COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on safeguarding competition in air transport, repealing Regulation (EC) N° 868/2004
Date: 2017-06-08
Institutions: Directorate-General for Mobility and Transport, European Commission
Subjects: agreement (EU), air transport, carriage of passengers, competition policy, control of restrictive practices, equal treatment, international agreement, restriction on competition, third country

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   EUROPEAN COMMISSION  Brussels, 8.6.2017  SWD(2017) 182 final   COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT  Accompanying the document proposal for a  REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on safeguarding competition in air transport, repealing Regulation (EC) N° 868/2004 {COM(2017) 289 final} {SWD(2017) 183 final}  
 
 
Table of Content 

1. 

1.1. 

1.2. 

General context ............................................................................................................ 7 

EU aviation sector today .............................................................................................. 7 

Legal context ................................................................................................................ 7 

1.2.1.  Regulation of international air transport ...................................................................... 7 

1.2.2. 

Internal EU air transport market .................................................................................. 8 

1.2.3.  External dimension..................................................................................................... 10 

1.3. 

1.4. 

2. 

2.1. 

Economic context ....................................................................................................... 11 

Political context .......................................................................................................... 13 

Problem definition ...................................................................................................... 14 

Description of the main problem ................................................................................ 14 

2.1.1.  Competitive position of EU aviation globally ........................................................... 14 

2.1.2.  Competitive advantages of third country carriers ...................................................... 15 

2.1.3.  Competitive disadvantages of EU carriers ................................................................. 18 

2.1.4.  Concerns about the existence of subsidies and other practices seen as distorting 

competition to the detriment of EU carriers ............................................................... 21 

2.1.5.  Allegations regarding subsidies and other practices seen as distorting competition to 

the detriment of EU carriers ....................................................................................... 24 

2.1.6. 

Impact of the alleged practices on EU air transport market ....................................... 29 

2.1.7.  Legal instruments for protection of competition in other sectors and countries ........ 31 

2.1.8. 

Ineffectiveness of Regulation 868/2004 ..................................................................... 34 

2.2. 

Underlying drivers of the problem ............................................................................. 36 

2.2.1.  Lack of proper mechanism for protection of fair competition in international aviation
 .................................................................................................................................... 37 

2.2.1.1.  Non-existence of international global trade agreements applicable to the international 
air transport services sector ........................................................................................ 37 

2.2.1.2.  ICAO rules do not currently address the issue of fair competition in the international 
air transport sector ...................................................................................................... 38 

2.2.1.3.  Bilateral Air Service Agreements between EU Member States and third countries do 
not effectively guarantee protection for EU air carriers against unfair practices ...... 41 

2.2.1.4.  Lack of access to information about the support received and financial accounts of 

third countries air carriers .......................................................................................... 42 

2.3. 

3. 

3.1. 

3.2. 

3.3. 

Does the EU have the right to act? Legal basis and subsidiarity ............................... 43 

Objectives ................................................................................................................... 44 

Policy options ............................................................................................................. 45 

Baseline scenario (how would the problem evolve, all things being equal) .............. 45 

Discarded policy options ............................................................................................ 48 

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3.3.1. 

Improved functioning of the current Regulation  (EC) No 868/2004 through a limited 
revision and the adoption of interpretative guidelines .............................................. 48 

3.4. 

Considered policy options .......................................................................................... 49 

3.4.1.  Policy option A: Baseline scenario ............................................................................ 49 

3.4.2.  Policy option B: Increased international efforts at WTO and ICAO level aimed at the 
adoption of a multilateral legal framework for fair competition in aviation and 
inclusion of expanded fair competition clauses in ASA ensuring protection for EU air 
carriers against unfair practices (non-regulatory option)......................................... 49 

3.4.3.  Policy option C: Major changes to the regime contained in Regulation 868/2004 
which would be repealed and replaced by a new comprehensive and effective EU 
legal instrument (regulatory option) .......................................................................... 52 

3.4.4.  Policy option D: Adoption of a new comprehensive EU legal instrument combined 

with increased efforts on the international scene and work on enhancing ASAs 
through inclusion of fair competition clauses ............................................................ 55 

3.4.5. 

Summary of all considered options ............................................................................ 57 

4. 

4.1. 

Analysis of impacts .................................................................................................... 58 

Economic impacts ...................................................................................................... 58 

4.1.1.  Functioning of the internal market and competition.................................................. 58 

4.1.2.  Competitiveness, trade and investment flows............................................................. 61 

4.1.3. 

Small and Medium Enterprises (SMEs) ..................................................................... 63 

4.1.4.  Cost of implementation .............................................................................................. 63 

4.1.5.  Consumers and households ........................................................................................ 65 

4.2. 

4.3. 

5. 

5.1. 

5.2. 

5.3. 

5.4. 

5.5. 

6. 

Social impacts ............................................................................................................ 66 

Environmental impacts............................................................................................... 66 

Comparing the options ............................................................................................... 68 

Effectiveness .............................................................................................................. 68 

Efficiency ................................................................................................................... 69 

Coherence ................................................................................................................... 69 

Proportionality............................................................................................................ 70 

Conclusion.................................................................................................................. 70 

Monitoring and evaluation ......................................................................................... 70 

Annex A – Procedural information and summary of amendments .......................................... 72 

Annex B – Stakeholder consultation ........................................................................................ 79 

Annex C – Affected parties and key interests .......................................................................... 99 

Annex D – Environmental impacts ........................................................................................ 100 

Annex E – Market trends in Europe and other regions .......................................................... 102 

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ABBREVIATIONS 

ASA  

ASK  

ATM    

ATC  

CAGR  

CRS  

CAA    

DOT 

EEA 

ETS 

GATT  

GATS   

IATA   

Air Services Agreement 

Available Seat Kilometre 

Air Traffic Management 

Air Traffic Control 

Compound Aggregated Growth Rate 

Computer Reservation System 

Common Aviation Area  

(US) Department of Transportation 

European Economic Area 

Emission Trading Scheme 

General Agreement on Tariffs and Trade  

General Agreement on Trade in Services 

International Air Transport Association 

IATFCPA  

International Air Transportation Fair Competitive Practices Act 

ICAO   

JC 

MFN    

MoU 

NT  

RPK  

SARPS  

TBR 

WTO    

International Civil Aviation Organisation 

Joint Committee 

Most Favoured Nation 

Memorandum of Understanding 

National Treatment 

Revenue Passenger Kilometre 

Standards or Recommend Practices  

Trade Barriers Regulation 

World Trade Organisation 

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GLOSSARY OF TERMS 

Air Service   

 Any  scheduled  air  service  performed  by  aircraft  for  the  public 
transport of passengers, mail or cargo (Article 96 of the Chicago 
Convention) 

Air Services Agreement  

A  treaty  containing  a  bilaterally  agreed  legal  framework  upon 
which scheduled air services operate 

Air carrier capacity 

Quantitative measure of air transport services offered by one or 
more  air  carriers  in  a  city  or  country  pair  market  over  a  route 
which  may  be  expressed  in  terms  of  aircraft  size,  aircraft  type, 
number of seats or frequency of operations 

Available Seat Kilometres  A  measure  of  capacity  available  calculated  by  multiplying  the 
number  of  seats  available  on  a  flight  leg  by  the  number  of 
kilometres flown during that flight leg (i.e. segment of a flight) 

Designation 

Fair competition clause 

Freedoms of the air 

Hub and spoke 

Operating Licence 

Revenue Passenger Km 

Slot 

Tariff 

Traffic right 

 Nomination  by  a  state  of  the  airline  or  airlines  to  operate 
particular routes 

Article in bilateral/comprehensive air services agreement laying 
down  agreed  principles  and/or  specific  provision  governing 
competition  in  the  provision  of  air  services  by  the  parties' 
designated airlines 

Traffic rights granting an airline of one country the privilege to 
enter  another  country's  airspace  and  land  in  its  territory.  There 
are, in total, nine freedoms of the air (see the box on next page) 

Airline network concept whereby small aircraft carry passengers 
between small airports (feeders) and main airports (hubs). From 
there  passengers  connect  to  large  aircraft  to  fly  longer  part  of 
their journey  

 Authorisation  granted  by  the  competent  licencing  authority  to 
an undertaking, permitting it to provide air services as stated in 
the operating licence 

A measure of passenger traffic that is calculated by multiplying 
the  number  of  paying  number  of  paying  passengers  by  the 
number of kilometres flown during a flight leg (i.e. segment of a 
flight)  

A particular time allocated to an airline to land or take-off from 
a particular airport 

The price charged for the public transport of passenger, baggage 
and  cargo  on  scheduled  air  services  including  the  conditions 
governing  the  availability  or  application  of  such  price  and  the 
charges and conditions for services ancillary to such transport 

 Market  access  right  expressed  as  an  agreed  physical  and/or 
geographic specification of whom and what may be transported 
over an authorised route in the aircraft authorised 

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Freedoms of the air 

The  first  freedom  of  the  air  is,  according  to  ICAO,  'the  right  or  privilege,  in  respect  of 
scheduled international  air  services,  granted  by  one  State  to  another  State  or  States  to  fly 
across its territory without landing'. 

The second freedom refers to the right or privilege granted by one state to another state or 
states to land in its territory for technical and maintenance purposes, without picking up or 
dropping off any passengers. 

The  third  freedom  is  the  right  or  privilege,  granted  by  one  state  to  another  state  'to  put 
down, in the territory of the first State, traffic coming from the home State of the carrier'. 

The fourth freedom is the right or privilege, 'to take on, in the territory of the first State, 
traffic destined for the home State of the carrier'. The third and fourth freedoms are granted 
together. 

The fifth freedom is the right or privilege 'to put down and to take on, in the territory of the 
first  State,  traffic  coming  from  or  destined  to  a  third  State'.  Under  the  fifth  freedom,  a 
carrier  can  transit  passengers  between  two  foreign  countries,  provided  the  flight  either 
begins or ends in the carrier's base country. 

The sixth freedom is the right or privilege of transporting, via the home State of the carrier, 
traffic moving between two other States. The so-called Sixth Freedom of the Air, unlike the 
first  five  freedoms,  is  not  incorporated  as  such  into  any  widely  recognized  air  service 
agreements such as the "Five Freedoms Agreement". 

The seventh freedom is the right or privilege of transporting traffic between the territory of 
the granting State and any third State with no requirement to include on such operation any 
point  in  the  territory  of  the  recipient  State,  i.e.  the  service  need  not  connect  to  or  be  an 
extension of any service to/from the home State of the carrier. 

The eighth freedom is the right or privilege of transporting cabotage traffic between two 
points in the territory of the granting State on a service which originates or terminates in the 
home country of the foreign carrier or (in connection with the so-called Seventh Freedom of 
the Air) outside the territory of the granting State (also known as an Eighth Freedom Right 
or "consecutive cabotage"). 

The ninth freedom is the right or privilege of transporting cabotage traffic of the granting 
State on a service performed entirely within the territory of the granting State (also known 
as a Ninth Freedom Right or "stand alone" cabotage).  

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1. 

GENERAL CONTEXT 

1.1. 

EU aviation sector today 

Aviation  plays  a  fundamental  role  in  the  European  economy  both  for  EU  citizens  and 
industry. With more than 150 scheduled airlines, a network of some 450 airports, and 60 air 
navigation  service  providers,  the  aviation  sector  employed  in  2014  5.5  million  people  and 
contributed over €510 billion to GDP in the EU1. Overall, aviation supports up to 9.3 million 
jobs2. Over 918 million passengers travelled by air in the European Union in 2015 and more 
than 1.45 billion passengers departing or arriving at EU airports on the same year3. Linking 
people and regions, air transport plays a vital role in the integration and the competitiveness 
of Europe, as well as its interaction with the world. Aviation also makes a vital contribution to 
economic growth,  employment, people-to-people contacts as well as  the regional and social 
cohesion  of  the  Union.  There  are  indications  that  one  Euro  value  added  in  the  air  transport 
industry creates a value of almost three Euro value added for the overall economy while one 
job in the air transport industry added creates more than three jobs in other sectors4. 

1.2. 

Legal context 

1.2.1.  Regulation of international air transport 

International  aviation  is  a  regulated  service  sector  operating  in  a  framework  of  state 
sovereignty5  and  governed  by  a  dense  network  of  bilateral  air  services  agreements  (ASAs) 
which are concluded between States to regulate the operation of the international air services. 
In particular, ASAs cover: route selection, that is, the freedoms of the air that they intended to 
grant (see box on page 6), from basic bilateral air traffic rights involving overflight to more 
complex  patterns  involving  transit  through  third  countries;  the  designation  of  the  airline(s) 
serving the agreed routes; provisions on capacity, that is, the number and frequency of flights, 
and  type  of  aircraft  on  the  agreed  routes,  as  well  as  pricing.  In  the  absence  of  binding 
multilateral  regime,  bilateral  ASAs  are  worldwide  the  only  method  used  for  exchanging 
traffic rights and hence, enable governments to exercise detailed control over all aspects of the 
air  services  which  serve  their  territory.  In  this  context,  the  degree  of  liberalization  of  air 
transport services between the two States is determined by the specific design of each ASA.  

Traditional bilateral ASAs regulate the level of competition on the market by restricting the 
number of airlines allowed to operate on given routes, the number of flights and the possible 
destinations. Under such ASAs, the market for operation of the agreed air services is shared 
exclusively between the two airlines of Parties and  the capacity  and tariffs are regulated by 
the  governments  of  the  two  contracting  sides.  This  traditional  system  allowed  the 
governments to fully control their markets, as they could dictate the terms on which airlines 
could  serve  points  from  and  within  their  territories.  It  also  allowed  the  states  to  use  their 
prerogatives to defend and promote the interests of their national air carriers (called ‘flag’ or 
‘legacy carriers) through close and detailed regulation.  

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Steer Davies Gleave – Study on employment and working conditions in air transport and airports, Final 
report  2015.  It  should  be  noted  that  these  figures  include  considerable  indirect  and  induced  effects 
which multiply the impact of aviation on the economy. 
Communication  from  the  Commission  "An  Aviation  Strategy  for  Europe",  COM(2015)  598  final, 
7.12.2015. 
Eurostat. 
Jan K. Brueckner, Airline Traffic and Urban Economic Development, Urban Studies, 2003. 
The  1944  Convention  on  International  Civil  Aviation  (Chicago  Convention)  states:  'The  contracting 
States  recognize  that  every  State  has  complete  and  exclusive  sovereignty  over  the  airspace  above  its 
territory'. 

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Since  1980s  the  sector  has  been  undergoing  progressive  liberalisation  triggered  by  the 
deregulation process of the internal US  market  and  the new US  foreign  aviation  policy that 
accompanied  it.  Internally,  the  US  adopted  the  1978  Airline  Deregulation  Act  which 
eliminated  the  regulation  of  fares,  routes  and  schedules  in  the  US  domestic  market.  In  the 
following step, the US applied the same approach to international aviation which manifested 
in  the  renegotiation  of  a  number  of  its  bilateral  ASAs  and  the  subsequent  conclusion  of  so 
called  ‘open  skies’  agreements6.  The  latter  constitute  a  new  kind  of  air  service  agreement 
granting multiple designations (a greater number of airlines is allowed in traffic between the 
counterparties), more routes and greater airline freedom to set fares and frequencies according 
to  their  needs  and  on  market  terms.  The  new  US  open-market  approach  fuelled  the  debate 
about the future of air service regulation in Europe which eventually resulted in the adoption 
of three legislative packages leading to the completion of the internal EU air transport market 
in the beginning of 1990s. 

1.2.2. 

Internal EU air transport market 

Before the creation of the internal market for aviation in the 1990s, European air transport had 
traditionally been  a highly  regulated industry, dominated by national flag carriers and state-
owned  airports.  Since  then,  by  removing  historic  barriers,  the  EU  has  transformed  and 
integrated  fragmented  national  aviation  markets  of  its  Member  States  into  the  single  largest 
and most open regional aviation market in the world.  

The  EU  internal  market,  set  out  as  an  objective  of  the  Single  European  Act  in  1987  and 
established  in  1993,  has  removed  all  restrictions  for  airlines  flying  within  the  EU,  such  as 
restrictions on the routes, the number of flights or the setting of fares. Today, all EU airlines 
irrespective  of  the  Member  State  in  which  they  are  legally  established  may  operate  air 
services with full commercial freedom on every route between and within EU Member States 
without  any  restrictions  as  to  frequency  or  fare-setting.  In  other  words,  it  is  only  for  EU 
carriers  to  decide  what  services  they  operate,  when  and  how  frequently,  and  what  tariffs  to 
charge  for  them.  There  is  no  longer  anything  to  stop  an  airline  from  Ireland,  for  instance, 
operating flight between two Italian airports or between a British and a Greek airport. 

Following  the  establishment  of  the  internal  air  transport  market,  prices  have  fallen 
dramatically, in particular on the most popular routes. But it is especially in terms of choice of 
routes  that  progress  is  impressive7.  European  policy  has  profoundly  transformed  the  air 
transport industry by creating the conditions for competitiveness and ensuring both quality of 
service and the highest level of safety. Consumers, airlines, airports and employees have all 
benefited as this policy has led to more activity, new routes and airports, greater choice, lower 
prices and an increased overall quality of service. 

The  creation  of  the  EU  single  air  transport  market  stimulated  competition  between  EU 
airlines.  Hence,  to  ensure  a  level  playing  field  for  all  entities  the  comprehensive  regulatory 
framework of common rules was developed in parallel to market opening. To eliminate any 
possible  discrimination  by  national  governments  against  the  carriers  of  other  states,  EU  air 

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In 1978, the U.S. reached a partially liberalised air services agreement with the Netherlands, followed 
by liberal agreements with Israel and Belgium. After a lull in liberalization efforts during the 1980’s the 
U.S. reached its first open skies agreement with the Netherlands in 1992. By the end of 1995, it also had 
open  skies  agreements  with  Belgium,  Finland,  Denmark,  Norway,  Sweden,  Luxembourg,  Austria, 
Iceland,  Switzerland  and  the  Czech  Republic.  Today  it  has  open  skies  agreements  with  over  100 
nations. 
The  number  of  intra-EU  routes  between  EU  Member  States  increased  from  874  in  1992  to  3,522  in 
2015 (+303%, 6.2% average growth p.a.).   

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carriers  are  licensed  according  to  a  set  of  specified  requirements  laid  down  in  Regulation 
1008/20088. Any airline  which  meets these  criteria must  be granted an operating licence  by 
the  Member  State  which  received  the  application.  Moreover,  the  airline  applies  in  to  the 
Member  State  where  it  has  its  principal  place  of  business  and  its  registered  office,  so  that 
there is no scope for the licencing authority of another Member State to raise difficulties if its 
own authorities are satisfied. All EU airlines are governed by the common concept of "EU air 
carrier",  regulated  and  supervised  under  the  same  rules  which  grant  them  equal  rights  and 
obligations. 

Another  relevant  indeed  complementary  part  of  the  EU  regime  resides  in  competition  rules 
(including State aid rules) which are applicable to the activity of undertakings, including air 
carriers  and  airports.  As  regards  rules  on  State  aid,  these  are  intended  to  prevent  that 
government  support,  by  EU  Member  States,  entails  distortion  of  competition  and  effect  on 
trade between Member States. EU Member States' governments cannot subsidise their airlines 
and airports in contravention of those rules. The latter permit the granting of aid only subject 
to strict requirements which, insofar as of interest here, are mainly explained in the guidelines 
on State aid in  the aviation sector9. Hence, airlines may receive (under certain conditions10) 
"start-up  aid"  that  gives  them  the  necessary  incentive  to  create  new  routes  from  regional 
airports,  increases  the  mobility  of  EU  citizens  and  stimulates  regional  development11. 
Moreover,  in  line  with  Guidelines  on  State  aid  for  rescuing  and  restructuring12,  EU  airlines 
facing  difficulties  may  receive  rescue  and  restructuring  aid,  though  under  very  restrictive 
conditions. For restructuring aid to be approved, three main principles must be complied with: 
i) there must be a credible restructuring plan capable of restoring the long-term viability of the 
airline without further public support13; ii) the airline must make an own contribution, at the 
appropriate  level,  to  the  costs  of  restructuring,  to  avoid  the  entire  burden  falling  on 
taxpayers14; and iii) measures should be introduced to mitigate the distortions of competition 
created  by  the  aid.  Finally,  a  given airline  cannot  receive  rescue  and  restructuring  aid  more 
than  once  every  10  years  (the  "one  time  last  time"  principle).  With  regard  to  airports,  the 
guidelines  allow  public  authorities  to  support  investments  into  airport  infrastructure  and 
equipment  as  well  as,  for  a  transitional  period  of  10  years,  to  cover  the  operating  losses  of 
small  airports  (below  3  million  passengers),  before  they  become  profitable.  Very  small 
airports with annual traffic of less than 700,000 passengers may benefit from operating aid to 
cover  losses  for  a  period  of  5  years,  after  which  the  Commission  reviews  their  situation  to 
decide whether and for how long they should receive further operating aid.  

In recent years the Commission has conducted numerous in-depth investigations into cases of 
possible  aid  granted  by  Member  States  to  the  European  aviation  sector.  During  2014  for 

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Regulation (EC) No 1008/2008 of the European Parliament and of the Council of 24 September 2008 
on common rules for the operation of air services in the Community (OJ, L 293, 31.10.2008, p. 3–20). 
Communication  from  the  Commission  "Guidelines  on  State  aid  to  airports  and  airlines"  (OJ,  C  99,  4 
April 2014, p.3). 
As set out in points 139 to 153 of the Guidelines on State aid to airports and airlines. 
Guidelines on state aid to airports and airlines, section 5.3 'start-up aid to airlines'. 
Communication  from  the  Commission  "Guidelines  on  State  aid  for  rescuing  and  restructuring  non-
financial undertakings in difficulty" (OJ C 249, 31.7.2014, p. 1–28). 
The main elements of the return to viability in the airline industry consist of streamlining operations in 
order to focus on the core business of passenger transportation. Airlines also try to improve their cost 
base  by  focusing  on  a  more  unified  fleet  of  aircraft,  reducing  catering  costs  in  economy  class, 
minimising personnel costs. 
The guidelines require that large companies finance at least 50% of the restructuring costs with a real 
contribution,  meaning  money  that  the  company  managed  to  receive  and  excluding  any  theoretical 
potential future profits. 

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example  the  Commission  adopted  17  decisions  concerning  investment  or  operating  aid  to 
airports  or  operating  aid  to  airlines  granted  by  Member  States.  With  regard  to  airlines,  a 
number of State aid investigations found that arrangements between state-controlled airports 
and  airlines  amounted  to  a  selective  economic  advantage  given  to  those  airlines,  which 
distorted  competition.  In  these  cases,  the  recovery  of  the  incompatible  state  aid  from  the 
airlines was ordered. 

1.2.3.  External dimension  

Rules applicable within the EU internal market have been geographically extended, by way of 
agreements, to include the European Economic Area (EEA) States and Switzerland.  

To  overcome  continued  fragmentation  and  restricted  market  access  in  international  aviation 
the  EU  is  also  concluding  Comprehensive  EU  Agreements  which  supersede  the  bilateral 
agreements  of  EU  Member  States15  with  the  respective  third  country  and  in  their  scope  go 
beyond  liberalising  traffic  rights.  These  agreements  include  comprehensive  provisions  to 
address  and  synchronise  the  regulatory  conditions  for  fair  competition  and  for  a  sustainable 
aviation  industry  including  essential  aspects  such  as  safety,  security,  environment  and 
economic regulation. There are two main sub-groups of Comprehensive EU Agreements. 

Firstly,  Neighbourhood  Agreements,  which  aim  at  including  a  third  country  into  a  wider 
Common Aviation Area (CAA) of the EU and its neighbouring countries to the South, South-
East and East16 through full market access and complete regulatory convergence (acceptance 
of  the  entire  EU  aviation  acquis).  The  process  of  regulatory  convergence  ensures  the 
application  of  EU  rules  and  the  implementation  of  common  safety,  security,  environmental 
and other standards in the entire Common Aviation Area.   
Secondly,  comprehensive  agreements  with  EU  key  partners17  (strategically  important  third 
countries  and  country  blocs)  which  are  based  on  the  pillars  of  market  access  liberalisation, 
removal  of  investment  barriers  (airline  ownership),  regulatory  cooperation  and  convergence 
and  resolution  of  "doing  business  issues".  The  EU  have  signed  comprehensive  agreements 
inter alia with the US, Canada, Morocco, Israel, Moldova, Jordan and Western Balkans. 

Beyond  the  EEA  and  geographic  areas  covered  by  CAA-type  agreements  or  indeed  by  EU 
Comprehensive agreements, the aviation markets regarding routes between the EU and third 
countries  are  still  governed  by  the  network  of bilateral  air services  agreements  between  EU 
Member  States  and  third  countries.  Together  with  associated  memoranda  of  understanding, 
agreed records etc., these usually cover traffic rights, capacity, frequency of air services, the 
number  of  designated  airlines  and  other  commercial  arrangements  such  as  pricing 
mechanisms. In addition, bilateral ASAs usually provide for a number of provisions covering 
aviation safety, and security as well as other organisational aspects of bilateral relations.  

It  is  estimated  that  a  number  in  the  order  of  1,600  of  such  ASAs  are  in  place  between  EU 
Member States and third countries.  

In 2002, the European Court of Justice ruled that bilateral aviation agreements of EU Member 
States  with  third  countries  were  in  breach  of  fundamental  provisions  of  the  EU  Treaty 
("freedom  of  establishment")  as  they  did  not  allow  airlines  from  other  Member  States  to 

15  

16  

17  

The  Council  grants  the  Commission  the  authorisation  to  negotiate  Comprehensive  agreements  on  a 
case-by-case basis. 
The  EU  has  concluded  such  agreements  with  the  Western  Balkans  (the  ECAA  Agreement),  Georgia, 
Israel, Jordan, Moldova and Morocco. 
Comprehensive agreement have been concluded with inter alia U.S and Canada. 

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benefit  from  the  provisions  of  those  agreements18.  Following  the  court's  judgement,  the  EU 
developed  an  external  aviation  policy  to  restore  legal  certainty  to  the  bilateral  agreements 
including  by  negotiating  at  EU-level  so-called  Horizontal  Agreements  (HA)  with  partner 
countries which allow amending all bilateral agreements that EU Member States have with a 
third  country.  Bilateral  negotiations  between  each  EU  Member  State  concerned  and  its 
partners have also been carried out with a view to amending each bilateral ASA separately. It 
is estimated that out of the existing 1,600 ASAs around 1,100 ASAs have been amended or 
newly concluded and as such are considered to be in line with EU law (notably include the 
EU designation and revocation provisions and are considered compatible with Article 101 of 
the TFEU). 

Within  the  last  two  decades,  the  reduction  of  limitations  and  constraints  to  provision  of  air 
transport services through a number of bilateral and comprehensive ASAs have liberalized the 
aviation  market  between  the  EU  and  third  countries.  Although  some  old-type  ASAs 
containing  restrictions  on  competition  remain  in  place  today,  they  do  not  concern  main  EU 
partners representing the key markets for EU airlines. 

However,  the  ASAs  between  the  EU  and  third  countries  cannot  effectively  promote 
competition  if  the  level  of  liberalisation  and  deregulation  of  internal  markets  of  contracting 
parties is not the same. As mentioned, within the EU internal air transport market, regulatory 
framework and common rules were developed to provide for equal rights and obligations for 
all companies, ensure fair competition between them and address possible market distortions. 
However,  similar  rules  and  procedures  regarding  competition,  environment,  social  rights  or 
consumer protection do not exist in many air transport markets to/from the EU and the vast 
majority of liberalised bilateral ASAs do not contain any provisions on these either.  

1.3. 

Economic context 

The  liberalisation  and  deregulation  of  international  air  transport  fostered  unprecedented 
competition on a global aviation market. According to the 2012 Communication on the EU's 
external aviation policy19, global competition is expected to further intensify in coming years 
with  expected  international  aviation  growth  of  around  5%  annually  until  2030.  The 
Communication predicts that this aviation growth will see a relative shift to areas outside the 
EU in particular to Asia and the Middle East meaning that EU carriers will be losing market 
shares  to  non-EU  airlines  in  most  regions.  According  to  the  International  Air  Transport 
Association  (IATA)  Airline  Industry  Forecast  2013-201720,  the  Asia-Pacific  region  -  led  by 
China,  and  the  Middle  East  are  expected  to  deliver  the  strongest  growth  with  United  Arab 
Emirates  expected  to  add  an  estimated  29.2  million  passengers  (Compound  Annual  Growth 
Rate21  of  6.6%),  nearly  as  many  as  China,  whereas  Europe  will  see  international  passenger 
demand growth of merely 3.9% CAGR.  

These forecasts are based on the market trends observed over the past decade. It is relevant to 
note that the starting base for aviation traffic is much higher in regions such as North America 

18  

19  

20  
21  

For example, a German airline established in France could not benefit from the traffic rights accorded in 
the  agreement  between  France  and  the  United  States.  These  rights  were  only  available  to  French 
airlines. 
Communication  from  the  Commission  "The  EU's  External  Aviation  Policy  -  Addressing  Future 
Challenges" (COM(2012)556), 27 September 2012. 
IATA, Airline Industry Forecast 2013-2017. 
The compound annual growth rate (CAGR) is the mean annual growth rate over a specified period of 
time longer than one year. 

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and Europe, which have relatively mature aviation markets, in comparison to regions where 
the aviation has been expanding considerably in recent years.  

In recent years, there have been substantial developments in the market shares of EU airlines 
in  virtually  all  intercontinental  markets  to  and  from  the  EU.  In  the  African  region,  EU 
carriers’ market share has declined overall by 2% between 2004 and 2013. At the same time, 
carriage  by Middle  East  carriers  between  Africa  and  the  EU  has  increased  some  600%  to  a 
point  where  their  passenger  carriage  is  about  30%  of  that  of  EU  carriers.  A  similar  picture 
emerges on Europe-Asia routings, where carriage by EU airlines has largely stagnated since 
2004,  versus  a  nearly  700%  increase  in  carriage  by  Middle  East  airlines.  In  2013  the 
passenger  carriage  of  Middle  East  carriers  represented  about  70%  of  that  of  EU  carriers  on 
routes between Asia and EU28, as compared to merely 10% in 2003. Even in markets where 
European  carriers  benefit  from  natural  geographic  advantages  –  namely  on  routes  from  the 
East  Coast  of  North  America  to  Asia  or  the  Indian  Subcontinent,  Middle  East  airlines  have 
achieved  growth  in  excess  of  2000%    since  2004,  and  now  exceed  EU  airline  carriage  on 
some  of  these  routes22.  It  should  be  noted  that  in  a  strongly  growing  aviation  sector  with 
emerging markets in many regions, the market share indicator should not exclusively be held 
as undisputable evidence that airlines are affected by competition. Indeed, in such a context, 
an overall decrease in market share is also likely to be the mere effect of growing markets on 
the global scale. The market share indicator must be considered with caution, and must be put 
into perspective with the overall market developments. 

The  Middle  East  carriers  have  also  been  successful  on  the  European  market  where  their 
growth  in  transport  capacity  is  significant.  Between  2004  and  2015  traffic  between  Europe 
and the Gulf increased by 430% with 140 daily flights (80% of which was undertaken by Gulf 
companies)23.  This  means  that  today,  there  are  more  seats  offered  between  Europe  and  the 
Gulf than between Europe and China, Japan and South Korea together, whilst the GDP of the 
latter is 250 times that of the UAE and Qatar together24. 

Similar trends may be observed when the traffic growth rates for EU passengers carried on 
routes between the EU and key world markets are analysed25. Throughout the last 5 years for 
which figures are available (2008-2013), the total volume of EU worldwide passenger traffic 
has  been  growing  slowly  and  was  unequally  distributed.  On  some  markets  the  aggregated 
traffic growth was relatively strong - EU-South America (+14%) or rather slow - EU-Central 
Africa (+5%), whereas on many others the traffic actually decreased - EU-Central America (-
12%);  EU-Northern  Africa  (-7%);  EU-Asia  (-3%);  EU-North  America  (-1%).  Only  on  the 
EU-Middle East market the growth was very strong (+47%). 

On each of those markets the total number of passengers carried by EU carriers (measured 
in  Available  Seat  Kilometres)  between  2008  and  2013  either  stagnated  (EU-Africa:  +1.8m; 
EU-South  America:  +0.6m)  or  slightly  fell  (EU-North  America:  -1.2m;  EU-Middle  East:  -
0.6m; EU-Asia: -0.1m). Most notably, all of the dynamic passenger traffic growth on the EU-
Middle East market (from 29.1m to 40.5m) was generated by non-EU carriers (+12m). It is 

22  

23  

24  

25  

PwC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from EU.   
It needs to be noted that strong growth rates of Middle East carriers since 2004 is to some extent caused 
by a low starting base in terms of operated routes. 
http://www.robert-schuman.eu/en/european-issues/0371-the-european-airline-industry-re-establishing-
free-fair-competition 
Mott McDonald, Annual Analyses of the EU Air Transport Market, 2013. 

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highly likely that most of this added capacity is actually feeder traffic to the hubs of the Gulf 
region26. 

The trend is even more visible when looking at transfer traffic. Despite Europe continuing to 
be the region with the largest transfer market in the world, with 45m passengers in 2013, an 
increase  of  only  3m  passengers  (i.e.  7%)  was  recorded  since  2004.  On  the  other  hand,  the 
Middle East, Asia and Turkey experienced considerable growth. Asian region grew by about 
40% from 17m to 24m in 2013, the Middle East has almost quadrupled from 8m to 30m (i.e. a 
growth of 275%) and Turkey is now capturing 5 times the transfer traffic that it was capturing 
in 2004 (i.e. 2m in 2004 vs. 10m in 2013)27. 

The EU aviation sector and EU airlines in particular are on the front line of this competitive 
challenge  and  are  increasingly  struggling  in  a  tough  international  market  characterised  by 
diverse regulatory frameworks and cultures, and by enhanced international competition from 
fast-growing third countries and regions. 

1.4. 

Political context 

The  Commission's  Communication  of  27  September  2012  on  'The  EU's  External  Aviation 
Policy  –  Addressing  Future  Challenges'28  points  that  "while  EU  airlines  are  ultimately 
responsible  themselves  for  their  competitiveness  and  must  continue  to  adapt  their  products 
and  business  models  to  the  prevailing  market  conditions  (…)  it  is  equally  important  that 
competition, both within the EU and externally, is based on openness, reciprocity and fairness 
and that it is not distorted by unfair practices". Therefore, as indicated in the Communication, 
"it  is  both  important  and  legitimate  that  the  EU  is  able  to  act  effectively  internationally  to 
safeguard  the  competitiveness  of  EU  airlines  against  unfair  competition  and/or  practices 
wherever they may come from". 
The Council, in its Conclusions of 20 December 201229 acknowledged that actions aimed at 
enhancing  competitiveness  and  ensuring  fair  competition  need  to  be  taken  both  in  the  EU's 
internal  and  external  policies.  The  Council  encouraged  the  Commission  "to  use  its  bilateral 
and  multilateral  relations  to  actively  support  the  establishment  of  a  level  playing  field 
favouring  open  and  fair  competition  in  international  air  transport".  The  Council  also 
considered  that  "Regulation  (EC)  No  868/200430  has  proven  not  to  address  adequately  the 
specific  characteristics  of  the  aviation  services  sector”  and  supported  “the  Commission's 
intention to analyse (…) possible options for a more effective instrument to  safeguard  open 
and  fair  competition  and  its  intention,  on  that  basis,  to  present  a  proposal  for  a  revision  or 
replacement of Regulation (EC) No 868/2004". 
In  the  resolution  of  9  September  201531,  the  European  Parliament  (EP)  called  upon  the 
European  Commission  to  "address  the  major  challenges  to  competition  in  the  European  air 
sector".  To  this  end,  the  EP  urged  the  Commission  to  engage  in  an  Aviation  Dialogue  with 

26  
27  

28  
29  

30  

31  

Own calculations on the basis of data presented in the PwC study. 
PwC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from EU.   
Commission Communication "The EU's External Aviation Policy - Addressing Future Challenges". 
Council  conclusions  on  The  EU's  External  Aviation  Policy-Addressing  Future  Challenges,  20 
December 2012. 
Regulation  (EC)  No  868/2004  of  the  European  Parliament  and  of  the  Council  of  21  April  2004 
concerning  protection  against  subsidisation  and  unfair  pricing  practices  causing  injury  to  Community 
air carriers in the supply of air services from countries not members of the European Community (OJ L 
162, 30.4.2004, p. 1–7) 
European Parliament resolution of 9 September 2015 on the implementation of the 2011 White Paper 
on Transport: taking stock and the way forward towards sustainable mobility (2015/2005(INI)). 

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several third countries with a view to "enhancing financial transparency and safeguarding fair 
competition;  inclusion  of  ‘fair  competition  clauses’  in  air  transport  agreements,  detailed 
provisions on subsidies, unfair practices and competition, and efficient means of action in the 
event of non-compliance with those provisions". The Parliament also called for "the revision 
of  the  current  Regulation  (EC)  No  868/2004  in  order  to  safeguard  fair  competition  in  EU 
external aviation relations and reinforce the competitive position of the EU aviation industry, 
ensure reciprocity and eliminate unfair practices, including subsidies that distort the market". 

As  noted  in  the  recent  Commission  Communication  on  an  Aviation  Strategy,  if  the  EU 
aviation  industry  is  to  remain  competitive,  it  is  essential  that  market  access  is  based  on  a 
regulatory  framework  which  promotes  EU  values  and  standards,  enables  reciprocal 
opportunities and prevents distortion of competition32. Europe must address the challenge of 
unfair  competition  and  cannot  afford  to  lose  the  competitive  edge  of  its  aviation  industry 
which  today  is  at  the  centre  of  the  global  network  connecting  Europe  with  the  rest  of  the 
world  and  secures  a  high  level  of  intra-European  connectivity.  In  this  respect,  the  strategic 
role of a well-developed aviation sector in general must be taken into account, as well as the 
particular role which is played by EU carriers, airports, manufacturers and service providers 
in terms of growth, jobs and the major contribution that aviation can make to the EU's growth 
strategy "Europe 2020" as well as Commission President Juncker's agenda33.  

2. 

PROBLEM DEFINITION 

2.1. 

