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Since  1993 when  the  European Union  dismantled  national barriers  to  air
travel  and began  the final  stage of opening  Europe's air  transport up to
competition, the  number of  routes has  increased and  monopolies have  been
broken up; 20 new  airlines have opened for business,  and fares have fallen.
Indeed, given the drop in the ticket price for many scheduled routes and  the
fact that the charter  market accounts for more  than half the total  market,
around 90 per cent of all passengers now travel on  cheap fares. The European
Commission's approach  to creating  a single market  in European air  travel,
first launched in 1987, was  deliberately phased in three stages to avoid the
market disruption that was  the US experience of  the "Big Bang" approach  to
liberalisation. The last barrier  falls in Europe  in April 1997 after  which
any  EU  airline  may  fly  between two  points  anywhere  in  the  Union. In
anticipation of that  date, the Commission  has published a  report into  the
impact  of the  third and  final stage  of liberalisation  from 1993-1996  to
assess progress so far and outline future action. Presenting the  report Neil
Kinnock, European  Commissioner for  Transport Policy,  said: "Liberalisation
is not an end in itself. The opening of the market has a meaning only if  the
highest possible  safety standards are  maintained and  increased competition
ensures  that the travelling public are better served at lower cost." He drew
attention  to  four  areas  where,  despite  significant  gains,  the  report
suggests  that more  work  needed to  be done:  continued  monitoring of  air
fares,   the lifting of capacity restrictions, the reduction of air transport
costs, and improved market access. He pledged to use  EU legislation to prise
open  those sectors of  the air market that  still remain  closed to free and
fair  competition  to  ensure  that  the  public  gets  a  fair deal  from  a
liberalised  European air  market  that  is efficient  and  competitive while
upholding the highest  possible standards of safety, environmental protection
and public service.

Airline liberalisation - EU style

The report notes that:  "The single market in  aviation did not occur  with a
"Big Bang": there  was no  spectacular reduction  in fares  nor any  dramatic
disappearance of the more important carriers. Liberalisation has  happened in
a  progressive  way  and  without  major  upsets.  This  contrasts  with  the
situation  that the US  experienced at  the time of  the deregulation  of the
aviation market.  The Community  has been  able to  find the correct  balance
between competition  and  control mechanisms.  Competition  and the  consumer
have both benefitted."

Between 1993 and 1996:
     - the number of routes flown rose from 490 to 520
     - 30 per  cent of Community routes are  now served by two  operators and
     six per  cent by three operators or more,  against two per cent in 1993.
     The dominant    carrier's  market share often fell  to the  advantage of
     the second carriers
     - 80 new airline companies were created, 60 disappeared
     - air fares fell  on the routes  where at least three  operators are  in
     competition. These tend to  be the largest in terms  of traffic and thus
     represent  a  substantial part  of  the  market, eg:  from  Brussels  to
     Madrid, Barcelona, Milan,  Rome, Vienna  and Copenhagen and  from London
     to  Paris, Amsterdam,  Brussels and  Frankfurt, as  well  as on  certain
     domestic routes  in France, Germany and  Spain. An impressive number  of
     promotional fares has  developed and the share of  passengers travelling
     on scheduled flights  with tickets at reduced prices  rose from 60.5 per
     cent in  1985 to 70.9  per cent  in 1995. Taking  into account the  fact
     that  the share of the charter market  accounts for approximately 50 per
     cent of  the total  market, some 90  to 95  per cent  of passengers  are
     travelling  at  prices significantly  lower than  those in  operation in
     1993.

More still needs to be done

The  report nonetheless notes that much still needs to be done to consolidate
on  this very encouraging  beginning and has pledged  action in four specific
areas.

1. Air fares.  Despite the advances in  the development of  promotional fares
the  Commission is  concerned that  most  of the  fully  flexible fares  have
continued  to  increase.  On  certain routes  these  could  be  described  as
excessive. Also, the procedures by which the fares are  arrived at are little
understood  and  certainly not  transparent,  which  makes it  difficult  for
consumers to take the best advantage  of the wider travel opportunities  that
liberalisation has, overall, created.

