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European Commission

[Check Against Delivery]

Siim Kallas

Vice President of the European Commission

Aviation in Europe: contributor to growth and competitiveness?

European Policy Centre

Brussels, 6 March 2014

Ladies and gentlemen

It is hard to overstate the importance of aviation in today’s globalised environment. By bringing the citizens of the world together, it creates prosperity and jobs.

Fifty years ago, it was relatively rare for people to fly between continents. Today it is completely normal. With more people in the world, bigger cities, more wealth, first-time flyers and a growing middle class in emerging economies, billions of people increasingly want to take planes.

By 2017, IATA forecasts that world passenger numbers will rise by 31% from the 2.98 billion that airlines carried in 2012.

That means 930 million more passengers over five years.

Aircraft manufacturers are also riding the surge in air travel. Last year, world airliner production reached a new high: Airbus and Boeing shattered their own delivery and sales records with an unprecedented level of orders between them.

Aviation could be defined as ‘connectivity on a global scale’.

Improving connectivity leads to more productivity, which in turn attracts more investment into a national or regional economy. Connectivity is an effective engine for increasing both competitiveness and economic growth.

That is particularly true in Europe, where we rely on aviation to provide the international transport links that make us a global hub of social and economic connectivity, and to compete on the world stage.

Before Europe moved to an open single aviation market, travellers would have been lucky to have a choice of two flag carriers to fly between two European capitals. Capacity and fares were tightly controlled, based on bilateral agreements between Member States. This has now changed dramatically. Since 1992, the number of flights within the EU has more than doubled. Flights operated by more than two airlines have quadrupled. And passengers are happy: over that time, their numbers have gone up by 300%.

Low-cost carriers have boomed as a result. Starting with a tiny 1% share of the market, they now account for almost half. That said, there are clearly some serious challenges and issues raised with the rise of the low-cost carriers.

Today, aviation supports 5.1 million jobs, directly and indirectly. It contributes one billion euros of European GDP every day, driving trade and tourism.

But there are also many challenges that we need to address urgently.

International aviation is going through a period of unprecedented change. It is unbelievably dramatic and rapid. And it shows no signs of slowing down.

Worldwide, it is clear that there are good prospects of more demand for air travel. But at the same time, there is a clear shift of growth towards Asia, and particularly to the new Middle East hubs like Abu Dhabi, Doha and Dubai.

Half of the world's new traffic added during the next 20 years is likely to be to, from, or within the Asia-Pacific region – increasingly serviced by the Gulf hubs. By 2017, according to IATA, the Asia-Pacific will be the world’s largest regional market for air passenger transport with one third of global passengers.

What is not good news is the fact that due to their below-average growth rates, EU carriers operating internationally will be losing market share to non-EU airlines in most regions.

They face low profitability and growth in a market with increasingly fierce competition – based on low profit margins squeezed from high fixed costs.

In 2003, EU carriers had a market share of 29% of all inter-continental capacity in the world. By 2025, this share is expected to fall to 20%. If we do nothing, this trend means that the profitability of EU airlines will be eroded. That will threaten their ability to generate growth for the European economy.

So what can Europe do to counter this?

European airlines must have the chance to get access to new markets and business opportunities. If we do not act and adapt quickly to stay at the forefront of world aviation, then in a few years' time it may be too late.

Europe needs to maintain a strong and competitive aviation industry, with EU-based carriers right at the centre of the global network that connects the EU with the rest of the world.

We also need EU airports to remain at the heart of world traffic flows, and avoid becoming restricted destinations with only limited onward connections.

As I just said, connectivity is key to competitiveness.

Continuing to invest in research will help us to remain at the cutting edge of new technologies. Research, after all, leads to innovation. In addition, Europe will not manage to keep up with future competition and demand without maintaining its traditionally high safety, security and environmental records.

But this is not only about increasing flight traffic and cutting costs.

It also concerns routes, products, air traffic management: in fact, the entire value chain that aviation represents.