Description of the main problem 

Concerns about unfair practices by third countries and third country entities negatively 
affecting EU carriers continue to exist  

2.1.1.  Competitive position of EU aviation globally 

The liberalisation of international air transport has made the airlines from very diverse world 
regions  (in  economic,  legal  and  cultural  terms)  compete  in  the  same  international  markets. 
This means a new competitive challenge for European airlines which face new competitors, in 
particular,  from  growth  markets  to  the  East.  Over  recent  years  a  number  of  large  economic 
powers and several developing countries have recognised the strategic role of aviation in their 
economic  development  policies  and  created  opportunities  for  further  growth  of  their 
respective  national  air  transport  industries.  Several  new  and  highly  competitive  airlines  and 
airports  have  emerged  in  particular in  the Middle East and Asia,  which pose  a considerable 
challenge  to  some  European  hub  airports  and  carriers.  When  ranked  by  revenue  passenger 
kilometre (RPK) as a measure of sales volume of passenger traffic, one can observe the rapid 
rise  of these emerging  competitors to EU airlines. In  terms of RPKs, a comparison  of 2007 
and 2014 data shows that leading EU airlines have been, or are increasingly left behind fast-
growing competitors such as Emirates, Southwest and China Southern while others like China 
Eastern  Airlines,  Air  China,  Qatar  Airways  and  Turkish  Airlines  are  growing  considerably 
faster34.  

32  
33  

34  

Commission Communication "An Aviation Strategy for Europe". 
"A  new  start  for  Europe,  my  agenda  for  jobs,  growth,  fairness  and  democratic  change";  
http://www.eesc.europa.eu/resources/docs/jean-claude-juncker---political-guidelines.pdf.        
Commission Communication "An Aviation Strategy for Europe".  

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Some of the reasons negatively influencing the international position of the EU aviation sector 
stem directly from competitive advantages of third country carriers and the linked competitive 
disadvantages suffered by Europe-based airlines in the European market.  

2.1.2.  Competitive advantages of third country carriers 

Over  the  last  decade,  the  aviation  sector  outside  Europe  has  been  supported  by  extremely 
rapid  growth  in  some  world  regions.  As  a  result,  international  aviation  growth  is 
increasingly  characterised  by  a  relative  shift  to  areas  outside  the  EU  with  the  emerging 
industrialised  and  services-providing  economies  in  Asia  and  the  Middle  East  in  particular 
becoming the focus of international air traffic flows. Scheduled passenger traffic in the Asia 
Pacific region is forecast to grow faster than in other regions at rates of more than 6% per year 
until  2033  when  it  will  account  for  over  40%  of  world  air  traffic.  Due  to  above-average 
growth  rates,  EU  carriers  are  expected  to  lose  global  market  share  to  non-EU  airlines.  In 
2003, EU carriers had a market share of 29% of all inter-regional capacity in the world. By 
2025,  this  share  is  expected  to  fall  to  20%35.  Meanwhile,  China  is  expected  to  become  the 
world’s largest air transport market, overtaking the United States in 2023 in terms of number 
of passengers carried36.  

Secondly, the competition between world airlines today is gradually shifting toward access to 
third country markets. Bilateral agreements focus increasingly on the requirement to meet not 
only the market demand between the signatory partners, but to enable passengers to combine 
services between the signatories to connecting flights into third countries. This gives another 
important  competitive  advantage  to  the  Middle  East  and  Asia  regions  linked  to  the 
geographic location of their hubs which are “naturally” located as crossroads between many 
world destinations37, in particular on routes towards dynamically growing Asian continent38.  
The  business  strategy  of  the  non-EU  airlines  which  hub  at  these  airports  has  focused  on 
building their networks by linking secondary airports via their hubs (so called 'hub and spoke 
system') and bypassing primary hubs elsewhere.  

A  most  striking  example  of  this  practice  is  the  competition  for  passengers  between  several 
European  airlines  and  the  Gulf  States'  carriers.  The  latter  have  a  comparative  advantage  in 
international  hub  operation  on  many  routes  between  Europe  and  South  Asia/East  Africa.  In 
the  absence  of  significant  domestic  demand,  Gulf  airlines  geared  their  business  model 
globally to connecting highly populated markets (e.g. in Asia and Europe) with a stop at their 
respective  hub  airports.  They  employ  the  so  called  hub‐and‐spoke  model  in  which  the 
passengers/freight are gathered, predominantly from long‐distance flights, at the airline's hub 
airport and carried onward from there, also on long‐distance flights. The waves of arrivals and 
departures are optimally coordinated with the corresponding passengers flows. This provides 
their  passengers  with  advantages  such  as  more  convenient  travel  itineraries,  higher 
frequencies,  and  a  wider  range  of  destinations  within  a  certain  flight  time.  The  ability  to 
concentrate services over a hub also reduces costs for non-EU airlines, enabling them to pass 
on savings to the consumer in an attempt to drive higher demand. This business practice has 
enabled the dynamic growth of their carriers. These developments have led some EU airlines 
to  exit  several  markets.  For  instance,  according  to  a  US  Congressional  Research  Service 

35  

36  
37  

38  

Booz  &  Company:  "Development  of  the  EU's  Future  External  Aviation  Policy",  Final  Report,  April 
2012, based on OAG and AEA Research. 
Airbus Annual Report 2014. 
European carriers have traditionally enjoyed such an advantage in respect of East-coast North America 
– South Asia traffic (where non-stop services are impractical due to distance). 
Two thirds of the world's population is placed within an optimal 4-8 hours' flying time from Dubai. 

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report, ‘Lufthansa claims that its Frankfurt hub has lost nearly a third of its market share on 
routes between Europe and Asia since 2005, and that more than 3 million passengers now fly 
annually  from  Germany  to  other  points  via  Gulf  hubs  instead  of  using  direct  services  of 
German, Asian and African airlines’39. 

The  above  trend  is  confirmed  when  analysing  hub  connectivity  i.e.  hubs  facilitating  travel 
from one world region to another. It is clear that the EU is losing significant market share as 
global hub for inter-continental flight connections. While the top 3 European hubs40 still have 
the  highest  total  connectivity  level,  the  hub  connectivity41  of  Abu  Dhabi,  Doha  and  Dubai 
respectively  grew  by  +1,913%,  1,861%  and  485%  between  2004  and  2014  while  Istanbul-
Ataturk airport registered a growth of +1,222%42. 

Technological  advances  and  trends  on  the  aircraft  manufacturing  market  may  influence  the 
balance  between  the  hub  and  spoke  and  point  to  point  models  and  thus  give  a  competitive 
advantage to EU or non-EU air carriers. Indeed, EU and non-EU aircraft manufacturers have 
different  visions  of  the  strategic  evolution  of  the  international  air  transport  market,  which 
results in different characteristics of the manufactured aircrafts. As the hub and spoke model 
consists  of  the  transportation  of  large  amounts  of  passengers  from  hub  to  hub  followed  by 
transportation  of  smaller  amounts  of  passengers  from  the  hub  to  a  multitude  of  smaller 
destinations,  manufacturers  which  rely  on  this  model  (mainly  EU  manufacturers)  tend  to 
develop  wider  bodied  aircrafts,  capable  of  carrying  larger  amounts  of  passengers.  On  the 
contrary,  as  the  point-to-point  model  consists  of  the  transportation  of  smaller  amounts  of 
passengers  directly  from  one  point  to  another  without  necessarily  a  hub  connection,  
manufacturers  which  rely  on  this  model  (mainly  non-EU  manufacturers)  tend  to  develop 
aircrafts with a slightly lower passenger capacity. Although depending on the manufacturing 
market evolution, the models on which air carriers rely may be strengthened or weakened, one 
cannot  determine  at  this  stage  if  technological  advances  favours  EU  or  non-EU  air  carriers. 
However, it should be noted as well, that EU network carriers are also subject to the strategy 
developments of other kinds of carriers, such as low cost carriers increasingly flying to nearby 
third  countries,  or  bypassing  big  hubs  by  providing  direct  flights  (in  opposition  to  the  hub-
and-spoke  model).  As  such,  these  market  strategic  evolutions  also  have  an  effect  on  the 
manufacturing requirements and may cause difficulties to EU network carriers. 

The  hub  and  spoke  strategy  of  third  country  carriers  is  supported  by  a  high  level  of 
investment  in  airport  infrastructure  at  their  home  hubs.  Whilst  within  the  EU,  aid  to 
airports and airlines can be approved only in few cases and under very strict conditions43, few 
such  requirements  exist  outside  the  EU.  Indeed,  in  terms  of  investment  in  airport 
infrastructure  in  the  EU,  this  is  all  but  forbidden  since  airports  with  greater  than  5  million 
passengers per year, such as all the major EU hub airports, must be fully self-financing and 
cannot  receive  any  aid  except  under  exceptional  circumstances44.  Many  governments 
worldwide are making heavy investments in state-owned airports creating large increases in 

39  

40  
41  

42  
43  
44  

Congressional Research Service, International Air Service Controversies: Frequently Asked Questions, 
4 May 2015. 
Paris-Charles de Gaulle Airport, Frankfurt Airport and Amsterdam Airport Schiphol. 
The  measure  of  the  number  of  destinations,  the  quality  of  connections  and  the  frequency  of  services 
offered at hubs which facilitate travel from one world region to another. 
ACI-Europe Airport Industry Connectivity Report 2014. 
See more in section 1.2.2 of this report. 
See in particular points 97-105, which outline how investment aid (which does not include state support 
that  meets  the  "Market  Economy  Operator  test",  see  footnote  70)  to  airports  with  average  passenger 
traffic  (passengers  per  annum)  of  more  than  5  million,  is  banned  in  all  but  "very  exceptional 
circumstances,  characterised by a clear market failure".   

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capacity  –  and  to  the  extent  that  the  cost  of  these  investments  is  not  passed  on  to  airlines 
potentially providing the airlines concerned with significant cost advantages not available to 
EU  carriers45.  As  an  example,  airport  infrastructure  investment  in  the  Middle  East  over  the 
past 10 years has exceeded 35 billion US dollars and continues to grow. According to IATA 
another  40  billion  US  dollars  is  being  invested in  aviation  infrastructure  by  the  Gulf-region 
governments with infrastructure development being concentrated at the largest airports in the 
region, including Dubai, Doha, Jeddah, Riyadh, Abu Dhabi, Muscat, Kuwait, Dammam and 
Manama. Dubai alone is expected to invest over 8.1 billion US dollars in new infrastructure 
until 2020. Abu Dhabi's new airport terminal complex which will be the future base of Etihad 
Airways will be commissioned by 2017 with the initial capacity to of 27 million passengers 
per year. Massive capacity expansion is also planned for Turkish airports with the anticipated 
opening  of  a  new  airport  at  Istanbul  by  the  end  of  2018  with  a  capacity  of  150  million 
passengers annually. Similarly, the Government of Singapore has announced in the beginning 
of  2014  that  it  plans  to  almost  double  the  capacity  of  Changi  Airport  over  the  next  decade 
with two new terminals at the cost of 1.28 billion US dollars46. 

Heavy investment in airport capacity whose cost is not passed on to airlines, would appear to 
allow airlines based in Asian and the Middle East to benefit from considerably lower airport 
charges as compared to airlines based in the EU and other regions of the world. For example, 
Dubai airport’s landing and terminal charges with baggage and check-in are around one third 
below Heathrow’s and two thirds below the average of Paris-Charles de Gaulle, Frankfurt and 
Amsterdam  Schiphol  which  gives  Emirates  a  competitive  advantage  in  this  area  in 
comparison  to  European  airlines.  According  to  2009  Travel  and  Tourism  Competitiveness 
Report47,  Bahrain  and  the  United  Arab  Emirates  are  the  best  performers  in  the  category  of 
average ticket taxes and airport charges, both with scores of 6.78, followed by Qatar, at 6.68 
out  of  7.  Asia  Pacific  countries  are  also  very  attractive  from  this  indicator’s  point  of  view, 
with an average score of 5.82 out of 7. In contrast, Europe enjoys a much lower average score 
of 5.69.  

The  rapid  growth  of  Asian  and  Middle  East  aviation  sectors  is  also  supported  by  large 
investments in aircraft fleet. Already today the airlines based in the Middle East - Emirates, 
Etihad and Qatar Airways  - have a combined fleet of wide-body aircraft (1283 units) larger 
than  the  combined  one  of  the  three  leading  EU  Airlines  (Lufthansa,  Air  France  and  British 
Airways) which currently amounts to 714 units48. While the currently largest existing wide-
body  aircraft  fleets  are  with  Emirates,  Air  France-KLM  and  United,  the  largest  orders  of 
wide-body aircraft (exceeding airlines' current fleet size) are placed for Emirates, Singapore 
Airlines, Qatar Airways, Etihad and Air Asia49. It is also in the Middle East where wide body 
aircraft represent the largest proportion of total orders – around 63%. In Europe the proportion 
is 20%50, and in Asia Pacific it is 26%. This indicates that carriers based in the Middle East 
and Asia anticipate the continuation of strong growth of their long haul networks. 

45  

46  

47  

48  
49  
50  

As indicated in section 2.1.5, the investment into airport infrastructure may be linked to subsidization 
by third countries.  
PwC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from EU.   
World Economic Forum, The Travel & Tourism Competitiveness Report 2009, Managing in Time of 
Turbulence.   
The numbers include fleet in service and on order as of 2014 according to CAPA.  
Commission Communication "An Aviation Strategy for Europe". 
European airlines have large narrow-body fleets which reflect their reliance on short-haul operations on 
regional and domestic market, as opposed to Middle East carriers whose business model is focused on 
long-haul hub-and-spoke operations.  

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The  increased  capacity  arising  from  fleet  and  airport  capacity  expansion  gives  scope  for 
continued route expansion. As indicated by aircraft orders, the greatest expansion is planned 
by airlines based in the Middle East: if growth rates over the period 2008-2013 are continued 
in the period 2013-2018 (as aircraft orders indicate likely), Etihad could offer an additional 44 
routes  from  Abu  Dhabi,  Emirates  an  additional  46  from  Dubai  and  Turkish  Airlines  an 
additional  114  from  Istanbul51.  The  considerable  increase  in  routes,  allows  the  Middle  East 
carriers to  strengthen their  market shares  by further  consolidating traffic at their home hubs 
and using additional fleet capacity to service an extended range of final destination services.  

Last  but  not  least,  non-EU  carriers  are  not  burdened  by  costs  to  the  degree  experienced  in 
Europe. According to statistics provided by CAPA52, the biggest source of unit cost advantage 
for  Emirates  is  having  much  lower  labour  cost  per  employee  than  European  carriers.  For 
comparison  IAG’s  average  labour  cost  per  employee  is  almost  94,000  US  dollars,  which  is 
more  than  80%  higher  than  the  figure  of  51,500  US  dollars  for  Emirates,  while  Virgin 
Atlantic pays 9% more than Emirates. The average of the IAG and Virgin figures is 75,000 
US dollars, which is 45% higher than the Emirates figure. Emirates benefits in this area from 
the  absence of  income  tax  in  Dubai.  In  addition  to  the tax benefits,  Emirates  does  not  have 
significant legacy pension costs. 

2.1.3.  Competitive disadvantages of EU carriers 

A key competitive disadvantage of EU aviation stems from the fact that Europe is generally 
acknowledged  as  an  expensive  place  for  airlines  to  do  business.  EU  airlines  operate 
(especially)  long  haul  networks  in  markets  that  are  global,  against  competitors  whose  cost 
bases are often substantially lower. An end result is that airlines in the EU have some of the 
lowest profit margins of any region globally. The European airline industry, including also 
companies  based  in  Russia,  Turkey,  Switzerland  or  Norway,  reported  an  average  net  profit 
margin of 0.5% in 2013 and 1.6% in 2014, falling short of the global average margins in both 
years.  In  2014  there  were  32  EU  airlines  among  the  leading  150  airline  groups  by  revenue 
(comprising passenger, leisure and cargo airlines), 30% less than in 2001 and 20% less than 
2008. During that period of time, EU airlines fell behind their global competitors in terms of 
net  profit  and  posted  an  average  net  loss  while  the  non-EU  top  150  airlines  are  on  average 
profitable53. 

High  costs  in  the  EU  are  in  part  due  to  regulatory  costs,  which  are  result  of  high  levels  of 
protection  to  consumers,  fair  conditions  for  workers  and  other  social  benefits.  The  EU  also 
has  some  of  the  highest  labour  standards  in  the  world  with  regard  to  inter  alia  working 
conditions,  work  time,  health  and  safety  at  work,  equal  treatment  and  social  rights  which 
represent costs borne by the EU air sector, as well. Many airlines established in third countries 
do not bear such costs.  

Significant differences  between  the  EU’s  and most  third  countries’ regulatory  environments 
also  exist  in  terms  of  environmental  protection.  In  the  EU,  growth  in  air  traffic  is  being 
reconciled with the necessity to reduce aviation's environmental footprint and contributing to 
the fight against  climate  change.  EU carriers have  to  comply  with  specified noise standards 
and may face noise-related operating restrictions (e.g. bans on flights during the night) on the 

51  

52  

53  

PwC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from EU.   
CAPA Centre for Aviation is the leading provider of independent aviation market intelligence, analysis, 
reports and data services. 
Ibidem. 

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basis of Regulation 598/201454. In the third markets where similar restrictions do not apply, 
the  carriers  are  allowed  to  carry  out  24-hour-a-day  operations.  By  contrast,  in  the  EU, 
stringent  regulatory  measures,  such  as  more  restrictive  noise  abatement  operational 
procedures  and  airport  operational  noise  quotas,  pose  challenge  to  the  already  constrained 
capacity of EU airports (see below) and generate additional costs for EU airlines. In the EU 
aviation  has  also  been  included  in  the  EU  Emissions  Trading  System  (ETS)  by  Directive 
2008/101/EC55, in line with the International Civil Aviation Organization´s (ICAO) resolution 
on incorporating international aviation into existing trading schemes. However, for the period 
2013-2016,  the  legislation  has  been  amended  so  that  only  emissions  from  flights  within  the 
European  Economic  Area  fall  under  the  EU  Emissions  Trading  System  (ETS).  This 
constitutes an extra burden for the international competitiveness of EU airlines. 

The  regulatory  framework  is  not  the  only  reason  for  an  expensive  business  environment  in 
EU.  Not  less  important  are  the  airport  capacity  and  efficiency  constraints  which  are 
seriously  impeding  the  European  aviation  sector's  ability  to  grow  sustainably,  compete 
internationally, and which are causing congestion, delays and raising airlines’ operating costs. 
As concluded in the Aviation Strategy, European airspace as a whole is inefficiently managed 
and unnecessarily fragmented. The Single European Sky initiative launched ten years ago was 
meant  to  cope  with  sustained  air  traffic  growth  through  reform  and  consolidation  of  Air 
Transport Management systems of EU Member States. The implementation of SES aims inter 
alia  at  raising  EU  airports’  capacity  and  consequently  increasing  flight  efficiency  and 
reducing  delays  and  costs  related  to  air  service  provision.  However,  the  project  is  still  not 
delivering as the level of cooperation between Member States air navigation service providers 
is far from optimal, and the technology used is not harmonised. Slow implementation of the 
Single  European  Sky  framework  means  higher  costs  for  the  airlines,  which  directly  affects 
their competitiveness. The estimated costs of the EU's fragmented airspace represent at least 
€5 billion a year56.  

Meanwhile, major European airports are predicted to face a capacity crunch in the near future. 
Eurocontrol  predicts  that  in  2035  European  airports  will  be  unable  to accommodate  some  2 
million flights due to capacity shortages. There will be more than 20 airports operating at or 
near full capacity for 6 or more hours per day, against just 3 in 2012, leading to an additional 
average airport-related delay of 5-6 minutes per flight. The estimated economic cost of being 
unable to accommodate demand has been estimated at an annual loss in GDP of between €28 
billion and €52 billion at EU level. At the same time, many airports in the EU are chronically 
underused and facing overcapacity. 

Finally,  the  competitive  position  of  EU  hub  carriers  is  also  heavily  impacted  by  the 
emergence of competition from low-cost carriers (LCCs) on a short-haul, intra-EU market. 
Before  the  liberalisation  of  the  EU  internal  aviation  market,  the  EU  network  carriers  used 
their  short/medium  haul  operations  to  feed  their  more  profitable  long-haul  network.  The 
creation of the EU single aviation market liberalised intra-EU market access for EU airlines 
and led to the emergence of new –  low-cost – business model. Contrarily to more complex 

54  

55  

56  

Regulation (EU) No 598/2014 of the European Parliament and of the Council of 16 April 2014 on the 
establishment  of  rules  and  procedures  with  regard  to  the  introduction  of  noise-related  operating 
restrictions  at Union  airports  within  a  Balanced Approach  and  repealing  Directive  2002/30/EC (OJ L 
173, 12.6.2014, p. 65–78). 
Directive 2008/101/EC of the European Parliament and of the Council of 19 November 2008 amending 
Directive  2003/87/EC  so  as  to  include  aviation  activities  in  the  scheme  for  greenhouse  gas  emission 
allowance trading within the Community (OJ L 8, 13.1.2009, p. 3–21). 
Commission Communication "An Aviation Strategy for Europe". 

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hub-and-spoke model of EU network carriers which operate one or more hubs and combine 
feeder traffic with long-haul routes, the low-cost business model focuses on short-haul, point-
to-point routes, maximisation of flying hours, use of secondary airports and high frequency of 
service.  This  model  has  proven  to  be  very  successful  and  has  allowed  the  LCCs  to  claim  a 
growing  share  of  the  intra-European  market.  Virtually  non-existent  on  EU  internal  market 
until 1995, and with a share of below 10% of weekly scheduled seats prior to 2002, the low 
cost sector outperformed and by 2012 left behind the network carriers' sector. In 2015, LCCs 
accounted  for  48%  of  seat  capacity  in  the  EU  market  while  network  carriers  provided  less 
weekly  seats  than  in  199857.  The  growing  competition  from  LCCs  on  intra-EU  market 
confronts most European network carriers with increasing price pressure and makes their cost 
basis  more  vulnerable.  The  cost  disadvantage  of  a  hinterland  hub  network  compared  with 
those of short haul only networks are reflected in the structurally lower unit costs of the EU 
LCCs as compared to EU network carriers58. This is also the case for the competition between 
expensive hub-and-spoke systems of EU network carriers and some third country carriers (in 
particular from the Gulf) operating a cheaper long haul network at their hourglass hubs (e.g. 
Dubai airport where all Emirates passengers are transferred). The intensifying competition has 
growing  impact  on  European  full  service  carriers,  which  have  to  look  not  only  for  further 
cost-cutting opportunities but into improving their hub connectivity to keep their networks as 
attractive as possible. Several EU network carriers have rationalised their networks since the 
beginning of the century in response to this increasing competition from both inside the EU 
market (low-cost carriers) and outside the EU market (Turkey and the Gulf)59. Others are still 
struggling to reform their business model and have not or are still in the process of adaptation. 
Drawing  from  the  above,  it  should  be  noted  that  not  all  EU  carriers  suffer  from  the  recent 
market evolutions. EU LCCs are mainly present on the intra-EU market and therefore almost 
not exposed to competition from third country air carriers, whereas EU network carriers are 
much more present on the international market and more exposed to competition from third 
country air carriers. Being exposed to different markets and having adopted different business 
approaches,  notably  the  intra-EU  point-to-point  model,  the  LCCs  are  not  as  exposed  as  EU 
network carriers to the competition exercised by third country carriers. 

Without prejudice to the above factors, the competitive situation of EU aviation also depends 
upon fair conditions of competition in international aviation which may be distorted by unfair 
practices by third countries and third country entities. Throughout the last years a number of 
cases  of  competition  distortion  through  subsidies  or  other  distortive  practices  have  been 
alleged  by  the  EU  industry  (described  further  below).  As  presented  in  the  PwC  study60,  a 
number  of  European  airlines  and  several  other  industry  stakeholders  have  repeatedly 
expressed  concerns  that  the  market  share  gains  by  third  country  carriers  have  occurred  not 
only  because  of  their  geographic  advantages  and  lower  cost  structures,  but  also  because  of 
market-distorting subsidisation and unfair practices by third country governments, carriers or 
airports. 

57  
58  

59  

60  

Ibidem. 
OECD  International  Transport  Forum,  EU  Air  Transport  Liberalisation  Process,  Impacts  and  Future 
Considerations, Discussion Paper No. 2015.04, January 2015. 
Some airline bases have been "de-hubbed" by their respective home carriers, such as Milan Malpensa 
(Alitalia), Barcelona (Iberia) or have been drastically downsized (Copenhagen by SAS). 
PwC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from EU.  

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2.1.4.  Concerns  about  the  existence  of  subsidies  and  other  practices  seen  as  distorting 

competition to the detriment of EU carriers 

Over  the  last  two  decades,  many  EU  stakeholders  have  argued  that  the  competitive  playing 
field in international aviation has not been level, with both overt and more subtle government 
support  for  airlines  in  several  regions  of  the  world  affecting  the  ability  of  EU  airlines  to 
compete in the market for traffic to and from third countries. 

The concern over the existence of subsidies and unfair practices and their harmful effect on 
EU  carriers  was  strongly  echoed  in  the  comprehensive  public  consultation  on  "aviation 
package for improving the competitiveness of EU aviation sector".  

A  large  proportion  of  respondents  (96  out  of  123)  agreed  that  EU  carriers  face  challenges 
when competing with third country carriers. A thin majority of stakeholders (68 out of 104) 
were  also  of  the  opinion  that  the  state  subsidies  for  third  country  carriers  are  an  important 
competitive disadvantage for EU carriers, though several respondents argued strongly against 
the  existence  of  such  support.  The same  response  pattern could  be identified  with  regard  to 
the question of unfair commercial practices by third country entities (53 agreed, 21 disagreed 
and  21  were  neutral).  More  neutral  opinions  were  expressed  with  regard  to  the  question  of 
possible  discrimination  of  EU  carriers  by  third  country  governments  or  non-EU  service 
providers (41 agreed, 19 disagreed and 26 were neutral)61. 

When asked to rank the challenges/obstacles which EU carriers face on extra-EU markets, the 
issues  most  mentioned  by  the  respondents  were  cost  advantages  of  non-EU  carriers,  more 
favourable tax regimes and the issue of possible subsidies. When asked about the main areas 
for  future  work  to  improve  the  framework  conditions  of  the  EU's  aviation  sector  in 
international  competition,  respondents  particularly  highlighted  three  areas:  fair  competition, 
regulatory harmonisation and taxation. 

These  views  closely  correspond  to  responses  provided  by  stakeholders  in  the  less 
representative  online  public  consultation  on  a  "proposal  for  improved  protection  against 
subsidisation and unfair pricing practices"62. Noticeably, EU and non-EU entities participating 
in the consultation expressed opposite views on the subject. It should be noted that most EU 
respondents  (6  out  of  8)  taking  part  in  the  consultation  believe  that  EU  air  carriers  are 
currently  facing  unfair  practices  whereas  most  non-EU  air  carriers  disagreed  with  this 
statement.  The  majority  of  respondents  to  the  public  consultation  also  agreed  or  strongly 
agreed that the injury is caused by the existence of subsidies in the supply of air services from 
non-EU countries to and from the EU market (all but one EU airline were in agreement, with 
the remainder declared neutral on this issue). Half of respondents declared that unfair pricing 
practices were causing injury to EU carriers.  

The review of the qualitative responses provides more interesting insights into stakeholders' 
opinions.  There  seems  to  be  a  general  consensus  among  the  respondents  of  both  public 
consultations  that  the  EU  competitiveness  vis-à-vis  dynamic  Asian  and  Middle  East 
economies,  is  dwindling.  It  is  broadly  believed  that  EU  airlines  are  less  and  less  able  to 
compete on pricing, capacity and route choice on a global basis. Stakeholders also agree that, 
should the growth of non-EU airlines continue at the present pace, many EU carriers will be 

61  

62  

A  detailed  analysis  of  stakeholders'  input  can  be  found  in  the  summary  of  Stakeholder  Consultation 
attached in Annex B. 
20  entities  took  part  in  public  consultation,  representing  EU  airlines,  EU  airport  and  industry 
associations,  Member  States,  EU  citizens,  non-EU  airlines  and  industry  associations  and  EU  trade 
unions. 

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required to pull out of numerous markets which would represent a damaging blow to the EU 
aviation  market.  However,  respondents  remain  divided  on  the  question  of  the  underlying 
reasons for the declining EU market position on international air transport market.   

Most of individual stakeholders' inputs indicate a general view that third country carriers are 
potentially  distorting  the  market  through  the  subsidisation  they  receive  from  governmental 
bodies  which  requires  regulatory  attention  at  EU  level.  Stakeholders  perceive  that  there  is 
often  a  close  link  between  non-EU  carriers  and  their  governments  who  grant  a  range  of 
advantages which airlines operating in the more open EU market are unable to compete with. 
Respondents  point  that  foreign  governments  distort  competition,  not  only  by  subsidisation 
(e.g. by covering airline’s or airport’s operating losses through public funding or by offering 
favourable tax treatment), but also by protectionist measures in order to secure their national 
carriers’ advantages over foreign competitors. It is also suggested that significant marketing 
expenses are committed each year by third-country carriers which cannot be matched by EU 
entities.  Respondents  believe  that  these  expenses  vastly  exceed  what  could  realistically  be 
expected to be invested by a carrier operating entirely within the confines of its own financial 
limitations  and  therefore  subsidisation  must  exist.  It  is  believed  that  this  practice  unfairly 
disadvantages EU carriers as the marketing expenses of third-country carriers can exceed the 
profit generated by some airlines.  

When  asked  about  other  kinds  of  unfair  practices,  several  stakeholders  point  that  the  daily 
business of EU carriers is also hindered with respect to access to airport facilities, ground-
handling and slot distribution whereby third-country carriers are given precedence over EU 
competitors. Respondents also report cases, where European carriers need a local sponsor to 
offer services in a third country and have no access to direct sales. Other examples of quoted 
unfair practices are the obligations made to some European carriers to enter into compulsory 
commercial agreements with third country airlines so as to be in a position to exercise traffic 
rights including overflying rights. It is further noted by respondents that the non-EU carriers 
are  often  protected  against  insolvency,  whilst  their  ultimate  aim  abroad  is  not  to  be  a 
profitable entity  but  to represent the country  of its origin  abroad. The national governments 
thus have an intrinsic interest in the operations of their carriers which they believe represents 
them abroad. Such an interest is perceived as less prevalent in the EU market, where the open 
market has seen many national carriers move into private hands.  

Some  respondents  also  pointed that  third-country  entities are  making  strategic investments 
in  EU  airlines.  Once  in  control  of  the  entity  in  question,  it  is  suggested  that  they  seek  to 
channel  as  many  passengers  as  possible  to  their  non-EU  airlines  and  hubs  to  maximise 
returns. This then allegedly damages the EU airlines themselves and by extension the airports 
where  they operate.  Some  respondents  expand  on  this  point,  citing  that  where  the  airline  in 
question is partly owned by a non-EU entity, it can then avail of non-EU sources of capital 
which EU entities may find far more difficult to have access to. This exacerbates the problems 
and increases the gap between two groups of airlines. 

Several  representatives  of  third  countries  who  responded  to  the  public  consultation  rejected 
the  claims  put  forward  by  their  competitors.  These  stakeholders  (mostly  non-EU  entities), 
suggested  that  there  is  no  substantiated  evidence  of  subsidies  and  unfair  practices  and  the 
difficult  situation  of  EU  aviation  internationally  stems  rather  from  the  inefficiencies  and 
structural  problems  of  EU  airlines  themselves.  They  point  to  the  ‘objective’  competitive 
advantages  of  non-EU  carriers,  such  as  advantageous  geographic  location  and  modern  fleet 
and airport infrastructure, as the drivers of their unprecedented growth. In conjunction with a 
wide route network, this has made the airlines in question the service provider of choice for 
many consumers. It was also suggested that it is the general economic crisis in Europe, with 

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a  number  of  EU  nations  remaining  in  recession  and  others  requiring  financial  rescue,  that 
contributed to a decline in EU aviation services offered which third-country entities.  

One stakeholder also suggested that the increasing prevalence of low cost carriers operating 
within the EU aviation market is adversely impacting the services which EU flag carriers can 
offer  on  routes  where  there  was  previously  no  low-cost  carrier  presence.  The  respondent 
implied  that  the  EU-based  low  cost  carriers  have  more  flexible  approach  and  lower  cost 
structures which give them the capacity to successfully compete with EU flag carriers through 
increasing  competitive  pressure  on  prices.  It  is  therefore  implied  that  the  pricing  issues 
reported  by  EU  legacy  carriers  stem  from  competing  against  low-cost  carriers  rather  than 
against carriers reliant on subsidies.  

The  views  expressed  in  both  public  consultations  resonate  with  the  positions  expressed  by 
major  EU  airlines.  One  of  the  main  concerns  of  the  newly  founded  largest  EU  airlines 
association - Airlines for Europe (A4E)63 is that the EU air transport sector is in urgent need 
of  capacity  and  efficiency  improvements  to  remain  competitive  and  continue  to  grow. 
However,  the  airlines  remain  divided  on  the  reasons  behind  EU  aviation  problems  and  the 
necessary  response  to  competition  with  third  countries.  Some  carriers,  like  International 
Airlines Group64 or Alitalia (not a member of A4E) strongly dispute the claims that alleged 
unfair subsidies are being provided by certain third countries to their airlines and stress that 
the  EU  and  other  national  unnecessary  regulatory  costs  are  ultimately  responsible  for 
putting European companies on a competitive disadvantage. They also point to national taxes 
(e.g. passenger/ticket taxes) applied in some Member States which lead to a higher production 
cost base and subsequently hamper the competitive position of EU aviation. IAG, along with 
Air Berlin consider liberalisation with third countries as best means to sustain EU air industry 
growth. On the other side of the spectrum are Lufthansa and Air France-KLM who claim that 
third  country  carriers  are  ‘offering  unnecessary  capacities  at  non-economical  prices  with 
the  objective  of  gaining  market  shares  at  the  expense  of  airlines  operating  under  normal 
commercial conditions’65. Air France-KLM has said that the financial statements from certain 
third  countries  carriers  are  proving  that  ‘subsidies  appear  to  keep  in  the  market  non-
commercially  viable  players’.  Both  airlines  call  for  strong  EU  measures  to  tackle  unfair 
competition.  

The  positions  of  main  EU  flag  carriers  and  their  Member  States  of  origin  are  often  in  line.  
Noticeably, in their responses to the public consultation, as well as separate position papers, 
all public authorities (Austria, France, The Netherlands and UK) have all expressed the need 
to address the issue of unfair competition in international aviation, though without prejudging 
on  the  best  conceivable  solution.  French  representatives  were  most  vocal  in  denouncing  a 
wide range of market-distorting practices, including state subsidies, price dumping or various 
types  of  doing  business  issues  (e.g.  requirement  to  employ  local  sales  agent).  Austrian 
authorities  agreed  with  the  statement  that  subsidies  and  other  unfair  practices  exist  and 
mentioned  possible  discrimination  with  regard  to  access  to  airport  facilities  and  ground 

63  

64  

65  

A4E is a new association founded in 2016 by Europe’s five largest airline groups – Air France KLM, 
easyJet,  International  Airlines  Group,  Lufthansa  Group  and  Ryanair  who  left  the  Association  of 
European  Airlines  (AEA)  –  to  represent  the  interests  of  its  members  when  dealing  with  the  EU 
institutions, international organisations and national governments on European aviation issues. Today, 
A4E  counts  the  following  members:  Air  France  KLM,  easyJet,  Finnair,  International  Airlines  Group 
(IAG), Lufthansa Group, Norwegian, Ryanair and Jet2.com. 
International Airlines Group is a multinational airline holding company formed in January 2011 by the 
merger of British Airways and Iberia. 
http://centreforaviation.com/analysis/af-klm-lufthansa--iag-weigh-in-on-us-gulf-dispute-pt-2-
marketshare-loss-who-owns-the-passenger-245293. 

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handling as commonly reported distortions of competition. The UK authorities’ position in the 
public consultation stood out as manifestly neutral to all the questions regarding the existence 
of subsidies and unfair practices. 

Finally,  a  distinctly  neutral  position  on  the  subject  is  presented  by  Airbus  -  the  major  EU 
aerospace  manufacturer.  The  company  has  consequently  refrained  from  positioning  itself  in 
the  debate  on  how  best  to  promote  'European'  interests  in  aviation.  According  to  the  PwC 
study, Airbus refused to answer questions on its position on trade defence instruments quoting 
"numerous EU and non-EU clients" and potential conflicts as reason66. 

Although,  the  EU  stakeholders  are  not  unanimous  on  the  question  of  subsidies  and  unfair 
practices used by third countries and third country carriers or other third country entities, the 
responses provided in public consultations as well as individual opinions of key EU airlines 
indicate  that  a  considerable  part  of  EU  air  transport  industry  considers  them  a  prominent 
problem today.  

2.1.5.  Allegations regarding subsidies and other practices seen as distorting competition to 

the detriment of EU carriers 

The perceived problem with subsidies and unfair practices by third countries and third country 
entities  is  brought  forward  by  a  number  of  alleged  cases  reported  by  EU  governments,  air 
carriers and media over the last years. Although, they have never been examined or proven in 
a  formal  investigation  under  EU  law,  these  cases  suggest  that  currently  the  term  "unfair 
practice",  as  referred  to  in  the  grievances  raised,  encompasses  a  broad  range  of  measures 
which  amount  to  providing  direct  or  indirect  support  to  third  country  air  carriers  and  other 
third  country  entities.  A  non-exhaustive  catalogue  of  possible  unfair  practices,  whether  by 
airlines,  airports,  air  navigation  service  providers  or  governments  themselves,  along  with 
examples of each of them is presented below. These have not been subject to investigations 
and as such are not proven. This does not prejudge of any action or investigation that could be 
undertaken by the Commission. 

A  subsidy  is  one  of  the  most  commonly  alleged  and  overt  unfair  practice  in  international 
aviation.  Regulation  (EC)  No  868/2004,  hereafter  "Regulation  868/2004",  defines  a  subsidy 
as a financial contribution by a government, regional body or other public organisation, which 
confers a benefit on a recipient of the subsidy. Under the same Regulation, subsidies qualify 
for redressive measures against third country carriers if they are limited in law or in fact to an 
enterprise  or  industry  or  group  of  enterprises  or  industries  within  the  jurisdiction  of  the 
granting authority. In practical terms, subsidies of the kind, independently from the form they 
take, can have a major impact on the growth and operation of third country air carriers.  

