Cyprus Mail

Air transport: where is taxpayers’ money truly needed?

By Joaquin Almunia

CONNECTING people and regions, air transport is central to the integration and the competitiveness of Europe. With 822 million passengers transported each year and a network of over 460 airports, the sector makes a vital contribution to the European economy.

The liberalisation prompted by the EU is one of the success stories of European integration. Since it became effective in 1997, the industry has expanded as never before. It has brought better and more affordable services to European citizens, allowing the emergence of low-cost carriers thanks to which millions of Europeans can now travel cheaply. Over the last decade, the sector has also had to face very significant challenges: the 9/11 attacks, the oil crisis and now the current economic crisis.

Air transport has undergone wide-ranging transformations and the EU’s competition policy has played an important role throughout. Under our merger control powers, we have been controlling the growing concentration among airlines – such as the creation of Air France-KLM, the merger of Iberia and British Airways, and the various acquisitions by Lufthansa. We have also been controlling the state aid granted to smaller flag carriers than have run into sometimes serious financial difficulty, ensuring this aid is linked to the necessary restructuring to make them return to viability without need for further taxpayer money. Such aid is only possible once every ten years, to avoid that companies are kept indefinitely on subsidies. For example, we have approved the restructuring plans for Czech Airlines and Air Malta.

By contrast the Hungarian carrier Malév, whose viability could not be restored, eventually had to exit the market. Currently, we are looking at the situation of Cyprus Airways, as well as others such as the Polish airline LOT, the Scandinavian SAS, Air Baltic (of Latvia) and Adria Airways (of Slovenia).

But the role of public financing, and therefore taxpayers’ money, in the aviation sector has evolved way beyond this recourse to restructure ailing firms. I am now launching a broad consultation of stakeholders and citizens on draft new Commission guidelines on state aid to airports and airlines. Both airports and airlines often receive support from public authorities at national or local level and so far without enough transparency as to how much and why. These new guidelines will specify under what conditions such support may be granted. We are already investigating the public support given to various airports in the EU.

The challenges are many. The creation of many regional airports during the last years has played a key role in improving the accessibility of some regions. Major hubs are also facing increasing levels of congestion. At the same time, the density of airports in certain regions of the EU has led to substantial overcapacity relative to passenger demand and airline needs. This may give to some market players the opportunity to “shop around” for subsidies at taxpayers’ expense. We have sometimes witnessed the duplication of existing airport infrastructure or the creation of unused capacity.

For all these reasons, the state aid control at EU level carried out by the European Commission has a key role to play. We need to make sure both that the transport needs of citizens are met and that taxpayers’ money goes where it is truly needed. Finally we must preserve a level playing field between airports and airlines irrespective of their business models, from small regional airports to large hubs and from low-cost airlines to flag carriers.

I therefore propose to continue to allow aid to airport infrastructure under certain conditions: state aid may be justified if there is a genuine transport need and such aid is necessary to ensure the accessibility of a region. By contrast, just like any other economic activity, airports should be able to cover their operating costs, except where there is an identified public service need. Airports should be profitable and their costs should be charged to the airlines and passengers using them. This cannot be achieved overnight: I propose a transition period of 10 years so that regional airports can gradually adjust. Finally aid to airlines can be justified on a temporary basis, for example to launch a new air transport route.

By adopting a new state aid framework which truly lives up to the challenges of today and the coming years, we will better respond to the needs of European citizens – both as taxpayers and passengers – and set the conditions for a dynamic and competitive air transport sector in Europe.

Vice President Joaquin Almunia is the EU Commissioner for Competition


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