S/C/W/270/Add.2 
 Page 219 
 
 
   
    
 
  
 
SECTION II 
 
ECONOMIC AND FINANCIAL 
SITUATION OF SCHEDULED 
PASSENGER AIRLINES  S/C/W/270/Add.2 
 Page 221 
 
 
  II. ECONOMIC AND FINANCIAL SITUATION OF SCHEDULED PASSENGER 
AIRLINES 
104. This section will address general economic and financial developments in commercial air 
transport services, focusing on scheduled passenger services.48  The regulatory framework for air 
passenger services with regard to bilateral Air Se rvices Agreements has been amply documented in 
the Quantitative Air Services Agr eements Review (QUASAR), which is contained in document 
S/C/W/270/Add.1.   
A. ECONOMIC DEVELOPMENTS  
105. Since 2000, the commercial air transport industr y has faced many serious difficulties.  A 
cyclical downturn had already begun to be felt by some  airlines in 2000, but the terrorist attacks in the 
United States on 11 September 2001, the Iraq war in  March 2003 and the Severe Acute Respiratory 
Syndrome (SARS) epidemic, followed by escalating fuel  prices, turned the cyclical decline into the 
longest and deepest crisis the industry has ever faced.   
106. This section is largely drawn from the Annual Re view of Civil Aviation, published by the 
International Civil Aviation Organisation (ICAO) in its Journal and Annual Repor t of the Council.  As 
ICAO has discontinued its annual publication, The Wo rld of Civil Aviation, not all the information 
contained in the documentation produced fo r the first review could be updated. 
1. Traffic 
(a) Global tendencies 
107. Tables 6 and 7 illustrate the situa tion with regard to total (i.e . international and domestic) and 
international world revenue traffic over the 2000- 2005 period.  (Comparable data for the 1993-1999 
period can be found in tables 15 and 16 on pages 158-9 of the compilation of the documentation 
produced for the first review.)  The impact of the att acks of 11 September is particularly evident in the 
drastic fall in traffic figures for 2001.  Nonetheless, even before 2001 began, expectations were that 
the air transport industry would experience sluggish or no annual traffic growth:  in the period up to September 2001, the volume of traffic had been virt ually unchanged from the same period in 2000.   
108. After 9/11, however, traffic volumes deteriorated  considerably.  For three days following the 
attacks, all flights to, from or within the United Stat es were banned.  In addition to the complete shut-
down, the attacks caused many travellers to reduce or avoid air travel, weary of a newly-perceived 
risk associated with flying.  Likewise, many businesses put temporary freezes on all but the most 
essential travel for their employees.  And, even after the initial fear of flying dissipated, the stringent 
new security requirements that were implemented as a direct result of the attacks have made travelling 
by air more cumbersome and time-consuming than prior to 11 September 2001.
49   
109. Even though the traffic shock was felt most  severely in the United States, traffic was 
adversely affected in most regions  According to  the Association of European Airlines, between 
11 September and the end of 2001 traffic on the No rth Atlantic routes dropped by 30 per cent, 
translating to a loss of almost 3 million passengers for European airlines.  US carriers lost another 
3 million or so passengers.  Traffic on the trans-Pacific routes from the United States dropped by over 
                                                      
48 For a definition of scheduled services, please refer to the compilation of the documentation for the first 
review, page 259. 
49 Ito, H and L. Darin (2005), "Assessing the Impact of the September 11 Terrorist Attacks on US Airline 
Demand", Journal of Economics and Business, vol. 57(1).  The authors estimate that the events of 9/11 led to both an 
initial demand shock of more than 30 per cent as well as an on-going downward shift in the demand for commercial 
air services of roughly 7.4 per cent. S/C/W/270/Add.2 
Page 222  
 
  35 per cent, traffic between Europe and the Far E ast by 17 per cent and intra-European traffic by 
12 per cent.
50 
110. In 2002, international scheduled traffic showed an increase of about 2 percent over 2001 in 
the number of passengers carried.  There was, however, little change in total traffic, mainly due to the 
continued weakness in North American domestic traffic.   It was only in 2003 that total traffic started 
picking up again, in spite of the outbreak of SARS in the first half of the year.  The epidemic had a 
significant impact on passenger traffic to, from a nd within the affected areas.  2004 witnessed a 
relatively strong traffic increase, reflecting in part the recovery in traffic carried by the airlines of the 
Asia/Pacific region.   
111. From 2004 onwards, traffic growth has been sl owing.  The traffic increases achieved in 2005 
came at a time of sharp fuel price increases (a  49 per cent average increase over 2004) and when 
carriers in most regions passed on the impact of this increase to passengers by increasing fares.  
Preliminary forecasts for 2006 point to a total tra ffic growth, when measured in Revenue Passenger-
Kilometres (RPK) of around 5.5 per cent.  For 2 007, the International Air Transport Association 
(IATA) predicts a 5 per cent rise, while ICAO a more optimistic 5.8 per cent.51 
Table 6 
World total international and domestic revenue traffic, 2000-2005 
(Scheduled services of airlines of ICAO Contracting States) 
 
Passengers carried Passenger-kilometres 
Year Millions Annual increase 
% Millions Annual increase 
% 
2000 1,672 7 3,037,530 9 
2001 1,640 -2 2,949,550 -3 
2002 1,639 0 2,964,530 1 
2003 1,691 3 3,019,100 2 
2004 1,888 12 3,445,300 14 
2005 2,022 7 3,719,700 8 
 
Source :  ICAO, Annual Report of the Council, 2005. 
 
Table 7 
World international revenue traffic, 2000-2005 
(Scheduled services of airlines of ICAO Contracting States) 
 
Passengers carried Passenger-kilometres 
Year Millions Annual increase 
% Millions Annual increase 
% 
2000 542 10 1,790,370 10 
2001 536 -1 1,726,580 -4 
2002 547 2 1,736,070 1 
2003 561 3 1,738,510 0 
2004 647 15 2,015,070 16 
2005 704 9 2,197,360 9 
 
Source :  ICAO, Annual Report of the Council, 2005. 
                                                      
50 Doganis, R. (2006), "The Airline Business", Routledge. 
51 Airline Business, February 2007.  S/C/W/270/Add.2 
 Page 223 
 
 
  (b) Regional developments 
112. The traffic picture at the regional level is more  varied.  As shown by Table 8, North America 
and Latin America and the Caribbean have suffered the heaviest and longest downturns post-9/11, 
with respect to both total and international passe nger traffic.  (Comparable data for the 1993-1998 
period can be found in table 19 on page 163 of the comp ilation.)   Europe was also seriously affected:  
passenger-kilometre numbers for the region took two years to recover to the pre-2001 levels.  By 
contrast, Africa experienced a more contained downt urn, and only in 2002 was a decline registered 
with regard to total traffic.  Asia and the Pacifi c were more affected by the SARS epidemic in 2003 
than by the events of 9/11.  The Middle East was remarkably resilient, and managed to record positive 
growth rates throughout the period under review.   
Table 8 
Regional distribution of scheduled traffic, 2000-2005 
(Scheduled Services of Airlines of ICAO Contracting States) 
 
Total (international and domesti c) services of airlines of  ICAO Contracting States 
Passenger-kilometres performed (milli ons); (percentage of world traffic)  
              Year 
Region 2000 2001 2002 2003 2004 2005 
Europe 805 260 
(26.7%) 787 410 
(26.9%) 769 710 
(26.2%) 824 000 
(27.5%) 919 930 
(26.7%) 1 004 880 
(27%) 
Africa 66 470 
(2.2%) 67 260 
(2.3%) 66 200 
(2.3%) 66 930 
(2.2%) 75 220 
(2.2%) 84 830 
(2.3%) 
Middle East 93 770 
(3.1%) 96 840 
(3.3%) 106 700 
(3.6%) 117 550 
(3.9%) 148 320 
(4.3%) 168 890 
(4.5%) 
Asia/Pacific 733 310 
(24.3%) 736 040 
(25.1%) 785 110 
(26.7%) 759 140 
(25.4%) 903 730 
(26.3%) 967 400 
(26%) 
North America 1 176 810 
(39.0%) 1 108 780 
(37.8%) 1 082 340 
(36.8%) 1 086 760 
(36.3%) 1 247 260 
(36.2%) 1 334 520 
(35.9%) 
Latin America and 
Caribbean 142 170 
(4.7%) 134 040 
(4.6%) 132 330 
(4.5%) 137 250 
(4.6%) 147 330 
(4.3%) 159 170 
(4.3%) 
Total 3 017 790 2 930 370 2 942 410 2 991 620 3 441 790 3 719 700 
International services of airlin es of ICAO Contracting States 
Passenger-kilometres performed (milli ons); (percentage of world traffic)  
              Year 
Region 2000 2001 2002 2003 2004 2005 
Europe 679 860 
(38.2%) 659 130 
(38.4%) 643 840 
(37.2%) 695 000 
(40.1%) 785 830 
(39.0%) 865 880 
(39.4%) 
Africa 56 870 
(3.2%) 58 300 
(3.4%) 57 480 
(3.3%) 56 830 
(3.3%) 64 330  
(3.2%) 72 200 
(3.3%) 
Middle East 81 850 
(4.6%) 84 140 
(4.9%) 93 490 
(5.4%) 104 760 
(6%) 132 930 
(6.6%) 152 490 
(6.9%) 
Asia/Pacific 518 810 
(29.2%) 502 280 
(29.4%) 537 620 
(31%) 497 310 
(28.7%) 588 000 
(29.2%) 622 520 
(28.3%) 
North America 354 640 
(19.9%) 331 030 
(19.3%) 322 360 
(18.6%) 298 300 
(17.2%) 354 350 
(17.6%) 389 200 
(17.7%) 
Latin America and 
Caribbean 86 570 
(4.9%) 78 680 
(4.6%) 77 380 
(4.5%) 82 180 
(4.7%) 88 030 
(4.4%) 95 070 
(4.3%) 
Total 1 778 600 1 716 560 1 732 160 1 734 370 2 013 470 2 197 360 
 
Note:   The sum of the individual regions may not match the due to rounding. 
Source :  ICAO, Annual Report of the Council, 2000 to 2005. S/C/W/270/Add.2 
Page 224  
 
  113. In terms of regional distribution of total schedul ed traffic, Africa's contribution has remained 
substantially unchanged between 2000 and 2005.  Over the same period, Europe's share has 
experienced a small increase, whereas the Asia/Paci fic region and the Middle East have both made 
more significant inroads.  By contrast, both Latin America and the Caribbean and North America have seen their respective shares fall, particularly in No rth America, even though the airlines of the region 
still dominate total world traffic, with 35.9 per cent of all traffic in 2005. 
114. Similar tendencies can be observed for internationa l scheduled traffic, except that the share of 
the Asia/Pacific region has falle n between 2000 and 2005 and that European airlines account for the 
largest share of international traffic, with 39.4 per cent in 2005.  Particularly noticeable is the increase 
in the share of international traffic accounted for by Middle Eastern airlines, from 4.6 per cent in 2000 
to nearly 7 per cent in 2005.  
2. Employment 
115. Table 9 seeks to provide some information about airlines' employment by region.  It is based 
on data about direct employment (i.e. the number of people directly employed by airlines) and total employment, which is the sum of direct, indirect (i .e. the number of jobs ge nerated through purchases 
of goods and services from airlines in their supply chain) and induced (i.e. through spending by airline 
employees) employment. 
Table 9 
Airlines' direct and total employment by region, 2004 
 
Airlines employment  Region Direct  Total  
Africa 82,562 216,725 
Asia/Pacific 498,613 1,308,859 
Europe 709,272 1,861,839 
Latin America and the Caribbean 84,250 221,156 
Middle East 127,764 335,379 
North America  544,778 1,361,944 
Total 2,047,239 5,305,902 
 
Note:  Total employment includes direct, indirect and induced employment. 
Source :  Air Transport Action Group (ATAG), "The economic and social benefits of air transport", September 
2005. 
3. Operations of the ma jor passenger carriers 
116. The following tables provide an overview of the operations of the top 200 passenger carriers.  
Table 10 offers an analysis by region for 2005.  (Com parable data for 1998-1999 can be found in table 
2 on page 260 of the compilation.)  S/C/W/270/Add.2 
 Page 225 
 
 
  Table 10 
Top 200 passenger airlines' operations, by region, 2005 
 
Pax traffic (RPK) Load factors Passengers Share of top 200 ranking 
by: Region 
million change 
2004/5 % change 
2004/5 million change 
2004/5 RPK carriers 
Africa 73,439 6.5% 68.1 -0.4 31 5.2% 1.9% 10 
Asia/Pacific 1,019,048 10.1% 72.3 0.7 499 10.3% 25.8% 45 
Europe 1,155,998 7.4% 77.2 0.6 587 6.7% 29.3% 82 
Middle East 164,062 10.4% 71.7 0.7 60 6.8% 4.2% 10 
North America 1,377,568 6.4% 77.5 2.1 793 5.8% 34.9% 37 
Latin America and 
the Caribbean 157,355 15.2% 71.6 2.1 95 15.8% 4.0% 16 
Total 3,947,469 8.2% 75.3 1.2 2.065 7.6% 100.0% 200 
 
Notes: Pax = Passengers.  RPK = Revenue Passenger-Kilome tre.  Load factor = percentage of seats available 
that are actually purchased by passengers.  Figures based on returns to the latest top 200 ranking.  
Changes figures are recalculated to exclude carriers fo r which data was not available in both years.  
Other figures are bare totals.  Nominal yields are calculated in US dollar terms with no adjustment for exchange rate fluctuations.  RPK=Revenue Passenger-Kilometres. 
Source
: Airline Business, August 2006. 
117. A comparison with the situation in 1999, at the time of the first review (see compilation, page 
260, Table 2), shows that, in terms of RPK, the As ia/Pacific region and the Middle-East, particularly, 
have seen their share in the top 200 ranking incr ease, growing from 22.9 and 2.5 per cent to 25.8 and 
4.2 per cent, respectively.  This has taken place main ly at the expense of the major airlines in North 
America, which have seen their share of RPKs transported by the top 200 airlines fall from 38.7 to 
34.9 per cent. 
118. In terms of number of carriers in the top-200 rank, Europe has witnessed the largest increase 
between 1999 and 2005, going from 71 to 82 airlines, in spite of an unchanged share in terms of 
RPKs, followed by the Asia/Pacific region, which saw 45 of its carriers in the top 200 rank in 2005 
compared with only 40 in 1999.  The biggest fall was experienced by Africa, which lost a third of its 
airlines in the top 200 rank between 1999 and 2005. 
119. Table 11 provides details of the operations of th e top 50 passenger airlines, ranked by traffic, 
for 2005.  (Comparable data for 1999 can be fo und in table 3 on page 263 of the compilation.) 
 
 
  
  S/C/W/270/Add.2 
Page 226 Table 11 
Top 200 passenger airlines' operations, ranked by traffic, 2005 
 
Pax traffic (RPK) Seat capacity (ASK) Load factor Pax numbers Ranking 
2005 Airline operation Country 
million change million change percent change million change 
1 American Airlines United States 222,412 6.3% 283,062 1.2% 78.6% 3.8% 98.0 7.1% 
2 Delta Air Lines United States 193,006 5.9% 252,279 3.4% 76.5% 1.8% 118.9 0.2% 
3 Air France-KLM Group France 189,253 8.6% 234,669 6.2% 80.7% 1.8% 70.0 6.4% 
4 United Airlines United States 183,262 -0.6% 224,948 -3.3% 81.5% 2.2% 66.7 -5.8% 
5 Northwest Airlines United States 121,994 3.4% 147,666 0.4% 82.6% 2.4% 56.5 2.0% 
6 Continental Airlines United States 114,659 8.4% 144,240 5.9% 79.5% 1.9% 44.9 5.1% 
7 British Airways United Kingdom 111,859 3.7% 147,934 2.6% 75.6% 0.8% 35.6 -0.2% 
8 Lufthansa Germany 108,185 4.0% 144,182 2.5% 75.0% 1.0% 51.3 0.7% 
9 Japan Airlines Corporation Japan 100,345 -2.0% 148,591 -2.2% 67.5% 0.2% 58.0 -2.4% 
10 Southwest Airlines United States 96,899 12.7% 137,043 10.8% 70.7% 1.2% 77.7 9.6% 
11 Qantas Airways Australia 86,986 7.0% 114,003 9.4% 76.3% -1.7% 32.7 8.6% 
12 Singapore Airlines Singapore 82,742 6.6% 109,484 4.6% 75.6% 1.3% 17.0 6.6% 
13 Air Canada Canada 75,290 7.7% 94 ,703 4.0% 79.5% 2.7% 30.0 9.5% 
14 Cathay Pacific China 65,110 13.7% 82,766 11.8% 78.7% 1.3% 15.4 13.0% 
15 US Airways United States 62,582 -2.7% 82,893 -3.2% 75.5% 0.4% 40.0 -3.7% 
16 Emirates UAE 62,260 21.1% 82,009 19.0% 75.9% 1.3% 14.5 15.7% 
17 China Southern Airlines China 61,923 66.5% 88,361 64.3% 70.1% 0.9% 44.1 56.4% 
18 All Nippon Airways Japan 58,949 1.4% 86,933 0.6% 67.8% 0.6% 49.9 2.2% 
19 Air China China 52,453 12.5% 70,670 8.9% 74.2% 2.3% 27.7 13.0% 
20 Thai Airways Thailand 49,930 -1.4% 69,843 0.0% 71.5% -1.0% 18.1 -7.2% 
21 Iberia Airlines Spain 49,060 6.8% 63,628 4.2% 77.1% 1.9% 27.7 3.7% 
22 Korean Air Rep. of Korea 49,046 6.9% 68,659 6.4% 71.4% 0.3% 21.7 2.0% 
23 Malaysia Airlines Malaysia 46,122 4.3% 65,099 1.5% 70.9% 1.9% 17.9 2.1% 
24 America West Airlines United States 39,030 4.0% 49,079 1.2% 79.5% 2.1% 22.1 4.7% 
25 Alitalia Italy 37,969 12.1% 53,108 11.2% 71.5% 0.6% 23.9 7.4% 
26 China Eastern Airlines China 36,381 31.9% 52,428 26.0% 69.4% 3.1% 24.3 37.2% 
27 JetBlue Airways United States 32,502 28.4% 38,138 25.3% 85.2% 2.0% 14.7 25.0% 
28 Virgin Atlantic Airways United Kingdom 32,118 6.3% 43,102 10.9% 74.5% -3.2% 4.5 4.4% 
29 China Airlines Chinese Taipei 32,048 8.4% 41,914 9.3% 76.5% -0.6% 9.7 9.1% 
30 Ryanair Ireland 31,205 38.4% 36,612 35.7% 85.0% 1.0% 33.4 25.6% 
31 Varig Brazil 28,506 0.7% 38,064 -1.4% 74.9% 1.6% 12.8 3.6% 
32 Saudi Arabian Airlines Saudi Arabia 27,455 6.3% 43,147 3.8% 63.6% 1.5% 16.9 7.2% 
33 easyJet United Kingdom 27,448 27.3% 32,141 26.3% 85.4% 0.9% 29.6 15.1% 
34 Alaska Airlines United States 27,216 4.2% 35,868 0.1% 75.9% 3.0% 16.8 2.9% 
35 Air New Zealand New Zealand 25,568 6.8% 34,091 6.6% 75.0% 0.2% 11.7 7.3% 
36 South African Airways South Africa 24,300 5.3% 34,910 4.8% 69.6% 0.4% 7.1 4.6%  
   S/C/W/270/Add.2
 Page 227Pax traffic (RPK) Seat capacity (ASK) Load factor Pax numbers Ranking 
2005 Airline operation Country 
million change million change percent change million change 
37 Thomsonfly United Kingdom 23,266 9.5% 26,500 11.5% 87.8% -1.6% 9.5 9.9% 
38 EVA Air Chinese Taipei 23,099 6.2% 29,348 7.3% 78.7% -0.8% 5.9 8.6% 
39 Austrian Airlines Austria 22,894 7.6% 30,887 5.7% 74.1% 1.3% 10.1 7.7% 
40 Condor Flugdienst Germany 22,245 3.4% 25,835 3.2% 86.1% 0.1% 7.4 3.7% 
41 THY Turkish Airlines Turkey 21,318 14.6% 29,805 12.6% 71.5% 1.3% 14.1 17.9% 
42 Aeroflot Russian Airlines Russian Fed. 20,750 0.5% 30,029 0.2% 69.1% 0.2% 6.7 1.7% 
43 Air Berlin Germany 20,527 18.8% 26,102 12.2% 78.6% 4.7% 13.5 12.2% 
44 Air India India 20,511 8.0% 30,966 12.7% 66.2% -2.9%   
45 Swiss Switzerland 20,469 -3.9% 26,193 -7.7% 78.2% 3.1% 9.6 -1.2% 
46 TAM Linhas Aéreas Brazil 19,797 42.9% 28,024 33.5% 70.6% 4.7% 19.6 44.4% 
47 Asiana Airlines Rep. of Korea 19,225 -2.5% 26,244 -5.6% 73.3% 2.3% 11.8 -3.6% 
48 LTU International Airways Germany 18,206 -1.0% 22,268 4.4% 81.8% -4.4% 5.6 -5.1% 
49 AirTran Airways United States 18,184 33.3% 24,730 28.3% 73.5% 2.7% 16.6 26.3% 
50 Qatar Airways Qatar 17,891 47.0% 24,788 39.9% 72.2% 3.5% 5.8 28.9% 
 
Notes: Pax = passengers.  RPK = Revenue Passe nger-Kilometre.  ASK = Available Seat-Kilome tre.  Load factor = percentage of seat s available that are actually purchased by 
passengers. 
Source :  Airline Business, August 2006. 
 
 S/C/W/270/Add.2 
Page 228  
 
  B. F
INANCIAL PERFORMANCE  
120. The financial performance of scheduled air lines has been marked by the many adverse 
external shocks during the period under review.  However, airlines ha ve also had to contend with 
dynamic and potentially destabilising internal devel opments, and in particular the competitive threat 
posed by low-cost carriers. 
121. Table 12 provides information about operating a nd net results for the scheduled airlines of 
ICAO Contracting States during the period under review , while Chart 1 depicts the trend with regard 
to net results.  (Comparable data for the period 1993-1999 can be found in table 17 on page 160 of the 
compilation.) 
Table 12 
Operating and net results1, 2000-2005 
(Scheduled airlines of ICAO Contracting States2) 
 
Operating result Net result3 
Year Operating 
revenues 
(US$ million) Operating 
expenses 
(US$ million) (US$ 
million) % of operating 
revenues (US$ 
million) % of operating 
revenues 
2000 328 500 317 800 10 700 3.3% 3 700 1.1% 
2001 307 500 319 300 -11 800 -3.8% -13 000 -4.2% 
2002 306 000 310 900 -4 900 -1.6% -11 300 -3.7% 
2003 321 800 323 300 -1 500 -0.5% -7 560 -2.3% 
2004 378 800 375 500 3 300 0.9% -5 570 -1.5% 
20054 413 300 409 000 4 300 1.0% -3 200 -0.8% 
 
Notes: 1. Revenues and expenses are estimated for non-reporting airlines. 
2. Up to and including 1997 it excludes operations w ithin the Commonwealth of Independent States.  
3. The net result is derived from the operating result by adding (with plus or minus sign as appropriate) 
non-operating items (such as interest and direct subsidies) and income tax. The operating and net 
results quoted, particularly the net results, are th e small differences between the estimates of large 
figures (revenues and expenses) and are therefor e susceptible to substantial uncertainties.  
4. Preliminary data. The net results for 2005 have been estimated after excluding a provision of 
US$ 20.7 billion for reorganization expenses set aside by United Airlines. These expenses will be 
recorded in the next financial year once the impact of the reorganization costs is known.  
Source :  ICAO, Annual Report of the Council, 2005. 
 
Chart 1 
Net results, 2000-2007 
(US$ billion) 
-13-11.3-7.6-4.2-3.2-0.55
-15-10-505
2001 2002 2003 2004 2005 2006 2007
 
 
Note: 2007 figures are estimates. 
Source :  IATA Annual Report, 2006;  Les Echos, June 2007. 
  S/C/W/270/Add.2 
 Page 229 
 
 
  122. As a whole, the industry has not been profitabl e since 2000.  The vast loss recorded in 2001 
reflects the impact of the events of 11 September,  as well as the general economic slowdown.  From a 
regional standpoint, carriers in North America were those most severely hit, accounting for 94 per cent of the total operating losses for the year.  Resu lts in 2002 were still significantly affected by the 
slow economic recovery and the lingering effects of  9/11, while the 2003 figures reflect the relative 
improvement in the operating results of North Amer ican carriers, although this was diluted by a 
sluggish economy, security concerns related to military events in the Gulf region and the impact of the 
SARS outbreak.  The comparative progress in fina ncial results in 2004 and 2005 was mainly due to 
the improvement in the results of airlines in Europe and the Asia/Pacific region.
52 
123. In 2006, net losses are expected to drop to US $0.5 billion, helped by falling oil prices in the 
second half of the year and only marginally affe cted by the fallout, in August 2006, from the 
discovery of an apparent plot to set off bombs on aircraft flying from London to the United States.  
The bulk of the net losses in 2006 remains in North America, where, in spite of operating profits 
rising rapidly, the sector is still carrying heavy debt and restructuring costs.53  2007 may see the first 
profit in 6 years for the industry, and forecasts by IA TA are of a US$5 billion net positive result.  This 
is largely a result of, first, US network carriers'  restructuring costs expected to be half the 
US$6 billion they were in 2006 and, second, stronger than expected passenger demand during the first 
quarter of 2007, in particular business demand in Asia/Pacific and Europe.  IATA has also recently 
revised upwards its profit forecast for 2008, to US$9.6 billion, from an earlier estimate of 
US$7.6 billion.54  
C. GOVERNMENT SUPPORT  
124. Given the shocks faced by the industry and th e size of the losses accumulated during the 
period under review, heavy capital injections were n eeded on the part of governments to help keep 
several of the major airlines afloat.  Financial ai d included not only monetary disbursements, but also 
indirect support in terms of loan guarantees, liab ility protection and insurance coverage, restructuring 
of loans on low interest rates, optimization of taxation, extension of unemployment and health 
insurance coverage, grants for retraining and bridgi ng loans to avoid immediat e collapse.  Quite a few 
governments also took measures to indemnify their ca rriers against the risks left open as a result of 
action taken by the insurance industry following the events of 11 September.55 
125. In the aftermath of 9/11, it was primarily US  airlines that needed to be bailed out by 
government support and aid.56  On 22 September 2001, the US President signed into law the Air 
Transportation Safety and System Stabilization Act (ATSSSA), which made  available funds to 
compensate US air carriers' losses suffered as a result of the attacks.57  Under the Act, up to 
US$5 billion in compensation was authorized for dir ect losses incurred by ai r carriers as a result of 
any federal ground stop order issued by the Secretary of Transportation (or its continuation);  and for 
the incremental losses by air carriers incu rred beginning 11 Sept ember 2001 and ending 
31 December 2001, as a direct result of the at tacks.  At the close of the programme on 
31 December 2002, the Department of Transpor t (DOT) had transferred a total of just over 
US$4.6 billion to 426 US carriers. 
126. In addition to the federal grants, the Act ma de available to airlines up to US$10 billion in 
federal loan guarantees.58  The guarantees were to be allocated to airlines on a discretionary basis by 
                                                      
