study summary & findings

STUDY SUMMARY & FINDINGS

JUNE 2006

2006/TPT-WG-28/AEG-SRV_004_v2

28th APEC Transportation Working Group Meeting

Vancouver, Canada

5-8 September 2006

Study of the Impacts of Air Transport Liberalization: Study Summary and FindingsPurpose: Information

Submitted by: Michael Tretheway, Executive Vice President, InterVISTAS Consulting Inc.


JUNE 2006

2006_TPT-WG-28_AEG-SRV_004_v2


Background

• Commercial aviation is governed today by a myriad of arcane rules and regulations that defy logic and the principles of free trade.

• Most airlines are trying to become more competitive and responsive to consumer demand for lower fares.

• Despite the efforts of the U.S. Government, and selected others, some governments and airlines want the protection of today’s regulatory regime.


Background (cont’d)• Conventional wisdom is that:

– Liberal air service agreements promote economic growth and jobs.

– Airlines, freed of economic regulation, will produce more efficiently, and that will translate into lower fares.

However: – There has been no vehicle for measuring

the potential impacts of liberal agreements until after they have been implemented for a number of years.

– There has been inadequate information available relative to the benefits of free trade in aviation.


Study Objectives

• Examine air service liberalization and identify the impacts on air travel and economic growth.

• Develop an analytical model that will measure the benefits of liberalization -- prospectively.

• Provide the means to validate liberalization assumptions through case studies.

• Promote a better informed debate on the historical and potential benefits of liberalization.


The Scope and Scale of the Industry

• World airlines annually transport roughly 2 billion passengers per annum and carried almost 40% of world trade by value.

• “Air transport is a major contributor to job creation and economic growth.”

– 8% of world GDP

– 5 million direct jobs, and an additional 8.5 million indirect and induced jobs

– 15.5 million additional direct and indirect jobs resulting from air transport’s impact on tourism.


Modeling Liberalization

• Isolate Liberalization Traffic Growth link • Determine Increased Traffic • Drive Demand Against Baseline Economic Data• Generate

– Increased GDP, Employment, Tourism/Business and Catalytic Benefits

Liberalization Traffic growth Economic Growth Jobs


The Impact of Liberalization:A Cross-Sectional Approach

TRAFFIC

GDP x GDP

* Restrictive 1

Liberal 3 +

* Restrictive 2

Liberal 1 + * Restrictive 4

* Restrictive 3

Liberal 2 +

+ Liberal 5

+ Liberal 4

Restrictive 5 *

Liberal Bilaterals

Restrictive Bilaterals


Selected Findings-#1

Test the model’s “What If” capability• Examine 320 arbitrary country pairs • Determine economic impact if all were liberalized

RESULT• Liberalizing the 320 ASAs

would generate 24.1 million jobs and generate an incremental $490 billion GDP.

– This approximates the GDP of Brazil.

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• Examined EU Single Aviation Market (1992 Package) • Traffic growth tracked EU GDP 1990-1994

– 1995 & beyond traffic growth rate well above GDP

• Traffic growth rate 1995-2004 was double the pre-1994 rate of growth.

• Low Cost Carrier (LCC) market share expanded from 1.4% in 1996 to 20.2% in 2003.

RESULT• Incremental GDP $85 billion; new jobs -- 1.4 million.

112006_TPT-WG-28_AEG-SRV_004_v2


• U.S.-UK agreement was significantly liberalized in mid-1990’s. All markets opened between U.S. and UK, except Heathrow and Gatwick.

• A U.S.-EU Air Transport Agreement would completely liberalize the U.S.-UK market.

RESULT

Traffic between the U.S. & UK would expand by 29%.

GDP would expand by $7.8 billion -- 117,000 new jobs would be created.

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Case Studies: US-UK 199410 City-Pairs 62 Weekly Flights

Belfast

Glasgow

Manchester

Birmingham

Washington Dulles

Atlanta

Chicago O’HareNew York JFK

Boston

Los Angeles

Nonstop US-UK Routes (Excluding Heathrow & Gatwick)Source: May 1994 Official Airline Guide, US/UK Designated Carriers Only

132006_TPT-WG-28_AEG-SRV_004_v2

Case Studies: US-UK 200617 City-Pairs 144 Weekly Flights

Birmingham

Washington Dulles

Atlanta

Chicago O’HareNewark

Boston

Nonstop US-UK Routes (Excluding Heathrow & Gatwick)Source: May 2006 Official Airline Guide, US/UK Designated Carriers Only

Las Vegas

Philadelphia

Orlando (MCO)

BristolLondon Stansted

New York JFK

Belfast

GlasgowEdinburgh

Manchester

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• Partial liberalization of Malaysia - Thailand agreement• achieved via MoU to allow increase

in capacity, frequency and routes.

RESULT• Traffic between Malaysia and Thailand

grew by 370,000 passengers per annum (37%).• Identical impacts on both countries.

– GDP would expanded by $114 million each

– 4,300 new jobs created.

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Kuala Lumpur (Subang)

Chiang Mai

Bangkok

Penang

Hat Yai

Phuket

Malaysia - Thailand Nonstop Services

April 1996

162006_TPT-WG-28_AEG-SRV_004_v2

Kuala Lumpur (Subang)

Koh Samui

Chiang Mai

Kota Kinabalu

Bangkok

Kuala Lumpur (KLIA)

Penang

Hat Yai

Phuket

Malaysia - Thailand Nonstop Services

April 2006

172006_TPT-WG-28_AEG-SRV_004_v2

Total Monthly Roundtrip Seat CapacityMalaysia - Thailand Nonstop Scheduled Services

0

20

40

60

80

100

120

140

Feb-01

May-01

Aug-01

Nov-01

Feb-02

May-02

Aug-02

Nov-02

Feb-03

May-03

Aug-03

Nov-03

Feb-04

May-04

Aug-04

Nov-04

Feb-05

May-05

Aug-05

Nov-05

Feb-06

May-06

To

tal M

on

thly

Ro

un

dtr

ip S

eats

(000

s)

AirAsia begins Service between Malaysia and Thailand

Source: OAG Schedules – February 2001 – May 2006

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Summary of Case Studies: Job Creation

• Intra Community - 1.4 million jobs

• U.S.-UK - 117,000 jobs

• UAE to Germany and UK - 26,000 jobs

• Australia-New Zealand - 40,000 jobs

• Malaysia-Thailand - 8,600 jobs

192006_TPT-WG-28_AEG-SRV_004_v2

Summary Findings

• Open Skies between U.S. & EU would benefit the U.S. and UK markets by adding 117,000 jobs and $7.8 billion in GDP.

• Liberalizing a sampling of 320 ASAs would generate 24.1 million jobs and generate an incremental $490 billion GDP.

• Case studies uniformly support model results and “conventional wisdom.”

– Intra-EU Open Skies produced doubling of growth rate of traffic for the 1995-2004 period versus pre-1994 regulated environment.

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Conclusions

• World economies are heavily dependent on air transport.

• We now have a model that will test the impact of liberalization on a prospective basis.

– This model documents the economic and job creating benefits of liberalizing air service agreements.

– This study found that if countries want to increase jobs and economic growth, liberalizing their air services will help do this.


Copy of full study available at www.InterVISTAS.com


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