EU  network  carriers  operate  essentially  on  a  commercial  basis,  and  therefore  for  financing 
their activities they must rely on the strength of their respective corporate balance sheets. The 
EU  has  detailed  rules  on  State  aid,  applicable  also  to  the  aviation  sector,  within  which 
dedicated  Guidelines  explain  the  Commission's  understanding  and  application  of  those 
rules67. Public support for airports or airlines of whatever form escapes scrutiny if it can be 
demonstrated that it was granted under normal market conditions68. As regards aid to airports, 

66  

67  
68  

PwC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from EU. 
Commission Communication "Guidelines on State aid to airports and airlines" 
The  so-called  "Market  Economy  Operator  test"  is  used  by  the  Commission  in  an  initial  phase  of  the 
investigation (when it is notified of state’s intention to transfer funds) to decide whether the prospects 
of  an  airline  are  so  positive  that  a  private  investor  would  plausibly  make  a  similar  investment.      For 
more information, see points 48 and 53 inter alia of the Guidelines on State aid to airports and airlines. 

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this  is  only  permitted  if  certain  strict  conditions  are  met  to  ensure  that  its  distortive  effects 
have  been  minimised69.  In  turn,  aid  to  airlines  is  largely  banned,  with  a  small  number  of 
exceptions70.  For  instance,  government  rescue  and  restructuring  aid  for  an  ailing  EU  airline 
could only be permitted if the following criteria were met: the aid envisaged forms part of a 
comprehensive  restructuring  programme  aimed  at  restoring  the  short-term  viability  of  the 
carrier cost reduction or return to profitability; capacity reduction or constraints on expansion 
are planned; no fleet expansion takes place; aid is not used to acquire other airlines; aid does 
not increase direct competition with other airlines; there is no government interference in the 
airline’s management and; no further aid is envisaged or likely in the future. Moreover, where 
the rescue and restructuring aid is paid in tranches, the Commission must give its approval for 
each tranche, which is subject to the progress made and the conditions being respected71. By 
contrast, outside the EU it would not appear that comparable control exist, and therefore some 
third  country  carriers  may  benefit  from  more  favourable  treatment  in  terms  of  financial 
support by the State.  

Over recent years, a large number of media reports, academic articles and informal industry 
complaints  have  been  suggesting  that  in  some  non-EU  countries,  government  intervention 
would provide direct or indirect commercial advantages to selected carriers and airports in a 
manner which reduces their costs, or increases their revenues to the detriment of competitors. 
These  carriers  would  then  allegedly  be  able  to  offer  lower  fares  for  their  services  or  offer 
extra  capacity  which  may  in  turn  allow  them  to  increase  their  market  share  by  pushing 
competitors out of the market. 

The PwC study presents a number of examples of alleged subsidisation by non-EU countries. 
For  instance,  various  forms  of  subsidies  were  alleged  to  exist  in  the  Asian  market.  As  an 
example, in 2014, four major State A airlines collectively received over 1.1 billion US dollars 
of  subsidies  and  grants,  including  162  million  US  dollars  for  Airline  A1,  589  million  US 
dollars for Airline A2, 276 million US dollars for Airline A3 and 82 million US dollars for 
Airline  A4.  The  receipt  of  the  above  government  aid  is  incontestable  as  the  government 
funding was openly stated in the carriers’ accounts. Also Airline A2 who successfully merged 
with  Airline  A5  received  an  injection  of  more  than  3  billion  US  dollars  from  State  A 
government. In another case State B Government provided a 5.8 billion US dollars bailout to 
the ailing Airline B1 which allegedly enabled the carrier to charge below-cost fares.   

Recently, leading State X airlines have claimed that the three largest States C and D carriers 
together  would  have  received  42.3  billion  US  dollars  in  subsidies  from  their  governments 
since  2004.  According  to  these  claims  (strongly  disputed  by  States  C  and  D  carriers),  this 
amount would include interest free loans, equity infusions, cash injections, grants, passenger 
fee  exemption,  additional  committed  subsidies,  union  ban  resulting  in  below-market  labour 
costs, avoided interest from government loans, government assumption of fuel hedging losses 
and  subsidised  airport  charges.  This  is  in  contrast  to  rules  in  the  EU  where  State  support 
largely  has  to  be  under  market  conditions.  State  X  carriers  moreover  claim  that  the  three 
leading carriers from States C and D also would have received further subsidies that could not 
be quantified due to lack of financial transparency. The issue is not so much that airlines may 
receive loans or capital injection by their governments, but whether or not the terms of such 
advances are in line with those that might be expected from private investors. Media recently 
reported  about  the  State  C  alleged  3  billion  US  dollars  loans  to  Airline  C1  on  interest-free 

69  
70  
71  

See sections 4 and 5.1 of the Guidelines on State aid to airports and airlines. 
See sections 4, 5.2, and 6 of the Guidelines on State aid to airports and airlines. 
Commission  Communication  "Guidelines  on  State  aid  for  rescuing  and  restructuring  non-financial 
undertakings in difficulty". 

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terms  not  requiring  any  repayment  until  2027  and  apparently  not  in  exchange  for  shares.  It 
would seem very unlikely that a market investor would enter into such transaction. A recent 
study  by  transport  research  firm  GRA72  on  States  C  and  D  carriers'  profitability  on  State  X 
routes makes the rationality of alleged subsidies schemes even more questionable. According 
to the report, of the 23 routes operated by the States C and D carriers to State X in calendar 
year  2014,  19  appeared  to  be  loss-making.  More  than  half  of  these  routes  are  estimated  to 
have  loss  margins  in  excess  of  20  percent  and  the  overall  loss  margin  for  the  three  carriers 
combined is -14.4%.  The report concludes that ‘the preponderance of loss making routes and 
the  size  of  the  losses  suggest  that  the  three  carriers  have  over-expanded  in  State  X  markets 
beyond levels one could justify from the operating results’73. 
Experience in the EU74 has shown that subsidies which are not granted directly to airlines may 
also result in market distortion. As mentioned in section 2.1.4, many EU stakeholders express 
concerns  that  certain  third  country  governments  would  be  financing  the  growth  of  airport 
infrastructure  in  order  to  accommodate  for  the  growth  of  their  incumbent  carriers  through 
deviation  of  traffic  from  "traditional"  routes.  According  to  major  EU  airlines,  this  trend  is 
particularly apparent for traffic that is being deviated via the major States C and D hubs and 
via  major  hub  of  State  E.  There  are  many  reported  examples  where  state-owned  airports 
provide capacity above the actual demand without passing on the cost of that extra capacity to 
their incumbent airlines in the form of higher airport charges. With this practice, the airports 
provide those incumbent airlines with significant cost and service advantages over EU carriers 
(since in the EU, state support for large airports is essentially outlawed)75.  

According  to  information  provided,  the  most  notable  example  of  this  kind  of  alleged 
subsidisation  are  investments  made  in  States  C,  D,  E  and  F,  currently  in  the  process  of 
expanding their airports' capacities which combined will ultimately accommodate 450 million 
passengers per year as compared to the region's current capacity of 140 million passengers per 
year76. In another example, the Government of State G announced at the beginning of 2014 
that it plans to almost double the capacity of G1Airport ahead of demand over the next decade 
with two new terminals. 

The  concerns  of  the  European  airline  industry  are  not  limited  to  subsidies  as  such,  but  also 
extend to the lack of access to information about such potential actions, which leads to the 
perception that subsidies are being offered to the airlines and airports in question. In a number 
of  world  regions,  there  is  no  clear  institutional  or  functional  separation  between  the 
government,  civil  aviation  authority,  airport  management,  and  sometimes  even  airlines, 
making  it  often  impossible  for  outsiders  to  trace  the  flow  of  finances,  other  resources  and 
information. The complex inter-linkage of the various entities (e.g. airlines, airports, catering 

72  

73  

74  

75  

76  

GRA Incorporated, 11.11.2015 -  http://www.openandfairskies.com/wp-content/uploads/2015/11/GRA-
Report-on-ME3-Profitability.pdf. 
The  allegations  made  by  the  State  X  carriers  were  rebuked  by  State  C  in  a  paper  published  in  June 
2015. The study suggest that the State X legacy carriers in question benefit from massive federal, state, 
and local government support. 
See  point  65  of  the  Commission  Communication  "Guidelines  on  State  aid  to  airports  and  airlines" 
concerning the question of whether the advantage resulting from aid to an airport operator can be passed 
on to a specific airline.   
See in particular points 97-105, which outline how investment aid (which does not include State support 
that meets the "Market Economy Operator test") to airports with average passenger traffic (passengers 
per annum) of more than 5 million, is banned in all but "very exceptional circumstances, characterised 
by a clear market failure".   
PwC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from EU. 

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companies, leasing companies, ground-handlers etc.) which are often vertically integrated and 
controlled by the State raises the perception of market distortion among competitors. In this 
regard  the  lack  of  transparency  regarding  the  finances  of  the  hub  airports  in  question  is 
particularly  important,  since  they  form  the  central  nexus  between  State,  airline  and  third 
parties.  Although  problematic,  it  is  not  to  be  expected  that  any  modification  of  the  current 
Regulation would be able to provide a solution to this issue but only in to a limited extent. 

The restrictions of access to infrastructure and facilities for non-incumbent operators are 
other  kinds  of  most  commonly  alleged  unfair  practices.  EU  stakeholders  suggested  several 
cases of possible discriminatory treatment at third country airports, where privileged access to 
airport infrastructure and airport services was granted to the incumbent carriers at the expense 
of EU competitors. 

One  example  of  such  alleged  unfair  practice  concerns  is  the  suggested  discriminatory 
treatment of EU carriers by Airline H1 - the incumbent operator at State H's main airport. It is 
alleged that some EU airlines which fly to and from State H capital face restrictions of access 
to  ground  handling  services  and  are  forced  to  pay  higher  prices  than  Airline  H1.  A  similar 
discrimination  in  access  to  ground  handling  services  has  allegedly  been  experienced  by  EU 
carriers at State I airports.  

Discriminatory airport slot allocation and discriminatory airport charges are other type 
of allegedly used unfair practices negatively affecting the EU airlines' competitive position on 
international  market.  Congestion  at  airports  as  a  consequence  of  the  increase  of  air  traffic, 
coupled  with  environmental  concerns  often  leads  to  a  shortage  of  slots.  This  alleged 
phenomenon would impede market access for EU entrants as third country authorities would 
tend to allocate the slots in a biased, non-transparent manner.  

As  an  example,  State  J  authorities  would  have  allegedly  been  discriminating  against  EU 
airlines  by  excluding  them  from  using  slots  at  State  J  Airport  J1  during  daytime.  Due  to 
unequal slot distribution by State J authorities, the EU and North American carriers’ long-haul 
services were limited to overnight hours, while services by regional airlines to State K, State 
L,  State  A  capitals  and  other  regional  destinations  continued  to  be  allowed  during  the  day 
which allowed them to get better opportunities for onward connections. The latest allocation 
of daytime international slots (October 2013) led to increased flight capacity between city J1 
and many regional markets, but did not have a major effect on capacity between State J and 
Europe. 

Problems with slots were also allegedly experienced by two EU low-cost carriers in State M. 
In 2014, Vueling’s and easyJet’s summer season slots to airport M1 were allegedly revoked 
last minute and replaced by the slots to airport M2, on the basis of new State M memo on slot 
allocation (circulaire nr 2399). For Vueling the transfer of passengers to another airport posed 
a  risk  of  cancellation  of  its  services  and  mandatory  reimbursement  of  some  14  000  tickets 
already sold. Following the analysis of the case, the Commission concluded that the new State 
M  circular  comprised  discriminatory  criteria  openly  favouring  the  national  carriers  at  the 
expense  of  EU  airlines.  Following  the  discussion  under  the  EU-  State  M  Joint  Committee, 
State M authorities ceased the discriminatory treatment and committed to modify the disputed 
circulaire  in  order  to  bring  it  to  compliance  with  IATA  guidelines  as  well  as  Council 
Regulation (EEC) No 95/93 on slot allocation77.     

77  

Council Regulation (EEC) No 95/93 of 18 January 1993 on common rules for the allocation of slots at 
Community airports, (OJ L 14, 22.1.1993, p. 1–6).  

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Allegations  of  higher  airport  charges  which  are  discriminatory  to  EU  carriers  and  favour 
incumbent  operators  have  been,  in  turn,  suggested  at  State  N  and  State  I  airports.  State  I 
authorities are charging a  special tax (35.9% surcharge) applied to  the fee for domestic and 
international  boarding  and  fees  for  the  use  of  air  navigation  aids  and  telecommunications. 
This  surcharge  is  imposed  on  foreign  air  carriers  as  the  collected  airport  charges  do  not 
recover costs for State  I airports78. EU airlines have  expressed concerns on  many occasions 
about the level of State I charges and the way they are calculated. In another case, airport N1 
authorities have been reported to have prepared a tailor-made incentive scheme that favours 
one incumbent airline and its transfer passenger-focused business model. Low-cost EU airline 
has  raised  complaints  that  the  above  practice  unfairly  protects  high  fare  monopolist  and 
jeopardises access of State N consumers to low cost air travel79. 

Third  country  governments  and  other  public  bodies  may  substantially  distort  the  fair 
competition  on  the  market  by  using  what  may  be  labelled  as  "soft"  measures,  though 
displaying  some  form  of  discrimination.  Practices  of  the  kind  are  generally  harder  to  detect 
and  prove  as  the  advantage  offered  to  incumbent  carriers  may  often  be  of  non-commercial 
nature.  This  capacious  group  of  alleged  unfair  practices  may  include  a  broad  range  of 
obstacles to "doing business" for foreign airlines, such as unnecessary red tape, burdensome 
customs  clearance  procedures,  discriminatory  accommodation  rates  and  visa  schemes80  for 
foreign carrier's staff, as well as limited access to airport sales outlets, marketing restrictions 
or obligations to appoint a General Sales Agent in the third country. Although the European 
parties have difficulties in obtaining concrete evidence of such soft discriminatory measures 
there has been a number of allegations of this type over recent years. 

For  example,  EU  carriers  have  allegedly  faced  several  problems  with  "doing  business"  in 
State I. The issues reported by the EU aviation industry include unjustified long waiting times 
to  obtain  routes  authorization,  engine  start-ups  or  taxi  clearances;  burdensome  customs 
procedures for airline spares and equipment; or imposition of special fees on indirect service 
provisions including the sale of a ticket issued by a Travel Agent. 

Allegations on the potential  discrimination against  full  fare carriers applied in  State O were 
also  formulated  by  EU  Member  States.  According  to  MS  reports,  State  O  law  grants 
advantages  to  low-cost  carriers  by  exempting  them  from  the  rule  allowing  passengers  to 
cancel  their  tickets  up  to  14  days  after  the  purchase,  and  by  allowing  them  to  use  the  main 
terminal at airport O1 for lower fees.  

Another  example  of  doing  business  issue  reported  by  an  EU  airline  concerned  State  P.  The 
new  State  P  Air  Services  Price  Advertising  Regulations  require  that  any  person  who 
advertises an air service should display the total price in State P currency when selling flights 
within or originating in State P. All companies whether or not they are legally established in 
State P are obliged to display the prices in State P currency on all their global websites, even 
if  an  airline  does  not  operate  in  State  P  (company  might  be  'present'  in  the  market  through 
interline  and/or  code-sharing  arrangements  only).  The  provisions  allegedly  limit  the 
competition,  since  carriers  not  serving  State  P  directly  will  effectively  be  prevented  from 
holding out their services to the State P public, and to the public in other countries wishing to 
travel to/from State P, through their global sites, unless they accept to publish their prices in 
State P currency. The Commission indicated that meeting the new requirement is problematic 

78  
79  
80  

https://www.wto.org/english/tratop_e/tpr_e/s283_e.pdf  
https://wizzair.com/en-GB/about_us/news/wizen239  
Certain third country carriers act as visa sponsors for entries into their states, while this is not available 
for foreign airlines including EU airlines.   

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as  EU  airlines  would  have  to  develop  country  specific  websites  or  generic  sites  supporting 
transactions in State P currency.  

EU  stakeholders  also  complained  about  the  lack  of  possibility  to  use  facilities  for  their 
passengers at the terminal of third countries' airports, while at the same time it is possible at 
terminals  used  by  local  airlines.  In  2014,  EU  air  operators  allegedly  experienced  such 
discriminatory treatment at airport M1. By the decision  of State M Airport authority all  but 
the  incumbent  carrier  (Airline  M1)  were  reportedly  forced  to  transfer  their  operations  to  a 
specific  terminal.  As  the  latter  was  unadjusted  to  accommodate  the  high  number  of 
passengers, EU carriers allegedly faced serious operational and commercial disadvantages and 
additional costs. 

On the basis of all of the above allegations provided by the EU member States, the industry 
and  the  media  over  the  past  years,  possible  unfair  practices  fall  into  two  main  categories: 
discriminatory practices against EU air carriers, and selective subsidies from third countries to 
third country entities.  

2.1.6. 

Impact of the alleged practices on EU air transport market 

The possible impacts of the alleged unfair practices by third countries or third country entities 
are difficult to assess in the absence of sufficient publicly available information and without 
practical  experience  of  addressing  them  at  EU  level.  While  it  is  difficult  to  quantify  the 
negative  effects  of  the  possible  unfair  practices  on  the  economic  performance  of  EU  air 
carriers,  the  number  of  reported  problems  both  in  and  outside  the  EU,  as  well  as  public 
consultation  results,  suggest  that  it  is  highly  likely  that  alleged  unfair  practices  have  a 
negative impact on the EU entities.  

Alleged unfair practices in the international air transport market, to the extent they exist, may 
in  the  first  place  negatively  affect  EU  airlines’  competitiveness  and  financial  performance 
and,  as  a  consequence,  the  whole  air  transport  value  chain.  As  indicated  in  section  1.3,  the 
current  trends  in  traffic  evolution  between  the  EU  and  world  regions  indicate  decreasing 
prominence of EU carriers in almost all air transport markets  – to/from the EU and beyond. 
The extent to which the above market trends may be due to the impact of unfair practices is 
unknown and it is difficult to quantify it. While it is noticeable that the market share of EU 
airlines has declined the most in markets where unfair competition is widely alleged to exist. 
It is also clear for the reasons presented above, that it is difficult to establish a direct causal 
link  between  alleged  unfair  practices  and  lower  market  shares  of  EU  airlines,  which  in 
absolute levels in most cases are still higher than the ones of their competitors coming from 
these regions.  

Notwithstanding this, it is highly likely that alleged unfair practices have a negative impact on 
the market position of EU airlines, and accordingly, that  their  impact is  most  significant on 
routes  where  beneficiaries  of  these  operate.  Consequently,  it  might  be  assumed  that  EU 
carriers  may  lose  an  important  part  of  their  revenues  on  routes  towards  certain  regions  in 
favour  of  their  competitors  benefiting  from  alleged  subsidies  and  unfair  practices.  The 
financial performance of EU carriers may also be hindered on other international routes where 
alleged  discriminatory  airport  charges,  additional  taxes/fees  or  obstacles  to  doing  business 
occur.   

Distortions  of  competition  resulting  from  practices  adopted  by  third  countries  and  third 
country entities could also have negative effect on EU air transport sector employees. The 
decline  in  economic  position  of  EU  airlines  worldwide  would  translate  into  stagnation  and 
shrinkage of jobs of flight crews and other air transport workers.  

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From  the  EU  consumer’s  perspective  the  most  important  impacts  of  alleged  subsidies  and 
unfair practices, concern the ticket prices, service quality and connectivity in terms of route 
choice.  

The impact of alleged unfair practices on the ticket fares can be very different depending on 
the type of practice in question and period of time. In cases where the EU airlines face higher 
airport  charges,  supplementary  taxes  or  royalties,  the  additional  costs  will  most  likely  be 
passed on the consumers and reflected in higher ticket prices.  

On the other hand, in the short term, the consumers may benefit from lower ticket prices and 
often  higher  service  quality,  where  these  advantages  ultimately  result  from  subsidisation  to 
the non-EU carrier concerned. However, in the medium and longer term, EU airlines may not 
survive the competition of state-owned, allegedly subsidised competitors and may cut back or 
abandon  air  services  on  certain  routes.  This  could  ultimately  transform  certain  markets  into 
oligopolies (e.g. only two or three carriers offering nearly identical service on same routes) or 
even  monopolies.  According  to  classical  economic  theory,  once  the  competition  is  replaced 
by oligopoly/monopoly the prices are no longer shaped by changes in supply and consumer 
demand. This is even more so as in the long-haul international air transport market no direct, 
cheaper  product  substitutes  exist  (i.e.  a  long-haul  flight  by  airplane  cannot  be  effectively 
replaced by any other transport mode). Hence, in the medium to long-term perspective, some 
third country airlines might find themselves in a situation of quasi monopoly regarding certain 
routes and will have no further incentives to cut fares which could mean that EU passengers 
may face ticket price increases.  

Similar rules apply to the impact of alleged unfair practices on service quality. On one hand, 
EU consumers may be able to benefit from better quality of service at reduced prices when 
flying with allegedly subsidised carriers. In 2013, States C and D carriers together with State 
E and State G airlines were among the top-10 both in first-class, business-class and economy-
class  in  terms  of  customer  satisfaction81.  On  the  other  hand,  there  are  number  of  reported 
cases  where  alleged  unfair  and  discriminatory  practices  of  third  countries  and  third  country 
entities negatively affect the quality of services provided by EU flag carriers. As mentioned in 
the previous section, due to the discriminatory treatment of EU carriers, EU passengers were 
allegedly  confronted  with  inconveniences  at a  specific  terminal  1  of  airport  M1,  which  was 
not adjusted for high passenger volumes (small number or lack of check-in counters, security 
gates,  baggage  claims,  passenger  boarding  bridges  etc.).  In  like  manner,  many  long-haul 
services of EU carriers suffered quality deterioration as a result of alleged discriminatory slot 
allocation  at  airport  J1.  The  unattractive  overnight  schedules  made  British  Airways 
temporarily  suspend  its service  on  city  J1-London  route  (which  was  later  restored  on  a  less 
than daily basis).  

Finally, the direct connectivity to and from Europe would likely also be affected by alleged 
unfair  practices.  As  explained,  recent  trends  show  that  non-EU  hubs  have  allegedly  been 
increasing market share relative to EU hubs through the expanding networks of their carriers 
into airports in Europe. This may have implications for intra-EU connectivity as there would 
be a reduction in feeder services from EU airports to EU hubs (where a non-EU hub airport 
has  set  up  a  direct  connection  from  the  EU  feeder  airport),  thereby  reducing  demand  and 
ultimately capacity and frequency on these routes. This means that European consumers are 
increasingly  dependent  on  States  C,  D  and  E  to  travel  to  distant  destinations  that  were 
previously flown to directly and frequently. Hence, EU passengers are gradually losing their 

81  

EU airlines were only reported in the top-10 list for first-class with one airline being present, and in the 
top 10-ten list of premium economy with three airlines. 

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freedom of choice in terms of the journeys they take and the companies with whom they fly. 
European  capitals  are  less  and  less  connected  via  direct  flights  to  final  destinations  vital  to 
European growth82.  

Regarding  the  EU  aeronautical  industry,  some  EU  manufacturers  and  suppliers  in  the 
aviation sector could benefit from rapid fleet expansion in other parts of the world. The scale 
of  aircraft  orders  from  non-EU  carriers,  in  particular  from  States  C  and  D  region,  has 
propelled  these  carriers  into  the  role  of  key  customers  for  aircraft  manufacturers.  Airbus 
(along with Boeing) is a top provider of jet aircraft to the world’s airlines and an export leader 
especially  in  these  growth  markets.  States  C  and  D  airlines  are  big  investors  in  European 
aircraft and currently buy up to 50% of Airbus A380 capacities. However, at present, the three 
biggest markets for Airbus in terms of  volume of civil jets ordered are: Asia-Pacific (27%), 
Europe (22%) and North-America (13%), while the Middle East represents only 7% of Airbus 
orders globally, with 962 aircrafts booked as of 30 April 201483. In the long term, the growth 
prospects for EU equipment manufacturers will then fundamentally depend on high-demand, 
large aviation markets such as Europe. Hence, it is not in EU manufacturers' interest to have 
an EU airline industry that lacks the prospects and the means to modernise and invest. 

Hence, unfair competition in international aviation, to the extent it exists, may have a serious 
negative  effect  on  EU  airlines  and  indirectly,  on  EU  consumers  (passengers),  employees, 
manufacturers and the EU economy as a whole.  

2.1.7.  Legal instruments for protection of competition in other sectors and countries   

Throughout history, international trade has been driven by two contradictory pressures from 
the  domestic  market  players.  Some  industries  urged  their  governments  to  reach  agreements 
with  third  countries  in  order  to  access  foreign  markets  and  export  their  goods,  whereas  the 
others  called  for  protective  measures  against  foreign  competitors  to  be  put  into  place.  This 
dual pressure led governments to conclude agreements with each other and enable access to 
part  of  their  respective  markets  by  eliminating  or  reducing  barriers  to  entry,  while  specific 
rules  against  dumped  and  subsidised  products  were  established.  This  system  was  gradually 
developed through a series of trade negotiations, or rounds, held under General Agreement on 
Tariffs and Trade (GATT) and culminating into the multilateral regime established under the 
WTO agreement.  

A  number  of  EU  instruments  are  relevant  to  the  above.  In  part,  the  intention  is  to  help 
imposing the respect of existing commitments that bind third countries. Other instruments are 
intended,  even  in  the  absence  of  such  commitments,  to  outbalance  the  effects  of  practices 
considered unfair.  The latter is the case of Council Regulation (EEC) 4057/8684. 

A short overview over all these instruments is given immediately below. 

82  

83  

84  

There  is  a  range  of  ways  in  which  connectivity  can  be  evaluated  and  valued.  Connectivity  indices 
capture  the  value  of  connections  through  various  measures,  for  example,  IATA’s  connectivity  index 
weights  destinations  based  on  the  size  of  the  destination  airport  in  terms  of  total  passenger  traffic.  It 
may be noted that for some measures, States C and D airlines’ contribution to connectivity outweighs 
their contribution in terms of available seat capacity given that their hubs are such large, well-connected 
airports. However, if a measure places more emphasis on direct connections, then the increasing use of 
indirect  services  via  States  C,  D  and  E  hubs  may  decrease  the  quality  of  connectivity.  This  is  the 
assumption  that  is  made  in  this  report.  The  impact  of  a  reduction  in  services,  especially  to  regional 
points in the EU, would therefore be likely to represent a reduction in connectivity to those regions.  
PwC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from EU. 
Council  Regulation  (EEC)  4057/86  of  22  December  1986  on  unfair  pricing  practices  in  maritime 
transport (OJ L 378, 31.12.1986, p. 14–20). 

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Under EU law, anti-dumping measures are currently governed by Council Regulation (EU) 
2016/1036 of 8 June 2016 on protection against dumped imports from countries not members 
of the European Union. This Regulation implements Article VI of GATT 1994 and the WTO 
Anti-dumping Agreement and allows the EU authorities to apply an anti-dumping duty to any 
dumped product whose release for free circulation in the EU causes injury85. The Commission 
initiates  an  investigation  to  determine  the  existence,  degree  and  effect  of  any  alleged 
dumping. 

Anti-subsidy measures are governed by Council Regulation (EU) 2016/1037 of 8 June 2016 
on protection against subsidised imports from countries not members of the European Union 
which implements Articles VI and XVI of GATT 1994 and the WTO Agreement on Subsidies 
and  Countervailing  Measures.  Under  this  regulation,  the  Commission  may  impose  a 
countervailing  duty  for  the  purpose  of  offsetting  any  subsidy  granted,  directly  or  indirectly, 
for  the  manufacture,  production,  export  or  transport  of  any  product  which  release  for  free 
circulation in the Community causes injury86. 

The  EU  anti-dumping  and  anti-subsidy  rules  are  defensive  instruments  protecting  the  EU 
market.  They  are  applicable  uniquely  to  trade  in  goods87  and  cover  only  two  kinds  of 
uncompetitive practices.  

In  order  to  ensure  that  the  Union's  trading  partners  would  respect  the  rules  contained  in 
agreements  to  which  the  Union  is  party,  the  EU  adopted  a  Trade  Barriers  Regulation 
(TBR)88 - a tool with a much broader scope of application that applies not only to goods but 
also  to  services  and  intellectual  property  rights.  However,  the  TBR  only  applies  to  those 
services in respect of which international agreements can be concluded by the Union on the 
basis of Article 207 of the Treaty, and therefore does not cover transport services. 

The TBR is an instrument aimed making sure that the international rules eliminating obstacles 
to  trade  effectively  deliver  benefits  to  EU  exporters.  It  gives  the  right  to  EU  enterprises, 
industries or their Associations as well as the EU Member States to lodge a complaint with 
the European Commission who then investigates and determines whether there is evidence of 
a  violation  of  international  trade  rules  which  has  resulted  in  either  adverse  trade  effects  or 
injury. A wide range of obstacles to trade or trade barriers is covered by the Regulation and 
the Annex provides an illustrative list of some of the trade obstacles that are covered by the 
TBR.  An  obstacle  to  trade  is  defined  in  the  Regulation  as  “any  trade  practice  adopted  or 

85  

86  

87  

88  

A  product  is  to  be  considered  as  being  dumped  “if  its  export  price  to  the  Community  is  less  than  a 
comparable price for the like product, in the ordinary course of trade, as established for the exporting 
country”.  
The term ‘injury’ shall mean “material injury to the Community industry, threat of material injury to the 
Community industry or material retardation of the establishment of such an industry”. 
The subsidy consists of a financial contribution by a government in the country of origin or export (or 
in any form of income or price support within the meaning of Article XVI of the GATT 1994), which 
confers a benefit and which is specific to an enterprise or industry or group of enterprises or industries 
within  the  jurisdiction  of  the  granting  authority.  Injury’  means  “material  injury  to  the  Community 
industry,  threat  of  material  injury  to  the  Community  industry  or  material  retardation  of  the 
establishment of such an industry.  
The  trade  in  services  was  partially  liberalized  through  the  GATS  (General  Agreement  on  Trade  in 
Services) which entered into force in 1995 and brought the services industries under multilateral trading 
rules  laid  down  in  the  GATT.  However,  the  GATS  do  not  apply  to  air  transport  services  which  are 
governed by a specific annex of the GATS (see more in problem drivers section). 
Regulation (EU) 2015/1843 of the European Parliament and of the Council of 6 October 2015 laying 
down Union procedures in the field of the common commercial policy in order to ensure the exercise of 
the Union's rights under international trade rules, in particular those established under the auspices of 
World Trade Organization (OJ L 272, 16.10.2015, p. 1–13). 

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maintained by a third country in respect of which international trade rules establish a right of 
action”.  In  this  context,  international  trade  rules  are  primarily  those  established  under  the 
World Trade Organisation (WTO) and bilateral trade agreements89. 

Until the adoption of TBR, the only EU legislation in the services sectors aiming at defensive 
measures  was  the  Council  Regulation  (EEC)  4057/86  on  unfair  pricing  practices  in 
maritime  transport.  The  Regulation  was  modelled  on  the  anti-dumping  and  anti-subsidy 
regulations  on  trade  in  goods.  It  allows  the  Commission  to  impose  a  redressive  duty  in 
response  to  unfair  pricing  practices  “by  certain  third  country  ship-owners  engaged  in 
international cargo liner shipping, which cause serious disruption of the freight pattern on a 
particular route to, from or within the Community and cause or threaten to cause major injury 
to  Community  ship-owners  operating  on  that  route  and  to  Community  interests”.  The 
Regulation  was  used  only  once  in  the  so  called  Hyundai  Merchant  Marine  case,  where  the 
complainant alleged that Korean ship operator, has implemented unfair pricing practice in the 
liner shipping trade between the Community and Australia (charging a freight rate that is 30% 
lower than the average rate on the route), causing a 7% decrease in utilisation of capacity of 
Community’s shippers and a decline in profits on the route. The Commission considered that 
the evidence presented was sufficient to justify the initiation of a proceeding and to impose, at 
the  end  of  these  proceedings,  a  redressive  duty  “on  all  containerized  cargo  loaded  in  a 
Community port on vessels operated directly or indirectly by Hyundai (…) with destination 
Australia90. 

Following the deregulation of the internal aviation market in 1978, the US has developed its 
own  unilateral  defence  instrument  to  prevent  international  competitors  (for  whom  market 
access in the US was being expanded) from exploiting any “unfair” advantages. Adopted in 
1979, the International Air Transportation Fair Competitive Practices Act (IATFCPA)91 
is a legislative tool designed to protect US airlines from unfair and discriminatory practices by 
foreign governments or airlines as well as to protect its rights acquired in bilateral air service 
agreements.  Under  the  Act,  the  US  Department  of  Transport  (DOT)  has  means  of  action  to 
ensure that "U.S. flag air carriers operating in foreign air transportation are protected from all 
forms  of  discrimination  and  are  compensated  for  excessive  or  otherwise  discriminatory 
charges levied by foreign governments or other foreign entities for the use of airport or airway 
property". A basic objective of IATFCPA was to offer US national operators of international 
services a formal administrative possibility to lodge complaints once they deem themselves to 
be subject of unreasonable discrimination. In practice, the US instrument grants the American 
Department  of  Transportation  great  discretionary  powers  to  protect  US  industry  interests 
based  upon  a  complaint  it  finds  justified  or  acting  on  its  initiative.  The  scope  of  the  Act  is 
very broad and allows US DOT to take actions whenever "it considers it in the public interest 
to eliminate an activity of a government of a foreign country or another foreign entity" (…) 
which is deemed "unjustifiable or unreasonable discriminatory, predatory, or anticompetitive 
practice  against  an  air  carrier;  or  imposes  an  unjustifiable  or  unreasonable  restriction  on 
access of an air carrier to a foreign market". In response to such widely defined practices, the 

89  
90  

91  

http://trade.ec.europa.eu/doclib/docs/2005/april/tradoc_122567.pdf.  
Council  Regulation  (EEC)  15/89  of  4  January  1989  introducing  a  redressive  duty  on  containerized 
cargo  to  be  transported  in  liner  service  between  the  Community  and  Australia  by  Hyundai  Merchant 
Marine  Company  Ltd  of  Seoul,  Republic  of  Korea,  (OJ  L  4,  6.1.1989,  p.  1),  Art.  1, 
http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:1989:004:0001:0009:EN:PDF.  
49  U.S.C.  41310,  the  International  Air  Transportation  Fair  Competitive  Practices  Act  (IATFCPA), 
http://law.justia.com/cfr/title49/49-1.0.1.1.34.html.  

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US  Secretary  of  Transportation  has  the  right  to  "deny,  amend,  modify,  suspend,  revoke,  or 
transfer a foreign air carrier permit or tariff"92. 

Following  a  number  of  complaints  from  US  carriers,  the  IATFCPA  has,  been  used  quite 
frequently  between  1986  and  2004.  However,  in  all  but  one93  cases  the  processing  of 
IATFCPA cases alone has acted as a deterrent to foreign governments and a catalyst for the 
international negotiations eventually leading to the amicable resolution of dispute through the 
removal  of  unfair  practice  in  question.  This  was  possible  due  to  the  design  of  the  US  Act 
which, on one hand, requires the Secretary of Transportation to pursue diplomatic resolution 
of  disputes  as  a  first  step  and,  on  the  other,  gives  it  powerful  tools  to  eliminate  any 
discrimination or unfair competitive practice it finds to exist. Hence, the primary and practical 
role  of  IATPCPA  was  not  to  serve  as  an  independent  unilateral  tool,  but  rather  to  act  as  a 
catalyst for international negotiations leading to amicable dispute resolution.  

2.1.8. 

Ineffectiveness of Regulation 868/2004 

The principle of fair competition and a level playing field has been an intrinsic part of the EU 
internal  air  transport  market.  In  the  context  of  growing  liberalisation  of  the  international 
aviation  market  and  remaining  regulatory,  economic  and  cultural  differences  between  the 
competing market players, it has become essential for the EU to ensure that fair competition is 
also  protected  in  its  relations  with  third  countries.  Since  the  issues  of  fair  competition  were 
not so far addressed at bilateral and multilateral level (as explained in the following section) a 
need for an effective unilateral legal tool arose, i.e. a tool that could prevent and counteract 
any possible unfair practices and discrimination from third countries and third country entities 
negatively affecting EU carriers.  

This aim was to be served by Regulation (EC) No 868/2004 (hereafter also "the Regulation"), 
intended to protect EU air carriers against objectively defined practices considered as “unfair” 
and “discriminatory”94, namely subsidisation and unfair pricing practices causing injury to EU 
carriers in the supply of air services to and from third countries. The Regulation was adopted 
as  a  response  to  EU  airlines  concerns  about  unfair  pricing  practices  by  US  carriers  on  the 
transatlantic market following the events of 11 September 2001. The US government granted 
its  airlines  5  billion  US  dollars  in  direct  grants  and  additional  10  billion  US  dollars  in  loan 
guarantees  to  compensate  for  the  4-day  US  airspace  closure.  The  government  financial 
support enabled US airlines to immediately undercut the ticket prices on the EU-US routes, 
seriously  distorting  competition  and  bringing  harm  to  EU  carriers.  This  is  the  main  reason 
why the focus of Regulation 868/2004 was put on subsidies and unfair pricing practices, the 
other being the lack of practical examples of EU legislation aimed at competition protection 
for  a  specific  service  sector  at  the  time  (with  the  exception  of  Council  Regulation  (EEC) 
4057/86 for maritime transport which, in any case, was also modelled on tools used in anti-
dumping for goods). The US regulatory approach was difficult to transpose into the EU legal 
order,  as  the  IATFCPA  comprises  vague  definitions  in  particular  as  regards  its  scope  and 

92  
93  

94  

Ibidem. 
In May 2003, four US carriers filed a joint complaint against the Government of Argentina for imposing 
unreasonable airport charges at Ezeiza airport, which were approximately three times higher than those 
paid by Argentina's flag carrier – Aerolineas Argentina. After failure of the diplomatic efforts, the DOT 
imposed a countermeasure: Aerolineas' permit to operate to the United States was conditioned upon the 
airline's depositing in a neutral account in the United States the difference, for each of its international 
flights landing at Ezeiza, between the user fee it was paying and the fee that United States carriers were 
paying there. http://airlineinfo.com/ostpdf42/655.pdf 
Regulation (EC) No 868/2004, recital 1. 

