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DOCUMENTS "COM"
COM(81)398
Vol.1981/0123

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(81)398final
Brussels.23rdJuly1981
REPORT
SCHEDULED PASSENGER AIRFARESINTHEEEC
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LIST OFCONTENTS PARAGRAPHS
1)INTRODUCTION
2)BACKGROUND
2.1 .Theprocess offixing passenger air fares
2.2 .Government criteria
2.3 .Other evaluation aspects
2.4 .Description oftheensuing examination
3)THEAIRFARES EXAMINATION
3.1 .Theprofitability oftheCommunity network
i.Acomparison ofoverall revenue and total costs
ii.Comparison ofrevenue andcosts onaper route
basis
3.2 .The structure offares
i.Choice offare types
ii.Transparency
iii .Elements ofyield dilution
3.3 .Therelation offares tothecosts ofoperation
i.Comparison offare types andcosts per route
ii .The distance relation ofcosts and fares
3.4 .The level ofcosts
i.The cascade studies1-7
8-13
14-17
18-33
34-37
38-44
45-50
51
52-64
65-66
67-83
84-91
92_98
99-110
ii.Breakdown andevolution ofcosts percost category 111-114
4)CONCLUSIONS 115-133
Annex s
1)Procedures andcriteria used bygovernments forevaluating airfares .
2)AEApresentation totheEEC.
3)Presentation oftheConsumers Consultatif Committee .
4)ACE (independent Aircarriers oftheEuropean Community );ecCommission
AirFaresExamination
5)Technical procedures oftheprorating system .
6)UK:'Reverse Cascade
7)Glossary ofTerms .
8)Example :.Brussels-Athens returnfares

1.INTRODUCTION
1)Following theapproval bytheCouncilofMinisters in1978ofa
priority programme forcivilaviation theCommission published in1979its
memorandum on"Contributions oftheEuropean Communities totheDevelopment
ofAirTransport Services".Inthismemorandum theCommission concluded with
respecttoscheduled airfaresthatalthough thesituation iscomplexthere
is"scopeforimprovement andthatitistimeforarethinking ofthetariff
structure ".
Thisideahasbeenstrongly supported bytheEuropean Parliament and
bymanyotherparties.
2)TheUnitedKingdompresented in1980totheCouncilofMinisters a
workingpaperonpassenger airfaresintheEECwhichsetinmotioncertain
events.Thisresulted inJune1980intheCounciltakingthefollowing
decision :
"Havingtakennoteoftheviewsonpassenger airfaresexpressed in
theCommission 'sMemorandum onthecontribution oftheEuropean Communities
tothedevelopment ofairtransport services,
-recognizesthatthesubjectofscheduled passenger airfaresinthe
Community isworthyofcomprehensive study,and
-invitestheCommission ,incollaboration withnational experts,to
examinethevariousscheduled passenger airfaireschargedinthe
Community,inthelightoftheworkbeingcarried on,amongstothers,
bytheEuropean CivilAviation Conference ,takingparticular account
of:
-theeconomic constraints onairlines,
-thepresentconditions oftheiraccesstothemarket,and
-theeffectofnon-scheduled passenger airfares,
withaviewtoinforming theCounciloftheresultsofitsexamina­
tionassoonaspossible."

-2-
4)Thisisthe"background forthepresentreportontheexamination of
scheduled passanger airfaresintheCommunity .Thisexamination doesnotinclude
anyexamination oftheconditions ofmarketaccessalthough theseformanessen­
tial "background tothecircumstances inwhichairfaresarefixed*.Nordoes
thisreportexaminethecompatibility ofthepresentmethodsoffixingair
fareswith .theEECTreaty,whichwillformthesubjectoffurtherconside­
rations .Thereportcantherefore besaidtoconsistofanexamination of
theactuallevelsofairfarespaid,inaccordance withthepresentarrange­
ments.
5)Anyexamination ofairfaresmusttakeintoaccounttheresponsibilities
andobjectives ofgovernments andinterests andobjectives ofairlines and
usersandmustalsohaveregardtotheinterests ofairtransport employees
andtravelagents.Eachofthesegroupshasitsownopinionastothecharacteris­
ticsairfaresoughttohave.Government responsibilities andobjectives are
expressed bylawinmanyMemberStatesbuthaveotherwise beencommunicated
totheCommission bytheMemberSta.tes.Theothergroupshavebeenconsulted
throughtheirorganisations cooperating withtheCommission .Asaresultof
theseconsultations itbecameclearwhichaspectsofairfaresshouldbe
included intheexamination .Thisisfurtherexplained inchapter 2.
6)Fortheexamination assuchtheCommission hastakenintoaccount
studiesandanalyses whichhavealreadybeencarriedout,e.g.byECAC.
Existing information ,however ,seldomrelatestotheCommunity directly
andithastherefore beennecessary tocollectfurtherinformation andto
reassessexistingstudies (seefordetailspar.37).
7) 'HieCommission 'sapproach
hasbeentodescribe thepresentregulatory systemwithrespecttoairfares,
tolookattheairfaresandeconomic consequences whichresultfromthis
systemandtoexaminetheairfareswithaviewtothevariousaspectswhich
interest thedifferent groups.Theexamination ,whichhasbeenmadewiththe
helpofnational experts ,aimstobefactual andobjective inordertocreatie
afoundation forCommission proposals andCouncildecisions inthisarea.
Itshouldbenotedinthiscontextthattheprovisions oftheRome
Treatymayhaveanimportantbearingonsuchproposals and/ordecisions .
*seesecondindentoftheCouncil'sinvitation .

-3-
2.BACKGROUND
2.1.Theprocessoffixingscheduled passenger airfares
8)Farescharged bytheairlines forscheduled passenger airservices
arearesultofairline andgovernment activities .Thefirststages
involvemostlyairlines individually and/orcollectively whilegovernments
playadecisive roleinthefinalstages.
9)Thelegalframework fortariffsettingisconstituted bynational
civilaviation lawsandregulations ,bilateral agreements andinparticu­
lartheinternational agreement of1967ontheprocedure fortheesta­
blishment oftariffsforscheduled airservices,whichwasestablished
byECACandpublished byICAO.Although notallCommunity MemberStates
haveratifiedthisagreement itisinpractice beingfollowed byall.
10)Thenationalcivilaviation rulesspecifythatairlines,both
domestic andinternational ,mustpresenttheirtariffsandobtain
government approval beforetheybecomevalid.Thegovernment approval
maybegiveninwritingbutprovisions alsoexist,wherebyapprovalis
considered givenaftertheexpiryofacertainperiod.
11)Theserulesaresupplemented bybilateral agreements andinmost
casesthe1967international agreement .Infactsincewithrespectto
airfaresthe1967agreement ingeneralreplaces thebilateral agreements ,
onlythe1967agreement willbediscussed here.Thepertinent rulesare
foundinarticle2^paragraphs 3to6:
"(3)Thetariffsreferred toinparagraph 2ofthisArticleshall,if
possible,beagreedbytheairlines concerned ofbothParties,after
consultation withtheotherairlines operating overthewholeorpart
oftheroute,andsuchagreement shall,wherever possible,bereached
bytheuseoftheprocedures oftheInternational AirTransport Asso­
ciationfortheworkingoutoftariffs.
(4)Thetariffssoagreedshallbesubmitted fortheapproval ofthe
aeronautical authorities ofbothPartiesatleastninetydaysbefore
theproposed dateoftheirintroduction .Inspecialcases,thisperiod
maybereduced,subjecttotheagreement ofthesaidauthorities .

-4-
(5)Thisapproval maybegivenexpressly .Ifneitheroftheaeronautical
authorities hasexpressed disapproval withinthirtydaysfromthedate
ofsubmission,inaccordance withparagraph 4ofthisArticle,these
tariffsshallbeconsidered asapproved .Intheeventoftheperiodfor
submission beingreduced,asprovidedforinparagraph 4,theaeronautical
authorities mayagreethattheperiodwithinwhichanydisapproval must
benotified shallbelessthanthirtydays."
*(6)Ifatariffcannotbeagreedinaccordance withparagraph 3ofthis
Article,orif,duringtheperiodapplicable inaccordance with
paragraph 5ofthisArticle,oneaeronautical authority givestheother
..aeronautical authority noticeofitsdisapproval ofanytariffagreedin
accordance withtheprovisions ofparagraph 3,theaeronautical
authorities ofthetwoPartiesshall,afterconsultation withthe
aeronautical authorities ofanyotherStatewhoseadvicetheyconsider
useful,endeavour todetermine thetariffbymutualagreement.''
12)Inaddition tothis,thereareprocedureal provisions incaseof
conflict between States.
Asaresultofbilaterals andthemultilateral agreement ,
confidential arrangements andagreedpractices airlines areinpractice
expected toproposetariffsthemselves andthendiscuss themwithother
airlines operating onthesameroutewithaviewtoagreeing oncommon
proposals tothegovernments involved .Insomeinstances airlines do
talktotheirowngovernment beforetheystartconsultations withother
airlines.Theseconsultations should ,ifpossible takeplaceatIATA,butdo
notnecessarily doso.Consultation between theairlines operating on
■thesameroutesispossible .However,inpracticeithasoftenhappened
thatsomegovernments areunfavourably disposed totariffproposals if
theyhavenotgonethroughtheIATAconsultation .
13)Whenairlineconsultation hasbeenfinished,airlines -then
proposetariffstothegovernments involved.Ithasbeenindicated to
theCommission thatthegovernments ofallMemberStatesinfactfeel
responsible forthetariffscharged,butthattheyasfaraspossible
keepapartfromtheactualtariffnegociation .SomeMemberStatesdo,
however,specifygeneralobjectives fortariffs.

-5-
Inpractice ,most governments refuse toapprove fares which its
ownairlines donotagree with .From evidence supplied totheCommission
this seems tohave ledtoasituation where airlines areoften not able
toimplement quickly their owncommercial judgement ,e.g. incases where
airlines seepossibilities toopen upnewmarkets orincases of'fast
rising costs .
2.2 .Government criteria
14) Guidelines fortariff approval bythenational administrations
aretobefound innational law,regulations andpractice and inthe1967
International Agreement
Thenational criteria have been indicated tothe Commission by
the Member States and are found inAnnex 1.
15) The1967 agreement includes criteria forfares approval inarticle
2paragraph 2:
"(2)Thetariffs tobecharged bytheairlines ofoneParty forcarriage
"toorfrom theterritory oftheother Party shall beestablished at
"reasonable levels ,due regard being paid toall relevant factors ,
"including cost ofoperation ,reasonable profit ,and thetariffs of
^'other airlines ."
16) Thethree criteria inthe1967 agreement arealso tobefound
inmost national criteria ,butmay beexpressed inadifferent way .In
addition anumber ofother criteria arementioned either byone ormore
Member States .Thefollowing criteria arementioned either inthe1967
agreement orinnational legtslation orother national measures ofMember
States asindicated :
1.Reasonable relationship tocosts (*)C1967 ,B,DK,F,NL,UK,D,GR,
IRL.)
2.Reasonable profit (1967 ,B,DK,F,NL,UK,D,GR,IRL.)
3.Tariffs ofother airlines (1967 ,B,DK,F,NL,D,GR,IRL).
4.Nopredatory effect (IRL,F,D).
5.Intheinterest oftheconsumers (GR,DK,F,NL,UK,D,I)
6.Intheinterest ofthecarriers (DK,F,NL,UK,D,I).
7.Comparable fares over the same distances (F).
8.National interest (UK,D).
(*)Inspme countries itisstipulated that itshould bethecosts of
efficient operators .

-6-
Thefollowing section will describe towhat extent these
national criteria were reinforced hytheconsultations with
relevant organizations .
2.3 .Other evaluation aspects
17> Aswell asgovernments , theusers ofairline services ,the
airlines themselves airline employees andtravel agents areinterested
inairfares ,tutthecriteria whereby they evaluate them maydiffer
from thecriteria used bygovernments oratleast they mayemphasize
different aspects .
18) During anumber ofhearings theCommission waspresented with the
views of :
-Air Transport Users Committee (AUC), (UK)
-Consumers Consultative Committee (CCC), (EEC )
-Conference ofChambers ofCommerce andIndustry (CCCI ), (EEC)
-Association ofEuropean Airlines (AEA), (Europe )
-Independant AirCarriers oftheEuropean Community (ACE), (EEC )
-Transport Workers Unions (TWU), (EEC)
-Groupe ofNational Travel Agents Association (NTAA ), (EEC).
Apart from oral presentations bythese organizations theCommission
also received 3written statements .These statements are attached asannex
2,3and 4.
19) Itwould beimpossible toinclude afull account ofthehearings so
thefollowing should beseen only asasummary .Forease ofpresentation
thepertinent comments have been indicated with respect toeach criteria
aslisted onpagef .Itwill also beseen that additional criteria have
been added .

-7-
1.Reasonable relationship tooosts
20)Thiscriterion wassupported byeverybody .Animportant discussion ,however,
tookplaceonwhatcostbasisshouldbeused.
AreApointedtotheverycomplexnatureoftheissueandstated:
"Theremustbeindeedsuchareasonable relation betweencostsand
faresasageneralobjective .Ontheotherhand,costallocations
areanextremely complexsubjectandmanyarbitrary elements are
inevitably involved inacostallocation toroutes.Problemsatthat
stagesufficiently underline theextremedifficulties whichwould
ariseinacostallocation according totrafficcategory andfare
type.Therealsoremainstodefinewhatarepresentative costwould
beonaspecific routesincethecostlevelonanygivenroutevaries
betweentheindividual operators .Thisisforinstance ,afactor
whichhasbeenfullyacknowledged intheECACstudyofEuropeanair
fares,whichnotesthattoaverygreatdegreeoperating costsare
areflection oftherespective national situations .Giventhegreat
differences encountered bytheairlines themselves incostallocations ,
astrictadherence toatheoretical costformula,thepurposeofwhich
shouldenableauthorities toassessmathematically thedegreeof
relationship betweenfaresandcosts,caninfactbedefinedasa
veryambitious targetofspurious accuracy."
andfurthers
"Apartfromtechnical arguments ,wehavetostressthefactthat
operators havetolook,notonlyattheoperating costsinisolation ,
butatthecostofservicing allsegments oftheairmarket."
21)ACEstated:
"Areasonable relationship tothecostofoperations istheprimary
criterion forevaluating fares,andshouldalwaysbeobserved bearing
inmindthecostsofanefficient carrier.Sincemailandcargoin
mostcasescanbecarriedinaddition toanormalloadofpassengers ,
thecostcriteria shouldbebasedonnormal-load passenger flights
only,andtherevenues frommailandcargoconsidered anadditional
contribution .Thiswillmakefarecomparisons possible betweencarriers
thatcarrydiffering loadsofmailandcargoornomail/cargoatall."

-8-
andfurther :
Intheabsenceoffreemarketconditions inEurope,thepredominant on-demand
faretype(inEuropenormally theeconomy-class fare)shouldbelinkedclosely
tothecostsofanefficient aircarrierinpoint-to-pointterms."
22)Theargument aboutusinganefficient aircarrier'scostlevelasa
basiswassupported strongly byAUC.Thisorganization infactwastryingto
construct thecostlevelofasimulated efficient UKaircarrier.Thiscost
levelwouldbeusedbyAUCasabasisfortheirairfareevaluations .AUC
acknowledged thattheproblem wasmorecomplicated intheCommunity wherethe
costlevelsmaydifferbetweenairlines ofdifferent nationality servingthe
sameroute.
However ,someusers,andespecially theCCCIemphasized theimportance
offullfarefacilities andtheexistence ofsecondary andtertiary routes;
theyfeltthatfaresshouldberelated moretotheeconomic conditions ona
wholenetworkandnotnecessarily onlyontheroutesconcerned .
2.Reasonable profit
23)Thisoriterion wasalsorecognized asaprerequisite forasatisfactory -
systemofairtransport intheCommunity .
Asatargetpercentage AEAclaimedthat8%profitovertotalcosts
excluding financial chargesisneededfortheindustry .Thefinancial
charges woulddemandanother 4%profit.AEAmentioned thatthiswasin
factnotthecaseatpresent.Thiswillbedemonstrated inChapter 3.
24)Thetransport workersstrongly underlined thecriterion ofreasonable
profit.Theywereoftheopinionthatasoundfinancial situation forthe
airlines wouldproducestableandotherwise satisfactory conditions forthe
workers .
Further moreACEstated :
"Wecanonlyre-iterate ourviewthatEuropeanairtransportation shouldbe
managedasanormal"forprofit"business concern,withinvestments obtained
throughthenormalfree-market financial means.Anyaspectsofthebusiness
considered a"publicserviceobligation "shouldbeaccounted forseparately
andsubsidised separately ifabsolutely necessary ."

-9-
3.Tariffs__of_ot_he_r_aj_r n_e_s
25)Thiscriterion whichwouldcallforalignment ofairfares,wasnot
reallycommented onexceptbytheNTAAwhosaidthatiftherewasnotsome
sortofcoordination theresultwouldbeanunmanageably largenumberof
fares.Thiswouldbenon-transparent andverydifficult fortheusers.
4.Nopreda_t_o_ry_e_ffecjt_
26)Ageneraldefinition ofthisconceptdoesnotexist.Iffaresarecost
relatedthenthisevaluation wouldnotbenecessary .TheCommission regards
itasbeingsynonymous withwhethertariffshaveicharacter ofdumpingornot.
5.Intheinterest_s_o_f t_heusers
27)Thiscriterion wassupported byeverybody andisimplicitely covered
bythecriteria 1,7,9and10*.
6.In_t_he_interest_s_of the^£a£.rjers_
28)Thiscriterion wasalsoacknowledged byeverybody .Inthiscontext
theCCCandCCCImentioned thatthisshouldnotleadtoasubsidized air
transport system.Theaircarriers makingreasonable profitsshouldbeable
tooperateascommercial undertakings ,beingabletomakedecisions on
marketconduct onacommercial basis.Implicitly thiscriterion iscovered
bythecriteria 1,2,3and4.
7.Comparab_l_e_fa_re_s_o_ve_r_th_e_sa_me_d_i_st_a_nc_es_
29)Thisisoneoftheclassical aspectsofairfareswhichmany
partiesuseasayardstick .
However,asACEsaid:
"Iffaresarerelatedtopoint-to-pointcostsofanefficient carrier,as
thisAssociation isrecommending ,theywillautomatically becomeclosely
relatedtodistance".
ThispointofviewistosomeextentnotsharedbyAEAwhich
pointstolargevariations incosts.Nevertheless ,theystated:
*seepage11

-10-
"Thereisinfactareasonable overallrelation betweenfaresand
distance .Theoverallcorrelation betweenfaresandstagedistance
is,aswepointedoutinourownexamination referred toabove,(1)
higherthanthatbetweencostsanddistance .Thisiscertainly
ademonstration ofthesuccess ofmultilateral tariff-coordination
insmoothing outnotonlyinequalities betweenfaresforadjacent
routes,butalsosomeofthelargevariations incosts."
8.Nationalinterest :Thiscriterion didnotgiverisetoseparateanalysis .
Inaddition totheabovementioned criteria afewotherswerementioned .
9.Abroadrangeofproducts^)(Choice)
30)Fortheusers,theairfares shouldreflecttheneedsofthe
different groupsofusers.Inordertocovertheseneedstheusers
advocate abroadrangeofproducts sothattheycanhaveachoice.
Therewereuserswhoadvocated alowbasicfareplusextra
payments foradditional services theymightwant.TheCCCIonthe
otherhandunderlined theinterest inthepresent economytypefare.
Thisseemstoleadtowardsarequirement forabroadrangeof
fares;Thiswasacknowledged bytheairlinffiandtravelagents.
31)Inthiscontext ACEstated:
"Weshouldperhapsencourage theCommission ,onthisquestion of
relating farestoservices rendered bytheairline ,todevotetime
toconsidering waysinwhichairlines couldpractically separate
theaspectofanairticketfromtheaspectofaseatreservation }
withaviewtotreating thelatterasanon-refundable option.Such
afundamental changetothebasisofEuropean on-demand airtransport
couldhaveprofoundeffectsupontheevolution ofEuropeanair
transport ."
32)whileAEAclaimed
"Regarding theoverbooking problem ,itiscertainly anoversimplifi­
cationtobelievethattheproblemcanbesolvedbycharging
directlyforthecostofreservation .Letusrepeatoncemorethat
theoverbooking questionisdirectlyrelatedtothe'no-show'
problem ,andthatboththetravelling publicandtheintermediaries
arethemajorculprits inthisrespect .Overbooking ,whichis
strictlycontrolled bytheairlines ,isawayofovercoming the
'no-show' problem."
(1)AEA:"AirfaresinEurope"
(2)"Product"isusedinthisreportinthesenseofa
serviceoffered onparticular conditions .

-11-
10.Transparency and_simplif ication
33)Itwasclaimed from many sides that passengers should notpayforcosts
they donot incur andforservices they donotwant .Atanyrate they want
toknow what exactly they arepaying for .Forthat reason products need to
besimple andunderstandable .
NTAA stated that travel agents seetheir commercial interest inserving
thepublic andconsequently their evaluation oftheairfares ispractically
similar totheevaluation oftheusers .They tooadvocate simple ,transparent
andunderstandable products ;they realize ,however ,that such ademand calls
for alimitation ofthenumber ofproducts that canbeavailable perroute .
2.4 .Description ofthe ensuing examination
34)Towhat extent thepresent scheduled passenger airfares intheCommunity
reflect thecriteria mentioned inparagraphs 14-33isexamined inchapter 3
ofthis report .Given theprocedures forfare approval bygovernments andthe
opinions oftheorganisations consulted itseems logical toconcentrate the
Related criteria
a^nu^ered^in
1,2,6
9,10
5,10
4,5
7
1,2
35)Thefirst step will therefore betoshow revenue arrived atby
xtheairlines selling alltheir services -defined asallrevenue derived from
intra –Community traffic traveling atthewhole range ofexisting fares –and
towhat extent this isrelated tothecosts ofproduction (par.38–44)*
\
\
Thereafter attention will bepaid totheprofitability ofindividual
routes (par .45-50).
Before looking attherelation oftheindividual fare types andtheir costs it
isnecessary t®look atfirst atthese facas andtheir related conditions .Therefore
chapter 3will asanext step "treat thestructure offares intheintra –
community network andanalyse theexisting choise fortheconsumers andthe
transparency ofthat choiset wi*1other words whether theusers canactuallyexamination onthefollowing areas :
a)What istheprofit level ofairlines operations inthe
Community andonindividual routes ?
b)Isthere sufficient choice andtransparency ?
c)Arefares related totheservices offered ?
d)What isthecost relationship offares ?
e)Areairfares related todistance ?
f)Isairtransport intheCommunity cost effective ?