The  Commission has  pledged  to investigate  those  cases where  fares  seem
particularly  high  and,  if necessary,  will  use  the existing  legislation
against the  imposition of  excessive fares  to  correct them.  It costs  for
example  six times  less per  kilometre  to travel  from London  to Palma  de
Majorca than  it does  from Strasbourg  to Vienna. The  Commission will  also
look at ways of  ensuring the public is better  informed as to how fares  are
set in the market.

2. Capacity  restrictions. Competition,  clearly, has led  to an increase  in
traffic and  potential problems in terms  of capacity limitations on  runways
and at airport terminals.  Congestion in the sky is also  putting a strain on
air traffic management.

The Commission will propose  revisions to the existing legislation regulating
slot allocation by  the end of the year  with the aim of  optimising capacity
and  encouraging more  competition. In  March  it submitted  a  paper on  air
traffic management (ATM) which proposes common rules  applied at the broadest
European level so that air traffic can be managed more efficiently.

3. Air transport costs.  Infrastructure costs alone account  for 25 per  cent
of all  operational costs. In  the EU  these costs  are already  40 per  cent
higher than those in the US. Airlines themselves are restructuring,  in large
part  as   a  result   of  the   increased  competition   brought  about   by
liberalisation, to  bring down  the costs  that  they can  control. But  more
could be done to reduce those charges that are outside their control.

The  Council  has  already   approved  legislation  designed  to   liberalise
groundhandling. In terms  of ATM, the Commission has proposed  the separation
of  regulation  from the  provision  of  services which  should  improve  the
cost/efficiency ratio  for airlines.  The Commission also  plans to submit  a
proposal before the year  end to make airport fees  more transparent and non-
discriminatory and to ensure  that the charge is  more closely linked to  the
cost of the service provided.

4. Market  Access. Increased competition and  the rapid globalisation of  the
air market  has led  to the  rapid development  of  alliances and  associated
practices  such as  code-sharing and  franchising arrangements.  Airlines are
increasingly  coming to  realise that  a reliance  on state  aid cannot  be a
guarantee  of  medium  or  long term  competitiveness  and  all  national  EU
carriers are  seeking  to privatise  all  or part  of their  operations.  The
Commission's role in regulating  these alliances and developments is becoming
ever-more important. While the report shows that  Europe's internal market is
flourishing the  full potential of the  changes will not  be felt so long  as
their is no single external air market. 

The Commission is thus negotiating  agreements with the US and  the countries
of central and eastern Europe,  to ensure that competition is free, fair  and
reciprocal. Extra vigilance will be required to ensure  that alliances do not
become  a  disguised  means of  restricting  the  market.  To this  end,  the
Commission  will  use   all  its  powers  under  the  competition   rules  to
investigate  perceived or  actual  abuses of  a  dominant position  and  will
pursue an ever-stricter approach to state aid.

Conclusions:

     - a large number of airlines have been set up since 1993.
     -  in  the  case  of scheduled  traffic,  the  development  of  capacity
     (expressed in  numbers of  flights or seats  available) has been  mainly
     attributable to the activities of smaller carriers.
     -   the  share of  the national  carriers in  total output  is declining
     compared with their direct competitors (eg. Ryanair's output  is already
     more than half that of Aer Lingus).
     - the charter market  is continuing to grow  as a result of  the changes
     brought  about  between 1993  and  1996.  In certain  countries  charter
     traffic may account for more than 80 per cent of total traffic.
     -  in  keeping  with  the  international  trend,  alliances  within  the
     Community continue to develop
     -  1995  stands out  as the  year when  most  of the  European scheduled
     airlines  got  back  into  the black  thanks,  among  other  things,  to
     sustained traffic  growth couples  with a  moderate increase  in output.
     This was reflected in improved load factors and increased productivity.

     -  the flying  public have  greatly benefitted  from  a wider  choice of
     routes, operators and fares  but they are entitled  to expect more.  The
     Commission will take  action wherever  justified and  possible and  work
     with  the  airline  industry  and  consumer  organisations  to  increase
     transparency  and raise  public awareness,  enabling travellers  to take
     full  advantage  of the  potential  created  by liberalisation.  Airline
     liberalisation  cannot and  must not lead  to a  weakening of  safety or
     environmental protection  standards.  The  Commission  is  thus  working
     actively on  improving  the  Community  aviation  safety  framework  and
     limiting the impact of increased air traffic on the environment.

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