The bluster that accompanied Kinnock's appointment suggested the new transport commissioner was gearing up to play hardball with member states. During the first few months of the new Commission, Kinnock had an auspicious start in the way he went about lambasting the six member states that had signed up to the US open skies offer by mid-1995. His critics accused him of 'blowing his own trumpet' and confirming the divisive power of the open skies lever to the US.
But Kinnock was merely fulfilling the legal obligation of his position to defend the internal stability of the single market against what is undoubtedly a threat. Moreover, Washington was well aware of the potential of its divide and conquer strategy before Kinnock's silence was requested by some of the less Euro-centric members of the European Union.
The initial storm abated in mid June after a meeting of the Council of European Union transport ministers gave the Commission the nod to conduct an internal study on how the US agreement with the six EU member states would affect the single market. But a majority, led by the UK, remained opposed to granting external competence to Brussels. The study was due to be presented to the Council in mid-December and early indications suggest it will support Kinnock's claims of market distortion. One certainty is that the attitude of the Council will have changed little, although the Commission could be asked to develop further the draft negotiating mandate it put before last June's meeting.
Meanwhile there has been little progress in other areas. The transport directorate was due to confirm the appointment of Amsterdam-based consultants Stratagem in early December to produce a study on codesharing. The Commission had originally postponed the tender process because it wanted to avoid excessive overlap with three other studies - two US and one German - underway in late 1994.
Frederik Sorensen, head of air transport policy in the transport directorate, confirms that the consultants' terms of reference focus on two main areas: the competitive impact of codesharing and consumer protection. The main thrust of the report will assess the 'underlying implications of codesharing for the internal market' and will embrace both franchising and 'to some extent' the use of frequent flyer programmes. Stratagem's study is expected to be completed by April.
The only other substantial study this year is the external review of the slot allocation regulation by Coopers & Lybrand. But with more than one party referring to the bulk of the recommendations in the report as no more than 'housekeeping', there is a feeling among carriers and airports that this debate will not set the world alight.
Indeed, the main message of the study is that the member states should be forced to comply with the current regulation while most of the proposals are aimed at bringing more transparency, neutrality and clarification to the slot allocation process (see box). This position is unlikely to upset the current scheduling of the established airlines as the report is proposing 'evolutionary rather than revolutionary change in this area,' explains Chris Allen, head of competition and industry affairs at British Airways.
'The consultants could have come out with a report that could have been a lot more destabilising,' observes Mike Ambrose of the European Regional Airlines Association.
Of the two most contentious issues raised by the report, only one is explicit. Coopers & Lybrand appears to be leaning towards the view that the slot allocation coordinator should be independent, rather than attached to the dominant carrier at a slot constrained airport, as is mostly the case in Europe. Most airlines may support this in that it dilutes the influence of the dominant carrier, but many would resist the coordinator role going to a non-airline person.
The airports, on the other hand, see themselves as the natural coordinators and have come out in full support of an independent role. This would fit in with what Avi Gil, head of aeropolitical affairs at Airports Council International, explains is the desire of airport operators to have 'a greater say in slot allocation to ensure best economic use.' The airport position is seen by some as supporting the view that where airport capacity is inadequate the best solution is to legislate in favour of large aircraft. Tim Walden, British Midland's head of government affairs, claims he detects 'support in some areas [of the report] for this argument.'
The more oblique issue is that of 'monetised trading'. Although mentioned only in the report as an alternative mechanism, it has been seized on by supporters and opponents alike. BA is a longtime proponent of monetised, secondary trading, and Allen argues that as it is already going on, it should be made explicit in the regulation. 'The process at the moment has no mechanism for market forces to come into play,' he says. He refutes claims that smaller carriers would be priced out of the market. Indeed, a Commission source refuses to rule out the practice, a stance which will worry Europe's smaller carriers and the increasing number of start-ups. 'It depends on how big the problems are at some of our [slot constrained] airports,' he comments.
The Commission held the first consultative meeting in late November and expects to put a proposal before the Council by the end of May. A revision or extension of the current regulation must be adopted by the EU's transport ministers before mid-1997.
Some established carriers go so far as to question what they see as the inherent bias towards 'new entrants' in the current regulation, a factor which is also alluded to in the Coopers & Lybrand report. There is even strong support among major airlines and airports for the view that effective competition should be safeguarded by granting slots to established carriers, rather than to the 'weaker' startups in order to provide a third carrier presence on certain routes. This argument also suggests that the number of competitors should be directly related to demand on a specific route.