-12-
understand theexisting choiceoffareswithalltheirrelatedconditions
(par.51-66)
36)Thereafteritwillbeexaminedtowhatextentindividual faretypesare
related tothecostsofoperation andhowfarsucharelationship is
compatible witharelationship betweenfaresanddistance .Arelatedproblem
isthefact thattheairlinesyieldperfaretypeisoftenlessthan
theactualfarequoted(par.67-98)*
Finallychapter 3willlookintothematterofcostefficiency since
asituation withoutanyexcessprofitmaywellbecombined withairlinecosts
whicharehigherthantheywouldbeunderamorecompatitive regime,asit
wasclaimedbysomeoftheorganisations consulted.(Par.99-114)•
37)Asstatedintheintroduction ofthispaper,themajorpartoftheseitems
havealreadybeenthesubjectofstudybyotherbodies,theresultsofthe
following studieshavebeenevaluated bytheCommission andarereflected in
thisreport:
Complementarity ofCompetition betweenscheduled andnon-scheduled
airtransport (ITA,1976)
EuropeanAirPares(AUC1976andsupplément 1980)
EuropeanAirFares(CAA1977)
AirFaresinEurope(AEA1977)
EuropeanAirFares(HouseofLords1980)
DutchCascadestudy(NL1979)
Reportonintra-European airfares(ECAC1981)
Theeconomiccoststructure ofairtransport inEurope(TAI1980)
AEA:Salescosts,acomperative examination between AEAandUS
Airlines

-13-
3.THE EXAMINATION OFAIR FARES
3.1 .Profitability ofthe Community network
i.Comgari_son_of _overa L^_revenue_and_tota L_cost s
38) Several studies have been conducted inthe past that
devoted attention totheprofitability ofthe local European
scheduled operations .Although these operations cover more coun­
tries than theEuropean Community alone ^
theconclusions reached forEurope asawhole will probably in
principle notdiffer from the conclusions that would beachieved
onthebasis ofdata from theCommunity alone .
39) There are three bodies collecting evidence regularly
concerning theprofitability ofEuropean services .These are :
1)The International Civil Aviation Organisation (ICAO ),
2)TheAssociation ofEuropean Airlines (AEA )and
3)The IATA Cost Committee .
The following text includes only themain elements of
these statistics .Amore exhaustive description hasbeen made by
ECAC initsstudy onintra-European airfares ,which includes an
inventory ofthevarious sources ofevidence .
40) ICAO issues ayearly publication "Regional differences in
fares ,rates and costs for international airtransport "inwhich
*the revenue /cost ratio for local Europe canbefound .These ratios
were fortheyears 1975-1978 :100 ,125 ,HOand115**.
According totheir figures Europe hasthehighest revenue /cost
ratio ofthe12regions investigated intheworld .(Average forall
regions 1978 =101).
However thefigures published byICAO are criticized by
European Airlines aswell asbygovernments because the ICAO method
ofallocating indirect costs totheEuropean services seems tounder­
estimate the total cost level and also themethod toderive the figures
seems tolack consistency from oneyear totheother .Ontheother hand
ICAO figures donotcontain anallowance forincidental revenues which
would add some percentage points tothe ratios .Thetotal effect seems
tobeanoverestimation ofoperating results for local Europe .
*Seedefinition of"Local Europe "inannex 7»Glossary ,ofTerms .
**Revenue cost ratio =T°\al ,revenue x100RN»-\+•-» I +roxai COSTS

-14-
41)Theaverageoperating ratioscalculated byAEAforAEAairlines for
theyears1975-1979 are106.1,108.7,108.0,105.3 and105.7.Theseratiosdonot
includefinancial chargeswhichamountto4percentage points.Theseresults
leadAEAtotheconclusion thatprofitsforlocalEuropearetoolowforany
ofthefivefinancial years.Toillustrate thisfurther AEAderived an
"economic costratio";aratioof100indicates asituation wheretheairlines
canmeetfinancial expenses,paydividends andtaxesandreplaceaircraft at
currentprices.Forthefinancial year1978/79thisratiowas95.9.
42)InOctober 1980thefirmofconsultants "Transportation Analysis
International "(TAI)presented itsfinalreportonthestudy"Theeconomic
coststructure ofairtransport inEurope"whichwascarriedoutforthe
Commission.
The1978results for15AEAairlines wereasfollows :
Table 1:Operating resultsinlocalEuropefor15AEAscheduled airlines
NumberofAirlines %operating (*)result
2 >15%
ιk
1 11-15%+profit
5 6-10%
2 1-5%
4
11-10%
io%-loss
(*)Profitorlossasa%oftotaloperating costsbefore
interest expenses .
These15AEAairlines,ofwhich10areCommunity based,accountfor
93.1%oftheRTK's*ofscheduled operations performed inlocalEuropeby
AEAairlines .
43)Asstatedinthetabletheoperating resultswerecalculated excluding
interest expenses astheywerenotsupplied bytheAEA.TheTAIreportconcluded
thattheAEAairlines asagroupdidnotachieveanacceptable profitmargin
forlocalEuropescheduled passenger operations .Theconsultant tookasa
basisforthatconclusion thattheairlines mustachieve a"clearandsignificant
profit"overandabovetotaloperating costsandinterestexpensesinordertobe
*RTK=Revenue TonneKilometres

able "tore-equip with newgeneration aircraft .This conclusion of
course depends toacertain extent onthefinancial year which is
chosen fortheanalysis .
However ,thefindings ofthe TAIreport
are similar tothe ECAC conclusions where the ECAC study concluded
that "ifEuropean scheduled fares are found tobegenerally too
high ,itisnotbecause airlines areearning high profits from the
region taken asawhole andtaken oneyear with another ".
Itshould however beobserved that these conclusions are based
oninformation provided byAEA airlines and follows
therefore from the usual AEA cost allocation method
and asshown bythedifferences between ICAO andAEAoperating
ratios the calculations arevery sensitive tocost allocation between
Europe and other regions inthe world .Noinformation isavailable
toillustrate this problem satisfactorily .
44) TotheCommission itseems that ingeneral itcanagree
with the conclusion ofECAC provided the cost allocation ofAEA
airlines isnotbiased against local Europe .Atanyrate even the
ICAO ratios donotconstitute exessive profits .Itseems also likely
that afewairlines areable toobtain satisfactory operating ratios
inEurope .
Comgarison_of_revenue_and_costs_on_a_ger_route_basi s
45) After theanalysis inthepreceeding paragraphs the logical
next step istolook atprofitability onindividual routes .Two
sources ofevidence may bequoted inthis respect :
First there istheAEA,"Air fares inEurope study "where passenger
operating ratios (1)arecalculated for asample of84routes ,of
which 57relate toEECairlines .Theaverage passenger operating
ratio was 101.5 with aminimum ratio of59.7 and amaximum of163.6 .
Atable from thestudy isreproduced intable 2and itmaybeseen that
there isavery wide variation .Theactual load factors vary from 30.8
to78.1 aridthebreakeven load factcrs vary from 39.1 to84.2 .
(1)Thepassenger operating ratio isthe relationship between passenger
revenues andthepassenger related operating expenses (including
financial charges ).Anoperating ratio of100indicates that the
airline hasachieved thebreak-even point which does not include
anyprofit margin .

-16-
TABLE 2-LOAD FACTORS ANDOPERATING RATIO BYRANGE BAND (1975 )
Source :AEA "Air fares inEurope "
Range HandActual Pax
Load Factor (.%)Breakeven
Load FactorPax
(X)Pax Operating KM110
(kms )Min . Av.Max .Min . Av .Max .Min .· Av .Max.
200 -399 30.8 60.7 72.5 40.6 66.7 82.9 59.7 91.0 137.6
400 -599 42.0 59.2 78.1 53-8 65.6 84.2 69.7 9O.3 1JO.7
COO -799 42.4 53-6 65-1 40.7 53.6 62.5 74.4100.0 131.9
800 -999 33-0 55.473.5 39.1 50.4 59.573-9 IO9.9 134.8
1000-1199 48.960.768.241.1 35.5 74.3 77.9 IO9.3 137.8
1200-1399 51.162.9 68.840.151.061.7 94.4I23.3 IU7.4
]4oo-1599 49-559.165*84O.2 47.3 55.4111.0 124.9 163.6
IC.OCJ -1799 - - - - - - - - -
♦IH00 45·' »64.2 72.2 39.6 62.182.088.1103.4 130 .t,
Total sample
(84routes )30.860.1 78.1 39.1 59.2 84.2 59.7101.5 163-6
Source :AliA routes from sample .
Notes :- the average refers tothe weighted average for the corresponding
range band ;
-minimum ormaximum rates ofanactual and breakeven load factors
and operating ratio donot necessarily refer tothe same route ,
breakeven load factors and operating ratios include an
allowance of3-78% oftotal cost forfinancial charges .
46) TheAEAstudyalsoproduced figures-
concerning thesame 84routes-withrespecttoindividual
airlines andthose figures arereproduced intable 3.
47) Asmaybeseenfromtable 3important differences in
route profitability canexist evenwithin oneairline .
Furthermore itisinteresting toseethathighcosts (carrier D)
donotnecessarily mean lowprofits asthose costs maybe
compensated byevenhigher yields andreasonable loadfactors .
Alsolowyields(carrier C)maybecompensated byevenlower
costsandhighloadfactors.Anotherexampleissetbyair­
line(M)withhigherthanaverageyields,lowerthanaveragecosts
butyetthroughamuchlowerthanaverageloadfactor itstill
makesalossonitsfourroutesincludedinthestudy.
48) This evidence shows -forallairlines andallroutes
that there areimportant differences inprofitability perroute
andalso thatwithin anairline some routes docross-subsidize
other routes .IntheCommission 'sopinion somecross-subsidiza -
tion isonlynatural andreflects normal commercial practice .

-17-
However ,onsome routes thehigh level ofprofits mayinfact besohigh
astoviolate criteria 1and2(reasonable relationship tocosts and
reasonable profits )andmaybe also art .86oftheTreaty .This is
even more sosince 1975 wasarather poor year foraviation .Onthe
other hand some ofthedeficits are sohigh that the fares may be
predatory (criterion 4),unless there ise.g. apublic service
obligation (criterion 8).
.TABLE 3..-.INDICES OFECONOMIC PERFORMANCE BYCARRIERS (1975 )
Source :AEA "Air Fares inEurope "
CarrierAv· route
distance
(kas >Carrier 1s
Cost
Index *Carrier 1a
Yield
Index *Av.Pax
Load
FactorAv.Pax
Operating
RatioPassenger Operating Hatio Total
<99.9 100-107.9 >IO8number of
routes
A 1690 72 101 62.2 156.4"-No.ofroutes2 2
Β 1147 83 94 65.3 143.6 1 - 4 5
C 419 74 70 75.2 121.3 1 1 2 4
D 665 105 104 58.6 114.4 - 2 2 4
E 640 82 98 <13.7 IO9.5 1 - 1 2
F 594 105 106 50.4 102.9 7 1 4 12
G 1675 97 90 61.5 101.8 3 - 1 4
*II 1018 118 87 66.5 100.9 5 2 2 9
I 505 96 85 56.9 94.6 10 2 1 13
J 592 116 94 56.1 93-8 9 2 5 16
κ 970 108 84 60.4 92.5 3 1 - 4
L 471 121 101 60.2 91.2 4 1 - 5
>1 330 80 109 41.4 85.8 4 - - 4
Average /
Total686 - 60.1 101.7 48 12 24 84
Source :AEA routes from sample .
•Cost and yield Indices compare the average cost ana yield achieved byeach carrier with the
corresponding cost and yield for equivalent distances derived from the regression analysis
ofthe sample data *
The index for the costs and yields derived from regression analysis Isequal to1O0 .
49) Itisargued bymany airlines that oneshould look at
the total network ofthe airline .Thinner routes are bound to
beless viable than routes with dense traffic flows .Even if
athin route does notcover the full costs -including overheads -
allocated tothat route ,the route may still contribute tothe
airline 'sprofitability bygenerating revenue inexcess ofthe
direct costs .
50) Such position leads theCommission tothe conclusion that
the revenue oneach route should atleast cover variable route
costs and give some contribution totheairline 'sfixed costs ,
otherwise criterion 4would really beviolated .Moreover the number
ofroutes ofthesame airline notcovering thetotal costs (fixed and
variable )should bestrictly limited ,foronly iftheproportion of
routes notcovering their total costs isrelatively small onecould
argue thatmarginal costing isacceptable forthose routes ,
s)Seealsoput 48

-18-
3.2.TheStructure offares
51)ForairtravelaLargenumberofdifferent scheduled faretypesand
associated conditions exist.Adifference canbemadebetweenfareswhichare
directlyavailable tothepublicandfareswhichareonlyavailable fortour
operators asabasisfortheconstruction ofinclusive-tour packages ;the
latterfaretypesarecalledInclusive Tour(IT)basingfares.
Forfaresdirectlyavailable tothepublic,withintheCommunity,about150
different rules*existandoneoftheserulesalwaysappliestosomeoranother
ofthosefares.
Inprinciple theseconditions asexpressed intherulecontaincertainlimitations
withrespecttotheuseofthosefaresbythetravelling public.Suchlimitations
containingeneralruleswithrespectto:
-thevalidity periodoftheticket
-thelength ofstayatthedestination point(orpoints)
-theflexibility ofbooking
-theflexibility ofrouting
-thepossibilities ofmakingstop-overs
-thegroupsize
-discounts forspouse,children,students,etc.anddiscounts fortourguides
-thecapacity whichtheairlines makeavailable forafaretypeoraroute.
Theaimoflowerfaretypesistoincrease thetotaltraffic volumeand
theairlines averageloadfactorwhichimproves theeconomics oftheroute,in
principle atthebenefitofallpassenger categories flyingonthatroute.The
majoraimofthelimitations inthisrespectistopreventtoomanypassengers from
shifting fromthehighyielding farestothelowerfares,thusmaintaining forthe
airlines anacceptable averageyieldlevel,
i.Choiceoftariffs
52)Fortheexamination ofchoicetheCommission lookedatthetariffs
available on550**directintra-Community routes.Thedecisionofwhethera
tariffwasavailable wastakenmerelyonthe"basesofatariffbeingpublished and
sold.Forsometariffs onsomeroutesthecapacity theairlines makeavailable for
thattariffisextremely limited,butthesecapacity limitations havenotbeen
takenintoaccount .
Inadditiontothenumberoftariffsavailable thereisalsoasystemofdiscounts
forspecificgroupsoftravellers ,i.e.spouse,youth,workers,etc.Thesedis­
countsapplytosomebutbynomeanstoalltariffspubliclyavailable .As
example(Brussels-Athens ).isshowninannex8.Inthefollowinganalysisthese
discounts havenotbeenincluded .
. numbered intheAPT
*Source:AirlinePassengerTariffnr.85;J.anuary 1,1981-rulessuchas/
**Example:London-Paris ,Paris-London wascountedastworoutes.

-19-
Asafirststeptable4givesinformation onthenumberoftariffs
available onJanuary 1,1981,onthedifferent routes.Thefirstclass
tariffshavebeenexcluded andalsoatariffwithdifferent levelsaccording
totheseasonhasforthesakeofthisanalysis beencountedasonlyone
tariff.Furthermore ,theanalysis didnotincluded theclubclasstariff
whichwasonlyintroduced recently andavailability atthefirstmonths
of1981waslimited .
Table4:Numberoftariffsperroute
%ofRoutesNumber (*)oftariffs
available
7 1
19 2
32 3
30 4
8 5
.4. 6ormore
100%(*)Notincluded first
glassandseasonal
differences nor
discounts
Numberofroutes :550.
53)Fromthistableitmaybeseenthaton26%oftheroutes (143routes)
thepassenger onlyfindsonetariff (i.e.nearlyalwaystheexpensive normal
economytariff)-ortwotariffs;thesecondtariffisinmostcasesan
"Excursion fare"whichisthesecondhighestrevenuefareafterthenormal
economyfare.Attheotherendofthescalethereare66routes (12%)which
offerthepassenger achoiceof5ormoretariffs.
54)Thepassengers primeinterest isthatheshouldbeabletobuya
productthatsuitshisdemandatthelowestpossible price.
Theproducts astheyexistatpresentrepresent inmostinstances
acombination offeatures whichthepassenger caneitherbuyintotalor
notatall;theseproducts aregenerally indicated as"bundled"fares
incontrast to"unbundled "fareswhichgivethepassenger theoptiontobuy
onlythoseelements heneeds.

-20-
Theseelementsbesides "thetransportation itselfare,interlining ,prorating
formultisector routes,mileagedeviation ,extramileagerules,seatreser­
vation,noshow,abilitytochangereservations ,possibility ofrerouting ,
refvoidingofpayments andcatering .
55)Inprinciple therearethreegroupsofconditions :
a)conditions thateliminate someormoreoftheabovementioned
elements ,thusgivingacostsavingtotheairlines j
b)conditions thatallowtheairlinestocontroltheirpassenger
flowandtherebyincrease thepassenger loadfactorthusreducing
costsperpassenger seatsold;
c)conditions thataremeanttopreventashiftofpassengers from
higherfarestolowerfares.
Thepricedifferential isquiteoftenmuchlargerthanthecostsaving
resulting fromtherelevant condition .Groupcconditions donotincur
anycosteffects .
56)IntheCommission 'sopiniongroupcconditions andlimitations that
areonlymeanttosegmentthemarketandtogivetheairlines apossibility
tomakeuseofdifferences inpriceelasticity ofdifferent usergroupsdo
notconstitute essentially different products .
Onlygroupaandbconditions whicharemeanttohelptheairlinetoincrease
itsseatfactorthroughabettermanagement ofitspassenger flow,orwhich
arebasedoncostdifferences ,doconstitute essentially different products .
Theavailability ofacertain numberofdifferent faretypesonaroute
therefore doesnotyetmeanthatthepassenger hasachoicethatmeetshis
demandunderdifferent circumstances .Theavailability ofanumberoflower
faretypesonlyindicates thattherearepossibilities forthepassengers
totravelatlessthanthefullnormaleconomyfareifthepassenger is
prepared toaccepttherelatedconditions .
57)Thesecondstepintheexamination wastodiscover howcheapa
passenger canreallytravelifheisprepared tocomplyentirely toany
limitations thattheairlinewouldimposeonhim.Therelative figuresare
produced intable5•

-21-
Table 5:The Lowest general avai table fare asa%ofNormal Economy (NY)
%ofRoutes The lowest avai lable
fare as%ofNY
6.3** 100 % On47%ofthe routes there
1.7 100 -80% isnotariff ofabout half '
3.5 80-70% thenormal economy tariff .
19.0 70-60%
16.5 60-55%
26.4
14.5
7.0
5.155-50%
50-45Ζ
45-40%
less than 40%On53%ofthe routes there
are tariffs ofabout half
orless than half thenormal
economy tariff
100 %
*Excluding spouse ,students ,etc .
**Less than the 7%intable 1asthere are some routes without the
Normal Economy fare
Number ofroutes 550
58) Asmay beseen from table 5there still isanimportant number of
routes where "tariffs donot exist which arebased onahigh utilisation
andlowseat access .This inspite ofthefact that charter airlines
generally areexcluded from operating onroutes with eoheduled traffio .
Classification offare types
59) Forthefurther analyses ofthis chapter thedifferent intra -
Community air fares have been grouped into five different fare types
based ontheexisting associated rules and restrictions .
1)TheNormal Economy fare
This fare type ,thehighest fare after first class ,offers the
passengers thefull flexibility ofrerouting ,stop-overs ,reserva­
tions ,interlining ,etc .Thefare also offers maximum seat accessi­
bility .
*Recently theslightly higher club class fare hasbeen introduced ./.
This fare type is,however ,notincluded inthis analysis .

-22-
2)Excursion tare
This fare still contains elements offlexibility ;itisgenerally
bookable atshort notice .Themajor feature isthat thepassenger is
obliged not toreturn before theweek-end after hisdeparture orthat
heisobliged tostay athisdestination during acertain number ofdays .
For all fare types lower than normal economy there aregenerally no
one waytickets available soapassenger isobliged tobuy areturn ticket .
3)Spécial Excursion fares
Usually more limitations areimposed onthis fare type than
ontheExcursion fare .Themost important features ,ontop ofthe
limitations on theExcursion fare ,areoften that theoutbound and
inbound journey must bebooked and the ticket must bepaid atthemoment
ofticket purchase .Changes inreservations aregenerally notpossible
andoften limitations exist with respect torouting and stop-over
facilities .
4)Apex (advance purchase excursion )fares
Inaddition totheSpecial Excursion fares conditions these tickets must
bepurchased andpaid acertain time before thejourney commences and
possibilities forrefunds incases ofcancellation arestrictly limited .
Thecapacity offered onaroute forSpecial Excursion fares aswell asApex
fares is sometimes limited tocertain flights ortoasmall number of
seats perflight .Also these latter twofares aresometimes only
available for aminimum group size travelling together .
The logic inthis structure isthat ,going from fare type 1to4seat
access reduces ,thus making itpossible fortheairline toincrease its
seat factor byattracting newpassengers atthe lower price bracket
ofthemarket and byabetter control ofthebooking position onthe
route .
5)I.T. basing fare
Afifth fare type which exists istheearlier mentioned ITbasing fare .
This fare isnot afare which the consumer will find advertised orcan
buyfor "travel only ".Thefare isaprice the airlines askfrom a
tour operator whouses thefare forthetravel part ofaninclusive
tour package which hesells tothegeneral public .Very often ,however ,
theITbasing fares have additional limitation similar totheexcursion
and apex fares .

-23-
Availabili.ty_of ..faretypes
60)Table6showsinhowfareachdifferent faretypeisavailable on
the550intra-Community routes.
Table6:Availability offaretypes
Ζofall550routes
NormalEconomy 99Z*
Excursion fare 73%
ITfare 67%
Specialexcursion fare 27%
Apexfare 12Ζ
*Thereareindeedaveryfewrouteswithonlyexcursion faresandno
normaleconomy.
Themostgenerally available arethenormaleconomyfareandtheexcursion
farebutalsoonmanyroutestheITfareexists.Itappeared thattheIT
faredoesexistonmanyrouteswheretherearenootherlowerfaretypes
available .Thedifferences inavailability offaretypesperrouteare
mainlycausedbydifferences inmarketconditions onthoseroutes.
Theleveloffaresby_comparison withnormaleconomyfares
61)Table7givesthepercentage ofthenormaleconomyfarethatthe
passenger mustpayforeachdifferent faretypeonthedifferent routes.
Table7:%ofNormaleconomyfare-perfaretypeandperroute
XofroutesPriceas^ofNormal
Excursion fareSpecial "pex"Apexfare ITfareeconomyfare
fare
0 0 0 0 100Ζ
15.9 0 0 0.5 100-80Ζ
38.0 0 0 7.7 80-70%
24.9 31.3 30.2 22.2 70-60%
7.0 25.9 14.3 17.8 60-55%
12.9 29.9 11.1 22.2 55-50Ζ
1.3 11.5 25.4 16.2 50-45Ζ
1.4 6.3 8.5 45-40Ζ
0 12.7 4.9 Lessthan40Ζ
100Ζ 100% 100Ζ100%
398 148 64 366 Nrs.ofroutes

-24-
62) Itshould benoted inthis context that many fares have different
Levels according totheseason but then again many others are thesame for
the whole year .Forthis reason the fare hasbeen
chosen that wasavailable during the high season ,this being thefare at
which most traffic will becarried .
63) Itappears that onmore than half the routes theexcursion fare is
still more than 70%ofthenormal economy fare .Onnearly 70Zofthe
routes with Special Excursion fares these fares are45-60%ofnormal
economy and on55%ofroutes with apex fares these fares areeven aslow
asbetween 30and 55%ofnormal economy .The spread oftheprice level for
ITfares ismuch wider ;onabout 13Zofthe routes they are lower than
45Zof"normal economy "and on8Zofthe routes they are still higher than
80Zof"normal economy ".
Asoften with statistics these figures donot reveal thewhole truth .A
different picture would emerge ifonewere tolook attheabsolute figures ,
asariexample the line from table 7istaken where fares arebetween
55and 50Zof"normal economy ".There are :
51routes with Excursion fares atthis level
44routes with Special "Excursion "fares ,only
7routes with Apex and
81routes with ITfares at55-50Zofthenormal economy fare .
64) The latter observations bring ustotheconsistency ofthefare
structure .Asalready stated only thenormal economy ,excursion and IT
fares are available onawide scale .This however does not mean that the
consumer is .necessarily better offonroutes with thewhole scale offare
types .Twoexamples may illustrate this points Example Is
Onmany routes with only twotariffs theexcursion fare isaslowas^Cffoof
•hormal economy "andthechoice oftheconsumer istopaythefull fare with
all its facilities orabout half the fare with alimited number ofrestrictions .
Example 2s
Onroutes with more fare types therange maybe s
Normal economy 100i<>)
Excursion 80%)oftheprice ofanormal economy
Special excursion 65%)ticket
Apex/lT 50%)

-25-
Inthis case thepassenger must accept many more restrictions touse a
fare athalf the "Normal economy "level .
Needless tosaythefirst example with "less choice "isabetter bargain forthe
consumer .
ii_.Transparency
65) Theobservations onthestructure offares inthis chapter have
sofarfrom thepoint ofview oftheairlines notpointed ,toanyillogical
elements .Also therange offare levels intheformer paragraph 100$ -QO'/o-
65i°-50$is a-logical one ,asthefare level reduces when
more limitations are imposed onthepassenger .
Yet there aremany routes where some more restrictive fare types aremore
expensive than theless restrictive onesj forinstance onemay sometimes
find that ITbasing fares aremuch higher than excursion fares with far
less restrictions onthe same route .This isaconfusing situation for
passengers whomaynot befamiliar with all the fares available onaroute .
This iseven more sowhere attached conditions areextremely complicated ,
unharmonized anddifficult tocompare even forprofessionals ,letalone
thegeneral public .
66) Forpassengers whomake multi sector journeys itmaybevery
difficult tofind outwhat may beforthem thecheapest way toflyeven
ifthey only use oneairline and one fare type .Differences inthe
total price tobepaid forsuch journeys may arise through aless than
optimal useoftheadvantages such ascommonrating ,stop-overs ,currency
differences ,extra mileages etc .Here again theproblem isthat passengers
areoften obliged tobuya"bundled "fare where itisdifficult to
understand what service elements areincluded andinwhat waythe
maximum benefit can beachieved from those elements .This makes itdifficult
tomake themost sensible choice inaspecific situation .
iii .Elements ofyield dilution
67) Thefare most often quoted onaroute isthenormal economy fare .
However ,toanairline this fare isnot synonymous with average revenue
perpassenger .Some passengers paymore (e.g. first class )others pay
less (e.g. excursion ,apex etc.)
AEAhas illustrated thedifference between economy fare andaverage
revenue inthefollowing graph .

