International Conference on Air Transport, Air Law and Regulation

Overview of Recent Developments with the Trans-Tasman Single Aviation Market

By Ian Thomas, Managing Consultant, CAPA Consulting

May 26 2010

www.capaconsulting.net

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International Conference on Air Transport, Air Law and Regulation

SAM – a Chequered History

• Two “friendly” countries with mutual interests• Natural extension of CER• The roadmap under 1992 Australia-New Zealand MoU:

– Lifted capacity restrictions– Double disapproval tariff regime– Phased liberalisation to full market access by 1994

• Framed with best intentions, but other priorities intervened• SAM delayed to 1996; full beyond rights added under “open

skies” agreement in 2000• Where to now....a common border?

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International Conference on Air Transport, Air Law and Regulation

The Story of SAM over 10 Years: +50% Seats; +65% flights

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20002001

20022003

20042005

20062007

20082009

20100

20000

40000

60000

80000

100000

120000

140000

160000

Trans Tasman Average Weekly Seat Capacity 2000-2010*

Non-SAM Carriers SAM Carriers

* Source: SRS Analyser averaged for June and Dec to take into account seasonal variation

20002001

20022003

20042005

20062007

20082009

20100

100

200

300

400

500

600

700

800

900

Trans Tasman Aircraft Movements 2000-2010*

International Conference on Air Transport, Air Law and Regulation

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

5

10

15

20

25

30

2 2 2 24 4.5 5 5 4 4 4

5 6 5.58

6.5 5.5 5 4.54 4 3

Number of Carriers & City Pairs on the Tasman 2000-2010*

Non-SAMSAM CarriersCity Pairs

Jetstar starts operations

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Competition & Service Development peaked in 2003-04 with entry of LCCs

* Source: SRS Analyser averaged for June and December to take into account seasonal variation

Entry of Pacific Blue, Freedom Air

and Emirates

International Conference on Air Transport, Air Law and Regulation 5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Seat Capacity Share of SAM/Non-SAM carriers 2000-2010*

Qantas Capacity Jetstar Capacity Pacifc Blue CapacityAir NZ Capacity Freedom Capacity Non SAM Capacity

Evolution of Airline Market Shares - LCCs capture 22% of Tasman Seats

* Source: SRS Analyser averaged for June and Dec to take into account seasonal variation

International Conference on Air Transport, Air Law and Regulation

The Roadblock to Consolidation

• Logical progression towards trans-Tasman consolidation...or is it?

• Qantas/Air New Zealand alliance bids twice hit competition legislation barriers

• Seemingly similar legislative prerequisites on both sides of the Tasman, different interpretation

• Concept of “public benefits” test critical to outcome– Australia’s focus narrower; consumer welfare paramount– New Zealand assessed consumer+producer interests

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International Conference on Air Transport, Air Law and Regulation

Qantas (submission to the Productivity Commission, August 2004):

“Such uncertainty and cost is not conducive to a productive, dynamic single economic market....The competition laws of Australia and New Zealand should be integrated, so that identical laws apply in both countries. In addition, it is critical that these laws are interpreted and applied consistently.”

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International Conference on Air Transport, Air Law and Regulation 8

Market Share Composition on the Tasman today; 82% of seats held by SAM Carriers

22.1%

9.7%

16.4%

34.2%

13.2%

2.2%

1.3%

0.9%

Seat Capacity Shares by AirlineYear to June 2010

Source: SRS Analyser

Suspended Tasman services

during 09-10

International Conference on Air Transport, Air Law and Regulation

The EU Model...not perfect but consistent

• The general competition rules of the EU Treaty apply to aviation on case-by-case basis– Some forms of co-operation permitted – Alliances approved if they do not eliminate competition

and consumer benefits shown – Current alliances approved through individual exemptions,

but conditions applied (e.g. freeze on capacity, relinquishing airport slots, and/or acceptance of interlining with competitors)

• EU Treaty also addresses abuse of dominant market position through e.g. predatory behaviour or some alliance arrangements

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International Conference on Air Transport, Air Law and Regulation

Key Take-out for ASEAN

• Airline industry caught between apparently competing objectives

• Uniform approach on competition law required to yield full benefits of mutilateral liberalisation

• Australia-NZ Air Services Agreement provides for each country’s laws to apply

• ASEAN also favours state-specific strategy under AEC blueprint, developed under regional guidelines

• The Tasman experience emphasises the importance of getting the detail aligned for real and effective harmonisation of national policy

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International Conference on Air Transport, Air Law and Regulation

Additional Slides

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International Conference on Air Transport, Air Law and Regulation

Open Capacity with UK

Open Skies with US

Open Capacity with

Singapore

Open Skies with NZ

Single Aviation Market

Accession to PIASA under consideration

Negotiating Open Skies

with EU

Liberalisation Score Card Open skies, open capacity ASAs account for

50%+ of international passengers to/from Australia;

Open cargo arrangements in 32 ASAs; No multilateral agreements; may enter PIASA.

Australia’s Liberalisation Progress – a Mixed Bag

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International Conference on Air Transport, Air Law and Regulation

Australia’s International Service Profile in FY09; dominated by SE Asia and New Zealand

13* Source: Bureau of Infrastructure, Transport and Regional Economics