The role of state funding in regional air services CEE Aviation - - PowerPoint PPT Presentation

www.eraa.org twitter.com/eraaorg

The role of state funding in regional air services

CEE Aviation Conference Budapest, 3-4 September 2015

www.eraa.org twitter.com/eraaorg

Contents

1. What are regional air services and why are they important 2. A look at the (new) EU state aid guidelines 3. Public Service Obligations routes 4. Are we a subsidised business 5. Conclusions

Contents

www.eraa.org twitter.com/eraaorg

Contents

1. What are regional air services and why are they important 2. A look at the (new) EU state aid guidelines 3. Public Service Obligations routes 4. Are we a subsidised business 5. Conclusions

Contents

www.eraa.org twitter.com/eraaorg

What do regional airlines do?

• 960,000 passenger and freight flights per year
• 45 million passengers per year
• 71 minute average sector time
• 480km average sector distance
• 67 seats average seating capacity
• 1,200 point to point routes
• 280,000 direct, indirect and induced jobs generated

by the industry

• The regional industry makes a contribution of €47bn

to Europe’s GDP

www.eraa.org twitter.com/eraaorg

What do regionals do?

• Core markets

 Feeding hubs – up to 40% transfer traffic  Linking lower volume point to point services  Providing essential air services

www.eraa.org twitter.com/eraaorg

Population density

Source: Eurostat 2014 yearbook. Data for 2012 KEY: Darker brown = higher population density Lighter brown = lower population density

Conclusion

• Higher

population densities require better transport links

• Higher

population densities need hub airports

www.eraa.org twitter.com/eraaorg

Employment rate

Source: Eurostat 2014 yearbook. Data for 2012 KEY: Darker brown = higher employment rates Lighter brown = lower employment rates

Conclusion

• Workers

migrate to where jobs are

• Workers need

air links to move to where jobs and business is

www.eraa.org twitter.com/eraaorg

GDP per inhabitant

Conclusion

• Workers

migrate to higher GDP concentrations

• Higher GDP

concentrations need air links to allow migration

Source: Eurostat 2014 yearbook. Data for 2011 KEY: Darker blue = higher GDP per capita Lighter green = lower GDP per capita

www.eraa.org twitter.com/eraaorg

ERA’s Network

www.eraa.org twitter.com/eraaorg

Linking remoter regions

www.eraa.org twitter.com/eraaorg

Linking remoter regions

www.eraa.org twitter.com/eraaorg

Feeding primary hubs

www.eraa.org twitter.com/eraaorg

Stobart Air Blue Air ASL Airlines Ireland Air Iceland HOP! Airlinair Air Urga Blue Islands Blue 1 Binter Canarias Aurigny Air Services Air Nostrum Sky Work Airlines Eastern Airways Etihad Regional operated by Darwin Airline Danish Air Transport CityJet Cimber HOP! Brit Air BMI Regional Malmo Aviation Luxair KLM Cityhopper Braathens Regional Estonian Air Sky Express Sata Air Acores HOP! Regional PGA Portugalia Wideroe West Atlantic Cargo Airlines Trade Air Welcome Air Amapola Flyg Astra Airlines Atlantic Airways Avanti Air Avion Express Belavia Denim Air DOT Farnair Switzerland Mistral Air Montenegro Airlines Titan Airways Tyrol Air Ambulance Adria Airways Hahn Air Lines VLM Airlines Air Andorra Jota Aviation Air Lithuanica Air Greenland

www.eraa.org twitter.com/eraaorg

Atlantic Airways Air Iceland Wideroe Blue 1 Estonian Air Belavia Stobart Air CityJet ASL Airlines Ireland Eastern Airways KLM Cityhopper Denim Air Braathens Regional West Atlantic Cargo Airlines Astra Airlines Sky Express Montenegro Mistral Air Air Nostrum PGA Sata Air Acores Binter Canarias HOP! Regional HOP! Brit Air Blue Islands Aurigny Air Services Tyrol Air Ambulence Welcome Air Etihad Regional Sky Work Luxair HOP! Airlinair BMI Regional Titan Jota Aviation Malmo Farnair Amapola Avanti Air DAT Trade Air Air Urga DOT Avion Express Adria Hahn VLM Blue Air Air Andorra Air Greenland

www.eraa.org twitter.com/eraaorg

European Air Transport Market

• The air transport market has evolved dramatically in

recent years.  Low-Cost Carriers (LCCs) have developed new business models linked to regional airports

• Gained large market share (over 40% in

Europe)

• But rapid decisions on entering and leaving

routes introduces greater risk for airports  Europe’s regions are losing links with capitals via their hub airports (11% decline in 10 years)

www.eraa.org twitter.com/eraaorg

Contents

1. What are regional air services and why are they important 2. A look at the (new) EU state aid guidelines 3. Public Service Obligations routes 4. Are we a subsidised business 5. Conclusions

Contents

www.eraa.org twitter.com/eraaorg

The role of state funding

• The mention of state funding for air transport has become a

dirty word

• But it has a critical role to play, in particular in regional, low

density but economically and socially important routes

• Two main means of access:

 In compliance with the 2005 & updated 2014 EU state aid guidelines  Use of the EU Public Service Obligation (PSO) regulations

www.eraa.org twitter.com/eraaorg

Guidelines on State aid to airports & airlines

www.eraa.org twitter.com/eraaorg

Four major changes:

• 1. Aid for airport operating costs allowed during

a transitional period of 10 years.