52 Annual Review of Civil Aviation, 2001 to 2005, ICAO Journal. 
53 Financial Times, 13 December 2006. 
54 Airline Business, July 2007. 
55 Annual Review of Civil Aviation 2001, ICAO Journal, Number 6, 2002.  
56 The description of the situation in the United States is drawn largely from the Trade Policy Review of the 
United States, document WT/TPR/S/126, page 134, paragraphs 139-142. 
57 The Act is available online at:  http://www.treas.gov/offices/domestic-finance/atsb/hr2926.pdf 
58 See for example US General Accounting Office, GAO (2001). S/C/W/270/Add.2 
Page 230  
 
  the Air Transportation Stabilization Board (ATSB), established for that purpose.
59  Borrowers had to 
submit their applications no later than June 2002.  Only a few airlines were ab le, or wished, to obtain 
loan guarantees, since these were conditional and cam e with strings attached.  For instance, despite 
being in Chapter 11 bankruptcy protection, United Ai rlines failed three times to get its loan requests 
approved by the ATSB, largely because the latter did not consider the airline recovery plan to be 
viable. 60 
127. Two distinct programmes were established under the ATSSSA to help airlines meet increased 
insurance costs after September 2001.  Under th e first Aviation Insurance Program, the Federal 
Aviation Administration (FAA) provides, inter alia , indemnity for third-party aviation war-risk 
liability beyond US$50 million per occurrence, follo wing the cancellation of this coverage by 
commercial insurance underwriters.61  The current programme has been extended until 31 August 
2007.  The second programme, also run by the FAA, consists, inter alia , of reimbursements to US air 
carriers for the increase in the cost  of insurance premiums, relative to the premium that was in effect 
at the beginning of September 2001.  Payments fo r this support were to be made from a revolving 
fund established for this purpose.62  Approximately US$60 million was disbursed for 30 days of 
additional war risk premium expense immediatel y after 11 September 2001.  According to the 
authorities, no further payments we re being made or contemplated. 
128. Furthermore, US airlines began to reduce or postpone contributions into their employees' 
pension funds.  For example, upon entering Chap ter 11 for the second time in mid-September 2004, 
US Airways told the bankruptcy judge it would term inate its defined benefit pension plans and would 
not make a US$110 million pension payment due.  In  August 2006, a new bill allowed carriers in 
Chapter 11 a much longer time to repay deficits in  their retirement schemes, adding a decade to the 
seven years previously allowed.63   
129. All major US legacy carriers, with the ex ception of American Airlines and Continental 
Airlines, filed for Chapter 11 bankruptcy protection during the period under review.  In Chapter 11 of 
the Bankruptcy Code, a company is protected from cr editors while it keeps operating and tries to cut 
costs and reorganize.  US Airways had filed for ba nkruptcy court protection in August 2002, followed 
in December of the same year by United Airlines.  By the time Northwest Airlines and Delta Airlines 
also filed for Chapter 11, in September 2005, inso lvent carriers operated mo re than 40 per cent of 
domestic capacity.  By May 2007, all four major legacy carriers had reorganised and exited from 
Chapter 11.64 
130. Elsewhere too governments had to intervene to pr op up their collapsing airlines.  In December 
2000, the Malaysian government bought back almost 30 per cent of Malaysian Airlines in order to try 
to rescue it.  A year later, in October 2001, th e New Zealand government injected NZ$885 million to 
buy back and rescue Air New Zealand.  
131. In 2002, the Brazilian Government approved a comprehensive aid package for Brazilian 
carriers which included a provision for US$320 in tax relief.65  This did not prevent the disintegration 
of Varig, once Brazil's leading international airlin e.  Varig was placed under judicial reorganisation 
                                                      
59 The Regulations for Air Carrier Guarantee Loan Program are found in the Federal Register of 
12 October 2001 and available online at:  http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=2001_ register&docid=f:12ocr2. pdf 
60 Doganis, R. (2006), "The Airline Business", Routledge. 
61 Information available online at:  http://insurance.faa.gov  
62 The legislation is available online at:  http://apo.faa.gov/Insurance/49USC443.pdf  
63 Doganis, op. cit;  Airline Business, September 2006;  Aviation Week & Space Technology, 24 October 
2005. 
64 Business Travel News Online, June 11 2007, available at: 
 http://www.btnmag.com/businesstravelnews/headlines/airline_display.jsp?vnu_content_id=1003596963 
65 Annual Review of Civil Aviation 2002, ICAO Journal, Number 6, 2003.  S/C/W/270/Add.2 
 Page 231 
 
 
  proceedings in 2005 and substantially downsized in  2006, only to be purchased by Brazil's low-cost 
carrier Gol in March 2007.   
132. In 2004, the Namibian Government injected a further 366 million Namibian dollars into Air 
Namibia, totalling about 1.8 billion Namibian dollars  since 1999.  The Government of Trinidad and 
Tobago provided an emergency cash injection of  US$10 million and a US$30 million debt-to-equity 
swap to BWIA West Indies Airways, which had already received about US$38 million and a debt 
guarantee since 2002.66  The government of Jamaica committe d itself to a maximum subsidy of 
US$30 million per year for Air Jamaica in 2005. 
133. In Europe, despite the large losses being suffere d by European airlines, state aid was very 
limited by comparison to what it had been in the mid-1990s, largely because of the constraints 
imposed by the European Commission.  In 2002, the Commission ruled that the Greek Government 
needed to recover €160 million of the aid previously  granted to Olympic Airways, since the carrier 
had not implemented the restructuring plan linked to aid approval.  The carriers was subsequently 
split into two entities, Olympic Airlines and Ol ympic Airways, but in 2005 once again the 
Commission ruled that the Greek Government  had supplied illegal s upport worth €540 million.67 
134. In 2004, the Italian Government decided to pr ovide a bridging loan of €400 million for flag 
carrier Alitalia, into which the government had alre ady injected capital in 2002 with a condition of 
restructuring, while in May 2005 the European  Commission authorised a rescue aid of about 
€100 million for Cyprus Airways by the Government of Cyprus.68   
                                                      
66 Annual Review of Civil Aviation 2004, ICAO Journal, Number 6, 2005. 
67 Annual Review of Civil Aviation 2002, ICAO Journal,  Number 6, 2003;  Airline Business, October 2005. 
68 Annual Review of Civil Aviation 2004 and 2005, ICAO Journal, Number 6, 2005 and 2006.  S/C/W/270/Add.2 
 Page 233 
 
 
   
    
 
  
 
SECTION III 
 
ECONOMIC AND REGULATORY 
DEVELOPMENTS IN SPECIFIC 
AREAS  S/C/W/270/Add.2 
 Page 235 
 
 
   
 
   
 
  
 
PART A 
 
LOW-COST CARRIER SERVICES  S/C/W/270/Add.2 
 Page 237 
 
 
   
 
III.  ECONOMIC AND REGULATORY DEVELOPMENTS IN SPECIFIC AREAS 
A. L OW-COST CARRIER SERVICES  
135. The low-cost/low-fare airline business model was originally developed and successfully 
implemented in the United States following deregulation of the domestic air transport sector in the 
1970s.  A US regional carrier, Southwest Airlines, re-launched itself as the first low-cost airline in 1971, offering low-fare services from its hub at Love Field, a secondary airport in Dallas, Texas.  
Southwest currently carries over 65 million passengers a year and is the most profitable US airline.
69 
136. The low-cost phenomenon has since spread  globally.  In Europe, following the 
Commission-driven process of liberalisation of ai r transport between 1987 a nd 1997, it was pioneered  
by Ryanair, which is now the largest intra-Europ ean carrier.  More recently, the process has taken 
hold in Australia and Latin America and is experien cing its most dramatic expansion in Asia.  Low-
cost carriers (LCCs) are being set up also in Africa and the Middle-East.   
137. Although no comprehensive data are available, the following figures might give an idea of 
the strength and spread of the low-cost model.   Between 2000 and 2003, the capacity operated by 
LCCs globally grew by 69 per cent, compared with an 8 per cent fall in legacy airline capacity.  In 
turn, this underscores the resilien ce of the low-cost model to rec ession thanks to low baseline costs 
and the traditional focus on domestic, as opposed to in ternational, markets.  Over the same period, the 
number of flights operated by LCCs worldwide incr eased by 50 per cent, to 42,490 per week.  In 
Australia and New Zealand, LCC flight numbers grew tenfold, from 136 flights per week to 1,340;  in 
the more mature markets of Europe and the Unite d States, they were up by 140 per cent and 27 per 
cent, respectively.70  By January 2007, LCCs accounted for 18% of worldwide capacity offered, 
equivalent to about one in six seats, up from 16 per cent a year earlier and just 9 per cent in 2002.71 
1. What makes a carrier low-cost? 
138. Although the term "low-cost carri er" is frequently used in a generalising manner, as if these 
airlines were homogeneous entities, there exist in fact many variations to the model and great 
diversity between airlines.   
139. A low-cost airline in its purest form is based on the Southwest model.  It operates from less-
congested, secondary and regional airports where charg es are lower, delays are rare and turnaround of 
the aircraft can be achieved much more quickly than  at busy, hub airports.  A rapid turnaround time – 
i.e. the time it takes to land an aircraft, disembark passengers, re-fuel if necessary, board the next 
flight and take off – is key to improving aircraft efficiency.72  A low-cost carrier serves short- to 
medium-haul, point-to-point destinations, which means that aircraft are back at the base at the end of 
the day.  The airline does not provide for any interl ining, which allows for savings to be made on the 
management of connections and baggage. 
140. A "pure" LCC's fleet is made up of a single airc raft type, which allows all pilots, cabin crew 
and engineers to operate on any aircraft of the fl eet, thereby reducing training and maintenance costs 
and the cost of aircraft financing.  A LCC markets itself on price with a single-class offering and 
                                                      
69 European Low Fares Airlines Association (2004), "L iberalisation of European Air Transport:  The 
Benefits of Low Fare Airlines to Consumers, Airports, Regions and the Environment", available at http://www.elfaa.com 
70 Speech by Peter Harbison, Managing Director, Centre for Asia-Pacific Aviation, at the "Low Cost Airline 
Symposium", July 2004. 
71 La Tribune, 6 September 2006;  Centre for Asia -Pacific Aviation, "Centreline", 14 February 2007. 
72 A 20-25 minutes turnaround time is what LCC aim to achieve (see, for example, 
http://www.easyjet.com/common/img/UB STransportConference19thSept05.pdf). S/C/W/270/Add.2 
Page 238  
 
  provides a "no frills" service, where all extras (such as in-flight catering, entertainment programmes, 
seating assignments) need to be paid for.  The absence of a business class and limited catering allow 
for higher seating density and hence higher capacity utilisation.73   
141. In terms of distribution, a LCC relies heavily on direct sales through the internet and/or call 
centres.  This permits savings on travel agents' co mmissions and Global Distribution Systems fees, in 
addition to the savings linked to the use of elec tronic tickets, which eliminate the need for the 
expensive ticket emission process. 
142. Figure 4 provides a breakdown of the various efficiencies achieved by LCCs. 
Figure 4 
Economic advantages of the low-cost model 
 
LCCs Traditional airlines  LCC advantages 
Operate from mostly 
secondary, underutilised, 
regional airports Operate from mostly 
primary international hub airports 
  Lower airport charges, faster 
turnaround times, less air traffic control-related delays 
Fast turnarounds (25min.) Slow turnarounds due to 
use of congested hub 
airports  Better fleet utilisation 
 
Direct point-to-point flights, no transfers, short-haul routes Mix of long, medium and 
short haul routes with transfers (“connecting 
flights”)  Lower complexity, higher 
capacity utilisation  
Standardised fleet (only one aircraft type), higher seating 
density Various aircraft types, 
low seating density   Cheaper aircraft financing, 
lower maintenance and training costs, 
simpler swapping around of 
flight and maintenance staff, higher capacity utilisation 
 
Distribution 
primarily through direct channels 
(internet, call 
centres)  Most tickets sold via 
travel agencies (high GDS costs, travel agent 
commissions, etc.)  
Lower distribution costs, 
lower complexity  
No “frills”, extras paid for (e.g. catering, excess 
baggage) 
 Entertainment 
programmes, express check-in, VIP lounges, 
paper tickets, business 
class, “free” catering  
Lower ancillary costs, less complexity, additional revenues 
Highly incentivised work force (variable 
proportion of salary 
up to 40 per cent) High basic salaries 
(variable proportion less 
than 10 per cent) 
  
High employee productivity 
Source :  European Low Fares Airlines Association, 2004. 
143. A study by the European Cockpit Association shows that, when all factors are taken into 
account, LCCs have a cumulative advantage in operati ng costs of 57 per cent compared to traditional, 
full-service carriers.74  The high-density aircraft seating c onfiguration alone provides it with an 
average 16 per cent cost advantage.  Whereas a tr aditional airline would configure a Boeing 737-300 
                                                      
73 The European average is more than 11 hours a day (Les Echos , 3 February 2003). 
74 European Cockpit Association (ECA) (2002), "Low Cost Carriers in the European Aviation Single 
Market", ECA Industrial Sub Group, availabl e on-line at http://www.eurocockpit.be  S/C/W/270/Add.2 
 Page 239 
 
 
  for 109 seats and include a business class, London- based LCC easyJet fits 130 seats in the same 
aircraft, i.e. 20 per cent more seats to sell.  In the US, Southwest configures its airplanes for 137 seats 
compared with a full-service carrier's 126.75 
144. Reduced station costs, with fewer personnel at check-ins and on the line, as well as with the 
outsourcing of many fixed services, such as ground handling and maintenance, enable another 10 per 
cent of savings.  A further 6 per cent comes from flyi ng to cheaper airports, with lower landing fees 
and handling charges, another 6 per cent from not s upplying in-flight catering, and yet another 6 per 
cent from not paying commissions to travel agents.  Three per cent cost savings are obtained, each, 
from running ticket-less web-based operations, from higher aircraft utilisation and from lower crew 
costs.  With respect to the latter element, the LCCs' cost advantage comes from fewer crew needs, 
thanks to higher aircraft utilisation, a higher crew workload and fewer overnight  stay costs.  However, 
the biggest savings originate from lower basic pay,  which is partly compensated by much higher 
variable pay, making up close to 40 per cent of the crew's overall income.  A single aircraft fleet, resulting in easier and more predictable maintenance work and greater efficiency in crew deployment, 
and lower overheads and administration costs contribute each an additional saving of 2 per cent.  
Chart 2 illustrates the situation. 
Chart 2 
Low-cost carrier cost advantages 
 
16%
3%3%
6%
2%
10%
6%
6%
3%
2%16%
19%
22%
28%
30%
40%
46%
52%
55%84%
81%
78%
72%
70%
60%
54%
48%
45%
43%0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
seat density
higher A/C utilization
lower crew costs
cheaper airports / landing fees
outsourcing maintenance A/C-type
minimal station coasts /outs. Handling
no inflight catering
no agents commission
reduced sales / reservation costs
smaller administration / overhead costs
advantage cumulative advantage low costFi nal  
Cost of 
L CC i n 
relatio n to FSC 
43%
 
 
Notes: FSC = Full Service Ca rrier.  A/C = Aircraft. 
Source :  European Cockpit Association, 2002. 
145. Several variations have evolved from the S outhwest-inspired business model for a low-cost 
airline.  While some LCCs, such  as Ryanair, are taking the no-frills philosophy to its limits, by 
charging for elements of air transport that were onc e thought of as part of the ticket price, such as 
checked baggage, and simultaneously increasing their reliance on revenue from such "ancillary" 
services, including seat assignments, car-hire, hotel bookings and insurance,76 these carriers now tend 
to be more the exception than the rule.   
146. Numerous LCCs offer at least some "frills", such as in-flight entertainment or catering.  This 
is not only true of the South-East Asian market, wher e the distances flown are often longer, but also in 
                                                      
75 Interavia, March/April 2003. 
76 According to Airline Business (March 2006), Ryanair's ancillary sales now account for 15 per cent of total 
revenues, and the carrier aims to boost them to 20 per cent over the next three to five years.  Ancillary sales already 
account for 20 per cent of the revenues of Allegiant Air, a LCC based in Las Vegas. S/C/W/270/Add.2 
Page 240  
 
  more mature markets such as the US, where market sa turation is forcing LCCs to consider alternative 
business models, at times even improving on the product offering of the legacy carriers.
77   
147. Others have launched business class-only services at low-fares.  MAXjet and EOS, two 
American carriers, started flying in the autumn of 2005 between New York and London with aircraft 
configured in a single class, MAXjet in business class and the EOS in first class, but charging much 
lower fares than the majors.  UK-based Silverjet la unched in January 2007 a daily flight on the same 
route, and is reported as planning the addition to services on less dense routes in 2008.78  New French 
carrier L'Avion also started in January 2007 to offe r an all-business class se rvice between Paris and 
New York at a charge of, on average, about 50 per cent below traditional airlines.79   
148. Some LCCs are attempting to apply the low-cost  model to long-haul travel.  For instance, 
Zoom, a Canadian start-up, began offering low-fa re scheduled services from Canada to the UK and 
Paris.  Qantas of Australia is using its domestic  low-cost subsidiary Jetstar as a medium/long-haul 
carrier, focusing on destinations between six and te n hours from Australia, and Australia's Virgin Blue 
is considering serving the US West Coast.  Oasi s Airlines of Hong Kong, China launched low-fare 
scheduled services to the UK and Canada and is lookin g at serving other routes to Europe and North 
America, as is Viva Macau, which plans to serve European, Australian and Middle Eastern 
destinations.80  Malaysia's AirAsia, Asia's most successful  LCC, is launching AirAsia X to serve long-
haul Australian and European destinations and ai ming at fares 50 to 60 per cent below the lowest 
offered by other airlines.81  Ryanair is also reported as consid ering the launch of a new, independent 
carrier to serve the long-haul market between Europe  and the United States, thus taking advantage of 
the entry into force of th e open skies EU-US air services agreement in March 2008.82 
149. No company, however, has as yet found a way of emulating the low-cost success story on 
long-haul routes.  The biggest advantages that LCCs have been able to exploit on short-haul markets 
are their higher capacity utilisation, high density seating and high load factors.  On the long haul, they 
face plenty of obstacles, starting with the comp etitive response of the network airlines, which 
routinely offer low-fares and are able to subsidi se them with cargo revenue and high-yield business 
traffic.  Major long-haul airlines also tend to have  larger fleets over which to spread fixed costs, 
interline arrangements which allow them to fill their planes more easily and already achieve high 
capacity utilisation, making them fairly cost-competitive.83 
150. Most industry commentators are of the view that  low-cost carriers have left a lasting imprint 
on the industry and that legacy carriers will have to  adapt, leading to progressive convergence of the 
two business models.84  Strategies being pursued or considered by LCCs that would go in this 
direction are:  the offering of frequent flyer schem es, so as to build customer loyalty, gain access to 
customer data and ensure that loyalt y is not exclusively based on price;85  the forming of marketing 
and sales alliances in order to create the impression of a larger route system, whilst trying to avoid the 
                                                      
77 JetBlue Airways, for instance, has introduced a live TV service (Airline Business, May 2006). 
78 Airline Business, March 2007. 
79 Les Echos, 3 January 2007. 
80 Airline Business, May 2007, May 2006 and December 2004;  Aviation Week & Space Technology, 19 
July 2004. 
81 Financial Times, 23 April 2007. 
82 Airline Business, May 2007. 
83 Airline Business, May 2006 and December 2004. 
84 Airline Business, February 2006. 
85 For example, Southwest and AirTran have their own frequent flyer reward programmes (Airline Business, 
March 2004).  S/C/W/270/Add.2 
 Page 241 
 
 
  complexity of global airline alliances by not offering code-shari ng and through-check-in;86  a n d  
venturing into cargo operations.87 
2. Economic and regulatory developments by region 
151. As LCCs are generally not subject to separat e regulatory arrangements, the discussion of the 
economic and specific regulatory developments that c oncern this segment of the air transport sector is 
approached from regional perspective.   
152. Historically, LCCs have emerged in domestic or quasi-domestic liberalised environments, 
such as the United States and the European Union,  where they were able to seize the opportunities 
offered by the introduction of competition.  The spectacular growth experienced by LCCs in the 
Asian, and particularly South-East Asian markets, has come at the surprise of many commentators 
who questioned the possibility of LCCs thriving in  an aeronautical environment still governed by 
restrictive bilateral air services agreements.  Table 13 provides a ranking of the top 40 LCCs by 
passenger numbers. 
                                                      
86 For instance, Germany's Air Berlin and Germania Express have web sites that list a selection of flights 
offered by their partners (see Aviation Week & Space Technology, 29 March 2004).  An interline accord, however, has recently been reached by Virgin Blue and Ma laysia Airlines (Airline Business, October 2006). 
87 Germany's Freshline is claimed to be the first low-cost cargo carrier, planning to fly perishable goods from 
Africa and the Middle East into Frankfurt Hahn (Airline Business, November 2005) and Macau, China's Viva Macau has been reported as seeing cargo (which could account for around 25 per cent of total revenue) as a very important 
part of the business, especially given its geographical location on the edge of China's Pearl River Delta which 
generates around one-third of China's exports. S/C/W/270/Add.2 
Page 242  
 
  Table 13 
Top 40 low-cost carriers by passenger numbers, 2006 
 
Rank 
2006 2005 Carrier Country Launch Pax 
(m) Load 
factors Notes 
1 (1) Southwest Airlines USA 1971 83.8 73.1 %  
2 (2) Ryanair Ireland 1991 42.5 82.0 %  
3 (3) easyJet UK 1995 28.0  81.5 % Source: UK CAA 
4 (4) AirTran Airways USA 1993 20.1 72.8 %  
5 (6) Air Berlin Germany 2002 19.7 77.7 % Includes DBA 
6 (5) JetBlue Airways USA 2000 18.6 81.6 %  
7 (8) Gol Transportes Aereos Brazil 2001 17.4 73.3 % Source: ANAC Brazil 
8 (7) Virgin Blue Australia 2000 14.3 77.5 %  
9 (10) WestJet Airlines Canada 1996 11.2 78.2 %  
10 (11) Lion Airlines Indonesia 2000 10.0 - AB estimate 
11 (9) Thomsonfly UK 2004 9.6 86.9 % Source: UK CAA 
12 (12) Frontier Airlines USA 1994 8.9 76.2 %  
13 (13) germanwings Germany 2002 7.1 82.2 %  
14  Air Deccan India 2003 5.9 76.8 % Source ICAO 
15 (18) Jetstar Australia 2003 5.8 74.0 %  
16 (17) AirAsia Malaysia 2001 5.7 77.5 %  
17 (21) Norwegian Norway 2002 5.1 78.6 %  
18 (15) Spirit Airlines USA 1990 5.0 78.6 %  
19 (19) Hapag-Lloyd Express Germany 2002 4.6 79.3 % Source: ELFAA 
20 (16) flybe UK 2002 4.5 63.2 % Source: UK CAA 
21 (20) bmibaby UK 2002 4.1 74.4 % Source: ICAO 
22 (22) Sterling Airlines Denmark 2000 4.0 82.0 %  
23 (27) Vueling Airlines Spain 2004 3.5 69.4 %  
24 (25) Cebu Pacific Air Philippines 1996 3.5 75.0 %  
25 (23) Monarch Scheduled UK 1986 3.1 -  
26 (28) WIZZ Air Hungary 2003 3.0 80.0 %  
27 (24) Jet2.com UK 2002 2.8 77.2 % Source: UK CAA 
28 (14) ATA Airlines USA 1981 2.6 79.7 % Scheduled services  
29 (29) SkyEurope Airlines Slovakia 2001 2.6 75.6 %  
30 (26) Wind Jet Italy 2003 2.2 68.0 %  
31 (32) Allegiant Air USA 1998 2.2 78.4 %  
32 (30) SpiceJet India 2005 1.8 80.0 % Source: ICAO 
33  Kulula South Africa 2001 1.8 - AB estimate 
34  Air Arabia UAE 2003 1.7 - Source: IPO prospectus 
35 (30) Sun Country Airlines USA 1983 1.6 67.9 % Source: ICAO 
36 (36) Tiger Airways Singapore 2004 1.5 -  
37  Click Mexicana Mexico 2005 1.5 -  
38 (35) FlyGlobespan.com UK 2003 1.3 85.5 %  
39 (32) flynordic Sweden 2000 1.2 64.0 %  
40 (34) Myair Italy 2004 1.1 74.3 %  
Total top 40 carriers 374.7 76.6 %  
 
Notes: Pax (m) = Passengers (millions).  Load factor  = percentage of seats available that are actually 
purchased by passengers.  Airline data has largely been sourced from company replies or records and 
compiled by Airline Business sister online service, Air Transport Intelligence.  Estimates have been made for significant carriers fo r which no figures were made.  AB = Airline Business.  
Source
: Airline Business, May 2006. 
153. Interestingly, there is a large degree of co rrespondence between the ranking of the airlines 
within each region and the timing of their launch, pointing to the significant impact of first-mover 
advantages in terms of stimulating demand and building brand power.  Financial results (see 
Table 14) paint a largely similar picture, with Ryanair, AirAsia and Gol, having performed well  S/C/W/270/Add.2 
 Page 243 
 
 
  enough in 2006 to post operating margins around or over 20 per cent, with Westjet and Southwest 
next in line with margins over 10 per cent.   
Table 14 
Financial results1 for selected low-cost carriers, 2006 
 
 
Notes: 1. Results contain preliminary and un-audited figures.   
 2. The net result is derived from the operating result by adding (with plus or minus sign as appropriate) 
non-operating items (such as interest and direct subsidies) and income tax. 
 3. Virgin Blue 2006 results are for 9 months due to change in financial reporting period. 
Source : Airline Business, May 2007. 
(a) The Americas 
(i) United States 
154. LCCs have been the fastest growing segment of the air transport market in the US.  Chart 3 
shows that the LCC share of the US market in terms of domestic passengers has grown from 7 per 
cent in 1990, with Southwest taking the lion's share, to  about one-quarter of all domestic passengers in 
2004. Other low-cost airlines, such as AirTran Airw ays, JetBlue Airways and Frontier Airlines have 
grown rapidly as well.  Some analysts predict that  the low-cost segment will account for about 45 per 
cent of domestic US passengers by 2009.88  Some LCC, such as Frontier, are also flying 
internationally, mainly to warm-w eather destinations in Mexico an d north of the border to Canada.89  
                                                      
88 Airline Business, March and May 2005. 
89 Airlines Business, March 2007. Operating margin Net result2 Airline Country Revenue 
(US$ 
million) 2006 2005 2006 2005 Period 
end 
Southwest Airlines USA 9,086 10.3 % 9.6 % 499.0 484.0 Dec 06 
easyJet UK 2,917 7.3 % 4.9 % 169.5 109.0 Sep 06 
JetBlue Airways USA 2,363 5.4 % 2.8 % -1.0 -20.3 Dec 06 
Ryanair Ireland 2,096 21.8 % 24.9 % 379.8 348.3 Mar 06 
Air Berlin Germany 2,026 4.0 % -0.5 % 63.8 -143.5 Dec 06 
AirTran Airways USA 1,893 2.2 % 1.0 % 15.5 2.7 Dec 06 
Gol Transportes Aereos Brazil 1,750 18.4 % 23.3 % 262.0 212.6 Dec 06 
WestJet Airlines Canada 1,572 11.2 % 4.4 % 101.6 19.8 Dec 06 
Virgin Blue3 Australia 1,039 9.6 % 8.8 % 63.4 80.5 Jun 06 
germanwings Germany 706 0.0 % 0.0 %   Dec 06 
flybe UK 541 -1.2 % 4.9 % -21.8 14.4 Mar 06 
Norwegian Norway 461 -1.1 % 1.3 % -2.0 4.1 Dec 06 
FlyGlobespan.com UK 385 2.5 % 0.0 % 6.2 5.6 Dec 06 
Vueling Airlines Spain 297 -4.4 % -14.8 % -13.6 -13.1 Dec 06 
Air Deccan India 276 -22. 0 % % -76.0  Jun 06 
Allegiant Air USA 243 9.3 % 6.4 % 8.7 7.3 Dec 06 
AirAsia Malaysia 230 25.0 % 20.0 % 34.1 25.5 Jun 06 
Air Arabia UAE 204 0.0 % 0.0 % 27.5 8.4 Dec 06 
SkyEurope Airlines Slovakia 198 -32.8 % -29.8 % -67.1 -36.4 Sep 06 S/C/W/270/Add.2 
Page 244  
 
  Chart 3 
Share of the low-cost airline sector in the US domestic market, 1990-2004 
(Percentage of total domestic passengers) 
 
