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European Parliament on aviation: build a single sky, promote liberalisation - and protectionism

The European Parliament has passed a resolution attempting to set out the assembly's views on how the European Union should develop and integrate its transport policies to form a genuine Single European Transport Area. It does not read easily.

The resolution notes that the transport sector employs around ten million people in the EU and accounts for 5% of GDP and describes it as "a frontrunner in generating further economic growth and job creation, and promoting competitiveness, sustainable development and territorial cohesion". It also trumpets Europe's position as a transport "world leader", in both manufacturing and operations, and stresses the importance of its maintaining its competitive position against "powerful new players and new business models".

Central aims of the resolution are to place people at the heart of transport policy and to honour greenhouse gas commitments across all modes. It supports European connectivity, the Single European Sky and liberalised aviation agreements with the BRICs and ASEAN. However, it may stir controversy with proposed changes to passenger rights regulations and what look like illiberal stances on Gulf/Turkish competition and "flags of convenience".

The European Parliament states its position on policy across all modes of transport

In adopting the resolution on the implementation of the 2011 White Paper on Transport on 9-Sep-2015, the European Parliament has laid out its position on transport policy. Running to 21 pages of densely worded eurocrat speak (the resolution's sub-title is "taking stock and the way forward towards sustainable mobility"), it calls on the European Commission and member states to implement actions covering the full modal spectrum of road, rail, maritime, inland waterway and air transport.

This comes as the Commission, which is the EU's executive body, is conducting a "mid-term review" of the 2011 White Paper to assess progress in the implementation of its 40 initiatives and 131 action points. This process, which included a period of public consultation in Mar-2015 to Jun-2015, will feed into the Commission's drafting of its Aviation Package, which is expected to be adopted by the end of 2015. The Aviation Package is intended to provide a vision for the competitiveness of the EU aviation sector.

Passenger Rights to be clarified, but uncertainties remain

The Parliament repeats a call for a Charter of Passenger Rights that would "set out the fundamental passenger rights applicable to all modes of transport". This is aimed not only at aviation, but at all transport modes in the EU.

This overarching proposal sits alongside a proposal more particular to aviation and also in the area of passenger rights, namely the implementation of a revised Regulation EU261. This regulation, unpopular with airlines, deals with compensation to passengers in circumstances such as delays, cancellations or denied boarding.

The revision of EU261 aims to clarify and tighten up the rules governing its implementation. In a move that is positive for airlines, it more clearly defines so-called "extraordinary circumstances", in which compensation does not need to be paid by airlines.

On the other hand, proposed tougher rules imposing potentially heavy fines on feeder carriers in the event that passengers miss a long haul connection could harm connectivity by forcing smaller airlines to choose not to service major hubs.

From an airline perspective, the combination of the proposed Charter of Passenger Rights and the revised EU261 seems to give with one hand and take away with the other, although the devil will be in the detail when it comes to implementation.

"Europe needs to maintain its direct connectivity…", but EU261 may conflict

There are a number of other areas in the resolution that will be of interest specifically to aviation and we will confine the rest of this report to discussing the most important of these.

In a clause welcomed by the Association of European Airlines (AEA), the Parliament underlines that "Europe needs maintain its direct connectivity to all parts of the world, providing direct flights by European carriers from their hubs […] and maintaining jobs and growth in the European aviation sector".

It stresses the importance of short haul flights not only in providing intra-EU connections, but also in feeding long haul hubs. The potential for conflict between this message and part of the revised EU261, as noted above, will need to be addressed and resolved.

A potentially protectionist response to the competitive threat from Turkey and the Gulf

The resolution acknowledges the need to reduce costs to "globally competitive levels" and to ensure "fair competition" with third party airlines, while also warning of the further loss of direct connectivity between Europe, Asia and Africa to hubs in the Gulf and Turkey (in other words, Emirates, Etihad, Qatar Airways and Turkish Airlines). It warns of the challenges to competition posed by the widening of the range of air services provided by these non-EU companies.

This analysis of the threat to European long haul airlines from more cost efficient airlines with hubs that are geographically well positioned to capture global connecting traffic flows is correct. However, its apparently preferred course of action to mitigate this threat could be seen as a call to raise protectionist barriers.

The resolution then goes on to call for a revision of Regulation 868/2004, which deals with unfair pricing (pricing below cost) by, and subsidies to, non-EU airlines. Such a revision would be aimed at safeguarding fair competition "in EU external aviation relations".

This call, which echoes part of an AEA position paper published in Jun-2015, has the potential to divide European airlines, since it could lead to attempts to use the regulation against the Gulf airlines. It does not directly accuse the Gulf airlines or Turkish Airlines of being unfairly subsidised or of engaging in unfair pricing, but the wording and juxtaposition of phrases is highly suggestive. Indeed, the resolution specifically proposes an "Aviation Dialogue" with the Gulf states and Turkey to enhance financial transparency and ensure fair competition, including detailed provisions on subsidies.

European airlines are divided in their attitude and response towards competition from the global super connector airlines in Turkey and the Gulf, as was highlighted by the defection of a number of airlines from the AEA earlier this year.

