Siim Kallas, Vice President of the European Commission, European aviation: a natural and vibrant world crossroads, European Economic and Social Committee, Brussels, 19 May 2014.
Ladies and gentlemen –It is hard to imagine living in today’s world without aviation.
Billions of people increasingly want to take a plane.
Aviation is true connectivity, on a global scale. It drives economic growth, creates jobs and brings the citizens of the world together. We rely on aviation for the international links that make Europe a global hub of social and economic connectivity, and allow European companies to compete on the world stage.
Aviation supports 5.1 million jobs in Europe, directly and indirectly. It provides one billion euros of European GDP every day, generating trade and tourism.
With more than 800 million passengers using 450 airports, and with 150 scheduled airlines, the European Union is a key player in global aviation: a third of the world market.
Europe is also home to some of the world’s largest airlines and airports. It is a leader in aircraft and engine manufacturing, and in air traffic management research and technology.
Since 1992, the number of flights within the EU has more than doubled. Flights operated by more than two airlines have quadrupled. It’s no surprise that passengers are happy: over that time, their numbers have gone up by 300%.
That’s the good news.
But we should also remember that none of this can be taken for granted. European aviation is facing serious challenges, internally and externally.
If we study the economics, its overall profitability is fairly low as a transport sector. Several factors are in play:
- the high sensitivity of demand to the economic cycle;
- the impact of fuel costs;
- and the increasingly fierce competition in world aviation – fuelled by a shift of growth towards Asia, particularly to new Middle East airport hubs.
Due to their below-average growth rates, EU carriers operating internationally are likely to lose market share to non-EU airlines in most regions.
In 2003, EU carriers had a market share of 29% of all inter-continental capacity in the world. By 2025, this share is expected to fall to 20%. If we do nothing, this trend means that the profitability of EU airlines will be eroded – and threaten their ability to generate growth for the European economy.
I would say Europe today has three groups of airlines. Low-cost airlines/limited service/, on the whole, are doing relatively well. Starting from a market share of just 1%, they have boomed to take almost half the market, despite the weak economic outlook.
Then there is a group of/ full service /carriers trying to adapt to new market conditions and going through some difficult but necessary restructuring.
And there is another group of airlines fighting for their very survival. They are mostly providing regional connectivity!!!
Between 2000 and 2011, there were more than 100 insolvencies of EU airlines providing scheduled services. Since the economic crisis started, at least ten European governments have bailed out flag carriers to rescue them from mounting debts and bankruptcy.
The market clearly needs some consolidation. And while there are high exit barriers in the airline industry holding back the necessary restructuring process, that doesn’t mean that we should “help” EU carriers by subsidising them.
I appreciate that national governments have concerns to maintain jobs and connectivity.
But, as with any commercial operation, an airline is responsible for its own business. That’s why many airlines are now trying to cut costs and improve services – just to stay competitive.
It is not, however, all doom and gloom.
Let’s remember that aviation remains a growth industry – also in Europe.
Granted, the European market is not like that in the Southeast Asia. But there are still significant prospects for aviation growth in Europe: Eurocontrol predicts 14.4 million flights by 2035, 50% more than in 2012.
And the growth of air transport in emerging markets has a large development potential for other industries in Europe, such as Aeronautics in general and of course Tourism with a big T.
The current downturn in traffic is driven by economics, not by market saturation. So when economic growth returns – as it is slowly beginning to – demand should start growing again.
Ladies and gentlemen
Europe is already doing a lot to maintain a strong and competitive aviation industry. But this is not only about increasing flight traffic and cutting costs.
It’s also about Safety, Security, Aviation products like: air traffic management, exporting European regulatory excellence and: the entire value chain that aviation represents.
Firstly, European airlines must have the chance to get access to new markets and business opportunities. They need to be at the centre of the global network that connects the EU with the rest of the world.
For that, we need EU airports to remain at the heart of world traffic flows, and avoid becoming restricted destinations with only limited onward connections. Let’s also remember the extremely positive impact that airports have on other sectors of the economy.
Secondly, the Single Sky project needs to succeed and be implemented – as soon as possible. It will allow us to shorten flights, reduce delays and emissions, and save about 3 billion euros each year, out of a total annual cost of 8 billion euros.
Progress has been less than hoped, it’s true.
Finally, Europe could make more of the economic potential offered by international aviation. We need to be where the growth is, as well as export the “value chain” I mentioned earlier.
This is not only about securing traffic rights or access to new markets. It also means our high standards of safety, successful approach to regional cooperation, airport management and logistic, open and fair competition.
What do I mean by that?
In aviation regulation generally, the European Union is recognised as a world leader. The legislation that set up the Single Sky, the creation of EASA to take responsibility for the safety of our skies, have put Europe at the centre of global aviation regulation. We also have a freedom of establishment across nations (unprecedented in the world), coupled with common competition and aid rules this makes the circle complete.
These are examples of what Europe does best: examples that others can follow.
We recently developed a more ambitious external policy to unlock the full contribution that aviation can make to the European economy.
Our aim is to conclude EU air transport agreements with major partners such as Southeast Asia, China, Japan and India. Collectively, the EU can achieve more and also offer more to partner countries than Member States can individually.
There is huge potential here for the consumer: the total benefits of all these agreements are estimated at €12 billion per year. With Morocco and the Western Balkans, for example, we have seen 40% price falls on flights since 2005.
Ladies and gentlemen
It has been a difficult few years.
But there are significant prospects of growth for Europe’s aviation industry and market. If we can make the most of them, our wider economy will gain as the sector raises its performance, efficiency and takes new market opportunities.
Modernisation and competitiveness are vital, as is the need to optimise what Europe already has in terms of its airspace and airports.
It is how Europe can remain a vibrant and natural crossroads for global aviation.
Thank you for your attention.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.