Special report: European Aviation.
Thursday, 9th December 2010
Source : IATA
European airlines must have the correct regulatory framework for a sustainable future as red ink is splattered across the accounts of European airlines.

The IATA 2010 forecast for the region is a loss of $1.3 billion. It is the only region predicted to record a deficit.

This year's average GDP growth of 0.8% is not enough to support aviation's recovery. The euro is under pressure from failing economies, there is high unemployment, and threats as well as actual labor strikes continue to dent demand.

The ash cloud crisis, which shut down European airspace for five days in April, worsened an already parlous situation. About 70% of the $1.8 billion loss in revenue as a result of the ash crisis was borne by European carriers. SAS estimates it caused an $85-90 million deficit. Finnair lost about $20 million.

"Europe's over-reaction to the Icelandic volcano eruption cost the European economy $6.36 billion (EUR5 billion)," says Giovanni Bisignani, IATA Director General and CEO. "This is an embarrassment of global proportions. We are eager to work with the European leadership to develop the solutions needed. It is critical that the European Commission follows up with guidance to its member states on compensating airlines for these losses."

But the issue of guidance is stuck in a classic catch-22 situation. The European Commission has said that it will issue guidelines when enough member states come forward with the intention of compensating airlines. This is exactly what happened after 9/11. However, the European nations are in turn saying they can only work out compensation packages once the guidelines are issued. Airlines are caught in the middle and obtaining the justified recompense from countries with bare coffers will prove a challenging task. Already the UK has announced that it will not give compensation to airlines.

There are some silver linings. European carriers reported 5.0% growth in August, compared with the same period last year. A slow start is being eradicated somewhat by long-haul expansion.

But far more must be done in Europe. It is not only about efforts to move European airlines into a profitable future. The region is still a massive market and its decisions have knock-on effects globally.
All carriers will feel the force of the Emissions Trading Scheme, and could benefit from a Single European Sky (SES). "When the volcano went to sleep, politicians developed amnesia about the lessons learned," says Bisignani. "The much-anticipated accelerated progress on the SES has been truncated at incremental change.

"The traveling public and Europe's struggling economy deserve much better than this policy myopia."
A host of regulatory oversights on the agenda could have an enormous impact on carrier operations and revenues. For instance, slot allocation at European airports is being examined by an outside consultant. IATA will meet with the consultant shortly to discuss the issue and make clear its objections to any slot auction processes. There is also a possible new directive on ground handling that would further liberalize ground support operations and provide greater choice for the carriers.

Bernard Gustin, co-CEO of Brussels Airlines, adds the matter of subsidies to the mix. "Several low-cost carriers profit from subsidies and other advantages at secondary airports," he says.

"Why can a regional airport located just 40 kilometers away from a main airport make use of such schemes? On top of that, these low-cost carriers are not paying social charges for their flying staff based at these airports. The same level playing field needs to be restored urgently in order to end this clear distortion of competition."

Much of this work will fall under the umbrella of a new 10-year transport policy, which is expected in late 2010 or 2011. This will replace the 2001 policy, which was updated in 2006.

Unlike the previous version, the new transport strategy has been the subject of industry consultation, with IATA playing a leading role. It is hoped that this dialogue will result in legislation that supports, rather than penalizes, the industry.

Time For Action

A Single European Sky (SES) has been on the political agenda for decades. But even an Icelandic volcano venting its anger has failed to budge the political inertia.

"I call on heads of state to end the decades of embarrassment caused by this European failure and set a date for the transport ministers to deliver the $6.5 billion (EUR5 billion) savings that a real SES will bring," says Giovanni Bisignani, IATA Director General and CEO.

SES will end decades of inefficiency. The Single European Sky ATM Research (SESAR)—the technical component of the SES—will:

  • Increase system capacity by 70%
  • Reduce average delays to a minute or less
  • Cut user costs by 50%
  • Reduce the environmental impact per flight 10% by 2020
  • Improve safety levels as traffic increases by 70%
Currently there are 37 air navigation service providers (ANSPs) in Europe, costing the industry close to $15.3 billion (EUR12 billion). Close to $4.5 billion (EUR3.5 billion) of this is due to cost inefficiency. By 2020, about 20% of flights are expected to be delayed if there is no modernization of the system.

SES progress is very slow. A performance improvement scheme with binding targets in four key areas (cost efficiency, environment/flight efficiency, safety, and capacity/delays) is expected by the end of 2010. And following the ash cloud crisis, the European Commission called for the accelerated implementation of the nine Functional Airspace Blocks (FABs), which are due to come into effect in 2012. The FABs will increase airspace capacity by 50%, saving on average 17.5km and 72kg of fuel per flight.

"Despite noble words after the volcano incident about accelerating the Single European Sky, the harsh truth is that we have seen no commitment to bring forward key milestones and set a final date for achievement," says Jeff Poole, IATA Director, Industry Charges, Fuel and Taxation. "Just as important, we feel no sense of urgency or drive to secure the benefits earlier. In short, we need more, sooner. Reductions of $6.5 billion in costs and 16 million tonnes in CO2 emissions are still waiting to be realized."

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