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Home | Update | Latest Issue | Gallery | FR Profile | Datafiles | FR 4/97 EUROPEAN LIBERALISATION: TOTAL FREEDOM FOR THE AIRLINES? By Heiko Reuter On April 1, 1997, the last hurdles in the sky over Europe will fall. From that day on, each carrier in the European Union will be allowed to fly wherever he wants to within the Union. However, with some exemptions the European airlines were allowed to already do so for the past five years since the EU's council had passed the "third package of measures to liberate the air traffic". The "third package" was the final step in a program that was started by the European Union in 1987, gradually decreasing the influence of the governments on air traffic. The times when airlines of different nationalities had to exchange routes to be able to service routes in the respective other country are over now. Beginning on April 1, cabotage flights are allowed without any restriction. This means: An airline registered in country A is allowed to service routes between two points in country B without any limitation. Is this new freedom revolutionizing Europe's air traffic? Aviation expert Ludolf van Hasselt from the EU commission in Brussels says no. Only a handful of airlines have even used the existing and only little restrictive cabotage rights. Only 22 cabotage routes were serviced in the past four years by European airlines. Instead, the carriers were focusing on code-sharing flights. Joining with a domestic carrier saves foreign registered airlines from having to invest into their own infrastructure. The actual revolution has already started. Several independent and small low-cost carriers, such as Debonair, EasyJet or Virgin Express are attacking the profitable business routes, smashing the prices of the established carriers. Despite the fact that these small airlines are not very attractive to business travelers due to low flight frequencies, they are raiding in the territories of the large carriers - with ticket prices that are up to 80 percent under the prices of the major airlines. Even more dangerous are some new airlines that are backed by financially strong partners. For example British Airways has rapidly become number two in the French air traffic, based on a net of partnerships with the airline companies TAT and Air Liberté. Furthermore, BA's German subsidiary is flying on a confrontation course with Lufthansa in spite of Deutsche BA's high losses: Five years after its foundation, Deutsche BA is holding nearly 40 percent of the German domestic market. Such scenarios are typical for the established airlines in all EU countries with a domestic market. The costs are rising, the profits are decreasing. Lufthansa has been facing an average annual decrease in earnings of approximately seven percent since 1991. Cheap tickets are getting even cheaper. While the prices for regular, flexible tickets remain on a high level, the carriers are undercutting each other with special fares. Although most European airlines have gone through a drastic cure and have laid off thousands of employees, the productivity per employee is still not up to the level of carriers in the USA or the Far East. Remarkably, the privatized airlines are in a better financial situation. Practically all carriers with a government as main shareholder are only surviving because of large subsidies. Air France, Olympic Airways, Iberia, Alitalia, Sabena, and Tap Air Portugal together have received almost DM20 billion in governmental subsidies since 1991 - "a scandal" says Lufthansa head Jürgen Weber. Revolution part 2: Private as well as governmental airline companies are now trying to lower their costs through outsourcing. Lower frequented routes are often shifted to smaller partner companies in franchise deals. Approximately 100 aircraft of small regional airlines are flying in the colors of British Airways. In Germany, the Stuttgart based Contact Air and Augsburg Airways are flying for the "Team Lufthansa". But a still unsolved question is, which infrastructure will be able to cope with the prognosted air traffic growth. Traffic experts predict an increase in passengers for Germany from 113 million (1996) up to 200 million passengers in the year 2010. Europe's air traffic management is already with its back to the wall. Holdings and ground delays are costing Europe's airlines already four billion marks every year. This is the problem mix that Europe's airline strategists have to deal with and compared to which April 1 is only a drop in the ocean. April 1 may set the legal frame for a new freedom in Europe's skies. But it can hardly be realized since the necessary infrastructure is still missing. April 1 does not bring a change to Europe's air traffic - it is already in the middle of it. From page 22 of FLUG REVUE 4/97 Home | Update | Latest Issue | Gallery | FR Profile | Datafiles | FR 4/97 Copyright 1997 by Motor-Presse Stuttgart. All rights reserved. Last updated March 7, 1997