-26-
Fig.1:Averagereverneperpassene-er (1975)
/•ofEconomyfare
80
40
20
0
I 4 .8 12 16 20 24
Distance (x100)kms
Source:AEA"AirfaresinEurope"1977
Thedifference ishowevercomposedofseveralelementsandalthoughairlines
normallydefineyielddilutionasthedifference illustrated infig.lit
has"beenfoundusefultouseamorelimiteddefinition ofyielddilution
inthisexamination .
68)TheCommission considersthatdifferentfaretypesshouldrepresent
different products andthelowerrevenuefromcheaperproductsshouldnot
beconsidered asyielddilution .
Thejustification foreachfaretypeshouldbefoundinthecharacteristics
oftheproducts theyrepresent .
Forthisexamination ,therefore ,foreachfaretypeyielddilutionisdefined
asthedifference betweenafareandtheactualrevenueearnedperpassenger
travelling atthatfaretype.Thepercentage yielddilution onaroute
therefore becomesthedifference betweentheweightedaveragefare*per
*weightedaveragefareistheaverageofthelocalfaresweighted bythe
numbersofpassengers usingeachfare.

-27-
passenger andtheactualrevenueearnedperpassenger .
69)Inthisdefinition ofyielddilutiononlythreedilutionary elements
remain }theyareproratedilution ,discounts anddilution causedbycurrencyeffect
Ofthese elements thecurrencyeffectsaremoreorlessoutsidethe
controloftheairlines ,whileproratedilution anddiscounts canbeinfluenced
directly bytheairlines .
a)Proratedilution
70)Proratedilutionisareduction inrevenuecausedbyapassenger
whotravelswithathroughfareonamulti-sector journey ,e.g.apassenger
whotravels fromNewYorktoFrankfort viaParis.Thethroughfareisin
mostinstances lowerthanthesumofthelocalfaresforeachindividual
sector,inthiscasethesectors NewYork-ParisandParis-Frankfort .
Theproratesystemisasystemofrevenuesharingbetweenthedifferent
airlinesth,atcarrythepassenger ononeormoresectorsofatrip.
Thetechniques ofrevenuesharingareexplained inappendix
Ifonlyoneairlinecarriesthepassenger onallsectorsoftheroutethe
proratesystemcanalsobeusedasarevenueallocation me&hod.
71)Table8showsthepercentage ofprorateyielddilutionforsome
faretypesonanumberofintra-Community routes.
Forthepurposeofthisexercise thesameclassification offivetypes
hasbeenusedasinchapter3.2.i"choice"}i.e.normaleconomyfares,
excursion fares,specialexcursion fares,apexfaresandinclusive tourfares.
Thefareconstruction unit(FCU)hasbeenusedinthissectionasabasis
inordertoexcludedistortions causedbycurrency effects .
Table8doesnotgiveanyquantification ofthetotaldilutioneffectbut
showsdifferences inrevenueanairline mayreceivefromathroughpassenger
onasectorofamulti-sector tripincomparison withalocalpassenger who
travels onasimilarfaretype.
72)Thefirstfigureineachcolumnistheyielddilutioninpercentages
onthefirstsectorofthetripandthesecondfigurethedilution onthe
secondsector.Forinstance onthefirstrouteLondon-Amsterdam-Copenhagen
theairlinereceives 8%lessrevenueonthelondon'Amsterdam sectorfroma
normaleconomypassenger withaticketLondon-Copenhagen viaAmsterdam ,
whencompared withapoint-to-pointpassenger justtravelling London-
Amsterdam .

-28-
Fortheexcursion fareitcanbeseenthatanairlinecarrying thepassenger
ontheLondon-Amsterdam sectorgets2'folessthanitwouldreceivefroma
localpassenger usingtheexcursion farewhileontheAmsterdam-Copennagen
sectortheairlinegets10$less.
YIELDDILUTION PEhlAtti,TYPEOHSAMPLE OKINTRA-COiJMUHITY ROUTES
(Percentage reduction compared tonormalapplicable faretype)
ROUTESNormal Econ. Excursion Spec.Exc, Apex ΙΓ·ε
First
sectorSecond
sectorFirst
SectorSecond
SectorFirst '
sectorSecond
sectorFirst
eeotorSecond
sectorFirst
sectorSecond
sector
LHR-AMS-CPH 88 2 10 – _ 53
LHR-BRU-NCE 1010 – 7 25 24 – – 24
ATH-FCO-CPH 21 21 27 33 – – – – – 23
ATH-FRA-LHH 1616 8+10 – – – – – 13
ATH-FRA-DUB 12 12 133 – – – – – –
LUX–AMS-CPH 1414' – – – – – – 0
LUX-PC0-ATH 2020 31 26 – – – – – –
DUB-LHR-CPH 2323 25 3 – – 39 5 – –
DUB-MAN-FRA 3333 18+20 – – – – 13
AMS-BRU-MIL 1515 239 – – – – – 33
AMS-BRU-FCO 1414 +132 – 14 – – – 25
CPH-AMS-LYS 12 12 4 3 – – 7 – 17 38
FCO-AMS-CPH 1010 ♦8 5 – – – 18 0
FRA-BRU-LHR 2525 24 38 – – – 58 –
73)Table8alsoshowsthatthepercentage ofyielddilutionvaries
betweenthedifferent routes.Forfaretypeslowerthanthenormaleconomy
fareitisalsoseenthatthethroughpassenger insomeinstances givesthe
airlineahigheryieldwhencomparedtoalocalpassenger whotravelsona
similarfaretype.Thisiscausedbythefactthattherevenuefroma
throughfareisalwayssharedonthebasisofthenormaleconomyfaresof
therespective sectorsandnotonthebasisofcomparable discounted fares.
74)Themajorquestioniswhetherthereisanyjustification forthese
differentpricestheairlineschargeforwhatisinprinciple thesameproduct.
Oneargumentbeingusedisthatfarespermileoverlongerdistancesarelower
thanovershorterdistances thusreflecting thelowerpermilecosts.Alower
permilecostoverlongerdistances ,however,wouldfollowmainlyfrom
airlinesavoidinganumberofcostsitemswhichaitincurredwitheachlanding
andtake-off .Apassenger makingamultisector tripshouldtherefore not
necessarily beentitledtotravelatapricewhichisinprinciple basedon
acostlevelthatdoesnotincludecostsassociated withintermediate stops.

-29-
75) Acounter argument fornevertheless allowing apassenger tousethe
lower through fare isthat theprorate system increases traffic onanumber
ofroutes leading thus tolower average costs perpassenger onthose routes
totheadvantage of "both thelocal passengers andthepassengers travelling
onaprorated fare .Itisfurther argued that intheabsence ofthepresent
prorate system traffic might beconcentrated onalimited number ofroutes
thus reducing thenumber ofdirect services .
76) IntheCommission 'sopinion there ismerit inthese arguments .
There isnodoubt that interlining isanecessary element inasatisfactory
airtransport system .Interlining isfacilitated byaprorate' system andit
seems evident that interlining andprorating assures awider availability
ofdirect services .
Allthis being true thematter remains aquestion ofproportion ,.Onsome
routes yields aremore severely diluted byprorates than onothers .
Prorating totheCommission isanacceptable principle *
However ,this does notpreclude afair distribution ofcosts .
77) Intable 9asimilar exercise isreflected forprorated traffic
within theEECbutstemming from intercontinental routes .
Table 9
XYield dilution per fare type from inter-continental routes
DILUTION ONEEC INTERNATIONAL SECTOR
NY EXC APEX IT
ATH-BRU-NAS 12 8-
TYO-AMS-PAR 7- - +8
MEX-PAR-FCO 12 9- 24
JFK-LHR-CPH 14- 27-
JFK-CDG-ATH 18 20 +21(*)-
FRA-LHR-MEX 9 +28- +38
BRU-LHR-BGI 6 ♦4- 11(**)
LAX-AMS-CPH-AAR 13 +42 +52
<*) Since "apex "does notexist onCDG-ATH theprorated apex amount has
been compared with local IT.
(**) Forthesame reason onLHR-BGI theprorated ITamount hasbeen
compared with local superpex .

-30-
Promtable9i"tmayoeseenthattheyielddilution fromthelowerfare
typesisnotgreaterthanthedilution fromthenormaleconomyfare.It
appearsagainthatinsomeinstances theairlines aregettingahigher
revenue fromtheprorated lowerfareswhencompared withcomparable local
fares.
Tp).Discounts
78)Thesecondfactorcausingareduction intheairlines' yields
arediscounts onthepublished fares,suchasmentioned inparagraph 52.
Ontheonehandtherearesometimes commercial discounts forcustomers
whogenerate aconsiderable volumeoftrafficsuchaslargeinternational
firms.
Ontheotherhanddiscounts areofferedtocertaingroupsofthegeneral
publicwhich,atthenormalfarelevels,wouldprobably notuseaviation
asatransport modetotheextentthattheyuseitnow.
Examples arespousefaresandspecialfaresforstudents ,thirdageand
children .Thesefaretypescouldhecriticized "because they
arenotbasedoncostdifferences noronconditions towhichallmembers of
thepubliccancomply.Annex8givesanexampleofatotalfarestructure ona
route(i.e.Brussels-Athens ).
c)Currencyeffects
79)Sincetheinception ofIATA,membershavenegociated attraffic
conferences againstthebackground ofthefares/rateslevelsinlocal
currency whichtheyrequired ontheirspecific routes.Forthefacilitation
oftrafficconference negotiation thefareconstruction unit*(FCU)was
introduced .
*TheFCU(FareConstruction Unit)isaconceptestablished primarily to
assisttariffpublishers andisusedinallaspectsofticketing .The
FCUitselfequalstheIATAbasiccurrencyoftheUSDollar(pre1972value).
AllbasictariffsinUKPoundsareconverted toFCUsattheexisting
Resolution 021brateof2.6057.

The result isasystem oflocal selling fares and rates that are
directional innature ,andcomplicated rules areneeded covering payment
fortransportation when acurrency other than thelocal currency isaccepted or
payment ismade outside ofthecountry where thecarriage commences .
Inarriving atselling fares theprocedure istotake the
basic dollar orsterling fares (FCUs ),
apply the021b currency conversion rate asestablished attheCurrency
Conference inJanuary 1972 ,andthen add theappropriate "surcharge "
-i.e. positive ornegative adjustment factors .The relationship between
thebasic USdollars andbasic UKpounds sterling wasmaintained atthe
currency conversion rate ofUSdollars 2>6057 =1pound .
80)Theadjustment factors areapplied either positively ornegatively ,
pending onthe relative strength ofthe currencies envolved toachieve
the .local selling tariff required .Thus basic fares /rates arecal­
culated according tothefollowing formula :
Local Selling Fare (Rate )
I
Basic Fare (Rate )XFrozen Exchange Rate XSurcharge /discount adjustment
factor
81)Insimple terms therefore thepresent system ofcalculating
inter-related national currency selling fares isbased ontheprocess :
a)establishment ofthefare level ,route byroute ,interms ofFCUs ;
b)these FCUunits arethen converted into national currency equivalents
byuse offixed IATA exchange rates ;
c)theresulting national currency figure isthen subjected toplus
orminus currency adjustment factors toproduce theprices which
theairline offers toitspublic after governmental approval .

-32-
82)Whatinfacthappensisthatstatesinthiswayareabletofix
pricesfortripsoriginating intheirownterritory andyetthroughthe
conversiontoFCUsitispossibletoconstantmulti-sectorprices.
Theeffectsonpassenger andairlinesbecauseofcurrencyconversion
andproratingarehoweverobscure.
83)Itisnotsurprising thatthepresentsystemhasprovedcomplex
anddifficulttoapply,andthattherehasbeenlackofunderstanding
ofitonthepartofairlineemployees,agentsandthegeneralpublic.
Thesystemalsoleadstosituations whichintheCommission'sopinion
areunacceptable ,whereservicesareboughtinonestatefor
useinanotherstateandwherethepricetotheconsumerbecauseofarti­
ficialexchangeratesis"differentfromthatchargedintheotherstate.
The.currencyeffectswithrespecttoairlinerevenuewillshowyield
dilutionforsomeandyieldincreaseforothers.Itisnotknownwhatthe
overalleffectis,i.e.itisdilutionaryortheopposite.

-33-
3.3.Therelation offarestothecostsofoperation
i.Comparison offaretypesandcostsperroute
84)Inparagraphs 45-50theexistence ofcross-subidization between
routeswasdemonstrated .Thisobservation impliesthatitispossible to
allocate theairlines' totalcoststothedifferent
routeswhichareoperated .
TheECACreportonintra-European airfaresfocused ontheproblemofcost
allocation .Thereportarrivedattheconclusion thatareasonably accurate
allocation ofcoststoroutesispossible .Itcarriedoutanexercise where
costswereallocated toroutesaccording toalternative allocation methods
whichareactually usedbydifferent airlines .Thedifferences incosts
perroutewerelimitedtoIQffodepending onthe-allocation systemchosen.
Thiswas,however ,onlyalimitedexercise andthedifference wouldprobably
havebeen greaterifacommonaccounting systemhad
beenused.'TheECACexercise alsodidnotanalysetheallocation offixed
costsbetweenareasofoperation e.g.localEuropeversustherestofthe
world.
85)Forananalysisdirectlyoftherelationbetweenfaresandcostsit
isnecessary tocarrytheallocation ofcoststoroutesonestepfurther
andtoallocate theroutecoststothedifferent faretypesthatare
offered onaroute.Ananalysis ofthiskindwascarriedoutinthe1977
CAA-European airfaresstudy.TheUKanalysis showedthatontheroutes
examined asignificant cross-subsidization existedorinotherwordsthat
theindividual fareswerenotcostrelated .
TheECACtaskforceonintra-European airfares contemplated tocarryout
asimilaranalysis forcountries otherthantheUKbutconcluded thatthe
allocation ofcoststodifferent faretypesonarouteimposesproblems
whichareverydifficult toovercome .Firstthereistheproblemofdata
availability jmanyairlines donotcollectthenecessary dataforthis
typeofanalysis .Thereisalsothemoretheoretical problemofallocating
the"joint"and"common"costelements totheindividual products represented
bythefaretypes.

-34-
86) TheECAC task force tried toovercome part oftheproblem bylooking
atthecosts related tothenormal economy fares inisolation onaselection
of22intra-European routes involving 5different countries andairlines .
Four oftheairlines andcountries ,butonly 12routes ,belong tothe
Community .Therational behind this approach wasthat onecould argue thatof
regardless /theallocation method onewould chose ,anycategory oftraffic ,
which isbeing asked topaymore than itwould have toforasimilar
service provided separately ,isbeing over-charged .
Inorder toestimate thecosts ofserving thenormal economy market in
isolation ECAC derived foreach route thenumbers ofpassengers travelling
atthe full normal economy fare .
Asubjective judgement wasmade ontheacceptable level ofservice interms
offrequency andaircraft type .Onthebasis oftheseat factors implied by
thechoice ofaircraft type andfrequency andafter allowance forprofit ,
a"required "selling fare wasderived .This "required fare "level wasthen
expressed inindex form and thecurrent selling fares ateach end ofthe
route were compared toit.Table 10illustrates theapproach andtable il
shows thecurrent fares aspercentages oftherequired fares onthe 22
routes studied .
Table 10
Route Present Size oft/cNo.oflocal laplied Aircraft size Inplled "Required "Actual sellino fares
weekly presently on-demand frequency andfrequency sf selling (') (11)
frequency Inuse pax requirement considered (*) fare « home other
o/w β551sf. appropriate area end
X 48 120 150,000 44pw 120seats 44pw 55 100 120 118
Y 56 100 100,000 36pw 100seats 42pw 46 100 95 98
Ζ 14 80 18,000 8PM 65seats 10pw 53 100 94 107
*including anallowance forprofit
Footnot *:Inselecting theaircraft sizeandfrequency considered appropriate (column $)4itis
obviously necessary tohaveregard totheoharaoteriatioe oftheroute (a)concerned .^
Inthethree-route example ehoun inTable 7,Route Xtypifiep arelatively high density
butlong route ,Rout*Saaomevhat leafdense butshorter ropte andRoute Ialoa
density short route .
Source :ECAC -European airfares study final report I98I

-35-
Table11
RouteIdentity Actualsellinefares
(Indexbase100■"Required"fare)«
(1) (11)
Hoar «ret Otherend
Short-haul routes
(LASS than600ka»)
«> 78 85
bí 103 93ci 92 82
d?116 106
e 79 82
»> 10» 87
Medlua-haul routes
(700tounder2S00kas)
14» 111
h) 113 108
*) 139 151ή 92 82ι) 129 95
Tl 32 34
•1 91 99
fil 113 125
0) 177 143
Ρ) 107 79
V149 148
n 22· 181
long-haul routes
(Over1500 kas)
*> 183 166
t)74 93
"1 109 93
*5 207 164
4xnolud*»anallouant**forprofit
Source:ECAC-Europeanairfaresstudy,finalreportI98I
87)TheECACreportdrawsfromthisexercisethefollowing conclusions .
"Onshortdistanceroutesofupto600kmsnormaleconomyfaresare
generally nohigherthantheestimated costofservingthebusiness
marketinisolation ifallowance ismadefordirectional imbalances .
Onthelongerroutesthereisageneral ,butbynomeansuniversal ,
tendencyfornormaleconomyfarestoexceedthecostofseparateproduction .
Onanumberoftheroutesstudiedthefareissubstantially abovethiscost,
althoughtherearereasonstobelievethatthemarginwouldbemuchless
fortheotherairlines ontheseroutes.
Normaleconomypassengers areobtaining non-price benefits fromjoint
production and,inparticular ,amorefrequentservicethanwouldother­
wisebepossible .However,withtheexception ofsomeoftheshorterroutes,
andpossiblyalsoofthelessdenseroutesonwhichtheproportion of
businesstrafficislow,theyarenotobtaining pricebenefits .Thusthe
pricebenefits ofjointproduction arefallingmainlytonon-business
passengers andtheservicebenefitstobusinesspassengers .Itisgenerally
thelongerrouteswhichwouldbereducedtoverylowfrequencyif.only
business traffic werecarried."

-36-
&8)Asecond .,although much more general paper inthis fielu .wasproduced
bytheUnited Kingdom fortheCouncil inthebeginning ofI98O .Oneofthe
charts inthat paper ,reproduced infig .2,provides acomparison between
intra-European normal economy fares andcosts .This chart wasprepared as
follows .First theUKobtained thelocal normal economy selling fare from
each oftheseven cities ,within theEEC ,named inthechart tofourteen
other cities inWestern Europe ,(i.e. Amsterdam ,Athens ,Bonn ,Brussels ,
Copenhagen ,Dublin ,Frankfurt ,London ,Luxembourg ,Madrid ,Oslo ,Paris ,Home ,
Stockholm andZurich ).Thefares extracted were local selling fares ineffect
asonFebruary I98O andwere obtained from theairline publication "AirTariff ",
September 1979 edition (except that fares from London were obtained from
Bulletin No.2ofthesame edition ).Local selling fares forcities other than
London were converted from therelevant national currency into Sterling terms
(asacommon unit forcomparison )using thebankers rate ofexchange ineffect
on11February I98O aspublished intheFinancial Times .Direct route
distances foreachofthecitypairs wereextracted fromtheIATA/IAL
Air -distances manual .Fare levels were thenexpressed inunit terms
(pence perkilometre )andplotted onagraph .Curves weredrawn torepre­
sentthevarious fares fromeachmaincity .These curves werenotderived
statistically because ofthesmall number ofobservations ineachcase .
39)Second ,thecosts ofoperating scheduled services overthese routes
wasestimated .Itotal operating costs werecalculated ,foraselection of
different aircraft types ,overtherange ofroute distances shownmthe
graph .Totalcosts included direct flyingcosts ,fixedcosts ,alloverhea
costs andcapital charges including depreciation .Financing charges were
excluded .Costs wereasapplicable attheendof1979levels .Theestimation
ofthedirect operating costs usedacomputer model ,based onthe roupo
6"costallocation methods .Actual costinputs tothismodel are
fromUKCivil Aviation Authority internal sources andincorporate awide
range ofairline operating costinformation .Thisrangewasusedtoderive
estimates ofindirect operating costlevels .Arange oftotal costs was
thusderived representing different aircraft types .Thiswasexpressed
ascostsperseatkilometre using theappropriate seatconfigurations for
eachaircraft type .Thesecosts we-thenconverted intopassenger costs
(pence perpa^kilometre )using apassenger loadfactor of»-asrepr
tativ.ofscheduled service operations .Therange ofcosts perpassenger
kilometre derived inthisway-asthencross-checked against current costs
calculated byaUKairline operating intre-European scheduled services an,
found tobereasonably consistent .Thisdatawasplotted asshown .
*Pax =Passenger

-37-
COMPARISON .BCTWEIM INTRA -EUROPEAN FAKES ANDOOSTS
FIG .?
NORMAL
ECONOMY
FARE
pence /
pascenger
kilometre
COST
pence /
paasenger
kilométré
Κ
α
(e
é1.
2.
3.
ι».
5.
6.
7.fVankfurt
Copenhagen
Bru&aela
Paria
Amsterdam
London
Rome
NORMAL
ECONOMY FARES
OPERATINO
COST
looo
SOURCE :UK-CAA Internal data .?CoORoute Distance
(Kilométrés )ZO°o
90)Itshould "bestressed thatthis isnotarigorous statistical exer–
cise .Thecosts ofoperations experiences onintra-European operations may
notfall entirely within thederived range ,forexample because ofdifferent
methods ofcost allocation orbecause ofhigher orlower costs incertain
countries .Similarly notallintra-European fares coincide with therepre­
sentative curves drawn onthegraph .Nevertheless this graph shows that in

-38-
general normal economy fares inEurope ,inearly 19°0 >were between 507°and
100% higher than thegeneral level ofoperating costs .Itisdifficult to
account forsuch alarge disparity bydifferences inthemethod ofcost
allocation orbyvariation infares from thegeneral levels shown .
Also thegraph shows quite clearly that thepercentage ofprofit ofthenormal
economy fare increases with theincrease indistance .
9l) Onthebasis ofthese twostudies itseems clear totheCommission
that theeconomy tariff inparticular onpoint -to-point traffic isyielding -
high revenues compared tocosts ,specially onroutes with longer distances .
Itwould have been useful tocarry outananalysis offares inforce in
Europe andcompare them tothecosts ofoperation onroutes .Such information
does only exist inafewcountries andtheCommission does not feel that only
apartial presentation would serve auseful purpose .Itis,however ,known
totheCommission that avery large variation would appear iffares were
compared with costs .Ifthebreak-even seat factor ofafare type iscalculated
onthebasis ofcosts ofoperating the route some economy fares would show
factors below 30%while some lowfares (e.g. Apex )would show more than
100% .Theairline would therefore begin toshow aprofit onthat route if
itflew with aseat factor ofmore than 30%ofpoint -to-point economy
passengers while itwould beimpossible tofly ataprofit with passengers
only attheApex tariff .IntheCommission 'sopinion itisdebatable whether these
two situations infact fulfil thecriteria ofafare having areasonable
relation tocosts andallowing for areasonable profit .The lowfare might
even represent asituation where itwould have tobedeemed predatory .
TheCommission therefore feels that Member States ought toexamine these
problems closer .Asstated earlier only avery fewstates have been doing this .

