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Trade and Investment Project. Liberalization in Aviation Policy Presented to the Confederation of Mozambican Business Associations (CTA). Andy Ricover December 15,2005. Current effective policy. Formal policy. Institutional framework. Effective policy. Function of two factors.

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Trade and Investment Project

Liberalization in Aviation PolicyPresented to the Confederation of Mozambican Business Associations (CTA)

Andy Ricover

December 15,2005


Current effective policy
Current effective policy

Formal policy

Institutional framework

Effective policy

Function of two factors


Current effective policy continued
Current effective policy (continued)

  • Function of two factors

    • There is written policy

    • But the institutional arrangement can condition the real applicable policy


Current formal policy legal framework
Current formal policy—Legal framework

  • Resolution 40/2002, May 14th - replacing 5/96 April 2nd

    • Does not deal with access to market (5/96 did)

    • Domestic market: to “adjust number of operators to demand”

  • Regulamento 39/98, August 26th

    • Defines access to market:

      • Regular international (intercontinental and regional)

      • Regular domestic

      • Nonregular

    • Route allocation to new operator after “listen” to incumbent


Current formal policy regular int l operations
Current formal policy—Regular-Int’l operations

  • Access to market

    • Designated in the BASA (bilateral air services agreement)

    • Selected by tender

  • Regime

    • Exclusive rights for 10 years (renewable by tender)

    • Intercontinental: single designation

    • Regional: one operator per route

    • Provision for multiple designation, subject to public interest


Current formal policy regular domestic operations
Current formal policy—Regular-domestic operations

  • Access to market

    • Concession

  • Regime

    • By route

    • By tender

    • 5 year periods (renewable)

    • Subject to public interest: exclusive rights


Current formal policy nonregular operations
Current formal policy—Nonregular operations

  • Access to market

    • By obtaining a licence compatible with service

  • Regime

    • By tender

    • In addition to regular services


Current institutional framework bodies and functions
Current institutional framework—Bodies and functions

Policymaking

Regulation

Operation

Accidents investigation

ATC

Airports

Airlines

Ministry of Transport & Communic.

IACM

IACM

ADM

ADM

LAM et al

IACM


Institutional framework competences of iacm
Institutional framework—Competences of IACM

  • According to Decree 41/2001

    • Concentration of functions

      • Regulate procedures of policy application and legal framework (Art. 6: 1.a & n)

      • Technical regulation (Art. 6)

      • Accidents investigation (Art. 6, g)

    • Creates conflict of interest

    • Allows policymaking through regulation


Proposed institutional framework bodies and functions
Proposed institutional framework—Bodies and functions

Policymaking

Regulation

Operation

Accidents investigation

ATC

Airports

Airlines

Ministry of Transport & Communic.

Parliament

autonomous bodies(arm’s length from the government)

Civil Aviation Board

IACM

ADM

ADM

Airlines

Accidents Investigation Board


Current effective policy1
Current effective policy

  • Consequence of formal policy and institutional framework

    • Formally protective of LAM, considered of “national interest”

      • Restrictive access to international markets

      • Semi-restrictive for domestic markets

    • Informal protection

      • Difficulties in obtaining nonregular/special permits

      • Price control

      • Scheduling regulations (SAA should depart 90’ away from LAM)


Current situation operators
Current situation—Operators

Intl

Reg

Dom

  • LAM

  • Air Corridor

  • MEX

  • STA

  • SAA

  • TAP

  • Pelikan Air

Seven operators


Current situation airport infrastructure
Current situation—Airport infrastructure

  • 3 international airports

    • Maputo, Beira, Nampula

  • 6 main airports

    • Inhambane, Quilimane, Tete, Lichinga, Pemba & Vilanculus (by traffic)

  • 10 secondary airports

  • 6 military

  • Plus almost 300 landing strips


Current situation airport infrastructure continued
Current situation—Airport infrastructure (continued)

  • Operated by ADM

  • No prospects of private sector participation (PSP)

    • Failed ACSA deal for MPM

    • Doubtful financial feasibility for whole group

  • However

    • No capacity/operational constraints

    • Market is NOT a function of infrastructure


Policy background freedoms of the air
Policy background—Freedoms of the air

  • 1st—The right to fly over another country without landing

  • 2nd—The right to make a landing for technical reasons in another country without picking up/setting down revenue traffic

  • 3rd—The right to carry revenue traffic from your own country A to the country B of your treaty partner


Policy background freedoms of the air continued
Policy background—Freedoms of the air (continued)

  • 4th—The right to carry traffic from country B back to your own country A

  • 5th—The right of an airline from country A to carry revenue traffic between country B and other countries, such as C or D.

