THE BRUSSELS AIRPORT COMPANY RESPONSE TO THE EUROPEAN COMMISSION QUESTIONNAIRE ON THE REVIEW OF COMMUNITY GUIDELINES ON FINANCING OF AIRPORTS AND START-UP AID TO AIRLINES DEPARTING FROM REGIONAL AIRPORTS The Brussels Airport Company n.v. / s. a Exploitatiezetel: Luchthaven Brussel Nationaal BE-1930 ZAVENTEM Tel: +32 (0)2 753 42 00 - Fax: +32 (0)2 753 42 50 Maatschappelijke zetel: Diamond Building, - A. Reyerslaan, 80 BE-1030 BRUSSEL Bankrekeningen: 011-2511912-60 / 091-0110603-52 / 210-0052650-31 / 310-0761867-18 / 435-4107201-10
1. INTRODUCTION 1. The Brussels Airport Company (TBAC) welcomes the opportunity to respond to the public consultation of the European Commission (Commission) on the review of the Community Guidelines on financing of airports and start-up aid to airlines departing from regional airports (2005 Aviation Guidelines) and on the Guidelines on the application of Articles 92 and 93 of the EC Treaty and Article 61 of the EEA Agreement to State aids in the Aviation sector (1994 Aviation Guidelines). 2. The comments below aim at providing the Commission first-hand experience of the airport/airline sector in order to assist the Commission in assessing the impact of the 1994 and 2005 Aviation Guidelines and in deciding whether and how to revise them. The structure of the present memorandum does not strictly follow the structure of the consultation document but rather provides an overview of the main recent industry challenges and their impact on the 1994 and 2005 Aviation Guidelines. 3. The present memorandum first sets out what TBAC considers to be the most important developments that have recently taken place in the aviation industry. The memorandum then turns to presenting the impact of the Commission s approach to State aid in that sector before assessing the relevance of recent industry developments to the Commission s State aid practice, and how the Commission s guidance could be improved in that respect. 4. The memorandum provides general comments which build on specific examples mainly based on the situation in Belgium, in which TBAC has considerable expertise. Indeed, TBAC operates Belgium s most significant airport in passenger transport and one of the leaders in cargo transport. It is within the top 25 European airports in terms of passenger numbers and within the top 10 airports in Europe in terms of cargo volume. TBAC provides services to all carriers in all market segments, including short haul and long haul network carriers, short and long haul point-to-point carriers; low cost carriers; charter/leisure carriers and full freighter and integrator airlines (for cargo). 2. RECENT DEVELOPMENTS IN THE AVIATION SECTOR 5. The European aviation industry has experienced considerable change over the last twenty years and is currently facing a myriad of diverse challenges. In particular, over the recent years, the industry has seen two main trends: (i) an increase in competition between airports and (ii) a gradual trend toward the consolidation of the airline industry. We will address each of these in turn below. Page 2
2.1 Increasing Competition from other European airports 6. International airports such as Brussels airport (BRU) increasingly face competition from other airports, not only from smaller/regional airports but also from other international airports in particular due to the improvement of high speed train links between European cities. The competitive landscape has also been affected by the continuous rise in security costs and other challenges of environmental and social nature. (a) The rapid and continuous expansion of regional airports 7. Over the last years, the EU has attempted to liberalize the aviation industry through deregulation and has seen the appearance of low cost carriers (LLCs), which have opened new markets and entered the well-established intra-eu markets of national carriers. In parallel, the EU has sought to expand access to airports by favouring the expansion of regional airports. 8. Many of those regional airport have grown considerably in both passenger and cargo transportation. This has been the case in Belgium, in particular with respect to Charleroi (CRL) and Liège (LGG) but also with respect to airports in adjacent areas such as Eindhoven (EIN) airport. 9. From 2006 to 2010 the number of passengers on the short haul point-to-point market at Charleroi airport has increased by 136%. A similar trend can be observed at EIN, where passenger numbers have increased by 90% over the same period. In the same period, passenger numbers in BRU have decreased. 2006-2010 Passenger numbers at BRU, CRL, LIL and EIN BRU CRL EIN 2006 2007 2008 2009 2010 Short haul point-topoint passengers (in mio) Year-toyear % change Short haul point-topoint passengers (in mio) Yearto-year % change Short haul point-topoint passengers (in mio) 12.9 2.2 1.1 Year-toyear % change 13.6 5 2.4 9 1.5 36 13.6 0 2.9 21 1.6 7 12.1-11 3.9 34 1.7 6 11.7-3 5.2 33 2.1 24 Page 3