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grants  extensive  discretionary  powers  to  the  US  Secretary  of  Transportation,  all  of  which 
would be difficult to reconcile with EU standards of legal certainty.      

Regulation 868/2004  allows the Commission to  take redressive measures to  compensate for 
either  subsidies  to  non-EU  air  carrier,  or  unfair  pricing  practices  by  a  non-EU  air  carrier, 
which  cause  or  threaten  to  cause  severe  injury  to  the  Community  industry.  The 
implementation  of  the  mentioned  measures  requires  proof  of  three  combined  substantive 
conditions, namely: i) the existence of subsidies or unfair pricing practices; ii) the existence of 
a  serious  injury  to  the  Community  industry;  and  iii)  a  causal  link  between  the  subsidies  or 
unfair pricing practices and the injury suffered. However, during more than 10 years since its 
adoption, the Regulation has never been used, as no complaint was formally lodged by EU air 
carriers in spite of many informal accusations and complaints from the EU industry about the 
unfair practices allegedly adopted by third countries and third country entities.   

According  to  the  potential  beneficiaries  of  the  Regulation  (i.e.  EU  carriers  and  labour 
associations), the main reasons why the Regulation has proven ineffective is the very fact that 
it was conceptually modelled on tools used in anti-dumping for goods and is therefore not 
properly  adapted  to  the  specificities  of  the  air  transport  sector.  This  results  in  a  number  of 
legal and practical problems. 

Firstly,  the  Regulation  uses  the  concepts  and  definitions  drawn  directly  from  the  legal 
instruments  used  for  defence  of  trade  in  goods.  More  specifically,  the  notion  of  unfair 
pricing  practices  relies  fundamentally  on  concepts  equally  underlying  EU  anti-dumping. 
Another  source  of  inspiration  of  Regulation  868/2004  has  been  Council  Regulation  (EEC) 
4057/86 which played a pioneering role in extending concepts traditionally reserved for goods 
into  the  field  of  services.  This  approach,  however,  proves  to  be  entirely  impractical  for  the 
specific  service  industry  such  as  air  transport  sector  which  has  a  network  character  (an  air 
service  may  comprise  number  of  different  connections  in  different  configurations95)  and 
complex and dynamic pricing system.  

The main problem stemming from the use of trade in goods approach to air service sector is 
the  difficulty  of  determining  the  existence  of  unfair  pricing  practices.  The  Regulation 
requires  proof  that  third  country  airline's  fares  are  offered  sufficiently  below  levels  of  EU 
carriers  and  lays  down  several  elements  to  be  taken  into  consideration  while  comparing 
airfares96. The provision seems to ignore the fact that, unlike other industries, air transport is 
characterised  by  extremely  complex  and  dynamic  pricing  systems.  The  ticket  prices  offered 
for  sale  by  airlines  are  heavily  dependent  on  many  factors  and  conditions,  such  as  date  of 
journey,  advance  purchase  or  ticket  elasticity.  Airlines  attach  different  restrictions  and 
conditions to their fares and apply different price categories for a typical aircraft flight. Price 
levels are modified rapidly and frequently in function of demand and competitors' behaviour. 
In  order  to  calculate  the  route  costs  of  third-country  airline(s),  EU  carrier(s)  would  then 
require  access  to  very  detailed  information  about  finances  and  nature  of  its  competitor(s) 
operations, as simple assessment of publicly available price levels of different air carriers is 
not sufficient to argue the existence of unfair practices. The lack of official complaints under 
the  Regulation  suggests  that  it  is  extremely  difficult  if  not  impossible  to  identify  and  prove 

95  

96   

Air transport network structure is complex and may include point-to-point, hub-and-spoke or multi-hub 
connections (or mix of all of these).  
These elements include i) the actual price at which tickets are offered, ii) the number of seats proposed 
at an allegedly unfair price, iii) the restrictions and conditions attached to the ticket sold at an allegedly 
unfair price, iv) the level of service proposed by all carriers providing the like air service in question 
and v)  the  actual  cost  of  the  third  country carrier providing  the  services,  plus  a  reasonable  margin of 
profit. 

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unfair pricing practices in the aviation sector. Hence, there are significant indications that the 
anti-dumping approach does not deliver adequate results in the field of air services.  

One  of  the  prime  examples  of  the  inadequacy  of  the  trade  defence  approach  resides  in  the 
“like air service” concept. The Regulation defines 'like air service" as services supplied on the 
same  route(s)  or  route(s)  closely  resembling  the  route(s)  on  which  the  air  service  under 
consideration is supplied. This definition was clearly modelled on anti-dumping legislation's 
concept  of  "like  product"  but  does  not  take  into  account  much  more  complex  network 
character of international air transport services and does not offer any meaningful criteria to 
define  the  actual  service  offered  by  an  airline.  It  is  unclear  which  air  services  should  be 
perceived  as  comparable.  For  example,  a  point-to-point  Frankfurt-Beijing  (FRA-PEK) 
connection  may  (depending  on  the  transfer  time)  directly  compete  with  a  hub-and-spoke 
operation Frankfurt – Dubai – Beijing (FRA-DXB-PEK). In another example, two routes may 
both  originate  in  the  same  city  but  at  different  airports  e.g.  Paris  Charles  de  Gaulle  airport 
(CDG)  and  Paris  Orly  (ORY).  The  Regulation  does  not  specify  if  such  routes  could  be 
understood as the "same" or "closely resembling" which makes it difficult if not impossible to 
apply the Regulation to air services. 

Many stakeholders also suggest that the Regulation has never been put to use because of the 
narrow scope of unfair practices addressed. Apart from the market-distorting subsidies, the 
Regulation  makes  reference  only  to  the  unfair  pricing  practices  which,  as  explained  above, 
would  be  very  difficult,  if  not  impossible,  to  tackle.  According  to  the  Regulation,  unfair 
pricing  practices  should  be  restricted  to  the  cases  where  an  air  carrier  is  benefiting  from  a 
non-commercial advantage, which logically covers advantages other than subsidies. This term 
is not further defined and the question arises whether it covers all possible market distorting 
practices,  for  example,  discrimination  in  terms  of  access  to  infrastructure,  slots,  ground-
handling services, sales or sponsoring opportunities 

Last  but  not  least,  the  redressive  measures,  laid  down  by  the  Regulation  are  considered 
inappropriate for the needs of an effective air transport defence mechanism. Remedies other 
than “duties” are only referred to implicitly, without even any precise indication of their scope 
and  objective.  In  conclusion,  the  regime  regarding  the  measures  available  under  the 
Regulation is not satisfactory. Therefore, it is unlikely that airlines will rely on the Regulation, 
if it yields no tangible benefits. 

The continued allegations of unfair practices indicate a possible threat to the competitiveness 
of the EU aviation sector and in particular EU airlines internationally. As there is currently no 
external  legal  framework  to  address  unfair  practices  in  international  aviation  and  the 
Regulation has proven complex and impracticable, more appropriate and effective instruments 
would  need  to  be  developed  to  safeguard  fair  and  open  competition  in  the  EU's  external 
aviation relations.  

2.2. 

Underlying drivers of the problem 

This section below presents the main drivers behind the problem of alleged unfair practices in 
international aviation. First, it explains why the current international legal framework does not 
provide  for  effective  protection  against  unfair  practices  by  third  countries  and  third  country 
entities. Secondly, the section draws attention to the problem of transparency between parties 
and  access  to  the  relevant  data  and  information.  These  underlying  problem  drivers  are 
complementary and together contribute to the main problem of regulatory failure leading to a 
discrepancy  between  the  EU's  fundamental  goal  of  fair  and  undistorted  competition  in 
international aviation and disposing of the means to achieve it effectively.     

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2.2.1.  Lack  of  proper  mechanism  for  protection  of  fair  competition  in  international 

aviation  

At present, unfair practices and discrimination97 in international air transport are not covered 
by  any  binding  multilateral  rules  and  are  not  properly  addressed  by  the  vast  majority  of 
bilateral  ASAs.  This  regulatory  gap  is  recognised  by  a  reasonable  proportion  of  public 
consultation  respondents  who  believe  that  bilateral  ASAs  (60%  of  respondents)  and  ICAO 
(55% of respondents) currently fail to secure fair competition and do not protect EU carriers 
against  unfair  practices  in  the  international  context.  More  than  half  of  respondents 
additionally agreed that the lack of protection is caused by the inefficiencies or non-existence 
of fair competition clauses in bilateral ASAs (explained in section 2.2.1.3). 

The lack of effective mechanisms for protection of fair competition in international aviation is 
noted by the EU institutions, as well. In the 2015 Aviation Strategy, the Commission points 
that  'there  is  today  no  international  legal  framework  to  deal  with  the  issue  of  unfair 
competition  in  a  global  aviation  market  that  would  provide  for  regulatory  instruments  to 
tackle  this  type  of  practices'98.  The  2012  Commission's  Communication  on  "The  EU's 
External  Aviation Policy"  remarks that 'to  avoid market distortion and  prevent a race  to  the 
bottom (…) changes are needed within the global context of aviation'99. 
In  its  resolution  of  2  July  2013  on  the  EU’s  External  Aviation  Policy100,  the  Parliament 
considered 'that bilateral air service agreements are not always the most appropriate solution 
to  combat  market  restrictions  or  unfair  subsidies',  and  that  'a  comprehensive  EU  external 
aviation policy has not been achieved despite the efforts made over recent years'.   

2.2.1.1.  Non-existence  of  international  global  trade  agreements  applicable  to  the 

international air transport services sector  

The  World  Trade  Organization  (WTO)  provides  a  quasi-universal  international  legal 
framework  for  trade  relations  between  its  Members.  It  covers  trade  in  goods,  services  and 
trade  related  aspects  of  intellectual  property.  Trade  in  services  is  regulated  by  the  General 
Agreement on Trade in Services (GATS) which took effect in 1995 and is incorporated as one 
of the Annexes to the Agreement Establishing the WTO. Three cornerstones of GATS are the 
Market  Access,  Most  Favoured  Nation  (MFN)  principle  and  National  Treatment  (NT) 
principle.  Under  the  Market  Access  rule,  WTO  Members  are  prohibited  from  adopting 
specific  measures  contributing  to  limitations  on  the  market  access  of  foreign  services  and 
service suppliers. Under the MFN rule, the rights granted to services and service suppliers of 
one trading partner are automatically and unconditionally granted to like services and service 
suppliers of any other trading partner subscribing the GATS101. The National Treatment (NT) 
principle ensures that foreign services and service suppliers of any other GATS Member do 
not receive treatment less favourable than domestic services and service suppliers102.  

Air  services  are  governed  by  a  specific  Annex  of  GATS,  the  Annex  on  Air  Transport 
Services. The Annex excludes from its scope the largest part of air transport services, namely 
traffic rights and services directly related to the exercise of traffic rights. The only reference 

97  

98  
99  
100  

101  
102  

Article  15  of  the  Chicago  Convention  stipulates  non-discrimination  in  relation  to  airport  charges,  air 
navigation charges and similar charges. 
Commission Communication "An Aviation Strategy for Europe". 
Commission Communication "The EU's External Aviation Policy - Addressing Future Challenges" 
European  Parliament  resolution  of  2  July  2013  on  the  EU’s  External  Aviation  Policy  –  Addressing 
future challenges (2012/2299(INI)). 
See Article II (1) of the GATS. 
See Article XVII of the GATS. 

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to  air  transport  in  GATS  Annex  on  Air  Transport  Services  states  that  the  Agreement, 
including its dispute settlement procedures, shall not apply to measures affecting traffic rights, 
however granted; or services directly related to the exercise of traffic rights, with exemption 
for three ancillary services:  

  aircraft repair and maintenance services; 

 

the selling and marketing of air transport services; 

  computer reservation system (CRS) services. 

Consequently,  the  current  WTO/GATS  framework  does  not  provide  for  any  dispute 
settlement  procedures  to  address  concerns  of  unfair  practices  in  international  air  transport. 
Moreover, contrary to trade in goods, there are no specific103 WTO disciplines dealing with 
subsidies for services.   

The exemption of core air transport services from multilateral regime stems from the fact that, 
unlike  other  service  industries,  historically  international  air  transport  has  been  mainly 
regulated  through  bilateral  inter-governmental  agreements  granting  market  access  on  a 
reciprocal  quid  pro  quo  basis.  The  bilateral  reciprocity  in  the  broad  network  of  existing 
bilateral aviation agreements made the application of GATS MFN principle almost impossible 
to  the  aviation  sector,  as  it  would  have  required  extending  to  all  WTO  members  the  best 
treatment  a  country  grants  to  any  other  country  with  respect  to  air  services.  In  the  present 
international aviation this could lead to the problem of “free riders” countries who could avail 
themselves  of  the  most  liberal  concessions  whilst  keeping  their  own  markets  closed,  as  the 
most  liberal  countries  could  not  use  the  concessions  made  as  a  bargaining  chip  to  obtain 
reciprocal treatment. Similar difficulties could be found, although to a lesser extent, with the 
National Treatment principle104.  

2.2.1.2.  ICAO  rules  do  not  currently  address  the  issue  of  fair  competition  in  the 

international air transport sector 

Signed in 1944, the Convention on International Civil Aviation (the 'Chicago Convention') is 
the most important primary source of public international aviation law. It is binding upon its 
signatory states, which have pledged not to enter into any obligations or understandings that 
are inconsistent with the terms of the Convention.  

In  contrast  to  the  matters  of  safety,  security  and  air  traffic  management,  the  Chicago 
Convention does not confer a clear mandate for ICAO to act in the area of economic matters. 
According to Article 6 of Chicago Convention, the principle of national sovereignty governs 
the area of market access. In essence, this Article provides that all commercial international 
air  passenger  transport  services  are  forbidden  except  to  the  extent  that  they  are  permitted 
(through  ASAs).  Factually,  ICAO’s  activity  in  economic  regulation  of  scheduled  airline 
services  is  essentially  limited  to  providing  advisory  assistance  to  the  States  that  are  its 
members  who  regulate  the  market  through  bilateral  ASAs.  ICAO  rules  currently  do  not 
provide for an international fair competition regime in air transport.  

103  

104  

There exists no SCM Agreement for services indeed. However, the non-discrimination provisions in the 
GATS (MFN and NT) do apply to subsidies granted to service suppliers (contrary to the GATT). 
Unlike the MFN treatment principle, which applies across the board, the NT principle applies only to 
the  sectors  singled  out  by  the  WTO  Members.  Moreover,  NT  is  subject  to  the  WTO  Members’ 
conditions  and  qualifications,  which  often  reflect  existing  restrictions  in  national  legislation,  such  as 
ownership and control limitations. 

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38 

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The idea that ICAO could play a formal role in economic regulation has been discussed for 
decades,  but  so  far  without  resulting  in  adoption  of  either  Standards  or  Recommend 
Practices105  (SARPS)  in  areas  such  as  fair  competition.  ICAO  as  an  inter-governmental 
organisation  has  difficulties  in  achieving  compromise  solutions  on  sensitive  issues  in  the 
absence of a consensus among all its members. In addition, States have widely differing views 
on economic matters, and some of them are strongly opposed to any increased role for ICAO 
in  economic  regulation.  Notwithstanding  these  differences,  there  is  broad  agreement  among 
ICAO  members  that  fair  competition  is  an  important  general  principle  in  the  operation  of 
international air services and a number of States supported work by ICAO to  establish core 
principles  on  fair  competition,  both  to  provide  a  clearer  understanding  and  to  indicate 
appropriate measures to address problems.  

Despite the limited activity of ICAO in economic regulation of international air services, the 
fair  competition  principle  has  been  accompanying  the  organisation  from  its  very  beginning. 
Already  in  the  Preamble  to  the  Chicago  Convention  there  is  a  reference  stipulating  that 
“international  air  transport  services  may  be  established  on  the  basis  of  equality  of 
opportunity”.  Consistent  with  the  Chicago  Convention,  the  bilateral  air  services  agreements 
that were negotiated between nations often refer to "fair and equal opportunities to compete" 
or use similar expression106. 

As  in  most  intergovernmental  organisations  the  decisions  in  ICAO  are  generally  taken  by 
consensus. Therefore, if a number of ICAO Member States do not perceive fair competition 
principles  to  be  in  their  national  interests,  they  can  effectively  impede  real  progress  in  the 
development  of  an  international  regulatory  regime  including  fair  competition  rules.  Until 
recently, the references to fair competition in ICAO documents have been limited mostly to 
the Policy and Guidance Material on the Economic Regulation of International Air Transport 
(Doc 9587107), as well as model clauses on competition available in the Template Air Service 
Agreements and Doc 9626108, which also describes the effects of public subsidies and other 
means of public support. These documents are non-binding guidance materials laid down to 
help the countries deal with these issues.    

In  recent  years,  the  problem  of  subsidies  and  unfair  practices  in  aviation  has  gained 
prominence at international level. The ICAO Assembly A/38 which took place in September 
and  October  2013  recognised  the  importance  of  fair  competition  and  agreed  that:  “fair 
competition  is  an  important  general  principle  in  the  operation  of  international  air  services” 
and that “ICAO should play a leadership role in identifying and developing tools to promote 

105  

106  

107  
108  

Standards and Recommended Practices (SARP) are technical rules which must be applied by all States 
that are members of ICAO in order to achieve consistency throughout the world. SARP are published in 
Annexes  to  the  Convention  on  International  Civil  Aviation  (Chicago  Convention).  Standards  are  any 
specification,  the  uniform  application  of  which  is  recognized  as  necessary  for  reasons  of  safety  or 
regularity  of  international  air  navigation  (their  application  by  all  Member  States  is  mandatory). 
Recommended  practice  is  a  specification  the  uniform  application  of  which  is  recognized  as  desirable 
(not mandatory). 
In practice, however, governments were hardly willing to allow their carriers to really compete. Rather, 
they  seemed  to  give  more  weight  to  objectives  of  stability  (i.e.,  preventing  service  failures  and 
destructive  competition)  than  they  were  on  actually  providing  equality  of  opportunity.  What 
governments appeared to seek for their respective flag carrier(s) was an “equitable” split of a pool of 
revenues  that  were  based  on  controlled  (and  high  –  above  marginal  cost)  fares  to  achieve  sound  and 
economic operations. Routes and capacity were typically divided among carriers in such a manner as to 
ensure each carrier could operate profitably. 
http://www.icao.int/sustainability/Documents/Doc9587_en.pdf  
http://www.icao.int/sustainability/Documents/Doc9626_en.pdf  

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39 

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dialogue  and  the  exchange  of  information  among  interested  authorities  with  the  goal  of 
fostering more compatible regulatory approaches”.     

Moreover,  in  May  2014  the  ICAO  Air  Transport  Regulation  Panel  recommended  for 
consideration by ICAO governing bodies and its Member States the text of a long-term vision 
for international air transport liberalisation: 

“We, the Member States of the International Civil Aviation Organization, resolve to actively 
pursue  the  continuous  liberalisation  of  international  air  transport  to  the  benefit  of  all 
stakeholders and the economy at large. We will be guided by the need to ensure respect for 
the highest levels of safety and security and the principle of fair and equal opportunity for all 
States and their stakeholders”.  

Although the text did not use directly the word "fair competition", it addressed the principle 
of  "fair  and  equal  opportunity".  Another  important  outcome  of  the  Panel  was  the 
establishment of a working group on competition matters.  

The  question  of  competition  in  international  aviation  was  also  discussed  during  the  ICAO 
International Air Transport Symposium on 30 and 31 March 2016 which was followed by a 
meeting on 1 and 2 April of the working group set up by the Air Transport Regulation Panel. 
The theme of the symposium was "Addressing competition issues: towards a better operating 
environment". Panels dealt with issues such as comparison of competition regimes applied to 
air  transport,  the  role  of  government  in  liberalised  air  transport,  connectivity  and 
competitiveness  in  a  liberalised  market;  and  the  role  of  aviation-specific  safeguards.  The 
symposium  noted  a  positive  trend  of  growing  number  of  jurisdictions  which  apply 
competition  rules  to  air  transport  (even  though  a  number  of  States  have  aviation-specific 
safeguards  in  place).  Nevertheless,  the  meeting  revealed  divergent  views  among  attendees 
over the issue of competition, the role it can play in international aviation and the approaches 
that should be taken to address competition issues such as abuses  of a dominant position or 
the granting of state aid. Most fundamentally, the symposium illustrated the fact that for many 
states,  competition  problems  are  secondary  as  compared  to the  problem  of  connectivity and 
market access.  

In  conclusion  of  the  symposium,  the  Secretary-General  of  ICAO  highlighted  the  need  to 
continue  to  pursue  liberalisation  while  making  effort  to  understand  better  the  different 
competition rules around the world. Since there was prevailing scepticism expressed over the 
likelihood  of  an  international  framework  for  rules  on  fair  competition  emerging,  the 
Secretary-General stressed the role of regulatory cooperation as a first step in a long process 
towards regulatory convergence on competition matters, considered the end goal. 

Even  though  the  declarations  and  decisions  presented  above  are  important  steps  to  enhance 
the exchange of information, cooperation and dialogue on issues concerning fair competition, 
they still fail to effectively address these issues on the global scale. Since the establishment of 
ICAO,  some  ICAO  Member  States  have  been  reluctant  to  pursue  a  far  reaching  policy  on 
economic  regulation  in  general  and  fair  competition  in  particular,  and  without  consensus 
among Member States any changes in ICAO policies will not be possible. Hence, in spite of 
various efforts by some states to address fair competition issues at ICAO level, for the time 
being,  the  current  international  regime  remains  ineffective  in  assuring  fair  and  undistorted 
competition on the international air transport market.  

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40 

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2.2.1.3.  Bilateral  Air  Service  Agreements  between  EU  Member  States  and  third 
countries  do  not  effectively  guarantee  protection  for  EU  air  carriers  against 
unfair practices 

ASAs  are  international  agreements  regulating  economic  rights  under  which  airlines  may 
operate between signatory countries. Together with associated memoranda of understanding, 
agreed records etc. they usually cover traffic rights, origin and intermediate points, capacity, 
frequency,  the  number  of  designated  airlines  and  other  commercial  arrangements  such  as 
pricing mechanism principles.  

As mentioned above, ASAs normally fail to address competition related issues in general, and 
fair  competition  in  particular.  The  most  commonly  used  “fair  and  equal  opportunity  to 
operate/compete” clause is not capable of properly addressing possible unfair practices. First 
of all, these clauses are in general vaguely drafted and subject to very different interpretations, 
and  ICAO  has  been  unable,  so  far,  to  develop  commonly  accepted  guidance.  For  example, 
“fair  and  equal  opportunity”  may  be  interpreted  by  some  states  as  meaning  unrestricted 
competition by the airlines of the parties with no government control of capacity and prices, 
while other states may argue that the airlines of the two sides should have an equal share of 
the market. Moreover, if any dispute arises regarding the alleged distortion of competition, it 
is  limited  to consultations between the parties to the relevant  ASA. In  practice, this kind  of 
disputes  are  usually  raised  to  a  political  level  or  not  settled  for  a  long  period  thus  creating 
tensions and hindering the development of air services. 

As  explained  earlier,  the  liberalisation  of  the  EU  internal  air  transport market  did  not  cover 
the  extra-European  market  dimension.  Only  the  so-called  “open  skies”  judgments  of  5 
November 2002109 of the Court of Justice of the European Union triggered the development 
of a genuine EU external aviation policy. These "open skies" judgments implied the need to 
bring existing ASAs between EU Member States and third countries in line with EU law. In 
order  to  do  so,  in  2004  Member  States  together  with  the  European  Commission  developed 
standard  clauses  for  inclusion  in  ASAs  between  Member  States  and  third  countries  in 
accordance with Article 1(1) of Regulation (EC) No 847/2004110. EU standard clauses cover 
the following issues: 

  designation and revocation ("EU air carrier designation"); 

 

references to nationals or air carriers of a Member State; 

  groundhandling 

Following  up  on  the  progress,  in  2012  in  its  Communication  on  the  EU's  external  aviation 
policy,  the  Commission  proposed:  "(…)  to  develop  –  most  appropriately  at  EU  level  – 
standard  "fair  competition  clauses"  to  be  agreed  and  included  in  the  respective  bilateral  air 
services  agreements  with  EU  Member  States".  The  template  fair  competition  clause  was 
adopted  in  November  2013.  It  lays  down  some  basic  principles  to  follow  to  ensure  fair 
competition; a consultation mechanism; and, as a last resort, safeguard measures ("actions") 
in case the partner country does not engage in consultation or is not willing to make remedies 
to  restore  fair  competition.  However,  unlike  standard  clauses  required  for  compliance  with 
EU  law,  the  fair  competition  clause  is  not  mandatory,  and  it  is  up  to  Member  States  to 
consider how to use it when negotiating with third countries. In many ways, making the fair 

109  
110  

http://ec.europa.eu/transport/modes/air/international_aviation/external_aviation_policy/index_en.htm  
Regulation (EC) No 847/2004 of the European Parliament and of the Council of 29 April 2004 on the 
negotiation and implementation of air service agreements between Member States and third countries 
(OJ L 157, 30.4.2004, p. 7–17). 

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competition  clause  mandatory  does  not  appear  to  be  a  credible  possibility,  and  may  on  the 
contrary trigger reluctance from third countries to engage into negotiations with EU Member 
States. 

It should be added that some Member States have already pursued to include fair competition 
clauses  in  their  bilateral  ASAs  with  third  countries.  However,  for  the  time  being,  there  is  a 
very limited number of ASAs that have been amended to include such clauses, mainly due to 
reluctance  among  third  countries  to  subscribe  to  them.  More  success  has  been  achieved 
through  EU  level  negotiations  which  introduced  fair  competition  clauses  in  the  EU 
comprehensive aviation agreements with the US, Canada,  Israel, Jordan, Morocco, Moldova 
and Georgia as well as the initialled agreement with Brazil. It should be also stressed, though, 
that fair competition is addressed in different ways in the above-mentioned agreements, as a 
consequence of a compromise necessary to conclude the agreements.  

2.2.1.4.  Lack of access to information about the support received and financial accounts 

of third countries air carriers 

In  order  to  secure  the  proper  functioning  of  the  intra-European  market  the  EU  developed 
appropriate  transparency  measures.  In  fact,  the  EU  single  market  is  framed  by  a 
comprehensive set of financial oversight rules and functions. For example, competent EU or 
national bodies are authorised to demand and obtain access to the relevant information in case 
of  an  investigation  of  alleged  anti-competitive  practices  or  State  aid.  Moreover,  Regulation 
(EC)  No  1008/2008  on  “common  rules  for  the  operation  of  air  services  in  the  Union”  has 
established  a  common  air  carrier  licensing  system  based  on  non-discriminatory  and 
transparent  licensing  conditions.  Without  such  an  operating  licence  undertakings  are  not 
allowed to operate on the European market. An undertaking that applies for or holds operating 
license must meet certain strict requirements, inter alia on financial fitness. For the purpose of 
verification  of  its  financial  fitness  each  undertaking  is  obliged  to  provide  the  relevant 
information.  The  competent  licensing  authority  is  responsible  for  close  monitoring  of  the 
compliance of an air carrier with the requirements underlying the operating license. If an EU 
carrier  breaches  its  obligation  to  submit  the  relevant  information  the  Regulation  provides 
enforcement measures. The competent licensing authority is obliged to suspend or revoke the 
operating  license  if  the  Union  air  carrier  knowingly  or  recklessly  furnishes  the  competent 
licensing authority with false information. It is entitled to do so if the audited accounts are not 
communicated  in  a  due  time.  It  should  be  noted  that  the  financial  fitness  verification 
mentioned does not constitute a check on subsidisation, and nor does it entail publication of 
the information obtained. 

The  US  and  other  countries,  such  as  Australia  and  New  Zealand,  use  economic  licence 
requirements  for  foreign  air  carriers  wishing  to  operate  to/from  their  respective  territories.  
The  authorisation  may  require,  among  others,  compliance  with:  nationality  requirements; 
financial  fitness  criteria;  ‘relevant’  national  laws  and  regulations,  and  the  ‘public  interest. 
Subsequently,  the  permit  may  be  granted,  or  refused,  or  made  subject  to  conditions  as 
formulated by the competent civil aviation authority. 

At  the  same  time,  the  availability  of  information  and  data  from  third  country  airlines  is 
limited.  At  EU  level  no  such  information  requirements  for  third  country  airlines  exist. 
Similarly,  there  is  no  adequate  mechanism  to  obtain  the  information  required  from  parties 
other than airlines. 

The  financial  licencing  of  third  country  carriers  is  not  part  of  bilateral/EU-level  air  service 
agreements,  either.  The  standard  provisions  on  operating  authorisations  included  in  ASAs 
oblige  the  competent  authorities  of  EU  Member  States  to  grant  appropriate  authorisations 
with minimum procedural delay, on the basis of operating licence received in accordance with 

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42 

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national law of the Signatory state. The only condition for granting the operating authorisation 
is  in  fact  the  ownership  and  effective  control  of  third  country  carrier  by  the  Signatory  third 
country111.  

A significant part of EU industry perceives the lack of access to information as an important 
obstacle to effectively addressing unfair practices by third countries and third country entities. 
The  industry  stakeholders,  who  responded  to  the  public  consultation,  stress  the  lack  of 
transparency  of  the  financing  arrangements  of  foreign  carriers  and  airports  and  point  that 
whereby  foreign  carriers  are  granted  access  to  the  EU  market,  the  EU  does  not  impose  any 
obligation  on  them  to  provide  transparency  on  financing  arrangements.  In  this  context,  the 
respondents  complain  that  under  Regulation  868/2004,  the  burden  of  proof  regarding  the 
unfair  practice  and  the  injury  lays  with  the  injured  EU  airline  itself.  However,  European 
airlines  often  find  it  difficult  to  establish  any  proof  of  unfair  practice  due  to  the  lack  of 
mechanisms  allowing  them  to  obtain  the  necessary  information.  Possible  unfair  practices  as 
stipulated by Regulation 868/2004 can therefore not be appropriately identified and dealt with 
as essential information necessary for the investigation is lacking. 

Therefore, the stakeholders suggest that the revised legal framework should facilitate access 
to financial data of third parties in order to gather sufficient evidence of unfair practices by 
third  country  airlines,  subsidies  provided  by  third  countries  to  airlines  and  consequential 
damage  caused  to  the  EU  aviation  industry  and  the  causal  link  between  a  price  and  the 
damage. 

2.3. 

Does the EU have the right to act? Legal basis and subsidiarity 

As it was the case for adopting the current Regulation 868/2004, the  legal basis of any new 
initiative is Article 100(2) of the Treaty on the functioning of the European Union. 
Compatibility  with  the  principle  of  subsidiarity  was  recognised  in  the  26th  recital  of 
Regulation (EC) No 868/2004, insofar as it concerned the terms of that Regulation. 

As  explained  in  the  previous  sections,  in  international  aviation  the  balance  between 
competition in  the  market and regulatory  framework for competition  is determined between 
countries through air service agreements which have the legal quality of national laws and are 
adopted by national Parliaments. Bilateral ASAs traditionally focus on opening market access 
opportunities  to  competition,  but  do  normally  not  harmonize  the  regulatory  framework  that 
should  ensure  that  competition  is  not  distorted,  as  these  are  understood  to  be  essentially 
national policy issues. Market access issues covered in ASAs address primarily designation of 
the carrier, destinations, and points served, as well as capacity limitations, but in most cases 
not the conditions for competition. 

The liberalisation by way of Open Skies Agreements, such as those concluded by the United 
States of America form the 1990s, or EU legislation in form of the Third Package (1992)112, 
abandoned  route  specific  limitations.  As  far  as  relations  with  third  countries  are  concerned, 
the  liberalisation  of  traffic  rights  was  hardly  followed  by  any  harmonisation  of  regulatory 
frameworks that should ensure that the competition between and/or in the signatory countries 

111  

112  

A  standard  authorisation  article  requires  that:  an  air  carrier  has  its  principal  place  of  business  in 
signatory  country:  effective  regulatory  control  is  exercised  and  maintained  by  the  signatory  country; 
and that the air carrier is owned, directly or by majority participation, and effectively controlled by the 
signatory country or its nationals.  
Notably Council Regulation (EEC) No 2407/92 of 23 July 1992 on licensing of air carriers (OJ L 240, 
24.8.1992,  p.  1–7)  and  Council  Regulation  (EEC)  No  2408/92  of  23  July  1992  on  access  for 
Community air carriers to intra-Community air routes (OJ L 240, 24.8.1992, p. 8–14).  

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43 

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is not distorted. Most of the bilateral ASAs between the individual Member States and non-
EU countries today still do not contain provisions with regard to fair competition, unfair trade 
practices  and  illegal  state  aids.  Even  though,  the  EU  countries  whose  air  carriers  face 
problems  with  alleged  unfair  competition  could,  theoretically,  limit  the  allocation  of  traffic 
rights to the airlines of unfair competitor, in practice, this would mean the similar limitations 
to their own airlines on the basis of reciprocity. This is best exemplified by the high number 
of liberal bilateral agreements (granting unlimited traffic rights) concluded by 23 EU Member 
States with Gulf countries.  

As far as international negotiations and, more generally, interventions in international fora are 
concerned,  it  is  clear  that  collectively,  the  EU  has  much  greater  leverage  in  pursuing  and 
defending EU aviation interests than Member States individually in their relations with third 
countries. Comprehensive international air service agreements negotiated by the Commission 
based  upon  a  Council  mandate,  while  opening  third  country  markets,  are  usually  also 
achieving  a  higher  levels  of  regulatory  convergence.  The  relative  political  and  economic 
weigh  of  the  EU  makes  the  negotiating  partners  keener  on,  either  directly  transposing  EU 
competition rules to their national legislative framework, or including fair competition clauses 
which  prohibit  unjustified  state  aid  and  other  forms  of  anti-competitive  practices  and  offer 
dispute settlements mechanisms and safeguard measures. 

The leverage of individual EU Member States within ICAO is also considered insufficient to 
effectively make a difference with regard to the promotion of fair competition in multilateral 
international fora. Even if not formally a member of ICAO, it is the EU as a whole, that offers 
a viable example of market liberalisation and parallel fair competition framework that could 
serve  as  potential  model  for  future  multilateral  regime.  As  for  the  WTO,  the  EU  as  single 
customs  union  with  a  single  trade  policy  and  tariff  has  been  (next  to  28  MS)  the  official 
member since 1 January 1995 and the European Commission represents all EU member States 
at almost all WTO meetings.  

Since the objectives sought could not be achieved without action at EU level, such action is 
necessary to this effect and, by definition, adds value.   

3. 

OBJECTIVES 

The objectives of this initiative and the link with the identified problems are presented below. 

Table 1 – Objectives and the linkage to problem drivers identified 

Main Problem 

General objective 

Concerns about unfair practices by third 
countries and third country entities negatively 
affecting EU carriers continue to exist 

level  playing  field  between 
Ensure  a  fair 
European  and  third  country  air  carriers  by 
effectively  protecting  European  air  carriers 
from  unfair  practices  by  third  countries  and 
third country entities 

Problem driver 1 
Absence  of  adequate  and  effective  mechanisms  to 
in  a  context  of 
safeguard 
increasing  liberalisation  of  international  aviation 
market  

fair  competition 

Specific objective 1 
Provide  effective  defence  and  redress  measures 
third 
against  possible  unfair  practices  by 
countries and third country entities  

Problem driver 2 
Lack  of  transparency  and  information  about  the 

Specific objective 2 
Ensure  access  to  relevant  data  and  information 

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support  received  and  financial  accounts  of  third 
countries air carriers  

from third country parties  

These objectives are also in line with the following political priorities of the Commission for 
the period 2014-2019: 1) more jobs, growth and investments, 2) a fairer and deeper internal 
market with a strengthened industrial base, 3) the EU as a global actor.  

3.1. 

Policy options 

The  stakeholder  consultation,  independent  research  and  own  analysis  have  allowed 
identification  of  a  set  of  policy  options  having  the  potential  to  address  the  problem  drivers 
identified  in  section  2.  The  baseline  scenario  presents  the  problem  evolution  and  expected 
impacts in case where no changes are introduced.  

Furthermore, one policy option will not be further considered in this document, since it is very 
unlikely to be preferred, for the reasons explained in section 3.3. 

3.2. 

Baseline scenario (how would the problem evolve, all things being equal) 

If no action is to be taken the most probable scenario for EU air carriers is the continuation or 
even  aggravation  of the current  situation. Namely, to  the extent unfair  practices exist, some 
EU airlines will continue to suffer from absence of effective instruments to address them in 
the  global  market.  Moreover,  the  negative  impact  on  some  European  airlines  not  having  at 
their  disposal  an  effective  instrument  for  addressing  alleged  unfair  practices  will  most 
probably magnify, as global competition in international air transport is expected to intensify 
in  the  coming  years  (see  section  2.1.2)  and  possible  concerns  about  alleged  unfair  practices 
may arise in relation to different third country governments and third country entities113.  

As  described  in  section  1.3,  the  international  air  traffic  growth  of  around  5%  annually  is 
expected until 2030. The Airbus forecast114 estimates this average annual growth rate at 4.6% 
and  predicts  that  over  the  next  20  years  Europe  will  record  second  lowest  yearly  traffic 
growth  (+3.6%)  in  the  world.  The  highest  average  annual  growth  will  be  at  the  same  time 
realised by the Middle East (+6.0%) followed by Asia-Pacific region (+5.6%). Similar trends 
are expected by Eurocontrol115 which predicts that "in terms of air traffic growth, Europe will 
be  in  the  slow  lane,  with  the  Middle  East  and  China  (Asia/Pacific)  growing  much  more 
rapidly".  Eurocontrol  forecast  until  2035  presents  even  more  alarming  estimations  for 
European growth. In its ‘most-likely’ scenario, it is estimated that there will be 14.4 million 
flights  in  Europe  in  2035  (1.5  times  the  2012  volume)  which  translates  into  an  average 
increase of merely 1.8% per year.  

