Airlines for Europe: number of trade bodies grown by Big Five from six to seven. Unity increased?

A4E members' track record of quarrelling: AEA versus ELFAA

Founded by the five largest airline groups in Europe, A4E will be led by Managing Director Thomas Reynaert who has joined from United Technologies, where he ran the European government relations office. He will lead an association whose founding members have a track record of quarrelling with one another.

For most of their history, Air France-KLM, IAG and Lufthansa have been members of a different industry association from that of Ryanair and easyJet. However, the lines between associations representing legacy airlines, on the one hand, and low cost airlines on the other became more blurred in Apr-2015. That was when the IAG full service airlines left the Association of European Airlines (AEA), the main representative body for Europe's legacy airlines.

Surprisingly, IAG's British Airways, Iberia and Iberia Express immediately joined Ryanair and easyJet in the European Low Fares Airline Association, where IAG subsidiary Vueling was already a member. The IAG defection was in protest over what it considered to be unacceptable attitudes expressed by leading AEA members, in particular Air France-KLM and Lufthansa, towards competition from Gulf airlines.

IAG felt that the AEA was being led in a protectionist direction on this issue, in conflict with its own more liberal stance (and conflicting with the 10% equity stake held in IAG by Qatar Airways). IAG's words at the time were uncompromising: "We believe global liberalisation of our industry is fundamental to our future growth and we are not willing to compromise on this fundamental matter".

To add to the confusion, Air France-KLM's LCC subsidiary is also a member of ELFAA (European Low Fares Airline Association). IAG's departure from the AEA was soon followed by that of airberlin and Alitalia, both of whom have received investment from Etihad.

Although individual ELFAA members had not commonly expressed a view on the Gulf issue, the association has always been vociferously in favour of competition and market deregulation. IAG felt that ELFAA was populated by like-minded thinkers, saying, "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."

Moreover, and more broadly, individual ELFAA members (think Ryanair in particular) had often gone on the record heavily criticising legacy airlines over matters such as prices that "gouge" their customers, and about their inefficient cost bases. On the face of it, even taking account of IAG's pro-competition rhetoric, BA and Iberia would not seem to make natural bedfellows with the ELFAA, and airlines like Ryanair.

As for airlines such as Ryanair and easyJet being happy to cosy up not only with IAG, but now also with Air France-KLM and Lufthansa (with whom even IAG could no longer bear to share an association just nine months ago), who would have predicted that?

A4E to focus on common ground: airport charges, ATC and taxes

For now, however, and for as long as it lasts, it seems that the five have agreed to set aside their differences to concentrate on reinforcing the industry's message to governments and regulators on areas where they have common ground. According to the Wall Street Journal (20-Jan-2016), Ryanair CEO Michael O'Leary said that they agree on 80% of the issues affecting 95% of consumer needs.

There are certainly some very important matters on which the European industry is crying out for change, and so - needs a single, clear voice. Key among these issues are the inefficiencies of infrastructure, both in the air and on the ground, and the taxation of air transport.

See related report: New EU Aviation Strategy avoids key issues as Asia Pacific and Middle East claim the future

A4E's purpose is to represent its members' interests to EU institutions, international organisations and national governments on European aviation issues. It has identified three specific points on which to campaign.

The three campaign targets for A4E are as follows:

Airport charges. A4E aims to lower the cost of airports in the EU through effective regulation of monopoly airports, including the efficiency of security charges. It argues that passengers should receive the full benefit of the commercial revenues that they generate. It cites an Aviation Economics study showing that charges at Europe's 21 largest airports have increased by 80% since 2005, while its airlines have lowered air fares by 20%.

Airspace. The new association urges the completion of the Single European Sky and better economic regulation of air traffic control (ATC). It also calls for an end to ATC strike-related disruption, and the use of new technology to improve efficiency.

Taxes. A4E argues that creating the "right regulatory environment, removing unreasonable taxes" will stimulate more economic activity and jobs. It laments the recent increase in passenger taxes at Italian airports and points to the positive impact on traffic from the removal of taxes in the Netherlands in 2009, and in Ireland in 2014. The UK's air passenger duty is a clear target for removal.

The liberalisation rhetoric papers over cracks

A4E calls for "a reduction in those costs which airlines do not control themselves" to match the fall in airline costs of 1% to 2% per year over the past two decades. Although its intention was to highlight airlines' diligence in seeking cost efficiencies, this was not achieved for entirely altruistic motives.

Its statement noted that "Consumers have benefited from the liberalisation of aviation in Europe in the 1990s with substantially lower fares and more routes across Europe and to the rest of the world".

At the heart of this liberalisation were the opening up of market access, and the removal of limits on foreign ownership and control in the intra-EU market. The principles behind such deregulation have always been beneficial, wherever in the world they have been applied.

The A4E statement refers to the five CEOs' support for "the liberalisation of the whole aviation value chain and for pro-competition policy and regulation within the EU." But it is by touting these pro-competition ideals that A4E members have papered over some important and continuing cracks.

