bureau of transport & regional economics, transport colloquium 2007
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Bureau of Transport & Regional Economics, Transport Colloquium 2007. Liberalise or Bust: The Aviation Policy Conundrum 13 June 2007. Introduction. International aviation liberalisation back on track EU-US Agreement heads dramatic changes over the next five years - PowerPoint PPT PresentationTRANSCRIPT
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Bureau of Transport & Regional Economics, Transport Colloquium 2007
Liberalise or Bust: The Aviation Policy Conundrum
13 June 2007
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Introduction
International aviation liberalisation back on track EU-US Agreement heads dramatic changes over the next five years Pace of change challenges government policy options Two strategic options:
1) “Big bang” - Full deregulation
2) “Softly, softly” - Incremental liberalisation Airline industry increasingly setting the agenda; developing new
alliance structures/JVs Progress has been uneven globally. Some roadblocks remain –
especially ownership & control
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39% 26%
The transatlantic agreement bridges two biggest aviation markets in an “open skies” structure
Phase 1, March 2008: Unlimited EU-US services• Greater access to Heathrow• Cargo freed up• Recognition of multinational airline ownership within EU• No change to US ownership rules
65% Global Air Traffic
Source: IATA, CAPA Consulting
Phase 2 2010• Subject to negotiation•Achieve Open Aviation Area• Reforms to US ownership
AgreementAgenda
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Implications of the Agreement1) Recognition of EU rights
2) Encourages further EU airline consolidation, US still limited
3) Lead to debatable levels of growth on the Atlantic, driven by greater efficiencies, lower fares
4) Provides impetus to EU horizontal mandate negotiations, also US bilateral “open skies” programme
5) Some resistance to EU agreements as they provide natural advantage for European airlines over national operators in other markets (e.g. Asia Pacific):
Opportunity to operate from multiple bases in Europe; Greater flexibility; and Better economies of scale
6) IATA generally disappointed with lack of progress in EU-US pact on ownership/control, turns focus to Asia for reforms to traditional criteria
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Asia, Middle East poised to take leading roles in aviation liberalisation
Middle East: “Open skies” by
UAE, 7 otherArab states
Middle East: Arab Maghreb Union “open skies” 2008
SE Asia: ASEAN “open skies” 201010 member states + China,
Japan, India?
China: Domestic
deregulation2010
Japan:Asia Gateway Plan
Open access to regional, secondary
airports
Source: IATA, CAPA Consutling
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But progress to date has been uneven across region, fragmented
ASEAN agenda most significant (though no fait accomplit) Other initiatives being pursued in Asia:
(1) APEC: Mixed results to date(2) MALIAT: Broke new ground, but little support(3) Low-Cost Carrier JVs: More successful, commercially-
driven(4) Equity alliances: New opportunities, focus on China(5) Sub-regional groupingsTrilateral (Japan, China, Korea): Potentially very powerful, still
some resistanceSE Asia, Mekong: Heavy tourism emphasis
Reforms are largely a response to market opportunities (e.g. greater foreign access to China), capital requirements
Impasses still unresolved (e.g. Singapore-KL)
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Where does Australia stand….
Generally supports liberalisation moves, reflects end-of-the-line position Risk that developments in Asia, US & EU could further isolate Australia.
Already signs that Asian tourists opting for closer (and cheaper) regional destinations
Government policy needs to:– Address changes taking place, engage more with Asia– Further capitalise on Australia’s strong liberalisation credentials, history of
deregulation Recent development of Middle East market further indication of intent Signals changing competitive dynamics on the “kangaroo route”
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Australia maintains substantial surplus of seats over available capacity in international market
m
Source: BTRE
Australia International Capacity & Passenger Traffic2000-2006
30% pax, seats growth Calendar Year 2007 vs 2000
0
5
10
15
20
25
30
35
2000 2001 2002 2003 2004 2005 2006
Total Seats
Total Pax
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MiddleEast
QF/BA,Asian 6th
freedom
EmergingChinaOption
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
200000
2000 2001 2002 2003 2004 2005 2006 2007
Middle East
Other Europe
Asian 6th freedom
BA/Qantas
3.7% Average Annual Growth in Aust-Europe Weekly Seats, 2000-2007
Source: IATA/CAPA Consulting
Middle East may dominate “kangaroo route”; also emerging routes via China
Airline share of Average Weekly Seats Australia-Europe by Region of Origin
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What does this mean for Government policy – and Qantas?
Australia’s perspective very different, end-of-line destination with limited prospects
Maintaining international services a priority...and Qantas is central to the equation
Government has adopted broader economic benefits argument with its air services policy
Factors in the interests of:– Tourism, – Airports and – The national carrier
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The exodus of European airlines from the Australia-Europe market
0.0
5000.0
10000.0
15000.0
20000.0
25000.0
30000.0
2000 2001 2002 2003 2004 2005 2006 2007
Exit of Alitalia,
KLM Laudadeparts; entry ofAustrian
Olympic Airlines
exits market
Austrian returns Lauda
exits
Virgin Atlantic arrives
Austrianexits
Lauda returns,
Austrian exits
Source: IATA, CAPA Consulting
Total SeatsPer week
From 5 airlines in 2000 to two in 2007
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Qantas responds to the challenge through development of Jetstar
Source: IATA, CAPA Consulting
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Qantas Group
Jetstar Qantas Mainline
45%
100%100%
Air Pacific
46%
30%
100%
Cooperation
Jetstar International
Orangestar
JetstarAsia
Valuair
100%
The Asian LCC
Network
The Future: Franchises in Indonesia, The Philippines, Thailand
The LCC Growth Strategy
Source: CAPA Consulting, Qantas
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Conclusion: The Outlook for Liberalisation
An Asian aviation bloc + Japan, China & India will emerge in the next 3-5 years
Further deregulation will take place in the high growth markets of the Middle East, China and India
The EU/US will ratify Phase 2 of their agreement Operational restrictions to, from and within the major markets will
continue to recede Nationality clauses in air services agreements progressively replaced by
commercial solutions based on place of business and incorporation Australia will respond over time with changes to its own policy; the
ownership strategy for Qantas will be redefined; and closer engagement will be sought with Asia
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Thank You!Thank You!