Salzburg hosts solemn ERA general assembly

 - May 8, 2008, 4:46 AM

There was no disguising the subdued, even solemn, mood of Europe’s regional airlines as they  gathered for their annual general assembly in Salzburg, Austria, from October 1 to 3. At 6.3 percent, passenger growth for the first half of this year is markedly down from the double-digit growth enjoyed in recent years and, more seriously, yields are down right across the industry.

With no real certainty as to when the continuing economic downturn will be meaningfully reversed, and the prospect of still stronger competition from the new generation of  no-frills carriers, airline presidents were more visibly careworn than at almost any European Regions Airline Association (ERA) meeting over the past decade. Despite this, attendance at the Salzburg gathering reached 559 delegates, markedly higher than last year’s assembly held in Athens, Greece, barely a month after September 11 and just a handful short of the record number drawn to the event held in Interlaken, Switzerland, in October 2000.

The latest results from ERA members are mixed. In the January to June reporting period, 40 percent of carriers reported no growth or a drop in traffic, while the remaining 60 percent showed some progress. The average load factor remained almost constant at 58.2 percent.

ERA president Joao Ribeiro da Fonseca told members that the air transport industry’s protracted recovery process is provoking widespread restructuring. Nonetheless, he concluded, Europe’s regional carriers are still doing better than the majors.

The association currently has 76 airline members, collectively operating 1,379 aircraft–a slight decline on the 83 carriers in 2000 and 81 last year. The ERA president called for an increase in its annual budget of around $2.1 million because the problems that now confront Europe’s regional airlines are so grave.

And as if the economic concerns were not enough, ERA director general Mike Ambrose reminded his members that they still face numerous political obstacles in their bid for a level competitive playing field in the European transport marketplace. According to ERA, most of these obstacles originate in the European Commission’s new transport white paper, which Ambrose characterized as being dominated by the EC’s overt favoritism for rail at the expense of air transport.

The EC’s stated preference for rail is further exemplified by the fact that of the E32.2 billion ($31.7 billion) in state support for European Union (EU) transport infrastructure, the railways received no less than E32.1 billion ($31.6 billion). “These are the Commission’s own figures and, believe me, we will be repeating them back to them when we hear about new fuel taxes, and so on,” declared Ambrose. According to ERA estimates, new European charges, as well as operating and equipment requirements, could result in more than E1 billion ($985 million) in additional costs to its member carriers.

Reform Proposals Rebuffed

ERA officials have complained that the EC refuses to submit its reform proposals, such as those covering airport slot allocation, to cost-benefit analysis and that they seek change without making a valid case for it. “They simply won’t evaluate the economic and operational consequences of their own projects and there is no formal acceptance of their effect on the industry,” he said.

ERA members were also warned that they face increasing costs on several fronts, such as higher terminal navigation charges, en route ATC charges taking less account of aircraft weight and surcharges based on engine emissions. If passed, these increased charges would be on top of the rising cost of war-risk insurance and security improvements, which Ambrose argued are being unfairly imposed in their entirety on the industry.

“Probably the loudest noise this year has been the sound of government running away from its responsibilities in respect of costs for security and insurance,” he said. “On September 11, 2001, airlines were used as the instrument to attack governments and their policies. It is therefore governments and not the airline industry that should be bearing these costs.”

EU-endorsed government underwriting for airline war-risk coverage was set to expire at the end of last month, and at press time it was unclear whether this would be renewed. Ambrose predicted that commercial insurance firms will likely withdraw war-risk coverage in the event of war breaking out in Iraq. ERA is working with other air-transport lobbying groups to establish a collective insurance program called Eurotime (based on ICAO’s Globaltime system) but this is being opposed by a few of the larger EU states, including the UK and Germany.

The ERA director general’s annual report wasn’t all bad news. ATC delays in Europe have been pegged back to 1997 levels, although in post-September 11 trading conditions traffic levels have actually declined to around the total for 2000. Daily delays are at their lowest in six years. However, Ambrose reminded his audience that this was largely due to innovations such as RVSM, made possible by airlines’ substantial investment in new navigation systems.