The slot allocation debate will certainly not court as much controversy as the long-running battle over ground handling regulation. A concerted campaign by airports, backed by the considerable might of Germany and 'the less progressive member states', as one source in Brussels labels them, has led to a fudged draft directive for which the Commission is struggling to win approval from the Council.
At presstime, a Commission source rated the chances of approval of the directive at the early December Council meeting as '60:40'. Even after approval, implementation of the directive will still take at least two years - the transition time granted to those airports affected. And most airlines are unhappy: 'The directive is not going in the right direction. I hope the Council won't approve it,' observes Lennart Svantemark, SVP regulatory affairs at SAS.
Ironically, approval of the directive could nullify the case of the Commission against two airports under European competition law. Two longstanding complaints from airlines, against Frankfurt and Milan, are still pending at the competition directorate. If the draft is approved, the Commission will find it difficult to go against the conditions specified in a directive passed by the Council.
The only major action taken by the new Commission in the past year came with the approval of Swissair's stake in Sabena, although the Lufthansa-SAS alliance was expected to be nodded through in December, with conditions aimed at opening up duopoly routes to rivals.
Perhaps the most encouraging sign that the Commission is taking a tougher line comes in the delay over the Iberia state aid ruling. In the past, Brussels has tended to rubber stamp most state aid applications, attaching only token sanctions. Aer Lingus was the only exception to this rule. The Spanish government's initial application went to the Commission in January 1995, but officials have refused to approve the submission until it was considered 'viable.'
In early December approval was reportedly imminent, but Iberia's stake in Aerolineas Argentinas looked likely to be sold and the Spanish carrier was deemed unlikely to receive its full request for Pta130 million ($1.07 billion).
At a time when startup activity around Europe is starting to pick up, the lack of concrete action from Brussels should be of concern to budding airline entrepreneurs. Business does not take account of institutional facelifts and a partially regulated market does not thrive on uncertainty in the house of its creator.
The reaction to the report is on the whole positive: a rare event in the consultative process in Brussels, which normally prompts cries of outrage from at least one 'injured' party facing certain ruin if offending proposals make it into regulation form.
A number of the 41 recommendations are worth noting:
1 Redefining the term air carrier as 'an air transport undertaking with a valid operating licence' to counter the problem of 'paper airlines' wasting valuable slots. The report acknowledges this could create a barrier to entry by startup airlines.
2 Clarification of whether the definition of a new entrant as a carrier holding fewer than four slots at an airport on a given day aims to limit the number of slots a new entrant can claim to that level.
3 Redefining the term 'new entrant' to remove that status if an incumbent holds more than 25 per cent in the carrier.
4 Require member states to ensure a capacity analysis, including a formal consultation process, is completed within six months of a request for one (under Article 3) by incumbents or new entrants. The results of the whole process should be published if they lead to designating (or reconfirming) the airport as fully coordinated and a new capacity analysis should be carried out every three years.
5 European Commission could be given powers to de-designate an airport if it felt that the capacity analysis had not been carried out satisfactorily.
6 The factors for assessing capacity should be laid down and could be based on Iata's Scheduling Procedures Guide.
7 Member states could be obliged to ensure that the airport coordinator is independent. The requirement that the coordinator must have 'detailed knowledge of air carrier scheduling coordination' could be removed to open up the position to applicants with non-airline backgrounds.
8 Open up coordination committees to the carriers and their representative organisations using the airport regularly to ensure foreign carriers can participate effectively.
9 Draw up a constitution for coordination committees, which includes complaints procedures.
10 The definition of grandfather rights could be revised by stating they do not extend beyond the cutoff date for initial submissions. Historic precedence only applies to slots operated as a series and to the actual usage of a slot transferred to another carrier under a codeshare.
11 Permit the unilateral transfer of slots between carriers for joint operations under a codesharing arrangement for the duration of the alliance, and between subsidiaries and parent as long as the companies are linked by a minimum 25 per cent stake, the same percentage that would rule out new entrant status.
12 Member states should provide third party arbitration if the coordination committee fails to mediate a dispute and before the Commission will consider the complaint.
13 Member states must submit proposals to give priority to slot requests for public service routes to the Commission for approval.
Source: Airline Business
