MOLDOVA’S FOREIGN POLICY STATEWATCH

DOES MOLDOVA NEED LOW-COST AIRLINES?

Institute for Development and Social Initiatives “Viitorul”

Issue 17, February 2011

Leonid Litra

Moldova’s Foreign Policy Statewatch represents a series of brief analyses, written by local and foreign experts, dedicated to the most topical subjects related to the foreign policy of Moldova, major developments in the Black Sea Region, cooperation with international organizations and peace building activities in the region. It aims to create a common platform for discussion and to bring together experts, commentators, officials and diplomats who are concerned with the perspectives of European Integration of Moldova. It is also pertaining to offer to Moldova’s diplomats and analysts a valuable tribune for debating the most interesting and controversial points of view that could help Moldova to find its path to EU.

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The old-new government was invested and a continuation of its pro-European demarche was announced. The Governing Programme declares1 EU integration as the main priority and the continuation of reforms is envisaged, especially in the previously committed areas. As in the previous Programme, the government is keen to liberalize the aviation market and to join the European Common Aviation Area.

Moldova is one of the most expensive air flight destinations in Europe. Moldova and Belarus are the only European countries where low-cost flights are not operating because the market is not liberalized. Air transport liberalization is hugely popular within the public. Some 800.000 work abroad – they and their families are huge supportive. 1 Vezi programul de activitate a Guvernului pe 2011-2014, Jurnal.md, 13/01/2011, http://www.jurnal.md/ro/news/-doc-vezi-programul-de-activitate-al-guvernului-pentru-2011-2014-199268/

2 Moldova’s Foreign Policy Statewatch

Str. Iacob Hîncu 10/1, Chişinău MD-2005 Republic of Moldova 373 / 22 221844 phone 373 / 22 245714 fax office@viitorul.org www.viitorul.org

Numerous governments have declared that they want air transport liberalization. Greceanii government adopted a strategy in 2008, which stated that markets would be liberalized by 2011. The Alliance for European Integration 1 and 2 said air transport liberalization is a priority. But these government program and the public desire clashed with sector specific interests that want to retain the protectionist barriers favouring the national air carrier. This effect was seen when there were problems with Lufthansa on opening the Munich-Chisinau flight or Moldovian Airlines and Aerosvit. So far the air transportation sector has been successfully delaying and stonewalling the governments efforts to liberalize the sector. The question is whether Filat 2 government can take it on?

State of Play The main rule of the European Common Aviation Area (ECAA) is market economy rule that is based on

demand and offer. In the context of Moldova, there was a decision to liberalize the aviation market since 2008 but progress is still awaited. In countries where ECAA works the people are paying at least half a price of what is paying Moldovan passengers for the same service. Almost one million of passengers that are traveling by plane every year from/to Moldova are spending enormous amounts of money for an air-ticket. For instance, a round-trip from Chisinau to Paris would cost around 426 EUR and a round-trip from Bucharest to Paris with a low-cost company is around 89 EUR. The difference of 337 EUR is the price for non-liberalization and maintaining and developing a National Aviation company – Air Moldova, while the biggest regret is that the financial burden is on the shoulders of the ordinary consumers. Another example is that a round-trip flight from London to New York costs around 388 EUR, which is less that the Chisinau-Paris flight or Chisinau-London. In a liberalized aviation market the role of state is limited to safety and security of the flights.

Cheapest prices for round-trip air-tickets from Chisinau, Bucharest and Kiev (the search was done on January 23, 2011 for the flights covering the period March 2 – March 10, 2011)

No Destination Cheapest Price from Chisinau

Cheapest Price from Bucharest

Cheapest Price from Kiev

1 Berlin 324 EUR 184 EUR 175 EUR2 London 408 EUR 80 EUR 132 EUR3 Paris 426 EUR 89 EUR 190 EUR4 Frankfurt 357 EUR 179 EUR 196 EUR5 Rome 241 EUR 44 EUR 225 EUR6 Lisbon 419 EUR 326 EUR 377 EUR7 Vienna 316 EUR 70 EUR 258 EUR8 Budapest 190 EUR 251 EUR 253 EUR9 Nice 423 EUR 90 EUR 162 EUR

