EU and Asean countries are joining forces to counter the growth of Persian Gulf carriers
Legacy airlines in Europe and Asia have long recognized the Persian Gulf carriers as a major threat. Now the European Union and the Association of Southeast Asian Nations (Asean) are exploring an open-skies agreement that they hope will help defend their position and stop leakage of traffic to the three big Middle East hub airports in Dubai, Abu Dhabi and Doha.
The initiative comes amidst continuing pressure on the European Commission (EC) from a number of European network airlines, in particular theGroup, to restrict the rapid expansion to the EU of the Persian Gulf carriers, which are heavily subsidized and create an unfair playing field, they say.
While recognizing that the state-owned Persian Gulf carriers are a formidable competitor to Europe's legacy carriers operating on transcontinental routes, especially those from the EU to Asia and Africa, European Commissioner for Transport Siim Kallas takes a more comprehensive view on the development of Emirates,and in Europe, noting that there are five main players in the European aviation sector with very different interests.
“European passengers . . . are happy with the [Persian] Gulf carriers because they offer a good service. Airports and ground handlers are happy because they bring traffic, and the air navigation service providers are happy because the more routes and frequencies they fly into Europe, the more fees they collect,” he says. “Last but not least, our OEMs are extremely happy with them because they buy a lot ofaircraft and engines.”
The three major Persian Gulf carriers are “mostly problematic for the European airlines that operate on transcontinental routes, but all other segments are very happy with them,” Kallas points out.
The Estonian commissioner, whose five-year term is ending in November, also sees opportunity in the planned EU-Asean tie-up to push his standpoint on restrictions on ownership and control of airlines, which he views as “outdated and harmful.” Kallas hopes that Asean and the EU will become a critical mass “that could influence the global debate and efforts aimed at modernizing ownership and control requirements in this most global of all industries.”
The desire to liberalize market access and achieve regulatory convergence between the EU's 28 member states and Asean's 10 member countries seems very ambitious. The Asean region has not yet established its own regional single aviation market and several Asean carriers or their oversight authorities are deemed unsafe by the EU. Virtually all operators certified in Indonesia and the Philippines are on the EU's so-called blacklist, prohibited from flying into the bloc's airports.
But both parties say there is much to gain on both sides from a close collaboration and on Feb. 12 signed a joint declaration to work toward a comprehensive air transport agreement. For Sommad Pholsena, minister of public works and transport of Laos and chair of the Asean transport ministers, the bloc-to-bloc air services agreement will facilitate Asean's own integration. And the EU's experience with the establishment of a single aviation market offers “valuable” learning points for Asean as it moves toward its own open skies by 2015, Singapore's minister of transport, Lui Tuck Yew, noted at last week's EU-Asean air transport summit in Singapore.
Singapore is a driving force behind the EU-Asean single aviation market concept, as it wants to keep its leading market position and contain the loss of EU-Asean traffic to the three big Persian Gulf carriers—Emirates, Qatar Airways and Etihad Airways—and their respective hubs in Dubai, Doha and Abu Dhabi. Singapore'sis the primary gateway for traffic between Asean and EU countries, with some 3.5 million passengers per year, and provides 23% of all seats flown between the two regions. Five of the 20 busiest EU-Asean city pairs depart or terminate in Singapore.
Total origin-destination traffic between the EU and Asean, plus transfer traffic continuing beyond the EU and/or Asean region (such as traffic from Europe to Australia via Asean countries), registered a strong compound annual growth rate (CAGR) of 4% between 2007 and 2012 to reach more than 10 million passengers. Direct traffic between the two regions, however, has grown more slowly compared to passenger traffic through intermediate points, “in particular through the fast-growing Middle East air hubs,” notes Lui. “There is thus lots of potential for us to work together to enhance direct connectivity between the EU and Asean, for travelers' benefit and convenience,” he says.
