Now in its 50th year, Europe's mainline carrier industry association the AEA is determined to see its members get a fair deal
These are interesting times for Europe's mainline carriers and for the Association of European Airlines (AEA), the body that has represented them for half a century. As it celebrates its 50th anniversary, the AEA has seldom, if ever, faced so many challenges at one time. Record losses, the low-cost challenge and a sometimes hostile regulatory environment are certainly testing the mettle of the organisation's secretary-general Ulrich Schulte-Strathaus, not to mention the recent arrival of 10 new states into the fold of the European Union (EU).
The AEA has experience on its side. It originally started out back in 1952 as a joint research office, supported by Air France, KLM, Sabena and Swissair, but was established on a permanent basis in 1954, when British European Airways (a forbear of British Airways) and SAS also joined. The fact that over the past three years two of the founding carriers have gone bankrupt, while two others have merged, gives as clear an indication as any of the tough industry conditions now facing the association.
Schulte-Strathaus has headed the organisation since September 2002 when he took over from Karl-Heinz Neumeister, a fellow Lufthansa man. Schulte-Strathaus has taken a more measured tone than Neumeister when talking of industry issues, as may be expected from the son of a diplomat, but has been equally determined to ensure European airlines get a fair deal. He has also set about raising the profile of the AEA, something his charter airline counterparts at IACA are also doing.
This is certainly the right time for the AEA to be making its presence felt in Brussels. European Transport Commissioner Loyola de Palacio is to step down in September as her term of office comes to an end, and a number of other key figures are also leaving, including air transport director Michael Ayral.
Cost benefits
This summer, the AEA is going to draw up a manifesto to be presented to de Palacio's eventual successor. "We need to develop a new European aviation policy. We need to look at the cost benefits and avoid micro-management," says Schulte-Strathaus.
His overriding message is clear: "We want a level playing field." He wants AEA members to be treated in the same manner as their counterparts in third countries, other transport modes and the low-cost sector. At the same time, the AEA wants to ensure that it also gets a fair deal from infrastructure providers. "We need to have a public debate about the value chain," says Schulte-Strathaus. "In many cases, infrastructure providers are not subject to the same market pressures as us."
He complains: "Airlines have been liberalised. Aviation as an industrial sector has not. They live in a completely different world. They too, must be focused on the customer." He believes that the European Commission (EC) is beginning to understand this.
The AEA's message to Brussels is reflected in a report published by the industry body in October last year: Towards an Efficient European Air Transport System. That looks at the barriers facing the airline industry as it restructures in the face of the low-cost phenomenon and at the subsequent decline in short-haul premium traffic.
"Although the AEA members have made every effort to respond to these changes, there are significant structural barriers to achieving greater efficiencies," the report says, pointing to air traffic service (ATS) providers, airports and others. "These costs are beyond the control of airlines, and they are continuing to rise."
However, the first item on the agenda when the new Commission arrives will be security, primarily because it is seen by the AEA as a straightforward issue to tackle first. "We want maximum security with minimum hassle," says Schulte-Strathaus. "The system is still operating as it did in the 1930s. On the eve of the launch of the Airbus A380, this has led to difficulties."
Just as important is sorting out who pays for it. The EC is carrying out a study into the issue of security funding in the EU, which varies greatly between states. Again, the AEA is looking for a level playing field, this time between its own members, through the establishment of a common system of funding.
Looking to the mid-term, infrastructure will be top of the agenda - both in the ground and in the air. One of de Palacio's main achievements has been the launch of the Single Sky project to reform and reorganise Europe's fragmented air navigation services. The AEA has been a firm supporter, but is taking a close look at the way it is implemented.
Measurable improvements
"There are a huge number of projects. Which of these are going to lead to measurable improvements in the short term?" asks Schulte-Strathaus, adding that resources should be funnelled in the direction of these areas. He is also looking at the move towards functional blocks of airspace, which is designed to replace the mosaic-type network based around national borders, but he has met resistance in some quarters.
There has also been friction between the airlines and ATS providers over charges. Thanks to the prevailing cost-recovery charging formula, which matches charges to costs and not performance, the average level of fees have increased even as the number of aircraft in the sky diminished through the downturn. In short, fewer aircraft have had to cover the same air navigation cost. "You end up paying more for the same service. It doesn't make sense," says Schulte-Strathaus, adding that he wants to see an end to the cost-recovery formula - as indeed does CANSO, the body which represents ATS providers.
On the ground, Schulte-Strathaus points out that airlines and airports have many common interests, such as security for instance, but ultimately have different priorities when it comes to charges and fees.
He is keen to see more transparency, but puts an emphasis on discussions rather than shouting matches with airports, and is interested in establishing a set of criteria that could form the template for airport/airline negotiations. "Certain airports are immensely profitable," he says. "It is in nobody's interests to have cases of abuse."