  • 6th—The use by an airline of country A of two sets of 3rd and 4th rights to carry traffic between two other countries but using its base A as a transit point


Current situation int l carriers
Current situation—Int’l carriers

  • LAM

    • LIS: code share with TAP

  • TAP

    • LIS: x 2 via JNB – without traffic rights (no 5th freedom)

  • Poor offer

  • Little competition


Current situation france
Current situation—France

  • BASA from 1991: 2x PAR-MPM

    • No interest

    • Presence of AF in TNR and Reunion

    • AF/KLM through Kenya Airways

    • 7 freqs a JNB

    • Camores


Current situation portugal
Current situation—Portugal

  • BASA from 1977 with modifications

    • Single designation: designed for TAP

    • TAP: largest European presence

    • 3 freqs a LIS (2 via JNB on one way only)

    • Interest in 5th freedoms in the region (not allowed today)


Current situation south africa
Current situation—South Africa

  • BASA from 2003

    • Single designation: for LAM & SAA

    • Price control

    • Points in MOZ to CT, Durban, JNB, Nelspruit and Lanseria

    • Points in RSA to Beira, MPM, Nampula, Pemba, Vilanculos

  • Effective

    • 11 frequencies MPM-JNB (now requesting to 14)

    • 3 freqs to JNB-Nampula

    • MPM - Vilanculos


Current situation tour operators special
Current situation—Tour operators/special

  • Policy

    • Limited entry points

  • Technical

    • Delays in issuing permits

    • No reliability in response time

    • Often not granted without explanation


Current situation poor int l connectivity
Current situation—Poor int’l connectivity

LIS

NBO

DAR

LLW / BLZ

POL

HRE

BEW

VNX

JNB

MPM


Liberalized situation improved int l connectivity
Liberalized situation—Improved int’l connectivity

LHR

LIS

NBO

DAR

LLW / BLZ

POL

LAD

HRE

BEW

VNX

JNB

MPM


Liberalized situation int l carriers
Liberalized situation—Int’l carriers

  • LAM

    • LIS with JNB and LAD (Luanda) by use of 5th freedoms

    • HRE (Harare), DAR (Dar es Salaam) and NRO (Nairobi) with 5th freedoms

    • And same with LHR (Heathrow) and LIS, 5th freedoms

  • TAP

    • LIS with JNB by use of 5th freedoms

    • LAD with 5th freedoms granted


Liberalized situation int l carriers continued
Liberalized situation—Int’l carriers (continued)

  • BA

    • LHR/LGW – MPM – JNB (with Comair)

    • and LUN (Lusaka)

  • Virgin

    • LHR – MPM – JNB (with SAA)

    • and LUN


Current situation regional carriers
Current situation—Regional carriers

  • LAM: JNB

  • MEX: DAR

  • SAA: JNB

  • KIA: HRE NBO

  • Pelikan: VNX

  • Air Corridor: BLW?

  • Poor offer

  • Little competition


Liberalized situation regional carriers
Liberalized situation—Regional carriers

  • LAM: JNB & others, HRE, DAR & NRE with 5th freedoms

  • SAA: JNB

  • Pelikan: VNX

  • Air Corridor: BLW?

  • Kulula: JNB & others

  • 1Time: JNB & others

  • Air Corridor: JNB & others

  • Comair: JNB & others


Liberalized situation improved connectivity
Liberalized situation—Improved connectivity

LHR

LIS

NBO

DAR

LLW / BLZ

POL

LAD

HRE

BEW

VNX

JNB

MPM


Liberalized situation improved int l connectivity1
Liberalized situation—Improved int’l connectivity

  • Will open alternatives entry points/routes

  • Increasing competition

  • Improving quality of service

  • Facilitating entry for new services (LCC)

  • Reducing prices


Air fares from johannesburg
Air fares from Johannesburg

Cents of US$ / mile (excursion return fares), by city pair distance


Air fares from maputo
Air fares from Maputo

Cents of US$ / mile (excursion return fares), by city pair distance


Lowest available domestic fares in two markets
Lowest available domestic fares in two markets

Excursion and LCC return fares, cents of US$ / mile


Lowest available domestic fares in two markets continued
Lowest available domestic fares in two markets (continued)

Excursion and LCC return fares, cents of US$ / mile


Traffic drivers domestic market
Traffic drivers—Domestic market

  • Foreign traffic

    • Reliability

    • Offer

    • Tourism infrastructure

    • price

  • Local traffic

    • Price

    • Price

    • Price


Traffic drivers int l market
Traffic drivers—Int’l market

  • Foreign traffic

    • Offer

    • Development of the domestic market

    • Price

  • Local traffic

    • Price as a fx(offer)


A vicious cycle
A vicious cycle

Domestic market is not self sustained: local population can hardly support the system

Domestic market depends on the international inflow

Domestic market does not get international inflow

International market remains undeveloped

International inflow is restricted to protect LAM

LAM fails to exploit the opportunity & no other carriers can try


The virtuous cycle
The virtuous cycle

Trigger: liberalization policy develops the international market

Increases international traffic

Increases inflow of passengers into the domestic network

Gained support on the domestic market

Efficiency and low prices drives tourism & investment

Increase of foreign traffic into domestic market


Needed reforms
Needed reforms

  • Liberalization of the international traffic

    • Boost offer

    • Lowering prices

    • Increase inflow into domestic market

  • Ease technical barriers in the local market

    • Increase providers / offer

    • Promote investment in tourism

    • Generate more demand

    • Which brings more international pax


Needed reforms continued
Needed reforms (continued)

  • LAM Competitiveness Program

    • Restructuring reform

      • Adapt to the new challenges: business plan

      • Reallocation of resources

      • Capacity building program

    • Management options

      • Change in ownership structure (PSP)

      • Management contract



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