-39-
ii•Thedistancerelationofcos"tsandfares
92)Itisbelievedbymanythatairfaresoughttobedistancerelated,
i.e.thepriceforalongerrouteshouldinabsolutetermsbehigherthan
thepriceforashorteralthoughpriceperkilometreshouldbelowerfor
thelongroute.Isthisborneoutbyrealityandisitinfactareasonable
supposition ?
FromtheTAIreportontheeconomccoststructureofair-transport inEurope
thefollowing graphcanbederived:
Pis.3
U.S.I
PerSeat1978LOCALEUROPE TOTALOFERATING COSTIe)ARAAirbnfiR
.j~ti!ri::|-1 ;!li"H:!MMIIi.I:'l'if")::;;~M'i.!:■I"110-1–:–I–. ;: 1–r–––:––:–:–:–r-^––:–H–!––: ! :–.I. !–...I–rrr-rr~u;j■;;■.» : :•;•jj ■|::::::.j...■;|::-Ij•I'i■^ ■
III »I .•••1 }i 1I■« :| ••I•-■I••■»•• I•'
,M 1;I.-r-r ;i,1; ;.i..r-i ;i-ii ii~rΓΐπ-ι-π-·^ -τΐ-τ-^ι-·η--Γ-ι---1-^Μ-Μ^--Γ-Γ-Ι-Τ---Γ^-^1-HIIJj-iLH.4;.L-.4.umaijmuiXuiiiuaiu-LU -
so1:M •1;.;:;1;;; i1 ;I;? •i
I :.1.I1.I::I:II.III;III:I • .II IrI.
«ru 1li;iJiL^ n #
1 : •.i.:. 1J---–r- •••: •:•:: ;-i = ■ -.
50,ι:Γ ;ΜΜΜΜ,Μ;;ιΝΝ,Ηΐ-Η-
•IrM m'■ :J:i -li •!. !.'•i':
..^0 .j–1v–; ;j :–~-jr~tt ji–*– 1–~ 1–~ i–~
20–ir-–ih–:i :iiir~~H 1H–:;; i:-–4–-
10 1:MI::'-4::1;!:I:M:; 1•1MM–
.;200 .400i...600.*800_.1CC0 1i200„1400 11600 1.1800.|2000...|2200.L.i...
!'"I"I"1'!,RegionAveragesuge-Km 1j ■•r"'; 1|'[|:|~T"|I
Source:AEAalrlinesdata
ar.dTAIanalysls.
ThegraphishoweverbasedonaveragedataprodivedbyAEAairlinesandmay
thusdisguiselargevariations .Amoredirectexamination offaresand
distances hastherefore teencarriedout.

-40-
a)Analysis ifthenormal economy fare
93)Therelationship offares todistance hasteen analysed bytheCommission on422
non-stop routes *within theCommunity .Nodomestic routes were included
since the cost structure ofthese routes isdifferent from that ofinter­
national routes .
The first part of ■theanalysis considered thenormal economy fare asthis
istheonly fare type guaranteed tobecommon toallroutes .With respect
tothelevel offares theselling fares of1stJuly 1930 inthelocal
currency ateach endoftheroute were used ,converted inECU'Sagainst the
bank exchange rates of24June 1980 .
For distances the sector distances inkilometres were extracted from the
IATA Distance Manual ;this implies that geographical distances areused
rather than theactual distances flown .Thelatter may belonger due to
divergencies from themost direct route .
494) Thefollowing fig .4shows thescattergram ofthenormal economy
fares bydistance .
Scattenrram Nohnal .Boonoay C5.T.J Versus Distano *
N.T. far®
inECU's
June 1980450
400 -■
360--
320
280""
240+
200Τ
1504-
100
60ί
20Normal
Economy fares
••3 5
•• »
? •
••• ? .4? •
••.1•••?•? ?♦
• •«?••??<• •••
•• ?•«••• .7? ••
• • • •• •
•••3* ••• • –TLÏ
?P•\4fe4»ru■t1– •
–– 1•«» ?t
A^*&4•A• •
•O4<}Q*•? •••
•OIS4Ç .??»
S7Osas
•%?λ «·
9»? *Estimated AEAaverage
costs perpassenger on •
thebasis ofa55-joseat
factor
40 400700 1000 1400 1700 1000 2400 2700 3100 3500Sist&nos in
kilométrés
*London-Paris and Paris-London counted astwo routes ,

-41-
Thevertical axispresents ascaleoftariffsexpressed inEuropeanunits
ofaccountandthehorizontal axispresents ascaleofdistances expressed
inkilometres .Thefigureshowsclearlythatthereisanunderlying corre­
lationbetween faresanddistances .
95)Thiswasconfirmed byastatistical analysis whichfoundavery
highcorrelation coefficient ingeneral .Analysis wascarriedoutfor
routesbetweenthe10EECcountries asawholeandseparately forall
theroutesoriginating ineachcountry .Thesetwoapproaches seemedto
indicate asignificantly stronger correlation betweenfaresanddistances
onroutestoandfromeachcountryseparately .Thismaybeexplained by
thefactthatinthecountry bycountryanalyses thereisnodistortion
fromartificial IATAexchange rates.Promtheanalyses alsothefollowing
information canbederived :
For23$oftheroutestheactualfaresfoundliewithin+2,5$ofthe
levelestimated bytheregression line,
43$oftherouteshavefarelevels+5$oftheestimated farelevel,
77$oftherouteshavefarelevels+10$oftheestimates and
96$oftherouteshavefarelevels+16$(twicethestandarddeviation )
ofthefarelevelaspredicted bythedistance formula ,
4$oftherouteshaveactualfarelevelsthatareoutsidetherange
bandoftwicethestandard deviation .
96)Thisinformation revealsthatdistanceisindeedanimportant
factorandtheleveloffaresdoesreflectit,although thescatter
clearly showsthatthereareotherfactorsalsoinfluencing thefarelevel
onamyparticular route.
Itwasconcluded inearlierstudies*thatthecorrelation betweenfaresand
distances isquitehigh.Giventhefactthatfaresondifferent routeswith
similardistances areboundtodifferduetofactors suchasdifferences in
costlevelsbetweenairlines ,differences incurrencies ,trafficvolumes on
theroute,thetrafficmixetc.Thecorrelation foundisprobably ashigh
ascouldbeexpected .Thecorrelation isevenhigherthanexpectediffares
arereallysupposed tobecostrelatedanditmaybesaidthatthehigh
correlation reflects theefficiency ofinter-airline consultation .One
shouldrealize,however ,thatadifference infareof20$ormoreonroutes
withequaldistances-asmaybethecaseon23$oftheroutes-isyeta
consirable difference .
*ECAC:EuropeanAirfaresstudy.

-42-
97) Every cost study which hasbeen undertaken does indicate abasic
underlying cost/distance relationship asclaimed atthebeginning ofthis
section .Therelationship isalso confirmed with respect tofares .Local
conditions anddifferences inoperation introduce ,however ,variables into
thefinal outcome which means that adistance relationship forfares can
atbest beonly indicative .Aninteresting feature arises when thecost/
distance relation issuperimposed onthefare/distance relation -seealso
fig .4-itbecomes clear that the shape ofthecost curve isnot
assteep astheshape ofthefares curve ,confirming thefindings inthe
former paragraphs 84-91>"that themargin between thenormal economy fare
and thecosts increases bythe increase indistance .
b)Analysis oftheexcursion fare
98)Asimilar exercise tothat for thenormal economy fares hasbeen carried
out for theexcursion fares .Ingeneral thecorrelation between theexcursion
fare -also expressed inlocal currencies converted into ECU 's-and the
distance issomewhat lower than was thecase inthenormal economy analysis .
Still thecorrelation was surprisingly high given thevariation infare
level asapercentage ofthenormal economy fare .Also thecorrelation
foreach country separately isingeneral higher than theCommunity as
awhole ,thus showing similar results asthenormal economy analyses .
3.4 .The level ofcosts
i.The Cascade studies
99) Thepreceeding paragraphs were focused indifferent ways onthe
question whether and towhat extent thefares were related tothecosts
ofoperating theairservices .The level ofcosts assuch has sofarnot
been discussed .There are two reasons tolook atthe level itself .First
there isthepossibility that thecosts ofanairline arehigher than they
would beunder amore competitive regime }such asituation mayarise from
the fact that theairlines donotneed tobeextremely cost conscious as
they cansettheir fares tomatch their costs without thethreat ofentry
into themarket ofnew ,more efficient competitors .Thesecond reason is
that thecost levels inEurope may behigh ,due tocircumstances outside
thecontrol oftheairlines butduetothe regulatory regimes intheMember
States andtheaviation infrastructure .

-43-
100)Withrespecttocostefficiency ofairlinesthreerelevantstudies
exist.Onthebasisofscheduled airlinecoststhereweretwo"Cascadestudies"
whichexamined therelative costsofBritishAirways andaUKcharterairline
andtherelative costsofamajorDutchscheduled carrier andamajorDutch
charteroperator only.Thethirdstudywasa"reversecascade"studytakingthe
costsofacharterairlineasabasisandcomparing thesewiththecoststhat
wouldincurifthecharterairline weretoproduceascheduled service .
Therationale behindthistypeofcomparison isthatcharterairlines in
contrast toscheduled airlines operateinacompetitive environment andthat
marketpressure necessarily willmakethemefficient .Ifthescheduled airlines
appeartoproduceatcostswhicharehigher,thedifference maybeattributable
tothedifferences incompetitive environment .
101)Oneoftheproblemsincomparing charterandscheduledairlines' costs
isthatoneshouldasmuchaspossible ensurethatlikeiscompared withlike.
The"cascademethod"eliminates stepbystepthosecostdifferences whichare
attributable todifferences inscheduled andcharteroperations andnotto
differences inefficiency .Asaresultafigureisderived ,i.e.theso-called
"derivedchartercosts".Thesearethecostsofasimulated charteroperation
basedonthescheduledairline'slevelofcostefficiency *.Acomparison between
the"derivedcharter costs"andtheactualcostsofacharterairline showsthe
costsdifference thatremainsifbothairlines weretoofferasimilarproduct .
102)Thestepsincludedintheanalysestoarriveatcomparable figures
betweenscheduled andcharterefficiency werethefollowing :
1)SalesCommission -Thesecostsarenotrelevanttothecharterservice
andarethusdeducted .
2)Touristclass-Eliminates theeffectsoffirstclassservices which
doesnotexistfornon-scheduled .
3)Seatingdensity-Makesallowance forthedifferent seatingpitchin
scheduled andnon-scheduled operations .
4)Loadfactor -Takesintoaccounttheeffectofincreasing thepassenger
loadfactor from55%forscheduled servicesto85%which
istypicalforcharteroperations .
5)Peak/troughratio-Charterairlineshavealargerseasonalvariation and
thushighercosts.
*Costefficiency expresses theamountofmoneytheairlinehastopayfora
certainproduction unit;thisincontrast toe.g.labourefficiency which
expresses theamountoflabourthatisneededforacertainoutput.An
airlinewithmoreemployees perton/kilometre production butlowersalaries
maybemorecostefficient thananairlinewithlessemployees buthigher
salaries .

-44-
6)Utilisation -Charter services areassumed tobeable toachieve
25%higher utilisation ofboth crew andaircraft than
scheduled .
7)Standards -Takes account ofthecosts attributable tothehigher
standard ofservice ofthe scheduled mode .
8)Notapplicable -Inthis step those costs andrevenues were adjusted
that occur for scheduled services but not for charter
services .This adjustment relates totwomain areas :
sales ,reservations andadvertising costs ;cargo
revenue andbar profit .
103) The1975/76figures fortheBritish Airways /UKcharter airline
comparison arereproduced intable 12.Allfigures are inindex form ,taking
thescheduled costs perpassenger asabasis (100).Thetenth line ofthe
table represents thecosts that would occur ifBritish Airways were to
produce asimilar product asthecharter airline whose costs arereflected
inthe eleventh line .
Table 12:British Airways cascade analysis
Route A Route Β Route C
1.Total scheduled cost per pax 100 100 100
2.Deduct commission 92 92 91
3.Tourist class 86 84 87
4.Seating density 77 80 83
5.Load factor 56 59 60
6.Peak/trough ratio 60 62 63
7·Utilisation 57 60 61
8.Standards 51 51 53
9.Notapplicable 36 37 39
10 .Derived charter 36 37 39
11.Charter actual 34-37 32 35
104 ) Thecosts that have been used fortheDutch cascade analysis did
not include commission nor does theDutch airline operate with afirst
class service inEurope .Forthis reason thefirst twosteps included in
theUKexercise could beeliminated from theDutch analysis .TheDutch
analysis also wasonly carried outforoneroute which iscomparable
mostly with theUKroute "C".

-45-
TheresultsoftheDutchanalysis arereproduced ,inthefollowing table13,
wherealsoacomparison ismadewiththeresultsoftheUKexercise .For
thepurposeofcomparison theUKfigureswererecalculated totakeaccount
ofthetwocascadestepsthatwerenotincluded intheDutchanalysis .
Table13:Comparison ofUKandDutchcascadeanalyses
"Cascade "Dutch
analysisUK(routeC)
analysis
1.Scheduled costperpassenger 100 100
2.Seatingdensity 92 95
3.Loadfactor 68 69
4.Peak/troughratio 69 72
5.Utilisation 68 70
6.*Standards 68 61
7.Notapplicable 54 45
8.Derivedcharter 54 45
9.Actualcharter 51 40
105)Itwouldappearthatonlyarelatively smallproportion ofthe
difference between scheduled andchartercostscannotbeattributed to
inherent differences betweenthetwomodesofoperation .TheDutch"cascade"
revealsanestimated 5-6%difference between"derivedcharter"and"actual
charter"costs;theUK"cascade"anestimated 12-g/odifference .Botji"cascades"
attachparticular significance tothe"loadfactor"and"notapplicable "
adjustments .Withrespecttothe"notapplicable "adjustement itshouldbe
notedthatthecoststhatfallunderthisheadingrepresent morethan20fo
ofthetotalscheduled airlines' costsandtheexclusion ofthesecostsfrom
theanalyses consequently meansthatnoconclusion canbedrawnonthe
efficiency ofspecific scheduled activities suchassalesandreservations .
106)Thedifference betweentheDutch"scheduled cost"perpassenger
and"actualcharter"costperpassenger doesappeartobesomewhatless
markedthanthatimpliedbytheUKdata.Thismaybeindicative ofdiffe­
rencesintherelativeefficiencies ofthetwoscheduled operators .
Alternatively ,itmayreflectamorecompetitive UKchartermarket.

-46-
Partofthisvariation mrelative costsmayalso "beattributable tothe
twosetsofdatanotbeingentirely consistent .
"Reverse Cascade"
107)Athirdcascadeanalysis wasrecentlycarriedoutintheUnited
Kingdom ;themethodology usedwasbasically thesameastheoneusedfor
theprevious twoexercises beitthatthistimethecostsofthecharter
airlineweretakenasabasisandthosecostswere"cascaded up"tothe
levelatwhichthecharterairlinecouldoperate ascheduled service
comparable withthetypeofserviceoffered byascheduled airline .
The"Reverse Cascade"indicesareshowninTable14below.Thoseincolumn
Irelatetothe25percentutilisation adjustment andthenotionalpeak/trough*
allowance .ThoseincolumnIIshowtheeffectofomitting boththeutilisation
andthepeak/troughratioadjustments altogether .
Table14:"Reverse Cascade"
ColumnIColumnII
Chartercostperpax 100 100
1.Notapplicable 118 118
2.Standards 133 133
3.Utilisation I4I 133
4.SeatFactor I9I 178
5·SeatingDensity 211 I97
6.Peak/troughratio 203 197
7.Commission 219 214
Derived scheduled costperpax 219 214
108)Thedifference betweenthecharterandderivedscheduled cost
indicesimpliesthat,evenassuming noefficiency differences betweenthe
twomodes,onemightexpecttofindscheduledcosts(andthereforefares)
some110to120percenthigherthanchartercostsevenonthesameroute.
"ReverseCascade"alsodemonstrates thatbyfarthemostimportant single
adjustment isthatrelatingtomodaldifferences inseatfactor.This
adjustment aloneprobablyaccountsforsome40percentofthetotal
scheduled/chartercostdifference .
*Seeforfurtherdetailsannex6"Reverse Cascade"andannex7"Glossary of
terms".

-47-
Asthe "Reverse Cascade "study hadnotbeen published atanyearlier
occasion thefull details onthat study areadded tothis report as
Appendix 6.
IO9) Thestudies referred toabove seem toindicate that forthe ,
airlines investigated thedifferences incost levels between thecharter
and scheduled mode are much smaller than one isinclined toassume atfirst
sight when looking atthedifferences infares .Inspite ofthethoroughness
oftheanalysis itisinevitable that there arestill some inaccuracies in
thecalculations and the results areheavily dependant onassumptions with
respect toload factor differences ,seating density and sales costs .For
these reasons oneshould notattach a100% accuracy totheabsolute size
ofthe cost differentials found between the scheduled -and the charter
airlines .
Ho) Oneshould note that the"Cascade "method does notallow conclu­
sions ontheefficiency ofthe "sales function "ofthescheduled airlines
asthe commercial costs and commissions were excluded inone ofthe Cascade
steps .Sales costs inEurope doaccount formore than 20%ofthetotal
scheduled airlines' costs and are aswas described inthe AEA "sales cost "
study *,noted as'being very high formost European scheduled operators .
Itshould benoted ,however ,that thestudies doseem toprovide good
evidence that anormal economy tariff should bemore than double anormal
charter tariff .
ii.Breakdown andevolution ofcosts percost category
111) Inorder toillustrate theimportance ofthemajor cost categories
thefollowing table 15represents thebreakdown oftheAEAcarrier group
costs .
*AEA :1979 Sales Costs ".Acomparative Examination Between AEA andUS
Airlines .
(4)

-48-
Table15:Breakdown ofcostcategories
1979 70oflocal
operating costs
General &Administrative andOtherticket/Sales/promo-17.670
tions
Fuel+Oil 15.6>0
StationandGround 14.7i<>
LandingandRoutecharges 11.2jo
CabinAttendants &Passenger services 10.2jo
Maintenance &Overhaul 9.8jo
PlightDeckCrew 7.2>%
Commissions 6.7>0
Dépréciation ,Rental,Amortisation 6.5'1°
Flight,Equipment Insurance 0.4p
112)Theaverageoperating costsperavailable seatkilometre expressed
inUS$haveincreased from1973to1979 134.5i°-Thisfigureishowever
influenced bythechangeinparitybetweentheUS&andtheEuropean
currencies .
Acorrection forthesechanges wouldbringthecostincrease downto
120.5 7®whichcouldbecompared withanincrease oftheOECDconsumers
piicEindexforEuropeof91hoverthesameperiod.Whereasairtransport
usedtobecomerelatively cheaperovertheyearsbymeansofalowerthan
averagecostinflation ,thissituation cametoanendafter1973.
113)Table16givesthebreakdownofthetotalcosts*intencost-
headings .
Table16:Evolution ofcosts1973-1979
1979
US¿/ASURank1973
US^/ASURankGrowth
73-1979
G.&A,otherticket/Sales/Promotion 1.483 10.739 1100.7$
Fuel&Oil 1.315 20.332 6296.Ifo
Station &Ground 1.235 30.339 2I29.IcJo
Landing &Routecharges 0.945 40.301 8214.O 'jo
CabinAttendants &Passenger services 0.855 50.353 4142.2"Jo
Maintenance &Overhaul 0.824 60.394 3109.1io
FlightDeckCrew 0.611 70.309 797.7%
Commissions 0.559 80.221 9152.9lo
Depreciation ,Rental,Amortisation 0.543 9O.35I 554.7io
FlightEquipment Insurance O.O29 100.043 10-32.6io
TOTAL 8.400 3.582 134.5io
*excluding financial charges

-49-
114)Withoutthesoaringincreaseofthecostsforfuel&oilandthe
landing &routechargesthetotalcostincrease mighthavebeenthesame
levelasthegeneralinflation .Theselattertwoelements onlyranked6th
and8thinimportance in1973huttheyarenowthesecondandfourthlargest
singlecostitem.Withthepercentage costincreases astheyareat
present theycouldbecomesoonthe twolargestcostitems.Specially
withrespecttothelanding &routechargesgovernments shouldrealizethat
thesecostsarenolongeraminoriteminthetotaloperating costsand
further increases areboundtoinfluence theleveloffares.

