the whole aviation value chain and for pro-competition policy and regulation within the EU" (the phrase "within the EU" was presumably designed to avoid the tricky Gulf issue), while opposing State-aid to airlines and airports.
Europe's airports have a single representative body: ACI Europe
Unlike Europe's airlines, its airport sector does have a single representative body in the form of ACI Europe, the European region of Airports Council International (ACI). Moreover, ACI Europe has a clear position on aviation regulation with regard to open skies.
Prompted by the "increasing controversy" concerning the expansion of the Big Three Gulf airlines and motivated by a desire to improve air connectivity between Europe and other regions, ACI Europe and the European Travel Commission (ETC), which promotes Europe as a tourist destination, issued a joint paper to influence the debate on open skies policies.
Both ACI Europe and ETC support free aviation market access in order to promote a competitive and successful travel and tourism sector. Their joint paper calls for the liberalising of market access on international routes between the EU and what it calls "our main trading partners" such as ASEAN, China, the Gulf countries, India, Russia and Turkey. There are no qualifications to this, unlike the AEA's slightly watered down version.
The paper also supports the aim of achieving regulatory convergence with these countries on issues such as safety, security and fair competition. Finally, in a passage that largely echoes the suggestions of Europe's five leading airline CEOs and much of the AEA's wish list, the ACI Europe/ETC paper calls on the European Commission to address airport capacity and financing, aviation taxes, regulatory driven costs (in particular safety and security) and the effective implementation of the Single European Sky.
Recognising that Europe's airlines do not speak with a single voice, the five big airline CEOs acknowledged that representation in Brussels was "not as effective as it could be". They will look at "possible forms of future representation".
Recognition of a problem is the first step towards its resolution and so this is a welcome development. Nevertheless, it also seems that this is a problem that is getting worse before it can get better.
The AEA is undoubtedly weaker now than it was before the defections. The ELFAA is now stronger in terms of the size of its membership, although it has arguably lost some clarity of purpose in that it no longer purely represents low fares airlines. And now we have the unofficial group of five, representing Europe's largest airlines and possibly making it harder for smaller airlines to be heard on any issue where their interests may differ.
Europe's airlines could learn from its airports, both in working towards a single representative body and in fully embracing market liberalisation. ACI Europe has taken a bold and positive stance that sends a loud message to airports around the world.
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