Under  the  baseline  scenario,  the  anaemic  growth  of  European  aviation  in  the  20-year 
perspective  will  most  likely  translate  into  further  decrease  in  global  market  share.  Airbus 
forecasts  that  while  the  European’s  market  share  will  drop  by  5  percentage  points  between 
2013 and 2033, the Middle-Eastern carriers and airlines from Asia-Pacific region will increase 
their market participation by 5 and 6 percentage points respectively. Boeing forecasts that the 

113  

114  
115  

The below figures presenting expected market developments do not suggest that these developments are 
result of alleged unfair practices. These figures are simply showing expected market developments in 
general,  taking  account  of  various  factors  that  may  influence  these  (e.g.  shift  of  economic  growth; 
geographical position of certain countries). 
Airbus Global Market Forecast, Flying by Numbers 2015-2034.  
Eurocontrol, 
http://www.eurocontrol.int/sites/default/files/content/documents/official-documents/reports/201307-
challenges-of-growth-summary-report.pdf 

Challenges 

Summary 

Growth 

Report, 

2013, 

of 

EN 

45 

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share of European traffic will drop from 34% in 2013 to 29% in 2033. At the same time the 
share  of  Middle  Eastern  traffic  (including  intra-Middle-Eastern  operations)  is  predicted  to 
increase  by  2  percentage  points  from  10%  in  2013  to  12%  in  2033.  Unsurprisingly,  Asia-
Pacific is expected to become the largest market by 2034, responsible for 40% of the world air 
traffic measured in revenue passenger-kilometres (RPKs). 

As  in  case  of  the  whole  market  the  baseline  scenario  predicts  the  decline  in  major  extra-
European  direct  traffic  flows.  Traffic  between  Europe  and  North  America  is  expected  to 
lose its global share from 7% in 2013 to 5% in 2033. At the same time, the share of the air 
traffic  flows  between  Europe  and  the  Asia-Pacific  is  only  expected  to  be  maintained  at  the 
same  level.  Meanwhile,  traffic  to  and  from  today’s  emerging  markets  is  expected  to  grow 
much more strongly both in terms of actual traffic and its share. In 2034, more than 70% of 
the traffic is expected on routes from, to and between emerging regions. Most noticeably, the 
flow  between  Middle  East  and  Asia  is  expected  to  increase  its  global  market  share  by  half 
over  the  forthcoming  20  years.  This  market  share  growth  is  expected  to  be  realised  to  the 
disadvantage of Europe and North America, which Airbus expects to account for a combined 
share of 37% in 2033 (vs. 48% in 2014 and over 60% at the beginning of the century). 

If all things stay equal, the future position of EU airports is expected to be difficult as well. 
In Eurocontrol most-likely scenario EU airports will lose around 1.9 million flights amounting 
approximately  12%  of  demand  in  2035  due  to  congestion,  noise  restrictions  and  resulting 
higher costs. It is estimated that this would amount to some 120 million passengers unable to 
make their there-and-back trip. The economic cost of not being able to accommodate future 
demand for travel in the EU is estimated at between 400,000 and 800,000 fewer jobs by 2035 
and an annual contribution to EU GDP lower by €28 billion to €52 billion116. 

Under the baseline scenario the orders of new aircrafts will most likely continue to grow at 
strong pace. According to Airbus, total new deliveries between 2015 and 2034, are expected 
to be close to 32,600 aircrafts. Most deliveries are forecast for Asia-Pacific with 39% of the 
demand, or nearly 12,600 aircraft. North America and Europe, more mature markets, will still 
require 11,900 aircraft equalling to 37% of total deliveries (Europe: 20%, N. America: 17%). 
to meet their airlines’ needs. Only 7% of world deliveries are predicted for the Middle East 
region.   

The orders of new types of aircrafts, able to fly longer distances and carry more passengers, 
thereby making travel more efficient, will most likely continue to expand. Many airlines, in 
particular from the Middle East are expected to increasingly use larger aircraft117, suggesting 
that the latter region would continue to concentrate on long-haul hub flights (Middle Eastern 
carriers on average use the largest aircraft, with an average 208 seats per flight).  

116  

117  

Upon  request  of  the  Commission,  the  issue  of  the  economic  cost  of  not  being  able  to  accommodate 
future demand for travel at EU-28 level was addressed by the Airport Observatory. Although there is no 
'silver bullet' approach which completely and indisputably quantifies such cost, and considering that it 
was  not  possible  for  the  Observatory  to  quantify  the  adverse  impacts  associated  with  airport  related 
activities  (noise),  due  to  the  lack  of  appropriate  methodology  at  EU  level,  figures  considering  the 
foregone  direct,  indirect  and  induced  benefits  would  be  as  follows  (two  different  estimates170): 
according to the Oxford Economics approach prepared for Air Transport Action Group (ATAG): a total 
of 818,000 fewer jobs by 2035 and an annual contribution to GDP lower by €52 billion; according to 
the  InterVISTAS  approach  prepared  for  ACI  Europe:  a  total  of  434,000  fewer  jobs  by  2035  and  an 
annual contribution to GDP lower by €28 billion. 
Nevertheless it is generally expected that the biggest orders will still be realised for short and medium 
haul aircrafts (around 88% single-aisle and small twin-aisle aircrafts combined) worldwide in the next 
20  years.  The  same  share  in  Europe  is  81%,  in  Asia-Pacific  86%,  in  North  America  95%  but  in  the 
Middle East only 61%. 

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The  expected  impacts  of  the  above  trends  on  EU  airlines,  EU  air  sector  employees,  EU 
consumers  and  EU  manufacturers  of  air  equipment  in  the  short  and  medium/long  term  is 
described under section 2.1.6. The analysis suggests that there is a need for appropriate and 
effective  mechanisms  to  prevent  or  correct  market  distortions  and  imbalances  which  may 
arise from the unfair practices.  

However,  there  are  no  indications  that  in  the  foreseeable  future  the  General  Agreement  on 
Trade  in  Services  (GATS)  would  be  fully  extended  to  international  air  transport  and  that 
subsidies  disciplines  will  be  developed  for  the  service  sectors.  It  is  more  probable  that  an 
appropriate  and  mandatory  fair  competition  framework  could  be  developed  by  ICAO, 
however,  this  could  take  some  time  since  decisions  are  made  by  consensus  and  currently 
certain  ICAO  members  oppose  international  provisions  in  the  area  of  fair  competition. 
Furthermore,  ICAO  decisions  are  not  necessarily  legally  binding  since they  are  often  in  the 
form of recommendations. 

As mentioned under section 2.2.1.3, there is also no prospect for a rapid change in terms of 
including  and  enforcing  fair  competition  provisions  in  bilateral  Air  Service  Agreements. 
Currently, most ASAs concluded either at EU level or by the Member States individually with 
third states only include a basic commitment to “fair and equal” opportunity which does not 
provide  legal  means  to  act  against  unfair  practices.  More  modern  agreements,  especially  at 
EU  level,  do  include  expanded  fair  competition  clauses,  but  there  are  only  very  few  in 
existence  with  only  a  minimal  impact.  In  addition,  even  where  these  may  be  introduced 
(mainly  EU-wide  ASAs),  they  may  differ  significantly  depending  on  the  dynamics  of  each 
individual negotiation.  

In  this  context,  it  should  be  noted  that  under  the  framework  of  the  Aviation  Strategy,  the 
Commission  had  recommended  the  issuance,  by  the  Council,  of  an  authorisation  to  open 
negotiations on comprehensive air transport agreements with inter alia the States of the Gulf 
Cooperation  Council  (GCC)118,  Association  of  Southeast  Asian  Nations  (ASEAN)119  and 
Turkey. Such approval was granted by the Council with respect to ASEAN, Qatar, the United 
Arab  Emirates  and  Turkey  on  7  June  2016.  At  this  point  it  is  very  difficult  to  foresee  the 
outcome  of  the  negotiations,  in  particular  given  Parties'  divergent  views  on  the  question  of 
fair competition. 

This  does  not  mean  that  this  aspect  is  unimportant.  It  only  means  that  mechanisms  that 
operate  outside  specific  clauses  in  international  agreements  (currently  Regulation  (EC)  No 
868/2004) need to be available and effective. 

Lastly, with no action by the EU, it is also highly unlikely that the current Regulation will be 
used  by  EU  stakeholders  to  pursue  cases  of  (genuine)  distortion  arising  from  subsidies  and 
unfair practices. In like manner, the simple repeal of the current Regulation without proposing 
alternative  legislative  tool  is  not  expected  to  improve  the  situation  of  EU  aviation 
stakeholders. Member States and the European airline industry have systematically requested 
the  revision  of  the  EU  regulatory  framework.  As  mentioned  under  section  1.4.,  the 
Commission,  the  Council  and  the  Parliament  all  concluded  that  there  is  a  need  to  develop 
more  effective  instruments  to  safeguard  fair  competition  in  EU  external  aviation  relations. 
The simple repeal would contradict that approach and could indeed be interpreted as meaning 
that the EU institutions consider the issue of unfair practices as less significant. Such position 
would  also  be  at  odds  with  the  results  of  the  public  consultation,  according  to  which  most 

118  
119  

Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates. 
Indonesia,  Malaysia,  the  Philippines,  Singapore,  Brunei,  Cambodia,  Laos,  Myanmar,  Vietnam, 
Thailand. 

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47 

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European stakeholders are calling for a strengthened EU legislative framework for protection 
against unfair and discriminatory practices in international air transport. 

3.3. 

Discarded policy options  

Considering  a  wide  range  of  approaches  to  address  the  alleged  unfair  practices  that  cause 
harm  to  EU  air  carriers  in  the  international  air  transport  markets,  one  policy  option  can  be 
immediately discarded based on a preliminary analysis. 

3.3.1. 

Improved  functioning  of  the  current  Regulation    (EC)  No  868/2004  through  a 
limited revision and the adoption of interpretative guidelines 

The  assumption  of  this  option  is  that  the  objectives,  core  principles  and  structure  of  the 
current Regulation (EC) No 868/2004 have merit and only require revision and supplements 
to clarify its standards and improve its functioning. It is assumed that the main problems that 
impede  the  use  of  the  Regulation  reside  in  the  fact  that  definitions  and  concepts  it  contains 
merely require further clarification / explanation, and the difficulty of complainants to gather 
the necessary information on alleged subsidies/unfair practices and their impact.  

The objective of this option would then be to provide such clarifications / explanations in the 
interest of easier implementation of the Regulation, i.e. through a revision compounded by the 
adoption of Commission guidelines on the interpretation of the Regulation.  

In  order  to  facilitate  the  application  of  the  Regulation  a  number  of  terms  such  as  "like  air 
services", "community industry", "unfair pricing practices", "non-commercial advantage" and 
"injury" would be reviewed for content and relevance and, if necessary, replaced or clarified 
through amendments to the Regulation. Wherever relevant, new definitions would be added to 
Article  3  (Definitions)  of  the  Regulation.  All  key  terms  and  concepts  would  be  further 
explained in the guidelines, which would take account of their rationale and context, namely 
the air transport sector.   

Procedural issues related to the filing of complaints and the conduct of investigations would 
be revised and, if required, simplified. Any necessary help in respect of interpretation would 
be provided in  the guidelines. Through the clarifications they would provide, the guidelines 
would  ease  the  initiation  of  proceedings,  minimise  the  time  of  investigation,  and  make  the 
investigation procedure as transparent as possible.  

This option is not further considered in this document for the following reasons.  

Firstly, such limited intervention would not address the essence of problem driver 1, namely 
that the Regulation is unfit for purpose because it is unadjusted to specificities and dynamics 
of international air transport. The fact that the Regulation is impracticable does not stem from 
the  lack  of  legal  clarity  (or  ambiguity)  of  its  provisions.  It  results  from  the  fact  that  the 
Regulation is largely inspired by anti-dumping rules for trade in goods without consideration 
for the specific nature of international air services, in particular its network character of the 
airline  business  and  operations  and  dynamic  revenue  management  mechanisms  used  by 
airlines120.  Hence,  without  significant  changes  to  the  material  substance  and  logic  of  the 
Regulation, it is very unlikely that the current legislative tool would be able to impact market 

120  

Revenue  management  is  a  process  based  on  demand  forecasting.  These  forecasted  demand  patterns 
define which ticket prices, when and under which conditions are offered to customers. The ticket prices 
offered for sale are heavily dependent on many factors and conditions, such as date of journey, advance 
purchase, number of days at destination or ticket elasticity. The complexity of fares' management is also 
aggravated by the practice of code-share agreements, interlines agreements or even consolidated fares 
between the airlines. This makes the airline fares hardly comparable. 

EN 

48 

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behaviour and re-establish a fair playing field. The EU air carriers would still be essentially 
deprived of an effective instrument that would provide for protection against possible unfair 
practices by third country governments and third country entities. This view is also supported 
by  the  majority121  of  public  consultation  respondents  who  do  not  perceive  a  limited 
amendment of the Regulation as a viable option. 

This  applies  apart  from  the  implementation  and  compliance  costs  entailed  by  such  an 
instrument. 

3.4. 

Considered policy options  

3.4.1.  Policy option A: Baseline scenario 

The  baseline  scenario  is  described  in  section  4.1.  Under  this  option,  the  Regulation  would 
remain  unchanged  which  implies  a  high  probability  that  it  would  not  be  applied  also  in  the 
future.  

As  no  changes  would  be  made  to  the  current  internal  framework  applicable  to  the 
international  air  transport  services  sector  as  well  as  to  external  framework  (in  the  short  and 
medium terms), EU airlines would most probably continue to suffer from the lack of effective 
protection against unfair practices by non-EU countries and non-EU entities122. 

3.4.2.  Policy option B: Increased international efforts at WTO and ICAO level aimed 
at  the  adoption  of  a  multilateral  legal  framework  for  fair  competition  in 
aviation  and  inclusion  of  expanded  fair  competition  clauses  in  ASA  ensuring 
protection for EU air carriers against unfair practices (non-regulatory option) 

Option B equally implies that Regulation 868/2004 would remain unchanged, but assumes an 
intensification of the EU's efforts at international level aimed at ensuring protection for EU air 
carriers  against  unfair  practices  in  international  aviation.  The  EU  would  undertake  parallel 
negotiations  at  multilateral  fora  (ICAO/WTO)  and  in  relations  with  third  countries  and 
country  blocs  (via  negotiations  of  EU-level  comprehensive  air  services  agreements)  to 
achieve a viable framework for fair competition in international air transport services without 
taking any legislative action.  

At the multilateral level, the EU would promote the idea to cover subsidies and other unfair 
practices  in  air  transport  by  binding  multilateral  regulation.  The  need  to  obtain  efficient 
instruments to protect the European air transport sector against possible unfair practices and 
subsidies would be pursued at WTO or ICAO level. Given that ICAO is already working on 
a  possible  multilateral  air  services  liberalisation  agreement  under  the  Aviation  Transport 
Regulatory  Panel  (ATRP)123  and  that  the  application  of  WTO/GATS  principles  of  NT  and 
MFN to the existing web of ASAs will be almost impossible in practice, the EU would focus 
mainly in the work at ICAO.   

121  

122  

123  

10  of  13  respondents  who  offered  the  opinion  did  not  support  a  mere  amendment  of  Regulation 
868/2004. 
Around  10%  of  the  respondents  to  the  online  public  consultation  considers  that  Regulation  868/2004 
should remain unchanged. Whereas 30% of the 20 respondents are neutral, 50%, including several EU 
airlines  and  trade  unions,  consider  that  it  is  necessary  to  bring  changes  to  the  Regulation  to  make  it 
more effective. 
In  March  2013  the  Sixth  Worldwide  Air  Transport  Conference  of  the  International  Civil  Aviation 
Organization  (ICAO)  mandated  the  ICAO  Air  Transport  Regulation  Panel  (ATRP)  to  consider  and 
develop  multilateral  international  agreements  in  the  liberalization  of  market  access  and  in  further 
liberalization of air cargo services, as well as develop an international agreement in the liberalization of 
air carrier ownership and control. This important endeavour is being undertaken by the Panel to foster a 
long-term vision for international air transport liberalization.  

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49 

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The  EU  would  increase  its  international  activity  within  ICAO  by  actively  supporting  the 
ICAO role in modernising the existing framework governing the global aviation market, just 
as it does in other key areas such as safety and security. To that end, the EU would strongly 
advocate  fostering  the  role  reserved  for  ICAO  in  the  area  of  economic  regulation  for  the 
global aviation sector. In particular, the EU would continue to promote the conclusion of a 
multilateral aviation agreement that would include provisions on fair competition.  

To  that  end,  the  EU  would  make  efforts  (in  coordination  with  Member  States)  to  reinforce 
cooperation with like-minded partners concerned about alleged unfair practices and therefore 
having  similar  interests  in  ensuring  a  fair  competition  on  the  international  air  transport 
markets.  The  cooperation  would  also  go  beyond  the  multilateral  agreement  and  seek  to 
achieve a degree of coordination in respect of policies conducted by the respective partners 
against  unfair  practices,  i.e.  their  definition  and  implementation.  One  aim  would  be  to 
promote  a  common  regulatory  approach  at  ICAO  level.  In  this  context,  the  EU  would  be 
actively engaged in exchange of information, cooperation and dialogue on issues concerning 
fair competition in recently established ICAO working group on competition matters.  

In  a  final  step,  the  EU  would  concentrate  its  efforts  to  achieve  a  global  understanding  of 
‘fair  competition’  in  the  context  of  ICAO  which  could  allow  for  the  formulation  of  ICAO 
recommended provisions on fair competition conditions. Ultimately, these actions could lead 
to the adoption of an international fair competition regime for the global aviation sector and 
new policy instruments within the ICAO framework124.    

At  the  same  time  the  EU  could  actively  promote  the  developments  of  disciplines  for 
subsidies for services in the context of the GATS/WTO. Such disciplines already exist today 
for goods125 and GATS Article XV recognised that under certain circumstances subsidies may 
have distortive effects in trade in services and provides that WTO members should enter into 
negotiations  with  a  view  to  developing  the  necessary  multilateral  disciplines  to  avoid  such 
trade distortive effects. Work on this matter has already started in the WTO, but negotiations 
on this issue are not yet underway. These subsidies disciplines could potentially be applied to 
all services sectors, including aviation, and could complement well efforts done at ICAO.  

Outside the framework of the WTO and Chicago Convention the EU would focus efforts on 
strengthening  Member  States'  and  EU-level  air  service  agreements  through  negotiating  the 
comprehensive  fair  competition  clauses  (see  section  2.2.1.3).  The  enhanced  ASAs  with 
comprehensive fair competition provisions would contribute to a fairer competition regime 
for  air  transport  services  ensuring  third  Party's  compliance  with  the  principles  of  fair 
competition  by  explicitly  prohibiting  unfair  practices  and  providing  for  efficient  dispute 
settlement mechanisms and safeguard measures.  

As mentioned in section 2.2.1.3, the main difficulty of the bilateral process resides in the lack 
of fair competition clauses in bilateral ASAs, and little prospect that this changes following 
renegotiations126.  That  is  why,  under  option  B,  priority  would  be  given  to  the  EU-level 
negotiations  of  comprehensive  air  service  agreements.  This  would  be  in  line  with  the 

124  

125  
126  

Commission's  Communication  on  "The  EU's  External  Aviation  Policy"  calls  for  changes  within  the 
global aviation market and indicates that ICAO could play a leading role in that process by helping to 
further develop the economic regulatory framework, including in ensuring a worldwide framework for 
fair competition. 
WTO Agreement on Subsidies and Countervailing measures  
Regulation (EC) No 847/2004 provides notably for a mechanism ensuring that ASAs between Member 
States  and  third  countries  are  in  line  with  EU  law,  specifically  with  freedom  of  establishment  as 
guaranteed by the Treaties. 

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50 

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Commission’s  stated  view  on  EU  external  aviation  policy  according  to  which  'EU-level 
negotiations which are based on EU unity and authorised by the Council generally represent 
a more appropriate and effective way in pursuing the European interest. This approach should 
therefore  be  developed  as  the  general  practice  with  all  major  partners,  rather  than  as  an 
exception to the rule - as at present'127. Indeed, practice shows that the relative political and 
economic power of the EU combined with the interest of third countries in broader access to 
the  European  market  (e.g.  through  additional  traffic  rights)  provides  the  EU  with  more 
leverage  to  successfully  include  fair  competition  provisions  in  the  aviation  agreements. 
Another important advantage of EU-level negotiations is that one comprehensive ASA with a 
third country replaces a high number (up to 28) of MS-level bilateral agreements. This in turn 
could alleviate the problem of time-consuming renegotiation of around 2000 bilateral ASAs 
between  EU  MS  and  third  countries  (as  explained  under  section  2.2.1.3).  Thereby,  a 
successful inclusion of fair competition clauses even in a few EU comprehensive agreements 
with  strategic  EU  partners  (representing  the  key  markets  for  EU  airlines)  could  potentially 
have  significant  impact  on  establishing  more  effective  protection  for  EU  carriers  against 
unfair competition. Under option B, the EU would insist on the introduction of comprehensive 
fair competition clauses in all newly concluded EU-level ASAs.  

The level of fair competition protection granted under the EU-level agreements will naturally 
depend  on  the  negotiating  partner  and  respectively  EU  leverage  in  negotiations.  Whenever 
possible,  the  EU  would  pursue  the  ambitious  goal  of  extending  the  principles  of  EU  fair 
competition law regime to cross border air services through the regulatory harmonisation of 
third countries' competition rules with EU acquis. Negotiating partners would be encouraged 
to  align  their  aviation  policies  and  laws  with  those  of  the  EU  in  return  for  access  to  the 
attractive  EU  internal  market.  The  obligation  to  adopt  the  EU  acquis  has  already  been 
included in several agreements with EU neighbourhood countries. In this context, particularly 
consistent  and  coherent  regimes  are  contained  in  the  Euro-Mediterranean  Aviation 
Agreements,  which  lay  down  detailed  substantive  provisions  and  procedures  for  fair 
competition  and  State  subsidies.  In  the  case  of  Morocco,  competition  between  the  EU  and 
Morocco  is  basically  governed  by  Chapter  IV  of  the  EC-Morocco  Association  Agreement 
which  provides  that  the  EU  competition  rules  must  be  applied  to  the  trade  of  goods  and 
services  between  the  parties.  The  EU-Morocco  Aviation  Agreement  provides  though  for 
special rules in regard to State subsidies. State subsidies for airlines are nor forbidden per se 
but  the  Contracting  Party  must  demonstrate  that  such  subsidies  are  'proportionate  to  the 
objective, transparent and designed to minimise their adverse effect to the carriers of the other 
Party'.  The  agreement  between  the  EU  and  Swiss  Confederation  contains  provisions  that 
mirror  EU  competition  law.  For  example,  under  Article  13  of  this  agreement  contains,  in 
respect of State aid, substantive provisions mirroring relevant parts of Article 107 TFEU.128 

127  
128  

Commission Communication "The EU's External Aviation Policy - Addressing Future Challenges". 
In this respect, account must be taken of Article 1(2) of the Agreement, which contains the following 
provisions: Insofar as they are identical in  substance to corresponding  rules of the EC Treaty and to acts 
adopted  in  application  of  that  Treaty,  those  provisions  shall,  in  their  implementation  and  application,  be 
interpreted in conformity with the relevant rulings and decisions of the Court of Justice and the Commission 
of  the  European  Communities  given  prior  to  the  date  of  signature  of  this  Agreement.  The  rulings  and 
decisions given after the date  of signature of  this Agreement shall be communicated to Switzerland. At the 
request  of  one  of  the  Contracting  Parties,  the  implications  of  such  latter  rulings  and  decisions  shall  be 
determined by the Joint Committee in view of ensuring the proper functioning of this Agreement. 

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Article  14,  ensures  mutual  information,  possibilities  to  make  comments,  as  well  as 
possibilities to discuss in the Joint Committee.129   . 

In cases where harmonisation with EU rules is not an option, the EU would attempt to reach a 
common  understanding  of  fair  competition  principles  with  negotiating  Party  through 
laying down specific references to practices considered as unfair and thus prohibited under the 
agreement.  The  EU-Canada  Agreement  is  a  useful  example  of  such  arrangement,  as  both 
Parties agree on how to deal with "conditions that […] adversely affect a fair and competitive 
environment".  In  the  Agreement  both  sides  recognise  that  subsidies  fall  to  be  treated  under 
those  provisions  and  may  give  rise  to  consultations  and,  where  they  produce  significant 
disadvantages or harm, to unilateral action by one party. 

One of  the most important weaknesses  of many present  air service agreements between EU 
MS and third parties is the lack of appropriate framework for consultation and settlement of 
potential  disputes.  Therefore,  the  EU  would  work  on  equipping  ASAs  with  enhanced 
consultation  and  arbitration  mechanisms  to  encourage  pro-active  regulatory  coordination 
and  facilitate  the  amicable  dispute  settlement  whenever  market  distortions  due  to  unfair 
practices occur. Such mechanisms should preferably involve Joint Committees (to be) set up 
under the respective agreements. 

As  explained  in  section  2.2.1.3,  the  standard  bilateral  agreements  do  not  provide  for  any 
mechanisms  allowing  Member  States  or  the  EU  to  require  financial  information  from  third 
country carriers when those are applying for operating authorisation in the EU. That is why 
the EU would ensure that the harmonised (on an EU level) introduction of a ‘fair competition’ 
clause in ASAs would also include rules on access to financial data of undertakings or any 
other relevant information to ensure the proper implementation of the Agreement, as market 
access condition.  

Lastly,  the  provisions  on  prohibited  unfair  practices  and  consultation  mechanism  under  fair 
competition  clauses  would  be  linked  to  safeguard  clauses  that  give  Parties  scope  to  act 
unilaterally without formally breaching the ASA. Such clauses, where they could be agreed, 
would give scope to condition traffic rights. As an example, under the EU-Israel Agreement, 
failure to reach agreement on an issue of subsidies raised by a Contracting party may lead to 
the  withdrawal  or  the  refusal  or  suspension  of  the  operating  authorisation  of  the  subsidised 
carrier  by  the  other  Contracting  party.  Similarly,  under  EU-Canada  Agreement  on  Air 
Transport the aggrieved Parties may take unilateral action that is "appropriate, proportionate 
and targeted at the entity benefiting from the positive conditions", if consultations within the 
Joint Committee fail to resolve the issue.  

3.4.3.  Policy option C: Major changes to the regime contained in Regulation 868/2004 
which  would  be  repealed  and  replaced  by  a  new  comprehensive  and  effective 
EU legal instrument (regulatory option) 

Option  C would  abandon  the  current approach based on a trade defence instrument for 
goods and would resort to a better adapted approach, giving rise to a genuine sector specific 
instrument.  The  key  elements  of  the  new  Regulation  would  address  deficiencies  identified 
under  problem  drivers  and  include  inter  alia  better  adapted  scope,  streamlined  and  more 

129  

Article  14  reads:  The  Commission  and  the  Swiss  authorities  shall  keep  under  constant  review  […]  all 
systems  of  aid  existing  respectively  in  the  EC  Member  States  and  in  Switzerland.  Each  Contracting  Party 
shall ensure that the other Contracting Party is informed of any procedure initiated to guarantee respect of 
the rules of [Article] 13 and, if necessary, may submit observations before any final decision is taken. Upon 
request by one Contracting Party, the Joint Committee shall discuss any appropriate measures required by 
the purpose and functioning of this Agreement. 

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appropriate  procedures  and  improvements  as  regards  possible  redressive  measures,  while 
maintaining strong investigative powers for the Commission.   

As  explained  in  section  2.1.8,  the  inadequacy  of  a  trade  defence  approach  to  air  transport 
sector is most clearly reflected in the contested scope of the practices addressed by the current 
Regulation. In particular, the concept of "unfair pricing practices", inspired by GATT rules on 
product dumping, is not suitable for the aviation sector characterised by complex pricing and 
revenue management mechanisms. For that reason, the new Regulation would  abandon the 
objective  of  addressing  unfair  pricing  practices  in  aviation  and  focus  on  action  against 
subsidies  which  negatively  affect  EU  competitors  as  one  of  the  most  common  forms  of 
alleged  unfair  practices  distorting  competition130.  As  in  other  trade  defence  instruments,  the 
new Regulation measures would only act against the subsidies which are proven to exist and 
cause injury to EU carriers.  

The  current  scope  of  the  Regulation  is  also  disputed  for  being  too  limited  to  cover  various 
types of potential market-distorting practices reported to bring injury or adverse effect to EU 
carriers (as described in section 2.1.8). This is why, in addition to subsidies, the Regulation 
would establish a right of action in respect of discrimination in favour of third country carriers 
from  third  countries  as  such  or  from  third  country  entities.  Discrimination  would  be 
considered  relevant  in  respect  of  all  inputs,  in  the  widest  sense,  to  air  services,  and  the 
relevant  rules  would  hence  cover  areas,  such  as  air  navigation  or  airport  facilities  and 
services,  fuel,  ground  handling,  security,  computer  reservation  systems,  slot  allocation, 
charges, and the use of other facilities and services necessary for the operation of air services. 
It would encompass not only the supply of goods and services, but also relevant government 
decisions, be it in the operational or technical field. Such definition, albeit sufficiently precise, 
would be general in nature so as to cover practices of the kind, whether or not there have been 
earlier cases of the same category. Hence, any practice adopted by a foreign government or 
entity discriminating an EU carrier or EU carriers vis-à-vis non-EU competitors, and leading 
to injury on EU carrier(s) could open the possibility for a complaint and/or investigation.  

The new Regulation would extend its scope to cases of violation of applicable international 
obligations.  These  "applicable  international  obligations"  would  be  defined  as  obligations 
contained  in  an  agreement  to  which  the  Union  is  a  party,  and  which  contain  provisions 
relating to fair competition.  

The  new  Regulation  would  also  clearly specify  the  eligibility  for  lodging  a  complaint  and 
the  information  that  such  a  complaint  should  contain.  With  regard  to  the  former,  the  new 
Regulation  would  provide  standing  for  bringing  a  complaint  to  both  individual  EU  carriers 
and  associations  of  EU  carriers.  This  would  imply  a  relaxation  of  the  entitlement  to  file  a 
complaint, currently confined to the Union "industry" as defined in Article 3(b) of Regulation 
(EC) No 847/2004.  Under the new Regulation, Member States  would also have  the right  to 
file a complaint to the Commission against discriminatory practices or selective subsidies by a 
third country party. The Commission would also retain its right to initiate the investigation on 
its own initiative. This may be important in cases where the interests of some EU carriers in a 
third  country  might  militate  against  their  joining  a  specific  complaint  (e.g.  threat  of 
retaliation) and thus compromise the ability of other carriers to gain standing for a complaint.  

Under  the  new  Regulation,  the  complainant(s)  would  be  required  to  present  prima  facie 
evidence that there is an unfair practice taking place and that EU companies or EU industry 

130  

EU  competition  rules  already  provide  for  a  mechanism  that  could  tackle  pricing  practices  that  are 
considered to be incompatible with Articles 101 or 102 TFEU. 

EN 

53 

   EN 

 
                                                 
have  been  harmed  or  threatened  by  adverse  effects  linked  to  it.  Should  the  Commission 
consider that the evidence provided is sufficient to justify initiating an investigation procedure 
and that it would be in the EU’s interest do so, an official investigation would be launched.  A 
complaint  would  be  rejected  where  there  is  insufficient  prima  facie  evidence  of  unfair 
practices  and  of  adverse  effects  resulting  therefrom  or  where  the  unfair  practices  alleged  in 
the complaint neither raise (in the Commission's view) a systemic issue, nor have a significant 
impact on the Union air transport industry or Union air transport enterprises.  

The problem of lack of access to financial information of third countries and third country 
entities  would  be  improved  through  the  investigation  modalities.  As  in  the  Trade  Barriers 
Regulation, the Commission would be allowed to seek all the necessary information it would 
deem necessary from all interested parties, as well as carry out investigations in the territory 
of  third  countries  concerned  upon  notification  and  provided  that  no  objections  are  raised 
within a reasonable time. The means for the Commission to proceed with the treatment of the 
file, in the absence of cooperation by the third country entities, would be reinforced. Where 
access  to  the  information  requested  by  the  Commission  would  be  refused  or  would  not  be 
supplied within appropriate time limits, the Commission findings would be made on the best 
available  information.  The  Regulation  would  specify  that,  where  parties  do  not  cooperate 
satisfactorily,  other  information  may  be  used  to  establish  the  relevant  findings  even  if  it 
cannot  be  excluded  that  the  outcome  is  less  favourable  to  the  parties  than  if  they  had 
cooperated.  To  alleviate  the  potential  reluctance  of  Parties  to  disclose  their  sensitive 
commercial data, a specific treatment would be granted to confidential information supplied 
during  the  investigation.  Such  information  would  not  be  disclosed  at  any  stage  without  the 
prior approval and authorisation from the party of dispute.  

The  investigation  under  the  new  Regulation  would  be  fully  transparent,  inclusive  and  non-
discriminatory to third Parties. Interested parties, both EU and foreign stakeholders would be 
able  to  participate  in  the  conduct  of  the  investigation.  The  complainants  and  the 
representatives of the third countries or third country entities concerned would have the right 
to:  inspect  all  non-confidential  information  made  available  to  the  Commission;  ask  to  be 
informed  of  the  principal  facts  and  considerations  resulting  from  the  investigation  and  be 
heard  by  the  Commission.  This  would  ensure  that  all  the  interested  parties  have  ample 
opportunity to present all relevant evidence and to defend their interests. 

The  Commission’s  investigation  would  be  terminated  without  the  imposition  of  redressive 
measures in four cases: (a) if the complaint is withdrawn, or (b) if it concludes on the absence 
of  injury  or  threat  of  injury  to  the  Union  air  carrier(s)  concerned,  of  practice  affecting 
competition  conditions  from  a  third  country  or  a  third  country  entity,  or  of  causal  link 
between  the  injury  or  threat  of  injury  and  the  referred  practice;  or  (c)  it  concludes  that 
adopting  redressive  measures  would be against Union interest; or  (d) if the third  country or 
third country entity concerned has eliminated the practice affecting competition conditions; or 
(e) if the third country or third country entity concerned has eliminated the injury or threat of 
injury to the Union air carrier(s) concerned. 

By contrast, where the facts established during the investigation would indicate the existence 
of unfair practices and adverse effects caused by them to EU enterprise or EU industry, the 
Commission  would  impose  redressive  measures,  provided  it  is  compatible  with  the  Union's 
interest. In such case, the Commission would present a summary of its findings, a proposed 
course  of  action  including  further  consultations  with  the  third  country  if  necessary,  and  a 
timeframe for the proposed actions. 

As regards the redressive measures, they could include the following: 

(a) 

financial duties; or 

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54 

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(b) 

any measure of equivalent or lesser value. 

These  measures  would  remain  in  force  only  for  as  long  as,  and  to  the  extent  that,  it  is 
necessary to eliminate the unfair practices. 

As already explained, the new Regulation would also ensure that any measures taken are in 
full  accordance  with  the  Union  interest.  The  assessment  of  the  Union  interest  involves  the 
identification  of  any  compelling  reasons  which  would  lead  to  the  clear  conclusion  that  the 
taking of measures would not be in the overall interest of the Union. Such compelling reasons 
could,  for  example,  include  cases  where  the  disadvantage  to  consumers  or  other  interested 
parties would be clearly disproportionate to any advantages given to the Union air transport 
industry or Union air transport enterprises by the imposition of measures. 

The new Regulation would be fully compliant with international law and bilateral ASAs. 
This also includes provisions of such agreements that require, before any measure against an 
airline  of  the  other  party  is  taken,  the  prior  discharge  of  an  international  procedure  for 
consultation  or  for  the  settlement  of  disputes.  Hence,  countermeasures  under  the  new 
Regulation, to the extent they would draw upon possibilities offered by existing ASAs, would 
be taken only once these procedures are terminated and would have to take into account their 
results.  The  same  principles  apply  to  the  terms  and  scope  of  any  measures  taken,  including 
insofar as  the  competent body for the settlement of disputes  may have  powers  to  determine 
such terms and scope. 

In  accordance  with  Article  291  TFEU,  redressive  measures  would  be  imposed  by  the 
Commission  via  implementing  acts.  Control  by  Member  States  would  be  governed  by 
Regulation (EU) No 182/2011 on control by Member States of the Commission's exercise of 
implementing powers131.  

The principle of the Commission's implementing powers would carry advantages for Member 
States. They would be  less exposed to  third countries' pressure triggered by the adoption of 
redressive measures and could avoid the risk of retaliation. 

The legal enforceability of measures imposed by the Commission would vary depending on 
their  nature.  The  financial  countermeasures  targeted  at  third  country  entities  would  be 
enforceable in accordance with Article 299 TFEU.  

3.4.4.  Policy  option  D:  Adoption  of  a  new  comprehensive  EU  legal  instrument 
combined  with  increased  efforts  on  the  international  scene  and  work  on 
enhancing ASAs through inclusion of fair competition clauses 

Option  D  combines  the  actions  proposed  under  options  B  and  C  to  define  and  enforce  a 
comprehensive regulatory framework ensuring fair and equal opportunities to compete for EU 
airlines in the international air transport market. The three building blocks of this integrated 
approach would work together, complement and reinforce each other and create a synergy to 
answer  the  challenge  of  responding  to  practices  that  distort  competition  to  the  detriment  of 
EU air carriers.   

Under  Option  D,  the  EU  would  continue  to  work  on  the  establishment  of  a  multilateral 
framework  for  economic  matters  in  international  aviation  at  ICAO  and/or  WTO  level 
(option B). In the long-term perspective, such a global agreement would be the most effective 
solution  to  the  problem  of  subsidies  and  discrimination  in  international  aviation,  if  one 

131  

Regulation  (EU)  No  182/2011  of  the  European  Parliament  and  of  the  Council  of  16  February  2011 
laying down the rules and general principles concerning mechanisms for control by Member States of 
the Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13–18). 