051015202530
1992 1994 1996 1998 2000 2002 2004*
* Estimate
 
 
Sources : Ito, D. and D. Lee (2003), "Low Cost Carrier Grow th in the US Airline Indu stry:  Past, Present, and 
Future", Brown University Economics Department Working Paper, no. 12;  European Low Fares 
Airlines Association, 2004. 
155. The scope of LCC services, once limited to a handful of cities, has expanded to reach 
virtually all corners of the country, to the extent that low-cost airlines are now beginning to serve 
primary airports in major business centres as well  as secondary cities by using smaller aircraft.90  
Carriers such as JetBlue are now also competing on the cross-country markets that had, until recently, 
been the exclusive and profitable domain of the ne twork players.  Atlanta-based AirTran and Denver-
based Frontier, which are, respectively, strong in the east and the west of the country, have also geographically broadened their service territories by forging an unprecedented link-up.  The "virtual 
code share" implies a joint marketing strategy of  using web pages and call centre agents to refer 
travellers to the partner carrier and allows passenge rs to earn and redeem frequent-flyer miles in either 
carrier's loyalty programme.
91  Table 15 provides a breakdown of the US domestic market. 
Table 15 
Share of the top 5 legacy and low-cost carri ers in the US domestic market, May 2005 
(Percentage of total seat capacity) 
 
Top 5 legacy carriers Share  Top 5 low-cost carriers Share 
1 Delta Airlines 16.9%  1 Southwest Airlines 11.7% 
2 American Airlines 15.8%  2 JetBlue Airways 3.0% 
3 United Airlines 13.0%  3 AirTran Airways 2.1% 
4 Northwest Airlines 8.6%  4 Song 1.7% 
5 Continental Airlines 7.9%  5 Ted 1.7% 
 
Notes: Based on capacity data from OAG schedules for May 2005.  Song and Ted = estimated from stated 
schedules (figures excluded from Delta and United). 
Source : Airline Business, May 2005. 
156. The rapid growth of LCCs has commonly been  cited as one of the primary causes of the 
financial crisis facing the large hub-and-spoke carriers in the US.92  Indeed, competition from low-
cost airlines has prompted majors to re-think their st rategies.  First, many have been seeking to reduce 
                                                      
90 Southwest is entering Philadelphia International and Pittsburgh, JetBlue Boston Logan and AirTran 
Charlotte (Airline Business, May 2005). 
91 Airline Business, December 2006;  Aviation Week & Space Technology, 29 November 2006. 
92 See, for example, "Information Brief of United Air lines, Inc.", in the United States Bankruptcy Court For 
the Northern District of Illinois, 9 December 2002.  S/C/W/270/Add.2 
 Page 245 
 
 
  their costs, starting with employee costs, which were one of the biggest points of differentiation.93  By 
reducing employee costs and raising aircraft utilis ation, they saved nearly US$13 billion over the 
2002-2004 period, thereby reducing the cost-disadvant age vis-à-vis the LCCs to about one-third in 
2003. 94  By 2006, US legacy carriers had cut their stage-length-adjusted costs to 7.96 cents per 
available seat mile.  The difference between av erage unit costs for network carriers and LCC, 
excluding fuel, fell below two cents in third-qua rter 2006, the lowest differential since 2000.95 
157. Second, in spite of failed past experiments w ith United's Shuttle, Delta's Delta Express, US 
Airways' Metro Jet and Continental's Continental Lite, several airlines have revived the idea of 
creating a low-cost "carrier within a carrier".  Over 2003-2004, Delta and United launched new low-
cost off-brands, Song and Ted, resp ectively, in an attempt to comp ete more directly with LCCs.  
While enjoying the advantage of serving wide ar eas through the hub-and-spoke network system of 
their parent carriers, they found it difficult to adju st labour costs and meet the large and immediate 
investment requirements needed pr omote the new brands effectively.96  These have obviously proven 
too serious for Delta, which in late 2005 announced pl ans to discontinue its discount carrier Song and 
incorporate Song's fleet into Delta's regular service.97  Analysts predict that continuing LCC pressure 
on domestic routes is likely to force legacy carrier s to reduce further their mainline domestic flying 
and concentrate on operating between th eir hubs and international markets.98 
158. LCCs have proven resilient in the face of the cr isis that has swept the US airline industry, 
especially in the aftermath of September 11, 2001 .  Carriers such as Southwest and JetBlue have 
remained consistently profitable, registeri ng in 2002 profits of US$241 million and around US$55 
million, respectively, against cumulative losses by United, American and Delta Airlines of about 
US$8 billion in the same year.99  LCCs have not been immune to competitive forces, however.  ATA 
Airlines, a LCC based in Indianapolis and the tent h-largest US carrier, filed for bankruptcy in 2004, 
whereas Independence Air, a Washington-based low-co st carrier that was launched in 2004, ceased 
services in early January 2006.   
159. New entrants are not necessarily deterred, how ever.  Amongst them, Virgin America, which 
is 25 per cent owned by the UK's Virgin Group.  Th e carrier is planning to start domestic services out 
of its San Francisco base on the back of the powerfu l Virgin brand by operating with unit costs of 20 
to 50 per cent below relevant legacy competitors.100  The carrier's application to launch services was 
initially turned down by the Department of Transpor tation (DOT), as its relationship with the Virgin 
Group and its backing by overseas investors put it in violation of statutes limiting foreign investment 
in and control of US carriers.  Virgin America found new backers with US citizenship, revised its 
financial and management structure and offered to replace its chief ex ecutive to keep the role of the 
Virgin affiliates at a minimum and, in June 2007,  was cleared by the DOT to  launch services in the 
course of the summer.101   
(ii) Canada 
160. The low-cost phenomenon quickly spread from th e US to Canada.  Calgary-based WestJet, 
which started out in 1996, operates coast-to-coast, w ith services also offered to eight US destinations.  
Its costs are an estimated 38 per cent below rival Ai r Canada's.  In reaction to the competitive pressure 
coming from WestJet, Air Canada had launched LCC Ta ngo in late 2001, with routes out of Toronto, 
and Zip a year later to serve Western Canada.  However, both carriers were reabsorbed into the 
                                                      
93 At United, for example, labour costs absorb half of revenues, against about one-quarter at JetBlue. 
94 Airline Business, September 2004. 
95 Aviation Week & Space Technology, 5 February 2007. 
96 Aviation Week & Space Technology, 28 June 2004;  La Tribune, 24 February 2003. 
97 USA Today, 28 October 2005. 
98 Aviation Week & Space Technology, 28 June 2004. 
99 La Tribune, 24 February 2003. 
100 Aviation Week & Space Technology, 6 February 2006. 
101 Airline Business, January, May and July 2007. S/C/W/270/Add.2 
Page 246  
 
  mother carrier within a couple of years, in par ticular following on the agreement to accept further 
concessions reached by Air Canada with all of its unions.  Air Canada also re-defined its business 
model as a result of LCC competition, by simplifying its fare structure, offering fares linked to various levels of service and charging for in-flight amenities.
102  In 2007, WestJet's share of the 
domestic market was 36.1 per cent, up from 31.1 pe r cent in 2006, against Air Canada's 45.4 per 
cent.103 
161. Ottawa-based Zoom Airlines, which was launche d in 2002, is making use of elements of the 
low-cost model on long-haul scheduled routes to Eur ope and the Caribbean.  For example, the carrier 
relies exclusively on direct sales, operates point-t o-point with no interlin ing and charges for seat 
assignment.  Using the same model, it also operate s as a charter on about one-third of its routes to 
destinations where the relevant bilateral air servi ces agreements do not allow for the designation of 
any more scheduled carriers.104 
(iii) Brazil, Chile and Mexico 
162. The low-cost model has been slow to take-off south of the US border.  This was due not 
only to market regulation, but the general economic  situation and  the entrenched position of flag 
carriers.  However, the financial difficulties and collapse of several legacy carriers have meant that 
new airlines, not least LCCs, are now starting to take their place in a number of countries, and in particular in Brazil and Mexico.  These two countri es are considered emerging aviation markets, ripe 
for low-cost travel:  they have large populations , under-served cities, traditionally high fares, long 
distances and large numbers of price-sensitive passenge rs who had traditionally travelled by bus.   
163. Of the four previous big legacy carriers in Brazil , two (Vasp and Transbrasil) have been 
grounded.  Varig, the flag carrier, was under ba nkruptcy protection and re-emerged as VRG Linhas 
Aéreas, or New Varig, an international carrier w ith a vastly reduced domestic network.  New Varig 
was recently bought by low-cost  carrier Gol (see below).
105  Finally, TAM, which has grown to 
become Brazil's biggest airline, competes on qu ality and reliability, rather than on price. 
164. The situation has allowed Sao-Paolo based low- cost carrier Gol to grow quickly and be 
profitable within a year of its launch in January 2001.  With a domestic market share nearing 35 per 
cent, Gol is Brazil's third largest carrier.106  With its acquisition of New Varig, the combined domestic 
market share of two airlines will amount to around 50 per cent.107  Gol does not entirely follow the 
low-cost model, as, for example, it does not operate  point-to-point and half of its customers make a 
connection.  The carrier has targeted the cost-con scious business travellers in a market where 70 per 
cent of passengers fly on business and only 30 per cent  on leisure, while also competing for leisure 
passengers at off-peak times.  Since Gol began ope rating in 2001, the number of people travelling by 
air in Brazil has increased from about 5.5 million to 7.5 million in 2005, even if not all the increase is 
attributable to the LCC.  Its only rivals are Webj et and BRA, with the latter having reinvented itself 
from a charter carrier into a LCC.108 
165. Gol's operations quickly spread beyond Brazil's na tional borders.  In spite of the constraints 
of having to operate within the framework of fairly  restrictive bilateral air services agreements, from 
2004 onwards Gol launched flights to Argentina, Uruguay, Paraguay, Peru and Bolivia.  It was 
                                                      
102 Airline Business, October 2002, July 2004, March 2005 and February 2006. 
103 Airline Business, June 2007. 
104 Airline Business, March 2005. 
105 Airline Business, May 2007;  Les Echos, 3 April 2007. 
106 Airline Business, August 2006. 
107 Airline Business, May 2007. 
108 Airline Business, July 2004, August 2005, May 2006;  Financial Times, 14 October 2005.  S/C/W/270/Add.2 
 Page 247 
 
 
  designated to serve Santiago de Chile109 and is looking to expand into Colombia, Venezuela and 
Mexico, the latter thanks to fi fth freedom rights through Lima.110  The carrier is also pondering setting 
up domestic units in Argentina and Peru, after shelvi ng plans for a local unit in Mexico, partly due to 
the proliferation of low-cost Mexican carriers.111 
166. In response to Gol's competition, Chile 's LAN is converting LAN Express, its Chilean 
domestic unit, into a cross-border low-cost carrier .  LAN Express hopes to complete its conversion by 
the end of 2007 and plans to serve destinations in the Southern Cone of Chile, Peru and Argentina. 
167. In Mexico , LCCs started operating in July 2005 with  the launch of Mexicana's Click.  Five 
other airlines have started operating low-cost flights si nce.  These are:  Tijuan a-based Avolar, Interjet 
ABC, Aerolineas Mesoamericanas (ALMA), Volaris (a  Toluca-based start-up that is expected to 
begin operations with manageme nt and operational aid coming fro m Central America's Grupo TACA) 
and VivaAeroBus, which is planni ng to launch trans-border services from several cities in Mexico to 
Texas.112 The six airlines combined transported 11.5 million domestic passengers in 2006, compared 
with 10.6 by the incumbents, equating to a market share of 52 per cent.  An estimated half of the 
growth achieved by Mexico's LCCs is due to low fa res, but the other half is a result of incumbent 
carriers' woes, two of which were grounde d for maintenance shortcomings in 2006.113  Table 16 
details the market shares of Mexico's low-cost carriers. 
Table 16 
Share of low-cost carriers in the Mexican domestic market, 2005 and 2007 
 
Market share ASK 
Airline 
2005  2007  
Volaris - 9.7% 
Avolar - 6.9% 
Click 3.0% 6.0% 
Interjet - 4.4% 
VivaAeroBus - 2.8% 
ALMA - 2.5% 
Total 3.0% 32.3% 
 
Notes: Data for 2007 are based on schedules 14-20 May 2007.  ASK = Available Seat-Kilometre. 
Source : Airline Business, June 2007. 
(b) Middle East and Africa 
168. Low-cost travel is still something of a rarity in the Middle East and Africa.  However, it is 
starting to make an impact, even if most of the new entrants appear to be operating more like lower-
fare, than true low-cost, carriers.   
169. In the Middle East , a region historically dominated by what might be considered an 
oversupply of publicly-owned carriers, LCCs had a so mewhat difficult start, but are rapidly gaining 
ground114  The region's first LCC, United Arab Emirates' Air Arabia, launched services late in 2003.  
                                                      
109 http://www.voegol.com.br/ARG/Noticias/InstGolNoticias.asp, 26 April 2006.  Reportedly, as a reaction 
to Gol's plans to start serving Santiago, Chile's LAN group  is considering launching a new LCC, which would be an 
international variant of LAN Express, which opera tes domestically (Airline Business, October 2006). 
110 Airline Business, January and February 2007. 
111 Airline Business, March 2007. 
112 Airline Business, August, September and October 2005;  Financial Times, 2 March 2006. 
113 Airline Business, April 2007. 
114 Plans for a United Arab Emirates-based low-cost airline called Smart Jet had to be suspended in 2003 
after the carrier was denied permission to use Dubai International Airport;  the launch in mid-2003 of Menajet, an 
LCC jointly owned by Bahrain and Saudi-based investors, op erating out of Sharjah, was delayed apparently because S/C/W/270/Add.2 
Page 248  
 
  Owned by the Sharjah Government, it serves 27 des tinations, including Bahrain, Oman, Egypt and 
Lebanon, in addition to the Indian sub-continent.  R estrictive elements in bilateral agreements prevent 
the carrier from serving key markets such as Cairo and Amman.
115  Air Arabia aims to attract the 
estimated 85 per cent of Arab World residents who ha ve never flown.  It faces competition from Gulf 
Traveller of Abu Dhabi, Gulf Air's all-economy (but  full-service) lower-fare carrier, which operates to 
destinations in the Indian sub-continent and Africa.   
170. Kuwait-based Jazeera Airways became the Middl e East's second LCC in late 2005.  Its 
network has expanded quickly, from five to 21 ro utes, including seven from a second base in Dubai 
that opened in March 2007.116 
171. In Saudi Arabia, the Government terminated  late in 2006 the long-standing monopoly of 
Saudi Arabian Airlines in the domestic market.  Earl y in 2007, two low-cost airlines were launched.  
NAS Air and Sama are currently only operating dom estic services, but expect to secure approval for 
international services after the two-year mandatory period serving the domestic market has elapsed.  
Saudi Arabia is a market where demand for air trav el currently outstrips supply, despite the country's 
average income levels and vast distances, and woul d therefore seem to offer great potential for low-
cost operations.  The challenge, however, will be for LCCs to secure and maintain a low-cost base.  
Many airports in the region are monopolistic, govern ment-owned service providers, and airlines are 
restricted in their choice of ground-handling and ai rcraft repair and maintenance providers.  Travel 
agents are expensive distribution channels, but ex clusive reliance on online sales is hampered by the 
limited use of credit cards in the region. 117   
172. In Africa , South Africa's Comair launched Kulula in 2001, while South African Airways is 
pondering setting up a budget subsidiary to meet the challenge.  At the Northern end of the continent, 
Royal Air Maroc started its own low-cost subsidia ry, Atlas Blue, in 2004, to offer competitive point-
to-point leisure services between Morocco and ke y tourism markets.  A second LCC, Jet4you, which 
is 40 per cent owned by TUI, Germany's leisure trav el group, in partnership with three local private 
business groups, was expected to start operating in  mid-2006.  Its focus is on European leisure 
travellers.118 
(c) Asia 
173. The most spectacular growth of the LCC phe nomenon in recent years has taken place in 
Asia, and particularly in South-East Asia and Indi a.  Table 17 provides an overview of selected Asian 
LCCs.  As noted above, many analys ts were sceptical whether the low-cost model would work in Asia 
because all successful precedents had operated onl y in domestic or quasi-domestic markets.119  The 
following obstacles had been mentioned in particul ar:  the presence of international borders, which 
imply, on the one hand, the need to operate often under restrictive bilateral air transport agreements 
and, on the other, the impossibility of achieving quick  turnarounds because of the delays involved in 
customs and immigration procedures;  far greater tr avel distances, which are incompatible with a 
totally no-frills service;  congested airports;  and the fact that many internatio nal airlines in Asia are 
still majority government-owned, which could allow the incumbents to influence policy in their 
favour.  However, despite a difficult start and LCCs  currently only accounting for about 5 per cent of 
the market, momentum for liberalisation appears to be strengthening.  
                                                                                                                                                                     
of regulatory impediments and the airline finally started operating out of Beirut in mid-2004 (Financial Times, 
19 June 2004). 
115 Airline Business, November 2006. 
116 Airline Business, May 2007. 
117 Ibid.;  Aviation Week & Space Technology, 21 May 2007. 
118 Airline Business, September 2004, May 2006;  Aviation Week & Space Technology, 6 February 2006;  
Centre for Asia-Pacific Aviation, "Centreline", 10 January 2006;  La Tribune, 2 December 2005. 
119 Speech by Peter Harbison, Managing Director, Centre for Asia-Pacific Aviation, at the "Low Cost Airline 
Symposium", July 2004;  Aviation W eek & Space Technology,  16 August 2004.  S/C/W/270/Add.2 
 Page 249 
 
 
  Table 17 
Selected low-cost carriers in Asia 
Carrier Base Launch 
date Main owner/Operator Services Competition 
LCCs 
AirAsia Kuala Lumpur 2001 Tune Air 73.4%; Islamic 
Development Bank 
Infrastructure fund; Crescent 
Venture Partners; Deucalion Capital (26%); Mofaz Air 
(0.6%) 13 domestic routes in 
Malaysia; first regional 
route Senai-Phuket Dec 
2003 MAS, SIA, ValueAir, 
Lion Air, Thai 
Air Deccan Bangalore Aug-03 wholly owned by Deccan 
Aviation Private Ltd 10 regional, Delhi, 
Mumbai Indian Airlines, Air 
Sahara, Jet Airways 
Air Do Sapporo Jul-98 Group of Hokkaido i nvestors 4 domestic Japan JAL 
Cebu Pacific Manila 1996 49% JG Summit Holdings; 
Gokongwei Group Domestic Philippines, 
Hong Kong, Seoul PAL, Asian Spirit, Air 
Philippines 
Indonesia AirAsia Jakarta Dec-05 AirAsia (49%) Domestic Indonesia, 
Kuala Lumpur AirAsia, SIA, 
MAS/Garuda, ValueAir, 
Lion Air 
Kingfisher 
Airline Bangalore May-05 United Beverages Group More than a dozen 
domestic destinations Indian Airlines, Air 
Sahara, Jet Airways, Air 
Deccan 
Lion Air Jakarta Jun-00 Indonesia businessman Rusdi 
Kirana 50 Indonesia domestic; 
daily Jakarta-Singapore: 
Jakarta-Kuala Lumpur SIA, ValueAir, AirAsia, 
Athena Air, Garuda 
Oasis Hong Kong Feb-05 Property tycoon Raymond Lee 
and Allan Wong (of VTech Holdings) London, Milan, Berlin, 
Cologne/Bonn   
One-Two-Go Bangkok Dec-03 Orient/Thai/Udom 
Tantiprasonchai Domestic destinations Thai, PB Air, AirAsia, 
Sky Asia 
Skymark Airlines Tokyo Sep-98 Shinichi Nishikubo (Zero Inc) 
(35.8%); HIS travel (33%) 4 domestic Japan, 
charters to Korea JAL, ANA 
Skynet Asia 
Airways Miyazaki Aug-02 Investors in Miya saki 3 domestic Japan JAL, ANA 
Thai AirAsia Bangkok Jan-04 AirAsia (49%), Asia Aviation, 
local investors Domestic Thailand, 
Malaysia, Singapore, 
Macau, Cambodia, 
China, Viet Nam Thai, Nok Air, One-
Two-Go  
Value Air/ Jetstar Asia Singapore Mid-2004 
(ValueAir) Qantas biggest single 
shareholder (49%) Bangkok, Phuket, 
Kolkata, Bangalore, Hong Kong, Manila, 
Taipei and others SIA, SilkAir, Thai, 
AirAsia, Lion Air, Athena Air 
Viva Macau Macau Mid-2005 n/a Regional routes, 
expanding to Middle 
East and Europe   
NATIONAL AIRLINE LCC VENTURES 
Air India: Air 
India Express Thiruvananthapuram May-04 100% Air India Gulf destinations and 
South-East Asia Emirates, Air Arabia, 
Thai AirAsia, 
Air Macau: Macau Asia 
Express Macau Jan-06 Air Macau (51%), joint 
venture between China 
National Aviation Corporation 
and Hong Kong's Shun Tak Holds. (49%) Asia and mainland China   
ANA: Air Next Fukoka Aug-04 ANA 5 domestic routes JAL, Skynet Asia, The 
Fair Inc. 
Garuda: 
Citilink Jakarta Aug-01 100% Garuda 24 domestic Indonesia Qantas, Virgin Blue, 
Origin Pacific 
JAL: JAL Express Osaka Jul-98 JAL 5 routes out of Osaka ANA, Skynet Asia, The 
Fair Inc. 
Singapore Airlines: Tiger Airways Singapore Mid-2004 SIA 49%; Temasek Holdings 
(11%); Indigo Partners LLC 24%; Irelandia Investments 
Ltd 16% Regional ex-Singapore ValueAir, Thai, Lion 
Air, ValueAir/Jetstar Asia 
Thai Airways: Nok Air Bangkok Jul-04 Thai Airways, investors Bangkok to domestic 
Thai destinations AirAsia, SIA, ValuAir, 
PB Air, One-Two-Go 
Source :  Adapted from Centre for Asia Pacific Aviation, 2004. S/C/W/270/Add.2 
Page 250  
 
  174. At the turn of the millennium, the conditions  were in place for introducing LCCs, including 
on international routes:  strong economic growth in  many countries; large populations reaching travel 
thresholds and increasingly urbanised, with a significant share dwelling in metropolitan areas of 500,000 inhabitants or more
120;  growing accessibility to new distribution channels, and to the internet 
in particular;  availability of large numbers of unde r-utilised regional airports, often operated by local 
governments eager to attract tourism;  the incr easing influence of tourism authorities on national 
aviation policy;  forecasts of congestion at several  major hubs making expans ion of traffic through 
alternative point-to-point operations attractive;  and increasingly liberal attitudes, making the opening 
up of air services to secondary points more acceptable.121 
175. These conditions continue to generate pressure for liberalisation.  Governments themselves 
have moved to support LCC development in the inte rest of economic growth particularly through 
tourism, alongside the restructuring of national legacy  carriers.  The latter, despite a lower cost base 
than their full-service equivalents in Europe and North America, are exhibiting more mixed 
productivity performance122 and are therefore vulnerable to highly efficient point-to-point low-cost 
operators. 
176. Differently from the experience in the US or in  Europe, and because of the strictly regulated 
environment, LCC services in Asia have been  provided across borders mainly through the 
establishment of cross-border joint ventures.  Wh ile the emergence of LCCs has taken place under, 
and been restricted by existing bilateral agreem ents, their success might lead to further regulatory 
change.  A number of commentators opine that, as more and more trans-Asian low-cost airlines are created and mutual cross-border ownership spreads,  their multi-country operations will evolve into 
quasi fifth-freedom services, leading to progressive  relaxation of bilateral structures and to "back-
door" liberalisation, particularly  at secondary, regional airports.
123   
(i) Malaysia 
177. Perhaps the most-successful Asian LCC is Malays ia's AirAsia.  The pioneer in Asia, it was 
launched in January 2002, and became profitable within a couple of years.124  Air Asia is currently 
carrying about 3 million passengers.  It has followe d the Southwest LCC model very closely, even 
adding features such as letting customers book r eservations with a mobile phone text message125, and 
is claimed to be the world's lowest-cost carrier.  The Malaysian Government has been supportive of 
the venture, in spite of the financial difficu lties faced by the publicly-owned national carrier 
Malaysian Airline System (MAS), to the extent that it has decided to close most of the flag carrier's 
domestic network and for AirAsia to replace it on those routes.  MAS is expected to keep serving 
primary local routes between state capitals and the tourist island of Langkawi, while AirAsia will 
operate secondary routes, in addition to compe ting with MAS on main routes.  MAS had been 
reported as ascribing part of its mounting losses to the government requirement to operate an extensive domestic network, with only four out of 118 local routes being profitable.  The Government 
is expected to continue subsidising routes to rural areas 
126in Borneo.127   
                                                      
120 There are more than 235 cities in Asia with populations of more than half-a-million, and 130 with more 
than 1 million.  Besides, according to the Pacific Asia  Travel Association, the propensity to fly increases 
exponentially when 50 per cent or more of the population dwells in urban areas.  (Aviation Week & Space Technology, 16 August 2004.) 
121 Centre for Asia Pacific Aviation (2003), " Low-Cost Airline Outlook". 
122 Measured by revenue passengers pe r employee or aircraft utilisation. 
123 Interavia, no 675, January-February 2004;  Aviation Week & Space Technology, 16 August 2004;  
Airlines Business, December 2003 and April 2004. 
124 It reported a net profit of US$20 million within two years of operation (Aviation Week & Space 
Technology, 16 August 2004).   
125 Financial Times, 14 October 2003. 
126 The restrictive bilateral air services agreement between Malaysia and Singapore, last reviewed in 1980, is 
reportedly set to be revised following intense pressure from low-cost carriers from both sides.  (Airline Business, 
April 2007.)  S/C/W/270/Add.2 
 Page 251 
 
 
  178. Malaysia has also built a new low-cost termin al at Kuala Lumpur International Airport, 
which opened on 26 March 2006,128 slightly ahead of Singapore's  Changi Budget Terminal.  The 
terminal is expected to generate significant additional savings for AirAsia from greater operating efficiency and lower rates (see document S/C/W/270,  page 120, paragraphs 423-428, for a fuller 
discussion of low-cost terminals). 
179. Besides the domestic market, AirAsia has pursu ed an active international service strategy, 
demonstrating that international services in Asia are possible for LCCs.  Its success is also due to 
innovative business strategies.  When the carrier was denied landing rights by the Civil Aviation 
Authority of Singapore (CAAS), it set up a second hub on the Singapore-Malaysian border town of 
Senai, where Singaporeans now account for about 40 pe r cent of the passengers carried.  In addition to 
serving a number of international destinations in Thailand, Indonesia, Cambodia and Macau, China 
from the two Malaysian hubs, AirAsia has establishe d another two bases, one in Thailand and one in 
Indonesia, through the establishment of joint ventures.  Reportedly, it is also planning to start flights 
to mainland China, but has so far only launched a service to Xiamen from its Bangkok base.
129 
180. More recently, AirAsia has announced plans to diversify into cargo, initially intending to 
operate from Bangkok to Singapore and Macau.  Furthermore, in a shift from LCCs' traditional direct 
sales policy, it has tied-up with GDS provider Galileo International so as to make its fares and 
inventory available through 50,000 travel agenci es, hoping to increase bookings by as much as 15 per 
cent in 2006.130  
(ii) Singapore 
181. With no domestic market, LCCs in Singapore have had to compete for international traffic.  
Until 2003, the Singapore market had been the sole domain of the airlines in the state-controlled SIA 
Group.  When ValueAir, a LCC set up by a group of Singaporean private investors, sought to launch low-cost operations in mid-2004, the Government se t up a dedicated committee to allocate air traffic 
rights that had gone unused for a number of destinations to new entrants.
131 
182. ValueAir was quickly joined by Tiger Airways, a venture between Singapore Airlines and 
the founder of Ryanair, amongst others.  Similarly to the strategy employed by AirAsia, Tiger is 
reportedly establishing bases elsewhere in the Asia-P acific region to by-pass restrictive ownership and 
control restrictions.  In 2006, the carrier conclude d a franchise deal with Philippine operator Seair, 
under which the latter will lease aircraft from Tige r and operate services using the Tiger brand and 
distribution channels from Clark airport outside Manila to, initially, Singapore and Macau, China.132  
183. Jetstar Asia was launched by Qantas and a gr oup of Singaporean investors in 2004.  Only a 
year later, however, Jetstar Asia and ValueAir we re facing financial difficulties, apparently due to 
problems with securing rights to serve additional destinations.  They agreed to merge under a common Singaporean holding company, which has Qantas as its biggest single shareholder, with a stake estimated at around 45 per cent.
133 
184. The LCC ventures have been seen as attempts by the Singapore Government to maintain the 
regional hub status of Changi Airport by attr acting budget carriers.  Lee Kuan Yew, modern 
Singapore's founding father, was reported as saying that Changi had a higher priority than SIA for the 
                                                                                                                                                                     
