Bolstering European competitiveness through connectivity

The International Air Transport Association (IATA) called on European governments and regulators to bolster European competitiveness with measures focusing on improved global connectivity. 

“There is a very long list of things that Europe can and should do to improve the operating environment for its aviation sector. And the motivation for that is because aviation generates jobs and grows the economy through connectivity. A successful aviation sector improves European competitiveness” said Tony Tyler, IATA’s Director General and CEO, in a keynote address to a dialogue session between the European Union (EU), the European Civil Aviation Conference, and the European air transport industry taking place in Vienna.

The benefits of connectivity can only be fully realized if airlines—the core of the aviation value chain—are strong. Europe’s airlines are financially the weakest amongst the world’s major regions. European airlines are expected to realize a post-tax net profit of just $2.8 billion this year, for an average net profit margin of just 1.3% or just $3.23 per passenger. By comparison, North American airlines are expected to earn about $11.09 per passenger.

In addition to urging Europe to continue to shore-up the foundation of its air transport sector—safety, security and sustainability—based on global standards, Tyler called on governments to address the competitive disadvantages they generate in the areas of taxation, regulation and infrastructure.

“Among the biggest obstacles faced by European airlines are the competitive disadvantages placed in their way by Europe’s governments. The region’s airlines are over-taxed and onerously regulated. Moreover, they suffer from a chronically mismanaged air traffic management system, insufficient airport capacity and infrastructure costs that are simply too expensive. It’s time to do something about it,” said Tyler.

Infrastructure

Single European Sky: The priority list for infrastructure is topped by the Single European Sky (SES) and Tyler called for strong support of the SES2+ package to clear the way for rapid progress on this long-delayed project. This package of measures has three vital elements:

• Establishment of an independent economic regulator for European air navigation performance. When combined with the strengthened target setting authority of the Commission, it will ensure appropriate recognition and equitable contributions from all member states. Greater independence of the National Supervisory Authorities will also be a key enabler of better performance. 
• Re-organization and unbundling of ATM support services. “Europe’s competitive position cannot afford to be compromised by the enormous costs of duplicated and often-times incompatible support services. The EUR 30 billion investments in SESAR cannot be justified if organizational inefficiencies are not eliminated,” said Tyler.
• Provision of an effective framework for Functional Airspace Blocks (FABs) to deliver value. Today FABs exist on paper, but we have not seen any reduction in fragmentation or the optimization of airspace, human and technical resources that they were meant to achieve. “All they have done so far is to provide a fig-leaf to cover a complete lack of forward progress on the part of Europe’s community of air navigation service providers,” said Tyler.

“SES will reduce delays, cut emissions, raise safety levels and contribute to the creation of 320,000 jobs across Europe. It is critical for Europe’s future, but progress has been frustratingly slow and the costs are enormous. Consumers lose EUR 6 billion in time and productivity on top of which is the EUR 3 billion burden on operations and 7.8 million tonnes of unnecessary carbon emissions. The leadership of individual states is needed to turn Europe’s air navigation service monopolies into customer-focused and cost-effective members of the air transport value chain,” said Tyler.

Airports : IATA called for European policy-makers to take urgent actions to avoid a predicted airport capacity shortfall which is expected to reach 12% by 2035 according to Eurocontrol. In addressing this looming shortfall, IATA urged Europe’s governments to refine the EU Airports package with a much stronger mandate for independent regulators to apply well-established international norms that bring about fair charging regimes. 

“As a basic principle, we believe that airports need effective economic regulation to achieve three goals starting with providing protection from excessive charges. Regulation must also incentivize efficiency gains and drive service quality levels. Finally, it should aim to maximize the value of investments by aligning with customer needs through true and transparent consultation processes,” said Tyler.

Taxation

“In 2014, the European governments will collect nearly $40 billion in taxes from airlines and passengers. To put that into perspective, that is more than double the taxes collected in the Asia-Pacific region. Many governments there value aviation more for the long-term economic value that the industry makes possible, than for short-term tax receipts,” said Tyler.

Some European governments are beginning to understand the economic damage that excessive taxation on connectivity can do. The Irish government, for example, removed a departure tax in order to stimulate the economic benefits of connectivity.

Regulation

In many areas, excessive or misguided regulation has weighed down Europe’s air transport industry. Regulation can be a powerful and effective enabler. This is the case in areas such as safety or economic regulation to counter-balance significant market power. But it must be appropriately focused. “Experience teaches that we achieve the best results on regulation when governments focus on real, not imagined, problems and take full advantage of expert advice and consultation. It is also important to calibrate regulation and taxation carefully to promote global connectivity and ensure that the costs imposed by regulation do not exceed its benefits. Finally, regulation should respect global standards wherever they exist,” said Tyler.

“Passenger Rights is a good example of where European regulation has got it wrong. EU regulation 261 is not only a competitive disadvantage for airlines; it also fails in its mission to protect passengers. Its draconian measures penalize airlines for things beyond their control. It injects regulation in an area where market forces could do a better job. The constant widening of its application as interpreted by courts continuously makes the “competitive disadvantage” worse. And, it competes—even conflicts—with some 60 other passenger rights regimes around the world. From the passenger’s perspective, all this protection is just a confusing mess,” said Tyler.

 IATA asked that work that the International Civil Aviation Organization is doing to develop core principles on consumer protection be reflected in the EU’s review of Regulation 261.

Read Tony Tyler’s speech