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26th November 2008
Europe’s Aviation ChallengeWill European Aviation remain a force to be
reckoned with?
Steve Ridgway Chief Executive
We’re heading into a new world …
Europe is at the centre of the global economy
For aviation to play this role …
• What do we need to fix?• What do we need to protect
against?
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Aviation – a triumph of the European Union
• Powerful flag carriers – LH/AF/BA• Successful low cost carriers –
EZ/Ryanair• Niche carriers – VS/Finnair
EU consumer has benefitedAgainst most measures, EU
deregulation hasbeen a success
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Regulatory policy
Role of Regulator should be to facilitate :
• sustainable growth and success of industry by removing barriers and reducing costs
Regulators’ role should be limited to:• ensure safety and security• enforce compliance with competition
law• deliver infrastructure
Infrastructure
• Single European Sky• New Airport Infrastructure• Airport Regulation
Environment
• ETS – sound in principle but opponents have turned it into a punitive tax
• National taxes• UK• Netherlands• Ireland
Liberalisation
• Airlines need barriers to liberalisation removed• IATA Istanbul declaration makes this clear
• UK/Singapore Air Services Agreement a perfect model• Removed all barriers• No limits on traffic rights or foreign
ownership
• Yet governments and regulators still regard aviation as a special case• EU/US must deliver the EU mandate on OAA
Competition law and consolidation
• Removing barriers will speed up consolidation
• Too many airlines today • Good and bad consolidation• Future is not 3 giant global airlines
operating out of different hubs• If this happened:
– Competition would be weakened– Consumers wouldn’t benefit as fares would
increase with less choice– Only winner would be dominant monopoly airline
at given hub
LHR is larger than all other European hubs, and BA already offers the most capacity to the US
Total Seat Capacity (k) to and from the US, April 2008 to Mar 2009Total Seat Capacity (k) to and from the US, April 2008 to Mar 2009
Source: OAG, Virgin Analysis
+5%
+52%+87%
+29%
Other global alliances barely challenge BA on the overlap routes
Capacity Share on BA/AA Overlapping Routes from LHR, April 2008 to Mar 2009Capacity Share on BA/AA Overlapping Routes from LHR, April 2008 to Mar 2009
Source: OAG, Virgin Analysis
100%
80%73%
64% 64%
47%
20%27%
23%
8%
24%
24% 23%
8%
6%5% 4%
LHR-DFW LHR-BOS LHR-MIA LHR-J FK LHR-ORD LHR-LAX
Oneworld VS Star SkyTeam Other
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No Way BA/AA
• Nearly 50% of slots at Heathrow would belong to BA/AA/IB
• Heathrow is closed to new entrants• Heathrow is unique –
– 26% of LHR-US passengers connect from other EU airports at LHR
– only 2% of LHR-US passengers travel via other European airports
• JFK has severe flight restrictions• BA/AA trying to lock down both ends
of LHR-JFK market and dominate with hourly shuttle
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Open Skies
• First phase of EU/US Open Skies not brought promised benefits on routes out of LHR
• Minimal new competition for BA because of a lack of capacity at LHR
• Regulators need to safeguard against anti-competitive proposals
• Must not suspend rules because of economic downturn
• Liberalisation should not be at any cost to consumers or competition
Europe at a crossroads
• EU Regulators can abdicate EU leadership to other regions
or• EU Regulators could help to ensure EU airline
industry is at the centre of the global economy ‐ Deliver Single European Sky‐ Effective Regulation of Monopoly Service Providers‐ Provide sufficient infrastructure‐ Adopt Sensible Environment policy that incentivises
behaviour but doesn’t unduly penalise‐ Remove bilateral/multilateral barriers‐ Effectively enforce competition law to protect against
anti-competitive alliances.
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