127 Airlines Business, March and May 2006;  Week & Space Technology, 16 August 2004; Financial Times, 
17 March 2006. 
128 See http://www.klia.com.my/LCCTerminal 
129 Financial Times, 28 April and 13 September 2004, 17 October 2005. 
130 Airline Business, March 2006;  Centre for Asia Pacific Aviation, "Centerline", 5 January 2006. 
131 Airline Business, November 2003;  Financial Times, 4 July 2004. 
132 Airline Business, June and November 2006 and June 2007. 
133 Aviation Week & Space Technology, 15 December 2003; Airline Business, February and October 2004, 
January, September and November 2005. S/C/W/270/Add.2 
Page 252  
 
  city-state's future development.  A new dedicated  low-cost terminal, Budget Carrier Terminal, was 
built at Changi to fend off competition from Malaysia 's new Senai airport, AirAsia's second hub, and 
opened for operations in March 2006.
134 
(iii) Thailand 
185. In Thailand, new LCCs focused initially on th e domestic market.  The pioneer was One-
Two-Go, owned by international airline Orient Thai  Airlines.  It had launched services at the end of 
2003 to a few domestic destinations, and was rapidly fo llowed, in 2004, by the arrival of Thai AirAsia 
and the launch of Nok Air, Thai Airways In ternational's associated low-cost airline.135  As an example 
of how the advent of LCCs can promote liberalisati on in the air transport sector, following the onset 
of operation of budget carriers in late 2003, Thaila nd abolished the regulation that had set minimum 
air-fare rates in the domestic market.136 
186. Thai AirAsia was launched in 2004 as a joint venture between AirAsia and Shin Corp.  
AirAsia had management control and a 49 per cent st ake in the new venture;  Shin Corp. owned 50 
per cent and a local businessman the remaining 1 per cen t.  Thai AirAsia was able to secure landing 
rights for a number of domestic destinations and make use of Thailand's unused rights to fly to 
Singapore and Macau. 137 
187. In January 2006, the Singapore state investment company Temasek bought a 49.6 per cent 
controlling share in Shin Corp.  Th e sale also included a 50 per cent stake in Thai AirAsia.  Under 
Thai law, foreign equity participation in airlines is limited to 49 per cent, and the sale of Shin Corp. 
brought the share of equity in foreign hands to about 74 per cent.  Thai regulators consequently 
informed Thai AirAsia that it needed to reduce the foreign shareholding to 49 per cent.138  Following 
several transactions, the airline now confirms that it meets this requirement.139 
(iv) Indonesia 
188. The pioneer LCC in Indonesia is Jakarta-b ased Lion Air, which was set up in 2000 and 
operates on 50 domestic routes.  In December 2004, Awair started operating as a domestic LCC as an 
associate of AirAsia, which has a 49 per cent share in  the airline.  It later changed its name to 
Indonesia AirAsia, in line with the other AirAsi a controlled airlines in the region.  Its only 
international route is currently to Kuala Lumpur.  It apparently attempted to serve Singapore early in 
2005 but was denied landing rights.  Responding to complaints by AirAsia, the CAAS justified its 
decision on the grounds that adequate  documents had not been provided.140 
189. In May 2005, the Indonesian Directorate General of Air Communications (DGAC) 
announced plans to impose new regulations limiti ng LCCs from launching new services to Jakarta, 
Denpasar (Bali), Medan and Surabaya.  Accordin g to the DGAC, the move was designed to help 
state-owned Garuda Indonesia, which was sufferi ng from an uncompetitively high cost base and a 
significant fall in demand in the aftermath of the Bali bombings and the Asian tsunami.  At the same 
time, the DGAC confirmed that foreign airlines were  welcome to operate to  other Indonesian cities 
and that LCCs with existing operations to the four  major cities would be allowed to retain their 
services. 141 
                                                      
134 Aviation Week & Space Technology 16 August 2004;  Financial Times, 7 April 2004; see 
http://www.changiairport.com.sg/changi/en/about_us/media.html 
135 Airline Business, January and May 2004; La Tribune, 23 February 2004. 
136 Aviation Week & Space Technology, 1 December 2003. 
137 Aviation Week & Space Technology, 1 December 2003 and 16 August 2004;  Financial Times, 19 
November 2003. 
138 Financial Times, 10 February 2006. 
139 Airline Business, April 2006. 
140 Financial Times, 20 January and 17 October 2005;  Airline Business, May 2005. 
141 Airline Business, May 2005 and Centre for Asia Pacific Aviation Centreline, 11 April 2005.  S/C/W/270/Add.2 
 Page 253 
 
 
  (v) Japan 
190. Attempts to develop LCCs in Japan seem to have run up against a variety of constraints, 
including a congested airport infrastructure.  On e big obstacle is the essential role that Tokyo's 
Haneda airport plays as a national hub, coupled with the elevated landing fees at Narita International 
Airport, which are the highest in the world.142  The experience of Tokyo-based LCC Skymark is a 
case in point.  Despite its early launch in 1998, subs equent to domestic deregulation in the Japanese 
market, it has only achieved a limited expansion and cu rrently serves just four domestic destinations. 
191. Unlike their counterparts in the US or Eur ope, Japanese cities have no secondary airports.  
Many analysts are of the view that independent LCCs  could only be profitable if they cooperated with 
the national full-cost airlines, ANA and JAL.  This was indeed the experience of Air Do, the pioneer 
independent budget airline in Japan.  Founded in 19 98, it had cut fares between Tokyo and Sapporo to 
half those of leading rivals.  Legacy airlines soon reacted by lowering their fares and the carrier filed 
for court protection in 2002.  S hortly thereafter, Air Do formed a comprehensive alliance with ANA 
and was able to record a profit for the first time in 2004.  ANA also established a discount carrier, Air 
Next, in August 2004, which started operating a year later serving Fukuoka- and Okinawa-based 
domestic routes, previously operated by the ANA Group,  in an effort to increase its competitiveness 
on the domestic network.143  JAL had also launched its own whol ly-owned subsidiary budget airline, 
JAL Express, in 1997, to operate domestic services from its hub at Osaka International Airport. 
192. The international potential for expansion in s hort- to medium-haul operations from regional 
airports in Japan is considered significant.  W ith high levels of economic activity and relatively 
limited international airline access, the regional Jap anese tourist (and tourist destinations) would offer 
great potential if constraints on entry were loosened.144 
(vi) India 
193. Despite a population of over 1 billion people, the fast pace of economic growth recorded in 
recent years and a rapidly expanding middle-class, India has one of the lowest rates of air travel per capita of any emerging country.  One frequently-quo ted statistic shows that more people travel by 
train each day than travel domestically by air in an entire year.  This suggests a huge potential for 
LCCs to exploit, particularly in the context of a second wave of liberalisation in the air transport sector following a difficult initial experience in the 1990s.
145 
194. India's low-cost scene was set by Air Deccan, a Bangalore-based carrier owned by India's 
largest operator, Deccan Aviation.  The airline wh ich started operating as a scheduled budget carrier 
in 2003 on secondary routes in the south and west of the country, targeting middle-class business 
travellers and local tourists who had, until then, travelled by rail.146  Its success has led others to enter 
the market, to the extent that in 2005 14 new LCCs were reported as planning to commence operations in India.  The most ambitious is Kingfis her, owned by the liquor company UB Group.  The 
carrier commenced operations in May 2005.  It markets itself differently from other new LCCs by offering some frills such as hot meals and personal te levisions fitted at every seat.  In June 2007, UB 
Group agreed to acquire 26 per cent of Air Deccan.  The combined domestic market share of the two 
airlines is 32 per cent.
147 
                                                      
142 Interavia, January-February 2004;  Aviation Week & Space Technology, 16 August 2004. 
143 Financial Times, 8 June 2004; http://www.ana.co.jp/eng/aboutana/press/index_sm.html; Aviation Week 
& Space Technology, 16 August 2004.  ANA is reported as planning to launch separate low-cost domestic and international airlines by 2009, when Tokyo's Haneda airport is scheduled to open a new runway (Financial Times, 15 
May 2006). 
144 Interavia, no 675, January-February 2004. 
145 Airline Business, May 2005. 
146 Aviation Week & Space Technology, 16 August 2004. 
147 Financial Times, 5 June 2007. S/C/W/270/Add.2 
Page 254  
 
  195. The establishment of Kingfisher was followed by Spicejet which, however, offers a true no-
frills, low-fare product;  Go Air;  and, more recently, IndiGo.
148  These LCCs operate on domestic 
routes only.  Expectations are that, low-cost car riers could control more than 50 per cent of the 
domestic market by the end of 2007, and their share could be as high as 70 per cent by 2010.149 
196. The only LCC which currently operates out of India on international routes is flag carrier 
Air India's low-cost arm, Air India Express.  It started operating in May 200 5, in all-economy class 
configurations but providing some frills, such as hot meals, and serves destinations in the Middle-East 
and  South-East Asia.  Commentators see Air India Express as an attempt to restore the position of its state-owned parent carrier as the country's dominant airline and move ahead of rival Asian airlines to 
secure the high-volume passenger routes connecting I ndia to points like Singapore and Dubai.  Air 
India Express faces competition from full-service carrier  Emirates and LCCs like Air Arabia on routes 
to the Gulf.  It does not compete directly with other Indian LCCs domestically, as it only operates on 
international routes.  However, others seem to ha ve similar intentions.  Reportedly, Kingfisher had 
ambitions to operate on international routes and sou ght to acquire traditional airline Air Sahara to 
bypass Indian legislation that forces all carriers wish ing to fly internationally to have first operated on 
the domestic market for at least five years.
150 
197. Consolidation is expected to affect the lo w-cost sector in India.  Between the LCCs 
preparing and those planning to launch services, as many as 20 LCCs could end up competing in the Indian market, more than the total operating in the whole of the Asia Pacific region.  They will face a number of problems likely to constr ain their expansion, namely sev ere shortages of skilled manpower, 
especially pilots;  infrastructure limitations particular ly at key airports;  high taxes;  and changes in 
the regulatory environment.  As a result, over the medium-term, analysts foresee a wave of 
consolidation, resulting in three to four large LCCs operating on a national scale and five to six 
regional LCCs.  They also speculate that India' s policy that currently prevents foreign airline 
investment in domestic airlines
151 might be eased to allow start-ups to benefit from partners with 
experience and expertise.152 
(vii) China 
198. In 2005, investment regulations were finalised to encourage more private investment in the 
domestic airline sector, in a move aimed at progressively opening-up the market.  Amongst the many start-ups licensed in 2005 were at least three carriers that intended to operate as LCCs, namely 
Tianjin-based Okay Airways, the first new airline in many years and the first without government 
ownership, Shanghai-based Spring Airlin es and Chengdu-based United Eagle Airlines.
153  For some 
years before, the Civil Aviation Administration of China (CAAC) had actively promoted mergers in 
the local air transport market and overseen the conso lidation of ten state-controlled airlines into three 
dominant groups, headed by Air China,  China Eastern and China Southern. 
199. However, airlines that tried to adopt the low- cost model reportedly encountered a number of 
regulatory difficulties.  The ordering of fleets, the setting of fares, the selection of routes and the price 
of jet fuel are all regulated, implying that about 80 per cent of the costs in China are beyond an 
airline's control.  These difficulties have apparently  forced carriers that were trying to operate a low-
cost model to drop or defer some of its aspects.  For example, in October 2005, just 6 months after it 
                                                      
148 Airline Business, February, May and December 2005; Aviation Week & Space Technology, 14 August 
2006. 
149 Centre for Asia Pacific Aviation, "Centreline", 10 August 2006. 
150 Financial Times, 2 June 2004; La Tribune, 20 January 2006; Airline Business, July 2004, March and 
August 2006.  Air Sahara was eventually acquired by Jet Airways (Airline Business, July 2007.) 
151 Non-Indian businesses, which are not airlines, are allowed to own up to 49 per cent of Indian airlines. 
152 Airline Business, May 2005; Centre for Asia Paci fic Aviation, "Monthly Essential China", December 
2005. 
153 Airline Business, July 2004;  Centre for Asia Pacific Aviation, "Centreline", 11 April 2005.  S/C/W/270/Add.2 
 Page 255 
 
 
  was launched, Okay Airways said that it would adopt  a more traditional airline business model, while 
Spring Airlines was forced to increase its lowest fare within days of its launch.154 
(viii) Others 
200. The Philippines  was one of the first Asian countries to actually witness the operation of a 
LCC.  Cebu Pacific was launched in 1996 and is cu rrently the second largest domestic carrier in the 
Philippines.  It serves 16 domestic destinations , but launched international operations at the end of 
2001 and now flies to Hong Kong, China and Korea.  It has recently undertaken a major re-fleeting 
exercise and a massive promotional fare sale to supplant flag carrier Philippines Airlines as the 
country's leading domestic carrier.155 
201. Macau, China  saw the creation of two LCCs in 2 005-2006:  Viva Macau, which operates 
on regional routes and is planning to expand to the Middle East and Europe, and Macau Asia Express, 
which is 51 per cent owned by flag-ship carrier Ai r Macau and will serve cities in Asia and mainland 
China.  Since opening up its casino industry to foreign investment in 2004, Macau has seen an unprecedented growth in tourist arrivals.  As most t ourists arrive by ferry, however, there was room 
for more aviation services.  Macau's airport, moreove r, had been trying to position itself as a north 
Asian hub for LCCs and a cheaper entry point to Sout hern China by offering lower landing fees than 
neighbouring Hong Kong and Pearl River Delta.  The regulatory situation also looked promising as 
Air Macau has exclusive traffic rights to 31 citi es in mainland China, but is undercapitalised and 
operates to just nine.  Similarly, Macau has concl uded fairly liberal air services agreements with 42 
other countries or territories, but operat es only to five foreign destinations.
156 
202. Hong Kong, China 's LCC, Oasis Hong Kong Airlines, was created in February 2005 as a 
low-cost carrier that offers almost full cabin servi ce on long-haul flights.  It started operating in the 
autumn of 2006 to London and Vancouver, targetin g budget leisure travellers who had not travelled 
before.  Oasis intends to serve initially big, mature  routes already flown by well-established rivals, but 
not necessarily operating to primary airports.  In a s econd phase, the airline is looking to operate to  
secondary markets.157 
203. In the Republic of Korea , Korean Air recently announced that it is planning for a short- and 
medium-haul no-frills subsidiary operation to be launc hed over the next two to three years.  It intends 
to serve routes within the Republic as well as to China, Japan and the Philippines.  The low-cost 
airline will fly under its own brand, not that of the parent company.158 
204. A government-owned low-cost carrier is being prepared for launch in Sri Lanka .  The 
carrier, which will be named Mihin Lanka, plans to  start operating scheduled international services in 
2007.  It is targeting nationals leaving for overseas  employment by offering lower-priced services to 
destinations in the Middle East and Asia.  It will start by operating routes out of Colombo to Dubai in 
the United Arab Emirates and Trichi in India.159 
205. Pacific, Viet Nam's  second state-owned carrier after Vietnam Airlines, completed its 
transformation into a low-cost ca rrier in the spring of 2007.  Pacific serves domestic routes and 
destinations in Chinese Taipei.  Pacific is reportedl y in talks with Qantas about a possible re-branding 
                                                      
154 Airline Business, September and December 2005; Centre for Asia Pacific Aviation, "Monthly Essential 
China", December 2005. 
155 Airline Business, April 2004;  Centre for Asia  Pacific Aviation, "Centreline", 10 May 2006; and 
http://www.cebupacificair.com/aboutus/index.html 
156 Financial Times, 25 January 2006; Centre for Asia  Pacific Aviation, "Centreline", 1 September 2004; 
Aviation Week & Space Technology, 16 August 2004. 
157 Airline Business, March 2005;  Financial Times, 13 February 2006;  Aviation Week & Space 
Technology, 4 June 2007. 
158 Aviation Week & Space Technology, 11 June 2007;  Airline Business, July 2007. 
159 Airline Business, February and April 2007. S/C/W/270/Add.2 
Page 256  
 
  as Jetstar, the low-cost subsidiary of the Australian legacy carrier.
160  In June 2007, Qantas was 
finalising the acquisition of a 30 per cent stake in the Vietnamese airline.161 
(d) Oceania 
206. Table 18 illustrates the situation with regard to selected low-cost carriers in Oceania.  
207. The Australian  market  saw the entrance of the United Kingdom's Virgin group in mid-
2000 with the launch of Virgin Blue, a Brisbane-based  LCC.  Its arrival precipitated a fierce price 
war, which eventually sparked the collapse of Anse tt, Australia's other full-service carrier, and pushed 
the country's only other LCC, Impulse, into the Qant as organization in June 2001.  Virgin Blue grew 
quickly to account for 27.3 per cent of the domestic market by the start of 2007.162  Departing to some 
extent from a pure LCC model, Virgin Blue offers  flight connections and through fares, has route-
specific alliance agreements with United Airlines, wo rks with travel agents and Computer Reservation 
Systems vendors Galileo and Amadeus and has opened lounges at its major destinations.  As it is 
restrained from marketing its name outside Australia , the airline operates under the Pacific Blue brand 
for its international routes to New Zealand and th e South Pacific islands of Fiji, Rarotonga, Cook 
Islands and Vanuatu, and is further expected to service Samoa and Tonga.163   
208. Virgin Blue is currently reported as consider ing the establishment of an ultra-low-cost 
carrier, following the announcement by Singapore-based , "true" low-cost Tiger Airways that it will 
enter the Australian market late in 2007.  Tiger Aust ralia will have the same shareholders as the main 
Singapore-based carrier.  It will thus be entirely fo reign-owned, as allowed under Australia's liberal 
ownership regime, but its air operator's certificate will  be Australian, and will also be entitled to fly to 
New Zealand.164 
209. It had been the arrival of Virgin Blue that had prompted Qantas to set up its own low-cost 
subsidiary, Jetstar, with the aim of serving lower-y ielding domestic routes where full-service Qantas 
had difficulties making a profit.  Melbourne-based Je tstar started operating in May 2004 and became 
profitable shortly after its launch.165  At the start of 2007, the carrier accounted for 15.7 per cent of the 
domestic market.166  In January 2006, Qantas decided to launch an international division for Jetstar, 
Jetstar International.  The carrier serves interna tional leisure routes of between six to ten hours of 
length between Australia and Thailand, Viet Nam, Indonesia, Honolulu in the United States, and since 
2007, Japan and Malaysia167, reportedly with costs 40-45 per cen t lower than those of established 
airlines on long-haul services.168   
210. The move had surprised analysts, given that Qa ntas already had a low-cost international arm 
with Australian Airlines, which served mainly tho se Asian leisure routes where yields were too low 
for the parent carrier to operate profitably.  Indeed, in July 2006, Qantas decided to discontinue the 
                                                      
160 Airlines Business, March 2007. 
161 Jetstar Chief Executive Officer's Address to the National Aviation Press Club, Sydney, 6 June 2007. 
162 Airline Business, April 2007. 
163 Aviation Week & Space Technology, 15 December 2003, 12 July 2004;  Airline Business, November 
2005. 
164 Airline Business, March and April 2007;  Aviation Week & Space Technology, 19 February 2007. 
165 The carrier was reported as looking at innovative ideas to attract more passengers, including testing 
internet auctions as a way to sell seats.  In an initial trial, it used the eBay website to auction travel vouchers redeemable for tickets, and is studying techniques used by carriers elsewhere for last-minute auctions of empty seats (Airline Business, February 2005). 
166 Airline Business, April 2007. 
167 Routes to Japan and Malaysia are subject to final regulatory approval (Jetstar Chief Executive Officer's 
Address to the National Aviation Press Club, Sydney, 6 June 2007). 
168 Airline Business, January 2007;  Aviation Week & Space Technology, 4 December 2006.  S/C/W/270/Add.2 
 Page 257 
 
 
  use of the Australian Airlines brand in favour of ha ving Jetstar as its leisure carrier.  Australian has 
continued to operate flights for Qantas under a wet leasing agreement.169 
211. On the international scene, competition is partic ularly intense on the two to three-hour trans-
Tasman flights.  The Single Aviation Market regi me agreed by Australia and New Zealand makes it 
easy for their respective airlines to operate to and even within the other country, and the routes are a 
good length for discount carriers to operate on.  In a ddition to Jetstar, which has taken over most of its 
parent carrier's trans-Tasman routes, they are served by Pacific Blue and Air New Zealand's Freedom Air.  This has prompted full-service Qantas and Air New Zealand (ANZ), which had recorded losses on these routes (also because of competition from fift h-freedom carriers such as Emirates and Thai 
Airways) to revive talks about a code-share afte r their original alliance proposal was rejected by 
antitrust authorities.
170 
Table 18 
Selected low-cost carriers in Oceania 
 
Carrier Base Launch 
date Owner/Operator Services Competition 
LCC 
Virgin Blue/ 
Pacific Blue Brisbane Aug-00 Patrick Corp (45%): Virgin 
Group (25%); executives 
(3.2%); institutions, retail 
investors (21.8%); employees (5%) Australia, trans-Tasman, 
Pacific Qantas, ANZ 
NATIONAL AIRLINE LCC VENTURES 
Qantas: 
Jetstar Melbourne May-04 100% Qantas Domestic leisure, trunk 
in Australia Virgin Blue 
Qantas: 
Jetstar International Melbourne Jan-06 100% Qantas Leisure destinations in 
Asia and the Pacific   
ANZ: 
Express Class Auckland Nov-02 ANZ Domestic regional New 
Zealand Qantas, Virgin Blue, 
Origin Pacific 
ANZ: Freedom Air Hamilton Nov-95 ANZ Trans-Tasman, Pacific Qantas, Virgin Blue, Air 
Pacific 
 
Source : Adapted from Centre for Asia Pacific Aviation, 2004. 
212. In New Zealand , Freedom Air was established in 1995 as a response to the commencement 
of discount services between Australia and New Z ealand by the since-collap sed Kiwi Airlines.  
Freedom Air is wholly owned by ANZ and provid es direct, non-stop services to the Australian cities 
of Brisbane, Gold Coast, Sydney, and Melbourne a nd to Fiji from its base in Hamilton, as well as 
from Auckland, Wellington, Christchurch, Dunedin and Palmerston North.  Freedom Air briefly 
served on the New Zealand main trunk domestic rout es, such as Auckland-Christchurch, but ceased 
these services to concentrate fully on prov iding value trans-Tasman flights.   
213. In response, Virgin Blue of Australia had announced that it might enter the New Zealand 
domestic market, but has since abandoned the idea.  Th is is attributed by observers mainly to the 
prospects of having to compete with The Express Class of ANZ, to inadequate access to Auckland 
International's domestic terminal a nd to the alternative route opportunities the airline has found in the 
Pacific islands.171  More recently, however, low-cost star t-up Kiwijet announced that it intended to 
launch operations on domestic routes.172  
                                                      
169 Airline Business, January 2005, January, August 2006. 
170 Airline Business, November 2003, February 2004. 
171 Airline Business, February and November 2005. 
172 Airline Business, June 2007. S/C/W/270/Add.2 
Page 258  
 
  (e) Europe 
214. The European low-cost phenomenon originated in the UK and Ireland.  Both countries 
which had started liberalising their air trans port markets before the European Commission 
commenced the EU-wide process with its three liberalisation packages between 1987 and 1997.  
Dublin-based Ryanair began operating as a LCC in  1991, initially concentrating on the UK-Ireland 
routes and starting to serve routes in continental Eu rope from its new London base in Stansted airport 
only after London Luton-based easyJet, and since- collapsed Debonair, commenced intra-European 
low-cost services in 1995 and 1996, respectively.
173   
215. Apart from Virgin Express in Brussels, it is noticeable that most of the early low-cost 
development in Europe was in the British Isles.  New airlines were attracted by the open regulatory 
environment, the vast London market, underused capac ity at secondary airports and the possibility of 
negotiating reduced airport charges with newly privati sed airports.  Moreover, the low fares that these 
LCCs could offer from these island na tions were very attractive compared to the cost (and travel time) 
of alternative surface transport modes.174 
216. By the end of the millennium, the impact of low-cost services in Europe was still very 
limited, accounting for only about 5 per cent of Europ ean traffic.  The big growth took place in the 
following years, driven in particular by the rapid expansion of Ryanair and easyJet.175  In 2005, LCCs 
in Europe accounted for over 25 per cent of traffic,  with a share of 35 per cent in the UK, the most 
mature market.   
217. In Germany, the low-cost air lines' share of total airline cap acity on intra-European routes 
went from less that 3 per cent in summer 2002 to about 23 per cent in 2005, following the launch of 
several LCCs, such as Air Berlin, Hapag-Lloyd Express, DBA, Germania Express and Germanwings 
between 2002 and 2004.  In Spain, low-costs start-up Vueling began flying in July 2004.  The carrier is developing bases in both Barcelona and Madrid, and currently planning to set up its first overseas 
base in Pairs.  Spanair is another LCC which is  expanding fast in the Spanish market, and both 
Ryanair and easyJet have set up bases in the country, in Barcelona-Gerona and Madrid, 
respectively.
176 
218. Of the main European markets, France has seen the lowest penetr ation of low-cost airlines.  
LCCs (none of which are French companies) only have a share of 13.2 per cent of the domestic 
market.  They account for 17 per cent of domestic  capacity offered in 2006, against a 32 per cent 
share in Germany, 45 per cent in Italy, 49 per cen t in Spain and 52 per cent in the UK for the same 
year.177  Analysts point to the impact of the country 's high-speed rail service, the TGV, Air France's 
dominance in the domestic market, the high costs asso ciated with operating in the market, and the 
inbound nature of the French market as possible explanatory factors.178  The Air France/KLM Group 
has recently launched Transavia.com, a short- and me dium-haul low-cost carrier that plans to serve 
destinations in Portugal, Spain, It aly, Morocco, Tunisia and Egypt from its base at Paris Orly airport.  
The decision to launch the LCC was motivated, according to some comme ntators, by the Air France's 
desire to protect its position at Orly.  By having Transavia.com take over the slots that Air France will 
                                                      
173 Doganis, R. (2006) "The Airline Business". 
174 Francis, G. et al (2006), "Where next for low-cost airlines?  A spatial and temporal comparative study", in 
Journal of Transport Geography, vol. 14, 83-94. 
175 In 2006 Ryanair tried to take over newly-privatised Irish flag carrier Aer Lingus, but in June 2007 the 
European Commission blocked the proposed bid because of competition concerns.  The two airlines control more than 80 per cent of European flights in and out of Dublin airpor t.  (Airline Business, February 2007; Financial Times, 27 
June 2007.) 
176 Airline Business, November 2006 and February 2007;  Financial Times, 28 August 2006;  Interavia, no. 
688, summer 2007. 
177 Les Echos, 29 November 2006;  Interavia, no. 688, summer 2007. 
178 Airline Business, July 2007.  S/C/W/270/Add.2 
 Page 259 
 
 
  have to relinquish at the Paris airport in the summer of 2007, the legacy carrier will be able to fend off 
the increasing competitive threat posed by  easyJet, which has a base at Orly.179 
219. Table 19 provides a breakdown of the European market. 
Table 19 
Share of the top 5 legacy and low-cost carrier s in the Western European market, May 2005 
(Percentage of total seat capacity) 
 