-50-
4.CONCLUSIONS
115)Thisreportismainlybasedonexisting information whichinsome
casesmaynotbefullyup-to-datebutwhichnevertheless permitstheCommission
todrawmeaningful conclusions onscheduled passenger airfaresintheCommunity .
Thecharacter ofthefollowing conclusions ofwhichthemajoronesareindicated
andnumbered inthemarginissuchthatmoreuptodateinformation wouldnot
changemostofthem.Thereportshouldtherefore ,together withtheforthcoming
considerations onthecowpatibility°fthepresentmethodsoffixingairfares
withtheEECTreaty,constitute anadequate basisforpolicyformulation in
thisarea.
4.1.Theprocessoftariffsetting
116)Withrespecttotheprocessoffixingscheduled passenger airfares
theCommission notesthattheprocedures arerathertimeconsuming andthat
airlines areseldominaposition toquickly implement theirowncommercial
judgement .SomeECACMemberStateshavealreadyrealizedthatthepresent
systemneedstobereviewed andECACmadeanattempt,sofarwithoutsuccess,
tomodifythe1967multilateral agreement sothatitwouldbecomelesscumber­
sometoestablish airfares.Themodifications wouldhavegivenmoredirect
possibilities tothirdandfourthfreedomcarriers todecideonnewfareson
theroutesconcerned ,whereas nowinprinciple theinterest ofallother
carriers -alsofifthandsixthfreedomcarriers andcarriers onadjacent
routes-mustbefullytakenintoaccount.Suchmodifications wouldbringthe
1967multilateral agreement moreinlinewiththepresent IATApractice.
Itwouldalsohavebecomeeasiertointroduce tariffs onwhichairlines had
notreached anagreement .
IngeneraltheCommission thinksthatmanyideasputforwardduring
theECACeffortmeritcreditandoneofthefieldsforfutureactionforthe
European Community shouldbetoachieve alessrigidtariffsettingprocedure
forintra-Community airtravel.TheCommission willpursueitsreflections on
thequestion,particularly inrelationtothecompatibility ofthepresent
systemwiththecompetition rulesandwillmakeafurthercommunication on
thesubject.
4.2.Aspectsofairfares
117)Airfares,astheyresultfromthepresentregulatory system,
havebeenevaluated inthisreporttoillustrate anumberofcriteria .
These'criteria followfromaviation lawandrulesandfromthehearings
whichtheCommission undertook withinterested parties.

-51-
ii.Reasonable profits
117) Criticism isoften expressed onthelevel ofairfares inthe
Community .Information from scheduled airlines demonstrate that theoverall
profit oftheir operations inlocal Europe leaves much tobedesired .The
allocation offixed costs between different geographical areas ofoperation
mayhowever influence theprofitability oftheoperations inEurope .The
Commission cannotsaywhether theunsatisfactory operating ratio inEurope
isexplained inthis way .
Thedifference between theICAO published operating ratios and theAEA
published operating ratios have indicated atleast that theprofitability
per world region israther sensitive tothe way costs are allocated tothe
regions ,but neither the AEA nor the ICAO ratios give evidence ofexcessive
earnings inlocal Europe overall .
Chapter 3also showed awide variation ofprofitability between routes
implying that some routes arecross-subsidized byothers .IntheCommission 's
opinion this isgenerally acceptable butonly totheextent that
each route should atleast cover the incremental costs ofoperating that
route and thenumber ofroutes that donot fully cover thetotal costs of
operation should bestrictly limited .
However ,onsome routes thelevel ofprofits maybesohigh that thequestion
oftheir compatibility with article 86arises .
ii .The level ofcosts
118 ) Having observed that profitability isnotexcessive onemight
askwhether theefficiency istooloworinother words ifthecosts are
toohigh .
The "cascade "studies show first ofall that thedifference inefficiency
between scheduled andnon-scheduled airlines isnot enormous .Secondly ,
however ,thestudies doshow that adifference exists .This difference
may beestimated differently according totheassumptions underlying the
comparison .Ithasbeen estimated aslowasabout 57°andashigh as25$ «
This difference isvery much dependant ontheproduct which anairline
offers .Ifcosts arerepresented perpassenger carried itseems reasonable
that atypical charter passenger cost level isonly about 50/°°fatypical
cost level foranormal economy fare passenger ,thelatter demanding
considerably more flexibility andaccess possibilities than thecharter
passenger .

-52-
10.
11,119) "theCommission 'sopinionthereareafewareaswherecost
reductions oratleastcostcontrol seemspossible .
Firsttherearethegovernment chargesfortheuseofinfrastructure
whichhaveincreased overthelastsixyearsnearlyasfastastheprice
forfuel.Underanunchanged policythesechargeswillcontinue toincrease
10.atpercentages wellabovethegeneralinflation rateduetotheinclusion
ofnewcostelements suchasenvironmental chargesandairportsafety
charges andprobably alsoduetothedeminishing growthofairtraffic
leadingtothesituation wheregovernments' costsmustbecoveredby
lesstraffic .
120)Asecondareaisanareawhereairlines havethemostdiscretion
themselves ,namelytheirsalesactivities .
SalescostsinEuropeseemtobeextremely high.AEAprovedthisthemselves
intheirstudyonthecomparison ofcommercial costsinEuropeversustheUSA.
Onecamputthequestion whether :
a)allthesalesactivities arereallynecessary ,and
b)totheextentthattheyareneeded,aretheyindeedneededforlocal
Europeantraffic?
121)Althoughcostcontrolmayleadtolowerpricesinrelativetermsa12.
largereffecttothepassenger maybeproduced throughchangesintheproducts
whichairlines areoffering ,maybeinfactbyeliminating someoftheservices
whichareincluded inmanyofthepresentfaresbutwhichthepassengers do
notneedunderallcircumstances .
iii.Reasonable relationship tocosts
122)Theevidenceproducedwithrespecttothenormaleconomyfare
shows thattherelation betweenthisfareandthecost^onshorter
13.routesseemstobequitereasonable butthatthemarginofprofitincreases
considerably onlargerdistances .Towhatextentcross-subsidization between
thedifferent faretypestakesplaceandifanunacceptable situation exists
requires adetailedanalysis oftherelation ofallfaresandcostsonindivi­
dualroutes .
ItseemsevidenttotheCommission thatfewgovernments disposeofthe
necessary information tocontrolwhetherindividual airfaresarereasonably
related tocosts.12,

123) Thedifference inprofitability between short andlong haul routes may
also bethe result oftrunk carriers being "obliged "tooperate some
short routes although they are infact notprofitable because ofcompe­
tition from other modes oftransport orbecause theairlines inquestion
have not suitable equipment .Itseems indicated totheCommission that there isa
risk that avery complicated andinefficient fleet structure would result ifan
airline tries tokeep arange ofdifferent aircraft types suited forall
sorts ofroutes from short haul thin routes andshort haul high density
routes tolong haul thin routes andlong haul high density routes .
124 ) Ingeneral italso seems unreasonable totheCommission that the
economy fare type insome instances isprofitable atabreakeven load
factor ofonly orless .Abreak-even load factor ofabout SO-60$>
seems more reasonable .Such afact may beanindication ofasituation
where anairline does nothave anaircraft well suited tothe route ,oran
indication -that fares have been setatanunreasonable Level which should be
examined inthe light ofart .86oftheRome Treaty .
iv.Thetariffs ofother airlines and thepredatory effects
125) Theimportance that thetariffs ofother airlines bear onthe
approval ofnew tariffs should intheCommission 'sopinion belimited to
thetariffs ofthird and fourth freedom carriers oneach route and inparticular
that such proposals should not ha.ve acharacter ofdumping .This isin
theCommission 'smind atanyrate not thecase when theproposed tariffs
have areasonable relation totheir costs .
v. Comparable fares over the same distance
126) Ithasbeen demonstrated that there isindeed afair relationship
between thenormal economy fare andthedistance flown andasomewhat less
marked butnevertheless statistically important ,relation between theexcursion
and distance .
fare/This criterion isinconflict with other criteria such asreasonable
profits onaroute and areasonable relation offares tothecosts of
operation .IntheCommission 'sopinion thelatter twocriteria aremore
important .The Commission finds similar fares over similar distances to
some extent desirable but itfinds that important differences inthecosts
iofoperation between airlines and/orroutes should bereflected inthe
respective tariffs .

vi.Theinterest oftheusers
127)Apartfromtheinterest whichtheusershaveintheearlier
mentioned criteria ,suchasthefaresrelation tocostsandcomparable
faresovercomparable distances ,theuserstakeamorespecific interest
inthechoiceoftariffsthatareavailable andinthetransparency of
theexisting farestructure andintheconditions relatedtothefares.
a)Choiceoftariffs.
128)TheCommission considers thatthepresentfarestructureistoomuch
aresultoftheinterest oftheairlines wheretheairlines canmakemaximum
useofdifferences inpriceelasticity betweenpassenger categories .
TheCommission finds,asthisisreflected inchapter 3,thattherearemany
routeswheretheconsumers choiceistoolimited andwherenolowtariffs
types(e.g.basedonabreak-even seatfactorof85%)areavailable .
129)Whenthenormaleconomyfaresarecostbasedtheyareoftenbased
onanassumedseatfactorofaround\jO^.Thisisundoubtedly correctfor
thistypeofproductanditreflects manyqualities andinparticular the
fullflexibility whichisrequired byalargenumberofpassengers .
130)However ,theCommission thinksthatalsoonroutestoregions
wherethereisnochartercompetition orwherethereisnostrongmarket
forleisuretrafficthepassenger shouldbegiventheopportunity totravel
atafarelevelwhichisbasedonamuchhigherseatfactorthantheeconomy
tariff.Thisisnotgenerally thecaseatpresentandtheCommission thinks
that,aslongastheairlines areprotected bothwithrespecttomarket
accessandprices,airlines shouldalsoofferatleastoneunbundled lowfareon
eachroutetheyoperate ,inaddition toaneconomytypefare,whichisbasedon
point-to-pointtransportation costswithanoptionofbuyingareservation .
b)Transparency .
131)Withrespecttothelimitations andconditions quoted,specially
tothelowerthannormaleconomyfares,theCommission thinksthatthis
situation isuntolerably complicated .Itshouldbepossible tointroduce
moresimplification .Thiswouldimprovetheunderstanding ofthetravelling -
publicforwhatitispayingfor.

132) Tothis understanding would also contribute theabove mentioned
minimum fare structure asthepassenger could actually seebycomparison
theprice heneeds topayforacertain amount offlexibility hemaywant
tomaintain while heistravelling byair .Itisonly fair tosaythat on
some routes there isindeed adevelopment inthis direction .
vii .Access tothemarket andcompetition
133) Thepresent report does notdeal with thequestion ofmarket
access andcompetition .
Thesituation which theCommission found with respect totariff setting ,
fare structure andcross-subsidization between routes andmost probably
also between fare types (although this latter point remains tobeexplored ),
strengthens however theCommission 'sopinion asexpressed initsmemorandum
of1979 on"contributions oftheEuropean Communities tothedevelopment
ofAir Transport Services "that more opportunities should begiven toairline
initiatives inintra-Community traffic ,both with respect toproducts
offered onaroute andmarket entry .

ANNEX 1.1 .
PROCEDURES AND CRITERIA USED BYGOVERNMENTS FOR EVALUATING AIR FARES
BELGIQUE
Les procédures d'approbation des tarifs des services aériens
réguliers sont définies par lesclauses qui lesconcernent
dans lesaccords aériens bilatéraux signés par laBelgique ,
ainsi que par l'Accord international de1967 sur lapro­
cédure applicable àl'établissement des tarifs des services
aériens réguliers ,ratifié par laBelgique .Cesdispositions
prévoient généralement que les tarifs sont d'abord convenus
soit conformément aux résolutions régissant les tarifs qui
auraient puêtre adoptées par l'IATA ,soit par entente directe
entre compagnies aériennes désignées .Ils doivent ensuite
être soumis àl'approbation des autorités aéronautiques .
L'Administration del'Aéronautique belge estime que les
entreprises detransport aérien doivent ,autant que possible
recourir àlaprocédure del'IATA pour l'élaboration des
tarifs .
Pour laprocédure d'approbation ,l'Administration de
l'Aéronautique applique leprincipe que les tarifs doivent
être établis àdes taux raisonnables ,compte dûment tenu de
tous les éléments d'appréciation ,notamment ducoût d'exploi­
tation ,d'unbénéfice raisonnable ,ainsi que des tarifs
appliqués par les autres entreprises detransport aérien .

ANNEX 1.2.
BUNDESREPUBLIK DEUTSCHLAND
Alle Fluglinientarife ,die imVerkehr mitderBundesrepublik Deutschland
oder innerhalb desBundesgebietes zurAnwendung kommen sollen ,bedürfen
dervorherigen Genehmigung durch denBundesminister fürVerkehr .
Rechtsgrundlage fürdieGenehmigung ist §21Luftverkehrsgesetz (LuftVG )
i.V.m .denVorschriften derjeweils zwischen derBundesrepublik Deutsch­
,land undausländischen Partners taaten abgeschlossenen bilateralen Luft­
verkehrsabkommen .
DieTarife ,dieaufdenvereinbarten Linien fürFlußgäste undFracht
anzuwenden sind ,werden unter Berücksichtigung aller Faktoren ,wieder
Kosten desBetriebes ,eines angemessener )Gewinns ,derbesonderen Gegeben­
heiten der verschiedenen Linien undder vonanderen Unternehmen ,welche die
gleiche Linie ganz oder teilweise betreiben ,verwendeten Tarife festgesetzt .
DieTarife werden ,wenn möglich ,fürjede Linie durch Vereinbarung der .
beteiligten benannten Unternehmen festgesetzt .Hierbei sollen sich die
benannten Unternehmen nach denBeschlüssen richten ,dieaufgrund des
Tariffestsetzungsverfahrens des Internationalen Luftverkehrsverbandes
(IATA )angewendet werden können oder diebenannten Unternelimen sollen
sich nach einer Beratung mitdemLuftverkehrsunternehmen dritter Staaten ,
welche diegleiche Linie ganz oder teilweise betreiben ,wenn möglich
unmittelbar untereinander verständigen .
Dieaufdiese Weise festgesetzten Tarife sollen denLuftfahrtbehörden
eines jeden Vertragsstaates wenigstens 30Tage vordem inAussicht ge­
nommenen Inkrafttreten zurGenehmigung vorgelegt werden .,
Dasaufdeutscher Seite fürdieGenehmigung derTarife zuständige Bundes -
verkehrsministerium prüft voreiner Entscheidung ,inwieweit diebeantragten
Tarife hinsichtlich ihrer Höhe undStruktur marktgerecht undunter Berück­
sichtigung dertatsächlichen Kosten desFlugbetriebs dereinzelnen Linien
angemessen kalkuliert sind .
IndenFällen ,indenen vorgenannte Wirtschaftlichkeitskriterien nicht
erfüllt sind undinsoweit befürchtet werden muß ,daßdieDurchführung eines
sicheren undleistungsfähigen Flugbetriebs gefährdet sein kann ,istdie
Genehmigung zurAnwendung derbeantragten Tarife zuversagen .Versagungs -
möglichkeiten bestehen ferner au3folgenden Gesichtspunkten :

ANNEX 1.3 .
1.Schutz desVerbrauchers vorUberhöhten Flugpreisen ,
2.Schutz desdeutschen Fluglinienunternehmens vor
ruinösem Wettbewerb ,
3.Berücksichtigung sonstiger öffentlicher Interessen .
Führt einUnternehmen ohne dienach §21erforderliche Genehmi­
gung Fluglinienverkehr durch oder wendet esnicht genehmigte
Tarife an,sohandelt esgem .§58LuftVG ordnungswidrig .Ordnungs­
widrigkeiten können nach §58LuftVG miteiner Geldbuße biszu .
20.000 ,–DM (Zwanzigtausend Deutsche Mark )geahndet ,werden .

ANNEX .1.4.
DENMARK
1.Both domestic and international aviation isregulated
bytheCivil Aviation Act ,theauthorised regulatory body
being theMinistry ofPublic Works .Scheduled fares and
rates have tobesubmitted forapproval totheMinistry ,
which can approve ordisapprove totally ,orapprove inpart
*
orwith certain conditions .
2.Denmark isasignatory tothe 1967 international Agree­
ment onthe procedure for theestablishment oftariffs for
scheduled air services ,which replaces tariff clauses inbi­
lateral agreements among signatories ofthe Agreement or
supplements agreements which have notariff clause .
3.Denmark supports inprinciple IATA 'sfare and rates
setting machinery .When this Ministry receives aIATA-pack
forapproval ,theMinistry examines theproposed fare /rcilo–
level and structure ascompared with the already existing .
The Ministry may then seek supplementary information oncertain
points ofthe filing .Ithappens -especially asregards the
socalled Fuel-increases -that the Ministry has not found
sufficient justification for some ofthe fares ,contained in
aIATA-package .Consequently those fares have notbeen
approved .Sofar the reaction has not been aformal rejection
oftheIATA-package assuch ,butadjustments ofthecurrency
factors .
4. Incase ofanopen-rate situation within IATA ,theMinistry
isresponsible forassessing fares .Inthe first place ,the
Ministry endeavour ?topersuade theairlines tocome together

ANNEX 1.5.
and try toreach anagreement onfares .Any such agreement
issubject togovernment approvel .Failing agreement between
carriers ,consultations with thecompetent authorities ofthe
other party are initiated inaccordance with the provisions
ofthe bilateral agreement ,ifany .
5.Asimilar procedure isfollowed when airlines which are
not members ofIATA apply totheMinistry for fares approval .
6.Nowritten directives exist concerning criteria tobe
used for evaluating air fares .Inassessing whether fares
are reasonable ,the ministry seeks tostrike abalance between
the interests ofconsumers and the need for airlines to
cover their reasonable costs .

ANNEX1.6.
PROCEDURES ETCRITERES UTILISES POURL'EVALUATION DESTARIFS AERIENS
ENFRANCE
EnFrance,leCodedel'aviationcivileexigequelespropositions de
tarifssoientdéposées pourapprobation auprèsdel'autoritéappropriée .Tous
lestransporteurs exploitant desservices depassagers surleterritoire national ou
enprovenance ouàdestination duterritoire national sonttenusdesoumettre leurs
propositions tarifaires auMinistère desTransports .Seulslestransporteurs
exploitant desaéronefsd'unpoidsmaximumaudécollage inférieur à5i7tonnes
ettransportant moinsdesixpassagers sontexemptés decetteexigence.Encequi v
corcerr.elesvolsréguliers ,lespropositions detarifdoiventspécifier larevive
etlacatégorietarifaire .Lespropositions detarifdoiventégalement indiquer
lesconditions générales dutransport e'ilesréductions quelestransporteurs
ontl'intention d'appliquer pendantdespériodes déterminées oud'offriràdes
catégories detraficdéterminées .Lesconditions générales detransport comprennent ,
notamment lesconditions desefviceetl'aménagement delacabine,lesconditions
d'accès,lecaséchéant,àcetypedetarif:duréesdeséjour,délaid'achatà
l'avance,facilités detransfert etd'arrêtsvolontaires encoursderoute,condi­
tionsdepaiementetderemboursement etc...ainsiquelasaisonnalité ,lacapacité
disponible pourletypedetarifconside'ré ,lafranchise desbagages,lescom­
missionsverséesauxagences.SileMinistère nerépondpasdansundélaid'un
moisàpartirdeladatedudépOt,lestarifssontcensésêtreapplicables .
2.Lestarifsdéposésaurontnormalement déjàétéacceptésdanslecadre
d'unorganisme reconnuparleMinistère ,telquel'IATA.EnEurope,l'administrât 10:.
françaises'appuiesurl'Accordaériende19^7«Elleapprouvegénéralement les
structures tarifaires quiont"ainsi",faitl'objetd'unaccordmultilatéral inter–
compagnies etquisontcompatibles aveolestarifsdesservicesexploités dansdes
conditions anologues maissurdesdistancesdifférentes .
3.Lesmodifications delastructure oudesniveauxdestarifssontexaminées
dansleurcontexte propreplutôtqu'enfonctiond'unenormeuniverselle .La
recetteprévueparpassager-kilomètre estcomparéeàcelledetarifsexistants
danslamêmerégionetsurdesdistances analogues .Danslecasdetarifsréduite
nouveaux ,ilestimportant qu'ilsn'aientpasd'effetnuisiblesurletrafic
transporté auxtarifsexistants ,cequimenacerait lastructure envigueur.
Cependant ,u'estsurlesroutesàprédominance touristique quel'introduction de
tarifsréduitsfaitl'objetd'uneconsidération favorable .

ANNEX 1.7 .
4« Comme tout changement delastructure oudesniveaux destarifs agit
surlesrecettes totales delacompagnie aérienne ,leMinistère demande desren­
seignements qui luipermettent d'estimer sesavantages pour lepublic etseseffets
surlasituation économique dutransporteur ,principalement entermes derecettes ,de
développement dutrafic ,decoefficient deremplissage etderecette unitaire
moyenne .Sil'action gouvernementale vise àassurer lasanté économique dutransport
aerien elle tend aussi àassurer laprotection dupublic .C'est ainsi c{uedes
mesures gouvernementales interdisent oulimitent larepercussion dans lesproduits
touristiques (essentiellement populaires parnature )deshausses destarifs aériens
entrant dans lacomposition decesproduits .
5. L'administration française tient également compte desprincipes
énoncés parlaCEkC enmatière d'évaluation destarifs internat ionaux passagers
etmarchandises ,àsavoir qu'ilfaudrait établir etmaintenir unrapport plus
étroit entre les tarifs etles coûts .

GREECEANNEX 1.8.
1.The Civil Aviation Authooity istheregulatory body of
Air Transport inGreece .
2.Greece isasignatory member ofthe International Agreement
ontheprocedure fortheestablishment ofTariffs forscheduled
Air Services which was signed inParis in1967 .This Agreement
hasbeen ratified byGreek Parliament asaninternal law .
3.Asfar asscheduled fares are concerned the procedures
provided intheaforementioned Agreement areusually followed .
Packages offares soagreed are always filed with CAA for consider­
ation and approval and they arevalid only after they receive
theofficial approval ofCAA .
4.CAA when considering international fares takes account oft
a)The existing relationship between operating cost and
proposed level offates ,
b)other coherent fares which areapplied byother carriers
inthe area ,
c)the interests ofusers ofair transport services .
5.CAA taking into account the said criteria may approve or
disapprove inpart orinall orputreservations oncertain of
these fare3 .
6.AnyAirline ,intending tointroduce scheduled fares deviating
from those agreed inIATA andapproved byCAAorincases ofopen
fare situation ,always has tosubmit them toCAA forapproval .
7.Sometimes CAA onitsown initiative establishes fares whenever
theneeds ofthepublic (orsome specific categories thereof ,students
seamen ,immigrants )seems tojustify them .
8.Itisnoted that nowritten guidance exists forevaluating
the levels and structure ofair fares .
5)

ANNEX1.9.
ITALIE
Lesconventions concluesentreleMinistère desTransports
etlescompagnies aériennesnationales pourlaconcession de
servicesaériensréguliersdisposent quelestarifspourletrafic
aérientantnationalqu'international sontarrêtésparleMinistère
surproposition delasociété.
Encequiconcerneenparticulierl'approbation destarifsinter­
nationaux/ens'enremetengénéralàlaprocéduremultilatérale IATAdont
lesrésolutions/avantd'êtreavalisées/sontcependantsoumisesàl'­
approbation expresseprécitée.
Desestimations adhocsonttoutefoisréalisées notamment
lorsquelesniveausoulesstructurestarifaires proposéss'avèrent
avoiruneincidenceéconomiquetrèsimportante quipourraitengendrer
deschargesparticulières pourlesusagersouavoirdeseffets
négatifs.
Danscescas,l'Administration utilisedescritèresspécifiques
d'appréciation quifontabstraction desaccordsIATA.
Encequiconcernelespropositions tarifairesrelativesaux
■accordsentretransporteurs nongénéralisés danslecadredelaprocédure
multilatérale IATA,l'Administration estintervenue àplusieursreprises
afindemodifiersoitlesniveauxtarifaires soitlesconditions de
transportproposéesparlestransporteurs/enfaisantabstraction de
cequisemblaitêtrel'intérêtimmédiatetcontingent delacompagnie.

