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

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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 Conundrum13 June 2007


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:

“Big bang” - Full deregulation

“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


The transatlantic agreement bridges two biggest aviation markets in an “open skies” structure

65% Global Air Traffic



  • 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

  • Phase 2 2010

  • Subject to negotiation

  • AchieveOpen Aviation Area

  • Reforms to US ownership



Source: IATA, CAPA Consulting


Implications of the Agreement

Recognition of EU rights

Encourages further EU airline consolidation, US still limited

Lead to debatable levels of growth on the Atlantic, driven by greater efficiencies, lower fares

Provides impetus to EU horizontal mandate negotiations, also US bilateral “open skies” programme

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

IATA generally disappointed with lack of progress in EU-US pact on ownership/control, turns focus to Asia for reforms to traditional criteria


Asia, Middle East poised to take leading roles in aviation liberalisation


Domestic deregulation


Middle East:

“Open skies” by UAE, 7 other

Arab states


Asia Gateway Plan

Open access to regional, secondary airports

SE Asia:

ASEAN “open skies” 2010

10 member states + China, Japan, India?

Middle East:

Arab Maghreb Union “open skies” 2008

Source: IATA, CAPA Consutling

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 groupings

    Trilateral (Japan, China, Korea):Potentially very powerful, still some resistance

    SE 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)

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”

Australia maintains substantial surplus of seats over available capacity in international market

30% pax, seats growth Calendar Year 2007 vs 2000


Source: BTRE

Australia International Capacity & Passenger Traffic


Middle East may dominate “kangaroo

route”; also emerging routes via China







Asian 6th


Airline share of Average Weekly Seats

Australia-Europe by Region of Origin

3.7% Average Annual Growth in

Aust-Europe Weekly Seats, 2000-2007

Source: IATA/CAPA Consulting

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

The exodus of European airlines from the Australia-Europe market

Olympic Airlines exits market

Austrian returns Lauda exits

Exit of Alitalia,



departs; entry of




Austrian exits

Virgin Atlantic arrives



Total Seats

Per week

From 5 airlines in 2000 to two in 2007

Source: IATA, CAPA Consulting

Qantas responds to the challenge through development of Jetstar

Source: IATA, CAPA Consulting


The LCC Growth Strategy

Qantas Group





Qantas Mainline







Air Pacific



The Asian LCC Network




The Future: Franchises in Indonesia, The Philippines, Thailand

Source: CAPA Consulting, Qantas

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

Thank You!

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