European Low Fares Airlines Association

European Low Fares Airline Association

Revision of the Third Package – EC Reg 1008/2008 ‘Air Carrier Insolvency’

Presentation by John Hanlon - Secretary General, ELFAA

EC consultation on Air Passenger RightsBrussels, 28 June 2010

European Low Fares Airlines Association

About ELFAA

• 162.5 million passengers in 2009

• 35% of intra-Europe scheduled point-to- point air passengers, scheduled to grow to:

50% by 2013

66% by 2017

• some 700 state-of-the-art, environmentally - efficient aircraft with an average fleet age of 4.4 years

European Low Fares Airlines Association

Low Fares Airlines• low fares sector born of the liberalisation of market access by

EU

• defining distinguishing characteristics are focus on:– safe, reliable, quality service at – lowest fare

• this achieved by the low fares business model:– eliminating complexity (reduced number of aircraft types)– significant but not exclusive use of secondary and regional

services– point-to-point services– by-passing hubs– linking regions of Europe directly with one another

European Low Fares Airlines Association

Customer empowerment

• no enforced payment by all customers for optional services, such as catering, checked baggage

• customers free to choose those optional additional services, which they value sufficiently to pay for

• no cross-subsidy of other passengers, who require certain services they do not

European Low Fares Airlines Association

• ELFAA strongly opposes any mandatory levy for flight-only sales

PROPORTIONALITY?

• 800 million air passengers a year within Europe

• proportion of these affected by airline failure – even in the midst of economic downturn – decimal dust

Financial Protection

European Low Fares Airlines Association

• REGULATORY PROTECTION

– more effective oversight by regulatory authorities

– protection before the event rather than rescue after it

– more stringent financial reporting requirements for carriers showing signs of distress e.g. unpaid taxes, APD, airport and ATM charges

Mitigating factors (1/5)

European Low Fares Airlines Association

• REGULATORY PROTECTION (cont.)

In short:

- Implementation of Article 9, paragraph 2 of Third Package Regulation – EC 1008/2008:

“ Whenever there are clear indications that financial problems exist or when insolvency or similar proceedings are opened against a Community air carrier licensed by it, the competent licensing authority shall, without delay, make an in-depth assessment of the financial situation and, on the basis of its findings, review the status of the operating licence in compliance with this Article within a time period of three months.”

Mitigating factors (2/5)

European Low Fares Airlines Association

• CREDIT CARD PROTECTION

– LFAs sell primarily via the web

– most customers pay by credit card, providing certain protection

Mitigating factors (3/5)

European Low Fares Airlines Association

• INSURANCE COVER– airlines offer to sell customers insurance cover

– includes Scheduled Airline Failure Insurance – SAFI

– EC has outlawed sale of insurance by airlines on opt-out basis on the grounds customer must actively wish to buy (EC Reg1008/2008, Article 23)

– any mandatory scheme, would give customer no choice whatever

– it would be perverse to, on the one hand, insist that customers be able to exercise conscious choice over the purchase of such cover, while on the other, consider imposing an across the board compulsory levy on the 800 million passengers a year, travelling from European airports, when the proportion which might be exposed to the risk of airline failure, is minute

Mitigating factors (4/5)

conflict

European Low Fares Airlines Association

• REPATRIATION FARES For the low proportion of customers who face disruption due airline failure and who:

– are booked on airlines, which the Regulator has permitted to continue selling, despite risk of collapse

– do not benefit from the protection which comes with payment by the most popular mode of payment i.e. credit card

– have elected not to purchase insurance cover including SAFI

ELFAA airlines operate a voluntary practice of offering special low repatriation fares to any passengers stranded away from home.

Mitigating factors (5/5)

European Low Fares Airlines Association

• nothing equivalent exists or is under consideration for other modes, with which air competes

• any such mandatory financial protection would introduce distortion of competition

• customers of financially-strong airlines would, at significant cost, underwrite the risk presented by financially-weak competitors

Distortion of competition

European Low Fares Airlines Association

• no correlation between low fares and financial weakness

• low fares result from greater efficiencies which are key indicators of greater profitability

• LFAs have emerged from the economic downturn as one of the strongest sectors, recording continued growth

• future aircraft orders by LFAs point to continued financial strength and growth

• LFAs are among the top 10 European carriers in terms of size, profitability and market capitalisation, therefore financial security

Low Fares Airlines (1/2)

European Low Fares Airlines Association

• The successful development of Low Fares Airlines, following liberalisation by the EU of market access, has provided tremendous benefits by:– opening up regions of Europe– stimulating their economies– creating significant employment opportunities– developing regional airports– facilitating inward investment and– promoting tourism

Most of all,

– significantly enhancing mobility of EU citizens

Low Fares Airlines (2/2)

European Low Fares Airlines Association

• Liberalisation has been an unquestionable success

• Let us not reverse the benefits it has brought by creeping regulation such as mandatory financial protection, which is manifestly not required

Conclusion

European Low Fares Airlines Association

Thank you!

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www.elfaa.com and subscribe to our mailing list