10. Cargo volumes have increased considerably at LGG (57% between 2006 and 2010), while they have decreased at BRU. Today LGG outweighs BRU in air cargo transport. 2006-2010 Cargo volume at BRU and LGG BRU LGG 2006 2007 2008 2009 2010 Cargo volume (tons) Year-to-year % change Cargo volume (tons) 719,561 406,525 Year-to-year % change 738,727 3 489,870 21 661,143-11 518,750 6 449,132-32 582,121 12 476,135 6 639,434 10 11. In terms of competitive dynamics, it is clear from the above table that CRL, EIN and LGG, all regional airports, are growing considerably in the passenger and cargo air transport markets. This is only representative of a more general trend of regional airports at European level. 12. In the low cost segment of the market, CRL has outgrown BRU (CRL focuses mainly on low cost flights) thereby impacting not only on the charter/leisure market at BRU but also on regular full service carrier flights from BRU as the distinction between full service carriers and low cost carriers becomes less and less relevant. CRL s current growth is mainly due to the increase in Ryanair s capacity there, which was attracted by CRL s very low aeronautical charges and capacity expansion in Belgium. Since 2010, CRL must be classified as a national airport under the 2005 Aviation Guidelines, while it was only a large regional airport between 2006 and 2010. (b) Increased competitive pressure from other international airports situated in the EU 13. In addition to the growth of regional airports, competition from other international airports in the EU has intensified considerably. This is not only due to the multiplication of transportation modes between European cities and frequency connections via other European gateways, but also and foremost to the development of high-speed trains between major European cities. 14. These high-speed trains have a dual effect: they exert competitive pressure both on short-haul air traffic (high-speed trains constitute an alternative to air transport on these routes) and on long-haul air traffic (by broadening the catchment area of airports to which they are linked). Indeed, passengers situated in Belgium may consider flights from Paris Charles de Gaulle as Page 4
viable alternatives to flights from BRU due to the Brussels-Paris high-speed train link (Thalys or TGV). This is also the case for flights from Amsterdam Schiphol. 15. Certain airlines even offer flight tickets from Brussels to a given destination which in part consist of travelling on high speed trains such as the TGV. This is the case for example of Air France, which offers plain tickets from Brussels although it does not itself fly from Brussels with the Brussels-Paris Charles de Gaulle link taking place on the TGV. (c) Other challenges that influence the competitive landscape 16. The aviation sector also faces other social and environment challenges which have an impact on the competitive dynamics of the industry. Indeed, airports sustain additional and continuously increasing costs to meet environmental and security regulations. 17. In this respect, distortions of competition arise because, in certain cases such costs are borne by the airport itself while in other cases, they are financed by public authorities. This prevents a level playing field between different airports. This is particularly relevant for the costs of safety, security, police and fire prevention 1. 2.2 Increasing consolidation of the airline industry and appearance of new business models 18. Another important development of the aviation sector over the last years has been the general trend towards a consolidation of the airline industry and the appearance of new business models to which legacy carriers have had to adapt. (a) The development of airline combinations and alliances 19. In response to increasing international competition as well as restrictions on ownership, legacy carriers have turned to code-share and marketing alliances 2. Airline alliances have continuously developed toward further integration over the past few years and airports have had to adapt to this trend. For example, BRU is an alliance hub for Star Alliance of which Brussels Airlines is a member. 20. Where possible airlines have also merged entirely, in particular through the acquisition of smaller airlines by bigger carriers (e.g. Airfrance/KLM in 2003, Lufthansa/Swiss in 2005, Iberia/British Airways in 2010) and resulting in a reduced number of airlines in the market. 1 2 Other charges may also be relevant such as strict aircraft noise regulations and limitations on night flights imposed at BRU with the effect that DHL and other cargo carriers have moved flights to other less constrained airports, including LGG. E.g. Skyteam, Oneworld, Staralliance Page 5
21. The effect of such consolidation of the airline industry is that airports must deal with bigger customers resulting in some cases in disproportionate bargaining power in favour of the airlines. (b) The appearance of new business models 22. Airports have had to accommodate to new business models, in particular the development of low cost airlines. While legacy airlines and low cost airlines are in part converging to reach a new equilibrium, there will be no full convergence of those models. 23. To a certain extent, each model complements the other and airports must adapt to each model which are both required to build up passenger volumes. As explained in the next section, BRU s growth is under strong pressure on the short haul point-to-point market as low cost carriers situated at regional airports benefit from artificially low aeronautical charges. 