Top 5 legacy carriers Share  Top 5 low-cost carriers Share 
1 Lufthansa 6.4%  1 Ryanair 7.2% 
2 Iberia 6.3%  2 easyJet 5.6% 
3 Air France 6.2%  3 Air Berlin 4.3% 
4 British Airways 6.1%  4 Sterling 0.9% 
5 SAS Scandinavian 4.8%  5 Germanwings 0.9% 
 
Notes: Based on capacity data from OAG schedules for May 2005.  
Source : Airline Business, May 2005. 
220. The rate at which LCCs have increased their market share in Europe has been remarkable, 
especially in light of the fact that th e sector was fully liberalised only in 1997.180  Some analysts 
predict that, by 2010, LCCs will account for at least one-third of the market.181  This growth has not 
all been at the expense of the legacy carriers, but, according to the European Low-Fare Airlines 
Association (ELFAA), was mostly supported by enti rely new demand, stimulated by the offering of 
very low fares and the opening of new routes.  Chart 4 illustrates the situation. 
Chart 4 
Share of new demand in European LCCs' traffic and breakdown of new demand 
 
Source :  European Low Fares Airlines Association, 2004. 
                                                      
179 La Tribune, 28 November 2006;  Les Echos, 13 March 2007. 
180 In 1997, as part of the third package of liberalis ation measures, all carriers holding a community license 
were given the right of cabotage, i.e. the right to operate domestic routes within the whole EU. (see compilation, pages 
178-79 ). 
181 Airline Business, May 2005. No data, 4% 
Shift within airline 
market, 37% New demand,
59% Otherwise would 
not have travelled 
Otherwise b y car 
Otherwise b y rail 
Others  
 
 
 
71% 
 
 
 
 
15% 
 
6% 
8% 
 
 S/C/W/270/Add.2 
Page 260  
 
  221. Traditional carriers responded to the LCC challenge by creating their own low-cost 
subsidiaries.  In 1998, British Airways set up St ansted-based Go, and was qui ckly followed by KLM, 
whose low-cost carrier, Buzz, was also operating out of Stansted.  By 2002, a degree of consolidation 
had already taken place in the UK market, with Go being taken over by easyJet and Buzz by Ryanair.  As the LCC competition spread to mainland Euro pe, with easyJet and Ryanair opening operating 
bases in Germany, Switzerland and Italy, and the launch of many new low-cost start-ups on the 
continent
182, other legacy airlines were induced to establis h their own low-cost subsidiaries.  In 2002, 
British Midland set up bmibaby, to serve all its Eu ropean routes from East Midland airport.  A year 
later, SAS launched Snowflake, to serve European cities and a few other leisure destinations around 
the Mediterranean183, and in Germany, Lufthansa reworked its Germanwings subsidiary into a low-
cost airline.  More recently, Iberia launched, in partnership with other Spanish investors, a Barcelona-
based LCC, Clickair, which started operating in October 2006.184  Iberia itself is expected to 
concentrate on its Madrid hub and keep serving Eur opean destinations which are important feeder 
routes for its profitable long-haul flights to Latin America and the US.185   
222. Network carriers have attempted to counter th e competitive threat of LCCs by progressively 
withdrawing from given routes and reducing costs and fares to certain destinations.  For example, 
British Airways has cut its workfor ce costs, started offering internet sales, reduced a number of its 
intra-European fares by up to 50 per cent and introduced  greater flexibility in its  fares, for instance by 
removing the requirement for Saturday-night stay .  Air France, Aer Lingus, British Midland, SAS 
Scandinavian and Alitalia have all pursued similar strategies.186   
223. In preparation for the enlargement of the EU  to 25 Member States, in 2002 the Czech and 
Slovak governments both liberalised their bilateral ag reements allowing low-cost services to the UK.  
Whereas services to Prague were initially provided by UK airlines, a new LCC, SkyEurope, was set up in Bratislava in 2002.  SkyEurope, Eastern Eur ope's first LCC, has grown rapidly and has become 
the de facto  national carrier of Slovakia.
 187  The airline has since set up bases in Budapest, Krakow 
and Warsaw, offering flights to destinations th roughout Western Europe.  Following SkyEurope's 
example, LCCs have proliferated throughout Easter n Europe, with carriers such as Smart Wings in 
Prague and Wizz Air in Budapest.  The latter, in particular, has proven very successful and has 
become, in the space of three years, the most import ant LCC in Eastern Europe.  It is expected to 
transport about 3 million passengers in 2006, nearly  as many as the national airline Malev, while 
employing only about 400 people, substantially less than the 3500 employed by the legacy carrier.  
The availability of runway capacity in Eastern Europe and fares that are attractive for Western 
European tourists suggest that the potential for growth has not yet been fully exploited.188 
224. The LCC market in Europe has, however, also  exhibited fragility and instability in recent 
years.  The major surge in ne w capacity, with many new entrants over the 2002 to 2004 period and 
others being set up as subsidiaries of conventional scheduled carriers, has resulted in overcapacity.  
As LCCs have begun to compete head-to-head on a number of routes and faced increased pressure 
from the legacy carriers' new pricing policies, yields  have started to decline.  The UK was the first 
market to undergo a wave of consolidation, in 2002, while in 2004 a number of carriers suspended 
operations across the continent, including Italy's Vo lare, Poland's Air Polonia and Germany's V-Bird.   
                                                      
182 Mercer Management Consulting estimates that, in the summer of 2004, there were 54 LCCs operating in 
Europe, compared with just 12 in 2000.  (Airline Business, May 2005.) 
183 La Tribune, 14 April 2003. 
184 Airline Business, November 2006. 
185 Financial Times, 27 April 2006. 
186 Airline Business, May 2002;  Les Echos, March 2002; Francis et al (2006). 
187 It carried nearly 1 million passengers in 2004, up four-fold on 2003, while maintaining a 75 per cent load 
factor. 
188 Francis et al (2006);  La Tribune, 28 May 2004;  Les Echos, 21-22 April 2006; Airline Business, 
March 2005.  S/C/W/270/Add.2 
 Page 261 
 
 
  225. Restructuring and consolidation are expected to continue, in particular in the crowded 
German low-cost market.  In 2005, DBA and Germania Express merged, and a year later DBA was taken over by Air Berlin, which had acquired a str onger domestic presence with 17.7 per cent of the 
market, behind legacy carrier Lufthansa.
189  In 2007, the carrier agreed to acquire German leisure 
carrier LTU.  The deal gives Air Berlin a long-haul network for the first time.190  Air Berlin has thus 
further consolidated its position as Europe's third la rgest LCC, while the market is still dominated by 
easyJet and Ryanair.  In 2005, the latter carried 25 million passengers each, compared with Air 
Berlin's 12 million and Virgin Express's 2 million.  Some analysts predict that the European LCC 
market will end up with three or four actors, most likely including easyJet and Ryanair, thanks mainly 
to their first-mover advantage and consistent low-cost model.191 
226. One important source of cost advantage for LCCs vis-à-vis legacy carriers may slowly start 
to erode.  The significant savings in airport char ges from which a number of European LCCs profited 
in the period up to 2000 may start to unravel, as ma ny key contracts between the older established 
low-cost operators and airports are up for renego tiation in the period 2005 to 2010.  Nevertheless, 
where secondary airports with minimal schedules have been used, airport charging arrangements 
should still be relatively easy to renew on favourable te rms.  In this regard, Ryanair is particularly 
well-placed, also because many of its airport contract s had been concluded for 15 years or longer.  On 
the other hand, airport deals which included incentiv es for the airline to develop new markets might 
prove more problematic.192 
227. In one of the most significant regulatory deve lopments affecting LCCs, early in 2004 the 
European Commission declared that part of the subsidy paid by Charleroi airport and the local 
regional Belgian Government to encourage Ryanair to establish a base in Charleroi was illegal State 
aid.193  Following the Ryanair/Charleroi Decision, in December 2005 the Commission issued new 
guidelines setting out a legal framework for the financing of airports and for State start-up aid used by regional airports for the benefit of airlines (see  document S/C/W/270, page 118, paragraphs 419-21, 
for a more detailed discussion).
194   
228. The support extended to Ryanair at some ot her airports has also been successfully 
challenged in the courts.  These include Strasbourg airport, where the €1.4 million financial aid paid 
by the local Chamber of Commerce and Industry to  the carrier was declared illegal, and Skavsta 
airport in Sweden.  In October 2004, moreover, Iberia accused Ryanair of having received incentives 
worth €6.2 million and €3.6 million from the regi onal governments to launch services from Gerona 
and Santander, respectively.  In Germany, Air Berlin in January 2005 lodged a complaint against 
Lubeck airport over an alleged unfair support paymen t of €10 million to Ryanair;  in September 2006, 
a German court ruled in favour of Air Berlin.195 
229. A second regulatory development impacti ng on LCCs were the 2002 "open skies" 
judgments of the European Court of Justice.196  As a result of this series of parallel cases, the 
Commission started developing a European exte rnal aviation policy and launched targeted 
negotiations with a number of countries to concl ude "horizontal agreemen ts" to replace existing 
"substantial ownership and eff ective control" designation clauses with a "Community carrier" 
designation clause.  One such countries is Morocco, with whom the Commission signed an open skies 
                                                      
189 Airline Business, September 2006. 
190 Airline Business, May 2007. 
191 Airline Business, May 2005;  La Tribune, November 2004. 
192 See Doganis, R. (2006). 
193 Commission Decision 2004/393/EC of 12 February 2004. 
194 Commission Communication of 9 December 2005 "Community guidelines on financing of airports and 
start-up aid to airlines departing from regional airports", Official Journal C 312.  
195 Airline Business, September 2006. 
196 European Court of Justice (2002), Commission v. the United Kingdom, Denmark, Sweden, Finland, 
Belgium, Luxembourg, Austria, Germany, cases C-466/ 98, C-467/98, C-468/98, C-469/ 98, C-471/98, C-472/98, C-
475/98 and C-476/98. S/C/W/270/Add.2 
Page 262  
 
  agreement which entered into force in March 2006.
197  EasyJet and Ryanair reportedly took immediate 
advantage of the opportunities offered by the agre ement and have launched services to Marrakech, 
Fes and Oujda.  Whereas easyJet will be flying out of London, Ryanair will take full advantage of the 
fact that the new horizontal agreement effectivel y opens up routes between the European Union and 
Morocco to any EU carrier by serving the country out of Frankfurt and Marseilles.198   
3. The spread of the low-cost mode l – catalysts and implications 
230. Liberalisation in the air transport sector has b een a key catalyst for their development of the 
low-cost model.  Table 20 juxtaposes the timing of the market penetration of LCCs with the timing of the main elements of liberalisation in main geogr aphical regions, which are listed in the order in 
which low-cost operations began. 
Table 20 
Low-cost carriers' market penetration 
 
Region 
(country) Year low-cost 
operations began Year(s) in which market 
liberalisation took place Share of overall 
market (%) 
North America 
USA 1978 1978 24 - 25a 
Canada 1996b 1996 30 
Europe 
UK/Ireland 1995 1993 40 
EU 1999 1995 20 
EU (25) 2002 2004 <1 
Australia/New Zealand 
Australia 1990 1990 30+c 
New Zealand 1996 1984 ... 
Asia 
Malaysia 2001 2001 2 
Singapore 2001 2001 <1 
Japan 1998 1998d 1e 
Chinaf − Ongoing − 
Thailand 2004 2003 <1 
India  2003g <1 
Rest of world 
Brazil 2001h 1998 3 
S. Africa 2001i 1999 1 
Gulf States 2004 2003 <1 
 
Notes: a "Not a real stretch for low-cost US market to expand from 20-25 per cent to 50 per cent in the next 20 
years", see de Neufville, R. (2004), Current Design  Challenges for Airports Worldwide, Transportation 
Research Board Annual Meeting, 11-15 January. 
 b WestJet, see Lawton, T.C. (2002), Cleared for Take-Off:  Structure and Strategy in Low Fare Airline 
Business, Ashgate, Aldershot. 
c "Virgin Blue has 30% of the Australia market and Qantas has responded with a new low-cost carrier 
in order to protect its market share", see Airliner World (2003, vol. 12(12). p.23).  It is hard to calculate the market share in New Zealand which is dominated by ANZ subsidiaries, many of which have 
remodelled themselves with elements of the low-cost model. 
d Thomas, G. (2002), Asia's Absent Revolution, Air Transport World (September), 42-47. 
e Thomas (2002), op. cit. 
f Lawton (2002), op. cit ., p.181, says China has begun to remove restrictions 
g Air Deccan. 
h Gol, see Lawton (2002), op. cit. , p.184. 
i Kulula.com, see Lawton (2002),  op. cit. , p.184. 
Source : Francis, G. et al.  (2006). 
                                                      
197 The Moroccan authorities reportedly h the target of 10 million foreign tourists annually by 2010, nearly 
double the 2005 figure of 5.84 million 
198 Marseille is the first Ryanair base in France.  (La Tribune, 2 December 2005, 2 and 11 May 2006).  S/C/W/270/Add.2 
 Page 263 
 
 
  231. Whereas liberalised domestic or quasi-domestic markets may be viewed as a necessary 
condition for the development of LCCs, in and by themselves they have not proven sufficient.  
Countries such as New Zealand experienced early lib eralisation but relatively little low-cost growth 
until 2004, whereas in mainland Europe low-cost ac tivity accelerated at least four years after full 
liberalisation.  On the other hand, in countries su ch as Malaysia, Thailand or Morocco, liberalisation 
appears to have been driven by the respective gove rnments' attempts at creating favourable market 
conditions for low-cost services, with the ultim ate aim of stimulating economic growth through 
lower-priced air travel and increased tourist arrivals. 
232. Other factors that seem to have contributed to  the spread of the low-cost model include:  
densely populated areas combined  with expanding middle-classes represented latent demand for air 
transport services that LCCs have been able to exploit;  the availability of cheap and underutilised 
airport capacity at secondary or un-congested airports  helped low-cost airlines to achieve the fast 
turnarounds at the core of their business model;  th e spread in the use of the internet allowed for 
reductions in distribution costs and greater price tran sparency;  and the role played by innovative and 
far-sighted entrepreneurs in launching low-cost ope rations in new market a nd exploiting first-mover 
advantages.199 
233. The low-cost model, has not been universa lly successful, however.  In some instances, 
carriers, especially the low-cost subsidiaries of the legacy carriers, have adopted inappropriate 
business models inconsistent with the low-cost philo sophy;  in others, LCCs have been unable to 
secure adequate financial backing to build up an  essential critical mass and sufficiently expanded 
networks;  in yet others, they have faced the str ong competitive reaction of incumbent legacy carriers, 
which improved efficiency, cut fares and relied on th e advantage granted by their extended networks;  
in others still, regulatory barriers severely affected  LCCs' ability to fully exploit their potential.   
234. As several low-cost markets ma ture, LCCs are bound to be confro nted with new challenges.  
They will increasingly find themselves in direct co mpetition with other LCCs, rather than with the 
traditional airlines over which they enjoy significant co st advantages.  They will thus be forced to 
look at new routes as sources of growth, and these  will most likely be thinner routes on which 
different aircraft would need to be employed and which are generally less profitable.  They will also 
face greater difficulties in controlling costs as advantageous airport deals come up for renegotiation;  increasingly mixed fleets imply higher maintenance, training and financing costs;  the strive to differentiate products from other LCCs results in additional frills being o ffered;  and employees 
demands renegotiation of their contracts.   
235. Nevertheless, the low-cost model appears to be  sustainable, even in mature markets as 
demonstrated by the hugely successful 30-year expe rience of Southwest in the US.  LCCs have the 
potential to stimulate tourism and, more generally , economic activity in the local communities they 
serve.  These benefits are not necessarily confined to th e locality of the airports to which they fly, as 
passengers often travel onwards by ground transportation.  Secondary airports have been faced with 
both opportunities and challenges by the operation of  LCCs:  increased passenger numbers have had 
to be weighed against lower aeronautical charg es, and the ability to generate sufficient non-
aeronautical revenue has proven a critical determin ant of profitability.  P assengers have benefited 
from the operation of LCCs in terms of significantly lower fares and shorter travel times as compared 
to the similarly priced alternative means of trans port traditionally available.  However, they might 
also be negatively affected in terms of availabl e destinations and absence of the seamless connections 
that traditional hub-and-spoke carriers would have pr ovided.  As for the environmental implications 
of LCCs, while their newer, more fuel-efficient and better used aircraft are positive factors, these need 
to be weighed against the growth in demand a nd increasing substitution of air for other forms of 
transport. 
                                                     
 
199 Francis, G. et al (2006).  S/C/W/270/Add.2 
 Page 265 
 
 
   
    
 
 
 
PART B 
 
NON-SCHEDULED PASSENGER AIR 
TRANSPORT SERVICES  S/C/W/270/Add.2 
 Page 267 
 
 
  B. N ON-SCHEDULED PASSENGER AIR TRANSPORT SERVICES  
1. Economic developments  
236. Over the past five years, the non-scheduled/c harter passenger market (for a definition and 
main characteristics, see compilation, page 266) h as suffered from the compe titive challenge posed by 
low-cost carriers.  This was the case particularly in  Europe, where the non-scheduled industry is most 
significant.200   
237. Table 21 illustrates the evolution of non-schedul ed traffic over the period under review.  The 
steady decline in the share of tota l traffic accounted for by non-sch eduled traffic is particularly 
noteworthy. 
Table 21 
Estimated international non-scheduled  revenue passenger traffic, 2000-2005 
 
Millions of passenger-kilometres performed Category 
2000 2001 2002 2003 2004 2005 
Non-scheduled traffic 
Annual change (%) 265 460 
11.4 272 790 
2.8 244 930 
-10.2 240 720 
-1.7 266 590 
10.7 261 500 
-1.9 
Scheduled traffic 
Annual change (%) 1 778 110 
9.6 1 715 740 
-3.5 1 734 130 
1.1 1 738 510 
0.3 2 015 070 
15.9 2 197 360 
9.0 
Total traffic 
Annual change (%) 2 043 570 
9.8 1 988 530 
-2.7 1 979 060 
-0.5 1 979 230 
0.0 2 281 660 
15.3 2 458 860 
7.8 
Non-scheduled traffic as percentage of total  13% 13.7% 12.4% 12.2% 11.7% 10.6% 
 
Note: Non-scheduled traffic covers the non-scheduled traffic of scheduled airlines and non-scheduled 
operators. 
Source : ICAO Annual Report of the Council, 2000-2005. 
 
238. European charters were in many respects th e first cost-cutting airlines on the continent, 
pioneering the fast turnaround times and no-frills , high-density services now commonplace with 
LCCs.  The independent charter airlines had orig inally developed by providing capacity for tour 
operators selling all-inclusive holidays on rout es to the Mediterranean  from the United Kingdom, 
Germany and Scandinavia.   
239. In terms of cost-differentials, non-scheduled airlines enjoy a number of advantages vis-à-vis 
LCCs:  they use larger, more economical aircraft and, by operating also during the night, fly them for longer hours;  they do not need to maintain high frequencies through the day or through the year;  and they have minimal selling and adver tising expenditure as their capacity is sold mainly to a few, large 
tour operators, which may even be part of the same conglomerate.  However, non-scheduled operators 
also face a number of cost-disadvantages, as they do provide some in-flight catering and are unlikely 
to benefit from the same low airport charges that the LCCs have been able to negotiate at some 
airports.
201 
240. While the seat-kilometre costs and fares of charters might be lower that those of LCCs, the 
two do not provide complete ly comparable services.  Low-cost ai rlines offer much greater flexibility 
of departure dates and times, more socially accep table schedules, much higher frequencies and, more 
generally, the possibility of tailor-making holidays th anks to the choice and transparency offered by 
the internet. 
                                                      
200 Non-scheduled traffic in Europe has consistently been the largest regional component of the world charter 
market throughout the period under review (Annual Review of Civil Aviation 2000-2005, ICAO Journal, Number 6, 
2001-2006). 
201 Doganis, R. (2006), The Airline Business, Second Edition, Routledge, London. S/C/W/270/Add.2 
Page 268  
 
  241. These features of LCCs are particularly well-suited to the shift in consumers' tastes and 
expectations, away from the traditional one or tw o-week package holidays towards independent and 
tailored ones.  This shift coincided with growing affluence in major Europ ean markets and the ready 
accessibility of direct booking options offered by the internet.  By way of example, 90 million European took a package holiday of four nights or more in 2003, down 10 per cent from the 100 
million of 2000.
202  Before the major expansion of LCCs in the late 1990s, intra-European passenger 
charters were accounting for as much as one third of the total airlines market, with peaks of up to 90 
per cent on some major holiday routes to the Med iterranean.  Between 2002 and 2004, however, intra-
European non-scheduled traffic was either static or declined, as it did out of Germany, whereas low-
cost traffic was booming.203  Non-scheduled carriers have been completely driven out of some 
upmarket destinations, such as Nice, by the successful operation of LCCs on those routes.204 
242. Particularly hard-hit have been the independent charter carriers.  They have found themselves 
squeezed in the middle.  On the one hand, the low- cost airlines were expanding rapidly, and, on the 
other, the major travel groups have developed sizeable , vertically integrated charter operations of their 
own.  One example of the plight of independent ca rriers is Aero Lloyd, the German charter airline 
which collapsed in 2003. 
243. More recently, the sector has experienced a wave  of consolidation, w ith the planned merger 
of Thomas Cook and MyTravel, respectively the sec ond and third largest opera tors, and of the TUI 
Group and First Choice, the first and fourth largest  groups, which will together create the biggest 
European charter operator.  Both mergers were granted regulatory approval by the European 
Commission within a month of each other in the spri ng of 2007.  Analysts ex pect consolidation to 
continue, driven by the pressure exerted on char ters' traditional business models by the flexibilities 
offered by the internet.205 
244. As Table 22 shows, the sector is still heavily dominated by European vertically integrated 
travel groups:  the TUI Group, Thomas Cook Airline Group and MyTravel Airways are the three largest operators.  They all operate a number of different airlines under a single airline management. 
 
                                                     
 
202 Airline Business, June 2004. 
203 Doganis, R. (2006), The Airline Business, Second Edition, Routledge, London. 
204 According to estimates by Mercer management consul tants, Europe's tour operators, which were growing 
at a rate of 6 per cent a year in the late 1990s, are now expected to reach a maximum annual growth rate of 3 per cent 
until end of the decade (Airline Business, September 2004). 
205 Airline Business, March and July 2007.  S/C/W/270/Add.2 
 Page 269 
 
 
  Table 22 
Airlines ranked by charter passenger numbers, 2001 and 2005 
 
Rank 
2001 Airline operation Country Pax 
numbers Rank 
2005 Airline operation Country Pax 
numbers 
1 TUI Europe 18,884 1 TUI Group Europe 19,930 
2 Thomas Cook Europe 15,354 2 Thomas Cook Airline Group Europe 14,978 
3 MyTravel Airways United Kingdom 7,154 3 MyTravel Airways Europe 6,433 
4 Air 2000 United Kingdom 7,029 4 First Choice Airways United Kingdom 6,000 
5 LTU Germany 6,239 5 Air Berlin Germany 5,940 
6 Air Berlin Germany 4,558 6 LTU International Airways Germany 5,600 
7 Monarch Airlines United Kingdom 4,092 7 Transavia Airlines Netherlands 4,770 
8 Jet Airways India 4,008 8 Monarch Airlines United Kingdom 2,800 
9 Aero Lloyd Germany 3,500 9 Excel Airways United Kingdom 2,591 
10 Air Transat Canada 3,330 10 Air Transat Canada 2,510 
11 Volare Group Italy 2,874 11 Futura International Airways Spain 2,470 
12 MyTravel Airways A/S Denmark 2,850 12 Spanair Spain 2,340 
13 Spanair Spain 2,339 13 Martinair Netherlands 1,888 
14 Futura Spain 2,112 14 Austrian Airlines Austria 1,800 
15 Transavia Netherlands 2,069 15 Tunisair Tunisia 1,780 
16 Martinair Netherlands 1,801 16 TAM Brazil 1,570 
17 Tunisair Tunisia 1,636 17 Finnair Finland 1,390 
18 Champion Air United States 1,469 18 Atlasjet Airlines Turkey 1,280 
19 Eurowings Germany 1,432 19 Ryan International Airlines United States 1,187 
20 Finnair Finland 1,414 20 Iberworld Airlines Spain 1,070 
21 Excel Airways United Kingdom 1,300 21 Saudi Arabian Airlines Saudi Arabia 970 
22 TAM Linhas Aereas Brazil 1,171 = Air Europa Spain 970 
23 Iberworld Spain 1,077 23 Livingston Italy 968 
24 Ryan International United States 1,027 24 Champion Air United States 950 
25 Iran Air Iran 940 25 Korean Air  Rep. of Korea 940 
26 Arkia Israeli Airlines Israel 910 26 World Airways United States 920 
27 Maersk Air Denmark 846 27 Travel Service Czech Rep. 912 
28 Swiss Switzerland 830 28 China Southern China 877 
29 Star Airlines France 805 29 LTE Spain 875 
30 China Yunnan Airlines China 656 30 KrasAir Russian Fed. 810 
31 China Southern China 643 31 Astraeus United Kingdom 800 
32 SkyWest Airlines United States 581 32 Asiana Rep. of Korea 763 
33 World Airways United States 547 33 Iran Air Iran 760 
34 Saudi Arabian Airlines Saudi Arabia 534 34 CSA Czech Airlines Czech Rep. 710 
35 Austrian Airlines Austria 528 35 Star Airlines France 700 
36 EgyptAir Egypt 506 36 Sibir Airlines Russian Fed. 690 
37 British Airways United Kingdom 484 37 Blue Panorama Airlines Italy 670 
38 PGA - Portugalia Portugal 450 38 Transaero Russian Fed. 645 
39 Air Algerie Algeria 437 39 Hamburg International Germany 630 
40 LOT Polish Airlines  Poland 415 40 Hainan Airlines China 580 
41 Siberia Airlines Russian Fed. 409 41 Air Atlanta Europe United Kingdom 553 
42 THY Turkish Airlines  Turkey 372 42 THY Turkish Airlines Turkey 500 
43 Hawaiian Airlines United States 367 43 Edelweiss Air Switzerland 490 
44 Hamburg International Germany 327 44 Pulkovo Aviation Enterp rise Russian Fed. 470 
45 Iran Aseman Iran 325 45 SAS Sverige Sweden 459 
46 AZZURAair Italy 324 46 Air Adriatic Croatia 440 
47 CSA Czech Airlines Czech Rep. 317 = EgyptAir Egypt  440 
48 Hainan Airlines China 314 48 SAS Braathens Norway 423 
49 Lauda Air SpA Italy 276 49 China Airlines China 420 
50 Aeroflot Russian Fed. 266 50 Swiss Switzerland 410 
Notes: Pax = Passengers. 
 2001  - This ranking complements the Airlines Busi ness World Airlines Ranking for mainline passenger 
carriers (published September 2002), and is based on the returns to that survey.  Additional information S/C/W/270/Add.2 
Page 270  
 
  comes from US DOT Form 41 data and IATA's World Airline Statistics.  Figures for charter carriers 
include all passenger traffic, while figures for sc heduled carriers include only the charter element for 
their passenger traffic.  RPK=Revenue Passenger- Kilometres, ASK=Available Seat-Kilometres.   
2005 - This ranking complements the Airlines Busine ss World Airlines Ranking for mainline passenger 
carriers (published August 2006), and is based on the returns to that survey.  Additional information comes from US DOT Form 41 and the UK Civil Aviation Authority.  Figures for charter carriers 
include all passenger traffic, while figures for sc heduled carriers include only the charter element for 
their passenger traffic.  Airlines operating on behalf  of other carriers are also included.  RPK=Revenue 
Passenger-Kilometres, ASK=Available Seat-Kilometres .  TUI, Thomas Cook and MyTravel, Europe's 
three largest travel groups, operate a number of diffe rent airlines under a single airline management.   
Source
:  Airline Business, October 2002 and September 2006. 
 
