European Economic and Social Committee Public Hearing New developments in air transport Brussels, 12 April 2012 State aid and the aviation sector Fabienne ILZKOVITZ European Commission, DG Competition Director of Directorate F - Transport, Post and Other Services
Overview 1. Where we are? 2. Where do we want to go? 3. What is our starting point? 4. What have we done? 5. What are the main issues?
1. Where we are?
Liberalisation of air transport market From national air transport market to EU internal market for air transport 1997 completion of the internal market 1990 the second liberalisation package 1988 the first liberalisation package 1993 the third liberalisation package 1984 -liberalisation of scheduled inter-regional air services Increased competition between airlines and airports 4
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Weekly seats available (millions) New market players Emergence of the Low Cost Carriers 7 6 1994 Aviation Guidelines 2005 Aviation Guidelines Network carrier (incumbent) 44 % 5 4 Low cost carrier 40 % 3 2 1 Regional airlines 16 % 0 Increased competition and low prices for customers Source: OAG summer schedules 5
Increased number of regional airports ~462 airports are used for commercial aviation in the EU Member States Increased number of regional airports facilitates local/regional development, but danger of creation of unused capacity 6
High number of publicly owned airports 77 % of EU airports are still publicly owned Public airports are usually smaller than mixed/privately owned airports Mixed ownership 14% Privately owned 9% 60% 50% 40% 52% 720 M pax 34% 470 M pax 30% 20% 14% 200 M pax 10% Publicly owned 0% Public Mixed Private 77% Vast majority of airports is subsidised Source: ACI 7
High number of small airports ~60 % of airports serve less than 1 million passengers in 2010 200 180 160 ~462 airports are used for commercial aviation 140 120 100 80 60 40 20 0 181 97 80 33 71 200 000 pax 1 M pax 1 3 M pax 3 5 M pax 5 M pax Small airports are not able to support all their costs Source: ACI Europe, Data 2010. 8
2. Where do we want to go?
Where we are Increased competition between airlines and airports Where do we want to go No distortion of competition (LCC vs. network carriers) Enabled regional/local development and accessibility Continue to enable regional development and accessibility Airport overcapacity Vast majority of airports are subsidised Airports are not able to cover their costs Avoid duplication of unprofitable airports and creation/ maintenance of overcapacity Avoid waste of public money and reduce the need for public funding (State aid) Airports able to cover their costs and more private investments into airport 10
3. Our starting point: Aviation Guidelines and the recent judgments
Public funding of airports is subject to State aid rules Operation of an airport and construction of airport infrastructure is an economic activity (Aéroport de Paris (2000) and Leipzig-Halle airport judgements (2011)) Except activities under public remit (police, custom and air traffic control) Question: Would a profit oriented market economy investor finance the investment of the airport or cover operating losses of the airport? If yes No aid to the airport If no Aid to the airport 12
Aid to airports and airlines is assessed under 2005 Aviation Guidelines Compatibility criteria for investment aid to airports financing airport infrastructure No aid intensity thresholds (up to 100 % on a case by case assessment) and only rarely notified by MS No compatibility criteria for operating aid to airports to finance their losses Exception compensations for Service of General Economic interest only for small airports in remote areas Start-up aid to airlines to support launching of new routes from small regional airports Only financing of marketing support allowed and was only rarely used by airports and notified by MS 13
4. What have we done?
What have we done? Contact with stakeholders e. g. ACI Europe, ERAC, IATA, AEA, ELFAA, ERA, individual airports and airlines, etc. Public consultation 7 April 2011 7 June 2011: 89 replies providing feedback on the recent market developments: 21 Member States, Norway and 12 regional authorities 22 Airports, 9 Airlines, 14 Airline and airport associations 15
Main results of the public consultation Majority of the respondents supports the revision of the existing guidelines Simplification and increased transparency More enforcement of State aid rules to airports and airlines Need for special rules for small airports and airports in remote areas More predictable rules for investment aid (clarifications on eligible costs and aid intensity thresholds) Rules to avoid distortion of competition between airports located in the same catchment 16
5. What are the main open issues?
An integrated approach to assess the financing of airports and their interaction with airlines? Aid granted by a Member State Publicly financed airports might reduce the price for the airport services rendered to the airlines Airlines using this airport could benefit from an aid 18
Aid to airports: What kind of aid can be declared compatible? Investment aid to airports Financing needs are normally larger for smaller airports Question: Should we allow higher aid intensities to small airports? Possible duplication of non-profitable airports Question: Is there a need for additional regional transport? Should we examine whether there is demand for the new infrastructure? Operating aid to airports? Airports are not able to cover their operating costs (costs of material + costs of personnel + other costs, such as marketing) unused capacity too low airport charges 19
The degree as to which airports can cover their costs vary with their size Financing of operation of these airports is covered by the 2012 SGEI Decision Growth potential of small airports? Small airports may have problems in financing their operating cost These airports cannot finance parts of their costs of capital Airports usually self-financing 181 97 80 33 71 200 000 pax 1 M pax 1 3 M pax 3 5 M pax 5 M pax 20
Aid to airlines: How to exclude existence of aid to airlines by publicly funded airports? Market price Can we rely on an appropriate market benchmark of airport charges? In absence of an appropriate market benchmark Can we rely on costs? Which costs? Airlines pay charges corresponding to the costs in accordance with their use of the airport services 21
Why are Low Cost Carriers cheaper? Ticket price LCC Where does this come from? Average ticket of a Low Cost Carrier (LCC) is 2.5x cheaper as the cheapest traditional carrier ticket Traditional (network) Carrier EUR 39 (average) EUR 99 (cheapest economy city trip ticket) 16% 3% 10% 6% 6% 6% 3% 2% 3% 2% Higher seat density Higher aircraft utilisation Lower crew costs Cheaper airport / landing fees Single aircraft type Faster turn around No frills (catering) No agents commissions Reduced sales / reservation costs Smaller administration Source: ELFAA 22
Next steps Consultations of Member States and stakeholders will continue Lessons to be drawn from ongoing cases Your comments are welcome 23