ANNEX 1.10 .
IRELAND
Statutory Position
Thelegal position ontheprocess oftariff setting isthat power
isvested intheMinister foT*Transport under theAirNavigation and
Transport Act ,1965 which provides that s-
"TheMinister may inhis absolute discretion approve or
refuse toapprove ofthe fares orrates proposed tobe
charred for the carriage ofpassengers ,cargo ormail on
anair service to,from orwithin theterritory ofthe
Stat'e ."
Provision ismade inBilateral Agreements andinthe1967 International
Agreement ontheprocedure fortheestablishment oftariffs for
scheduled airservices ,ofwhich Ireland isamember ,forairlines to
consult and ifpossible reach agreement onfares .There isalso
*
provision forAeronautical Authorities toconsult inthe event that
airlines fail toagree ontariffs andultimately iftheneed arises
for adisputes procedure .Ireland supports airline agreement ohfares
through theInternational AirTransport Association tariff setting
machinery .Tariffs soagreed aresubject totheapproval ofthe
regulatory authority .
Administrative Position
TheMinister hastr"ditionally accepted fares agreements within the
International AirTransport Association Tariff Conferences ,butin
theopen rate situation which atpresent applies onNorth Atlantic
routes ,examination offares Keeks toensure theprevention of
predatory pricing tothedetriment ofyear round services .The
examination also seeks toensure that theproposed fares meet the
direct andindirect costs inthecontext ofprovision ofayear
round service .These criteria also apply tofares filings from

ANNEX 1J.1 .
non IATA airlines operating inEurope .Each application isexamined .
«
onits merits .
LUXEMBOURG
Toute demande d'autorisation detarifs aurions émanant
docompagnies aériennes doit obligatoirement être adressée
auMinistère des Transports ,Service aéronautique ,à
Luxembourg .Après une première analyse faite par nos soins ,
lademande est transmise pour avis aux services compétents
donotre compagnie nationale LUXA1U avant que ladécision
finale na«oit pria *par leminiatèra *

ANNEX 1.12 .
THENETHERLANDS
;
Inprinciple ,theestablishing offares isleft totheairlines .However ,
byaroyal decree allfares must beapproved bytheMinister ofTransport ,
whocandisapprove faros which areconsidered tobeunreasonable orinoonfliot
with therequirements ofaneconomically justifiable operation .
Intheapproving offares ,account istaken oft
1)theinterests ofthetravelling public j
2)theeconomic capacity oftheairline |and
3)theimportance ofacoherent tariff structure ininternational
airtransport .
TheMinister ofTransport canhimself establish fares inthroe speoific
oasess
1)ifhehasdisapproved fares filed bytheairline )
2)ifairlines fail tofile fares ;and
3)inspecial circumstances ,theMinister canfixafare
with specific conditions ,which differs from normal levels .

ANNEX1.n.
UNITKD KINGDOM
TheCivilAviationAuthority (CAA)istheUnitedKingdomauthority whichhas
responsibility fortheeconomicregulation oftheU.K.civilaviationindustry.
Itsdutiesinrelation toairservices andfaresaresetoutintheCivil
Aviation Act1971amended "bytheCivilAviation Act1980.Sections 3and23A
oftheActstate:
"3-(l)itshallbethedutyoftheAuthority toperformthefunctions
conferred onitotherwise thanbythissectioninthemannerwhichitconsiders
isbestcalculated -
(a)tosecurethatBritishairlinesprovideairtransport serviceswhich
satisfyallsubstantial categories ofpublicdemand(sofarasBritish
airlines mayreasonably beexpectedtoprovidesuchservices )atthe
lowostchargesconsistent withahighstandard ofsafetyin
operating theservices andaneconomic returntoefficient operators
onthesumsinvested inproviding theservices andwithsecuring
thesounddevelopment oftheoivilairtransport industryofthe
UnitedKingdom!
and.
(b)tofurtherthereasonable interests ofusersofairtransport services ;
andinthiBsubsection "Britishairline"meansanundertaking havingpowerto
provideairtrancport services andappearing totheAuthority tohaveits
principal placeofbusinessintheUnitedKingdom,theChannelIslandsofthe
IsleofManandtobecontrolled bypersons whoeitherareUnitedKingdom
nationals orareforthetimebeingapproved bytheSecretary ofStateforthe
purposesofthissubsection".^
1)Butseealsosection15oftheCivilAviation ActI960

ANNEX1.14.
"231–(l)ItshallbethedutyoftheAuthority toperformitsairtransport
licensing functions inthemannerwhichitconsiders isbestcalculated
toensurethatBritishairlines competeaseffectively aspossible
withotherairlines inproviding airtransport services oninternational
routes;andinperforming thosefunctions theAuthority shallalsohave
regard-
(a)toanyadvicereceived fromtheSecretary ofStatewithrespect
tothelikelyoutcomeofnegotiations withthegovernment ofany
othercountryorterritory forthepurposeofsecuring anyright
requiredfortheoperation byaBritishairlineofanyairtransport
services outsidetheUnitedKingdom :
and
(b)totheneedtosecurethemosteffective useofairportswithin
theUnitedKingdom.
(2)Inconsidering whethertograntanyairtransport licenceitshall "be
thedutyoftheAuthority tohaveregardtotheeffectonexisting ■
airtransport services provided byBritishairlineG ofauthorising anynow
services theapplicant proposetoprovideunderthelicence,andinany
casewherethoseexistingservicesaresimilar(intermsofroute)tothe
proposed newservices orwheretwoormoreapplicants haveappliedfor
licences underwhicheachproposestoprovidesimilarservices ,theAuthority
shallhaveregardinparticular toanybenefits whichmayarisefrom
enabling twoormoreairlines toprovidetheserviceinquestion.
(3)Subjecttosection3ofthisActandtosubsections (l)and(2)ofthis
section,itshallbethedutyoftheAuthority inperforming itsair
transport licensing functions tohaveregardtotheneedtominimise
sofarasreasonably practicable -
(a)anyadverseeffectsontheenvironment )
and
(b)anydisturbance tothepublic;
fromnoise,vibration ,atmospheric pollution oranyothercauseattri­
butabletotheuseofaircraftforthepurposeofcivilaviation.'

ANNEX 1.1*.
(4)Inaddition totheduties with respect toparticular matters imposed
ontheAuthority bythepreceding provisions ofthis section ,itshall
betheduty oftheAuthority toperform itsairtransport licensing
functions inthemanner which itconsiders isbest calculated toimpose
onthecivil airtransport industry oftheUnited Kingdom andonthe
cervices itprovides forusers ofairtransport services theminimum
restrictions consistent with theperformance bytheAuthority ofits
duties under sections 3,22and23ofthis Actandthepreceding pro­
visions ofthis section ."
Section I3(l )oftheActimposes ontheCAAtheduty ofpublishing from
time totime astatement ofthepolicies itintends topersue inperforming
itseconomic regulatory functions .On28th April 1981 inCAAOfficial Record
Series 2,theCAApublished aformal statement ofthepolicies itintends to
follow .Paragraphs 19to22refer topricing and state »
Wherever possible theAuthority will allow market forces tosetorinfluence
thelevels offares andrates forairtransport .Tothe extent that fares andrat .
need tobecontrolled ,theAuthority will seek toensure that users arecharged onl .
forthose product features they require .TheAuthority aims progressively to
diminish discrimination and cross-subsidisation between routes and between fare
types .Each fare should berelated tolong-run costs atalevel which will yield
sufficient revenue tocover thecosts ofefficient operations ,including an
adequate return oncapital .TheAuthority ,however ,recognises that British
airlines mayonoccasion need tooffer fares which arebelow long-run costs
inorder tomatch competitors orrespond toacyclical shortfall ofdemand .
Scheduled services have traditionally offered aconsistently available pro­
duct with ahigh probability ofobtaining aseat atshort notice andahigh
degree offlexibility tothepassenger ,often together with intraline and
interline facilities onmulti-sectors journeys .TheAuthority sees avalue
inthemaintenance anddevelopment ofthese product features tothe extent
that there isasubstantial demand forthem .This does notpresuppose that they
should beprovided onthepresent scale orbyspecific airlines .TheAuthority 's
tariff policy must also ensure that thecosts ofproviding them aremetbythose
*horequire thf:a .
TheAuthority will seek toensure tariffs that areclear andunderstandaole .
Itaims tohelp thetravelling public obtain aclearer picture oftheoptions

ANNEX 1.16.
available .Itbelieves that price competition between airlines should benefit
users rather than intermediaries .
Thepolicies inparagraphs 19–21above should apply noless todomestic and
cabotage fares than tointernational .TheAuthority will make proposals for .
chongos inthoregulatory system soastoallow airlines greater flexibility
andquicker response consistently with more effective andless cumbersome
arrangement afortaking the interests ofusers into account .
Therefore when considering scheduled fares proposed toit,tothe
*extent that these fares need tobecontrolled ,theCAAtakes asthemain economic
criterion therelationship ofthefare toitslong-term cost .TheAuthority
is,ofcourse ,aware that many factors other than costs influence thesetting
offares ,andthese arealso considered .
TheCAAhas established astandard procedure forevaluating fares
applications .Since itisnotpossible toanalyse every fare onevery route
indetail ,theAuthority selects asample ofroutes forstudy .TheUnited
Kingdom airline isanked toprovide details ofcapacity ,traffic andrevenue ,
andcosts forindividual fare categories ontheselected routes .From this ,
theAuthority assesses thelong-term profitability ofeach fare type .
TheAuthority 'sapproach totheevaluation ofEuropean faros iodiacuaeod
inthopublication "European airfares -adiscussion document "(CAP409).
Appendix ^ofthis document describes fully themethod ofassessment andthe
information requested from United Kingdom airlines .
TheAuthority does notnormally intervene inthe^setting ofinternational
charter fares ,but itreviews developments inthecharter sector oftheindustry ,
andwould take action ifthis became necessary . 1

ASSOCIATION OF
EUROPEAN AIRLINES2ι
G(E)3158
20.11.80
AEA PRESENTATION TO THE EEC
Meeting ofthe Commission with National Experts onAir
Fares inEurope tobeHeld on24th November 1980
AEA isgrateful for this opportunity topresent its views onthis
very complex issue ofEuropean air fares ,even though wowore
somewhat short oftime toprepare ourselves adequately for this
Hearing .AKA has onmany occasions presented verbal and written
ovldnnco ofour mombor airlines' views onEuropean air faros .Wo
can ,for instance ,refer toour study ofair fares inEurope issued
in1977 ,and which isnow inthe proces sofbeingupdated .Wecan
also quote theextensive material submitted last year to~the former
RPRPTC Committee ofthe European Parliament .Werepeat that itis
avery complex issue onwhich many papers have been written and it
would berather difficult tocover now all aspects indetail .We
will therefore confine ourselves toageneral statement outlining
our common position ,oreven sometimes different points ofview on
the main problems .Weare ofcourse ready toanswer your questions
tothe best ofour knowledge .Inview ofour direct concern with
the subject ,may wealso add that wewould most welcome the oppor­
tunity tobeable tofollow the development ofyour rteview of
European air faros .
Our remarks will refer togeneral economic and commercial aspects
ofair fares and ,tothe extent that .you may wish toexamine in
detail the machin ery itself ,may wesuggest that you invite
the IATA Secretariat todeal with this subject .AEA isanassoci­
ation ofnineteen scheduled European airlines ,members ofTATA ,
and even though wecover awide spectrum ofairline activities ,our
Association isnot involved inthe tariff making process which is
covered worldwide byIATA member airlines within theTraffic
Conferences .Needless tosay ,weare infull support ofamulti­
lateral tariff co-ordination system .
Before coming tospecific air fares issues ,itmay beopportune to
recall that Europe isbynomeans ahomogeneous market like US
domestic operations ,nor isthe EEC area covering thewhole of
European operations .Moreover ,asindeed underlined intheCommission
Memorandum oflast year ,European operations are only part ofthe

ANNEX 2.2 .
total system ofthe airlines .This proviso ismeant tounderline
the fact that European air fare issues ,being already difficult in
themselves ,inmany cases they cannot betaken inisolation from
the overall air transport context .
Wewould now like tocomment onthe basis for your assessment ,
which you have defined yourselves aspossible fares evaluation
criteria .Webelieve them tobeagenerally reasonable formulation
inafirst stage for the purpose ofstudying European air fares ,
and they indeed point tomany unclear and sometimes conflicting
objectives which ought tobemet .Such objectives are the target
ofall airlines ,but the relative weight of,and priority for ,each
ofthem obviously varies from one individual airline toanother ,
depending onits own geographical ,marketing and economic position .
The relative importance ofthose criteria has also bynature changed
over time .
Astothe individual criteria which have been mentioned ,our
observations are the following :
1. REASONABLE RELATIONS TOCOSTS OFOPERATION
There must.b' -indeed such areasonable relation between costs and
fares asageneral objective .Onthe other hand ,cost allocations
are anextremely complex subject and many arbitrary elements are
inevitably involved inacost allocation toroutes .Problems at
that stage sufficiently underline the extreme difficulties which
would arise inacost allocation according totraffic catt-gory and
fare type .There also remains todefine what arepresentative cost
would boonaspecific route since the cost level onany given
route varies between the individual operators .This isfor instance ,
afactor which has been fully acknowledged inthe ECAC study of
European air fares ,which notes that toavery great degree operating
costs are areflection ofthe respective national situations .
Given the great differences encountered bythe airlines themselves
incost allocations ,astrict adherence toatheoretical cost formula ,
the purpose ofwhich should enable authorities toassess mathematically
thedegree ofrelationship between fares and costs ,can infact be
defined asavery ambitious target ofspurious accuracy ,and would in
practice result intransfer tothe authorities themselves ofunwanted
responsibility forcommercial decisions intheprice-making process .
Apart from any technical arguments ,wehave tostress the fact that
operators have tolook ,not only atthe operating costs inisolation ,
but atthe cost ofservicing all segments ofthe airmarket .
different allocation methods give adifference upto10%onroutes

ANNEX 2.3 .
Asafinal remark onthis itom ,itremains tobeseen how to
define what isahigh fare orahigh cost .Onthecost side ,
not tospeak ofstudies carried out by AEA itself ,examinations
byF.CAC and byTAT certainly did not support anyclaim that costs
ofEuropean airlines are too high .Our poor profitability then
points tothe fact that fares are not -excessive inrelation toour
cost level .Wehave also tomention that alarge part ofthe
operating expenses isbeyond the airlines' control .In1979 fuel
represented 16% ofthe total operating cost forEuropean passenger
operations ,and airport /navigation charges another 11% .Add tothis
the cost ofpersonnel and over 60% ofall operating expenses were
outside the airlines' influence oroffered very limited scope for
manoeuver .Final figures for 1980 are obviously not yet available ,
but asanindication ,the fuel bill may beashigh as30% ofthe
total cost .
2. REASONABLE PROFIT
Wecould not agree more with this statement ,but unfortunately we
are far from aprofitable intra-Europonn operation .There are
obviously variations between individual carriers ,but the overall
picture for AEA airlines shows that in1979 there was anoperating
profit (relation between operating revenues andoperating expenses )
of5.6% .This isbefore any allowance for financial charges and
return oncapital ,and there isaconsensus inthe industry that
atleast a12% figure ought toboreached .May werefer inthis
context toanAEA examination ofcapital requirements produced last
year ,indicating that bythe mid-80s the accumulated value of
aircraft purchase systemwide will beover 40billion dollars ?A
large part ofthose aircraft orders isrequired anyway toreplace
presently obsolescent aircraft interms offuel consumption or
noise emission ,-apart from other potential cost savmcts connected
with more modern aircraft .Wecalculated atthat time that the
airlines' own cash generation would beonly ofthe order of13
billion dollars ,thus covering only asmall proportion ofthe
necessary investment ,and wehave tounderline that this was
assuming also areasonable traffic growth ofthe order of8%,
which wecertainly did not achieve in1980 ,since uptoOctober ,
traffic inEurope went down by2%over the same tenmonth period
of1979 .This should be asufficient illustration that excessive
profits -far from it-are not made inEurope .

ANNEX 2.4 .
3. DISTANCE RELATION
There isinfact areasonable overall relation between fares and
distance .The overall correlation between fares and stage distance
is,aswepointed out inour own examination referred toabove ,
higher than that between costs anddistance .This iscertainly
ademonstration ofthe success ofmultilateral tariff co-ordination
insmoothing out not only inequalities between fares for adjacent
routes ,but also some ofthe large variations incosts .There are
obviously deviations from theoverall curve offares versus distance ,
andthey aredue tospecific economic ,marketing andgeographical
conditions within the overall European picture .
4. PASSENGF:R VOLUÎT RELATION
Asindeed for any type ofproduction ,costs and prices depend to
alarqe extent onthe traffic size .This isagain ageneral
criterion within which there are bound tobomany variations tothe
theme .For instance ,thequestion has been raised astowhether
the higher costs per passenger onthin routes should bereflected
inthe price .Afirst remark here refers tothedynamics ofthe
operation ,and when serving what isnow athin route ,acarrier
obviously expects toshow over medium /long term areasonable
traffic growth ,and obviously astrict price /cost relationship
would undermine the prospects for traffic expansion onsuch routes .
Such aso-called 'thin route' may also berequired asafender
route .Wemust underline again here the fact that wewant toserve
asmuch asfeasible the overall market ,both interms ofnetwork
requirement and market segments ,and this may mean serving also a
number ofroutes which cannot bedefined asbeing ,orlikely to
become ,profitable inisolation .There isnot evidence that a
.specialised carrier with the so-called appropriate combination
of'smallish aircraft and administrative structure' would have
lower costs than amajor carrier ,and inany case webelieve there
isastrong case for his fare not toundercut the existing structure .
Wehave already explained atlength our position onthis subect in
our statement tothe Hearing ofthe Transport Committee ofthe
European Parliament onRegional Services .

ANNEX 2.5 .
5.Two other criteria have been mentioned separately andwhich
webelieve are closely inter-related .One isthe issue ofabroad
ranqe offares and the other isthe question ofsimplification and
transparency .There isinevitably aconflict between those two
objectives .Onthe one hand itisrecognised that airlines cater
for allmarket segments ,but this should befurther clarified since ,
because ofthe close inter-relation between routes inanairline
network and within the overall intr a-European network ,acarrier
caters not only for the market segments onany given route inis
isolation ,but also for the requirements ofmultiple destinations
and interline passengers .
This remark again underlines the case for multilateral tariff co­
ordination andillustrates theneed for abroad range offares .On
the other hand there isaprerequisite inany tariff structure
serving awide range ofmarket segments that whilst satisfying
customer needs ,promotional fares have conditions tomaximise load
factors and avoid yield erosion below profitable levels ,failing
which the purpose ofincreasing traffic and revenues would be
defeated .Moreover ,tariff conditions within amultilateral frame­
work have tocater for the requirements ofall airlines concerned .
Wefully recognise that simplification ,and thereby transparency ,
are our qoals :weconstantly pursue them ,but the earecertainly
not easy toachieve .Wecan perhaps also mention inthis context
wh.it last year 'sMemorandum quoted as'strange currency effects' .
Such effects are arection ofthe monetary parities .They exist
for all products and ifitisaccepted that any given commodity
bears different prices indifferent countries ,why not recognise
air transport problems inthis respect .Such so-called oddities
reflect differences ineach country 'spurchasing power .Yet airlines
try tosmooth them out asextensively asmarket considerations and
economics ofoperations permit and they arecontinuing their exten­
sive efforts toreform the IATA currency system .
The last aspect wewould like tocomment briefly onisthequestion
ofservice-related fares ,which isalso closely related tothe
above mentioned last two criteria .Wehave already dealt with the
question ofconditions andrestrictions .Maywerepeat again that
the existence ofabroad range offares also implies such sets of
conditions .
Regarding theoverbooking problem ,itiscertainly anover­
simplification tobelieve that theproblem canbesolved bycharging
directly for thecost ofreservation .Let usrepeat once more that
theoverbooking question isdirectly related tothe 'no-show'
problem ,and t.h.jt both the travelling public and theintermediaries
arc themajor culprits inthis respect .Overbooking ,which is
strictly controlled bythe airlines ,isaway ofovercoming the
•no-show' problem .

ANNEX 2.6 .
CONCLUSION
Wehope that ,with this brief presentation ,wehave been able to
provide you with asatisfactory picture ofthe main aspects ofthe
European air fares situation ,and may werepeat again that wewould
bemost happy toco-operate further inthe development ofyour
examination .
0O0 -----

AMEX3.1.
CONSUMERS' CONSULTATIVE COMMITTEE
Hearingongovernment expertsoftheWorkingPartyonAirFares
25November 1980
Introductory remarks
1.HavingheardMrAshtonHILLoftheUnitedKingdomAirTransport
UsersCommittee amonthago,youhavetodaybeforeyoutheAirTransport
WorkingPartyoftheConsumersConsultative Committee.TheUKCommittee
hasbeenspecializing inairtransportmattersforsixyears.Atthe
Europeanlevel,however,westillhaveagooddealtolearn.Ourpurpose
todayistoputtoyoucertaincommon-sense observations fromconsumers
whoarealsoair-transport users.
2.Inourview,ourtasktodayisnottocompareactualfiguresfor
fares.Weassumethatitisnowmoreorlessgenerallyrecognizedthat
theactuallevelofEuropeanairfaresshouldberevised.Theexistence
ofyourWorkingPartyisproofofthis,moreover.Weshalllimitour­
selvestodiscussing thecriteriaforevaluating farescontainedinthe
Commission'sWorkingPaper.Wealsosuggesttwoorthreeothercriteria
whichshouldbeadded.
3.ThecurrentsituationwithregardtoairtransportinEurope
Inourview,theairtransportindustrysuffersfromovercapacity ,with
theresultthat,whereevenaminimumofcompetition ispossible,many
airlinesnowtendtocompetestrenuously witheachother.Unlesssuch
competition isharonious andconductedinaccordance withwell-established
andfairrules,theconsumerdoesnotnecessarily benefitinthelong
term.Ananalysisofcurrentfares,therefore,musttakeaccountof
currentcosts.TheseseemtoustobetoohighatthemomentinEurope.
Itisineveryone'sintereststhereforetodealnotjustwithfares,
butwiththecausesofthecivilaviationindustry'sproblems.Studies
mustbedoneonrestructuring thewholeindustry,inordergraduallyto
reachmorerationalfareswhichreflectmorerationalcosts.
Criteriaforevaluating fares
1.Faresshouldrelatesensiblytooperational costs
(1)Overall_costs
Weareawarethat,generallyspeaking,currentfareshardlyallow
theairlinestomakeaprofit,sincecurrentcostsareexcessive.
(ii)Ihe_£elationshig_between_i ndividual_fares_and_ogerat ional_costs
Itisclearfromtheenormousdifference whichsometimesexists
betweenthefarespaidbydifferentpassengersfortheuseof
identicalaircraftoverthesameroutethatindividual faresbear
norelationtorealcosts.Thereisoftenabigdifference between
thefullfareandlast-minute "plane-filling "fares.Asairlines

ANUEX3-2.
thinkprimarily intermsofLong-haul fligcts,theyoften
consider Europeanflightssimplyasbringingpassengers tothelong-
haulpointofdeparture.Sometimes passengers arecarriedbelowcost
inEurope.Tomeekendsmeet,airlines oftenmakeothercustomers
notflyingnon-haul journeys compensate fortheselosses.
Ourproposal forreforming thissituation isgiveninpoint5below
whichdealswiththewiderangeofrates.
(iii)Transport operations_as_gubl ic_services
Weareawarethat,ifmarketforceswereallowedtogovernthe
operation ofallEuropean routes,someofthemwouldnolongerbe
operated sincetheywouldnotbeprofitable .Theproblemisthe
sameaswiththerailways .Weourselves wonderwhetherestablishing
acloselinkbetweenfaresandcostsonnon-profitable routeswhich
itisinthepublicinterest tokeepopencanbejustified .We
realizethatthisraisesthegeneralproblemofcompetition between
privateairlines whichwouldlike,asfaraspossible,tooperate
profitable routesandnationalized airlines .Thereisalsothe
problemofwhetherthepriceofpublicservices accurately reflects
costs,aproblemwithwhichallindustries arebecoming increasingly
familiar .Inourview,themostimportant stepistodrawupaninventory
ofroutesinEuropewhichareripeforcompetition andthosewhich
arenon-profitable .Theproblemofregional andothersubsidies can
betackledlater.Wedonotagree,however,thatLossesonsecondary
routesshouldbebornebypassengers flyingonprofitable onesand
havingtopayundulyhighfaresinordertooffsetlosses.
(iv)Informati ononcosts
Inordertoestablish arelationship betweenfaresandcosts,the
lattermustfirstofallbeknown.Webelieveitisunrealistic toaskfor
suchinformation tobemadeavailable tothegeneralpublic.A
discussion onfarescouldperhapsbearranged betweentheairlines
andselected passenger representatives whowouldhaveconfidential
accesstoinformation oncosts.Houever,itistheauthorities rather
thantheuserswhoareresponsible fordefending thepublicinterest .
Weknowthatsomeofyoualready haveaccesstothenecessary financial
information and,ifwemayinturnputaquestion toyou,wewould
liketoknowinwhichMemberStatessuchinformation isalready
available totheauthorities .
2.Reasonable nrn-H *-
Itseemsthatmostairlines areatpresentunabletobuildupreserves
foressential modernization .Inourviewareasonable profitisessential
ifresearch andothercostsaretoamortized .Defining whatconstitutes
areasonable profitisaquitedifferent matter.
Inourviewthisisageneralquestion whichconcerns muchmorethanjust
theairtransport industry .
3.Relation todistance
5®i2£in2_veriable_costs todistance
Itisourviewthatitispossibletoestablish arelationship between
distance andvariablecosts,butnotthefixedcostsencountered inall
operations .However,theauthorities mustmonitorthecalculation of
thedifferent factorsveryclosely,ifnoabusesaretobecreated.