Cheapest prices for round-trip air-tickets from London (the search was done on January 30, 2011 for the flights covering the period March 9 – March 15, 2011)No. From London to… Price1 Chisinau (with Air Moldova) 409 EUR2 Chisinau (with Lufthansa and Austrian) 290 EUR3 New York 388 EUR4 Beijing 514 EUR5 Dubai 398 EUR6 Bangkok 524 EUR7 Tbilisi 351 EUR8 Moscow 177 EUR

3Moldova’s Foreign Policy Statewatch

Str. Iacob Hîncu 10/1, Chişinău MD-2005 Republic of Moldova 373 / 22 221844 phone 373 / 22 245714 fax office@viitorul.org www.viitorul.org

Where is Moldova now?Last year, the PM Vlad Filat sent a letter to European Commission president announcing the willingness to

join the ECAA.2 Since that time, almost nothing changed, which is also due to the slightly different visions within the Alliance for European Integration on developing the aviation sector.3 Since the Alliance took office, the relationship with the EU has significantly improved, both on deepening some processes and opening of some other chapters. The Visa Dialogue, the negotiations over the Association Agreement, the consultations on launching the Deep and Comprehensive Free Trade Area are only a few examples. At the same time, Moldova improved its democracy rating and is perceived as the leading country in the Eastern Partnership.4 But the leading role is not full without the ECAA. There are countries around Moldova but also among other European neighbours that are one-step ahead Moldova in the field of liberalization of the aviation market. Such agreements were concluded with Western Balkans, Georgia and Morocco, while the agreement with Jordan is pending. Also, there are negotiations of the ECAA between the EU and Ukraine, Israel and Lebanon, as well as Commission has a mandate to negotiate similar agreements with Tunisia and Algeria.5

In addition to the problems related to finding low-cost companies to get on Moldovan market, there are also internal issues. Both the government and the air transportation sector are split. In the government – the governing parties are in favour of air transport liberalization. The government program also states that air transport will be liberalized. But the transport ministry is more hostile to liberalization idea. Whereas in the industry itself, stakeholders are also split. Air Moldova and ASAC (State Agnecy of Civil Aviation) are against, whereas Chisinau airport, Moldavian airlines (a private Moldovan operator) airport handling and catering are in favour of air transport liberalization. So this is not a split between the government and the industry.

If you want to grow. Learn!The examples of other countries that joined the ECAA are very relevant for Moldova, which has limited

possibilities for developing air infrastructure. The population of Latvia is about 2.2 million people. Moldova’s population is 3.6 million people. The number of transported air passengers in Latvia in 2009 was 4.1 million6, in Moldova 806 thousands. The difference is obvious. Another example is the development of HUB airports in Romania or Slovakia or other countries in the EU. Moldova should learn from these countries because by liberalization, is not only about making the price lower trough bringing in low-cost companies, but is also about wider approximation process with the EU that includes harmonization with EU legislation, implementation of EU aviation rules in areas such as safety, security, environment, consumer protection, air-traffic management, economic regulation, competition issues but also growth of tourism, optimization of state bodies expenditures and development of infrastructure (also regional airports). Of course at the beginning there should negotiated a gradual integration of Moldova in the ECAA and some concessions might be asked, especially those related to the usage of aircrafts.

Some argue that lack of visa free restricts travel and the low-cost companies that are to come on the market are not going to have high passengers flow. That is true, Moldova does not have a liberalized visa regime, but smaller airports from countries without visa-free with the EU like Lviv or Odessa in Ukraine – also provide much cheaper tickets than from Chisinau.