They all unite in favour of competition within the EU, but Air France-KLM and Lufthansa have not disguised their protectionist instincts when it comes to competition from airlines outside the EU. According to IAG CEO Willie Walsh, "Competition by the Gulf airlines wasn't an area where we could find common ground". (AFD/de/Channel News Asia, 20-Jan-2016).

Moreover, there can be no guarantee that the three issues on which A4E members have founded the new association will remain as unifying forces. As between the five airlines, airport charges, air traffic control issues and passenger taxes are not currently controversial topics, but will this always be the case? Without speculating on how the debate on these issues might develop, it is worth remembering that Delta's departure from A4A was related to a difference of opinion over ATC policy.

Six associations become seven

The five CEOs hailed "the beginning of a new era for European airlines", claiming that "A4E will be a powerful vehicle to address the industry's issues".

Nevertheless, its rhetoric of unity ("For the first time, low-cost and network carriers are creating an association…") belies the fact that, where there were previously six airline associations in Europe (Association of European Airlines, European Business Aviation Association, European Express Association, European Low Fares Airline Association, European Regions Airline Association, International Air Carrier Association), now there are seven.

A4E seems to acknowledge this, with a plea for more support: "Today we also call on all airlines in Europe to join us and make our voice even more powerful."

A4E's five founders' size gives it a loud voice where they agree, but it needs smaller airlines too

The creation of A4E may help to amplify the industry's voice where it is in agreement. Issues of infrastructure and passenger taxes are constraining the growth of aviation in Europe and it is important that the industry's message is clear and consistent on these matters. The airlines comprising the five founding groups of A4E accounted for around 70% of scheduled European airline passengers in 2014, giving them a strong voice.

However, that still leaves a large number of smaller airlines that carry a sizeable chunk of Europe's passenger traffic, yet are not in the new association. It is not automatic that the long trailing group of smaller airlines will always see eye to eye with the founding A4E members just because they are bigger.

The big five will be anxious to avoid any perception that they are bullying their way into shaping things in their interests. It will be important for A4E to gain additional members to reinforce its claim that it now speaks for all of European aviation.

ACI Europe's hostile response

A4E's formation was welcomed by EU Transport Commissioner Violeta Bulc, for whom the prospect of reducing the number of lobbyists with whom she has to deal must be appealing. However, the lack of unity in European aviation is further underlined by the response from ACI Europe, which represents the continent's airports.

Reacting to the launch of A4E in a statement issued on 21-Jan-2016, ACI Europe Director General, Olivier Jankovec showed his displeasure at the airlines' swipe at the level of airport charges.

Hitting back, Mr Jankovec also exposed the cracks in A4E's wall of unity. "These airlines are building their unity on our back - as they are unable to come together on major strategic policy issues such as Open Skies, let alone foster wider aviation industry alignment," he said. He criticised their "tired call for even more regulation of airports", arguing that there is nothing for the consumer, or for Europe's connectivity, in A4E's agenda.

See related reports:

ACI Europe promotes open skies; a resounding precedent for airlines and other airports to follow

European air transport competitiveness. CAPA contributes to the debate at ECAC/EU Dialogue

Airports and airlines still fight over who owns the passenger

Mr Jankovec's complained that "airlines have an unfortunate tendency to forget that they pay below-cost prices for the airport facilities and services they use", leaving airports to make up the difference with commercial revenues and other sources of income.

This contrasts sharply with A4E's view that passengers should receive the full benefit of the commercial revenues that they generate. The airlines' argument is that the airlines bring the passengers to the airports and, therefore, that airport commercial revenues received from passengers represent a form of payment from airlines to airports.

The divide between airports and airlines on this point is based on the old argument between them on who owns the passenger. The constant repetition of this quarrel achieves nothing other than to expose the lack of unity in European aviation.

Not only is it important for Europe's airlines to unite behind aviation's main priorities, but it is also vital for the entire aviation supply chain to agree on issues where there are shared interests and to progress a common agenda.

Fragmented representation continues

Given that there remain key differences among A4E members on issues related to competition from Gulf airlines, it is not clear whether they hope the new association will replace the old ones, or whether it will operate in parallel with them.

The six pre-existing associations (AEA, EBAA, EEA, ELFAA, ERA and IACA) have demonstrated that they are still alive and well by issuing a joint press release on the subject of the EU Aviation Strategy on the same day as A4E announced its formation (20-Jan-2016).

Presumably, for A4A to remain a realistic proposition, it will have to refrain from discussing or presenting views on any issues on which its members do not agree. On matters where they share views, they seem to be applying the formula that 'my enemy's enemy is my friend'.

However, it is inconceivable that its members will not continue to want mouthpieces through which to express strongly held views on the issues that divide them. They may continue to find such an outlet in the old industry associations, or they may choose to do this individually (following the example of Delta Air Lines, which quit the US trade body Airlines for America in 2015). Either way, the European airline industry remains far from united behind a clear voice. This fragmented representation must be unsustainable in the long run.