EU Right to Pursue Liberalization of Aviation Markets
Patrick Hall / 11 December 2018
External aviation policy in Europe was preceded by bilateral agreements between countries. At this time, aviation markets were divided up by country and dominated by national carriers. The EU has since embarked on a process of integrating the EU aviation market. This was achieved through initiatives such as Horizontal Agreements (bringing all bilateral agreements in-line with EU law), a Common Aviation Area, and aviation regulatory alignment across member states. Today, the EU seeks to liberalize air transport via EU-level aviation agreements, and it is right to do so.
The aviation industry contributes significantly to the European economy. It creates almost 5 million jobs and generates €300 billion per annum – equating to 2.1% of European GDP. Aviation is an industry which has steady forecasted growth sitting at around 5% for the next 12 years. As such, it is important that Brussels pursues an aviation strategy which capitalizes on this growth.
The EU is wise to steer away from bilateral aviation agreements. They are riddled with restrictions; on the number of airlines that can operate, on how many flights airlines can operate, on the routes which airlines are allowed to operate – all of which is decided by governments. This of course results in less consumer choice, less competition, and higher priced airfares.
Examples of these restrictions can be witnessed in the pre-1995 Canada-US Agreement. Due to restrictions, the two national capitals did not have an air service between them, and Vancouver (the second largest Canadian market) was only permitted to have one route to the U.S (which could only be operated by a US carrier). Restrictions could also be seen in the 1977 UK-US air service agreement, known as Bermuda II, which prohibited new airlines from flying into London Heathrow. Even modern day agreements such as the Australia-Korea Air Service Agreement contain route restrictions. For example, if a carrier wished to operate a route from Australia to Korea via Vietnam or Cambodia, it would not be able to do so. These examples clearly demonstrate how bilateral air service agreements distort market realities by introducing government imposed restrictions.
The EU’s decision to pursue liberalization of air transport through EU-level aviation agreements is one that ought to be applauded. An EU-level aviation agreement is an agreement negotiated on behalf of all EU member states by the European Commission, with a third country. The EU pushes for liberalization in these agreements by negotiating for the reduction and/or removal of restrictions.
This is positive for consumers (both European and abroad) because it means that more airlines can fly to and from the EU, more routes can be serviced, the number of seats for sale can be increased, and more competition is allowed. This results in more consumer choice, increased economic growth, and competitive pricing for airfares. A testimony to this can be seen when making a comparison of air travel statistics from 1992 (when aviation markets were significantly less liberalized) to the present day. Today (compared with 1992), there are 8 times as many flight routes within and abroad of the EU, a family trip from Milan to Paris would have costed 16 times as much, and in 2015, 3 times as many passengers (920 million) travelled through EU airports.
A good example of an EU-level agreement liberalizing air transport can be seen in the EU-Canada Air Transport Agreement. The agreement is described as “groundbreaking in the aviation world as it provides for unprecedented levels of liberalization in terms of traffic rights as well as of foreign investment in airlines”. All restrictions on routes between the EU and Canada have been removed, as well as flight frequency, capacity, and pricing restrictions. The agreement serves as an excellent template for policy makers in Brussels looking to implement a liberalized aviation strategy. EU-level agreements of this nature (albeit not as extensively liberal as the Canada agreement) are also in place with Georgia, Israel, Jordan, Moldova, Morocco, Western Balkans, and the US.
Bilateral agreements are not a favourable way forward for the EU’s aviation strategy. They entail restrictions which inhibit economic growth and do not reflect market realities. Aviation is a major industry with projected sustainable growth. It is encouraging to see the EU capitalize on this growth through the pursuit of market liberalization in aviation, as is witnessed in the EU-level air transport agreements signed with various countries – particularly Canada. As the EU opens negotiations with more countries worldwide, Brussels should continue to push for liberalization of aviation markets in future agreements.
The opinions expressed in this article belong to the author only, not EPICENTER or its members.
EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).
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