There are areas where Europe can act to help itself. We are already doing so.

Take congestion, which will be a huge problem if we do not plan for the future.

Europe’s airports are congested and will become more so. Air traffic in Europe will nearly double by 2030 and on current trends, 19 major European airports will by then be at saturation point.

We should avoid a situation where a significant share of the extra flights expected for the future cannot be accommodated. This is why I proposed a legal package for better airports. It addresses three main areas of concern: slots, ground-handling and noise, aiming to raise both capacity and quality of service. It is now being discussed in the European Parliament.

And the Single Sky project needs to succeed and be implemented - as soon as possible. It will allow us to shorten flights, reduce delays and emissions, and save about 3 billion euros each year, out of a total annual cost of 8 billion euros.

Progress here has been less than hoped – but I believe that we can still do this.

That’s why I proposed SES 2+ with some changes to speed up implementation, because this project is too important to be allowed to fail.

We are also upgrading Europe’s airspace architecture by introducing modern technologies through SESAR, Europe’s modernisation programme of air traffic control infrastructure.

Our air traffic management systems should be as cutting-edge and optimised as possible, which is what we are working towards.

As I speak, a major international conference on ATM is being held in Madrid to address these and other challenges.

In fact, given that internal restructuring is the main challenge for European aviation, our overarching aim is to modernise its entire value chain, across the system, so that this sector is ‘fit for purpose’ - and fit for the future.

At the same time, that means maintaining open and fair competition for all operators, which is why we take the issue of state subsidies very seriously.

Finally, and more generally, I believe Europe could make more of the economic potential that international aviation offers. We need to be where the growth is, as well as export the full value chain of European aviation that I mentioned earlier.

This is not only about securing traffic rights or access to new markets. It also means our high standards of safety, successful approach to regional cooperation, airport management and logistics. These are all very exportable commodities.

What do I mean by that?

In aviation regulation generally, the European Union is recognised as a world leader. The legislation that set up the Single Sky, the creation of EASA to take responsibility for the safety of our skies, have put Europe at the centre of global aviation regulation. The latest European success story was what the industry knows as FTL, or flight time limitations, to keep pilots safe when they fly.

They are all examples of what Europe does best in aviation.

Examples for others to follow.

We recently developed a more ambitious external policy to match the serious challenges facing our aviation sector and unlock the full contribution that aviation can make to the European economy.

Our aim is to conclude EU air transport agreements with major and increasingly important partners such as China, the Gulf States, Japan and India.

There is huge potential for the consumer: the total economic benefits of all these agreements are estimated at €12 billion per year. With Morocco and the Western Balkans, for example, we have already seen 40% price falls on flights.

Last month, I was in Singapore for the EU-ASEAN Aviation Summit. I see enormous potential here for the EU to cooperate with ASEAN’s future single aviation market. In the future, I would hope that we might together conclude the world’s first comprehensive region-to-region aviation agreement.

Its potential economic benefits are estimated at up to €900 million a year. The Commission will be asking Member States for a mandate to regulate on this.

The EU’s aviation agreements are not only about developing market access but also about a convergence of essential rules that should apply on a global scale, given that aviation is such a highly regulated international activity.

They allow EU citizens more possibilities to be connected with the rest of the world and boost growth. We are now working to complete a larger integrated aviation area with our neighbours by 2015: an area that will ultimately cover 50 countries with a combined population of one billion people.

Ladies and gentlemen

It has certainly been a difficult few years. But there are significant prospects of growth for Europe’s aviation industry and market. If we are able to make the most of them, it will mean that our wider economy benefits as the sector raises its performance, efficiency and takes the opportunities offered by new markets.

There are many new challenges ahead. We are working hard to prepare for them with a broad concerted move to efficiency, whose natural effect is to save costs.

Modernisation and competitiveness are vital, as is the need to optimise what Europe already has in terms of its airspace and airports.

This, I believe, is how Europe can remain a vibrant and natural crossroads for global aviation.

Thank you for your attention.

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