The foundations for liberalisation may be in place but there's still a long way to go. That's the basic message of the European Commission's first report on the development of the single market, which has attracted fierce criticism for its lack of depth.
The report pinpoints the continued rise in fully flexible fares as clear evidence of slow progress so far. 'Expected beneficial effects of competition on fares has not yet materialised' it says, but it goes on to state that following detailed study Brussels plans to 'put an end to excessively high fares.'
But Kees Veenstra, general manager of aeropolitical affairs at the Association of European Airlines (AEA), defends his members' pricing policy. 'Normal fares haven't gone up, the relationship between discount and full fares has just widened'.
The AEA's secretary general, Karl-Heinz Neumeister, goes further and attacks Brussels over its intention to intervene on pricing. He calls it an 'absurd notion to propose to set the regulatory clock back by the Commission's intervention in airlines' commercial decisions.' He adds:'It is liberalisation which allows airlines to react quickly to market conditions by setting fare levels without having to seek the permission of governments, or their competitors.'
A Commission source says that lack of new competition has meant that high fares prevail with 94 per cent of intra-community routes operated as a monopoly or duopoly. Some 80 airlines have sprung up over the last three years, but 60 have disappeared.
Frank Wade of consultants SH&Ein Amsterdam identifies three reasons for the high fatality rate among startups. The ability of major carriers to use their yield management systems to discount fares on a very limited basis; price containment by the main players; and the lack of access for startups to key routes. But he adds 'the story will change in the next few years'.
The report also notes that codesharing and frequent flyer programmes have made market access difficult for small operators. Domestic routes have seen the most evidence of competition, the report points out, with the number of routes operated by two competitors or more increasing to 114 from 65 in 1993.
But the report has its fair share of detractors. Two London-based analysts criticised the report for its 'lack of depth and analysis', contrasting it with the 'excellent' report on the third package published by the UK CAA last year. A Brussels-based consultant says the report gave inadequate coverage to state aid 'in order to avoid further criticism' and criticised the report's 'self-congratulatory tone.' A Commission source counters that real changes will not start until next year. 'Full competition problems will not take effect until next year; only then can you really talk of a unified market'.
Lois Jones
Source: Airline Business