See related reports:

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

Gulf airlines under fire. Aside from the rhetoric and dust flying, what’s the underlying agenda?

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

Calls for liberalised agreements with BRICS, ASEAN, Mexico and for Single Sky implementation

In what seems to indicate more unequivocal support by the European Parliament for genuine liberalisation of aviation with other regions, it calls for new agreements with trading partners such as neighbouring countries, BRICs, ASEAN countries and Mexico.

It does not go into detail, but this can be seen in the context of the EU's historical championing of more liberal traffic rights regimes with other countries and regions, such as the EU-US Open Skies agreement. Indeed, in fully deregulating the internal EU aviation market and extending this freedom gradually to certain neighbouring countries, the EU can claim a proud history of far-sighted liberalisation of airline markets.

In another clause likely to be fully supported by Europe's airlines, the resolution urges EU member states to accelerate the implementation of the Single European Sky, with positive consequences for flight delays, safety and the environment.

See related report: Single European Sky: does SES need another SOS as the European Commission tries again?

There are also references to safety provisions including clarification of the role of the European Aviation Safety Agency (EASA) with respect to national aviation authorities and in overseeing aviation safety in all member states and a call for a review of safety policies by the Commission and member states.

Environmental impact: global versus EU "internalisation of external costs"

With regard to aviation's impact on the environment, the resolution backs the EU's negotiations with ICAO on the development of a global market-based mechanism to address emissions, in addition to provisions regarding renewable jet fuel and support for research and development into cleaner technologies.

Somewhat confusingly, given this support for a global mechanism to deal with aviation emissions, the resolution also calls for proposals to provide for the internalisation of the external costs of all modes of transport through a common EU methodology. Advocating the 'polluter pays' principle, it also rightly says that double taxation of "externalities that have already been internalised" should be avoided.

Although the external costs of transport include a full range of environmental impacts, emissions are one such externality and it is difficult to reconcile dealing with emissions on a global basis with dealing with them through an EU methodology without double charging. Moreover, it is unclear whether the European Parliament's position in this area can be interpreted as support for the removal of aviation departure taxes, or for their standardisation and greater application.

See related report: Emissions trading: will Europe’s concession to ICAO be just hot air? Airlines hold their breath

Measures sought to counter so-called "flags of convenience" and other "socially problematic business practices"

In the area of employment practices and "social rules", the resolution includes wording that is likely to be more controversial for those airlines seeking to increase labour flexibility. For example, it calls for a proposal from the Commission to "enhance safety and social rules, particularly flight and rest times", although it does not suggest any details.

Further, in what seems to be a reaction to the controversy surrounding Norwegian Air Shuttle's long haul subsidiary Norwegian Air International, the resolution calls for "measures against the increase of socially problematic business practices such as ‘flags of convenience’ and different forms of atypical employment and outsourcing".

See related reports:

Norwegian Air Shuttle renews its attempt to obtain US rights for NAI. Part 1: the arguments

Norwegian Air Shuttle's attempt to obtain US rights for NAI. Part 2: Traffic impact on competitors

Norwegian Air Shuttle’s long-haul business model. “Flag of convenience” or fair competition?

It also seeks the "proper enforcement and application of national social legislation and collective agreements" and for an airline's designated principal place of business to be a country where it can demonstrate "substantial aviation activities".

The resolution fans the flames of hostility shown by many labour groups towards the use of contract staff, supposedly on safety grounds, by suggesting that at least 50% of "maintenance technicians" should be directly employed, adding that this should "cover all categories of ground staff, pilots and cabin crew".

The use of contract staff in significant numbers, at least in some parts of their business, has been a feature of the business models of LCCs including Norwegian and Ryanair. It can help the airline to develop and grow its business in new territories and to build a more variable cost base that can be adapted to the seasonal nature of demand.

By contrast with the Parliament's position in this area, the European Commission has defended Norwegian Air International in its application for a US foreign carrier permit in the face of criticism from US airlines and labour groups that it is merely a "flag of convenience", engaging in "social dumping" to avoid Norwegian labour law.

The European Parliament and the Commission are two different bodies and the resolution's wording on these social issues exposes different strands of opinion on such matters within the institutions of the European Union.

Now is not the time for backsliding

It may be that the European Parliament's resolution and the Commission's Aviation Package are attempting the impossible. To reconcile the often conflicting positions and needs of Europe's different airlines, airports, air traffic management organisations, while balancing the interests of member states and the EU's institutions and also honouring its pioneering tradition of market liberalisation, is not an easy task.

Nevertheless, any initiative from the EU that could lead to protectionist barriers being raised and new, more flexible business models being prevented from flourishing, would be regrettable. As the EU's own internal deregulation of the aviation market has demonstrated, the effect of increased competition that flows from liberalisation has brought huge benefits to consumers and the European economy.

With the EU economy far from firing on all cylinders and its aviation sector still in need of greater cost efficiency and improved labour productivity, now is not the time for backsliding. The value to commerce and tourism of making air travel as free as possible far outweighs the benefits to narrower sectoral interests aimed at preserving a status quo that was relevant 70 years ago.

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