ANNEX3.3.
(n)Rationalization throughfifthfreedom"/rights/
Inouropinion,thecostsresulting fromthelackoffifthfreedom
rightsinEurope(h^lf-empty aircraft andwastedenergy)shouldbe
studied.Inthecurrentnon-competitive situation,conceding fifth
freedomrightstoairlines whichalreadyhaveoperating rights,but
withnorighttopickupatstops,couldwellintroduce alittle
morecompetition andrationalization ,withouttherebeinganyrisk
ofcut-throat competition .
4.Linkwiththenumberofpassengers
(i)Ç2EEÊ£Í£Í2Q_2Q_Í£Ê9y£QíiZ_£ã£!]£Il_£hari_f ares
Unabletocompeteonprice,carriers havetriedtocompeteon
serviceand,moreparticularly ,onfrequency .However,competition
onfrequency hasoftenledtoemptyseats,whichincreases thecosts
ofproviding theservice.Operators haveoftentriedto-offerflightsat
aboutthesametime,eliminating thebenefits topassengers ofmoreflights
Whethertheyareaconsequence ofexcessive frequency ofduplication ,
emptyseatsmeanfirstandforemost wastedfuel.
Fi.fth_freedom_r2ght scouldalsoimproveloadfactors
(iii)Load_factor_statisties
TheAssociation ofEuropean Airlines hassuchstatistics .Wewonder
whethertheycouldnotbeusedtoimproveforecasting atCommunity
level.
5.Thewiderangeoftariffs
(i)iQiroduction_of_basic_tariffs
Thefollowing paragraph setsoutoneofourchiefdemands.
Thecurrentsituation regarding therangeoffaresisasfollows.
Theusermuststartwiththefullfare,whichisusuallyhigh;from
thishemusttryanddeductwhathecantogetthebestfarepossible,
andbyhisownefforts,sincenoclearinformation onreductions is
available .Hemustnormallyfulfilcertainconditions ,whichbytheir
verynature,orinaccordance withcommercial practice,oftenhave
nodirectbearing ontheflightcontract,inordertobenefit froma
bargainfare.Wetaketheview,ontheotherhand,that,henceforth ,
thebasicfareshouldbesetoutandmadeknowntothepublic;to
thiswouldthenbeaddedthe"extra"services ,chargedatapercentage
ofthebasicfare.Theextraservices,i.e.overandabovethebasic
fare,wouldinclude,inparticular ,advantages suchasinterchangeabi Iity
withotherflights andeaseofcancelling .
(ii)Simplification andclarity
Simplification andclarityareparticularly important today,forwhat
isemerging inincreasingly asingleairtransport market;thereis
nolongeracleardistinction betweencharterandscheduled flights,
orbetweenbusiness andtouristpassengers .Everything ismingledtoday,
andeveryusertriestogetthebestbargain.

ANNEX}.4.
Hencethegreatneedforinformation inthisjungleofratesand
conditions etc.Someencouragement canbedrawnfromtheairlines'
growingawareness thatitisintheirinteresttoprovidetravel
agencies withbrochures thatareasclearaspossibleifthey
aretoattract customers .Theairlines shouldbemadetodomore
inthisdirection,andtravelagents'helpshouldperhapsbesolicited .
Wesuggestthatthefollowing threecriteria beaddedtothosein
theCommission 'spaper:
1.Airtrafficcontrol
(i)Theproblemofmilitary areas
Inviewoftheenergyproblem,flightsshouldbeas
directaspossible inouropinion,withtheleastdelay
oflandingandtake-off .Wesuggest,inparticular ,that
thequestion ofmilitary areaswhereoverflying isnotallowed
tobestudied.WeregretthattheCouncil,replying to
WrittenQuestion n°499/80byMrMORELAND intheEuropean
Parliament ,shouldhavesaiditdidnotintendtoinclude
thismatteramongitspriorities .
(ii)ThefutureofEurocontrol
WeareallawarethatEurocontrol iscurrently in
abadway.Atapressconference inLuxembourg on
13November,thepublicserviceunionspointedout
that,ifair-traffic control wastoreverttonational
agencies onceEurocontrol ceasedtobeactive,costs
wouldgoupandairfareswouldbeaffected .Wewould
likeair-traffic controltobestudied aswell.
2.Airportandothercosts
WereiizethatlandingandothercostsinEuropearecurrently passed
oninairfares.Toclarifythesituation,wewouldliketoseea
distinction betweentheflightchargeandallairport andother
costs.Oncethisdistinction hasbeenmadeandthevarious costs
analysed,discussions couldbeheldastowhichoftheinfrastructure
andothercostsshouldbebornebytheCommunity andwhichbythe
airtransport usersalone.
3.National prestige policies
Inourview.MemberStatesshouldrethinkthesepolicies andtry
andcostthem.Letusquotejustoneexample.Itappearsthatin
1980therewillbeadeficitof_+eillionforConcordeflights
between LondonandSingapore (source:Interavia "Courrier aerien",
18November ).

BankBrussefLambert
Account310■0106562 •45Building28,P.O.Box36
BrusselsNationalAirport
B-1930Zaventem
Tel.:02/7518075
Telex:24833Association des
Compagnies AériennesdelaCommunauté
Européenne a.i.b.s.
IndependentAirCarriersofthe
EuropeanCommunityANNEX4.1.
J&.*/
Brussels ,24November 1980
ECCommission AirFaresExamination
WithregardtotheCommission 's13OCT80 working document :-
REITEM(3);Wenotewithsomesurprise thatthe"UKCascade Study"
(BA/CAA1976)willbeincluded inthisexamination .Non-scheduled
carriers didnotparticipate inthisstudy.Considering the
preponderance ofnon-scheduled trafficinEuropean airtranspor­
tation,werecommend thatthemethodology andfindings ofthe
Cascade Studybetreatedwithseriousreservations bythe
Commission .
Ontheotherhand,wewouldstrongly recommend theindependent study
"Complementarity orCompetition between Scheduled andNon-Scheduled
AirTransport "madebyITA,theInstitut deTransport AerieninParis.
ThestudycarriestheITAreference 4397/JLL/MV/JUNE1976.
REITEMS (5)&(8):Forfurther adviceconcerning criteria bywhich
toexamineairfares,werecommend thattheCommission seekalsotheadvice
oftouroperators andtheirrespective organisations ,andnotonlythat
oftravelagents.ThelatterwilloffermainlytheviewsofEurope's
scheduled airlines ,whiletouroperators haveconsiderable experience
asregardsbothcharterfaresandscheduled airline group/bulkfares.
Wewouldencourage theCommission tocontacttheI.F.T.O. (International
Federation ofTourOperators )inthisrespect .
REITEM(8):Publicserviceobligation isamuchover-rated excuse
onthepartofEurope'sstate-owned carriers ,andwequestion the
sacrifice andinherent non-profitability itimplies .Wewouldadvise
theCommission toascertain whatroutes andconditions aredeemed
unprofitablebytheairlines underthisreference ,andwhethertheir
respective governments agree.Inouropinion ,boththepublicandthe
airlines wouldbebetterservedifsuchroutesreceived directgovernment
subsidies .Ifthepublicserviceobligation assertion isvalid,the
amountofcross-subsidisation shouldbeanalysed carefully andcompared
withthevalueoftheserviceobligation .
Atthesametime,otheraircarriers shouldbegiventheopportunity
toprovidethesameservicewithalowerdegreeofsubsidisation ,
orindeedwithnosubsidyatall.
Thewholeissuewillbeanimportant one,notonlyinrelation to
existing routesandfares,butalsowhenthetariffs andconditions
oftheCommission 'sproposed inter-regional services comeupfor
evaluation inthenot-too-distant future .

ANNEX 4.2 .
ECCommission Air Fares Examination
Monday ,24November 1980
Page Two
REITEM (10);The role ofair transport inthe Community vis-a-vis
the other modes oftransport .The questions raised here are indeed
comprehensive and complicated ,andweshould like tooffer foryour
consideration some further views .
The amount ofdirect and indirect state subsidies must betaken into
consideration when comparing the various modes oftransportation .For
instance ,trains are subsidised heavily ,whereas private cars are
mostly considered the object oftaxation .Onthe other hand ,the
cost ofinfrastructure ,egroads ,must bededucted inthe same
considerations .
The same applies toairlines .Ingeneral ,airlines more than fully
pay for their own infrastructure ,egairways and airports ,and insome
cases even provide asurplus through airport user-charges ordirect
taxation ofair passengers .Inmost ofthe European Community ,
charter passengers going abroad are made topay acharter tax ,in
places upto1400 Belgian Francs ,that isnot levied onother modes
oftransportation .
Itcan also beargued that the state-owned carriers receive hidden
subsidies byvirtue ofthe monopoly they enjoy inthe marketplace .
REITEMS (11)-(20);Wedorecognise the difficulties involved in
deciding the criteria bywhich toevaluate air fares ,but wewould
submit that the task isnot socomplicated asitmay seem and some
airlines wish tocontend .
The Commission has atits disposal thebest possible "yardstick "
formeasuring fares ,namely the true cost related point -to-point
fare offered inanopen international market bythe Community 's
independent air carriers .This fare allows amodest ,reasonable
return oninvestment toanefficient operator ,and the fare can easily
bechecked from time totime bysoliciting tenders from ACE member -
carriers .
REITEM (12):Areasonable relationship tothe cost ofoperations
isthe primary criterion forevaluating fares ,and should always be
observed bearing inmind the costs ofanefficient carrier .Since
mail and cargo inmost cases can becarried inaddition toanormal
load ofpassengers ,the cost criteria should bebased onnormal-load
passenger flights only ,and the revenues from mail and cargo considered
anadditional contribution .This will make fare comparisons possible
between carriers that carry differing loads ofmail and cargo or
nomail /cargo atall .
Allocation ofcosts toeach single fare type isindeed very cumbersome
and inour opinion notnecessary .Under free market conditions there
would benoneed tocontrol fares ,since competition would ensure that
fares are not toohigh ,andthat excess revenues are not available
for cross-subsidisation .

ANNEX 4.3 .
ECCommission Air Fares Examination
Monday ,24November 1980
Page Three/ÂÏ
Inthe absence offree market conditions inEurope ,thepredominant
on-demand fare type (inEurope normally the economy-class fare )should
belinked closely tothe costs ofanefficient air carrier in
point -to-point terms .
REITEM (13);Wecanonly re-iterate ourview that European
air transportation should bemanaged asanormal "forprofit "
business concern ,with investments obtained through thenormal
free-market financial means .Any aspects ofthe business considered
a"{public service obligation "should beaccounted forseparately
and subsidised separately ifabsolutely necessary .
REITEM (14):Iffares are related topoint -to-point costs ofan
efficient carrier ,asthis Association isrecommending ,they will
automatically become closely related todistance .
REITEM (15);When airtransport operations areproperly adapted
tothe volume oftraffic inamarket ,there isnoreason toexpect
fares tobesignificantly higher than indense-volume markets .Obviously ,
the type and size ofthe aircraft must begauged toachieve asatis­
factory service-frequency while preserving aneconomical load factor .
Under nocircumstances should improper equipment ,egtoo large an
aircraft ,bepermitted tojustify higher fares .
REITEM (16);The aim ofthe existing broad range offares is
naturally toobtain the highest possible load factor and revenue
atagiven level ofproduction byutilising all existing preferences
ofthe public .Since this will also mean the best utilisation of
production factors ,differentiation offares should atleast intheory
produce the lowest costs .
REITEM (17):Complaints byleisure and VFR travellers are quite
understandable ,since the scheduled air fares for this clientele are
laden with restrictions toprevent usage bybusiness travellers ,on
one hand ,andbeefed uptocover privileges the traveller may not
necessarily desire ,such asinterchangeability and the privilege
not toshow upfor aflight without any risk ofpenalty .Charter
fares for this same clientele are similarly burdened with government -
imposed restrictions .
The real victim ,however ,isthe business traveller who isforced
topay whatever fare the airlines may demand ,including subsidies
toleisure travellers .
Weshould perhaps encourage the Commission ,onthis question of
relating fares toservices rendered bythe airline ,todevote time
toconsidering ways inwhich airlines could practically separate
the aspect ofanair ticket from the aspect ofaseat reservation ;
with aview totreating the latter asanon-refundable option .Such
afundamental change tothe basis ofEuropean on-demand air transport
could have profound effects upon theevolution ofEuropean air
transport .

ANNEX 4.4 .
ECCommission Air Fares Examination
Monday ,24November 1980
Page Four
REITEMS (19)&(20):Simplification and differentiation are just
not compatible factors .Again ,the only real solution isincreased
competition ,asthis alone will produce the right combination of
differentiation (ielower prices )and simplification (iethe
public 'sability tocomprehend the various fares and associated
restrictions ).
Inconclusion ,ACE submits that the need forpublic approval and
control ofair fares comes basically asaresult ofthe absence of
competition ,and also asaresult ofnon-adherence tofundamental
principles inthe Treaty ofRome ,iethe right ofestablishment
and the rules ofcompetition .
Noamount ofpublic control will beable tosubstitute for competition ,
and wetherefore suggest that immediate steps betaken toincrease the
scope for competition inair transport serving the European Community .
Whilst the opening upofnew inter-regional air services can become
astep inthe right direction towards more competition ,itcannot in
itself besufficient tosecure areasonable fares structure onall
the important trunk routes .Wetherefore point once again tothe
suggestions contained inour 30NOV79 Opinion ofthe Commission 's
COM(79)311 memorandum .These suggestions were ,asfollows :-
A)"The introduction of'part-scheduled' rights oncharter
flights ,inorder that aportion (eg50% )ofall seats
may besold tothe public without artificial restrictions
astoland arrangements ,length ofstay ,return flight ,etc .
Such rights would only beanatural counterpart tothe 'part -
charter' privileges already enjoyed byscheduled carriers ."
B)"Ageneral liberalisation ofexisting charter regulations to
relax orremove current constraints and restrictions ,such as
the requirements for land packages ,advance purchase ,minimum
stay and group sizes ,and toallow formixing ofvarious charter
types onthe same flight ."
Wetender these suggestions –again–inview ofthe fact that over
half ofEuropean airtraffic ispresently carried inthe charter mode ,
andthat progress towards low-cost European airtransportation has
always originated inthis sector ofthe industry .
Onbehalf oftheAssociation and all itsmember-carriers ,Ishould
like tothank theCommission forthis opportunity toairACEviews
onthis matter .Welook forward toworking closely with
theCommission onthis ,andevery other issue affecting
the future ofEuropean airtransportation .Thank you .
Yours sincerely ,
AVernieuwe ,
Secretary-General .

-1-
ANNEX5.1.
Technical procedures oftheprorating system
Prorating isasystemofsharingtherevenuebetweenairlines
withaninterline agreement ofapassenger whotravels onamultisector
journeywithoneticket.
Twodifferent methodsexistforthecalculation ofthesharethat
eachairlinegetsfromthetotalpriceoftheticket.
FirstthereareratesbasedontheMultilateral Prorate Agreement
(MPA).Themethodiscalled"Straight RateProratio"(SRP).The"SRP*
isbasedontheflightcoupons.Foreachsectorofajourneytheticket
contains aflightcoupon.
Thefirststepistotakethesumofthelocaloneway(normal
economy)faresforeachsector(coupon).
4)Theproratevalueortheshareforeachairlineiscalculated as
follows :
sector A-B=6Cffoof70=42
B-C=6C(foof40=24
C-D=60%of80-48
D-E=6Cffoof60=36
Total 150
Theproratedilutionforeachairlineisinthe"SRPmethodthesame
inthiscase40$.
Thesecondmethodisvirtually thesamebeitthatsomeairlines –
mainlythosewithadomestic network-donotacceptthefulldilution ,
oranydilution fromprorates .Theseairlines havesupplemented demands
called"proviso"or"requirements ".Example
1)Route
LocalonewayfaresA–B–C–D–E
I I I I
70408060Sum=250
2)Supposetotalticketprice(throughfare )=150
3)Theproratefactor=irXrf=60%

ANNEX 5.2 .
Example prorate calculation with proviso /recruirement
Route remains A–B–C–D–E
Suppose theairline operating ortheA–Bsector demands thefull local
fare (70).
1)Through fare was 150
subtract 70
for the other airlines 80
remain
2)Sumoftheremaining local fares
=250-70=180
3)Theprorate factor =– =44.45$
4)Theprorate value fortheremaining airlines is
B–C=44.45$ of40=18
C–D=44.45$ of80=35
D–E=44.45$ of60=27
Sum 80
Theprorate dilution oftheairline serving A-B"0$attheexpense of
theother three airlines whose dilution goes upfrom 40$to55«55$•
Ingeneral prorate dilution increases
-when thenumber offlight coupons increases
-when sectors with "requirements "are included inamulti sector
journey
-when the "through fare "becomes lower incomparison with the
sector fares
-when sectors areincluded with arelatively high level oflocal
fares compared totheother sectors ofthe journey .

ANNEX 6.1 .
"Reverse "Cascade "
Introduction
Thedifference between scheduled andcharter fares largely reflects therelatively
higher costs ofscheduled operators .However ,higher costs donotnecessarily
imply that scheduled operators areless efficient ,since like must truly becompared
with like .Itisnecessary toallow forthecost implications ofintrinsic
differenees between thescheduled andcharter modes before drawing anyconclusions
about comparative efficiency .
Themain objective ofthestudy which isdescribed inthis paper was todetermine
just howlarge adifferential between charter andscheduled costs might reasonably
beexpected intheabsence ofanyefficiency differences .Incommon with earlier
similar studies ,thebasic method ofapproach was toidentify those product
features which were exclusive toeach mode and toassess their cost implications .
There isanimportant difference however between this andprevious Etuaies .This
study considered thecosts which acharter airline would incur ifitwere tooffer
ascheduled-quaiity product .Previous studies considered thecosts which a
scheduled airline would incur ifproviding acharter-quality product .Consequently
theresults ofthis study arenotonly valuable inthemselves butalso forcontrasting
with those ofearlier studies .
Data Base andMethodology
TheUKcharter airlin «towhich this study relates provided afairly detailed
breakdown ofthecosts foraround-trip operation topopular Mediterranean
destinations inMarch 1978 -*
Themethodology adopted wasbroadly thesame asthat used intheearlier studies
andexemplified bythejoint British Airways /Civil Aviation Authority "Cascade "
studies .However ,unlike theearlier "Cascade "type studies this study defined
charter rather than scheduled cost perpassenger asitsindex base ;andinstead
ofcascading down tothecharter product cascaded uptothescheduled product cost :
hence "Reverse Cascade ".
Thecharter route costing data wasUGed toderive acharter cost perpassenger
reflecting anassumed seat factor of853».Systematic adjustments were then made
toappropriate elements ofthis cost inorder toallow forintrinsic differences
between thecharter andscheduled modes .Each ofthese adjustments wasrepresented
asaseparate step 'inthe "Iieverse Cascade ".These adjustments eredescribed in
the following section .
Certain technical aspects ofthecascade approach areworthwhile mentioning at
this point .Firstly ,although this approach involves examining theimplications
ofspecific modal differences foreach .cost area separately and thecost areas are
fairly narrowly defined ,itisnotalways possible tobeprecise about theextent
towhich certain cost areas need bobeadjusted toreflect amodal difference ..
Secondly ,each step inthecascade represents thecumulative effect ofallthose
modal differences uptoandincluding that being considered .Consequently ,itis
preferable forthosa adjustments which involve making possibly arbitrary assumptions
about certain costs tooccur inthelatter part ofthecascade .Thirdly ,itfollows
that adifference intheordering oftheadjustments maywell produce aslight
variation inthe cascade indices .Another consideration isvariations associated
with rounding .