Direct EU-Asean air traffic recorded a CAGR of 1.1% in 2007-12, which is slower than the growth of total extra-EU air traffic. In 2009-13, air passenger traffic between the EU and Persian Gulf states grew 15.4% annually, while air passenger traffic between the Persian Gulf and Asean countries grew 11.8% annually, according to EU analysis based on OAG schedules (see charts).
If the agreement materializes, it would be the first aviation agreement in the world between two important blocs of countries, creating a single aviation market with a combined population of more than 1.1 billion. “Asia is a fast-growing aviation market that the EU must engage actively with,” says Kallas. Airlines in Asean are expected to take delivery of more than 3,000 aircraft worth close to €500 billion ($687 billion) by 2032, andprojects passenger movements to, from and within the Asean region to grow by 6.5% in the next two decades.
With growth in Europe stagnating, the Asean region therefore offers attractive opportunities to EU airlines, airports, the aerospace industry as well as other aviation-related products and services such as aircraft maintenance, repair and overhaul. “There are big bucks to be made,” a senior EU official reckons. The European Commission estimates the economic benefits in the first year of liberalization of the EU-Asean air transport market would be as much as €900 million, with an increase of 860,000 passengers and 2,400 new jobs, excluding tourism.
Direct EU-Asean passenger traffic represents 3.3% of the total extra-EU passenger traffic, while EU-Asean freight traffic accounts for 5.6% of the total extra-EU freight traffic. In 2013, Asean-EU traffic represented 7.8% of the total extra-Asean seats available.
The development of a single aviation area in Asean countries is based on common rules and market openings. This is what the EU did in the past two decades and it makes the two blocs “logical” partners for enhanced cooperation in a whole host of areas, from air traffic management to safety, according to Kallas. Moreover, the EU launched the Asean Air Transport Integration Project (Aatip) in 2012 with a budget of €4.7 million for 2012-16. The(EASA) has been appointed as the implementing body of Aatip and has formed a consortium with Eurocontrol, the U.K. Civil Aviation Authority and French DGAC.
The EC will need a mandate from the EU council of transport ministers to start negotiations between the EU and Asean on a comprehensive air services agreement. Kallas wants to launch the internal process to obtain a mandate “at the earliest possible” time, although it is not clear if this could occur before the term of the current EC ends in November. A stumbling block might be the format of the mandate. Asean does not have a centralized authority (as the European Commission is for the EU) and thus the EC might have to request a mandate to open negotiations with 10 different countries, instead of just one with a group of nations.
The lack of a central body representing the member states of Asean has not stopped the bloc from reaching a limited open-skies agreement with China. And Asean also is looking to start talks on open-skies treaties with Japan, South Korea and India.
It is also not a given that the EC will be granted the mandate, because some member states believe their interests are better served on a bilateral basis.
Extending the EU single aviation market to key trading partners and neighboring countries is an intrinsic part of Kallas's external aviation policy package. “The EU is a strong promoter of open skies and creating a wider common aviation market largely based on EU aviation regulations,” he says. “The success of the single market has made the EU look outwards, bolstered by the need to survive, compete and flourish in a tough global environment.” Open markets are the “best basis” for developing Europe's international aviation relations, and Kallas stresses that “it is becoming ever more important that competition is not only open, but also fair and transparent.”
Over the last 10 years, the EU has signed air transport agreements with the U.S. and Canada, and negotiated more comprehensive air transport agreements with the Western Balkans, Morocco, Jordan, Georgia, Moldova and Israel. A similar pact is due to be signed with Ukraine in March, and the EC is hopeful that negotiations soon will be finalized with Brazil. Talks are ongoing with Tunisia, Azerbaijan and Lebanon and may also start with Armenia. In addition, the EC also has mandates to negotiate with Australia, New Zealand and Algeria.
As is the case with the other comprehensive air transport agreements negotiated by the EU, the envisaged cooperation with Asean would go beyond the standard template of air services agreements (and of the U.S. open-skies agreements that focus on traffic rights). It will cover all issues affecting air services, including harmonization of safety and security standards, air traffic management, regulatory convergence as well as ownership and control.
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