EN 

55 

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considers the cross border nature of air transport. However, as explained in section 2.2.1, any 
fundamental  change  of  the  current  bilateral  system  for  air  transport  through  GATS  and/or 
ICAO  cannot  be  expected  in  the  near  future,  given  the  diversity  of  economic  interests  of 
ICAO  and  WTO  Member  States,  the  present  lack  of  global  consensus  on  principles  and 
approach to fair competition matters, and intrinsic limitations of decision-making procedures 
in  both  international  organisations  (required  unanimity  of  all  Members).  Hence,  under  the 
current  circumstances,  the  increased  efforts  by  EU  and  Member  States  to  address  fair 
competition issues at global level are not, in and of themselves, likely to deliver results in the 
short or medium term in respect of the fair competition issues at hand. 

Another  component  part  of  a  possible  solution  would  consist 
in  negotiations  of 
comprehensive fair competition provisions under ASAs with third countries. The existence 
of  more  ASAs  containing  appropriate  clauses  would  most  certainly  act  as  a  catalyst  and 
encourage  other  countries  to  work  together  with  the  EU  on  a  long-term  solution  at  the 
multilateral  level.  The  negotiation  of  strengthened  ASAs  with  stronger  fair  competition 
provisions  containing  e.g.  improved  consultation  procedures,  detailed  dispute  settlement 
mechanisms and concrete safeguard measures would allow the EU and the MS to effectively 
deal  with  subsidies  and  discrimination  against  EU  air  carriers.  In  addition,  a  positive  effect 
could be achieved through the conclusion of higher number of EU comprehensive agreements 
covering the key strategic markets for EU carriers.  

As  mentioned  under  section  2.2.1.3,  the  negotiating  process  of  fair  competition  clauses  in 
ASAs  is  expected  to  be  burdensome  and  time-consuming,  and  therefore  in  the  short  and 
medium term will not be sufficient to single-handedly and globally address the issue of unfair 
practices injuring EU carriers. 

Therefore, the basis of option D would consist of the adoption of new EU legal instrument 
to address issues of market distortions in international transport (option C). This action is both 
indispensable in view of persisting industry concern over the existence of unfair practices and 
their  possible  harmful  effect  on  EU  carriers,  as  well  as  politically  legitimate  as  the  need  to 
develop  an  effective  instrument  to  safeguard  fair  competition  in  EU  external  aviation  had 
been expressed by the Council, the European Parliament and the Commission. As proposed in 
option C, the new Regulation would be provided with a number of improvements, regarding 
notably its scope, definitions, and procedures. This would contribute to counterbalancing the 
present  weaknesses  of  multilateral  and  bilateral  legal  frameworks  and  aim  to  ensure  fair 
competition in the international air transport in the short and medium term. To an extent, such 
an  instrument  may  even  prevent  unfair  competitive  situations  to  be  brought  about  by  third 
countries or third country entities. 

As  described  in  respect  of  option  C,  the  new  instrument  would  be  complementary  to  the 
ASAs  and  would  operate  in  full  compliance  with  them.  It  would  offer  means  to  counteract 
subsidies and discrimination entailing injury where the air service agreements fail to provide 
necessary tools to this effect. It would offer the right to EU undertakings to complain to the 
Commission.  

On  the  other  hand,  broader  fair  competition  provisions  containing  strong  dispute  settlement 
mechanisms and safeguard measures would be effectively used to deal with unfair practices 
covered  by  the  Regulation  in  a  context  of  bilateral  and  comprehensive  ASAs.  The  new  EU 
instrument,  to  the  extent  that  its  application  would  not  depend  on  the  application  of  such 
provision,  would  also  offer  substantial  added  value  by  providing  the  EU  and  the  Member 
States  with  more  leverage  in  international  fora  to  negotiate  broader  and  more  binding  fair 
competition rules within ASAs, as well as ICAO/WTO frameworks, in the longer perspective.  

EN 

56 

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Option  D  presents  the  most  comprehensive  answer  to  the  problem  of  unfair  practices  in 
international aviation. This global multi-level approach fully complies with the Commission's 
approach  to  the  EU's  external  aviation  policy  as  laid  down  in  Aviation  Strategy  which 
stipulates the following: 

As  there  is  currently  no  international  legal  framework  to  deal  with  possible  unfair 
commercial  practices  in  international  aviation,  it  is  important  and  legitimate  for  the  EU  to 
address such practices to ensure fair and sustainable competition. (…) This issue should be 
addressed  in  the  context  of  the  negotiation  of  EU  comprehensive  air  transport  agreements 
and  by  intensifying  corresponding  policy  action  at  the  International  Civil  Aviation 
Organization level. In addition, the Commission is considering proposing new EU measures 
to address unfair practices as soon as possible. 

3.4.5.  Summary of all considered options 

Table 2 - Overview of the policy options and linkage to the problem drivers identified 

     POLICY    OPTIONS 
A        B          C         D  
PD 1: Absence of adequate and effective mechanisms to safeguard fair competition in a context 
of increasing liberalisation of international aviation market 
SO  1:  Provide  effective  defence  and  redress  measures  against  unfair  practices  by  third  countries 
and third country entities 
1. Promote the developments of disciplines for subsidies for services in the 
context of the GATS/WTO.  
2.  Reaching  global  understanding  of  ‘fair  competition’  in  the  context  of 
ICAO  leading  to  formulation  of  ICAO  recommended  provisions  on  fair 
competition conditions. 
3.  Provisions  aligning  third  country(ies)  aviation  laws  with  EU  law  in  the 
field in return for access to EU internal market 

X 

X 

X 

X 

X 

X 

4.  Safeguard  measures  giving  Parties  scope  to  act  unilaterally,  in  case  the 
partner  country  does  not  engage  in  consultation  or  is  not  willing  to  take 
remedies  to  restore  fair  competition;  possibly  combined  with  a  dispute 
resolution mechanism. 
5.  Scope  applicable  to  broad  range  of  unfair  practice  including  subsidies, 
discriminatory practices, breach of multilateral or bilateral agreements, 

6. Ease the submission of complaints and improving proceedings  

7.  Dispute  settlement  within  Joint  Committees  or  any  other  consultation 
mechanism established in ASA with third country 

8.  Redressive  measures  capable  of  offsetting  injury  due  to  subsidies  or 
discrimination  

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

PD 2: Lack of transparency and information about the support received and financial accounts 
of third countries air carriers 
SO 2: Ensure access to relevant data and information from third country parties 
9. Include in ASAs a clause on transparency of financial data of undertakings 
as market access condition 
10.  Investigative  tools  for  Commission  to  request  the  information  from  third 
countries and third country entities  

X 

X 

X 

X 

EN 

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4. 

ANALYSIS OF IMPACTS  

As there is no experience from the analysis of concrete cases, it is very difficult to measure 
the direct and indirect effects of possible unfair practices by third countries or third country 
entities  on  European  airlines.  This  difficulty  is  compounded  by  the  fact  that  a  variety  of 
factors has to be taken into account while assessing the performance and trends in the aviation 
sector  (presented  in  sections  2.1.2.  and  2.1.3.).  There  is  no  doubt  that  the  "natural" 
competitive  advantages  of  foreign  carriers  and  the  parallel  objective  disadvantages  of  EU 
airlines play major role in the change of EU aviation position on global market. There is no 
quantitative  data  available  today  that  would  allow  determining  to  which  extent  the 
competitive  position  of  the  EU  aviation  sector  is  also  impacted  by  the  presence  of  possible 
unfair practices and lack of an effective instrument, which would allow for addressing these. 
It  must  be  noted  that  the  impact  of  unfair  practices  would  only  materialise  in  case  such 
practices are indeed proven and that this is also the only case when the instruments proposed 
under  the  policy  options  may  be  assessed.  Therefore,  it  is  hardly  possible  to  have  a  robust 
estimation  of  impacts  of  various  options  and  the  impact  assessment  analysis  must  refer  to 
certain  assumptions  and  reported  examples  to  qualitatively  compare  the  relevance  of  the 
policy options.   

4.1. 

Economic impacts 

4.1.1.  Functioning of the internal market and competition 

It cannot be assumed with certainty that unfair practices have a direct impact on the difficult 
economic position of EU carriers in the global aviation sector. In particular, no direct causal 
link between the possible effects of unfair practices and EU carriers' market position on the 
markets when these practices occur can be established, on the basis of the facts available. It is 
not  clear  to  what  extent  the  assumed  market  developments  could  be  attributed  to  alleged 
unfair  practices  and  what  is  the  impact  of  other  factors  (e.g.  economic  growth  of  different 
regions,  geographical  position,  growth  strategies  based  on  hub-and-spoke  connections  etc.). 
However,  based  on  limited  available  evidence  and  reported  allegations  presented  in  this 
report,  it  may  be  assumed  that  where  unfair  practices  exist,  the  competition  on  the 
international aviation market is distorted, i.e. takes place on an uneven playing field. Hence, 
the objective of the policy options is to restore the economic situation as it would have been in 
the  absence  of  unfair  practices.  The  impact  assessment  attempts  to  indicatively  assess  to 
which  extent  different  policy  options  can  help  in  reinstating  the  competitive  balance  on  the 
markets  operated  by  EU  airlines.  The  effectiveness  in  achieving  this  goal  by  the  policy 
options  will  then  determine  the  EU  airlines'  market  position  on  extra-EU  markets132  where 
unfair  practices  are  alleged  to  exist  most  often.  However,  this  assessment  has  to  be  treated 

132  

As the policy options of this Impact Assessment do not correspond directly with the ones analysed in 
PwC study, the estimates of PwC report are not used in the analysis. However the analysis made in the 
present  IA  adopts the  assumptions  made  and  the  methodology used  in PwC  report.  No quantification 
could be carried out. 
In PwC study, the definition of scenarios for the quantification of the impact was based on data drawn 
from  the  SABRI  ADI  database,  which  provides  information  on  both  the  total  traffic  from  the  EU 
towards other countries as well as the breakdown by nationality of the airline carrier. This information 
is  based  on  passenger  carriage  data,  which  include  their  number,  the  class  of  travel,  the  average  fare 
paid, the origin, destination and transfer hubs (if any). As data from the SABRE ADI database are only 
related  to  current  and  past  flights,  forecasts  for  the  future  were  based  on  the  evolution  of  EU-based 
demand for air traffic using IATA’s forecast by region for the period up to 2017 and long term BMI 
GDP projections for the period 2018 - 2025. Calculations were made at Member State level, to ensure a 
higher level of detail and, therefore, accuracy. 

EN 

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with caution and like the PwC study, needs to start from a number of assumptions. These are 
the following: 

  Where  EU  airlines  market  position  has  declined  in  markets  where  unfair  practices 
allegedly exist, it is assumed that part of the impact is due to such practices adopted by 
third countries and third country entities; 

  Unfair  practices  are  defined  as    practices  favouring  third  country  air  carriers  to  the 

detriment of EU carriers and include those listed under chapter 2; 

  Policy options are assumed to limit (with exception of baseline scenario) to a different 

extent the impact of unfair practices, without eradicating them entirely; 

  The impact of different policy options is assessed in a 10 years perspective, assuming 

sufficient time for the policy measures to produce their effects. 

Considering  the  above  restrictions,  it  is  assumed  that  option  A  which  foresees  leaving  the 
current  framework  and  EU  measures  as  they  stand  today  would  most  probably  mean  the 
continuation or even aggravation of the current situation for EU airlines, as the weaknesses of 
the current framework would render an adequate response to unfair practices as defined above 
highly difficult. As a consequence, the EU carriers would in practice continue to suffer from 
uncompetitive  practices,  alleged  subsidies  for  certain  carriers  or  restrictions  in  the  use  of 
airport facilities and services in State I. 

EU air carriers currently hold approximately 46% of the market share of passenger flying to 
or  from  the  EU.  As  no  change  is  expected  to  occur  in  the  traffic  growth  and  market 
developments compared to recent years, under the baseline scenario, EU carriers are expected 
to  constantly  lose  market  share  on  routes  to  certain  regions,  where  unfair  practices  are 
expected  to  cause  most  significant  distortion.  Consequently,  the  EU  long-haul  carriers  will 
lose revenues in favour of competitors on these routes.  

The  disadvantaged  economic  position  of  EU  airlines  could  be  partially  diminished  by 
applying  measures  proposed  under  policy  options  B  which  foresees  diplomatic  action  at 
ICAO/WTO  level  and  EU-level  negotiations  aimed  at  establishment  of  fair  competition 
clauses in ASAs with key EU partners. The more active EU presence at WTO and ICAO and 
reinforced cooperation with like-minded partners alone will not be able to solve the problems 
of limited access to information on third country carriers or lack of necessary protection for 
EU  airlines  against  unfair  competition  in  the  short  and  medium  term  (if  ever).  However, 
assuming  a  positive  outcome  of  the  forthcoming  negotiations  of  comprehensive  agreements 
with Turkey, ASEAN, Qatar and the United Arab Emirates, the EU would dispose of a set of 
new  measures  to  address  the  allegations  on  subsidies  and  other  unfair  practices.  Should  a 
common  understanding  of  fair  competition  principles  be  reached  and  inscribed  in 
comprehensive ASAs with the above mentioned and other key partners in the future, the EU 
would  gain  a  legal  ground  to  address  the  potential  practices  it  would  deem  unfair.  For 
instance, a subsidy scheme granted by a third country could be challenged under the pertinent 
ASA  provision  as  'not  […]  consistent  with  a  fair  and  competitive  environment  and  […] 
resulting in a significant disadvantage or harm to EU airline(s)'133. On the basis of the same 
provision,  the  alleged  subsidy  could  be  then  made  subject  to  consultations  in  a  Joint 
Committee  and,  if  needed,  arbitration  under  a  dispute  settlement  mechanism  provided  for 
under the agreement. Finally, should the decision of dispute settlement/arbitration body be in 
favour of the EU, and no satisfactory remedy be proposed by the accused government to stop 

133  

Such provision exists under EU-Canada Comprehensive Agreement. 

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the  discriminatory  subsidisation,  the  EU  could  take  a  unilateral  action  on  the  basis  of 
safeguard clauses allowing for such action. This could potentially lead to suspension of rights 
granted under the agreement.  

However, the diplomatic action has failed to solve the problem of unfair practices in the past. 
The inclusion of all of the above provisions in negotiated comprehensive ASAs with Turkey, 
ASEAN  or  GCC  countries  would  most  likely  take  considerable  time  and  is  highly 
questionable  all  together.  As  indicated  by  the  respondents  of  the  public  consultation,  many 
countries are reluctant to negotiate fair competition clauses with EU Member States. What is 
more,  the  respondents  suggest  that  among  these  countries  there  is  a  lack  of  willingness  to 
apply and  enforce even the principles which are inherent within the existing ASAs. In  their 
opinion, this has led to carriers from these regions enjoying a markedly higher percentage of 
capacity of seat offered which adversely impacts the EU airlines in their home market. It is 
further  suggested  by  some  respondents  that  some  EU  Member  States  may  be  unwilling  to 
undertake unilateral action on behalf of carriers for fear of prompting retaliatory action by the 
third-country  in  question.  Since  the  commercial  entities  cannot  lodge  an  official  complaint 
under  the  ASAs,  in  fact  the  benefits  offered  by  option  B  might  then  not  be  sufficient  to 
address the problem of unfair practices adversely affecting EU airlines.  

Thus,  newer  negotiating  efforts  with  third  countries  aimed  at  including  more  advanced 
competition  clauses  in  the  ASAs,  even  if  successful,  would  not  be  enough  to  ensure  fair 
competition  in  the  international  aviation  market.  Option  B,  per  se  will  add  less  value  than 
having an effective EU Regulation which can have the effect of strengthening the EU’s and 
Member States' position in their diplomatic efforts. Therefore, even if policy option B could 
have  some  noticeable  economic  impact  (if  some  fair  competition  provisions  are  included  in 
comprehensive  ASAs  with  key  partners),  most  likely  it  would  only  be  able  to  attenuate  the 
decline of EU carriers’ market position on Asian and Middle Eastern markets predicted under 
the baseline scenario (to the extent unfair practices are actually affecting EU airlines' position 
on these markets). The effects of option B would be more positive on markets covered by the 
comprehensive  EU  ASAs  with  strong  fair  competition  clauses,  i.e.  neighbouring  third 
countries  (Morocco,  Israel,  Jordan,  Moldova),  Canada  or  the  US.  This  is  to  some  extent 
confirmed by several examples of amicable dispute resolution in the past134. 

As the current approach of the Regulation would not be changed under Option B, its effects 
would  probably  not  be  enhanced  significantly.  Hence,  the  EU  industry  would  still  be 
fundamentally  deprived  of  an  efficient  tool  to  reinstate  the  competitive  balance  in 
international air transport by addressing unfair practices of any form. There would possibly be 
high costs stemming from injury to EU industry as a result of unfair practices. 

As  policy  option  C  envisages  far  reaching  amendments  to  the  current  regime,  it  is  also 
expected that it would trigger stronger changes in the international competitive playing field. 
The  scope  of  the  Regulation  would  be  better  adapted  so  as  to  cover  all  forms  of 
discriminations in all relevant areas, for example in respect of the allocation of slots or access 
to  airport  infrastructure  or  doing  business  issues.  Accordingly,  it  is  assumed  that  the  extra 
strength  of  the  Regulation  would  result  in  considerable  improvement  of  EU  carriers’ 

134  

For example, the quoted case of discriminatory slot allocation for two EU low-cost carriers in State M 
was discussed within the EU- State M Joint Committee. During the consultation the Commission has 
pointed  that  State  M  Slot  allocation  guidelines  were  not  in  line  with  Council  Regulation  (EEC)  No 
95/93  on  slot  allocation  as  well  as  the  IATA  World  Slot  Guidelines.  On  the  request  of  State  M 
authorities,  the  EU  prepared  a  proposal  for  the  revision  of  State  M  guidelines  on  slot  allocation  to 
eliminate the discriminatory provisions and bring it in line with EU legislation and IATA Guidelines. 

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competitive position on routes between the EU and third countries where unfair practices are 
most  commonly  alleged.  With  a  new  Regulation  serving  as  a  deterrent  as  well  as 
strengthening EU and Member States' bargaining power to prevent unfair practices, European 
airlines would be able to compete under fairer conditions on the international routes.  

Option  D  which  combines  the  measures  of  options  B  and  C  would  bring  the  strongest 
positive  impact  on  restoring  the  competitive  level  playing  field  for  EU  airlines.  The 
combination of an effective and applicable instrument with enhanced EU level international 
air  transport  agreements  with  third  countries,  including  fair  competition  clauses,  would 
unleash  the  full  potential  for  achieving  a  level  playing  field  between  European  and  third 
country  air  carriers.  Under  the  so-called  "injury  track",  in  case  of  alleged  unfair  practices 
against  EU air  carriers, the revised structure of the Regulation would give the possibility to 
EU  Member  States,  EU  air  carriers  or  EU  air  carriers'  associations  to  file  complaints  to  the 
Commission. Under certain conditions, the Commission would have the possibility to begin 
proceedings  to  determine  if  the  alleged  unfair  practices  necessitate  the  taking  of  redressive 
measures.   If adopted, these redressive measures would enable to offset the injury caused to 
EU air carriers, allowing them to evolve again on fair competition grounds.  

Through increased  international efforts at WTO and ICAO level aimed at the adoption of a 
multilateral  legal  framework  for  fair  competition  in  aviation  and  inclusion  of  expanded  fair 
competition  in  EU  air  transport  agreements  with  third  countries,  the  EU  air  carriers  will  be 
guaranteed  with  a  fair  competition  environment.  The  comprehensive  EU  approach  to  fair 
competition would, hence, benefit from synergies and help the EU aviation sector achieve a 
market position which can be expected to be better than in all other options. The added value 
of combined EU action at all levels would benefit EU industry by increasing the number of 
passengers carried and the revenues of EU airlines most as compared to the baseline scenario. 
Under  option  D,  the  market  share  on  routes  mostly  affected  by  the  alleged  unfair  practices 
while still decreasing, would be contracting at the slowest pace.   

4.1.2.  Competitiveness, trade and investment flows 

It  is  difficult  to  estimate  the  possible  cost  savings  achieved  as  a  result  of  the  measures  that 
would  be  introduced  under  the  analysed  policy  options,  because  most  of  these  costs  are 
impossible to quantify in a sound way. However, in order to show how the impacts of options 
could  be  distributed,  a  case  study  for  European  airports  and  European  manufacturers  is 
presented. 

According  to  estimations  made  by  the  PwC  study,  the  implementation  of  specific  policy 
options would  make  a  minor impact on the revenues of  European airports. This would be 
the result of the gain in market share of EU carriers from non-EU carriers and the subsequent 
increased  number  of  passengers  transferring  at  European  hubs  instead  of  third  country 
airports135.  In  this  context  the  main  economic  effect  would  be  brought  by  option  D.  It  is 
expected  that  under  this  option  (and  to  a  slightly  lesser  extent  option  C)  EU  airports  will 
attract  more  passengers,  as  it  would  be  somehow  less  convenient  to  fly  through  Gulf  and 
Turkish hubs on many routes. It is estimated that policy option C would trigger some effect 
and additional measures of policy option D could potentially contribute to the highest revenue 
increase.  Under  policy  options  B  the  increase  in  the  share  of  passengers  flying  through  EU 
hubs would be much more modest, and therefore the growth of revenues of EU airports would 
be very limited. It should be noted, that the situation of EU airports is to a far greater extent 

135  

ACI Economics Report 2012 reports an average of €18.77 fees related to each transfer passengers in EU 
airports. 

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affected  by  the  insufficient  capacity  and  ATM  deficiencies  that  by  the  existence  of  alleged 
unfair practices. 

It  should  also  be  noted  that  the  implementation  of  the  options,  especially  option  C  (and 
consequently  option  D),  could  to  some  extent  negatively  impact,  at  least  in  the  short  term, 
certain  smaller  European  airports  served  by  third  country  carriers.  These  airlines  also 
connect  some  smaller  airports  to  their  hubs  and  thus  increase  the  number  of  passengers  in 
these airports. If these connections were not maintained, then these smaller airports could lose 
some passengers. Notwithstanding these, the third country carriers connecting EU passengers 
in  particular  to  Asia  and  Australasia  are  expected  to  increase  over  time  regardless  of  the 
adoption of fair competition protection instruments. 

Furthermore,  it  is  also  expected  that  following  the  introduction  of  policy  options  C  and  D, 
European companies might be affected by somewhat higher airplane ticket prices, especially 
in  the  short  term,  because  most  probably  the  removal  of  low  fares  applied  by  third  country 
carriers  and  allegedly  supported  by  unfair  practices  by  third  countries  and  third  country 
entities would lead to price increase (see more in the section 4.1.5 on impacts on consumers). 
It  is  difficult  to  provide  sound  data,  though  as  it  is  not  evident  to  what  extent,  if  at  all,  the 
prices of any European competitors are lower due to unfair practices. 

One  of  the  main  concerns  related  to  the  introduction  of  a  stronger  defence  instruments 
ensuring  fair  competition  in  the  international  air  transport  market  and  addressing  alleged 
unfair  practices  from  third  country  carriers  is  the  potential  risk  of  retaliation  from  the 
affected  countries  towards  EU  air  carriers.  Under  the  baseline  scenario  and  option  B,  the 
Regulation is unlikely to be used by the EU against third country airlines suspected of unfair 
practices,  so  adverse  effects  due  to  retaliation  are  equally  unlikely.  Under  option  C  the 
enhanced  measures at the EU's disposal could lead to a higher risk of retaliatory actions by 
third  countries  deriving  from  their  conviction  that  the  EU  is  acting  in  breach  of  bilateral 
agreements. This would be the case especially when operating permits for the airline(s) of the 
third  country  would  have  been  suspended  or  limited  by  Member  States  in  order  to  enforce 
compliance with the new Regulation. On the substance, the EU would be able to argue that a 
new  Regulation,  proposed  under  option  C  and  D,  would  ensure  that  any  action  directed  at 
third country carriers is based on strong evidence obtained through transparent and inclusive 
investigation. The risk of retaliation would be further mitigated as the interested parties will 
have  the  possibility  of  recourse  to  the  CJEU  if  they  consider  the  Regulation  has  not  been 
properly applied. In this context, option D presents the best ratio between the need of stronger 
fair  competition  framework  and  the  risk  of  retaliation  by  third  countries  and  third  country 
entities.  Diplomacy  and  institutional  consultative  mechanisms  such  as  Joint  Committees, 
proposed  under  option  D  (and  B)  could  also  be  employed  to  help  mitigate  the  risk  of 
retaliation. 

Similarly,  the  implementation  of  policy  options  aimed  at  preventing  unfair  practices  from 
third countries and third country entities might lead to retaliatory actions directed at European 
aeronautical  manufacturers.  Under  policy  options  C  and  D,  EU  companies  (notably  Airbus) 
which have established strong commercial relations with States C and D carriers in the recent 
past, could potentially suffer the consequences of retaliatory action in the form of reduction or 
even  cancellation  of  some  aircraft  orders.  Similarly,  the  envisaged  negotiations  of 
comprehensive  ASA  with  binding  "fair  competition"  clause136  between  the  EU  and  Middle 

136  

http://uk.reuters.com/article/2015/11/15/uk-eu-aviation-emirates-idUKKCN0T40SB20151115 

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East countries could pose a threat of reduced purchases of EU aircraft by Gulf carriers, at the 
advantage of EU's foreign competitors (in particular Boeing)137. 

It should be noted however that the potential risk of retaliation would depend on a wide range 
of  factors  which  are  generally  hard  to  predict.  In  any  case,  the  risk  of  retaliatory  actions 
against  EU  industry  stakeholders  would  be  strongly  mitigated  by  the  relative  size  and 
importance of the EU market. As mentioned in section 2.1.6, the long-term growth prospects 
for  aeronautical  equipment  manufacturers  will  fundamentally  depend  on  large  aviation 
markets138, such as Europe, whereas unfair practices that harm the EU airline industry equally 
undermine  its  ability  to  purchase  aircraft.  Lastly,  the  risk  of  retaliatory  measures  by  third 
countries and third country entities could also be moderated by the diplomatic support of the 
EU and its Member States.   

In  any  case,  the  key  concern  is  to  ensure  that  any  EU  actions  are  fully  in  line  with  the 
international obligations and that EU acts in a transparent, inclusive and proportionate way to 
deal with unfair practices that have a negative impact on EU industry. As in the trade defence 
policy,  the  threat  of  retaliation  should  not  be  the  determining  factor  when  the  rights  of  EU 
industry and consumers are violated and when the EU action is lawful and justified.  

4.1.3.  Small and Medium Enterprises (SMEs) 

Concerning  specific  impacts  on  SMEs,  none  of  the  options  is  likely  to  produce  significant 
overall  direct  impacts  on  SMEs.  The  increased  competitive  power  of  EU  carriers  –  and, 
overall, of the EU aviation industry, as a result of options E  – is expected to lead to increased 
turnover  for  enterprises  in  the  supply  chain,  irrespective  whether  they  are  big,  medium  or 
small. The increased turnover is particularly relevant at airport level, where, depending on the 
option  considered,  the  traffic  of  passengers  transiting  through  EU  airports  is  expected  to 
increase.  Indirect  impacts  are  also  variable.  Companies  indirectly  related  to  air  services 
operated by EU carriers, but  which are still in  the air transport sector  (e.g. ground handling 
providers, travel agencies etc.), are expected to benefit from the increased number of future 
passengers, regardless of whether the passengers fly EU or third country carriers. Indeed, both 
categories  of  airlines  are  expected  to  increase  their  presence  in  the  European  market  in  the 
future, leading to an expansion of the overall market. It is, however, expected that small and 
medium sized enterprises may be affected more by a possible increase of ticket prices at least 
in  the  short  term  (see  above)  as  travel  costs  may  constitute  a  greater  proportion  in  their 
budgets  in  comparison  to  larger  enterprises.  Nonetheless,  this  increase  in  ticket  prices  is 
expected to be limited.139  

4.1.4.  Cost of implementation 

Implementation  costs  to  be  considered  include:  i)  cost  of  diplomatic  negotiations  (i.e. 
prolongation  of  negotiations,  increase  in  staff  work  for  the  preparation  of  negotiations), 
including  the  cost  related  to  legal  units  and  administrative  personnel  preparing  the 
documentation required for negotiations (option B); ii) cost related to Member States or EU 

137  

138  

139  

Such threats were indirectly expressed by the president of one of the leading Gulf carriers - more details 
in 
http://www.ft.com/intl/cms/s/0/df977eee-8806-11e5-9f8c-
a8d619fa707c.html?ftcamp=crm/email/20151111/nbe/AsiaMorningHeadlines/product#axzz3rGRCbSg
6 
As indicated in PwC study, the three biggest markets for Airbus in terms of civil jets orders are: Asia-
Pacific (27%), Europe (22%) and North-America (13%). Middle East represents 7% of Airbus orders 
globally, with 962 aircrafts booked as of 30th April 2014. 
PwC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from EU. 

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institutions to appoint and maintain additional senior official(s) and their staff for the period 
needed to investigate and adjudicate a complaint (option B, C, D); iii) cost for the industry to 
raise formal complaints (option C and D); iv) cost for the public administration to receive and 
process  formal  complaints  (options  B,  C  and  D);  v)  cost  related  to  additional  monitoring 
procedures in relation to third country entities option (C and D). These costs are difficult to 
quantify, but can, to some extent, be assessed qualitatively. 

In the baseline scenario as well as in option B, it is most likely that no use of the procedures 
related  to  the  Regulation  can  be  expected,  in  line  with  the  current  trend,  so  the  costs  of 
complaint adjudication and investigation are expected to be null. However, under the option 
B, the EU institutions and Member States will still incur existing levels of cost for diplomatic 
actions to negotiate better multilateral framework for fair competition in global air transport 
and include more comprehensive "fair competition" clauses in ASAs. 

The implementation costs for option B are generally similar to those for option A as the lack 
of amendment of the Regulation provides no incentives for its practical use.  

Under  option  C  and  D,  a  new  more  effective  Regulation  would  increase  workload  and 
auxiliary costs for Member State and the EU. As regards the EU, The appropriations required 
for human resources and missions costs are expected to be met through allocation which may 
be  granted  to  the  managing  DG  under  the  annual  allocation  procedure  and  in  the  light  of 
budgetary constraints.  

Some additional  costs could  also arise in  relation to  the redressive measures.  Depending on 
the  type  of  possible  remedies/actions  applied,  both  the  Commission  and  Member  State 
intervention  might  be  required.  For  example,  the  enforcement  of  duties  in  accordance  with 
Article  299  TFEU  could  draw  on  Member  States  resources.  However,  it  is  likely  that  the 
existing  staff  would  absorb  the additional  efforts  related  to  possible  complaint  adjudication, 
investigations and remedies, as a limited number of cases are expected to be opened. 

Due to the fact that Option D includes more areas of intervention higher efforts are expected 
from  the  involved  parties.  The  costs  would  be  higher  with  the  combined  costs  of 
implementation and use of new legal instrument (option C) and use of diplomacy (option B), 
which is also expected to be more frequent, as most of the formal complaints might be solved 
through the use of negotiations (taking the US experience as a benchmark). Still, the overall 
implementation  costs  are  not  expected  to  be  very  high  as  they  are  mainly  linked  with 
additional tasks within the existing framework and many of the tasks may possibly be covered 
with the same resources. The past experience shows that the cost of negotiating and managing 
international  agreements  is  minor  when  compared  to  the  size  of  potential  benefits.  For 
example,  the  economic  benefits  resulting  from  the  negotiation  of  CAA  agreements  with 
Western  Balkans  and  Morocco  alone  have  been  estimated  at  a  total  of  €6  billion  between 
2006  and  2011140.  With  regard  to  recently  launched  negotiations,  the  expected  economic 
benefits are estimated at €8.4 billion in case of Gulf Cooperation Council States, €7.9 billion 
in  case  of  ASEAN  and  €5  billion  in  case  of  Turkey141.  It  needs  to  be  noted  that  the 
negotiations and management of all the existing and future ASAs between the EU and third 
countries  (country  blocs)  is  currently  handled  by  a  team  of  around  10  case-handlers  in  the 
Commission (Directorate E).  

140  

141  

Booz  &  Company:  "Development  of  the  EU's  Future  External  Aviation  Policy",  Final  Report,  April 
2012. 
http://ec.europa.eu/transport/modes/air/aviation-strategy/external_policy/index_en.htm#proposal-phase  

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Furthermore, the additional costs linked to the implementation of option D would be outweigh 
by  the  increased  revenues  resulting  from  revised  tools  to  ensure  fair  competition  in  air 
transport markets. It is expected that the EU airline industry would benefit inter alia from the 
removal  of  market-distorting  subsidies,  overflight  charges  and  discriminatory  fees  paid  to 
third  country  entities  (e.g.  airports,  ATM  providers,  State  agencies  etc.).  It  is  nevertheless 
difficult  to  quantify  these  impacts,  due  to  the  lack  of  available  data  and  the  fact  that  these 
unfair practices have not been proven. Only in a few cases, sufficient information is disclosed 

4.1.5.  Consumers and households 

It  is  difficult  to  assess  the  impacts  of  different  policy  options  on  the  price  and  quality  of 
service from the consumer perspective (see more in section 2.1.6.). It is estimated that, with 
either  policy  option  being  introduced  C  or  D,  passengers  could  be  gradually  less  able  to 
benefit  from  the  reduced  prices  for  services  offered  by  certain  third  country  carriers  (to  the 
extent  some  of  their  current  prices  may  be  reduced  thanks  to  subsidies  or  other  unfair 
practices).  More  specifically,  it  is  predicted  for  example  that,  at  least  in  the  short  term,  the 
revision  of  the  Regulation  (option  C  and  D)  would  result  in  the  increase  of  premium  class 
fares to regions such as Asia. As policy option B is predicted to be less effective in addressing 
unfair  practices,  it  is  expected  to  keep  premium  class  fares  slightly  lower  in  comparison  to 
policy options C and D.  

However,  it  can  be  also  assumed  that  in  the  longer  term,  tackling  unfair  practices  on  the 
market would generally drive costs down and trigger the corresponding price decrease driven 
by market forces in a competitive environment. In addition, as mentioned under section 2.1.6, 
the lack of necessary instruments to restore the fair level playing field, carries risk of driving 
EU  airlines  out  of  certain  markets  which  could  then  become  mono/oligopolies.  The  third 
country  air  carrier(s)  remaining  on  such  markets  would  have  no  further  incentives  to  offer 
lower  fares  from  their  competitors,  which  would  mean  that  EU  passengers  could  ultimately 
face ticket price increases. 

The  impact  of  policy  options  C  and  D  could  also  be  positive,  even  in  the  short-term,  when 
other types alleged unfair practices are considered. Higher airport charges, additional taxes, or 
difficulties in doing business are all negatively influencing the prices offered by EU carriers. 
Airlines  generally  pass  on  the  financial  burden  stemming  from  such  practices  directly  on 
consumers  by  raising  their  fares.  The  adoption  of  effective  instruments  for  addressing  such 
discriminatory  practices  under  option  D  (and  to  a  lesser extent  C)  would  then  allow  EU  air 
carriers to cut their ticket prices bringing tangible benefit to EU consumers.   

Similar  assumptions  refer  to  the  impact  of  policy  options  on  service  quality.  According  to 
passengers' satisfaction surveys, some allegedly subsidised third country carriers score better 
for on-board services than EU airlines142. In the short term, EU consumers may benefit from 
better  quality  of  services  when  flying  with  these  carriers  at  reduced  prices.  A  number  of 
alleged  discriminatory  practices  such  as  discriminatory  slots,  or  restriction  in  access  to 
airports may negatively affect the quality of services provided by EU flag carriers negatively 
affected by these practices, thus decreasing the perception of their service quality in the views 
of EU consumers. As a consequence, (under option C and D) a positive effect of adopting a 
new  Regulation  addressing  such  discriminatory  practices  may  be  to  remove  this  negative 
effect on the service quality of EU carriers' on board service. The perceived quality of service 
could be brought back to a competitive level with that of third country carriers. 

142  

PwC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from EU. 

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Therefore option D which is expected to have strongest impacts on reinstating the competitive 
balance  on  the  international  market  would  also  have  the  most  positive  impact  on  direct  air 
connectivity for EU citizens, as compared to the baseline scenario. 

4.2. 

Social impacts 

The  absolute  number  of  passengers  flying  on  EU  air  carriers  is  expected  to  grow  under  all 
options.143 As described above, under policy options C and D this increase would be higher 
than in case of the baseline. Consequently, it would result in the increase of employment by 
EU  airlines  and  other  European  companies  involved  in  the  air  transport  value  chain.  It  is 
expected  that  the  implementation  of  policy  options  C  and  D  would  contribute  to  most  new 
jobs in EU airlines. As the impacts of option B on passengers carried are predicted to be more 
limited,  they  are  also  supposed  to  contribute  less  to  new  jobs.  These  numbers  could  be  to 
some extent reduced by the fact that foreign airlines also employ European staff in particular 
for  the  routes  to/from  Europe.  Their  employment  of  level  of  the  European  staff  would  be 
lower than under the baseline, but the overall impact of option C and D is still expected to be 
positive. 

Cessation of any unfair practices by third countries and third country entities is expected to 
have  a  relevant  impact  also  on  other  elements  of  the  European  air  transport  value  chain 
including airports and associated industries. This impact would be driven by the increase of 
passengers choosing to  transfer  via European  hubs.  Consequently,  only  employees  resulting 
from the increase in transfers at EU hubs towards the Middle-East and Asia (the regions with 
the most probable impacts) have been taken into account in the estimations. According to the 
estimations, the introduction of policy option C would contribute to a high number of jobs at 
airports  and  other  related  industries.  Policy  option  D  could  potentially  exceed  this  number, 
while option B could generate only a modest increase in employment at airports and in related 
sectors. 

It is also estimated that restraining the number of unfair practices by third countries and third 
country  entities  would  further  contribute  to  the  development  of  indirect  and  induced 
employment. As new jobs could be created within a broad scope of industries ranging beyond 
air  transport,  the  overall  effect  is  estimated  to  be  much  stronger  in  comparison  to  direct 
employment. According to estimations, the introduction of policy option C would contribute 
to  a  high  number  of  additional  indirect  and  induced  new  jobs  and  option  D  could  generate 
even greater benefits for employment.  

4.3. 