Ambrose reported that lobbying successes had, in fact, resulted in some substantial savings for ERA member airlines, such as potential E100 million ($98 million) annually because it helped persuade the European Parliament to take a so-called “balanced approach” to reducing noise at airports with a mix of new operating procedures rather than just resorting to curfews and penalties. Smaller savings have been achieved through moves such as a delay in mode-S implementation, which could cut annual costs by some E1.6 million ($1.5 million) at a time of reduced profitability.

Unequal Passenger Rights

While slamming EU governments for shirking responsibilities in some areas, Ambrose was no less critical of what he suggested was meddling by the EC in the relationship between airlines and their customers. For instance, ERA has estimated that EC proposals for new passenger rights would cost the industry as much as E100 million ($98.5 million) per year. The association has since had some success in persuading the European Parliament to moderate some of the draft legislation, though ERA still feels threatened by it.

ERA air-transport policy director Andrew Clarke stressed that, as currently proposed, the new passenger rights are due to be imposed exclusively on air transport, although the EC is also understood to be looking at new rules for international rail services. “Europe’s air travelers would be the best protected in the world,” he advised, accusing EC officials of completely ignoring the voluntary airline passenger service commitment implemented last year by ERA and the Association of European Airlines (representing the continent’s major carriers).

Detailed proposals on new passenger contracts are expected from the EC next year. In the event of a flight cancellation, it is expected that for a typical regional airline fare of around E150, passengers would be entitled to E750 plus a full refund of the fare. For a delay of more than two hours, carriers would be expected to issue customers a new ticket to fly them back to wherever they started their journey. For intercontinental passengers, the cost of this could exceed E3,000 each.

Clarke said the proposed new contract reflected a general trend in which the EC holds air transport to higher standards than competing modes of transport. “This is clear discrimination against regional air service, which the EC appears to think is not necessary,” he concluded.

Former ERA president Fritz Feitl urged the association to publish service quality indicators. “There is a perception that we are against this and that maybe we have something to hide, so the ERA should reconsider its position on this,” he argued. Clarke responded that the ERA board is not opposed to the indicators in principle but that they must be “useful, cost effective and not open to misinterpretation.”

ERA is continuing to fight airport slot reform proposals sprung on the industry last year by EC transport commissioner Loyola de Palacio. Clarke warned that these are expressly intended to eliminate smaller aircraft from congested airports and dissolve regional air links altogether where the authorities decide the route is already served by adequate high-speed rail services. “This will result in the loss of hub connections and profitable air routes,” he predicted.

On top of this first set of slot proposals, ERA is now bracing for a second wave of proposed reforms that will probably center on an official market for buying and selling slots. Clarke said that this will likely price regional carriers out of major airports.

Gorm Frimannslund, chair of ERA’s infrastructure and environment working group, said the anticipated new en route ATC fees based on engine emissions could result in as much as E3.4 billion in extra annual costs for airlines, with operating costs for a typical regional jet climbing by 6 to 9 percent to achieve just a 4 to 5 percent decline in carbon-dioxide emissions. “If all the other industries in Europe cut their emissions by just 0.5 percent it would amount to the same overall reduction in emissions as if a 5 percent cut were achieved from aircraft,” argued Frimmanslund, who is also v-p of station services with Norwegian carrier Wideroe.

In a further bid to use a financial stick to beat environmental gains from airlines, the European Parliament is now looking to increase the charging ratio for the quietest to the noisiest aircraft from 1:20 to 1:40 and to make noise charges compulsory at all airports. ERA has estimated that this could result in at least E200 million ($197 million) in new charges per year. However, European officials are set to permit noise-measuring scales to be varied between airports in a move that the association has complained will result in gross inequality between operators.

ERA’s air safety group is leading the fight to safeguard crew anonymity and immunity from prosecution when participating in voluntary safety incident-reporting programs. ERA praised the EC for supporting the principle only to find that EU transport ministers have sought to remove the protection.

Working group chair Deborah Lawrie, a flight-safety manager and Fokker 70 captain at Dutch regional KLM Cityhopper, reported that new security procedures have also dominated the agenda over the past 12 months. The installation of the new reinforced cockpit doors is expected to cost ERA airlines around E54 million ($53 million) plus some E18 million ($17 million) for new security procedures.

Lawrie reported that pilots are unhappy about having to operate behind bolted cockpit doors and that their isolation could seriously undermine communications with the cabin crew in the event of an emergency. In her view, ERA carriers need to develop best-practice procedures to cope with the restrictions.