Europe’s Regions Face Being Cut Off From Hubs

 - May 4, 2012, 1:25 AM
Henrik Hololei, assistant to EC vice president and commissioner for transport Siim Kallas.

Europe’s regional airlines continue to struggle against European Commission (EC) bureaucrats who do not appreciate their value or the problems poor legislation and punitive taxation cause, or that they enable European economic prosperity. This was the central message from the “Regions at Risk” conference held by the European Regions Airline Association (ERA) in Porto, Portugal on April 18 and 19.

ERA director general Mike Ambrose said that policies too often favor “core” regions, with little or no regard to protecting the provision of air services to the outer regions, where 85 percent of Europe’s population resides. “Politicians don’t seem to understand that the benefits [of air travel] don’t come for free,” he complained.

For example, the latest proposed legislation from the EC in Brussels will have airport slots going to the “highest –bidder”–meaning airlines outside Europe, and in particular those from the Middle East, could squeeze out regional aircraft. These changes are part of a raft of proposed changes in the EC’s new “Airports Package.”

Henrik Hololei, assistant to EC vice president and commissioner for transport Siim Kallas, said that the EC does recognize the importance of the regions. However, he admitted that the EC is “definitely guilty of over-regulation sometimes.” Economist Laurie Price, director of aviation strategy with Mott MacDonald, who was chairing the first session, said there is “clear evidence that regional airports are losing flights to hub airports.” He also took a swipe at low-cost carriers: “Which is better [use of airport capacity]? Three times a day with a low-cost carrier to a sunspot or a two-times-a-day link to a business destination?”

Hololei argued that air transport development needs to be “sustainable” but described Europe’s controversial emissions trading scheme (ETS) as a “complication”, especially when dealing with “third countries” [such as the U.S.]. “This must be tackled in the context of ICAO,” he added. Ambrose echoed this, saying that this approach represents “the only realistic hope of avoiding a trade war.”

ETS joins a raft of legislation that airline associations such as the ERA have rallied against, with the notoriously punitive passenger rights regulation, EU 261/2004, perhaps still occupying the top of the list. Ambrose noted the way this regulation has been “mangled” by the European Court of Justice (ECJ) to make life even harder for airlines. Court rulings have made it harder for carriers to mitigate their exposure to compensation in the chase of so-called “extraordinary circumstances.” The 2010 volcanic ash grounding was the biggest illustration of high costs to airlines from situations not of their own causing, and the ECJ indicated two weeks ago that it could go further towards favoring passengers when aircraft “go tech.” Ambrose said this would have “some pretty serious safety implications, putting aircraft commanders under unnecessary pressure to proceed–and working completely against the interests of passengers and crew.”

Apart from legislation and taxation, ERA carriers are also struggling against subsidies to high-speed rail networks that they see as vastly excessive and unjustified. Simon McNamara, ERA’s deputy director general, outlined how the association is trying to “set the record straight,” adding: “There is a perception that [rail] is the preferred mode of transportation in Europe and the EC actively promotes it [above air].”

Marc Lamidey, ERA president and also president and CEO of Air France regional subsidiary Brit Air, said that competing “on a level playing field” refers to other modes of transport and not just other airline business models, particularly low-cost carriers. An ERA report recently showed that rail receives €45 billion ($59 billion) versus just €338 million ($439 million) for aviation “state aid.”

Hololei said that the EC sees rail and air as complementing each other rather than competing, and that better rail links to airports are “a good thing.” But Ambrose stuck by his criticism that aviation is subject to “enormous adverse discrimination” compared to the massive subsidies received by the rail industry in Europe.

Morgan Foulkes, director of policy at ACI Europe, pointed out that while the European high-speed rail network covers 98 city pairs, with a potential total of around 300 city pairs, regional airports offer a potential 150,000 city pairs.

Giving the airline view, former Aer Arann CEO Paul Schutz said, “Legislation can increase the risk to routes… Airlines are not opposed to legislation…but we are a soft target [and] we have a big problem with ridiculous legislation.”

Airlines have a lot else on their minds, not least fuel costs and the Eurozone crisis. Antonio de Menezes, president of SATA (the airline of the Azores), said his airline, which serves the nine Azores islands in the Atlantic Ocean using a fleet of Bombardier Dash 8 Q200s and Q400s, has played a central role in driving GDP growth to the point that the Azores has gone from being one of Portugal’s poorest regions to its third or fourth wealthiest. “There is a strong, clear and robust connection between traffic and GDP growth… the causality running from air services to GDP growth and not the other way around,” he said. Some 15 of SATA’s routes are under PSO (public service obligation) contracts and subject to strict criteria.

Aegean Airlines executive Panos Nicolaidis said the Greek airline has been working hard to thrive despite the country’s economic troubles. Part of this has been to introduce air links direct to islands from international destinations–rather than using the main hubs all the time. Nicolaidis stated: “We wish to convey the message that despite the situation [in Greece] we refuse to be downgraded internationally and we aim to increase access to Greece.”

Widerøe CEO Lars Kobberstad argued that regional airlines help to keep his country, Norway, populated. “With high mountains and long fjords, ground transportation is not an option,” he said, adding that there is a strong inverse correlation between areas with population growth and their times to travel to airports for air services.

PSO routes are a central part of supporting the many European communities. Kobberstad noted the difficulty in predicting costs on a route when PSO contracts are typically for three to five years, especially with volatile (but consistently high) fuel prices.

De Menezes also said that PSO criteria for minimum aircraft size mean that some aircraft operate almost empty; he suggested such contracts could be “fine-tuned…otherwise we have excess quality and someone has to pay the bill–and the airline may run out of efficiency [in other areas] to make up for the cost.”

The conference also heard that airlines are looking for air traffic management improvements through the Single European Sky ATM Research (Sesar) project to allow them to save on fuel costs. Ricardo Génova, director of flight operations at Spanish flag carrier Iberia, who is a member of the European Commission’s Sesar performance review board, said that the continent stands to achieve a 60-percent gain in airspace capacity and that current delays are costing airlines around €5 billion ($6.5 billion) a year. Smaller airlines, he claimed, are affected more as “they can’t just put bigger aircraft into place, and they have competition from rail and road transport.”

Airports are also a key part of the system. “There are few alternatives to air transportation in many areas of Europe, so the regional airports play a key role,” ACI Europe’s Foulkes said, before noting, “Regional airports struggle to reach profitability, and this is particularly problematic for airports handling fewer than one million passengers a year… so many rely on public funding. It is hard to achieve economies of scale, and opportunities for revenue diversification for such airports are often limited, especially in remote regions.”