3. THE IMPACT OF STATE AID ON THE INDUSTRY 3.1 State aid to the benefit of competition and the airport industry 24. TBAC recognizes the benefits of State aid to the airport industry in particular to allow the development of services in areas where this would otherwise be unsustainable. 25. However, as explained in the following section, the Guidelines have also had a negative impact on competition. 3.2 The negative impact of State aid awards to airports 26. Several regional airports have now reached a size which allows them to act alone, without the need for public support. In addition, start-up aid, one of the purposes of which is to relieve congestion at major airports, is meant to be temporary. 27. In practice, the Guidelines have led to a confusion between the provision and operation of infrastructure, the latter normally being paid for through airport charges. This has led to a confusion as to the beneficiaries of the aid, as certain airlines have unjustifiably benefited from aid granted to airports to the expense of other airlines, distorting competition between airlines. 28. In many cases, aid to regional airports has not allowed to reach the expected objectives, notably the creation of new routes not covered by primary airports. Rather, the main effect has been to divert traffic from the primary airport to a secondary airport located in the geographic vicinity of the main airport. Allowing for the development of secondary airports has in many instances led to inefficiencies, including the duplication of infrastructure. This traffic diversion has also resulted in a revenue decrease for primary airports, thereby jeopardizing future expansion plans which represent social and economic value in the region. Page 6
4. THE IMPACT OF RECENT INDUSTRY DEVELOPMENTS ON THE COMMISSION S RULES AND GUIDELINES 29. State aid should only be granted in very limited circumstances where its benefits clearly outweigh the costs of distorted competition. 30. As a consequence, the aid granted to airports should be limited to airports located in geographic corners of Europe. In addition, a higher level of regulation is required to reflect the principle that aid is to be granted only exceptionally. 4.1 Limiting the award of aid to airports located in geographic corners 31. Paragraph 27 of the 2005 Aviation Guidelines states that operating aid (e.g. start up aid) should only be declared compatible in exceptional circumstances and under strict conditions in underprivileged regions, i.e. the most remote and sparsely populated areas. 32. Although the wording of Paragraph 27 is already clear, the Commission should revise the Guidelines to define more precisely which airports can benefit from State aid. State aid should indeed be declared compatible when granted to airports in isolated areas. 33. The Guidelines should aim at defining more clearly the line between favouring the emergence of new airports in such areas to the benefit of passengers and economic growth and interfering with the competitive process which results in a distortion of competition in the EU. This is particularly true with regards to aeronautical charges which have been used in a number of cases to maintain airport charges at a low level in order to attract traffic. 34. In its decision to declare aid compatible with the common market, the Commission takes into account the extent to which airports compete. This is mainly based on the category to which an airport belongs i.e. the number of passengers. This classification should be revised as it does not actually reflect the extent to which airports compete against each other. In addition, in practice this categorisation is quickly out-dated, and does not reflect the realities of the market. Other factors, such as the number of passengers per market segment and tonnage as well as relevant catchment areas and the existence of transport connections between airports (notably high-speed trains) should be taken into account. 4.2 A higher level of regulation is required 35. In the interest of achieving legal certainty, the decision declaring aid to be compatible should be based on objective criteria and should limit the award of start-up aid to a limited period of time (maximum two to three years). The level of aid granted should be proportional to the expenses and based on objective factors. Page 7
36. The procedure under which aid is granted should be transparent and nondiscriminatory with clearly defined and accessible criteria. The cash flows and material assistance provided by states to airports should be made transparent in the accounts of the airport concerned. 37. Although the Commission states that the financing of the operation of airport infrastructure should be borne by the airport s own resources, the conditions under which such aid can be granted should be more accurately defined. Regional airports should be able to sustain operational costs themselves, especially those situated sufficiently close to highly populated areas. 5. CONCLUSION 38. The purpose of this memorandum was to provide the Commission with information on the aviation market as well as comments on the 1994 and 2005 Aviation Guidelines and their application until today. 39. TBAC hopes the Commission will find this information useful for its assessment of whether and how the 1994 and 2005 Aviation Guidelines should be modified in light of the developments that took place recently in the aviation market in the EU. Page 8