245. Non-scheduled airlines have started responding to the threat posed by low-cost operators.   
246. First, they have tried to add more flexibilit y into their business model by further expanding 
the practice of selling off spare capacity on a seat-only basis.206  They have also continued to contract 
their excess winter capacity out to other parts of the world, i.e. mainly to North America for 
Caribbean routes and to the Islamic world for the traffic linked to the Hadj.207 
247. Second, a number have set up their own low-cost subsidiaries or transformed into LCCs.  For 
example, the TUI group, the world's largest leisure travel conglomerate, teamed up with Germania to 
launch Hapag-Lloyd Express208 in Germany and Thomsonfly in the United Kingdom;  MyTravel set 
up MyTravel Lite out of Birmingham;  Thomas C ook re-launched Condor;  a nd Air Berlin, Europe's 
largest independent charter operator,  started its own low-cost operation.209 
248. Third, vertically integrated operators have moved towards "dynamic packaging"210, by 
unbundling their traditional package holiday so as to offer travellers greater flexibility in choosing 
their flights and accommodation while at the same  time offering them the convenience of pre-booking 
hotels, cruises, transfers and car rentals.  In terms of distribution channels, they rely on the internet211 
as well as their own town centre travel shops. 
249. Along with the wider upturn in the airline in dustry, these changes have helped the sector 
recover somewhat in 2004, after being battered also by the economic downturn of 2001-2003 and the 
fallout from the SARS epidemic.  Their battle for th e intra-European market of flights of less than 
3 hours, however, seems to have been permanently lo st to LCCs (and legacy carriers), which have the 
frequency advantage.   
250. Non-scheduled operators still see scope for grow th on medium- to long-haul leisure routes.  
On the medium-haul routes of over 3 hours to the Mediterranean basin, LCCs are unable to compete 
effectively, as they struggle to fit in the benc hmark of three daily rotations and cannot maintain 
sufficient frequency as the routes are often either too thin or too seasonal.  Examples of such routes are many Greek islands, Turkey and Egypt, but also Morocco and Tunisia, where non-scheduled 
European airlines also face the competition from th e charter operations of the domestic legacy 
airlines' Royal Air Maroc and Tunis Air, resp ectively, as well as from the local non-scheduled 
operators. 
                                                     
 
206 In 2004, seat-only accounted for 20 per cent of Condor's  business, for example, but it is expected to 
account for over 40 per cent in 2006 (Airline Business, November 2005). 
207 MyTravel, for example, wet-leased six aircraft to Indonesia's Garuda for the 2003 Hadj (Airline Business, 
October 2003). 
208 In August 2006, Hagap-Lloyd Express was merged back with TUI's leisure carrier Hapagfly (Airline 
Business, October 2006). 
209 Airline Business, September and October 2002. 
210 Airline Business, June 2004. 
211 TUI, for instance, has around 50 internet portals within its portfolio, and the group's online sales have 
gone up tenfold over the period 2000-2003 (see Airline Business, September 2004).  S/C/W/270/Add.2 
 Page 271 
 
 
  251. Long-haul routes of over 6 hours are also increasing in importance, and charter airlines have 
been registering record growth in traffic to destin ations such as Kenya, Bali, the United States and the 
Caribbean.  Long-haul travel has also been help ed by an increasing liberal regulatory framework: non-
scheduled services are usually either covered by separat e, more liberal provisions in bilaterals, or by 
completely separate bilateral agreements.  At time s, they are even regulated in a unilateral manner 
without seeking reciprocal market access and/or a bala nce of benefits on the part of the party granting 
access as is generally the norm for bilateral agreem ents dealing with scheduled services.  Some 
destinations, however, are still difficult to ser ve as access is limited to the duopoly between the 
national carriers.212 
2. Regulatory developments at ICAO 
252. In March 2003, ICAO's fifth Worldwide Air Transport Conference (ATConf/5) reviewed the 
Template Air Services Agreements (TASA) for bila teral and for regional/plu rilateral arrangements, 
which had been developed for the guidance and optional use, selectively, adapted or in full, by parties 
in their air transport relationships.  With regard  to non-scheduled/charter operations, the bilateral 
TASA contains the relevant provisions in its Annex II.213   The Annex suggests that, while non-
scheduled/charter operations may be dealt with in a variety of ways, e.g. as matters falling under the 
"grant of rights", or for separate regulatory attentio n, a simpler and more direct approach would be to 
refer, in the "grant of rights" article, to the co nduct of 'international air services', rather than 
'international scheduled air services'.  It then lists three drafting options. 
253. For the traditional  approach, the TASA reads as follows: 
"The provisions of this Agreement, except those dealing with Traffic Rights, Capacity and 
Tariffs shall be applicable also to non-scheduled  flights operated by an ai r carrier of one Party 
into or from the territory of the other Party and to the air carrier operating such flights." 
 254. Two options are possible for the subsequent paragraph, namely: 
Option 1 
 
"The provisions of paragraph 1 of this Article shall not affect  national laws and regulations 
governing the authorization of non-scheduled opera tions or to the conduct of air carriers or 
other parties involved in the organization of such operations." 
Option 2 
 
"Each Party shall give sympathetic considerati on to applications for [non-scheduled flights] 
[charter flights] between their territories for passengers and cargo in accordance with their 
respective laws and regulations."  
255. The explanatory notes indicate that this traditi onal approach provision may be used when the 
Parties anticipate the possibility of non-scheduled operations but wish to ta ke no position on whether 
authorization would be granted.  Option 1 leaves the determination of which non-scheduled services 
would be permitted and under what  conditions to each Party’s national law and regulation, whereas 
under option 2 “sympathetic consideration” is not a grant of access but rather a positive treatment to non-scheduled operations in general, reflecting the fact that the regulatory regime governing 
authorization for such operations  is generally unilateral.  
                                                     
 
212 Airline Business, June 2004, September 2005;  Les Echos, 12 January 2004. 
213 The regional/plurilateral TASA does not exhibit substantial differences. S/C/W/270/Add.2 
Page 272  
 
  256. For the transitional  approach, the TASA presents three options, as follows:   
Option 1 
 "1. Each Party shall authorize non-scheduled passenger flights between points at which no 
established scheduled air services exist.  In  cases where such scheduled services exist, 
authorizations shall be granted provided the o ffer of non-scheduled flights does not endanger 
the economic stability of existing scheduled services. 
2. When series of non-scheduled passenger fli ghts are requested, these must correspond to the 
definition of "inclusive package tours" and must  be carried out on a round trip basis, with pre-
established departures and returns." 
Option 2 
 "1. The airlines of each Party designated pursuan t to this Agreement to operate under this 
Annex shall have the right to ope rate non-scheduled international air transport over the routes 
specified and in accordance with the rights gr anted for scheduled services in this Agreement. 
2. Each Party shall extend favourable considera tion to applications by airlines of the other 
Party to carry traffic not covered by this A nnex on the basis of comity and reciprocity." 
Option 3 
 "1. The [designated] airlines of one Party sh all[, in accordance with the terms of their 
designation and of the Route Schedule at Annex _ ,] be entitled to pe rform international non-
scheduled air transportation to and from any point or points in the territory of the other Party, 
either directly or with stop-overs en route, fo r one-way or round trip carriage of any traffic to 
or from a point or points in the territory of th e Party which has designated the airline.  Multi-
destination charters shall also be permitted. In  addition, [designated] airlines of one Party may 
operate charters with traffic originating in or destined for the territory of the other Party.  
 
2. Each [designated] airline performing air tr ansportation under this provision shall comply 
with such laws, regulations and rules of the Pa rty in whose territory the traffic originates, 
whether on a one-way or round trip basis, as th at Party now or hereafter specifies shall be 
applicable to such transportation." 
257. Since many parties were traditionally concerne d about the impact of non-scheduled passenger 
services on scheduled services, the ICAO Secretariat indicates in the explanatory notes that option 1 
under the transitional approach w ould have no adverse impact on scheduled services.  Three options 
are foreseen to this effect:  first, authorizi ng non-scheduled passenger services between points not 
served by scheduled services (usually referred to as “off-route charters”);  second, not permitting non-
scheduled passenger services which would adversely impact on scheduled services;  and, third, 
authorizing inclusive tour charters which are not  regarded as endangering the economic viability of 
scheduled services.  
258. Option 2 under the transitional approach opens the routes specified in the agreement to non-
scheduled services under the same conditions for schedul ed services, while off-route charters may be 
approved on the basis of comity and reciprocity, r esulting in the amount and type of such routes being 
determined by the Party with the most restrictive view of such charters. 
259. In option 3, the Parties stipulate that the rules of the country of origin of the operation should 
be applied, thus possibly facilita ting the conduct of the non-scheduled operations.  The first paragraph 
spells out broad market access conditions, whereas the second paragraph applies the country of origin 
rules.  Without the bracketed language all airlines of each Party would be authorized by the other 
Party to perform the non-scheduled services described in the first paragraph.   S/C/W/270/Add.2 
 Page 273 
 
 
  260. Finally, the full liberalization  approach may be used by Parties wishing to liberalise non-
scheduled services and is usually found in liberal or "open skies" agreements, according to ICAO's 
explanatory notes.  In terms of rights and market  access, it equates non-sch eduled with scheduled 
services with regard to the airlines designated by  each Party.  It contains a provision calling for 
favourable consideration of other non-scheduled servi ces, such as those by airlines non-designated to 
provide scheduled services or seventh freedom passenger services.  It reads as follows: 
"Section 1 
 Airlines of each Party designated under this Annex shall, in accordance w ith the terms of their 
designation, have the right to carry interna tional charter traffic of passengers (and their 
accompanying baggage) and/or cargo (including, but not limited to, freight forwarder, split, 
and combination (passenger/cargo) charters):   
Between any point or points in the territory of the Party that has designated the airline and any 
point or points in the territory of the other Party; and 
Between any point or points in the territory of the other Party and any point or points in a 
third country or countries, provided that, except with respect to cargo charters, such service 
constitutes part of a continuous operation, with or without a change of aircraft, that includes 
service to the homeland for the purpose of carry ing local traffic between the homeland and 
the territory of the other Party.  
In the performance of services covered by this Annex, airlines of each Party designated under 
this Annex shall also have the right: (1) to ma ke stopovers at any points whether within or 
outside of the territory of either Party; (2) to  carry transit traffic through the other Party's 
territory; (3) to combine on the same aircraft tra ffic originating in one Party's territory, traffic 
originating in the other Party's territory, and tr affic originating in third countries; and (4) to 
perform international air trans portation without any limitation as to change, at any point on 
the route, in type or number of aircraft operate d; provided that, except with respect to cargo 
charters, in the outbound direction, the trans portation beyond such point is a continuation of 
the transportation from the territory of the Part y that has designated the airline and in the 
inbound direction, the transportation to the territo ry of the Party that has designated the airline 
is a continuation of the transportation from be yond such point. Each Party shall extend 
favourable consideration to applications by air lines of the other Party to carry traffic not 
covered by this Annex on the basis of comity and reciprocity. 
Section 2 
 Any airline designated by either Party perform ing international charter air transportation 
originating in the territory of either Party, whether on a one-way or round-trip basis, shall have the option of complying with the charte r laws, regulations, and rules either of its 
homeland or of the other Party. If a Party ap plies different rules, regulations, terms, 
conditions, or limitations to one or more of its airlines, or to airlines of different countries, 
each designated airline shall be subject to the least restrictive of such criteria. 
However, nothing contained in the above paragraph shall limit the rights of either Party to 
require airlines designated under this Annex by e ither Party to adhere to requirements relating 
to the protection of passenger funds a nd passenger cancellation and refund rights. 
Section 3 
 Except with respect to the consumer protecti on rules referred to in the preceding paragraph 
above, neither Party shall require an airline desi gnated under this Annex by the other Party, in 
respect of the carriage of traffic from the territory of that other Party or of a third country on a 
one-way or round-trip basis, to submit more than a declaration of conformity with the 
applicable laws, regulations and rules referred to under section 2 of this Annex or of a waiver 
of these laws, regulations, or rules granted by  the applicable aeronautical authorities." S/C/W/270/Add.2 
Page 274  
 
   
261. The ICAO explanatory notes also clarify that the difference between this full liberalisation 
approach and option 3 under the transitional approach  is the ability of the designated airline, under the 
former scenario, to choose either th e charter rules of its own country or those of the other Party for the 
operation of its non-scheduled services. 
262. The ICAO World Air Services Agreements database, 2005 edition, shows that, out of the 
1970 bilateral Air Services  Agreements considered
214, six apply exclusively non-scheduled services 
and another 213 cover both schedul ed and non-scheduled services.   
                                                      
214 ASAs between EC Member States are outdated and hence have been disregarded.  S/C/W/270/Add.2 
 Page 275 
 
 
   
    
 
 
 
PART C 
 
REGIONAL AIR TRANSPORT 
SERVICES  S/C/W/270/Add.2 
 Page 277 
 
 
  C. R EGIONAL AIR TRANSPORT SERVICES  
263. As was indicated in the compilation (page 33, paragraph 122) and in document S/C/W/270 
(page 75, paragraph 251), there is no globally accept ed legal definition of the concept of regional 
carrier.  In practice, however, professional associations and the specialized press use one or other of the following five definitions: 
 - Carriers operating aircraft with 19 to 150 seats; 
  - carriers operating aircraft with fewer than 100 seats;   - carriers operating aircraft with 19 to 100 seats; 
 
 - carriers operating between a secondary airport and a hub, or between two secondary 
airports; 
  - carriers flying predominantly within a single region, avoiding the main trunk routes and 
largely using aircraft types with fewer than 100 seats. 
 264. This section will deal with the operations of re gional carriers as defined in the last tiret 
above
215, regardless of their status in relation to the major airlines which they feed (fully independent 
airlines/affiliated or franchised airlines/subsidiaries of major airlines).  Aspects specific to franchising 
have already been addressed in document S/C/W/270, pages 75-78, paragraphs 249-262. 
265. This section will mainly be concerned with ec onomic developments in  the sector during the 
period under review.  Little regulat ory information is available for the sector.  Regarding short or 
medium-haul links, the sector is mainly gove rned by the regime for cabotage, or by 
regional/plurilateral agreements in areas with numer ous frontiers located not far apart (for example, 
European Communities regulations, regulations  under various existing regional/plurilateral 
agreements in South-East Asia).  Generally speak ing, these plurilateral agreements do not distinguish 
regional carriers from other carriers and the general rules under these agreements (as described elsewhere in the second review documentati on) are therefore applicable to them. 
1. Overall developments 
266. The passenger traffic rankings of the top fifty regional airlines at the beginning and end of the 
period under review (Table 23) provide a fairly goo d overview of the situation of regional carriers. 
                                                     
 
215 This is the definition used by Airline Business in its annual studies on regional carriers.  S/C/W/270/Add.2 
Page 278  
 
  Table 23 
Top 50 regional airlines by passenger numbers, 2000 and 2005 
 
2000 2005 
Rank Airline Country/ 
territory Pax 
(000) Fleet 
(units) Rank Airline Country/ 
territory Pax 
(000) Fleet 
(units) 
1 American Eagle  USA 12,184 218 1 American Eagle USA 17,534 258 
2 Air Canada Canada 8,500 76 2 SkyWest Airlines USA 16,600 242 
3 Comair USA 8,094 108 3 ExpressJet USA 15,987 269 
4 Continental Express USA 7,800 151 4 Mesa Airlines USA 13,088 165 
5 US Airways Express USA 6,753 130 5 Atlantic Southeast Airl USA 12,031 157 
6 Crossair Switzerland 6,290 78 6 Comair USA 11,104 176 
7 Mesaba Airlines USA 6,104 106 7 Pinnacle Airlines USA 8,105 124 
8 Atlantic Southeast 
Airlines USA 6,098 94 8 Chautauqua Airlines USA 7,800 95 
9 Lufthansa CityLine Germany 5,660 53 9 Air Wisconsin USA 6,859 77 
10 SkyWest Airlines USA 5,598 103 10 Horizon Air USA 6,481 68 
11 Horizon Air USA 5,044 62 11 Lufthansa CityLine Germany 5,975 81 
12 TAM Brazil 5,000 53 12 Air Canada Jazz  Canada 5,946 130 
13 Mesa Airlines USA 4,600 105 13 Mesaba Airlines USA 5,704 89 
14 Rio-Sul Brazil 3,954 42 14 Air Nostrum (Iberia 
Regional) Spain 4,689 57 
15 Air Wisconsin USA 3,857 39 15 PSA Airlines USA 4,185 50 
16 UNI Airways Corp Chinese 
Taipei 3,783 28 16 Trans States Airlines USA 4,159 69 
17 Atlantic Cost Airlines USA 3,779 84 17 Austrian Arrows Austria 4,107 53 
18 KLM uk UK 3,778 30 18 Shandong Airlines China 4,012 31 
19 Delta Air Transport Belgium 3,300 31 19 Aegean Airlines Greece 4,007 20 
20 Eurowings Germany 3,175 40 20 Regional France 3,745 63 
21 Midway Airlines USA 2,967 28 21 Brit Air France 3,484 43 
22 Qantas Regionals Australia 2,886 44 22 BA Connect UK 3,407 50 
23 Air Nostrum Spain 2,758 31 23 Piedmont Airlines USA 3,389 63 
24 ACES Colombia Colombia 2,553 24 24 SN Brussels Airlines Belgium 3,212 38 
25 British Regional 
Airlines UK 2,523 40 25 Swiss Switzerland 3,084 n/a 
26 British European UK 2,444 26 26 UNI Air Chinese 
Taipei 2,968 24 
27 KLM cityhopper Netherlands 2,167 25 27 TransAsia Airways Chinese 
Taipei 2,959 n/a 
28 Binter Canarias Spain 2,116 11 28 KLM cityhopper Netherlands 2,922 54 
29 Trans States Airlines USA 2,000 77 29 Binter Canarias Spain 2,700 15 
30 Qantas New Zealand New 
Zealand 2,000 14 30 Executive Airlines USA 2,628 40 
31 Tyrolean Airways Austria 2,000 33 31 Merpati Nusantara Indonesia 2,600 n/a 
32 Executive Airlines USA 1,974 19 32 Iran Aseman Airlines Iran 2,545 36 
33 SAS Commuter Denmark 1,800 26 33 China Easter Airlines 
Wuhan China 2,321 n/a 
34 CityFlyer Express UK 1,700 19 34 Eurowings Germany 2,193 33 
35 Olympic Aviation Greece 1,587 20 35 Bangkok Airways Thailand 2,140 16 
36 Air Littoral France 1,538 40 36 Alitalia Expre ss Italy 2,128 35 
37 Widerøe's 
Flyveselskap Norway 1,510 28 37 KLM cityhopper (UK) UK 2,021 n/a 
38 Kendell Airlines Australia 1,478 28 38 MidAtlantic Airways USA 1,900 n/a 
39 Arkia Israeli Airlines Israel 1,466 18 39 Widerøe's 
Flaveselskap Norway 1,825 27 
40 Brit Air France 1,445 33 40 Mandarin Airlines Chinese 
Taipei 1,789 14 
41 Aegean Airlines Greece 1,439 9 41 CCm Airlines France 1,551 13 
42 Express Airlines I USA 1,378 31 42 Mount Cook Airlines New 
Zealand 1,500 12 
43 Skyways Express Sweden 1,355 28 43 Eastern Australia Airl. Australia 1,492 20 
44 Airlink (Qantas) Australia 1,282 15 44 Blue1 Finland 1,456 15 
45 Chautauqua Airlines USA 1,281 43 45 CityJet Ireland 1,436 19 
46 Corse Méditerranée France 1,200 n/a 46 Air Dolomiti Italy 1,293 19 
47 Great Lakes Airlines USA 1,118 51 47 Shuttle America USA 1,250 50 
48 Bahamasair Bahamas 1,066 11 48 Aerolitoral Mexico 1,167 30 
49 Air Midwest USA 1,028 13 49 SAM Colombia Colombia 1,153 7 
50 Nordeste Brazil 1,000 8 50 Regional Express Australia 1,094 30 
Note:  n/a = not available 
Source : Airline Business, May 2001 and May 2006.  S/C/W/270/Add.2 
 Page 279 
 
 
  267. In terms of traffic, seat capacity and load fact or, continuous statistical series are available for 
the period under review in respect of the t op 100 regional airlines ranked by traffic. 
268. Table 24 gives an overview of the data in question. 
Table 24 
Traffic, seat capacity, load factor and fleet of the top 100 regional airlines, 2000-2005 
 
Latest year Annual change for previous rankings 
Measure Units 2005 Change 
over 
2004 2004 2003 2002 2001 2000 
Passengers Thousand 256,748 11.0% 18.7% 10.2% 10.5% 0.1% 9.0% 
Passenger traffic RPK million 160,132 14.4% 20.2% 21.0% 19.9% 5.3% 17.4% 
Seat capacity ASK million 232,156 10.7% 15.2% 16.1% 16.0% 3.2% 17.3% 
Load factor Percentage 68.1% 2.1 2.8 2.6 2.0 -0.6 0.0 
Fleet Units 3,609 -96 3,705 3,563 3,466 3,580 3,033 
 
Notes: RPK = Revenue Passenger-Kilometr e.  ASK = Available Seat-Kilometre. 
Source : Airline Business, May 2006. 
 
269. Whatever measure is used, the devastating e ffects of the events of 11 September 2001 are 
clearly apparent but so is the sector's speed of r ecovery, which far outstrips that of the long-haul 
carriers which have taken several years to absorb the shock.  One explanation is that the major airlines 
had in many cases reduced their capacity and substi tuted their own flights with flights operated by 
regional airlines with which they had a link,  particularly on the domestic US market. 
270. Since 2002, growth rates in the number of passengers, revenue passenger-kilometres and 
capacity measured in available seat-kilometres ha ve all exceeded 10 per cent, in spite of the 
increasingly frontal competition regional carriers face from low-cost carriers. 
271. The geographical breakdown of the regional carrier s' operations at the beginning and end of 
the period under review (Table 25) is also significant. 
Table 25 
Top 100 regional airlines by geographical region, 2000 and 2005 
 
Passengers Fleet (units) Carrier numbers 
Region 2000 
(thousands) 2005 
(thousands) 2000 2005 2000 2005 
North America 96,416 150,114 1,737 2,296 33 27 
Europe 63,094 68,540 890 925 44 42 
Asia-Pacific 12,940 27,099 153 209 10 17 
Latin America 16,145 5,517 200 104 9 9 
Africa/Middle East 3,220 5,478 53 75 4 5 
Total 191,815 256,748 3,033 3,609 100 100 
 
Source :  Airline Business, May 2001 and May 2006. 
 
272. It will be noted that traffic growth was very  strong in North America and the Asia-Pacific 
region, but much more modest in Europe and Afri ca/Middle East.  The more than 50 per cent decline 
in Latin American traffic is undoubtedly explained by the fact that some of the top 100 regional 
airlines filed for bankruptcy, while others were ab sorbed by major airlines.  The economic cycles of 
the Latin American economies may have been anot her relevant factor.  In any event, Airline 
Business's regional transport data should be inte rpreted cautiously.  They reflect only developments 
affecting the top 100 airlines and, as such, are not ev en close to full traffic coverage, since complete S/C/W/270/Add.2 
Page 280  
 
  statistical series are unfortunately lacking.  The Air line Business sample is thus skewed by the effects 
of concentration. 
2. Regional developments 
(a) North America 
273. Prior to the events of 11 September 2001, US  regional carriers were experiencing strong 
growth, boosted by the replacement of turboprops by narrow-bodied regional jets.  Thus, between 
1996 and 2001, the number of regional jets rose from 90 to 569, the number of airports served by such 
jets from 85 to 200, the number of passengers ca rried by 40 per cent and the number of revenue 
passenger-kilometres flown by 60 per cent. 
274. The main problem faced by regional carrier s was the limitation on growth imposed by the 
scope clauses negotiated with the pilots' unions.  These clauses made the expansion of regional jet 
fleets conditional on expansion of long-haul fleets a nd prevented regional jet pilots (who are paid an 
average of US$100 an hour) from replacing major airline pilots (who receive a minimum US$175 an hour). 
275. One of the solutions used by carriers to overcom e this obstacle was to spin off their regional 
subsidiaries and then establish franchise links with th em (this trend is described in detail in document 
S/C/W/270, pages 76-77, paragraph 254). 
276. One immediate impact of 9/11 was the trimmi ng of capacity by the major airlines and the 
assignment of some of their own routes to their regional partners with smaller aircraft.  Thus, according to Raymond James Equity Markets Research, in the fourth quarter of 2001 regional jet 
flights were up more than 36 per cent, while flights of narrowbodies were down 21 per cent and 
widebody flights declined by 10 per cent.  At the same time, turboprop flights were also seriously 
affected (26 per cent decline) and some rout es were abandoned on account of non-profitability.  
Globally, however, the regional carrier sector started growing again in 2002. 
277. All the major airlines' restructuring plans pos t 9/11 included a component geared to the 
elimination, or at least relaxation, of the scope clau ses.  For example, the number of regional jets that 
could be used by regional affiliates of US Airways and by the airline itself rose from 170 to 465.  This 
enabled US Airways to order 50 Embraer ERJ 145s and ERJ 170s and to  launch a new regional 
subsidiary, MidAtlantic Airways, to operate them. 
278. In fact, the regional jet has become an indispen sable part of the air tr ansport landscape in the 
United States, allowing carriers to replace or suppl ement mainline aircraft, to  reduce costs on routes 
generating little or no profit, while maintaining th eir market presence.  According to the Avstat 
consultancy, the route breakdown for the introducti on of regional jets over the ten-year period 
1993-2003 was as follows:  36 per cent all new rout es, 25 per cent mainline route replacement, 20 per 
cent mainline service supplementation and 19 per cent turboprop supplementation.  Regional jets were 
also used to provide non-stop flights to new city pairs, such as Newark to Oklahoma City, which had 
never had non-stop service before.  In some cases, ma inline carrier hubs were converted into regional 
jet hubs (for example, Columbus, Ohio, which was ta ken up by Chautauqua Airlines, a Delta affiliate, 
after being abandoned by America West, or Saint Louis, a former TWA hub, which American 
Airlines assigned to its regional affiliate , American Eagle, after purchasing TWA). 
279. Another notable development, which concerns th e types of contract concluded between major 
airlines and regional carriers, is the gradual disa ppearance of the "fee per departure" contract, under 
which regional carriers were guaranteed a fixed su m regardless of how full the flight was and what 
fares were paid.  S/C/W/270/Add.2 
 Page 281 
 
 
  280. Regional and low-cost air transport have become increasingly blurred, as illustrated by the 
increase in orders for 70-100 seat planes by low-cost  carriers, particularly since 2003.  Low-cost 
airline Jet Blue, for instance, has placed an initial order for 100 Embraer 190s, a type of aircraft that 
Embraer itself no longer describes as "regional". 
281. In contrast, the regional carrier Atlantic Coast Airlines, after severing its ties with United, 
sought unsuccessfully to transform itself into a lo w-cost carrier, under the name Independence Air, 
using larger aircraft in addition to its regional fleet. 
282. The growth and profitability rates of regional carri ers have so much stronger that those of the 
majors that, in some cases, th ey have succeeded in reversi ng the traditional relationship of 
dependence between these two types of operator.  For example, the regional carriers Air Wisconsin 
and Republic Airways each invested US$125 million in United Airways in February/March 2005, 
enabling them jointly to acquire 25 per cent of the sh ares of that major carrier and to influence its 
decisions. 
283. The regional sector continued its  consolidation during the peri od under review.  In 2000, the 
top five carrier groupings in the United States acc ounted for nearly 50 per cent of emplanements, and 
the top 10 for 75 per cent, as illustrated by Table 26. 
Table 26 
Top ten airlines' share of total regional emplanements in the United States, 2000 
 
Rank Grouping Emplanements 
(millions) Emplanements 
(share) 
1 Delta Connection  19.5  24.5 
2 American Eagle  15.0  18.9 
3 Continental Express  7.6  9.6 
4 Northwest Airlink  7.1  8.9 
5 US Airways Express  6.7  8.4 
6 Alaska Air Group  5.1  6.4 
7 Mesa Air Group  4.5  5.6 
8 Atlantic Coast  3.6  4.5 
9 Trans States  2.1  2.6 
10 Great Lakes  1.1  1.4 
Source :  FAA, cited in Airline Business, May 2001. 
 