ANNEX 6.2 .
The Modal Adjustments
Asalready stated ,theindex base for "Reverse Cascade "wasdefined asthecharter
cost perpassenger relating toapopular DK-Mediterranean route andanassumed
seat factor of85%•Theadjustments contained intheearlier British Airways' /
Civil Aviation Authority "Cascade "studies were recognised asbeing acomprehensive
andlogical classification ofallpossible scheduled /charter modal differences .
Accordingly ,the "Cascade "adjustments were considered andadopted where appropriate
in"Reverse Cascade ". Itwill benoted however that theordering oftheadjustments
was altered slightly sothat themore controversial adjustments were placed towards
thelatter part ofthecascade .The "Reverse Cascade "adjustment steps are
described below .
Step 1Not Applicable
This adjustment relates totwoaain areas :sales ,reservations andadvertising
costs ;cargo revenue andbarprofit .
Anestimate oftheadditional costs which thecharter airline might expect to
incur ifitretailed scheduled airline tickets was obtained onthe basis ofadvice
from other bodies within theindustry with direct experience ofperforming similar
functions .Thesales ,reservations andadvertising element comprised byfarthe
greatest part ofthe "Notapplicable "adjustment .
Thecargo revenue andbarprofit element wasincluded toreflect theneteffect
ofthefreight-carrying capability which isexclusive tothescheduled mode andthe
relatively higher level ofon-board sales typical ofcharter services .The
cost implications ofthese twoopposing influences wascalculated asasmall
increase incharter costs .That is,thelower (iescheduled mode )level ofbar
profits wasnotexpected tooutweigh thecargo revenue which might beexpected to
accrue ifrevenue freight traffic was allowed onacharter service .
Step 2Standards
This adjustment wasintended toreflect theadditional costs involved inupgrading
charter handling andin-flight services toscheduled quality .Theadditional
handling costs were obtained from quotations bycompanies already providing handling
services forscheduled airlines attheairports ateither endofthe "Reverse
Cascade "route .
I
Thecosts involved inimproving meal standards andcustomer services ingeneral
(egtoys forchildren ,in-flight reading material ,training cabin crew intheuse
ofABCAirways guides etc )were estimated bythecharter airline itself .
Step 3Utilization
This wasrecognised asbeing oneofthemost controversial step3 inthecascade .
Intheearlier "Cascade "studies itwas assumed that thelevel ofutilisation
achieved byairlines operating charter services waslikely tobesome 23%higher
than that achieved byairlines operating scheduled services andthat thecost areas

ANNEX 6.3 .
most likely tobeaffected would beaircraft depreciation and fixed crew costs .
The effect ofareduced level ofutilisation was also calculated onthe basis of
a253*modal difference for "Reverse Cascade ".However ,whereas inthe "Cascade "
studies aircraft depreciation andfixed crew costs were considered theonly items
affected bythis adjustment ,in"Reverse Cascade "itwasalso considered appropriate
toadjust fortheeffect upon interest charges ,andadministration andoperations
support costs .
Utilisation andaverage stage length areundoubtedly interrelated .However ,although
longer stage lengths almost invariably permit higher utilisation ,itisbynomeans
clear that utilisation must inevitably belower for thescheduled mode .Itwas
decided therefore toexplore this aspect inmore detail .
Thelink between average stage length andaircraft utilisation hasbeen formally
expressed invarious studies ofairline cost .Cost models developed byHawker
Siddeley and theGroup ofSixeach include aformula expressing annual aircraft
utilisation asafunction ofblock time .These formulae were used toderive
"predicted "levels ofaircraft utilisation forasample ofUKscheduled andcharter
airlines based onaverage block time data for1977 »Although the twoformulae
gave slightly different results foreach oftheairlines involved ,both formulae
showed avariation ofsome 12percent between theannual utilisation "predicted "
forBritish Airways' short-haul international scheduled operations andthat "predicted "
forthe "Reverse Cascade "airline 'scharter operations .This finding obviously
raised doubts about thevalidity ofthe25percent variation assumed inthe "Cascade "
studies ."Predicted "utilisation levels were then compared with those actually
achieved byeach ofthesample airlines .Thedifferences between actual and
predicted values suggested that charter airlines obtain more utilisation than can
beexplained bytheir longer average stage lengths .These findings could only
confirm thedifficulty ofreaching firm conclusions inthis area .Itwasdecided
therefore toinvestigate just howsensitive the "Reverse Cascade "indices were to
changes intheutilisation assumption .Thetwoalternative utilisation assumptions
adopted forthis purpose were firstly ,the25percent charter /scheduled differential
previously referred to;and ,secondly anassumption ofnomodal difference in
utilisation .
Step kSeat Factor
Thecharter cost perpassenger index base relates toano5%seat factor .The
purpose ofthis adjustment step was toallow fortherelatively lower seat factors
generally achieved onscheduled services .Incommon with theearlier studies ,
this study assumed ascheduled mode seat factor of55percent .
Thecost areas considered likely tobeaffected bytheseat factor adjustment
were flight-related direct operating costs andfixed costs .Accordingly ,allcosts
other than those which were identified asbeing purely passenger-related had to
bespread over fewer passengers .This cost-increasing effect wasonly slightly
offset bytheestimated saving infuel resulting from theimplied payload reduction .

ANNEX 6.4 .
Step 5Seating Density
Theaircraft used bythe"Reverse Cascade "airline were in30"seat pitch configura­
tion .Ascheduled standard seat pitch of34"wasassumed inorder tomake the
seating density adjustment .Thecost areas affected were thesame asthose
described inStep 4above .
Step 6Peak/Trough Ratio
This adjustment wasincluded inthe"Cascade "studies onthegrounds that ,because
scheduled operators areless "peaky "than charter operators ,charter operators
areatacomparative disadvantage inhaving fewer units ofoutput over which to
spread certain fixed costs .
Thepeak/trough ratio adjustment wasoneofthemost controversial .Itwas
noted that this factor might have already been accounted forintheutilisation
adjustment .Itwasalso noted that therespective timings andpeak days ofthe
services operated bythe twotypes ofoperator would determine thesize ofany
peak/trough adjustment which wasindeed considered necessary .Inaddition ,itwas
recognised that charter operators were probably more able tohire temporary staff ,
schedule major engineering work andstaff holidays away from -thepeak andlease
out spare aircraft inthewinter .Thecontroversial nature ofthis adjustment
indicated that itshould beleft until towards theendofthecascade .Furthermore ,
because thecost implications ofanypeak/trough differences aresodifficult
toquantify ,itwasdecided toshow theeffect oftwoalternative peak/trough
ratio assumptions .Itwas assumed firstly ,that charter costs should bereduced
by(apurely notional )£3perpassenger ,andsecondly ,that nopeak/trough ratio
adjustment wasnecessary .
Step 7Commission
Commission costs arespecific tothescheduled mode .Thenormal commission rate
inMarch 1978 was8percent .The"Reverse Cascade "commission cost adjustment was
calculated bytaking 8percent ofthetotal charter costs perpassenger after
adjusting forSteps 1to6(inclusive ).
The Results
The "Reverse Cascade "indices areshown inTable 1below .Those incolumn Irelate
tothe25percent utilisation adjustment discussed under Step 3sndthenotional
peak/trough allowance discussed under Step 6.Those incolumn IIshow theeffect
ofomitting both theutilisation andthepeak/trough ratio adjustments altogether .
Table 1"Reverse Cascade "
Column I Colunrn II
Charter cost perpax 100 100
1Notapplicable
2Standards
3Utilisation
4Seat Factor118
133
141
191118
133
133
178

ANNEX6.5.
Table 1"Reverse Cascade"contin.
5SeatingDensity
6Peak/TroughBatio
7Commission
DerivedSsfeeduled costperpaxColumnI ColunnII
211
203
219197
197
214
219 214
Thedifference betweenthecharter andderivedscheduled costindicesimplies
that,evenassuming noefficiency differences betweenthetwomodes,onemight
expectto-'findscheduled costs(andtherefore fares)some110to120percent
higherthanchartercostseirenonthesameroute."ReverseCascade"alsodemonstrates
thatbyfarthemostimportant singleadjustment isthatrelating tomodal
differences inseatfactor.Thisadjustment aloneprobably accountsforsome40
percentofthetotalscheduled/chartercostdifference .
Comparison withOtherStudies
Theonlyotherstudywithwhichitisatallpossible toconpare"ReverseCascade"
istheRouteC"Cascade"studycontained intheCivilAviation Authority'sEuropean
AirFaresdocument (CAP409).Itmustbe:'emphasised howeverthatthetwostudies
arenotstrictly comparable .Indeed,itwasfirstnecessary torecalculate the
RouteCdatatoreflecttheordering ofthe"ReverseCascade"adjustments andto
omittheadjustment relatingtoFirstClassfacilities onthescheduled mode(ie
theTouristClassadjustment inthe"Cascade"studies).Forthisandtechnical
reasonsofthekindmentioned earlier,thisimpliesthattherevisedindices may
notbeentirely compatible withthoseintheoriginal "Cascade".Furthermore ,the
basedataforthesetwostudiesreflectcostsatdifferent periodsintime;the
routesareverysimilarbutnotidentical ;andtherearecertaindifferences between
thetwocostbreakdowns .Nevertheless ,itisusefultoshowtherevised"Cascade"
and"ReverseCascade"indicestogether whenattempting todrawsomebroadinferences
abouttheprincipal sourcesofscheduled/chartercostdifferences .Thetwosetsof
indices shownbelowbothincludetheeffectofa25percentutilisation difference
andanallowance forapeak/troughratiodifference .

ANNEX6.6.
Table2"Cascade"and"Reverse Cascade"
"Reverse Cascade""Revised )"Cascade"
RouteC
Chartercostperpax(actual)
(derived)^5 36
ko
1NotApplicable ^5 bo
2Standards 53 55
3Utilisation 60 6*f
kSeatFactor 6*t 66
5SeatingDensity 85 92
6Peak/TroughRatio 96 97
7Commission 92 91
Scheduled costperpax(actual) 100
(derived) 100
Both"Cascade"and"ReverseCascade"indicatethatthereislikelytobeavery
substantial variation betweenscheduled andchartercosts,evenignoring any
efficiency differences thatmightexist.Thevariation indicated by"Reverse
Cascade"is,however,somewhat smallerthanthatindicated by"Cascade".The
mostsignificant singleadjustment inbothstudiesisthatforseatfactor
differences betweenthetwomodes:22percentage pointsin"ReverseCascade"
and26percentage pointsin"Cascade".
Themoststriking difference betweenthetwostudiesistheimportance whichis
attached tothosefactorsincludedinthe"NotApplicable "adjustment step.An
adjustment of15percentage pointsisshownin"Cascade"incontrasttothe8
percentage pointdifference shownin"ReverseCascade".Theunderlying costdata
wereexamined anditwasfoundthatthisdifference couldbelargelyexplained
bytwofactors.1'irstly,the"ReverseCascade"charterairline'sestimates ofwhat
itwouldcosttoretailthescheduled productwereconsiderably lowerthanthose
actually incurred bythe"Cascade"andotherscheduled airlines.Nevertheless
thecharterairline'sestimates wereaccepted asbeingconvincing .Thisraises
thequestionofwhetherthefairlyhighsalescostsincurred bymostEuropean
scheduled operators reallyareattributable tomethodsofsellingthatareindeed
intrinsic tothescheduled mode.Theotherfactorwhichaccountsforthelarger
'NotApplicable *adjustment shownin"Cascade"wastheinclusion ofanotional
allowance forthecostinrolications ofanyaircraft equipment differences which
^ightexistbetweenscheduled andcharteroperations . . .

ANNEX 7.1
GLOSSARY OFTERMS
Advance purchase excursion
(APEX )Adiscount fare onscheduled services for
which purchase isrequired byaspecified
time inadvance ofdeparture .Thefare may -
contain other special conditions .
AEA Association ofEuropean Airlines
AEA Member Airlines Aer Lingus ,AirPrance ,Alitalia ,Austrian
Airlines ,British Airways ,British Caledonion ,
Finnair ,Iberia ,Icelandair ,Yuloslav Airlines ,
KLM ,Lufthansa ,Olympic Airways ,Sabena ,SAS ,
Swissair ,TAP ,Turkish Airlines ,UTA .
Available seat-kilometres Aseat-kilometre isavailable when anaircraft
seat isflown one kilometre .Available seat-
kilometres may becalculated bymultiplying
thenumber ofseats available for sale onagiven
flight bythestage distance .
Available tonne-kilometres Ametric tonne ofavailable payload space flown
onekilometre .Itiscalculated bymultiplying
the number oftonnes available for the
carriage ofrevenue load (passenger ,cargo and
mail )ontheflight bythestage distance .
Average revenue yield See "Yield ".
Common ratmg Isthe fact that the same fare applies from
oneorigin point toseveral adjacent desti­
nation points .
Discount fares Anyfare other than normal fare .
Dilution (yield -) Thedifference between apoint -to-point
-sector -fare and the actual revenue earned
perpassenger travelling atthat fare type .
Direct route Means theshortest all-year route operated
inboth directions between only twopoints .

ANNEX 7.2 .
Extra mileages Thefare paid forajourney onadirect route
usually includes anallowance formileages in
excess tothedirect route distance (15fo)which
enables thepassenger inmany cases also touse
anindirect route with alonger distance .
Fare Theprice tobepaid for thecarriage ofpassengers
andbaggage and theconditions under which those
prices apply .
Fare construction unit
(FCU)Aunit ofaccount used for fare construction and
calculation purposes ,based onthepre-1972 value
ofthe USdollar .
Inclusive tour (IT) Ascheduled fare available forconstructing
package tours which include accommodation etc .
Interline passenger Apassenger using athrough fare forajourney
involving twoormore separate flights and two
ormore carriers .
IATA International AirTransport Association .
ICAO International Civil Aviation Organisation .
Indirect route Means anyscheduled continuous air route other
than the direct route .
Load factor Inthis report itissynonymous torevenue
passenger load factor ,which isthepercentage
ofseating capacity which isactually sold and
utilised .Itiscomputed bydividing revenue
passenger-kilometres flown byavailable seat-
kilometres flown onpassenger service .
Local Europe Operations Include allinternational routes originating and
terminating within theregion comprising geographical -
Europe (including Iceland andUSSR tolongitude
55°E ),Algeria ,Azores ,Canary Islands ,Madeira ,
Marocco ,Tunesia andTurkey .
Multi sector journey Ajourney including more than onesector not
being areturn trip onone route .

ANNEX7.3.
Netpassenger cost Isthetotaloperating costsforthescheduled
passenger services lesstherevenuereceived for
thecarriage offreightandmailonthoseservices ,
NormalfareThefullfareestablished forafirstortourist/
economyclassservice .
Operating ratio Istherelationship betweenoperating revenues and
operating expenses ,computed bydividingoperating
revenues byoperating expenses (including financial
charges).
Peak/troughratio Ameasure oftheseasonal variation ofservices
operated byaircarriers .
Pro-rate Seeannex5•
Refund Repayment tothepurchaser ofalloraportionof
afare,rateofchargeforunusedcarriage .
Revenuepassenger Load
factorThepercentage ofseatingcapacity whichisactually
soldandutilised .Computed bydividing revenue
passenger-kilometres flownbyavailable seat-
kilometres flownonrevenuepassenger services .
Revenuepassenger -PAXAllpassengers counted onapoint-to-pointbasis,
ascarriedat25f°ormoreofthenormalapplicable
fareforthejourney.
Route Scheduled serviceprovided byanairlinebetween
twoormorecitieswiththesameflight.
Sales,Commission Ispaidbytheairlines forthesaleofair
transportation documents totheagents(travel
agentsorotheraircarriers).
Seatfactor See"Loadfactor".
Seatingdensity Atermindicating thestandard ofseating onan
aircraft .Itisnormally measured bythedistance
betweenrowsofseats,andthenumberandsizeof
seatsinarow.

ANNEX 7.4 .
Sector Taken tobesynonymous with "stage flight ",i.e.
from take-off tothe subsequent revenue landing .
Scheduled services Scheduled flights performed according toapublished
timetable ,orsoregular orfrequent astoconstitute
arecognisably systematic series which areopen to
usebythepublic onanindividually ticketed basis 5
extra flights occasioned byoverflow traffic from the
scheduled flights andpreparatory revenue flights on
planned air services .
Stage Anaircraft journey between atake-off and the
subsequent revenue landing .
Stage distance Istheairport -to-airport great circle distance ,
Station costs Thecost ofmaintaining staff andfacilities at
airports forhandling passengers andaircraft .
Stopover Equivalent totheterm "break ofjourney ".A
deliberate interruption ofajourney bythe
passenger ,agreed toinadvance bythecarrier ,
atapoint between theplace ofdeparture and the
place ofdestination .
Tariff Inthis report synonymous tofare .
Through fare (or
route )Thetotal fare (orroute )from point ofdeparture
topoint ofdestination .
Ticketing Issuing anairtransportation document .
Yield (passenger ) Thepassenger yield isthetotal revenue received
forthecarriage ofpassengers divided either by
thetotal number ofrevenue passengers carried or
revenue passenger-kilometres flown .

ANNEX8.1.
BRUSSELS -ATHENSreturnfares
Thefollowing returnfarestructure withassociated conditions applied1.1.19"!
Notethefirstclassandeconomyfaresarealsoavailable onsingletripfares
athalfthequotedprioe.•
Rule/Conditions
BFR Periodofapplication Max.val.
1)Firstclass 36.660
2)Normaleconomyfare27.140
3)Publicexcursion fare17.650
4)Apexfare(summer)12.900
(winter)10.870625001APR-31MAR 1month
Returntransportation fromthepointofturnaround shallnotbtcommenced
priorto0001hontheSundayfollowingthad«vofoutwardtravelAdvertiemo
and«aim-►«.)!«l»obepemmted intherountiyofpointolturnaround
796701APR-30SEP 2montha
(a)ReturniinnsfKMtationfromthepointofturnaround aheMnotbec<Kfi*
munc.edpriorto(K'01honSundayfollowing thed#yofoutwardtravel.
(hiThisfar--isonlyavailable forroundtriptravelandstopovers arepio-
hibited .
(clRes««»vHtions tortheentirejourney ,ticketissueandfullpaymentof
faremustbomadeatthesametimeandnotlessthan21dayspriortocom­
mencement oftravelPTAtransactions arenotpermitted Allreservation
requestsmustbecloarlyidentified asAPEX'.
<dlVoluntary «hanqesnotporrrttedandallcouponsoftheticketmustbe
clearlyendofvd APIXsmdnervations maynotbechanged
(elRotund -,u»tpiMi^niti'dexceptthatbO"A,oftheticketvaluemaybeal
lowedforcHnccllHtions madeupto21daysbeforethedateofcommencement
oftravel .
(f)Combination withanyotherfares/add-onsprohibited exceptfull
domestic fares.
(g>Infantsandchildren'sdiscounts permitted .Allotherdiscounts prohib­
ited.
(hiNotwithstanding anyotherResolution ,thisfareshellnotbeusedto
establishtheminimumtourpriceforar\inclusivetourandfurthermore thisfare
(andfaresconstructed therefrom )shallnotbeusedasacontrolprice'forfly/
drivepackages
li)f-h.iMstobedesignated forthufarewillbedetermined inadvanceof
eachfarepenod
(|)Themaximumnumberofpassengers tobecarrierbyeachcarrierahall
notexceed30passengers perflight
(k)Advertising andsatesonlypermitted incountryoforigin.
796801OCT-31MAR
Sameconditions asNote7987.2montfce
5)Groupinolusive tour8.2407340
FromAMS 101APR-15MAY
01OCT-31MAR
<>f0pnit <.itton:14deva
01APR-1«>MAY
01OCT-31OCT
Onfyapplicable toITgroupsofnotlessthan10adultpassengers ,exceptt^at
fromPARth#»group-.1/0snailbe12adultpassengers FortravelAMS-ATH­
AMSand6MU-ATM-13^L'returntravelispermitted msubtoups xtnot'esw
than5adultpassenpr'sReturntransportation fromthepo-ntoftu''-I'ound
Shallnotbecommented priorto0001honthoSun«i;ty !<»;■.w"»ith.-j,t>of
Outwardtravel .Stopovers prohibited exceptthat0««* p«ttr-»1.*tthe
firstpointolarrivalinGme-eTheminimum tourpruebetheITt»avo;i
fareplusUKl3perdayforth*totaldurationofthejourt•ybutmnoeventt*e
totalpneeshillb«;lessth*r>theITbasingfareplusUKL1'jAdvertising d'>d
salesincludingissuance ofMCOorPTA.arealsopermitted inthecountryof
turnaround .
Unlessotherwise specified intherespective specialfarerules(i.e.rules
nrs.5256/7987/7988ani7340),on thesedifferent faresthefollowing
discounts areavailable :

ANNEX8.2.
I.Onthebasisofallfares
a)Infanta/childrenfares
Infants (0-2years)lO$ ofapplicable adultfare.
Children (2-12years)50$ofapplicable adultfare.
b)Tt/nrconductor tickets
Thefollowingconcession *sreavailablefortourconductor *worldwide onIATA
Carriers :
Foragroupconsisting of thefollowingnumberof
additional tourconductor ticketsmay
beissued
10-14adultfarepeyingpassengera
15-24adultfarepaytngpassengera
25-29adultfarepaymgpassengera
30-39adultfarepayingpassengera
40-44adultfarepaymgpassengera
45-54adultferepayingpassengers thre<
55-59adultfsrepayingpassenger *thre<
ticki
60-69adultfar«payingpassengers four
etc.(thetourconductor rebateitcumu *.-
lative).
Theminimum numberofpassengers inrelationtothegrantedconcession mutt
bereachedovertheentiretripofthetourconductor ,i.e.notonlyoverthepor­
tiontravelled incommon .
Innocaseshallatourconductor'a freeorreducedrateticketissuedbysnIATA
Carriertoatourconductor ,be.soldtothetourconductor ,directlyorindirectly *
atmorethsnitsfscevslue.norshsllsuchticketberesold.9
Applicable FaresandCombinations
Thefarepaidbythepsssengera maybeanyfullapplicable normalorapecial
adultfare(including ITfare),butnotafareonwhichanagent'a.emigrant's,
studentsorgrouptravelreduction hasbeengranted ,exceptwhenspecifically
allowedmthegrouptravelregulations .Twochildrenforeachofwhomahalf
fareispaidcountasonepassenger forthepurposeofcomputing thenumber
ofpassengers inthegroup.
Thetourconductor reduction of50%maybeappliedonanyapplicable normal
orapecialfare(including ITfare)iftheappropriate conditions arefulfilled ,ex­
ceptaamaybeotherwise provided in(heappropriate specialfarecondition *.
foicumulation withotherreductions ,seediscounts concerned .onehalffareticket (50*/.reduction )
onefreeticket (100*/.reduction )
onefreeticketandonehalffaretick**
twofreeticketa
twotreeticketaandon*halffar*
ticket
threefreeticketa
threefreeticketaandon*helffar*
ticket
fourfreatickets
II.Onthebasisofnormaleconomyandpublioexcursion faresarealBoavailable
o)Youthfares
Age12-22forallyouth,
Over22-26forfulltimestudents
Adiscount of
- 25V#oftheapplicablenormalV-clsssone-wayroundorcircletrip
faremaybegranted .
•25°/coftheapplicableindividualpublicexcursionferemaybegrant*
ed;provided that
<>)suchdiscounted fareshallinnoeventbelessthanth«ap­plicablenormalY-classone-wayfare.
■"conditions oftheindividual publicexcursion far*ahaNbecomplied with.
<nthecaseofcircletripsth*youthfar*ahallnotbeleaa
thanth*highestnormalY-classdirectone-wayfar*applicabl*from
pointoforigintoanyenrout*point
Thesediscounts arebasedonthegeneralIATArules.

ANNEX 8.3 .
III .Onthebasis ofonly normal economy fares
d)Student fares
Age12-30forfull time students .Afare applies of45%of
normal economy onewayforasingle trip and9<jfoofonewaynormal
economy forareturn trip .This fare isbased onthecarriers'
special regulations andgives abetter bargain than theunder c)
mentioned fares for students .
e)Reduced fares forGreek workers
45%ofnormal economy onewayforoneway ,
90'foofnormal economy onewayforreturn .
f)Seamen 'sreductions based ongovernment order fares
Within Europe 4Ofoofonewaynormal economy foraonewayjourney .
g)School party groups
Groups oftenchildren forareturn trip 85$ofonewaynormal
economy andforaonewaytrip 42,5i°ofonewaynormal economy .
IV.Onthebasis ofnormal economy and first class
h)Spouse fares
5<y/oofthefull round trip fare forthespouse accompanying wife
orhusband (maximum ticket validity shall be5days ).
This annex only reflects themajor topics ofthedifferent fares and
discounts .Alarge number ofmore general rules onforinstance
interlining ,construction with other fare types ,advertising ,etc .
exist which areallpublished under general rules intheAirPassenger
Traffic guide (APT).