Environmental impacts 

Air transport negatively influences environment in two main areas, greenhouse gas emissions 
and aircraft noise. However, the scope of the impacts may differ depending on a few factors 
(see Tables 1 and 2 in Annex D). Aircraft noise is usually considered from the perspective of 
noise  generated  per  passenger.  Therefore,  larger  aircraft  carrying  a  higher  number  of 
passengers tend to have a lower per-passenger noise emission level.144 In this regard, several 
fast growing third country carriers should be considered as less polluting in comparison to EU 
airlines  since  their  fleet  mix  is  composed  to  a  greater  extent  of  wide  body  aircraft  (Middle 
Eastern carriers on average use the largest aircraft in the world, with an average 208 seats per 

143  

144  

This subparagraph focuses on the connections between EU hubs towards the Middle East and Asia, as 
an illustrative example.  
PwC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from EU. 

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flight).  They  may  also  be  considered  as  more  environmentally  friendly  since  they  operate 
younger aircraft equipped with quieter and more fuel-efficient engines.  

On the other hand, it should be emphasised that aircraft pollute most during take-off due to 
the  higher  levels  of  fuel  burn  required.  Third  country  carriers  offer  long  haul  flights  from 
Europe  via  their  hubs.  This  usually  implies  additional  take-off  and  landing  operations  and 
increased environmental pollution when compared to direct services by EU carriers. Take-off 
and  landing  are  also  the  most  perceptible  from  the  noise  perspective  as  both  operations  are 
performed at lower altitudes. Thus direct flights provided by the EU carriers are clearly more 
environmentally  efficient  in  terms  of  greenhouse  emissions  and  noise  pollution  for  a  given 
aircraft  type.  Direct  flights  limit  the  number  of  take-offs  and  landings, maximise  the  use  of 
wide body aircrafts and reduces the length of flights. The number of direct flights operated by 
European carriers is expected to increase for options C and D, meaning that they could have 
some positive environmental impacts. Nonetheless, these options would also increase to some 
extent indirect air connections with transfers via EU hubs offsetting some of the benefits of 
direct flights. 

Third country carriers offering long haul flights to/from Europe with a transfer could also be 
perceived as more polluting from the greenhouse gas emissions perspective due to in general 
longer  flight  distances  between  origin  and  destination  points  due  to  operations  via  a  hub 
airport.  Here  again  EU  carriers  could  be  less  polluting  when  they  operate  direct  routes. 
However, a transfer at an EU hub can  increase the pollution level  if increasing the distance 
flown  (e.g.  flying  from  Budapest  to  Mumbai  via  London  requires  a  short-haul  flight  in  the 
opposite direction of the destination) or operated by the older aircraft. Therefore, the overall 
environmental effect of transferring traffic through EU hubs instead of non-EU hubs cannot 
be assessed with certainty.   

It should be noted that services by EU carriers may also include a first leg within Europe for 
passengers that travel from regions that are not directly connected to the points concerned. In 
this case the above comparison does not apply as such. Nevertheless, while one stop is needed 
for this type of passengers, many other passengers fly directly from the large catchment areas 
around intercontinental hub airports in Europe. Furthermore, if the stop is made within Europe 
the  economic  benefits  for  airlines  and  the  whole  air  transport  value  chain  materialise  for 
European companies thus creating employment and other related benefits.  

It should be also noted that flight distances have a neutral effect from the noise perspective 
due to the relatively high altitude of overflights.   

Air  traffic  to/from  the  EU  is  expected  to  increase  in  the  future  irrespective  whether  it  is 
operated  by  EU  or  third  country  carriers.  Taking  into  consideration  the  differences  in 
environmental performance between EU carriers and certain third country carriers, the rate of 
emissions is dependent on the market share between EU and third country carriers. It cannot 
be  assessed  with  certainty  whether  the  benefit  of  direct  flights  outweighs  the  advantages  of 
newer aircrafts with greater capacity operated by certain third country carriers. As a result, no 
impact  analysis  on  greenhouse  emissions  and  noise  pollution  can  be  produced  for  the 
proposed policy options.   

The  summary  of  the  impacts  of  each  policy  option  as  compared  to  the  baseline  scenario  is 
presented in the table below. 

Table 3 - Assessment of impacts per domain of policy options 

Policy Option B  Policy Option C  Policy Option D 

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ECONOMIC IMPACTS 

Functioning of the internal market and competition 

Competitiveness, trade and investment flows 

Small and Medium Enterprises (SMEs) 

Cost of implementation 

Consumers and households 

SOCIAL IMPACTS 

ENVIRONMENTAL IMPACTS 

+ 

0 

0/+ 

0/- 

+ 

+ 

0 

+++ 

++++ 

+ 

+ 

- 

0/+ 

++ 

0 

++ 

++ 

- - 

++ 

+++ 

0 

5. 

COMPARING THE OPTIONS 

Policy options have been assessed against the following criteria: 

5.1. 

Effectiveness  

Option B is considered more effective than option A (baseline scenario) as it is more likely to 
better protect European air carriers from unfair practices by third countries and third country 
entities The increased international efforts at WTO and ICAO level could lead to ensure a fair 
level playing field; however, any tangible effects are highly unlikely in the foreseeable future. 
In short term, the effectiveness of multilateral negotiations in combatting the unfair practices 
depends  solely  on  closer  cooperation  with  foreign  partners  within  ICAO  and  WTO 
framework. On the other hand, the increased EU efforts in cooperation with Member States 
could  lead  to  the  inclusion  of  more  comprehensive  fair  competition  provisions  in  higher 
number  of  EU-level  ASAs,  which  might  contribute  to  a  fairer  level  playing  field  between 
European and third country air carriers in the short and medium term.  

Option C is expected to be more effective than option B as it would lead to development and 
application  of  adequate  defence  and  redress  measures  against  unfair  practices  as  well  as 
ensure  easy  access  to  relevant  data  and  information  from  third  country  parties.  The 
effectiveness  of  policy  option  C  would  stem  from  the  fact  that  the  proposed  tools  would 
properly address the specificities and dynamics of international air transport.  This would be 
mainly  due  to  the  better  adapted  scope  of  the  Regulation,  improved  complaint  and 
investigations procedures and strengthened enforcement measures.  

Option  D  is  the  most  effective  one,  as  it  entails  a  range  of  tools  to  combat  discriminatory 
practices  and  would  provide  for  the  most  effective  and  broad  conceptual,  procedural  and 
enforcement  solutions.  Under  option  D  the  new  EU  regulatory  instrument  would  act  as 
deterrent  for  potential  unfair  practices  and  discriminatory  treatment  provide  but  also  give 
much more power to the EU to negotiate broader and more binding competition rules within 
ASAs.  The  well-functioning  EU  tool  along  with  better  fair  competition  protection  within 
ASAs  could  effectively  push  other  countries  to  work  together  with  the  EU  on  a  long-term 
solution  within  ICAO and/or WTO. As it encompasses option  C tools, it would also ensure 
access to relevant data and information from third country parties. 

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5.2. 

Efficiency 

Option  B  is  considered  more  efficient  than  option  A  as  with  limited  extra  resources  the 
effectiveness of European intervention could be increased with benefit to the EU air carries. 
The  limited  additional  resources  would  mainly  be  needed  for  the  increased  efforts  on  the 
international scene.  

Option C is considered more efficient than options A and B because the possible extra costs 
are  even  more  compensated  by  increased  benefits  to  the  EU  carriers.  Certain  measures 
proposed  under  option  C,  such  as  the  redefinition  of  the  scope  of  the  European  legal 
framework  or  improved  complaint  and  investigations  procedures  could  be  introduced  with 
little extra costs. The complaint and investigation procedures would be revised to provide for 
a  legally  defined  deadline  thus  reducing  the  administrative  costs  of  procedures.  Other 
measures such as strengthened enforcement measures (i.e. compensatory duties, limitation or 
suspension of operating permits of third country entities) could entail additional costs (e.g. via 
potential  administrative,  retaliation  or  air  services  disruption  costs),  but  such  costs  are 
expected to emerge rather in extreme situations when no other solutions could be found, and 
in any case are expected to be balanced out by the resulting benefits.  

The  costs  linked  to  the  implementation  of  option  D  is  considered  to  be  the  highest 
(implementation  of  Regulation  combined  with  diplomacy)  but  at  the  same  time  more  than 
proportional benefits are expected as well so the potential benefits would outweigh costs by a 
greater margin than in the case of other options. 

5.3. 

Coherence 

All  options  are  coherent  with 
to  promote 
competitiveness  of  EU  transport  as  well  as  the  general  objective  to  ensure  fair  competition 
conditions  in  the  internal  market.  They  also  take  into  account  the  existing  international  law 
and practices. 

transport  policy  objectives 

the  overall 

Option B is estimated to be more coherent and comprehensive with the overarching objectives 
of EU policy than the baseline scenario (option A). Option B would reflect the Commission's 
priority to make EU stronger at international level and would follow on the objective of the 
new  Aviation  Strategy  to  strengthen  the  negotiations  on  more  comprehensive  bilateral  air 
service  agreements  with  third  countries.  Through  its  positive  impacts  the  option  is  coherent 
with the Commission’s political priorities for the period 2014-2019 to provide for more jobs, 
growth and investments and a fairer and deeper internal market with a strengthened industrial 
base; and they will enforce the EU as a global actor. 

Option  C  is  also  coherent  with  the  overall  objectives  of  the  Commission,  and  in  addition  it 
reflects  the  better  regulation  policy  of  the  Commission.  Drawing  conclusions  from  many 
problems encountered in the past, the new Regulation will address them in the most adequate 
and coherent manner, providing for a completely revamped system. The improved regulation 
would be more coherent with the Commission objective to have legislation fit for purpose and 
avoiding unnecessary burden. 

Option D by combining options B and C is also coherent with other EU policies. By being the 
most comprehensive in the approach, this option will address various shortcomings in the air 
transport  legal  framework  and  better  respond  to  the  objective  to  strengthen  the  competitive 
position of EU carriers, promote EU solutions abroad and ensure a global level-playing field. 
Combining  different  measures  and  approaches  under  this  options  is  also  expected  to  raise 
additional benefits, as the options B and C are to some extent complementary and reinforcing 
one another. Consequently, the measures envisaged in this combined option are also internally 

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coherent. It is not expected that any of the policy options could lead to significant trade-off 
across the economic, social and environmental domains.  

5.4. 

Proportionality 

The  proposed  policy  options  do  not  go  beyond  what  is  needed  to  achieve  the  policy 
objectives. The aim of the initiative is to address subsidies and discrimination practices that 
are market-distorting and could be well-evidenced. The options in identifying such practices 
do  not  go  beyond  the  international  and  EU  legal  framework.  Also  any  possible  redressive 
measures will be in-line of the approach in the EU legislation and proportionate to the nature 
of injury. 

Option B is focusing on the increased efforts within the existing international framework so 
there is no risk that the proposed approach would be excessive. The legislative changes under 
option C will focus on the alleged unfair practices and do not create unnecessary requirements 
on operators or administration. The preferred option D incorporates elements of option B and 
C  which  are  complementary  so  no  duplication  of  efforts  and  excessive  requirements  are 
expected. 

The  scope  of  the  preferred  option  will  take  into  account  bilateral  ASAs  between  Member 
States and third countries and is intended to be complementary to Member States efforts by 
offering a possibility and leverage to effectively counteract unfair practices in aviation. 

Given that the options do not introduce any additional reporting or compliance requirements, 
if  no  investigation  is  launched,  the  costs  of  the  proposed  measures  are  very  low.  Also  the 
costs  related  to  the  obligation  to  cooperate  in  an  investigation  and  the  costs  of  running  an 
investigation are not expected to be excessive and are justified by the need to effectively deal 
with unfair practices in aviation. 

The  proposed  instrument  will  be  based  on  various  complementary  elements  (international 
framework, ASAs and EU legislation) in order to provide a coherent and enforceable solution 
to the problem. 

Consequently, the options comply with the proportionality principle. 

Table 4 - Summary of the comparison of policy options 

Effectiveness  (assessed for each operational objective) 
Efficiency 
Coherence 

5.5. 

Conclusion 

    A 
0 
0 
0 

       B 
+ 
+ 
+ 

    C 
++ 
++ 
+/++ 

   D 
+++ 
+++ 
++ 

Based on the above, option D would be the most effective, efficient and coherent option. 

6. 

MONITORING AND EVALUATION 

The Commission services will monitor the implementation and effectiveness of this initiative 
through  a  set  of  core  progress  indicators  listed  in  the  table  below  that  will  measure  the 
progress  in  achieving  the  operational  objectives.  Some  of  the  indicators  are  of  qualitative 
nature  and  show  if  the  desired  deliverables  are  achieved  and  implemented,  while  others  are 
based on data to be collected that will need to be analysed further.  

It is foreseen that 5 years after the end of the implementation date of the proposed legislation, 
the Commission services will carry out an evaluation to verify whether the objectives of the 
initiative have been reached. It will intend to verify if the new measures have improved the 
level-playing field  and  consequently reduced  the concerns of stakeholders about the alleged 

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unfair  practices  as  well  as  collect  information  through  the  new  mechanisms  on  the  real 
impacts  of  identified  unfair  practices  on  EU  carriers  and  economy.  This  evaluation  will  be 
carried out inter alia based on the below mentioned core progress indicators and will be in line 
with Commission requirements on evaluation. 

Table 5 - Core progress indicators for monitoring purposes  

Operational objective 
Create ICAO/WTO 
framework for fair 
competition in 
international  air transport 
services 
Ensure the protection of 
fair competition in air 
transport services at 
bilateral level  
Ensure financial 
transparency requirement 
at bilateral level 
Adopt a comprehensive 
and effective EU legal 
instrument for protection 
of EU air carriers 
against subsidies and 
discrimination in air 
transport services  
Enhance investigative 
powers of the Commission 
under EU legal framework 

Core progress indicators 
ICAO guidance issued on fair competition 
conditions 
Development of subsidies disciples for air 
services within GATS/WTO framework  

Source of data 
ICAO 

WTO 

Number of new/updated EU-level ASAs 
containing and advanced fair competition 
clause 

European Commission 

Inclusion of rules on access to financial data 
of third country operators in EU-level ASAs 

European Commission 

- Number and nature of official complaints 
from the sector to the Commission145 

Register of complaints to the 
Commission from the sector  

- European stakeholders’ opinion about the 
applicability of the European legal framework 

Fact finding survey/public 
consultation 

- Number and nature of proceedings initiated 
by the Commission146 
- European stakeholders’ opinion about the 
applicability of the European legal framework 

European Commission 

Fact finding survey/public 
consultation 

145  

146  

The  number  of  official  complaints  could  show  that  the  proposed  legal  instrument  is  more  effective, 
assuming  that  there  is  no  increase  in  the  cases  of  unfair  practices.  Considering  that  a  more  effective 
instrument can act as a deterrent leading to a lower number of unfair practices, the indicator will need to 
be supported with qualitative assessment. 
The  number  of  proceedings  could  show  that  the  proposed  legal  instrument  is  better  fit  for  purpose, 
assuming  that  there  is  no  increase  in  the  cases  of  unfair  practices.  Considering  that  a  more  effective 
instrument can act as a deterrent leading to a lower number of unfair practices, the indicator will need to 
be supported with qualitative assessment. 

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Annex A 

Procedural information and summary of amendments 

1. 

Agenda planning  

The Agenda planning or WP reference is: 2014/MOVE/009. 

2. 

Organisation and timing  

The lead DG for this Impact Assessment was DG MOVE. Other involved services were: SG, 
SJ, DG COMP, DG TRADE, DG TAXUD, DG EMPL, DG GROW and EEAS. DG MOVE 
has  established  a  formal  Inter-Service  Steering  Group  (ISSG)  in  the  second  half  of  2013  to 
which  the  following  Directorates-General  were  invited:  SG,  COMP,  TRADE,  SJ,  EEAS, 
GROW,  BUDG,  TAXUD  and  EMPL.  The  ISSG  held  4  meetings,  the  last  one  on  16 
December 2015. The ISSG Members have also been involved intensively in the management 
of the external study in support of this impact assessment report.  

3. 

Sources used and external expertise 

The  preparatory  work  was  supported  by  an  external  study  on  “Improved  protection  against 
unfair  practices  causing  injury  to  EU  air  carriers  in  the  supply  of  air  services  from  non-EU 
countries  on  routes  to  and  from  the  EU”  (PwC,  2014)147.  The  study  analyses  trends  in  air 
traffic evolution between the EU and world regions. In relation to protection against alleged 
unfair  practices,  as  provided  for  under  the  Regulation,  the  study  analysed  the  need  for  an 
effective  regulatory  tool.  In  view  of  this,  four  options  and  their  potential  impacts  were 
examined. The main options covered by the study are: 1. keeping the status quo; 2. reliance on 
other measures (e.g. diplomacy, existing international law); 3. “light” reform of the existing 
Regulation 868/2004 to clarify its standards and make it more operationally relevant; 4. full 
revision  of  868/2004  to  broaden  both  its  scope  and  sanctioning  powers.  The  study  also 
encompassed  a  regulatory  analysis  and  comparison  with  related  US  legislation.  It  is 
worthwhile to note that this study was based on certain assumptions, some of which evolved 
in  the  meantime,  and  some  estimation,  in  view  of  the  fact  that  information  in  this  area  is 
generally not publicly available.    

In addition, the findings of a topical report "868/2004 – A Case for Better Regulation" (Mott 
McDonald, 2013)148 supported the work on the Impact Assessment. The report carries out an 
analysis  of  the  reasons  for  the  lack  of  use  of  Regulation  868/2004  by  the  European  airline 
industry despite repeated concerns about alleged unfair practices of international competitors. 
The  report  includes  an  overview  of  existing  competition  and  trade  defence  instruments  as 
compared to Regulation 868/2004. It identifies the inherent deficiencies of current legislation 
and  delivers  suggestions  on  how  to  improve  the  efficiency  and  effectiveness  of  Regulation 
868/2004 through developing a set of possible policy options.   

The  data  gathered  by  the  studies  was  supplemented  with  other  sources,  such  as  data  from 
Eurostat,  studies,  reports  and  publications  in  the  field,  legal  documents  (related  legislation, 
communications), as well as reported cases of alleged unfair practices by third countries and 
third country entities. 

147  

148  

PwC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from EU. 
Mott Mc Donald, 868/2004 – A Case for Better Regulation 

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Amendments made following the negative opinion of Regulatory Scrutiny Board 

4. 
(RSB) at the meeting on 6 April 2016 

RSB Comment 

Amendment to IAR 

I. Problems, objectives and policy choices – intervention logic 

1.  Better  explain  the  legal  and 
in  which 
economic  context 
international aviation currently 
takes place. 

2. Establish in how far the rise 
of 3rd country air carriers can 
to  "natural" 
be  attributed 
economic 
then 
consider  the  impact  of  unfair 
practices. 

factors,  and 

3.  Reformulate 
the  problem 
driver(s)  behind  the  problem. 
Be  careful  to  avoid  that  the 
problem  drivers  directly  point 
to instruments. 

Section  on  legal  context  added  explaining  the  liberalisation  of 
international  aviation  markets;  the  creation  and  functioning  of  EU 
internal  market  with  its  state  aid/competition  rules  and;  the  legal 
framework  governing  the  international  aviation  today  and  relations 
between  EU  and  third  countries  (different  kinds  of  ASAs,  lack  of 
binding competition rules on multilateral level) 

Section  on  economic  context  elaborated  by  adding  data  on 
international  aviation  growth;  developments  in  the  market  shares  of 
EU  airlines;  traffic  growth  rates  for  EU  passengers;  total  number  of 
passengers carried by EU carriers; and transfer traffic from the EU. 

Section  2.1.2  on  Competitive  advantages  of  third  country  carriers 
added  (rapid  economic  growth  of  their  regions;  good  geographic 
location  of  their  hubs;  large  investment  in  airport  infrastructure  and 
airport fleet; lower airport charges; lower legacy costs). 

Section 2.1.3 on Competitive disadvantages of EU flag carriers added 
(  low  economic  growth;  high  costs  deriving  from  higher  labour 
standards;  low  profit  margins  of  carriers;  cost  related  to  environment 
protection; airport capacity and efficiency constraints; completion form 
LCCs on short-haul intra-EU market).   

The problem drivers have been reformulated as follows: 

1.  Lack  of  proper  mechanism  for  protection  of  fair  competition  in 
international aviation 

1.1  Lack  of  global  trade  agreements  for  int.  air  transport 
services sector (WTO/GATS) 

1.2  Lack  of  fair  competition  regime  for  the  int.  air  transport 
sector under ICAO 
1.3  ASAs  not  ensuring  sufficient  level  of  protection  against 
unfair practices  

2.  Lack  of  access  to  information  about  the  support  received  and 
financial accounts of third countries air carriers 

4. In the absence of evidence of 
the  alleged  unfair  practises, 
the  report  should  give  a  more 
balanced  overview  of 
the 
diverse  concerns  expressed  by 
stakeholders. 

Section  2.1.4  Concerns  about  the  existence  of  subsidies  and  unfair 
practices  was  developed  by  adding  the  review  of  the  qualitative 
responses  provided  by  different  stakeholders  of  public  consultations. 
In  addition  to  EU  airlines'  opinions,  the  views  of  EU  MS,  third 
countries,  third  country  airlines  and  aerospace  manufacturers.  The 
section reflects the diversity of opinions. 

More  anecdotal  evidence  was  added  in  section  2.1.5  Allegations  on 

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5. Explain more thoroughly the 
inadequacy  of 
the  existing 
instruments.  What 
policy 
experiences 
service 
sectors  have  with  this  policy 
instrument 
or  with 
and 
alternative instruments? 

other 

6.  Apart  from  describing  the 
effect  on 
flagship 
the  EU 
the  report  should 
carriers, 
explain  how 
the  described 
developments have affected the 
situation  of  consumers  as  they 
might  be  positively  affected 
lower  prices  and 
through 
increases of service quality. 

7.  The  baseline 
should: 

scenario 

- provide information about the 
economic 
expected 
the  global 
developments 
airline market  

in 

-  put 
the 
citizens more central 

interests  of  EU 

-  look  at  likely  evolution  for 
other  economic  actors 
than 
flag carriers 

- provide information about the 
the 
expected 
outcome 
proposed  mandates 
the 
Commission  for  international 
aviation agreements 

of 
for 

8.  The  objectives  should  be 
reformulated.  References 
to 
specific  policy  options  should 
be  removed  from  the  policy 
objectives.  Objectives    should 
the 
also  aim 

to  enhance 

the use of subsidies and unfair practices. 

Section  2.1.7  on  Legal  instruments  for  protection  of  competition  in 
other sectors and countries was added providing detailed description 
of  EU  anti-dumping  and  anti-subsidy  legislation;  EU  trade  defence 
tools  such  as  Trade  Barrier  Regulation  (EU)  2015/1843;  as  well  as 
tools  used  in  other  sectors  (Council  Regulation  (EEC)  4057/86  on 
unfair  pricing  practices  in  maritime  transport)  and  other  countries 
(International Air Transportation Fair Competitive Practices Act in the 
Unites States).  

Section  on  Ineffectiveness  of  Regulation  868/2004  was  moved  from 
problem  drivers  to  a  separate  section  2.1.8  and  streamlined.  It  is 
explained  why  the  approach  taken  in  other  instruments  is  inadequate 
for international air transport sector. 

Section 2.1.6 Impact of alleged unfair practices on EU air transport 
market  was  developed  to  include  the  detailed  analysis  of  impacts  on 
the  EU  air  transport  sector  employees;  EU  consumers  (short/medium 
and long-term effects); and EU manufacturers and suppliers. 

The  baseline  scenario  (section  3.2)  was  amended  by  adding 
information on expected economic developments in: international air 
traffic  growth;  extra-European  direct  traffic  flows;  position  of  EU 
airports; and orders of new aircrafts.   

The  expected  impacts  of  the  above  trends  on  EU  airlines,  EU  air 
sector  employees,  EU  consumers  and  EU  manufacturers  of  air 
equipment was described under section 2.1.6. 

Information  on  the  upcoming  negotiations  on  comprehensive  air 
transport agreements with ASEAN, Qatar, the United Arab Emirates 
and  Turkey  was  added,  however  without  speculating  about  the 
expected outcome of these. 

The objectives have been reformulated to match with problem drivers: 

General objective: Ensure a fair level playing field between European 
and  third  country  air  carrier  by  effectively  protecting  European  air 
carriers  from  unfair  practices  by  third  countries  and  third  country 
entities. 

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information 
unfair practices 

gathering 

on 

Specific  objective  1:  Provide  effective  defence  and  redress  measures 
against unfair practices by third countries and third country entities. 

Specific  objective  2:  Ensure  access  to  relevant  data  and  information 
from third country parties 

Former options B (increased EU efforts at WTO and ICAO level) and 
C (negotiation of fair competition clauses in ASA) have been merged 
to form a fully valid non-regulatory policy option B, as an alternative 
to adoption of new Regulation (current option C) and combination of 
regulatory and non-regulatory measures (current option D). 

9.  The  policy  options  section 
should provide a choice of fully 
valid  options,  each  of  them 
the  problem 
addressing  all 
drivers.  The  choice  of  partial 
options 
finally 
combined  into  one single  valid 
option should be avoided. 

that 

are 

10.  The  report  should  explain 
the  policy  options  and  their 
practical  implementation  more 
in  detail,  in  particular  their 
legal 
and 
implications 
constraints. 

11.  The  report  should  explain 
how  the  options  will  address 
the  lack  of  information  of  the 
EU  authorities,  i.e.  how  they 
would  collect  evidence  in  case 
of  a  complaint  about  unfair 
practices. 

More  details  on  the  legal  implications/enforcement  issues  were 
added to option B and C. Option C and D further explains how the new 
Regulation would be enforced in compliance and without prejudice to 
the Air Services Agreements.  

All  the  options  now  address  the  problem  of  lack  of  access  to 
information about the support received and financial accounts of third 
countries air carriers. Option B proposes that the introduction of a ‘fair 
competition’  clause  in  ASAs  would  also  include  rules  on  access  to 
financial  data  of  undertakings  to  ensure  the  proper  implementation 
of  the  Agreement.  Option  C  solves  the  problem  by  granting  the 
Commission stronger investigative powers  allowing it to seek all the 
necessary  information  from  all  interested  parties,  as  well  as  carry  out 
investigations  in  the  territory  of  third  countries  concerned  upon 
notification (provided that no objections are raised). 

II. Analysis of impacts and comparison of options 

12.  The  report  should  at  all 
times clarify that the described 
impacts  only  materialise 
in 
case  unfair  practices  are 
proven. 

13.  The  report  should  reveal 
the  cost/benefit  ratio  of  the 
various policy options to reveal 
the  options'  net  benefits  and 
explain it. 

Relevant explanation added at the beginning of section 4 Analysis of 
impacts.  

Additional  analysis  of  cost  and  benefits  ratio  of  policy  options  was 
carried out to the extent possible. 

14.  Other  potential  costs  and 
risks  should  be  better  taken 
into  account,  in  particular  the 
potential risk of retaliation. 

More  explanation  on  potential  risk  of  retaliation  under  different 
policy  option  was  added  in  section  4.1.2.Competitiveness,  trade  and 
investment  flows.  It  is  explained  why  option  D  (preferred  option) 
presents  the  best  ratio  between  the  need  of  stronger  fair  competition 

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15.  The  impact  of  the  policy 
and 
options 
consumer  choice  should  be 
clarified. 

prices 

on 

16.  The  report  should  also 
assess the impacts of the policy 
options  on  other  EU  air 
carriers,  such  as  airports  and 
passengers. 

17.  Section  on  coherence 
seems  to  confuse  coherence 
with efficiency 

framework  and  the  risk  of  retaliation  by  third  countries  and  third 
country entities 

Additional  analysis  of  impact  of  policy  options  on  prices,  service 
quality  and  route  choice  (direct  vs.  indirect  connectivity)  offered  to 
EU  consumers  was  carried  out  in  section  5.1.5  Consumers  and 
households.  

In addition to the description of impacts for EU flag carriers, the report 
analyses  the  impacts  of  policy  options  on  EU  hub  airports,  EU 
regional airports, EU companies (section 4.1.2) and EU consumers 
(section 4.1.5).  

Section  5.3 on  Coherence  was  substantially  amended  in  line  with  the 
suggestions  of  Unit  MOVE  A.3.  The  section  now  analyses  the 
coherence  of  policy  options  with  the  overall  EU  transport  policy 
objectives, the Aviation Strategy and Better Regulation principles. 

III. Monitoring, transposition and compliance 

18.  The  report  should  revise 
the operational monitoring and 
in 
evaluation  arrangements 
line  with 
the  recommended 
changes to the report 

Core  progress  indicators  for  monitoring  purposes  have  been  changed 
in  line  with  the  amendments  and  better  explained  under  section  6 
on Monitoring and evaluation. 

See previous point 

19.  The  report  should  clearly 
indicate 
which 
against 
benchmarks  the  success  of  the 
initiative  would  be  evaluated 
and 
expected 
evolution of indicators. 

explain 

the 

IV. Impact Assessment process and presentation of results 

20.  The  report  should  be 
understandable to a non-expert 
reader.    Add  a  section  listing 
all the used acronyms. 

A  glossary  of  term  and  list  of  abbreviation  were  added.  The 
language was simplified.  

5.  Amendments  made  following  the  positive  opinion  of  Regulatory  Scrutiny  Board 
(RSB) 

RSB Comment 

Amendment to IAR 

I. Problems, objectives and policy choices – intervention logic 

1.  The  report  should  describe 
how  technological  advances  in 
engineering  may 
aircraft 

A  paragraph  was  added  in  section  2.1.2,  explaining  how  the 
technological  advances  on  the  aircraft  manufacturing  market  may 
influence the balance between the hub and spoke and the point-to-point 

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influence  the  balance  between 
the 
the  hub-and-spoke  and 
point-to-point  model,  not  only 
within  the  EU,  but  also  for 
international  flights  (and  how 
consumers will be impacted) 

model.  It  is  explained,  that  depending  on  the  resulting  evolution,  EU 
and  non-EU  air  carriers  may  find  themselves  with  and  advantage  or 
disadvantage. However, it is noted that at this point, it is not possible to 
determine  in  what  direction  the  market  will  evolve  and  whether  the 
strategic evolution of the manufacturing market will actually result in a 
competitive for either EU or non EU air carriers. 

A  short  paragraph  was  added,  explaining  how  certain  EU  airlines, 
notably  low  cost  carriers  because  of  their  business  model,  are  less 
sensitive  to  the  competition  developments  exercised  by  non-EU  air 
carriers. 

All  elements  of  presentation  and  assessment  of  the  baseline  scenario 
were brought together in section 3. The first discarded option is now a 
variation of the baseline scenario. 

describing 

2.  When 
the 
competitive  situation  of  EU 
airlines,  it  should  show  how 
some  EU  airlines  are  better 
adapted 
these  market 
to 
developments than others 

3. The elements of presentation 
and  assessment  of  the  baseline 
scenario  should  be  brought 
together  in  Section  4,  before 
the discarded options. The first 
discarded  option  (the  simple 
repeal  of 
this  Regulation) 
could  also  be  considered  as  a 
variation  of  the  baseline,  in 
order to avoid repetitions. 

A paragraph was added in section 1.3 "Economic context". It explains 
how the market share indicator should be put into perspective with the 
evolutions of the international air transport market – especially if it is 
growing, and not be held merely as a sign that competition conditions 
have changed. 

4.  As  market  share  is  not  only 
an  indicator  for  diminishing 
competitiveness  but  also  of 
developments  elsewhere  in  the 
world, 
should 
limitations  of 
recognise 
market  share  indicators  and 
focus more on the traffic to and 
from the EU. 

report 

the 

the 

II. Analysis of impacts and comparison of options 

The section on the cost of implementation now provides cost estimates 
of  previous  cases  of  international  agreements  negotiations,  and  puts 
these  costs  into  perspective  with  the  return  on  investment  for  the  EU 
economy. 

negotiating 

5.  With  regards  to  option  D, 
the  report  should  provide,  as 
far  as  possible,  cost  estimates 
that  would  allow  the  reader  to 
grasp  the  (relatively  limited) 
cost 
and 
of 
managing 
international 
agreements,  compared  to  the 
size  of  potential  benefits.  This 
could  be  estimated  based  on 
such 
past  experience  with 
human 
agreements 
resources  that  were  allocated 

(e.g. 

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to these tasks). 

6.  With  regard  to  consumer 
impacts, 
apparent 
contradictions  between  more 
direct services and more feeder 
(i.e.  indirect)  services  should 
be  clarified,  as  well  as  its 
on 
(uncertain) 
passengers' travel durations. 

impact 

account 
of 

Stakeholders' 
into 

opinions: 
7. 
the 
taking 
diverging 
the 
views 
stakeholders should be done in 
fashion 
a  more  consistent 
throughout the report. 

The section on impacts on consumers now explains how the absence of 
discriminatory practices against EU air carriers may enable to improve 
the quality of on board services to passengers. 

The impact on the passengers' travel duration has simply been deleted. 

The  wording  was  nuanced  around  the  use  of  statistical  information 
concerning  the  opinion  of  stakeholders.  For  example,  the  use  of  "a 
majority  of  respondents",  if  justified,  was  then  accompanied  by  the 
statistical result of the survey. In other cases, the views of the minority 
were also put more forward.  

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Annex B 

Stakeholder consultation 

Public consultation on a "proposal for improved protection against subsidisation 

1. 
and unfair pricing practices" 

Stakeholders  were  consulted  through  an  online  public  consultation  on  a  "proposal  for 
improved  protection  against  subsidisation  and  unfair  pricing  practices"  from  29.10.2013  to 
21.01.2014.  The  Commission’s  standards  on  public  consultation  have  been  respected.  20 
entities  took  part  in  public  consultation,  representing  EU  airlines,  EU  airport  and  industry 
associations, Member States, EU citizens, non-EU airlines and industry associations and EU 
trade unions. 5 responses  have  been received from non-EU  stakeholders. The results of this 
public  consultation  have  to  be  interpreted  with  caution  as  they  are  not  statistically 
representative.  Nevertheless,  they  provide  a  detailed  picture  of  the  position  of  various  key 
stakeholders. 

The  results  of  the  public  consultation  have  been  bundled  in  a  summary  report  presented 
below149. 

Summary  of  public  consultation  on  a  "proposal  for  improved  protection  against 
subsidisation and unfair pricing practices" 

I. 

Format of the survey and key questions 

The questionnaire was structured into five sections as follows: 

1. Respondent’s profiles; 2. Problems to be addressed; 3. Identification of policy objectives;  
4. Policy options and their impacts; 5. Other 

Section  1  asks  respondents  to  identify  themselves  as  either  individuals  or  organisational  or 
institutional entities, before further self-identifying themselves into a further sub-classification 
therein. Respondents are also asked to identify which Member State they or their company are 
deemed to be resident in. Following section one, the remainder of the questionnaire focuses 
on  the  EU  aviation  market  itself  and  specific  questions  relating  to  Regulation  (EC)  No 
868/2004. 

In  section  2,  respondents  are asked to  consider the  general aviation  market in  the European 
Union  and  specific  “problem  drivers”  which  have  been  identified  in  relation  to  Regulation 
868/2004. Section 3 seeks to place this in a wider context, asking respondents to consider the 
ultimate goal of the regulation in question in both an individualistic and group context within 
the  European  Union  itself.  The  penultimate  section  deals  specifically  with  Regulation 
868/2004,  asking  respondents  to  consider  four  possible  future  paths  which  the  regulation 
could  embark  upon  ranging  from  the  maintenance  of  the  status  quo  to  a  complete  and  full 
repeal  of  the  legislation  in  its  present  form.  Respondents  are  also  asked  to  consider  in  this 
section which current or proposed elements of the regulation could be strengthened to provide 
the comfort which European entities especially are seeking. Section 5 concludes the survey, 
asking respondents to consider a range of “other” considerations not specifically related to the 
previous sections but which will provide valuable data to the European Commission. 

149  

All  related  documents  can  be  found  at http://ec.europa.eu/transport/modes/air/consultations/2014-01-
20-protection-against-subsidisation_en.htm 

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II.  Responses to Section 1: Summary of respondents 

Due  to  the  commercial  sensitivities  at  stake  within  this  business  sector,  respondents  were 
provided  with  a  guarantee  at  the  outset  that  they  would  not  be  explicitly  named  within  the 
analysis  unless  they  expressly  indicated  their  assent.  Consistent  with  that  guarantee,  the 
respondents  have  been  re-categorised  into  wider  groupings  following  their  initial  self-
categorisation and the sub-sections, with the accompanying number of respondents, has been 
outlined  in  the  table  below.  There  were  ultimately  twenty  respondents  to  the  quantitative 
aspect of this survey, with additional input provided for some of the specific qualitative issues 
raised further into the document. 

Categorisation of respondent 

Number of respondents 

EU Airlines 

EU airports and industry associations 

Government – EU Country 

Individuals – EU Citizens 

Non-EU airlines and industry associations 

Trade unions 

8 

3 

2 

1 

4 

2 

III.  Responses to Section 2: Unfair practices 

Core problems 

Respondents were asked whether EU air carriers are currently facing unfair practices causing 
injury to them in the supply of air services from non-EU countries and to the EU market [Q 
2.1.1]. 

There were 20 responses to this question, with  stating that they strongly agreed or agreed, 3 
neutral positions and 4 who either disagreed or strongly disagreed.  

Unsurprisingly, 88% (7 of 8) of the EU airlines stated that they agreed or strongly agreed that 
they are facing unfair practices, whilst one was neutral. 

There  were  three  non-EU  airlines  responding.  One  strongly  agreed,  whilst  the  two  gulf 
carriers  disagreed  or  strongly  disagreed,  as  did  the  single  non-EU  industry  association 
responding. 

All  of  the  trade  unions  (2  responses)  stated  that  they  strongly  agreed.  Government 
respondents  and  airport  associations  (3)  agreed  or  were  neutral,  whilst  the  one  EU  airport 
owner that responded disagreed. Also, the respondent belonging to the category "individuals – 
EU citizen" strongly disagreed. 

Respondents  were  subsequently  asked  which  unfair  practices  are  causing  injury  to  EU  air 
carriers [Q2.1.2]. 

Subsidy 

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The existence of subsidy in the supply of air services from non-EU countries to and from the 
EU  market  was  the  practice  that  the  greatest  number  of  respondents  felt  was  an  issue,  with 
60% agreeing or strongly agreeing. 