284. No exactly comparable figures are available for 2005.  However, consolidation at the 
beginning and end of the period can also be calculated, this time for the whole of North America, on the basis of the number of passengers carried (Table 27). S/C/W/270/Add.2 
Page 282  
 
  Table 27 
Passenger traffic of the top ten North Am erican regional airlines, 2000 and 2005 
 
2000 2005 
Rank Airline Country/ 
territory Passengers 
(thousands) Rank Airline Country/ 
territory Passengers
(thousands) 
1 American 
Eagle  USA  12,184 1 American 
Eagle  USA  17,534 
2 Air Canada 
Regional Canada  8,500 2 SkyWest 
Airlines USA  16,600 
3 Comair USA  8,094 3 ExpressJet USA  15,987 
4 Continental 
Express USA  7,800 4 Mesa 
Airlines USA  13,088 
5 US Airways 
Express USA  6,753 5 Atlantic 
Southeast A/I USA  12,031 
6 Mesaba 
Airlines USA  6,104 6 Comair USA  11,104 
7 Atlantic 
Southeast 
Airlines USA  6,098 7 Pinnacle 
Airlines USA  8,105 
8 SkyWest 
Airlines USA  5,598 8 Chautauqua 
Airlines USA  780 
9 Horizon Air USA  5,044 9 Air 
Wisconsin USA  6,859 
10 Mesa Airlines USA  4,600 10 Horizon 
Air USA  6,481 
Total   70,775    108,569 
Source :  Airline Business, May 2001 and May 2006. 
 
285. The top five airlines accounted for around 45 per cent of traffic in 2000 and just over 50 per 
cent in 2005. 
286. The top ten airlines accounted for about 73 and 72 per cent of traffic in 2000 and 2005, 
respectively. 
287. The emergence of strong regional groupings as a result of the acquisition by independent 
carriers of the former affiliates of major airlines was described in detail in the section devoted to franchising in the second review documen t S/C/W/270 (page 77, paragraph 259).  S/C/W/270/Add.2 
 Page 283 
 
 
  (b) Europe 
288. Table 28 compares the passenger traffic of the t op ten regional airlines at the beginning and 
end of the period under review. 
Table 28 
Passenger traffic of the top ten Euro pean regional airlines, 2000 and 2005 
 
2000 2005 
Rank Airline Country/ 
territory Passengers 
(thousands) Rank Airline Country/ 
territory Passengers
(thousands) 
1 Crossair Switzerland 6,290 1 Lufthansa 
CityLine Germany 5,978 
2 Lufthansa 
CityLine Germany 5,660 2 Air Nostrum Spain 4,689 
3 KLM UK United 
Kingdom 3,778 3 Austrian 
Arrows Austria 4,107 
4 Delta Air 
Transport Belgium 3,300 4 Aegean 
Airlines Greece 4,007 
5 Eurowings Germany 3,175 5 Régional France 3,745 
6 Air Nostrum Spain 2,758 6 Brit Air France 3,484 
7 British 
Regional Airlines United 
Kingdom 2,523 
7 BA Connect United 
Kingdom 3,407 
8 British 
European United 
Kingdom 2,444 8 SN Brussels 
Airlines Belgium 3,212 
9 KLM 
cityhopper Netherlands 2,167 9 Swiss Switzerland 3,084 
10 Binter 
Canarias Spain 2,116 10 KLM 
cityhopper Netherlands 2,922 
Total   34,211    38,635 
Source : Airline Business, May 2001 and May 2006. 
 
289. The level of concentration in the European market  is lower than in the US market.  Thus, at 
the beginning of the period under review, the t op five carriers accounted for about 35 per cent of 
passenger traffic (compared with 45 per cent in the United States), and in 2005 for just under 33 per 
cent.  However, these figures need to be qualified in view of the increasing number of franchise arrangements and acquisitions made by major airlin es, developments which appear to be the exact 
opposite of the spin-off trend in the United States.
216  These developments were described in detail in 
document S/C/W/270, pages 77-78, paragraphs 260-262. 
290. One specifically European phenomenon217 is the transformation of certain regional carriers 
into low-cost carriers.  For example, the regiona l carrier Norwegian Air Sh uttle sold its fleet of 
Fokker 50 turboprops in order to operate Boeing 7 37s under the name Norwegian.  The British carrier 
Flybe also transformed itself into a low-cost carrier , though in this case seeking to reap cost benefits 
from new turboprops, in particular the Dash 8 Q400.   Flybe also left the European Regions Airline 
Association (ERA) to join the Europ ean Low Fares Airline Association. 
291. The regional carriers consider that the conditi ons of competition with low-cost carriers are 
distorted by the discounts and financial assistance the latter obtain from airports.  The recent monitoring of these discounts and financial aids by the European Commission is dealt with in the 
section devoted to airports in document S/C/W/270 and in section III.A of the present document 
dealing with low-cost carriers. 
                                                     
 
216 British Airways, which sold its regional affiliate BA Connect to Flybe in 2006, stands out as an 
exception. 
217 Apart from the unsuccessful experience of Independence Air in the United States. S/C/W/270/Add.2 
Page 284  
 
  292. The growth of point-to-point services by low-cost carriers also seems to raise questions about 
the economic viability of the provision of such ser vices by regional carriers beyond a certain traffic 
threshold.  Some regional carriers, such as KL M Cityhopper, are also starting to question the 
economic viability of dedicated regional hubs (e.g . Basel-Mulhouse and Clermont-Ferrand), as well as 
the classical hub practice of aircraft arriving in wav es, and are thinking of alternative models, such as 
the de-peaking practices already tried out by Americ an Airlines at Chicago O'Hare and Dallas Fort 
Worth. 
293. Some observers consider that, with low-cost  carriers increasingly powerful on point-to-point 
services, European regional carriers will be prompt ed to concentrate on the feedering of mainline 
flights as in the United States.  The arrival of the wide-bodied Airbus A380 in European fleets, which 
requires a strong feedering network in order for its operation to be economica lly viable, should further 
strengthen this trend. 
294. At the same time, however, this feedering f unction is inhibited by regional carriers' 
increasingly restricted access to the main airports as a result of slot congestion and the emergence of a 
grey market in slots.  These developments are descri bed in detail in the section devoted to slots in the 
documentation for the second review. 
295. Despite the competition from low-cost carriers,  European regional airlines continued to post 
strong growth rates during the period under review and their operations were on the whole profitable, 
though less spectacularly so th an in the United States. 
296. One interesting development is the extension of global alliances to regional carriers.  In 2004, 
Star Alliance was joined by the Finnish regional carrier Blue1
218 which at the same time had signed a 
code-sharing agreement with Lufthansa.  The regi onal carrier Portugalia also joined the SkyTeam 
Alliance. 
297. Other carriers concentrated on niche markets, such as premium service passengers in the case 
of the Belgian carrier VLM, which flies out of Antwerp with a hub at London City Airport, or public service obligation contracts.  
(c) Latin America 
298. Table 29 compares the passenger traffic of the top five Latin American regional airlines at the 
beginning and at the end of the period under review. 
Table 29 
Passenger traffic of the top five Latin American regional airlines, 2000 and 2005 
 
2000 2005 
Rank Airline Country/ 
territory Passengers 
(thousands) Rank Airline Country/ 
territory Passengers 
(thousands) 
1 TAM Brazil  5,000 1 Aerolitoral Mexico  1,167 
2 Rio-Sul Brazil  3,954 2 SAM 
Colombia Colombia  1,153 
3 ACES 
Colombia Colombia  2,553 3 Aires 
Colombia Colombia  745 
4 Bahamasair Bahamas  1,066 4 Aerosur Bolivia  661 
5 Nordeste Brazil  1,000 5 Aeromar Chile  600 
Total   13,573    4,326 
 
Source : Airline Business, May 2001 and May 2006. 
 
                                                      
218 Finnair, Finland's national carrier, is for its pa rt a member of the rival alliance oneworld.  S/C/W/270/Add.2 
 Page 285 
 
 
  299. Four countries – Brazil, Argentina, Colombia  and Mexico – alone account for 90 per cent of 
Latin America's domestic regional passenger traffic.   Domestic markets in the other Latin American 
countries are too small to sustain regional airlin es which thus need cross-border routes and, by 
extension, liberal international aviation regimes. 
300. These needs may help explain the open skies pr ovisions of the Andean Pact and similar 
arrangements, albeit limited to secondary rout es, under the Fortaleza accord between the 
MERCOSUR countries.  Some recent bilateral agreem ents, between Chile and Uruguay, for example, 
and between Paraguay and Bolivia, ha ve relaxed restrictions on designa tions and cabotage.  Chile, and 
to a lesser extent Argentina, have made such re laxation a main plank of their bilateral policy. 
301. On the economic front, the picture is much mo re diverse.  Several regional carriers were 
newly established during the period under review, su ch as Aerolineas Universal in Colombia, Star Up 
in Peru, U Air in Uruguay, Aeropacifico in Ecuador, OceanAir in Brazil and Lassa in Chile. 
302. Several other regional airlines were absorbed by their parent companies,  such as Nordeste and 
Rio Sul by Varig or Austral by Aerolineas Argen tinas.  As in Europe, the regional airlines are 
suffering from low-cost carrier competition, partic ularly in Brazil, as a result of the impressive 
success of GOL. 
(d) Africa and the Middle East 
303. While there is a considerable body of literatu re on the development of sixth-freedom carriers 
and low-cost carriers in the Middle East, as well as  regular annual balance sheets for Africa, the only 
information available on regional transport in those ma rkets is reproduced in Table 30.  This lack of 
information must no doubt be attributed to the fact  that regional transport in these two regions is still 
in its infancy. 
Table 30 
Passenger traffic of the top five regional airlin es in Africa and the Middle East, 2000 and 2005 
2000 2005 
Rank Airline Country/ 
territory Passengers 
(thousands) Rank Airline Country/ 
territory Passengers 
(thousands) 
1 Arkia Israeli 
Airlines Israel  1,466 1 Iran Aseman 
Airlines Iran  2,545 
2 South 
African 
Express South 
Africa  793 2 SA Express 
Airways South 
Africa  1,010 
3 Tuninter Tunisia  483 3 TACV Cape 
Verde  688 
4 SA Airlink South 
Africa  478 4 South African 
Airlink South 
Africa  626 
5 Royal Wings 
Airlines Jordan  114 5 Arkia Israeli 
Airlines Israel  509 
Total   3,334    5,378 
 
Source :  Airline Business, May 2001 and May 2006. 
 S/C/W/270/Add.2 
Page 286  
 
  (e) Asia-Pacific 
304. The only available comprehensive data on regi onal transport in the Asia-Pacific region are 
reproduced in Table 31. 
Table 31 
Passenger traffic of the top ten Asia-P acific regional airlines, 2000 and 2005 
 
2000 2005 
Rank Airline Country/ 
territory Passengers 
(thousands) Rank Airline Country/ 
territory Passenger 
(thousands) 
1 UNI 
Airways 
Corp Chinese 
Taipei  3,783 1 Shandong 
Airlines China  4,012 
2 Qantas 
Regionals Australia  2,886 2 UNI Air Chinese 
Taipei  2,968 
3 Qantas 
New 
Zealand New 
Zealand  2,000 3 TransAsia 
Airways Chinese 
Taipei  2,959 
4 Kendell 
Airlines Australia  1,478 4 Merpati 
Nusantara Indonesia  2,600 
5 Airlink 
(Qantas) Australia  1,282 5 China 
Eastern A/I 
Wuhan China  2,321 
6 Mount 
Cook 
Airlines New 
Zealand  816 6 Bangkok 
Airways Thailand  2,140 
7 Bangkok 
Airways Thailand  765 7 Mandarin 
Airlines Chinese 
Taipei  1,789 
8 Air Tahiti French 
Polynesia  650 8 Mount 
Cook 
Airlines New 
Zealand  1,500 
9 Hazelton 
Airlines Australia  402 9 Eastern 
Australia 
Airlines Australia  1,492 
10 Air 
Mandalay Myanmar  160 10 Regional 
Express Australia  1,094 
Total   14,222    22,875 
 
Source :  Airline Business, May 2001 and May 2006. 
 
305. China's regional carrier network is still in its infancy.  The regional fleet in 2003 comprised 
72 units out of a total fleet of 670 ai rcraft.  In 2006, the regional fleet' s share of the total had shrunk to 
only 6 per cent, albeit in a national fleet that was expanding overall.  According to the Chinese 
operators themselves, market yield is still very poor  because of import taxes on aircraft, aircraft fees 
that are not matched to the size of aircraft, tari ff regulations that are deemed excessive, and a still 
imperfect route network.  The Chinese Government  is encouraging the development of regional 
aviation in certain areas such as the north-west, by means of subsidies and other incentives to 
operators. 
306. However, the market is generally agreed to show considerable potential, and the aircraft 
constructor Embraer, for example, has opened a join t venture factory with the Chinese constructor 
AVIC I at Harbin to produce its 50-seat ERJ 145s.  The other Chinese civilian constructor, AVIC II, 
has also started development of a 90-seat regional transport aircraft, the ARJ 21, which should enter 
into service in 2009.  S/C/W/270/Add.2 
 Page 287 
 
 
  307. A further indicator of this market's potentia l is the Kunpeng Airways joint venture between 
Shen Zen Airlines and the US carrier Mesa, which w as established in 2006 to operate 50-seat aircraft.  
Also in 2006, Hainan Airlines ordered 50 Em braer 50-seat ERJ 145s and 50 106-seat ERJ 190s, 
which will be operated out of Tainjin by  a new affiliate, Grand China Express.  
308. Very little information is available on the other As ian markets.  Worth noting, however, is the 
placement by the Indian low-cost carrier Kingfisher, in 2005, of a firm order for 35 ATR 72 
turboprops, with options on an additional 20, its aim being to estab lish a feeder network, at reasonable 
cost, for its low-cost flights from major Indian cities.   Deccan Airways has also ordered 30 aircraft of 
this type. 
309. Qantas, guided in this instance by fuel pr ice considerations, also ordered 17 Dash 
8 turboprops from the aircraft constructor Bombad ier in 2004 for its regional network QantasLink. 
310. According to Embraer's 2005 forecasts, the Asia -Pacific will account for roughly 13 per cent 
of demand for 30 to 120 seat aircraft over the next 20 years, that is, a total of 1,000 aircraft, 590 of 
which will be in China and 160 in India. 
311. India is already encouraging this type of transport by means of a programme offering 
incentives to carriers flying aircraft with fewer th an 80 seats into 48 designated small airports.  The 
incentives include 5 years of tax-free operations, reduced aviation fuel taxes and exemption from 
parking and air navigation charges.  S/C/W/270/Add.2 
 Page 289 
 
 
   
    
 
 
PART D 
 
GENERAL AVIATION SERVICES  S/C/W/270/Add.2 
 Page 291 
 
 
  D. GENERAL AVIATION SERVICES  
312. As was explained in the compilation (pag es 149-151, paragraphs 119-135), the general 
aviation sector comprises two subsectors:  business aviation and aerial work. 
313. Overall general aviation data have not been available since 1998, when the ICAO dropped the 
requirement for its member States to report such data.219  The data are therefore fragmentary, partial 
and diverse.  While the business aviation sector is relatively well-documented as it constitutes an 
essential market for aircraft manufacturers such as Bombardier, Embraer, Dassault, Gulfstream or Cessna, aerial work, which is often done using piston-engine aircraft and helicopters by highly 
specialized small and medium-sized firms with little international experience, is not well documented 
from either the economic or the regulatory standpoint. 
314. It would be wrong, however, to overlook the economic importance of these two subsectors 
which, in terms of pilot and aircraft numbers, st and comparison with the commercial aviation sector.  
Together, in fact, they account for four-fifths of civilian aircraft and two- thirds of pilots in 
employment. 
315. From the regulatory standpoint, the period unde r review was marked by a greater level of 
activity than the period covered by the first review.  What is striking, however, is that market access 
questions as such accounted for only a small fraction of regulatory activities. 
1. Economic developments 
(a) General aviation as a whole 
316. ICAO
220 notes that, while much of the world's ge neral aviation activity is domestic, greater 
numbers of long-haul aircraft and improved ground infrastructur e have boosted the volume of 
international operations. 
317. ICAO acknowledges that it is not in possession of worldwide statistical data, but notes that, in 
the United States alone, this sector in 2005 had co ntributed more than US$150 billion to GDP and had 
directly or indirectly employed more than 1.2 million people, whose collective earnings exceeded US$53 billion.  A Federal Aviation Administration study of April 2003 had estimated the economic 
impact of general aviation at US$76 billion, a little over half the figure mentioned above, which 
seems to attest to strong growth since that ti me, subject to all necessary statistical reservations. 
318. According to the International Council of Ai rcraft Owner and Pilot Associations (IAOPA), 
the developments presented in Table 32 have been observed worldwide since 2003
221 in the number of 
pilots employed, aircraft in service and flight hours actually logged: 
Table 32 
Number of pilots employed, aircraft used and flight hours logged 
in the general aviation sector, 2003-2005 
 
 2003 2004 2005 
Pilots employed 1 million 1.3 million 1.3 million 
Number of aircraft 368,000 370,000 385,000 
Flight hours 39 million 39 million 34 million 
Source : IAOPA. 
                                                      
219 As explained in the 2003 ICAO Annual Report, ICAO Journal No. 6, 2004. 
220 In its "Annual Review of Civil Aviation 2005", ICAO Journal, No. 5, 2006. 
221 No data available for 2000, 2001 and 2002. S/C/W/270/Add.2 
Page 292  
 
  319. These figures show sharp fluctuations (an incr ease of 300,000 pilots, or one quarter of the 
workforce, in one year) and likely inconsistencies (30 per cent more pilots between 2003 and 2004 to 
fly just 0.5 per cent more planes).  This is probably due, first, to the extremely cyclical nature of the 
sector (the reduction in flight hours from 39 milli on in 2004 to 34 million in 2005 is explained, inter 
alia, by increased training, fuel and maintenance co sts and regulatory constraints) and secondly, to 
gaps in the statistics and their gradual improve ment.  Be that as it may, apart from cyclical 
fluctuations, the importance of th e sector has to be acknowledged. 
(b) Business aviation 
320. The definition most commonly used, by ICAO in particular, is the one adopted by the 
International Business Aviation Council, namely:   
"That sector of aviation which concerns the operation or use of aircraft by companies for the 
carriage of passengers or goods as an aid to th e conduct of their business, flown for purposes 
generally considered not for public hire and pilo ted by individuals having, at the minimum, a 
valid commercial pilot license with an instrument rating".
222 
321. Business aviation is itself a very diverse sector.  This diversity is described in an ICAO study 
of August 2005 on "International General and Business Aviation Access to Airports" in the following 
terms: 
"Business aircraft are used by a whole range of  people, from individuals  who often fly rented, 
single-engine, piston-powered aircraft, to sales or management teams in large corporations, 
many of which own fleets of multi-engine, turbine-powered aircraft and employ their own flight crews, maintenance technicians and other aviation support personnel.  While the 
majority of business aircraft missions are conducted on demand, i.e. on a non-scheduled basis, 
some companies have scheduled operations, known as corporate shuttles, which essentially are private in-house airlines.  Corporations th at operate business aircraft use modern, multi-
engine, turbine-powered jets, turboprops or turb ine helicopters that are certified to the highest 
applicable standards.  Aircraft built specifi cally for business aviation vary from four-seat, 
short-range, piston-powered airplanes, to two- a nd three- engine corporate jets that can carry 
up to 19 passengers nearly 11,000 km. non-stop.  Some companies even use airline-type jets 
of bigger capacity.  Although individuals or co mpanies own the majority of business aircraft, 
business aviation can also use arrangements such as chartering, leasing, fractional ownership, time-sharing, interchange agreements, partners hips and aircraft management contracts." 
322. The number of business aviation operators is grow ing steadily:  14,000 at the end of 2002, 
14,500 at the end of 2003, 15,000 at the end of 2004.
223  Indeed, this sector experienced strong growth 
during the period under review, particularly in the United States, but also in Europe and Asia as a 
result of a combination of several factors.  The tw o most important factors are the growing lack of 
fluidity in scheduled airline services due to  increased security measures and the (relative) 
"democratization" of business aviation, which is linked, inter alia , to the emergence of "fractional 
ownership" schemes and the establishment of companies offering business aviation services on an 
hourly basis. 
323. ICAO describes this trend in the following terms: 
"Partly because of access restrictions to airpor ts or for other reasons, including increased 
security measures and congestion of commercial air transport, business aviation has, over the 
recent past years, undergone a profound mutation.  Once reserved to a narrow clientele of the 
                                                      
222 ICAO, "International General and Business Aviati on Access to Airports", August 2005, paragraph 211 on 
page 3. 
223 No figures available for 2000, 2001 and 2005.  (ICAO Journal, Number 6, 2003, 2004 and 2005.)  S/C/W/270/Add.2 
 Page 293 
 
 
  wealthy industry tycoons or multinational compan ies, it is steadily evolving as a business tool 
for smaller size companies and is at the disposal  of middle managers.  It is widely recognized 
that the cost is more than offset by the time  saved and the increased efficiency that tailor-
made aviation can bring.  It has been observed that the users of private jets are more often intermediary executives than in the past and that demand for private long-haul flights has 
been expanding steadily".
224 
324. Paradoxically, the success of business aviation has resulted in the establishment of somewhat 
similar services by commercial airlines: 
- Transatlantic flights at a fixed price between a European city and a city on the US west 
coast, with jet aircraft that can accommodate 10 to 18 passengers; 
- similar products to co-owners of shared bus iness aviation, with tariffs varying with 
distance; 
- scheduled services on large size business jets offering 48 business class seats (three 
routes are presently operated between Germany and the United States); 
- in order to replace defunct supersonic services, projects are under consideration with 
smaller (subsonic) jets offering four to  five daily transatlantic flights; 
- intra-European connections on business aircra ft for long-haul passengers from Munich 
airport. 
325. The aforementioned success of the business avia tion sector is clearly reflected in the 
production of new aircraft and in fleet development (Chart 5).  Aircraft production nevertheless went 
through a period of fairly sharp decline in  2002 and 2003 before rebounding strongly. 
Chart 5 
Number and value (US$ billion) of new business jets 
produced by the leading manufacturers, 2002-2007 
 
10.9
8.410.413.314.817.8
667
5065897378501000
05101520
2002 2003 2004 2005 2006* 2007*020040060080010001200
Value Units
 
 
 
Note: * Forecast. 
Source : Aviation Week & Space Technology, 16 October 2006. 
 
326. The business aviation fleet also includes turboprops.  There are no overall data from which to 
compare jet and turboprop fleets in 2000 and 2005.  However, Table 33 gives an idea of the size of 
the top ten country markets in which jet and turboprop fleets were in operation in 2005. 
                                                      
224 ICAO, "International General and Business Aviation Access to Airports", August 2005. S/C/W/270/Add.2 
Page 294  
 
  Table 33 
Business aviation fleets (jets and turboprops), 2005 
 
Rank Country Fleet 
1 United States 16,827 
2 Canada 814 
3 Mexico 733 
4 Brazil 722 
5 Germany 440 
6 France 415 
7 United Kingdom 346 
8 Venezuela 334 
9 South Africa 306 
10 Australia 268 
 
Source : ICAO, "Annual Review of Civil Aviation 2005", ICAO Journal No. 5, 2006. 
 
327. The number of business aircraft doubled in  the ten-year period 1995-2005.  The 
manufacturers expect that the replace ment market will be sufficient in  itself to maintain growth and 
that, together with the non-US markets, it will ha ve a counter-cyclical effect in the event of a 
recession in the United States.  The forecasts prep ared by aircraft manufacturers are extremely 
optimistic.  Honeywell Aerospace expects to de liver 9,500 new business jets worth US$156 billion 
between 2005 and 2015, while Rolls Royce foresees reactor production reaching 21,000 during the 
same period, with an overall value of US$27 billion. 
328. Well-known investors such as Warren Buffet's Berk shire Hathaway Fund have made the same 
wager.  In 1998, Berkshire Hathaway acquired the NetJets company which, in 2006, owned 650 
aircraft, 100 of them in Europe.225  Its European operations have only recently shown a profit.  The 
company is now endeavouring to "democratize"  its product and has la unched two programmes, 
NetJets Private Jet Card and NetJets Corporate Card , which offer 25 hours of flight time over one or 
two years for a price starting at €124,000, with airc raft available within 24 hours.  Since 2003, NetJets 
has extended its operations to Russia,  the Middle East and North Africa. 
329. Other fractional ownership operators are linked to manufacturers, such as Flexjet 
(Bombardier)226 or Travel Air (Raytheon).  The fleet sh are of these fractional ownership companies 
was estimated at 10 per cent in 2000 and was forecast to double in a few years.  Those forecasts are in 
fact being fulfilled.  Thus, in 2006, fractional ownership schemes acc ounted for roughly 40 per cent of 
orders (firm and optional) placed with the major manufacturers.227  Fractional ownership schemes are 
also proving successful on the turboprop market.  The Luxemburg company Jetfly, for example, 
purchased 14 turboprops in 2006 to supplement the 11 aircraft in its existing fleet.  Jetfly charges 
between US$385,000 and US$850,000, depending on airc raft type, for a one-eighth aircraft share 
guaranteeing 62.5 flight hours per year for five year s, and is also planning to expand to the Middle 
East. 
330. "Card-based programmes" appear to be the ne xt step in the "democratization" of business 
aviation.  These involve the purchase of flight tim e "blocks" (22 to 100 hours) instead of ownership 
shares in a plane (typically one eighth or one sixtee nth, fractions visibly inspired by the maritime 
"quirats" system).  Examples include the Marquis, Jet, Vector, Jetpass and Skyjet programmes.  A study by the Swiss Bank UBS estimates that, in th e United States, 500,000 households have the means 
to participate in a card programme, whereas only 100, 000 can afford fractional ownership shares.  The 
                                                     
 
225 Compared with only 25 in 2002, which gives an idea of the growth of the market. 
226 However, in March 2002, Bombardier stopped marketing its fleet directly and entered into agreements 
with seven European air taxi companies while maintaining the umbrella brand Flexjet and keeping control of flight scheduling.  Bombardier had used the same procedure with five other air taxi companies when it extended its 
operations to Asia in February 2002. 
227 Aviation Week & Space Technology, 16 January 2006.  S/C/W/270/Add.2 
 Page 295 
 
 
  card sector is thought to account for one hundred jets  per year already and should grow by 20 per cent 
a year. 
331. Prior to the events of 9/11, United Airlines, out of concern for the growing loss of premium 
service passengers, had established a subsidiary, A volar, which planned a large-scale launch into the 
business aviation market, involving the purchase of 200 business aircraft over five years.  United was 
forced to cancel these plans in March 2002.  Since then, no commercial airline has really come up 
with a similar project for the purchase and operation of business aircraft.  Along the same lines, but 
with a much lower investment, Lufthansa joined fo rces with NetJets to offer its first and business 
class passengers the option of onward flight in cor porate aircraft from Munich, with a choice of more 
than 1,000 destinations228 at prices slighter lower than tho se charged for traditional business aviation 
flights (€4,500 to 5,500 for the Munich-Lugano connection for example, whereas the price of 
fractional ownership flights ranges from €3,500 to 8,000 per hour). 
332. The air taxi market, also referred to as "on demand charter", has also expanded strongly and 
become truly international.  The Swiss compan y Jet Aviation, recently acquired by the German 
investment fund Permira, manages a fleet of more than 160 air taxis in Europe (Zurich), Asia (Hong 
Kong, China), the Middle East (Dubai) and the Unite d States (New Jersey).  The fractional ownership 
and air taxi markets were roughly the same size (US$1.5 billion in the case of the former and US$1.8 billion dollars in the case of the latter), at le ast at the beginning of the period under review.  
Unfortunately, no equivalent figures are available for the end of the period. 
333. Historically, the business aviation sector was la unched in the United States where it continues 
to have the strongest presence w ith an overall market share of some 70 per cent in 2006, compared 
with 10 per cent for Europe.  However, according to a February 2007 study by the French Directorate 
General of Civil Aviation, Europe's share of th e market should rise to 16 per cent by 2011 and the 
world business aircraft fleet should double in the next  20 years, from 25,000 to 50,000 aircraft.  At the 
same time, Latin America should achieve a 10 per ce nt share of the market by that date, compared 
with 4 per cent for the Middle East and Africa, w ith the United States still accounting for 61 per cent. 
334. A recent study by Eurocontrol
229, the pan-European organization for the coordination of air 
navigation services, reveals that business aviation traffic in Europe grew by 22 per cent in terms of movements between 2001 and 2005, while other air tra ffic grew by only 10 per cent.  The study also 
indicates that the business aviation network covers 100,00 0 city pairs, or three times as many links as 
the commercial aviation network.  Over 40 per cent of flights are flown empty for positioning purposes.  Most business flights are between cities not served by non-stop commercial flights.  The 
business and scheduled aviation markets in Europe ea ch have around 700 operators.  But the business 
aviation sector is roughly ten times smaller, in te rms of turnover, than the scheduled commercial 
sector, which means that many operators have only one or two aircraft.  Only 9 per cent of business 
flights go beyond a distance of 2,000 kilometres, while half are under 500 kilometres.  By 2015 Eurocontrol expects business aviation to add betwee n 0.3 and 0.7 per cent a year (if the economic 
model of air taxis using very light jets is succe ssful) to the overall volume of commercial aviation 
traffic, which should grow by 3.3 per cent a year. 
335. Professional observers see China as a promisi ng market, even though in 2006 it had only 
12 business aircraft in operation and ten or so on or der.  Development of the sector was hampered by 
the slowness of procedures for the approval of fli ght plans (three to five days) and by landing fees 
which can be higher than fuel costs.  Even so, dela ys in flight plan approva l procedures were reduced 
to six hours in 2006, and 120 of China's 400 airports became accessible to business aircraft, compared 
with only 50 in 2004. 
                                                     
 
228 One of the advantages of business aviation is the possibility of accessing a larger number of smaller 
airfields situated closer to the production sites visited by business customers. 
229 Eurocontrol, "Getting to the Point:  Business Aviati on in Europe", Trends in Air Traffic, volume 1, 2006. S/C/W/270/Add.2 
Page 296  
 
  336. According to the Middle East Business Medi um Aviation Association, business aviation in 
the Middle East generated revenue of US$500 milli on in 2006 for charters, maintenance and support 
activity (compared with US$2 billion  in Europe).  The number of flight-hours in that region is 
expected to double within five years. 
337. Honeywell forecasts that Asia could see a jump in  its share of the market, which is currently 
on a par with Europe, from 6.5 per cent to 13 per cent in five years.  The Japanese market has limited 
scope for growth on account of heavy airport cong estion.  National security considerations in 
South Korea explain why the authorities are somewhat  reluctant to see the sector develop.  For the 
same reasons, ownership of a private ai rcraft is prohibited in Chinese Taipei.
230  The Indian market is 
regarded as promising but has not yet taken off.   
338. On the other hand, the Russian market is a ma jor outlet for business aircraft manufacturers as 
is, more curiously, that of Nigeria.  Brazil and Mexico are also important markets. 
339. In any event, the US share of business aircraft orders, which stood at nearly 80 per cent at the 
beginning of the period under review, is declining steadily and has in some cases fallen below 50 per 
cent for some manufacturers (35 per cent for Bombardier  in 2006), thus attesting to the boom in the 
sector without, however, signifying any weakening of growth in the North American market.  These 
developments are illustrated in Chart 6. 
Chart 6 
Percentage of sales outside North America by the main business 
aircraft manufacturers, 2003-2006 
 
30%65%
28%41% 43%50%
30%43%
26%26%
0%10%20%30%40%50%60%70%
Bombardier Cessna Dassault
FalconGulfstream Raytheon
Aircraft
2003 2006
 
 
Source : Aviation Week & Space Technology, 16 October 2007. 
 