He makes it clear he has concerns about the process of privatisation at major hub airports if it means the replacement of a state monopoly with a private monopoly. He points to the example of Amsterdam Schiphol, where a planned privatisation was shelved, partly due to the concerns of the hub's home carrier KLM.
There are concerns about financial support from regional airports for new air service, especially for the low-cost sector and especially in the wake of the EC's judgment on Charleroi airport's aid to Ryanair, part of which is meant to be repaid. Brussels is developing what the industry hopes will be a definitive set of guidelines on what is allowed and what is not as regards start-up aid for new routes. However, Schulte-Strathaus questions the need for this support in the first place.
"Is this really something that governments should encourage?" he asks, also questioning why the likes of Ryanair need financial support to set up on what are presumably already viable routes and which appear to require relatively little up-front investment. "What exactly are the costs that they are talking about?" he asks of the Charleroi case, suggesting that there was precious little by way of apparent investment in infrastructure or additional marketing. However, if start-up aid is to be allowed, then Schulte-Strathaus again wants a level playing field. "It should be available to everybody on the same basis," he says.
Transatlantic skies
The level playing field theme also applies to the international arena. The AEA drew up the template for the transatlantic common aviation area, which is now being used by the EC as a framework for its talks with Washington - albeit now dubbed the "open aviation area" perhaps in deference to the USA's attachment to its own open skies initiative. While very much in support of the talks, the AEA is pleased that Europe has so far resisted US pressure for a mini-deal that would have stopped short of full market access. Talks have reached a stalemate, although de Palacio was pulling out all the stops to try and get something on paper before she leaves office this autumn.
Schulte-Strathaus is adamant that the talks should remain focused on the ultimate objective of a true open aviation area. He says the negotiating process has been a "steep learning curve" for Brussels, the member States and the industry, noting that the mandate for the EC to negotiate with the USA came from the Council of European Transport Ministers, and not from industry.
He says talks have so far been based on the US open skies template, rather than the multilateral system to which he believes aviation should be moving. "Global travel and trade patterns are becoming multilateral. This must apply to aviation," he says.
On the US refusal to contemplate moving beyond the 49% barrier for foreign ownership, he adds: "That is fine in the bilateral context. In a multilateral context, it is ridiculous. If we believe, and we do, that industry requires unlimited access to capital markets, it is foolish to restrict the nationality of the guy who is willing to invest. It is an anachronism."
He also has reservations about the EC's push to rework bilaterals with other countries. While in strict legal terms there is a case for third countries to sign agreements at European level, rather than with individual EU states, he warns that this ignores the commercial realities. What benefit, he asks, will a third country really get in exchange for effectively giving the right for any European carrier to serve their country from anywhere within the EU?
Schulte-Strathaus insists that the EC must outline where its priorities lie. "No-one expects the EC to resolve these issues with all third countries simultaneously," he says, also questioning why Brussels is basing its priorities primarily on legal and political concerns rather than on the commercial interests of the airline industry.
Aside from the bilateral relationships, there is another aspect of international aviation relations that concerns the AEA - subsidies. The Europeans were particularly unhappy with the multi-billion dollar state support made available to US carriers after 11 September, and the EC was subsequently granted powers to take action against carriers deemed to have gained an unfair advantage from government support.
Schulte-Strathaus is concerned about the rate at which state-backed carriers in the Gulf region are moving into European markets. "This is going to be a problem," he warns, and predicts this issue will come to the surface over the next 12-18 months, "once we get the facts".
Compensation regulations
Another potential problem is the new EU passenger compensation regulations, due to come into force next February. Schulte-Strathaus makes it clear that the EC's abandonment of a voluntary scheme agreed with the AEA in favour of a new regulation left a bad taste in the mouth. "This was in breach of what we thought we had agreed," he says.
Like many, he also feels that the new regulations reflect a lack of understanding and a lack of consultation with the industry. "Because the European Commission did not consult industry in the customary way, the final regulation is unworkable in many aspects." Again, he is not alone in expressing annoyance that the final format of the regulation holds the airline responsible even in extraordinary circumstances, and the AEA is supporting an IATA-led court challenge to the regulation.
One area where the organisation has yet to develop a common policy is computer reservation systems (CRS). Some key members, notably Air France and Iberia, have significant shareholdings in CRS provider Amadeus. Slot reform is another issue that the AEA sees as a medium-to-long term issue, although it warns that issues such as slot trading will rise up the agenda if infrastructure fails to match increased demand.
Another issue lurking on the horizon is kerosene charging, for which Brussels has been pushing. If this is going to happen, then Schulte-Strathaus sees emissions trading as the best way forward, but he questions the wisdom of a tax in the first place. "If it stifles growth, is it something we should be doing? What is the cost to employment?"
One thing is certain. When Schulte-Strathaus meets the new transport commissioner, he will have plenty of questions, and will be expecting plenty of answers in return.
REPORT BY COLIN BAKER IN BRUSSELS
Source: Airline Business
