Brexit raises questions about the future of EU aviation

Air transport contributes €4.1bn directly to Ireland’s GDP with ‘Open Skies’ under threat

It is widely recognised  that for the full benefits of the liberalisation of air transport to be realised, the system of allocating airport runway slots at EU airports will  have to be revised.  Photograph: Getty Images

It is widely recognised that for the full benefits of the liberalisation of air transport to be realised, the system of allocating airport runway slots at EU airports will have to be revised. Photograph: Getty Images

 

A family trip from Milan to Paris in 1992 would have cost 25 times more than it does today, with the minimum price for a ticket on the route dropping from more than €400 to about €15 today.

Today there are almost eight times as many routes as there were in 1992. In Dublin Airport alone the number of flights to destinations in other European Union countries has risen from 36 to 127.

The numbers offer a striking illustration of the effect 25 years ago of the reform of European aviation through a combination of price-cutting and the breaking of national strangleholds on routes and slot allocations.

It meant the dawn of a new age for consumers, and the irresistible rise of cheap airlines like Ryanair. The latter is now responsible for nearly one sixth of intra-EU flights.

Integration gave air carriers near unlimited rights to fly within Europe, and the market place is unrecognisable, not least with the wave of privatisations, restructurings, mergers of older national lines and the emergence of major transnational groups like Air France-KLM.

Air transport contributes €4.1 billion directly to Ireland’s GDP – €1.9 billion directly from aviation, €1.3 billion through the supply chain, and €0.9 billion from associated spending by those employed in aviation.

It supports 26,000 jobs directly, and a further 16,000 in the supply chain. Ireland’s tourism industry, which is heavily dependent on aviation, accounts for a further €5.3 billion contribution to GDP and 180,000 jobs.

More destinations

Meanwhile, new “open skies” agreements signed between the EU and its major aviation partners around the world brought even more destinations and lower prices to the travelling public. Almost 920 million passengers passed through 450 EU airports in 2015, nearly three times more than in 1992.

EasyJet was born from the opening of Europe’s skies by the EU which democratised air travel for all,” says Carolyn McCall, CEO of EasyJet. “Since then fares have plummeted and the range of destinations has soared, enabling people to more easily live, work and holiday across Europe.”

However, there is a big cloud on the horizon – Brexit may have a devastating impact on the market.

Ryanair is warning that in the absence of a new agreement between the UK and EU – or the UK’s willingness to negotiate to remain part of the European Common Aviation Area as some non-EU states have done – it may lose access to many crucial hub slots in London and the UK, vital to its international operations.

The challenge to British airlines could be even more devastating, denying them the ability to fly into many EU airports or the right to pick up passengers there.

The integrated EU air travel market is based on three elements that are difficult to replicate from outside the EU: 35 shared laws, a common regulator in the European Aviation Safety Agency (EASA), and a common court to apply shared rules, the European Court of Justice.

The UK may opt for a new bilateral deal with the EU but it will be difficult to negotiate and is likely to circumscribe the British airlines – Swiss airlines, for example, are granted only seven of the nine possible “freedoms of the air”, effectively meaning all journeys on Swiss airlines must leave from or arrive at a Swiss airport.

Without the eighth and ninth freedoms, Ryanair could no longer, for example, fly from London to any other UK city.

Maintenance approvals

The EU also governs UK airline access not only to the union but to 17 non-EU countries, including the US, Canada, Norway and Israel.

As Sue Barham, a consultant at law firm HFW, told the Financial Times, “if EASA regulations no longer apply, existing EASA approvals, such as maintenance approvals, potentially fall away”.

The UK Civil Aviation Authority would then have to apply its own regulations and hire hundreds of staff to apply them. The UK would need to convince other international regulators to recognise its new agency and its standards.

The EU’s liberalisation of the air travel market took place in three phases.

The first, in 1987, left the bilateral framework of national air travel agreements between states in place but relaxed some restrictions. It importantly provided a limited right to operate “fifth freedom” services linking points in the territories of two or more other member states; and removed their ability to block proposals for economic low fares.

As a result a number of smaller airlines were enabled to enter some of the more important intra-Community routes or to provide the capacity and charge the fares that they wished.

These included existing airlines such as British Midland and Hamburg Airlines, and new entrants such as Air Europe and Ryanair. Aer Lingus established a fifth freedom service on routes from Dublin to Manchester and on to other points such as Amsterdam, Paris and Copenhagen.

Third package

But it was only with the third package in 1992 that the real liberalisation and era of cheap flights occurred.

As well as extending “fifth freedom” rights the commission set out new ground rules for state aids to airlines – such aid had to be one-off and part of a global restructuring to enable the airline once more to become viable without additional aid; it should not increase capacity to the detriment of rivals

Ryanair had been controversially rescued from bankruptcy only three years earlier by transport minister Seamus Brennan, a passionate advocate of a national “two airline strategy”. To the fury of Aer Lingus and its unions, he granted the airline exclusive access to the Dublin-Stansted and Gatwick routes. It got the right to fly from regional airports to the UK and mainland Europe. The airline took full advantage of the EU-wide liberalisation.

The Irish government also formally notified the commission in August 1993 of its intention to inject 175 million (Irish pounds) into Aer Lingus a part of a restructuring plan. The commission approved the aid in December 1993, subject to a number of conditions, including conditions on capacity – the first time that such had been attached to the approval of state aid.

Runway slots

It is widely recognised that for the full benefits of the liberalisation of air transport to be realised, the system of allocating airport runway slots at EU airports will have to be revised.

The commission in 2015 proposed changes, currently going through the EU parliament, which will allow airlines more easily and transparently to trade slots across the EU – some have sold for tens of millions (the highest price paid for a pair of take-off and landing slots at Heathrow Airport was $75 million (€54.4m) paid by Oman Air to Air France-KLM for a prized early-morning arrival, reported in February 2016). Aer Lingus has 24 Heathrow slots worth about €400 million.

The commissions says the new proposals should assist new entrants to take on “dominant” carriers , and tighten up on airlines that do not use their allocated slots.

According to its analysis, the changes could be worth €5 billion to the European economy, and create 62,000 more jobs over the period 2012-2025. They would also allow the system to handle 24 million more passengers a year by 2025.

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