• 2. Investment aid not permitted for airports with a

passenger volume > 5 million/year + new caps for smaller airports now introduced

• 3. Start-up aid to airlines for launching new

routes or new schedules (higher frequency) will vary depending on the size of the airport + aid plan must be established in advance

• 4. Remote/peripheral regions: more flexible rules

2014 Guidelines - summary

www.eraa.org twitter.com/eraaorg

Investment in airport infrastructure:

• allowed if genuine transport need and public support

necessary to regional accessibility: (stricter and clearer compatibility conditions now set)

• max permissible aid intensities depending on airport size:

 3–5 million pax: up to 25 % (of costs for infrastr. + equip.)  1–3 million pax: up to 50 %  < 1 million pax: up to 75 % (under the 2005 guidelines no guidance as to which airports would qualify for investment aid or how much aid could be used)

2014 Guidelines - summary

www.eraa.org twitter.com/eraaorg

Operating aid to regional airports

• Allowed to airport < 3 million pax (in the 2005 regime: no limit on the

size of airport)

• up to 50% of funding gap (in the 2005: no requirement for a

percentage contribution to the operating deficit from the airport)

• allowed for a transitional period of 10 years under certain conditions,

in order to give airports time to adjust their business model (in the 2005 regime: no mention to end of aid after a transitional period)

• airports need to work out a business plan paving the way towards

full coverage of operating costs at the end of the transitional period (in the 2005 regime: no ex ante business plan required).

• airports with an annual passenger traffic <700 000: special regime

with higher aid intensities (up to 80%) and a re-assessment of the situation after 5 years (in the 2005 regime: no mention to this threshold)

2014 Guidelines - summary

www.eraa.org twitter.com/eraaorg

Start-up aid to airlines

Compared to 2005 Guidelines: more simplified procedure, clearer definition of aid intensity and eligible costs, well defined duration of aid

• Allowed for launching new routes or schedules (higher frequencies)
• Allowed for carriers departing airports < 3 mil pax/year
• Airports between 3-5 million passengers: exceptional circumstances
• Maximum aid: covering 50% of airport charges
• Limited to three years, not eligible if route already operated by HSR
• An ex ante business plan must show the route will become profitable

after the start-up period. Otherwise, the airline must provide an irrevocable commitment to continue operating the route for at least the same period as the one during which it received start-up aid.

• No airport size restrictions for routes to remote airports

2014 Guidelines - summary

www.eraa.org twitter.com/eraaorg

• Positive new elements for regional aviation:

 remote regions: irrespective of airport size, the maximum intensities for investment aid to finance airport infrastructure may be increased by up to 20%  peripheral regions: for airports <1 million pax/year maximum intensity of investment aid may exceed 75% in exceptional circumstances (case-by-case assessment)  Compliance with Regulation 1008/2008 on Public Service Obligations re-emphasized

2014 Guidelines - summary

www.eraa.org twitter.com/eraaorg

Preferential treatment to rail transport? No start-up aid to airlines allowed on routes already covered by HSR, however… …heavy subsidies to rail transport allowed although commercially profitable air link already

• perating

2014 Guidelines - summary

www.eraa.org twitter.com/eraaorg

• The new regime tightens the availability of state

funding

• The previous guidelines were already clear, but were

being abused

• Implementation and fair enforcement across the EU

is weak and inconsistent

• There is no simple, effective and expeditious

complaints procedure other that to the EC and the courts which is long a slow

Weaknesses of the guidelines

www.eraa.org twitter.com/eraaorg

Contents

1. What are regional air services and why are they important 2. A look at the (new) EU state aid guidelines 3. Public Service Obligations routes 4. Are we a subsidised business 5. Conclusions

Contents

www.eraa.org twitter.com/eraaorg

Public Service Obligations (PSO)

• Regional operators play a crucial role in the

economic prosperity of Europe’s regions and remote areas

• Access to regions forms the bloodline for economic

growth and social cohesion

• Better, uniform and consistent enforcement of

existing rules across Europe is necessary

www.eraa.org twitter.com/eraaorg

Public Service Obligations (PSO)

ERA members provide crucial services to connect remote regions and islands’ inhabitants

www.eraa.org twitter.com/eraaorg

Public Service Obligations (PSO)

ERA fully supports the PSO system and in particular:  Full transparency and non-discrimination between

• perators when issuing and awarding a tender for a PSO

route and when extending an expired PSO contract;  That any national law setting a PSO regime cannot remain in force “permanently” and beyond the expiry date

• f the related contract period of validity.

www.eraa.org twitter.com/eraaorg

Contents

1. What are regional air services and why are they important 2. A look at the (new) EU state aid guidelines 3. Public Service Obligations routes 4. Are we a subsidised business 5. Conclusions

Contents

www.eraa.org twitter.com/eraaorg

Subsidies to rail vs State aid to air

The EU-27 yearly State subsidies for rail are 125 times higher than State aid granted to air transport

www.eraa.org twitter.com/eraaorg

Contents

1. What are regional air services and why are they important 2. A look at the (new) EU state aid guidelines 3. Public Service Obligations routes 4. Are we a subsidised business 5. Conclusions

Contents

www.eraa.org twitter.com/eraaorg

Conclusion – the need for state funding

• Regional Airports and Airlines are vital contributors

to keeping Europe connected

• They have a vital social and economic role to

regional Communities’ development

• BUT simple, transparent, effective rules are needed

to ensure competition is not distorted and

• A level playing field should be based on fair

competition and equal treatment between competing modes State funding has a key role in regional air route development and should be encouraged

www.eraa.org twitter.com/eraaorg