2 Moldova says to EC about the intention to join European Common Aviation Area, Moldova.org, 31/08/2010, http://politicom.moldova.org/news/moldova-says-to-ec-about-intention-to-join-european-common-aviation-area-211998-eng.html 3 Chisinau still pondering liberalization of airline market, Imedia, 19/03/2010, http://www.imedia.md/libview.php?l=en&idc=242&id=1176 4 Parmentier, Florent (2010): Moldova, a major European success of the Eastern Partnership?, European Issue No 186, 22/11/2010, policy paper, Robert Schuman Foundation 5 EU signs air transport agreement with Georgia for integration into the European common aviation market, European Commission, 03/12/2010, http://eu-ropa.eu/rapid/pressReleasesAction.do?reference=IP/10/1658&format=HTML&aged=0&language=en 6 Latvia the only EU member state to register increase in air passengers number in 2009, 23/07/2010, http://www.baltic-course.com/eng/analytics/?doc=29526

4 Moldova’s Foreign Policy Statewatch

Str. Iacob Hîncu 10/1, Chişinău MD-2005 Republic of Moldova 373 / 22 221844 phone 373 / 22 245714 fax office@viitorul.org www.viitorul.org

This publication was produced by IDIS “Viitorul” with the financial support of Soros Foundation Moldova and the National Endowment for Democracy. The opinions expressed in this publicati-on reflect the author’s/authors’ position and don’t necessary represent the views of the donors.

Str. Iacob Hîncu 10/1, Chişinău MD-2005 Republic of Moldova 373 / 22 221844 phone 373 / 22 245714 faxoffice@viitorul.org www.viitorul.org

Yes we canMoldova has a great opportunity to change the status quo of the aviation market. A research7 is showing

that the price for air-tickets will decrease by 50% in the case Moldova will get in the ECAA. Moreover, the number of passengers using air transportation will grow to 1.5 million until 2012 according to the most pessimist scenario, or to 2.2 million according to the optimist development. There are low-cost companies that already showed interest in getting on Moldovan market, like Blue Air. This is also supported by the young generation that is insistently promoting this idea everywhere, including on social networks. In the last long, we are witnessing a process when Moldovans are simply getting to Romania or Ukraine to fly cheaper.

The negotiations over the Association Agreement and the implementation of the visa benchmarks represent a great framework for a simultaneous negotiation of the ECAA. Until Moldova is done with visa liberalization requirements, the liberalization of the aviation market would be a brilliant synchronization and for Moldovan citizens, as providing the liberalized visa regime might take place at the same time with the entry on the market of the low-cost companies. Moldova hosted in September 2010 a mission of EU experts to assess the preparedness of Moldova to start the negotiations on ECAA. According to the statement of the Minister of Transport, Anatol Salaru, Moldova might sign the agreement in June 20118, however, at this moment it appears that signing the agreement in June 2011 is by far a since fiction subject.

Conclusions and recommendationsThe adherence to the European Common Aviation Area should be prioritized alongside the Visa Dialogue

and the DCFTA as well as seen in a wider process of negotiating the Association Agreement. The “status” granted to Moldova as a leading Eastern Partnership country is not full without belonging to ECAA. Moreover, the biggest beneficiaries of the ECAA will be passengers that are traveling to/from European Common Aviation Area but also Moldova due to the possibilities to develop its infrastructure and to improve security, safety and services.

Moldova should use the opportunity of friendly presidencies of EU (Hungary and Poland) to conclude the ECAA and the internal political stabilization process after elections. At the same time, while negotiating the ECAA it should be given special attention to two aspects: the delay of the deadline for using soviet aircrafts and gradual inclusion in the ECAA in order to avoid the financial crash of the Air Moldova and to ensure a normal privatization process.

Also, on behalf of the civil society and population at-large there should be exerted public pressure on the Government and specialized state bodies to stick to the commitments that were previously taken, because the longer delay the bigger politicians’ decrease of popularity, the higher prices for consumers, the more passengers flying from Bucharest and Kiev and the less development for aviation transport infrastructure and tourism.

7 Bezniuc, Radu (2010): The perspectives of the reformation of the sector of the aviation transport services from the Republic of Moldova, Soros Foundation Moldova, Chisinau 2010.8 Prim-ministrul Vlad FILAT a prezidat astăzi şedinţa Comisiei Guvernamentale pentru Integrare Europeană, 29/07/2010, State chancellery, http://www.ncu.moldova.md/ro/news/show/8