Liberalization in Aviation PolicyPresented to the Confederation of Mozambican Business Associations (CTA)

Trade and Investment Project

Andy RicoverDecember 15,2005

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Formal policyInstitutional framework

Effective policy

Current effective policy

Function of two factors

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Current effective policy (continued)

• Function of two factors―There is written policy―But the institutional arrangement can

condition the real applicable policy

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Current formal policy—Legal framework

• Resolution 40/2002, May 14th - replacing 5/96 April 2nd―Does not deal with access to market (5/96 did) ―Domestic market: to “adjust number of operators to

demand”

• Regulamento 39/98, August 26th―Defines access to market:

Regular international (intercontinental and regional) Regular domestic Nonregular

―Route allocation to new operator after “listen” to incumbent

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Current formal policy—Regular-Int’l operations

• Access to market―Designated in the BASA (bilateral air services

agreement)―Selected by tender

• Regime―Exclusive rights for 10 years (renewable by tender)―Intercontinental: single designation―Regional: one operator per route―Provision for multiple designation, subject to public

interest

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Current formal policy—Regular-domestic operations

• Access to market―Concession

• Regime―By route―By tender―5 year periods (renewable)―Subject to public interest: exclusive rights

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Current formal policy—Nonregular operations

• Access to market―By obtaining a licence compatible with

service

• Regime―By tender―In addition to regular services

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IACM IACM ADM ADM LAM et al IACM

Ministry of Transport & Communic.

Accidents investigation

RegulationPolicymaking Operation

ATC Airports Airlines

Current institutional framework—Bodies and functions

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Institutional framework—Competences of IACM

• According to Decree 41/2001―Concentration of functions

Regulate procedures of policy application and legal framework (Art. 6: 1.a & n)

Technical regulation (Art. 6) Accidents investigation (Art. 6, g)

―Creates conflict of interest―Allows policymaking through regulation

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Civil Aviation Board

autonomous bodies(arm’s length from the government)

IACM ADM ADM AirlinesAccidents

Investigation Board

ParliamentMinistry of

Transport & Communic.

Accidents investigation

RegulationPolicymaking Operation

ATC Airports Airlines

Proposed institutional framework—Bodies and functions

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Current effective policy

• Consequence of formal policy and institutional framework―Formally protective of LAM, considered of “national

interest” Restrictive access to international markets Semi-restrictive for domestic markets

―Informal protection Difficulties in obtaining nonregular/special permits Price control Scheduling regulations (SAA should depart 90’ away from

LAM)

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Seven operators

LAM

Air Corridor

MEX

STA

SAA

TAP

Pelikan Air

Intl Intl RegReg DomDom

√ √ √

√

√

√

√

√

√

Current situation—Operators

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Current situation—Airport infrastructure

• 3 international airports―Maputo, Beira, Nampula

• 6 main airports―Inhambane, Quilimane, Tete, Lichinga,

Pemba & Vilanculus (by traffic)

• 10 secondary airports• 6 military• Plus almost 300 landing strips

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Current situation—Airport infrastructure (continued)

• Operated by ADM• No prospects of private sector participation

(PSP)―Failed ACSA deal for MPM―Doubtful financial feasibility for whole group

• However―No capacity/operational constraints―Market is NOT a function of infrastructure

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Policy background—Freedoms of the air

• 1st—The right to fly over another country without landing

• 2nd—The right to make a landing for technical reasons in another country without picking up/setting down revenue traffic

• 3rd—The right to carry revenue traffic from your own country A to the country B of your treaty partner

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Policy background—Freedoms of the air (continued)

• 4th—The right to carry traffic from country B back to your own country A

• 5th—The right of an airline from country A to carry revenue traffic between country B and other countries, such as C or D.

• 6th—The use by an airline of country A of two sets of 3rd and 4th rights to carry traffic between two other countries but using its base A as a transit point

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Current situation—Int’l carriers

• LAM―LIS: code share with TAP

• TAP―LIS: x 2 via JNB – without traffic rights (no

5th freedom)

• Poor offer

• Little competition

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Current situation—France

• BASA from 1991: 2x PAR-MPM―No interest―Presence of AF in TNR and Reunion―AF/KLM through Kenya Airways―7 freqs a JNB―Camores

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Current situation—Portugal

• BASA from 1977 with modifications―Single designation: designed for TAP―TAP: largest European presence―3 freqs a LIS (2 via JNB on one way only)―Interest in 5th freedoms in the region (not

allowed today)

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Current situation—South Africa

• BASA from 2003―Single designation: for LAM & SAA―Price control―Points in MOZ to CT, Durban, JNB, Nelspruit and