340. Another interesting recent commercial development is the production of very light jets (VLJs) 
for three to eight passengers, at a cost below US$3 million per unit, by a number of aircraft 
manufacturers such as Embraer (Phenom 100 and 300), Adam (A700), Eclipse (Eclipse 500), Honda (Honda Jet), Cessna (Citation Mustang) and Piper (Piper Jet).  A new start-up company based in Florida, Day Jet, has ordered 240 Eclipse 500s at US$1.5 million each and intends shortly to launch 
air taxi services out of five cities in Florida to th e south-western United States at a price of $1 to 
$3 per mile.  Similarly, the Swiss company JetBird has ordered 50 Phenoms at US$2.7 million each 
from Embraer, bringing the total number of orders for this aircraft by the end of 2006 to 350. 
                                                     
 
230 Aviation Week & Space Technology, 6 March 2006.  S/C/W/270/Add.2 
 Page 297 
 
 
  341. While the viability of the air taxi economic model at this level remains to be proved231, the 
manufacturers, for their part, are investing on  a massive scale:  according to some forecasts232, 
500 VLJs will be produced by 2011.  Regulatory or semi-regulatory problems, such as the 
development of appropriate insurance and training  schemes for VLJs, also remain to be resolved. 
(c) Aerial work 
342. Aerial work is defined by ICAO233 as "an aircraft operation in which an aircraft is used for 
specialized services such as agriculture, construction, photograph y, surveying, observation and patrol, 
search and rescue, aerial advertisement, etc".  The possible classification for these activities was 
described during the first review (compilation, pa ge 154, Table 11).  ICAO notes that aerial work 
operations may be classified as commercial or  non-commercial depending on the method of 
remuneration for the operation concerned. 
343. Aerial work data are sparse and fragmentary.  The only global study that the Secretariat has 
been able to obtain relates not to the period under review (2000-2005) but largely to the next period and deals only with the helicopter market.  It was prepared by the equipment maker Honeywell 
Aerospace and deserves mention as it pr ovides an overview of the market in terms of type of aircraft, 
region where used and type of customer. 
344. The study, published in 2004, estimates that some 2,400 helic opters will be delivered for 
civilian purposes between 2004 and 2009, for a tota l value of US$8.2 billion.  The expected 
breakdown of these deliveries is as outlined in Charts 7 to 9. 
Chart 7 
Forecast helicopter deliveries by type of aircraft, 2004-2009 
25%4%
55%
16%Light single-
engine
Light multi-engine
Intermediatemulti-engine
Heavy multi-engine
 
Source : Honeywell Aerospace, 2004. 
                                                      
231 Bombardier, for example, already has an air taxi subsidiary, Skyjet International, which in 2006 carried 
20,000 passengers, logged 10,000 flight hours and saw a 40 per cent increase in its operations compared with the previous year. 
232 Forecast International, cited in Aviation Week & Space Technology, 15 January 2007. 
233 ICAO, "2003 Annual report", ICAO Journal, No. 6, 2004. S/C/W/270/Add.2 
Page 298  
 
   
Chart 8 
Forecast helicopter deliveries by type of aircraft, 2004-2009 
20%21%14%
45%North America
Europe
Asia, Africa, Oceania,
Middle East
Latin A merica
 
Source : Honeywell Aerospace, 2004. 
Chart 9 
Forecast helicopter deliveries by customer segment, 2004-2009 
4%
10%
13%
15%22%25%11%
Corporate
EMS
Utility *
Law enforcement
Offshore oil production
Television new s
Other
 
Notes: * Includes cargo hauling, mining, construction and utility monitoring.  EMS = Emergency Medical 
 Services Source
: Honeywell Aerospace, 2004. 
 
2. Regulatory developments 
(a) Multilateral developments 
(i) ICAO 
345. No contributions dealing specifically with the question of general aviation were submitted at 
the fifth Worldwide Air Transport Conference held from 24 to 29 March 2003 in Montreal.  On the other hand, in the context of the follow-up to the Conference on the Economics of Airports and Air Navigation Services, held in 2000,
234 ICAO published a study in August 2005 on "International 
General and Business Aviation Access to Airports". 
                                                      
234 For further details concerning this Conference, see the sections of the compilation devoted to airport 
services (pages 74-117) and air navigation services (pages 121-148).  S/C/W/270/Add.2 
 Page 299 
 
 
  346. In the study, ICAO lists a series of restric tions imposed on business aircraft throughout the 
world by congested airports.  These rest rictions are summarized in Table 34.  
Table 34 
Restrictions on general aviation impo sed by the world's main airports, 2005 
Nature of restriction Comment 
Name Airport 
Capacity Slot 
allocation Landing 
fees Enviro
nment Security Other  
Americas 
Argentina Buenos Aires      X GA operational 
constraints 
Brazil Congonhas      X GA operational 
constraints 
Brazil Congonhas      X 
Brazil S. Dumont      X 
Brazil Pampulha      X Priority to airlines for 
land use / allocation 
Canada Toronto-
Pearson  X      
Mexico Mexico-B. 
Juarez      X Closed to GA 
USA Bedford, MA    X    
USA Torrance, CA      X Hours of operation, 
type of aircraft 
USA San Diego, 
CA      X Curfew 
USA Sta Monica, 
CA   X X    
USA Teterboro, NJ      X Weight restriction 
USA Washington-
Reagan, DC      X Closed to GA 
USA  Chicago 
O'Hare  X      
Asia-Pacific 
Australia Sydney      X 
Australia Adelaide      X 
Australia Essendon      X 
Australia Gold Coast      X List of approved 
aircraft during curfew not updated 
China Shanghai-
Hongqiao      X Closed to GA 
China Yichang      X Closed to GA 
Japan Narita X X  X  X Curfew, parking 
limitations 
Japan Haneda X X     Parking and stage 
length limitations 
Japan Kansai  X      
Japan Nagoya  X    X Curfew 
Japan Chitose  X  X  X Curfew 
Japan Sendai  X  X  X Curfew 
Japan 14 regional 
airports       X Depends on CIQ 
availability 
Mongolia Ulan Bator      X Fuel uplift restrictions 
Thailand Bangkok      X Parking 
Europe 
France Paris-Ch. De 
Gaulle      X Connection with 
commercial traffic 
requested  
France Nice      X Parking 
France Lyon-Bron      X Runway length 
France Le Castelet X       
Germany Berlin-
Tempelhof      X Threat of closure 
Germany Frankfurt X X      
Germany Munich  X      
Italy Rome-
Fiumicino      X GA operational 
constraints 
Italy Naples      X Reduced hours of 
operation, parking 
Italy Florence  X X X    
Netherlands Amsterdam  X      S/C/W/270/Add.2 
Page 300  
 
  Nature of restriction Comment 
Name Airport 
Capacity Slot 
allocation Landing 
fees Enviro
nment Security Other  
Norway Oslo      X Required use of 
Gardermoen 
Portugal Lisbon      X Parking 
Russian Federation Petropavlovsk      X Weight restriction 
Spain Madrid-
Torrejon      X Parking 
Spain Madrid-
Barajas X X    X Parking 
Switzerland Geneva  X      
Switzerland Zurich  X      
United Kingdom Fairoaks    X    
United Kingdom Northolt  X      
United Kingdom Heathrow X X      
United Kingdom Gatwick  X      
United Kingdom Stansted  X      
United Kingdom London City    X    
United Kingdom Farnborough  X      
United Kingdom Manchester  X      
 
Notes:  GA = General Aviation.  CIQ = Customs, Immigration and Quarantine clearance.  Source
: ICAO, "International General and Business Aviation Access to Airports", August 2005. 
 
347. It should be pointed out, however, that the restrictions concerned are not commercial 
restrictions, since the table describes measures of discrimination in favour of commercial flights (regardless of the operators' nationality) and to the detriment of business flights (regardless of the 
operators' nationality).  Moreover, the ICAO study  makes no reference to discrimination based on 
nationality. 
348. In 2005, with the assistance of the Intern ational Business Aviation Council (IBAC) and 
IAOPA, ICAO developed a proposal to amend th e international rules gove rning general aviation 
(Annex 6, part 2 of the Chicago Convention).  The amendments are intended to reflect current 
industry practices.  They would comprise regulati ons applicable to the entire sector and specific 
regulations concerning corporate aviation, air taxis, owner-flown aircraft and fr actional ownership.  In 
the latter case, no amendment has yet been submitted. 
349. ICAO's Air Navigation Commission reviewed this proposal in October 2006, and ICAO 
subsequently disseminated it to its members by means of a State letter for comments on its acceptability, with a deadline of 15 July 2007.  The Air Navigation Commission and the ICAO 
Council will in turn examine the comments received.  The amendments are expected to enter into 
force in November 2008. 
(ii) International Business Aviation Council 
350. Another noteworthy development at the multilate ral level is the attempt at self-regulation 
made by professional members of the Internationa l Business Aviation Council, in the form of an 
International Standard for Business Aircraft  Operations (IS-BAO), published in May 2002.
235  This is 
a collection of procedures and requirements culle d from corporate flight departments in North 
America and Europe, and reflecting the standard s and recommended practices of ICAO (Annex 6, 
part 2 of the Chicago Convention).  Pilot traini ng and proficiency, safety and generic operating 
manuals are also covered by these rules, which can serve as a benchmark for audits.  They have been 
welcomed by several aviation authorities.   
                                                      
235 The text of the rules is available at the following electronic address:  http://www.ibac.org/is-
bao/isbao.htm.  S/C/W/270/Add.2 
 Page 301 
 
 
  (b) Bilateral Developments 
(i) Free Trade Agreements signed by the United States 
351. During the period under review, aerial work, under the title "Specialty Air Services"236 (for 
the definition of this term, see the compilation, pa ge 150, paragraph 124), was included in all the free 
trade agreements (FTAs) concluded by the United St ates, just as it had been previously in NAFTA.  
This was the case for agreements with Korea, Colo mbia, Peru, Australia, Chile, the Central American 
countries (Costa Rica, Nicaragua, El Salvador , Honduras, Guatemala), the Dominican Republic, 
Jordan, Morocco, Oman, Panama and Singapore.  Both cross-border trade and investment are 
concerned by this inclusion.  In the case of cross- border trade, the wording used is typically the 
following: 
"This chapter [cross-border trade in services] doe s not apply to ... (c) air services, including 
domestic and international air transportation ser vices, whether scheduled or non-scheduled, 
and related services in support of air services,  other than ... (ii) specialty air services". 
352. However, the United States systematically qualifies this commitment by means of a 
reservation with the following wording: 
"Authorization from the Department of Transpor tation [DOT] is required for the provision for 
speciality air services in the territory of the United States.  A person of [name of trading 
partner] will be able to obtain such an aut horization given the application of Chapter Ten 
(Cross-Border Trade in Servi ces) to specialty air services". 
353. Specialty air services are also covered by the "investment" chapter of these agreements, where 
the United States also systematically qualifies its  commitments by means of the following reservation: 
"'Foreign civil aircraft' require authority fro m the Department of Transportation to conduct 
specialty air services in the territory of the United States.  'Foreign civil aircraft' are aircraft of 
foreign registry or aircraft of US registry that  are owned, controlled, or operated by persons 
who are not citizens or permanent residents of the United States (14 C.F.R.§ 375.1).  Under 49 U.S.C. a citizen of the United States means an individual who is a US citizen or a 
partnership in which each member is a US citizen  or a US corporation of which the president 
and at least two-thirds of the board of direct ors and other managing officers are US citizens, 
which is under the actual control of US citizen s, and in which at least 75 per cent of the 
voting interest in the corporation is owned or controlled by US citizens". 
 354. Investments in business aviation companies are also included in the agreements, subject to US 
legislation on control and ow nership, which is also applicable to airline services.
237  The trading 
partners of the United States have also made re servations covering their legislation on airline 
ownership. 
(ii) US – European Community relations 
355. Curiously, US-EC bilateral relations in the field of business aviation appear mainly to take the 
form of contacts between professional organizations.  Thus, the US National Business Aviation 
Association forwarded to the FAA a request by th e European Business Aviation Association to raise 
                                                      
236 The definition of this term, as found in the agreements, is the following:  "any non-transportation air 
services, such as aerial fire fighting, sightseeing, spra ying, surveying, mapping, photography, parachute jumping, 
glider towing, and helicopter-lift for logging and constr uction, and other airborne agricultural, industrial and 
inspection services." 
237 See, for example, the sixth US reservation to the investment chapter of the agreement between the United 
States and Australia, Annex 1, page 6, at the following electronic address: 
http://ustr.gov/assets/Trade_Agreements/Bilateral/Australia_FTA/Final_Text/asset_upload_file350_3425.pdf S/C/W/270/Add.2 
Page 302  
 
  the ceiling on authorized occasional planeload charters  from six to twelve per year and to have the 
waiting time for approval reduced from several week s to five days and to 48 hours for second-time 
requests.
238  The FAA has not as yet taken any decision on this matter.  
(iii) Relations between the European Co mmunity and its trading partners 
356. The free trade agreements concluded by the European Community systematically include 
aerial work by virtue of their negative list struct ure and the absence of reservations concerning aerial 
work.  On the other hand, business aviation is excl uded, as it is covered by the reservation excluding 
scheduled and non-scheduled air transport services. 
357. Since the beginning of the period under review (2000), the EC has signed free trade 
agreements with the following partners:  Former  Yugoslav Republic of Macedonia (Stabilization and 
Association Agreement);  Croatia (Stabilization an d Association Agreement);  Algeria (Association 
Agreement);  Egypt (Association Agreement);  Isr ael (Association Agreement); Jordan (Association 
Agreement);  Lebanon (Interim Agreement);  Morocc o (Association Agreement);  Chile (Association 
Agreement);  Mexico (Decision No. 2/2000 of th e EC-Mexico Joint Council);  and South Africa 
(Trade, Development and Cooperation Agreement). 
(c) Regional and national developments 
(i) European Civil Aviation Conference 
358. The European Civil Aviation Conference set up a task force on fractional ownership in 2004. 
359. The task force concluded that a fractional ow nership and exchange pr ogramme should include 
the following elements; 
"(a)  the provision of services for management of the programme by a single programme 
manager acting on behalf of the owners; 
(b)  the availability of two or more aircraft for services; (c)  one or more owners per aircraft belonging  to the programme, with at least one aircraft 
having more than one owner; 
(d)  each owner owning a minimum percentage (to be determined) in at least one of the 
programme's aircraft; 
(e)  an agreement on dry lease exchange of aircraft between all the owners; 
(f)  multi-annual agreements between participan ts in the programme, defining conditions 
with regard to ownership, ma nagement of the programme and exchange of aircraft between 
owners; 
(g)  an explicit statement in an appropriate le gal framework that the operation of a fractional 
ownership programme falls under the private non-commercial transport category would be 
required, as would be an indication that part -owners in a fractional ownership programme 
are in operational control of the aircraft in  the programme, but have the possibility to 
delegate all or part of the tasks associated w ith the operation of the aircraft to the programme 
manager; 
                                                     
 
238 Aviation Week & Space Technology, 5 June 2006;  EBAA web site at: 
http://www.ebaa.org/content/dsp_page/pagec/home.  S/C/W/270/Add.2 
 Page 303 
 
 
  (h)  a clear statement would be required that  transport of passengers or goods or any 
operation for remuneration or hire unde r such a programme is prohibited; 
(i)  a prohibition on the sale or lease of an ai rcraft interest that is less than the "minimum 
fractional ownership interest" unless the flight s associated with that interest are operated 
under a commercial regime by a certified and licensed air carrier;  and 
(j)  a requirement that passengers on a fracti onal ownership flight must be "designated" by 
the relevant owner." 
360. The ECAC is currently continuing work on the questions of operational control, obligations 
of programme managers and fracti onal owners, liability and security. 
(ii) Joint Aviation Authorities and the European Aviation Safety Agency 
361. Shortly before being replaced by the Europ ean Aviation Safety Agency (EASA), the Joint 
Aviation Authorities (JAA)239, the European equivalent of th e Federal Aviation Administration, 
adopted the JAR-OPS 2 regulations for business aviati on.  However, these rules have not been fully 
approved.  A new proposal from the EASA, based largely on the original document and the new 
ICAO standards under discussion (cf. above) will be  issued for comment in the summer of 2007.  
EASA's definitive rules (EASA OPS 2) are not expected to be ready until 2010. 
362. Among the many questions under discussion, two are of particular interest to professionals in 
the sector.  The first concerns the burden of proof for validation of the safety management system:  the operators favour a posteriori  control, whereas the States would prefer a priori  control.  The 
second is the question of the status of fractional ow nership.  The current European rules inherited 
from the Joint Aviation Authorities treat operati ons under the fractional ownership regime as 
commercial operations, thus making them subject  to the JAR-OPS 1 regime governing public 
transport operators.  The business aviation commun ity would like to see these rules amended to fit 
broadly with the FAA's rules (FAR Part 91, Subpart K), which treat such operations as private, or at 
least to provide for the opti on of switching between private and public operating rules. 
363. Before being disbanded, the JAA also proposed  operating rules applicable to helicopters 
(JAR-OPS 3) and aerial work (JAR-OPS 4) and these proposals are being studied in the context of the 
EASA regulatory process. 
(iii) European Community  
364. The European Community adopted pan-Europ ean safety rules in 2002 (Regulation (EC) 
No. 2320/2002 of 16 December 2002).
240  ECAC undertook to amend these rules and the amendment 
is now under consideration by a special parliame ntary/Member-State conciliation committee.  The 
main issues being considered are the size of hand luggage, the amount of liquids that can be taken on 
board, cost-sharing and the applicability of the new ru les to small aircraft, the latter point being of 
particular interest to business aviation operators .  Regulation (EC) No. 2320 requires screening for 
aircraft with less than ten tonnes of maximum take of f weight or less than 20 seats in airports with a 
yearly average of two commercial flights per day.   Several options are envisaged to lower these 
thresholds, but certain member States, such as th e United Kingdom, are pressing for stricter rules of 
the kind applied under the United Kingdom's Nationa l Aviation Security Plan, which involves 100 per 
cent screening at London City Airport, for example. 
                                                      
239 For more information on the transition from the Joint Aviation Authorities to their successor, the 
European Aviation Safety Agency (EASA), see docum ent S/C/W/270, page 19, paragraphs 65 to 66. 
240 See also the reference to this regulation in the airport management section of second review document 
S/C/W/270 (page 118, paragraphs 415 to 417).  The text of the regulation is available at the following address:  
http://eurlex.europa.eu/smartapi/cgi/sga_doc?smart api!celexplus!prod!CELEXnumdoc&lg=en& numdoc=302R2320. S/C/W/270/Add.2 
Page 304  
 
  365. In February 2007, the European Commission pub lished a discussion paper entitled "General 
Aviation in the European Community"
241, which was the subject of comments and consultations242 as 
well as a forum held in March 2007.243  A summary of contributions to the consultations was issued 
on 21 May 2007.244 
366. One of the salient features of the document is the recognition of the lack of systematic data on 
the general aviation sector, including safety trends.  Another conclusion concerns the lack of clear 
definitions, the diversity of definitions and the absence of a common view of the subject among Member States.
245   
367. Another striking feature is the marginal atte ntion devoted to market access concerns.  The 
comments focus mainly on questions of aircraft ma nufacture, access to infrastructure and airspace, the 
impact of new aircraft types (VLJs and unmanned aerial vehicles), environmental impact and the 
proportionality of regulations. 
368. In view of the refocusing of the second review  documentation on market access issues (see 
document S/C/W/270, page 1, paragraph 7), these ma tters will not be dealt with unless Members so 
request. 
369. The only market access issues referred to in th e document concern fractional ownership, an 
area in which the representatives of business aviation poi nt to the existence of an uneven playing field 
between the United States and the European Co mmunity on account of US rules concerning the 
processing of foreign air carrier permit applications.  However, they also recognise that some positive 
developments are taking place in this area. 
370. Furthermore, at the intra-Community level a nd in connection with the same question of 
fractional ownership, business aviation professionals  call for the Community authorities to refrain 
from adopting regulations.  Indeed, they take the view that the emergence of fractional ownership 
creates no conflict with existing definitions in respect  of general aviation, and that the conclusions of 
the task force of the European Civil Aviation Conf erence on the subject of operational control, safety 
oversight, security and insurance, as well as the revi sion of the basic regulations of EASA, should be 
sufficient in this regard. 
371. One example suggests that aerial work is largely ca rried out in a liberal environment.  This is 
the case of CHC Helicopter Corporation, based in  Vancouver, which was recently sold to equity 
investors for a price estimated at US$1.2 billion.  CHC operates 220 helicopters and two thirds of its 
revenue comes from servicing the oil industry.  Fo r this purpose, it maintains 17 bases in the North 
Sea, an area largely governed by European Community regulations or enlarged Community 
regulations of the European Economic Area. 
(iv) United States 
372. Specialty air services are not regulated in the United States as a transport service.  They 
therefore escape cabotage restrictions in respect  of both consecutive cabotage/cross-border traffic 
                                                      
241 Available at the following address:  http://ec.eu ropa.eu/transport/air_portal/internal_market/general_ 
aviation/doc/general_av_discussion_paper.pdf. 
242 An electronic version of the non-confidential comments is available from the following address:  TREN-
AIR-GENAV@ec.europa.eu 
243 The report of the forum and the presentations made there may be consulted at the following address: 
http://ec.europa.eu/transport/air_portal/internal_market/general_aviation/forum_en.htm. 
244 Available at the following address:  http://ec.eu ropa.eu/transport/air_portal/internal_market/general_ 
aviation/doc/summary_of_contributions.pdf. 
245 As described in the document in the following terms:  "As far as the contributions from the Member 
States are concerned, it seems that their definitions and unde rstanding of General Aviation differ amongst each other.  
Generally they stress the need for clear and uniform set of de finitions but overall it is quite hard to see a clear picture 
emerging from the contributions submitted by Member States."  S/C/W/270/Add.2 
 Page 305 
 
 
  (prohibition) and investment (legislation on subs tantial ownership and effective control by US 
citizens).  Foreign-registered aircraft or aircraft registered in the United States to non-citizens or non-
permanent residents must undergo a reciprocity test in  order to obtain an operating licence.  The test 
takes the form of weekly publication of applicati ons received for public comment, so as to enable US 
operators who might not be offered the same opportun ities of access in the country of origin of the 
applicant to make this fact known to the US aut horities for any necessary action to be taken.  There 
was no change to this system during the period unde r review other than the assurance of the granting 
of licences to US free trade agreement partners, a po int already described above in the section devoted 
to bilateral developments. 
373. The general aviation sector, and business aviation in particular, have suffered from temporary 
flight restrictions and a ban on services to Washington National Airport for security reasons.  A study 
by the HLB Decision Economics consultancy246 estimates losses in the sector due to security 
measures at US$1.3 billion between 11 Septembe r 2001 and March 2004.  The Transport Security 
Administration imposed a requirement for the establis hment of "portal cities" through which business 
aircraft must pass for inspection before serving the Di strict of Columbia.  The list of portal cities has 
been enlarged but is still consid ered insufficient by professionals. 
374. A specific legal regime for fractional ownershi p was defined in July 2003 (FAR Part 91, 
Subpart K).  The new rules ended what was pe rceived by air taxi operators as a competitive 
disadvantage.  On the one hand, they require fracti onal ownership operators to comply with stricter 
rules inspired by those applicable to commercial ope rators (Part 135), and on the other hand, they give 
more operational freedom to air taxi operators, par ticularly in terms of accessible runways.  The new 
requirements relate in particular to the legal lia bility of fractional owners hip mangers, conditions of 
recruitment and training of pilots , working hours, maintenance and r ecord keeping.  These regulations 
entered into force progressively over a 15 month period. 
375. The main regulatory concern of general aviation professionals in the United States relates to a 
domestic problem:  they fear that the amount and basi s of assessment of propo sed airspace user fees 
could place them at a disadvantage in relation to commercial airlines.  To date, the air navigation 
system has been financed by the allocation of the fuel tax to the Airport and Airway Trust Fund, an 
allocation which legally expires in September 2007. 
 
                                                      
246 Aviation Week & Space Technology, 16 October 2006.