Brussels is keen to stamp its authority on the European aviation industry, but has drawn fire for controversial proposals on passenger rights and slot reform
There is one word that is virtually guaranteed to feature in any boardroom discussion at a European airline - Brussels. Over the last decade, the European Commission (EC) has been busy stamping its authority on all aspects of air transport in a bid to complete the vision of a single European market. But relations with the region's carriers have not always run smooth, with passenger rights, slot reform and competition policy still causing friction.
Relations had something of a fresh start in 1999 when no-nonsense Spaniard Loyola de Palacio took over the EC transport brief and Italy's professorial Mario Monti arrived as the new Competition Commissioner. Not only did Palacio set about resolving some long-standing issues on infrastructure, but gone were the conflicts between competition and transport. Not only that, but the EC has finally won its ultimate goal of the right to negotiate a transatlantic open aviation area with the USA on behalf of the whole of Europe.
However, with a reshuffle again due in Brussels next year, Palacio and Monti may end their first term on a sour note. Airlines are increasingly frustrated at what they see as an ill-conceived policy on passenger rights and a lack of clarity over competition decisions, including the related issue of slot reform.
These surfaced at the 15th European Air Law Association conference - a rare opportunity to see airline executives, Brussels regulators and aviation lawyers in the same room.
There is no doubt that pending passenger rights legislation tops the list of complaints. The EC rejected a voluntary scheme drawn up by airlines and other stakeholders in 2001, and has imposed much tougher penalties, which airlines warn may make interlining impossible. This now just needs a final ratification from the Council of Transport Ministers and European Parliament.
No meeting of minds
There was little sign of consensus on the issue. Jim Callaghan, head of regulatory affairs at Ryanair, said he is hopeful that member states will see sense on this, but senior EC officials are confident that both the transport ministers and Parliament will give the nod to the proposals, which have already been agreed in principle by the two parties.
However, Callaghan warns that if this happens Ryanair will mount a legal challenge. The European Regions Airline Association (ERA) has also said it is looking at this possibility. Carriers are particularly incensed that the regulations do not apply to other modes of transport, such as trains, and that there is no relation between penalties and ticket prices. As Tim Bye, legal director of bmi puts it: "If you take back a faulty pair of jeans, you don't get an Armani suit in return."
Senior Brussels officials reiterated promises aired by the Council that passenger rights will be extended to other transport modes, without giving any timescale. They also confirmed a point made by pro-aviation members of the European Parliament when the proposals passed their first reading, namely that the EC felt the voluntary scheme was unworkable due to its rejection by low-cost carriers.
Callaghan admits that Ryanair was late to realise the threat posed by passenger rights. On the other hand, aviation lawyers say the débâcle is at least partly due to the lack of industry understanding within the Commission.
Against this background, it was perhaps not surprising that EC officials were at pains to point out that they do not have an anti-airline agenda. Speaking at the conference, Mario Monti stressed that the EC "takes a generally positive view of alliances", noting that they do "generate benefits".
With the conference coming in the wake of the proposed Air France-KLM merger, Monti's opening address was keenly awaited, as airlines looked for clues on how Brussels will treat this merger, as well as pending joint venture proposals such as British Airways/Iberia and Air France/Alitalia.
Realising this, Monti steered a very careful line. Opening up with positive comments, he later warned that "alliances cannot be at the expense of competition and consumer welfare". He suggested that the scale of a combined Air France and KLM will not be the main issue for the Commission. "We have no preference for any airline size,' he said.
Monti hinted at the EC's key concerns over alliances and mergers. Mainline rivals claim that the growth of low-cost competitors mitigates against the reduced competition resulting from co-operation between flag carriers. For instance, BA and Iberia have argued that the presence of low-cost carriers, particularly easyJet, on UK-Spain routes will provide adequate competition if the two move towards a joint venture.
Monti says that a key question for Brussels is whether low-cost carriers are a "suitable alternative for business passengers". He adds that they "often operate from less attractive airports and offer less frequencies", but admits that "some low-cost carriers are adapting to meet the demands of business passengers".
Joos Straiger, head of transport at the EC's Competition Directorate, says that the EC is likely to accept the services of easyJet as an acceptable alternative to BA and Iberia, but that this will not necessarily be the case for Air France and Alitalia. "There is no general answer. We will look at this on a case-by-case basis." Straiger makes it clear that frequencies and airport proximity to business centres will play a key role in the EC's deliberations.
This brings up the issue of slot reform - another area where airlines and the regulators in Brussels have failed to see eye-to-eye. In this case, however, airlines and other interested parties including airports have managed to keep the process in limbo. As one aviation lawyer notes, with so many parties happy with the status quo, it will be difficult for Brussels to move forward on this issue.
Entry barriers
Despite this, Monti is determined to see progress, and sees a strong link with the issue of alliances and mergers. "It is not just about market share. It is about entry barriers." He makes it clear that the difficulty of attracting new entrants on routes where two dominant players form an alliance remains a concern. "It is very difficult for new entrants at hub airports," he says. "For this reason, slot surrender remains an essential remedy to ensure access for newcomers." Airlines have warned Brussels not to interfere with the system of grandfather rights that allows carriers to retain slots from the previous season, so long as they use them for at least 80% of the time.
Straiger notes that in the case of the Lufthansa/Austrian Airlines alliance, the EC demanded the two carriers offer up to 40% of slots on routes between Germany and Austria. He says that a key issue is "precisely what the customer sees as the minimum number of frequencies to change to a competitor carrier". There has been a problem attracting carriers to routes where there is a dominant force, and Straiger says the EC will favour single carriers to avoid fragmentation.
While the issue of slots is bringing tensions to the surface, it was clear from the conference that the single issue that causes most strain with Brussels is passenger rights. Andrew Clarke, the ERA's director of air transport policy, made an impassioned plea from the floor for a last minute about-face, warning that the survival of Europe's regional industry is at stake. A change of heart here, however unlikely, would dramatically improve relations between Brussels and the industry which it wants to lead into the brave new world of a transatlantic open aviation area.
Source: Airline Business