Lanseria―Points in RSA to Beira, MPM, Nampula, Pemba,

Vilanculos

• Effective―11 frequencies MPM-JNB (now requesting to 14)―3 freqs to JNB-Nampula―MPM - Vilanculos

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Current situation—Tour operators/special

• Policy―Limited entry points

• Technical―Delays in issuing permits―No reliability in response time―Often not granted without explanation

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Current situation—Poor int’l connectivity

JNB

VNX

MPM

LIS

DAR

POL

BEW

LLW / BLZ

HRE

NBO

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JNB

VNX

MPM

LHR

LIS

HRELAD

NBO

DAR

POL

BEW

LLW / BLZ

Liberalized situation—Improved int’l connectivity

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Liberalized situation—Int’l carriers

• LAM―LIS with JNB and LAD (Luanda) by use of 5th

freedoms―HRE (Harare), DAR (Dar es Salaam) and

NRO (Nairobi) with 5th freedoms―And same with LHR (Heathrow) and LIS, 5th

freedoms

• TAP―LIS with JNB by use of 5th freedoms―LAD with 5th freedoms granted

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Liberalized situation—Int’l carriers (continued)

• BA―LHR/LGW – MPM – JNB (with Comair)―and LUN (Lusaka)

• Virgin―LHR – MPM – JNB (with SAA)―and LUN

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Current situation—Regional carriers

• LAM: JNB• MEX: DAR• SAA: JNB• KIA: HRE NBO• Pelikan: VNX• Air Corridor: BLW?• Poor offer• Little competition

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Liberalized situation—Regional carriers

• LAM: JNB & others, HRE, DAR & NRE with 5th freedoms

• SAA: JNB• Pelikan: VNX• Air Corridor: BLW?• Kulula: JNB & others• 1Time: JNB & others• Air Corridor: JNB & others• Comair: JNB & others

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JNB

VNX

MPM

LHR

LIS

HRELAD

NBO

DAR

POL

BEW

LLW / BLZ

Liberalized situation—Improved connectivity

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Liberalized situation—Improved int’l connectivity

• Will open alternatives entry points/routes

• Increasing competition

• Improving quality of service

• Facilitating entry for new services (LCC)

• Reducing prices

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Cents of US$ / mile (excursion return fares), by city pair distance

Air fares from Johannesburg

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Cents of US$ / mile (excursion return fares), by city pair distance

Air fares from Maputo

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Excursion and LCC return fares, cents of US$ / mile

Domestic fares Air Corridorfrom MPM Y class RT excursion RT miles $/mls (Y) $/mls (exc) AirlinesBeira 322 252 528 0.61 0.48Quelimane 410 321 830 0.49 0.39Nampula 504 412 800 0.63 0.52Pemba 555 438 975 0.57 0.45from Beira Y class RT excursion RT miles $/mls (Y) $/mls (exc) AirlinesQuelimane 220 172 170 1.29 1.01Nampula 322 252 410 0.79 0.61Pemba 403 318 580 0.69 0.55Maputo 322 252 528 0.61 0.48

LCC fares in RSAfrom JNB RT miles $/mls AirlinesEast London 127 597 0.21 KululaEast London 125 597 0.21 1 TimeCape Town 325 874 0.37 KululaDurban 98 352 0.28 KululaPorth Elizabeth 153 658 0.23 Kulula

Lowest available domestic fares in two markets

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Excursion and LCC return fares, cents of US$ / mile

Lowest available domestic fares in two markets (continued)

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Traffic drivers—Domestic market

• Foreign traffic―Reliability―Offer―Tourism infrastructure―price

• Local traffic―Price―Price―Price

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Traffic drivers—Int’l market

• Foreign traffic―Offer―Development of the domestic market―Price

• Local traffic―Price as a fx(offer)

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Domestic market is not self sustained: local population can hardly

support the system

Domestic market depends on the

international inflow

International inflow is restricted to protect

LAM

LAM fails to exploit the opportunity & no other carriers can try

International market remains undeveloped

Domestic market does not get international

inflow

A vicious cycle

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Trigger: liberalization policy develops the international market

Increases inflow of passengers into

the domestic network

Efficiency and low prices drives

tourism & investment

Increase of foreign traffic into domestic market

Gained support on the domestic market

Increases international traffic

The virtuous cycle

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Needed reforms

• Liberalization of the international traffic―Boost offer―Lowering prices―Increase inflow into domestic market

• Ease technical barriers in the local market―Increase providers / offer―Promote investment in tourism―Generate more demand―Which brings more international pax

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Needed reforms (continued)

• LAM Competitiveness Program―Restructuring reform

Adapt to the new challenges: business plan Reallocation of resources Capacity building program

―Management options Change in ownership structure (PSP) Management contract

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Obrigado