Only one of the 12 respondents that agreed or strongly agreed was classified as non-EU. All 
but one of the EU airlines were in agreement, with the remaining respondent neutral on this 
issue. All of the non-EU airlines and industry associations disagreed or strongly disagreed that 
the existence of subsidy is causing injury to the EU air carriers.  

Unfair pricing 

Slightly  fewer  respondents  (50%)  felt  that  unfair  pricing  was  causing  injury  to  EU  carriers. 
The responses from the EU airlines followed the same pattern as above, with 88% agreeing or 
strongly  agreeing  that this  is  an issue, and one remaining  neutral.  The two EU  Government 
bodies  also  remained  neutral,  whilst  75%  of  the  non-EU  airlines  and  industry  associations 
disagreed or strongly disagreed. 

Other unfair practices 

Respondents were asked to provide narrative of other unfair practices which they had noted or 
areas upon which they wished to elaborate. 

Review  of  the  qualitative  responses  indicates  a  general  view  that  third-country  carriers  are 
potentially  distorting  the  market  through  the  subsidisation  they  receive  from  governmental 
bodies.  It  is  perceived  that  there  is  a  close  link  between  the  carrier  and  the  governments  in 
question,  further  strengthening  the  view  that  they  will  enjoy  a  range  of  advantages  which 
airlines operating in the more open EU market will be unable to compete with.  

It  is  also  suggested  that  significant  marketing  expense  is  committed  each  year  by  third-
country  carriers  which  cannot  be  matched  by  EU  entities.  This  is  a  perception  that  this 
marketing investment vastly exceeds what could realistically be expected to be invested by a 
carrier  operating  entirely  within  the  confines  of  its  own  financial  limitations  and  therefore 
subsidisation must exist. It is believed that this practice unfairly disadvantages EU carriers as 
the  marketing  expenses  of  third-country  carriers  can  exceed  the  entirely  profit  generated  by 
some airlines. There is a further perception that daily business is hindered, particularly with 
respect to airport access and slot distribution with third-country carriers given precedence. 

It  is  further  noted  by  respondents  that  the  non-EU  carriers  are  often  protected  against 
insolvency, whilst their ultimate aim abroad is not to be a profitable entity but to represent the 
country  of  its  origin abroad.  The  national  governments  thus  have  an intrinsic  interest  in  the 
operations  of  the  carrier  which  they  believe  represents  them  abroad.  This  is  perhaps  not  as 
prevalent an issue in the EU market, where the open market has seen many national carriers 
move into wholly-private hands.  

In response to these concerns, representatives of third-countries who responded to the survey 
rejected  the  claims  put  forward  by  their  competitors,  asserting  that  the  airlines  in  question 
benefitted from geographical advantages. In conjunction with a wide route network, this made 
the airlines in question the service provider of choice for many consumers. Further, there is a 
belief  that  where  conditions  are  imposed,  they  benefit  EU  airlines  and  do  not  protect  the 
operations of non-EU airlines. 

Protection to EU carriers against unfair practices 

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Respondents were  asked their views on the statement that  the current  legislative framework 
does  not  effectively  guarantee  protection  to  EU  air  carriers against  unfair  practices,  causing 
injury to them in the supply of air services from non-EU countries to and from the EU market 
[Q2.1.4].  

The majority of respondents, including 7 of the 8 EU airlines, one of the four non-EU airlines 
and associations, and  both  of the EU-based  trade unions agreed  with  this  statement.  One of 
the two EU airports and one of the two EU Government respondents were also in agreement; 
however, caution should be exercised in drawing conclusions from such a small sub-group of 
respondents.  

25%  of  respondents  disagreed  with  the  statement,  i.e.  were  of  the  viewpoint  that  current 
legislation offers sufficient protection to EU carriers. This group comprised 3 of the 4 of the 
non-EU airlines and associations and one EU airport and association. 

Bilateral Air Service Agreements  

When asked to qualify their responses, 60% cited the ineffectiveness or non-existence of fair 
competition clauses in Bilateral Air Service Agreements (ASAs) between EU Member States 
and  non-EU  countries.  91%  of  these  respondents  were  based  in  the  EU,  with  the  one 
remaining respondent in agreement a non-EU airline or association. 3 out of 5 of those who 
disagreed or strongly disagreed were non-EU airlines or associations, while the 2 remaining 
were EU airports and individuals – EU citizens. 

Regulation 868/2004  

60%  of  respondents  agreed  that  the  ineffectiveness  of  Regulation  868/2004  was  an  issue 
exposing  EU  air  carriers  to  unfair  practices  and  causing  injury.  Within  this  group,  75%  felt 
strongly that this was the case. The pattern of respondent types was similar to the above, with 
the majority of those who disagreed being non-EU airlines or associations. 

ICAO rules 

The lack of ICAO rules on fair competition was felt by a slightly smaller percentage (55%) to 
be an issue, and the majority of those agreeing felt less strongly (i.e. stated that they agreed 
rather  than  strongly  agreed).  The  majority  of  those  who  disagreed  was  again  the  non-EU 
airlines or associations (75% of this group, with the remaining respondent remaining neutral). 

Question 2.1.6  

Respondents  were  then  asked  to  consider  three  narrative  questions.  The  first,  2.1.6,  asked 
respondents to specify any other reasons they may have regarding the main cause of injury to 
EU air carriers.  

There  is  a  perception  that  the  protective  measures  initially  implemented  have  not  kept  pace 
with  the  increasing  liberalisation  of  the  EU  aviation  market.  There  is  thus  an  imbalance 
between  the  protective  measures  designed  to  safeguard  EU  airlines  and  the  reality  of  the 
present-day EU aviation market. There is also a belief that there is an inherent reluctance to 
apply and enforce existing legal frameworks by EU in the context of bilateral agreements. By 
extension, this has led to EU airlines being disadvantaged.  

It  is  also  felt  that  the  continued  toleration  of  monopoly  structures  is  leading  to  unfair 
competition on routes to and from the EU. In this context, it is suggested by some respondents 
that  EU  competition  authorities  will  assess  the  anticompetitive  behaviour  extant  within 
foreign  jurisdictions.  It  is  suggested  that  such  an  approach  should  be  adopted  within  the 

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aviation sector also. This point is expanded upon by other respondents, who cite the lack of an 
appropriate  body  to  monitor  activity  in  which  national,  regional  and  global  strategies  are 
interconnected. It would therefore appear that the absence of an authoritative “higher body” to 
adjudicate on these matters is deemed to be one of the main reasons behind the injuries which 
EU air carriers believe they are suffering.  

Mention is also made of the anti-dumping provisions within the General Agreement on Trade 
and  Services  (GATS)  which  does  not  extend  to  air  travel,  and  that  the  lack  of  this  legal 
framework may also be a cause. Also suggested as a possible reason, is a perceived lack of a 
collective  approach,  with  Bilateral  Air  Service  agreements  being  undertaken  by  either 
Member  States  individually  or  by  the  European  Commission  together  with  its  28  Member 
States  as  a  whole.  It  would  appear  that  the  uncertainty  this  generates,  as  well  as  competing 
interests within the 28 Member States, may be a further factor.  

Finally,  it  is  suggested  that  the  general  economic  malaise  in  Europe,  with  a  number  of  EU 
nations  remaining  in  recession  and  others  requiring  financial  rescue,  has  contributed  to  a 
decline  in  EU  aviation  services  offered  which  third-country  entities,  through  strong  home 
country economic performances, are in advantage to exploit.  

Question 2.1.7  

Respondents were then asked to identify any other core problems hindering the effectiveness 
of  protections  against  unfair  practices  causing  injury  to  EU  air  carriers  in  the  supply  of  air 
services from non-EU countries to and from the EU market.  

There is a perception that there is no coherent EU wide aviation policy currently in place to 
protect  EU  airlines  and  EU  hubs,  with  short-term  regional  interests  taken  precedence  in  the 
decision  making  process  over  longer-term  pan-European  concerns.  It  is  believed  that  a 
coherent pan-European policy is needed to protect EU airlines as a whole. It is also perceived 
that third-country entities are making strategic investments in EU airlines.  

Once in control of the entity in question, it is believed that they will seek to channel as many 
passengers  as  possible  to  their  non-EU  airlines  and  hubs  to  maximise  return.  This  then 
damages the EU airline itself and by extension the airports in which they are operating. Some 
respondents expand on this point, citing that where the airline in question is owned by a non-
EU entity, it can then avail of non-EU sources of capital which EU entities may find far more 
difficult to come up. This exacerbates the problems and increases the competition gap.  

It is also believed that EU airlines will be required to pull out of numerous markets should the 
growth  of  non-EU  airlines  continue  at  the  present  pace.  This  would  represent  a  damaging 
blow to the EU aviation market, with their airlines unable to compete on pricing, capacity and 
route  choice  on  a  global  basis.  Furthermore,  respondents  have  cited  that  the  present 
Regulation  only  seeks  to  protect  against  injury  on  a  route  basis.  This  principle  fails  to 
consider  the  network  basis  upon  which  airlines  compete,  and  is  thus  a  flawed  method  for 
contextualising the injury suffered.  

However,  it  is  also  suggested  that  the  increasing  prevalence  of  low  cost  carriers  operating 
within  the  EU  aviation  market  is  adversely  impacting  the  services  which  flag  carriers  can 
offer  on  routes  where  there  was  previously  no  low-cost  carrier  presence.  It  is  therefore 
implied  that  the  pricing  issues  stem  from  competing  against  low-cost  carriers  rather  than 
against pricing structures reliant on subsidy. It is also suggested by some respondents that the 
International  Civil  Aviation  Organisation  (ICAO)  has  already  developed  adequate 
recommendations and guidance for the oversight and enforcement to ensure fair competition, 
however such agreements would need to ratified on a bilateral basis.  

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Question 2.1.8  

Finally, respondents were asked to provide information if they considered themselves to have 
been the subject of unfair practices by competitors or authorities from a non-EU country. The 
following responses were noted: 

It  is  identified  by  some  respondents  that  they  believe  they  have  been  the  victims  of  unfair 
practice through the imbalance of terms and conditions allowing access to the market, direct 
financial state support as national policy in third-countries and also the non-existence of a fair 
competition clause in certain markets. Further, some respondents have utilised the qualitative 
box  to  cite  that  should  they  have  suffered  unfair  practices,  they  do  not  believe  Regulation 
868/2004 would have been a sufficient mechanism to resolve these issues. 

It  is  suggested  by  some  respondents  that  the  substance  of  this  question  compromises  the 
objectivity  of  the  survey  itself,  with  the  question  itself  perceived  as  being  aimed  directly  at 
EU carriers. They therefore believe that the tone of the questionnaire is weighted towards a 
certain outcome. This view is not supported by EU entities which have responded, however 
this is perhaps expected given the largely EU/non-EU split noted throughout the analysis thus 
far. The other responses received within this box did not directly address the issue noted, and 
have therefore not been included within the analysis of this question. 

Problem drivers - Regulation 868/2004  

The survey identifies four over-arching problem drivers and then asks respondents to consider 
their agreement or disagreement with a number of specific issues therein.  

Problem Driver 1 – Logic of trade defence instruments  

The first problem driver identified relates to trade defence instruments, with the difficulty in 
identifying subsidies granted by a third country to its non-EU air carrier and the difficulty in 
determining the existence of unfair pricing identified as the two key issues within this.  

There  was  strong  agreement  that  it  is  difficult  to  identify  subsidies  granted  to  non-EU  air 
carriers by other countries. All eight EU airlines agreed with this assessment, whilst three of 
the four non-EU respondents disagreed or strongly disagreed with this statement. EU airports 
and  airport  industry  associations  were  split,  with  one  offering  no  opinion,  one  agreeing  and 
one disagreeing with the statement. This would imply that parties which are directly affected 
(competing  airlines)  are  more  likely  to  be  concerned  over  subsidy  provision  to  non-EU 
airlines than parties not directly affected. 

With  respect  to  determining  unfair  pricing,  respondents  broadly  answered  along  the  same 
lines. All three non-EU parties which offered an opinion disagreed or strongly disagreed with 
the statement. 

Problem Driver 2 – Impracticable/unclear concepts used in Regulation 868/2004 

The second problem driver identified relates to the impracticable/unclear concepts used in the 
existing  regulation.  This  covers  difficulties  of  interpretation  in  both  wording  and  concepts 
within the regulation itself, all of which could contribute to a lack of effective protection of 
EU  air  carriers  against unfair  practices.  The  four  specific  issues  identified  in  the  survey  are 
denoted below. 

In the first instance, respondents were asked to consider whether they agreed or disagreed that 
the application or  interpretation  of the ‘Like air service’ concept contributed to  difficulty in 
implementing  the  legislation.  With  this  particular  issue,  60%  of  respondents  neither  agreed 
nor  disagreed  with  the  statement  (ten  offering  a  neutral  opinion,  and  two  providing  no 
opinion). The only grouping to register a strong opinion either way was non-EU airlines and 

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industry associations, where three of the four entities therein disagreed or strongly disagreed 
that the application of the ‘Like air service’ concept contributed to difficulty in protecting EU 
airlines. 

The  second  issue  respondents  were  asked  to  consider  was  the  difficulty  in  proving  injury. 
Unlike the previous example, all EU airlines and trade unions which had expressed a neutral 
opinion on the application of the ‘Like air service’ concept expressed strong agreement. All 
other  respondents  expressed  the  same  opinion  as  the  previous  issue.  This  suggests  the 
difficulty  of  proving  injury  is  an  issue  with  EU  airlines  and  trade  unions  are  in  unanimous 
agreement about and upon which they feel very strongly. 

The third issue which respondents were asked to consider was determining whether defining 
the  threshold  for  the  Community  industry  represented  a  difficulty  in  protecting  EU  airlines. 
50% of the respondents neither agreed nor disagreed with the assertion that the difficulty in 
defining the threshold contributed to difficulties in protecting EU airlines. The Middle Eastern 
non-EU airlines and industry associations all expressed disagreement or strong disagreement. 
Both trade unions agreed (one strongly). 

The  final  impracticable  or  unclear  concept  in  Regulation  868/2004  that  respondents  were 
asked to  consider  related to  the difficulty in  proving  the Community interest as required by 
the Article. 

Seven  of  eight  EU  airlines  agreed  (one  strongly)  that  difficulty  in  proving  the  Community 
interest  as  required  by  Article  16  contributed  to  difficulties  in  protecting  EU  airlines  from 
unfair  practice.  Only  three  non-EU  entities  offered  an  opinion,  all  of  which  disagreed  or 
strongly disagreed with the assertion. 

In concluding the analysis of the responses to problem driver 2, it is apparent that there is a 
clear distinction between EU and non-EU respondents with the latter more comfortable with 
existing regulation and not necessarily believing that deficiencies therein represent significant 
difficulties  for  protecting  EU  airlines  from  unfair  practice.  In  contrast,  EU  entities  – 
specifically  airlines  and  trade  unions  –consider  the  perceived  deficiencies  within  the 
regulation as a more significant factor in protecting their interests. 

Furthermore, it would appear from the analysis that EU airlines are more comfortable with the 
specific remits of concepts within the regulation (broadly neutral on the application of ‘Like 
air service’ concept and ‘threshold for defining the Community industry’) than with proving 
that concepts  or  protections therein have  been  breached. It is noteworthy that in the case of 
both  ‘difficulty  in  proving  injury’  and  ‘difficulty  in  proving  the  Community  interest  as 
required by Article 16’, EU airlines were in broad and strong agreement that they represented 
difficulties in protecting them from unfair practice. 

Problem Driver 3 – Ineffective procedural framework of Regulation 868/2004 

Respondents  were  asked  to  consider  various  potential  deficiencies  within  Regulation 
868/2004  and  express  either  agreement  or  disagreement  that  they  were  contributing  to  an 
ineffective protection of EU air carriers against unfair practices causing injury to them in the 
supply of air services from non-EU countries to and from the EU market. 

The first of the five potential deficiencies identified within the survey related to the point at 
which proceedings begin under the existing legislation. Respondents were asked to consider 
whether  the  initiation  of  said  procedures  only  when  sufficient  evidence  is  already  available 
could  lead  to  ineffective  protection  of  EU  air  carriers.  Eleven  of  the  twenty  respondents 
indicated their agreement with this assertion, including 7 of the 8 EU airlines who expressed 

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their strong agreement. Both trade unions also expressed strong agreement. In contrast, of the 
three non-EU entities which offered a response, all three disagreed (one strongly). 

Respondents were then asked to consider whether the fact that the burden of proof lies with 
the  complainant  represented  an  issue  when  attempting  to  protect  EU  airlines  from  unfair 
practices  causing  them  injury.  The  three  non-EU  entities  offering  an  opinion  all  disagreed 
(one strongly) with this assertion, however seven of eight EU airlines agreed (three strongly). 

It  is  notable  that  whilst  the  EU  airlines  did  agree  with  the  statement,  they  did  not  do  so  as 
strongly  as  with  the  previous  statement  relating  to  initiation  of  procedures  only  when 
sufficient evidence is already available. It was further noted that whilst the trade unions both 
agreed with the statement, only one did so “strongly”. 

The  third  issue  respondents  were  asked  to  consider  was  whether  inappropriate  deadlines 
within the framework represented an issue. None of the respondents stated strong agreement 
with the idea that inappropriate deadlines are a contributory factor, however, nine (including 
75% of the EU airlines) indicated their agreement with the statement. The trade unions also 
felt less strongly on this particular issue, with one expressing a neutral opinion and one being 
in  agreement.  Of  the  three  non-EU  airlines  and  industry  organisations  which  offered  an 
opinion, all three were found to be in disagreement (one strongly) with the statement. 

The  penultimate  issue  pertained  to  inadequate  consultation  mechanisms,  whereby  the 
cooperation  of  third  countries,  their  airlines  and  other  stakeholders  affected  by  a  European 
Commission  investigation  cannot  be  effectively  imposed.  Of  twenty  respondents,  eleven 
indicated their  agreement with  this statement (including  7 of the 8 of  EU airlines) and both 
trade  unions.  Consistent  with  previous  trends,  all  three  of  the  non-EU  entities  which 
responded  with  an  opinion  did  so  in  the  negative  with  one  strongly  disagreeing  and  the 
remaining two disagreeing. 

The  final  procedural  issue  which  respondents  were  asked  to  consider  related  to  the 
investigative powers of the European Commission and whether their scope was sufficient for 
the purposes of effective implementation of the Regulation. As with previous responses, there 
was a significant discrepancy  between  EU and non-EU entities  with  only  one of the former 
disagreeing.  All  three  non-EU  entities  disagreed  (one  strongly),  whilst  73%  of  EU  entities 
were in agreement with a further two neutral and one offering no opinion. This suggests that 
EU entities hope for the European Commission  to  adopt a wider remit in  any investigation, 
whilst  non-EU  entities  consider  the  existing  framework  to  be  sufficient  when  defining  the 
Commission’s investigative boundaries. 

When  considering  Problem  Driver  3  as  a  whole,  it  is  evident  that  EU  entities  are  far  less 
satisfied with the existing regulatory framework than their non-EU counterparts. Whereas the 
former show a broad consensus of agreement that each of the five issues identified constitutes 
an  ineffective  component  of  the  framework,  non-EU  entities  appear  more  content  with  the 
present framework. 

Problem Driver 4 – Ineffective possible remedies under Regulation 868/2004 (sanctions) 

The  final  over-arching  problem  driver  which  respondents  were  asked  to  consider  related  to 
possible  remedies  already  extant  within  the  Regulation,  and  whether  they  were  effective  in 
discouraging unfair practices which may adversely affect EU airlines. The first remedy which 
respondents considered related to the calculation of duties and the practicalities of this given 
existing pricing practice in the aviation market. 

Eleven of the responding parties agreed with this statement, including 7 of the 8 EU airlines 
and  both  trade  unions.  All  three  of  the  responding  non-EU  entities  disagreed  with  the 

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statement (one strongly). This is consistent with the trends noted throughout, whereby there is 
a clear difference of opinion between EU and non-EU entities with respect to the issues which 
may contribute to the ineffective protection of EU airlines from unfair practice. 

Respondents were asked to consider whether the term “other measures” was sufficiently well 
defined  within  the  framework.  The  majority  of  respondents  appear  to  believe  that  this  all-
encompassing  term  for  additional  sanctions  is  insufficiently  defined  and  requires  additional 
clarification if it is to prove an effective deterrent against unfair practice injuring EU airlines. 
As with previous analysis, all three non-EU airlines and industry associations which offered 
an opinion did so in the negative (one strongly). 

The final possible remedy which respondents were asked to consider related to the voluntary 
conflict  resolution  contained  within  the  framework  and  its  usability  in  practice.  Eleven 
respondents were in agreement that the voluntary conflict resolution as it currently stands is 
not useable in practice. This includes 7 of the 8 EU airlines, both trade unions, one EU airport 
and  industry  association  and  one  governmental  body.  All  three  non-EU  entities  once  again 
expressed their disagreement with the statement. 

In  concluding  the  analysis  of  Problem  Driver  4,  it  is  clear  that  EU  entities  are  generally 
dissatisfied  with  existing  remedies  within  the  framework  given  the  wide  consensus  of 
agreement noted. In contrast, non-EU entities appear to be broadly content with the contents 
of the existing framework, rejecting the notion that the possible remedies contained within the 
framework and identified within the survey are ineffective. 

Question 2.2.1.5 

Respondents were then asked to provide a qualitative answer pertaining to additional problem 
drivers.  They  were  to  identify  any  other  problem  driver  in  relation  to  Regulation  868/2004 
which hindered  the effectiveness of protection against  unfair  practices causing  injury  to  EU 
air carriers in the supply of air services from non-EU countries to and from the EU market. 

There  is  a  perceived  lack  of  transparency  on  the  financing  arrangements  of  foreign  carriers 
and airports, whereby foreign carriers were granted access to the EU market without imposing 
any  obligation  on  them  to  provide  transparency  on  their  business  model.  Furthermore,  the 
burden of proof regarding injury lay with the injured airline itself. When combined with the 
aforesaid lack of transparency, the respondents argue that this made the proving of injury an 
impossible task. 

This was also extended by some respondents, who cited the lack of reciprocity in the access 
granted  in  European  and  third-country  markets,  whereby  third-countries  will  not  allow  EU 
airlines  to  enjoy  the  same  access  levels  which  the  European  Union  grants  to  third-country 
airlines. It is perceived that this may be due to the close links which exist between many third-
countries and the airlines based in those countries. 

Respondents  further  argued  that  the  lack  of  a  competent  European  authority  to  investigate 
anticompetitive behaviour represented a significant problem also. As noted by respondents in 
previous qualitative answers, aviation does not form part of WTO/GATS. There are therefore 
no  international  rules  which  would  control  and  sanction  behaviour  incompatible  with  a 
liberalised  market.  The  respondents  extend  this  point,  highlighting  that  in  the  present 
framework  there  is  an  absence  of  adequate  remedies  within  the  existing  frameworks.  It  is 
believed that only the restriction of market access would be sufficient to deter anticompetitive 
behaviour, however the existing frameworks do not allow for sanctions of this nature and thus 
anticompetitive  behaviour  cannot  be  adequately  dealt  with.  This  expanded  upon  further  by 
other  respondents, who cite the lack of an effective dispute settlement procedure as being a 
key problem. 

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Some  respondents  have  also  suggested  that  the  framework  as  it  stands  at  present  is  not 
properly adapted to the specificities of the air transport sector. It is believed that the regulation 
does  not  account  for  an  important  commercial  reality  imposed  by  various  third-countries, 
namely the obligation to sign commercial agreements with the local carrier or authority. There 
are also potential conflicts of interest regarding this, whereby the ultimate owner of a non-EU 
airline  may  also  be  the  same  body  which  negotiates  traffic  rights  for  European  airlines 
operating to that country. 

In  contrast,  the  argument  is  also  made  by  some  respondents  that  the  present  regulation  is 
adequate, however the fact that it has not yet been invoked does not necessarily translate to 
the  conclusion  that  it  would  be  ineffective  if  that  invocation  were  to  happen.  Further,  some 
respondents  have  argued  that  lowering  the  threshold  at  which  the  regulation  can  invoked 
would present significant problems and lead to vexatious complaints that would bring about 
unnecessary cases which do not utilise the regulation in the manner in which it was originally 
intended. It is further suggested by some respondents that the European Commission already 
has  sufficient  power  to  investigate  anticompetitive  behaviour  and  that  new  mechanisms  are 
not therefore required. 

Problem Drivers – Concluding comments and final considerations 

Throughout the analysis, we have noted a clear and consistent discrepancy between EU and 
non-EU entities which implies a fundamental disagreement regarding problem drivers which 
are preventing an effective protection of EU air carriers against unfair practices. Three of the 
non-EU airlines and industry associations disagreed with every statement throughout Section 
2.2.1 (one disagreeing strongly with every statement). In contrast, of the 112 overall responses 
offered by EU airlines within the analysis of problem drivers, 44% were strongly agreed, 34% 
were agreed, 21% were neutral and only 1% (1 response) was disagreed. 

It is therefore difficult to envisage a resolution to unfair practices which will satisfy all entities 
that responded  to the consultation. As previously noted within  the analysis, it would appear 
that non-EU entities are broadly satisfied with the existing framework and do not consider the 
issues noted to be material. By extension, EU entities, particularly EU airlines, appear to be 
dissatisfied  with  extant  regulation  and  would  welcome  a  number  of  improved  or  wider 
definitions and clarifications within regulation 868/2004. 

IV. 

Responses to Section 3: Competitive and regulatory environment 

Respondents were asked to consider to what extent they agreed with assertions pertaining to 
the  existing  competitive  and  regulatory  environment  for  EU  carriers  servicing  non-EU 
countries.  There  were  three  separate  questions  relating  to  the  provision  of  more  effective 
protection for EU air carriers, views on the competition position of the EU aviation industry 
and whether more could be undertaken to deter unfair practices. 

Respondents  were  asked  whether  they  thought  that  EU  air  carriers  should  be  provided  with 
more effective protection against unfair practices causing injury to them in the supply of air 
services  from  non-EU  countries  to  and  from  the  EU  market.  Twelve  respondents  agreed  or 
strongly agreed with this statement, including seven of eight EU airlines. A clear distinction 
was noted between EU and non-EU entities. Following the exclusion of those parties offering 
a  “neutral”  or  “no  opinion”  response,  only  one  EU-based  entity  disagreed  with  the  need  to 
provide  more  effective  protection  against  unfair  practices.  Governmental  bodies  and  trade 
unions  were  also  in  agreement  with  the  need  to  provide  more  effective  protection  to  EU 
carriers. 

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Of  the  four  non-EU  based  entities,  Middle  Eastern  carriers  and  industry  associations  were 
either  neutral  (one)  or  in  disagreement  (two).  An  additional  non-EU  airline  agreed  with  the 
statement. Overall, there was a clear assent to the assertion that more effective protection for 
EU  airlines  from  unfair  practices  was  required  where  they  are  supplying  air  services  from 
non-EU countries. 

Policy objectives 

As an extension  of the previous question regarding the protection of EU airlines in non-EU 
markets, respondents were asked to consider whether there should also be a reinforcement of 
the  competitive  position  of  the  EU  aviation  industry.  There  was  strong  agreement  with  this 
statement,  with  68%  of  respondents  positing  agree  or  strongly  agree.  This  included  all  EU 
airlines, both trade unions and one Middle Eastern carrier. Only one non-EU entity disagreed 
that  a  policy  of  reinforcing  the  competitive  position  of  the  EU  aviation  industry  would  be 
beneficial. Across all categories there was a general agreement that the competitive position 
of the EU aviation industry should be reinforced. 

Finally, respondents were asked to consider whether there should be a policy that sought to 
deter unfair practices in the supply of air services from non-EU countries to and from the EU 
market.  Given  previous  responses  have  noted  a  clear  distinction  between  EU  and  non-EU 
parties,  it  is  unsurprising  that  a  policy  which  may  adversely  impact  non-EU  entities  posits 
little support from this category. EU entity views are generally favourable. 

Of  the  EU  airlines,  88%  strongly  agreed,  and  all  non-individual  EU  groupings  averaged 
agreed  or  strongly  agreed.  Only  three  parties  overall  disagreed  with  the  policy  objective  of 
deterring  unfair  practices.  Alongside  the  individual  EU  citizen,  two  non-EU  airlines  and 
industry associations  comprised the parties rejecting this policy objective. This is consistent 
with  the  trends  noted  throughout  section  three,  with  a  clear  distinction  drawn  throughout 
between EU and non-EU (particularly Middle Eastern) entities. 

V. 

Responses to Section 4: Policy options and their impacts 

In section 4, respondents have been asked to consider a wide range of potential policy options 
and the proposed impact on a number of suggested indicators. Having discussed the general 
framework  and  the  perceived  deficiencies  and  prejudices  therein  in  the  previous  sections, 
section  four  seeks  to  identify  solutions  to  these  issues.  Further,  it  seeks  to  identify  the  key 
areas  which  will  be  impacted  through  the  implementation  of  any  changes  in  policy  which 
have been suggested within previous sections. 

Section 4.1 – Policy options in relation to Regulation 868/2004 

Respondents  were  asked  to  consider  four  options  relating  to  the  future  of  Regulation 
868/2004,  ranging  from  unchanged  contents  to  a  repealing  of  the  present  framework,  as 
outlined below: 

1. Regulation 868/2004 will remain unchanged 

2. Regulation 868/2004 will be repealed 

3. Regulation 868/2004 will be amended 

4. Regulation 868/2004 will be thoroughly revised 

A consideration of the aggregated responses for each of the above will be made, alongside a 
final  analysis  to  determine  the  most  popular  overall  option  for  each  respondent  category 
heretofore identified. 

Option 1 – Regulation 868/2004 will remain unchanged 

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Considering the trends previously identified of non-EU entities being largely content with the 
existing framework, it is perhaps surprising that only one entity of the three who submitted an 
opinion  within  this  category  did  so  in  the  affirmative.  However,  the  remaining  two  entities 
were  neutral,  indicating  some  level  of  ambivalence  towards  a  wholly-unchanged  regulatory 
framework.  In  contrast,  EU  airlines  posited  a  generally  strong  disagreement  (six  of  eight 
airlines). This particular statistic is consistent with previous findings throughout this survey, 
where  it  is  clear  that  EU  airlines  in  particular  feel  especially  aggrieved  by  the  existing 
framework and would welcome changes which positively impact the business environment in 
which they operate. 

Option 2 – Regulation 868/2004 will be repealed 

It would appear from the responses received for this particular option that whilst EU airlines 
are strongly against the existing framework remaining unchanged, there is no appetite for an 
all-encompassing repeal of the present regulation. Whilst six of the eight airlines “disagree” 
with the notion of repeal, none of those therein did so “strongly”. This is in stark contrast to 
six  of  the  eight  airlines  “strongly  disagreeing”  with  Option  1  –  Regulation  868/2004  will 
remain unchanged. This may suggest that whilst EU airlines would welcome amendments and 
revisions  to  Regulation  868/2004,  they  would  prefer  repeal  to  the  present  framework 
remaining in place unchanged. 

Further,  the  same  non-EU  entity  which  “strongly  agreed”  with  Option  1  also  “strongly 
agreed”  with  Option  2.  Given  responses  for  Options  3  and  4  for  this  entity  were  both 
“strongly disagree”, thereby seemingly ruling out amendment to the framework, it is possible 
to infer that the entity in question would prefer the regulatory framework to either remain in 
place and, if this is not possible, be repealed rather than countenance any amendments to the 
present contents. 

Option 3 - Regulation 868/2004 will be amended 

The  narrative  provided  within  the  survey  implies  that  whilst  the  Regulation  would  be 
amended  under  this  option,  the  changes  would  be  largely  superficial  and  would  not 
significantly  or  materially  alter  substance.  The  survey  itself  notes  examples  including 
“reconsidering  the  scope,  providing  additional  clarifications,  adjusting  the  procedures  and 
introducing new sanction mechanisms, while maintaining the current logic of the Regulation 
(“light” revision).” 

The  responses  received  largely  indicate  that  this  is  an  unpopular  option,  with  ten  of  the 
thirteen respondents who offered an opinion doing so in the negative. Whilst five bodies have 
indicated  their  neutrality  towards  this  particular  option,  it  is  striking  that  there  is  a 
considerably  larger  body  of  support  for  the  “full”  revision  option.  This  is  discussed  further 
within  the  “Option4”  section.  It  should  also  be  noted  that  all  three  entities  which  offered 
“strong agreement” or “agreement” towards this option went on to offer “strong agreement” 
to Option 4. It is therefore clear that respondents are significantly in favour of a “full” revision 
of the framework in preference to the “light” revision option offered within Option 3. 

Option 4 – Regulation 868/2004 will be thoroughly revised 

In contrast to Option 3 (“light” revision), Option 4 offers examples which would constitute a 
“full”  revision  of  Regulation  868/2004.  The  survey  itself  notes  the  following:  “Regulation 
868/2004 will be thoroughly revised by reconsidering the current approach of a trade defence 
instrument and replacing it by a new, sector specific instrument e.g. a simplified instrument 
similar  to  the  US  International  Air  Transportation  Competition  Act  (“full”  revision).  This 
policy option could also include the considerations as set out under the previous option.” 

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Of  the  sixteen  entities  offering  an  opinion  on  this  option,  eleven  indicated  their  agreement. 
Only  five  disagreed,  including  all  three  Middle  Eastern-based  entities  within  the  non-EU 
categorisation. As noted previously within the analysis of Option 3, all three entities offering 
agreement therein went on to offer “strong agreement” to Option 4. Further, six of the eight 
EU  airlines  offer  agreement.  This  narrative  is  wholly  consistent  with  the  trends  noted 
throughout  the  survey  where  there  is  a  clear  and  definable  split  between  EU  and  non-EU 
(particularly Middle Eastern-based) airlines. 

In  concluding  Section  4.1,  it  is  clear  from  the  analysis  that  a  “full”  revision  of  the  existing 
framework  is  the  most  popular  option  amongst  EU  entities,  particularly  EU  airlines.  The 
analysis  also  indicates  that  whilst  EU  airlines  are  largely  dissatisfied  with  the  present 
Regulation,  they  welcome  its  existence  in  principle  with  only  one  respondent  from  all 
categories indicating agreement towards a complete repeal. 

It  is  therefore  possible  to  conclude  that  the  framework  being  “fully”  amended  would  likely 
meet with considerable approval from EU entities, whilst non-EU entities, particularly Middle 
Eastern carriers and organisations, would likely have serious misgivings over any revisionary 
process which may adversely impact the present market conditions in which they operate. 

Respondents  were  asked  to  consider  alternative  possible  revisions  of  Regulation  868/2004. 
No qualitative responses were received in this regard. 

Section 4.3 – Making Regulation 868/2004 more effective 

Respondents were asked to consider, “without prejudice to [their views] whether the current 
Regulation  should  be  amended  or  replaced  by  a  new  instrument”,  whether  the  following 
indicators  would  allow  Regulation  868/2004  to  be  more  effective  in  its  operation.  Twelve 
options  were  presented,  with  all  but  one  option  ultimately  demonstrating  a  “net  positive” 
agreement that an amendment along the lines stipulated would allow the present regulation to 
be more effective.  

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It is clear that non-EU entities favour the maintenance of the status quo unless the revisions 
extend  to  the  removal  of  existing  regulations  and  a  general  relaxation  of  the  regulatory 
framework.  In  stark  contrast,  EU  entities,  particularly  EU  airlines,  are  strongly  in  favour  of 
amendments  which  offer  greater  clarification  on  existing  terms  therein.  They  also  favour 
strengthening  safeguards  and  extending  various  provisions  to  offer  wider  remits  to  the 
Commission. 

Question 4.4  

Respondents were then asked to provide qualitative responses elaborating on their quantitative 
replies  and  specifying  how  the  Regulation  could  be  made  more  effective.  The  following 
responses were garnered for 4.4:  

Respondents  emphasised  the  need  for  clear  definitions.  It  is  necessary  to  complete  clearly 
defined  list  of  types  of  injury,  taking  into  account  their  effect  on  the  EU  aviation  market, 
airlines,  employees  and  consumers.  The  definition  of  “subsidy”  also  needs  to  be  tightly 
defined as it is currently so broad that it would catch what may not be regarded as State aid in 
the  EU  because  of  the  application  of  the  market  economy  investor  principle.  Likewise,  the 
definition of unfair pricing practice must be tightened such that it cannot unduly catch either 
balanced cost behaviour or otherwise sound commercial behaviour.  

European  competition  rules  are  much  stricter  than  the  correspondent  ones  in  the  rest  of  the 
world. The main issue is not the current European rule but the ability to credibly implement it 
in case of problem with carriers of non-European sovereign countries, with whom bilateral or 
open skies agreements have been signed.  

The  application  of  the  existing  European  competition  law  is  sufficient  to  punish  predatory, 
distortive  and  abusive  behaviour  that  would  impact  the  EU  aviation  market  and  negatively 
affect all carriers, irrespective of whether they are EU national carriers, EU low cost carriers 
or  non-EU  carriers,  and  these  provisions  are  quite  clearly  focused  on  protecting  the  pro-
competitive  market  dynamics  for  the  benefit  of  EU  consumers.  Under  article  101  of  the 
Treaty  on  the  Functioning  of  the  European  Union  (TFEU)  for  instance,  all  agreements 
between undertakings which have as their object or effect a distortion of competition, in the 
common market or in a substantial part of it, in particular by the creation or strengthening of a 
dominant  position,  must  be  declared  incompatible  with  the  European  internal  market. 
Countermeasures  within  the  meaning  of  regulation,  as  well  as  against  breaching  of  fair 
competition clauses must definitively include operating restrictions (such as the limitation on 
using traffic rights etc.)  

A dual approach of a revised Regulation 868/2004 together with regulatory convergence and 
fair competition clauses with like-minded countries to provide liberal traffic rights agreements 
would  be  a  step  forward.  As  international  air  transport  services  are  not  covered  by  GAT 
agreement, certain national legislation ensures legal protection at national level. The evolution 
of the air transport agreements, especially with the development of free markets and pricing 
and open skies agreements has led to the greater importance of fair competition practices at all 
levels. Fair competition discussions and fair competition clauses are now not only part of the 
ICAO  agenda  but  they  also  begin  to  be  included  in  the  different  air  transport  agreements 
negotiated  between  the  European  Union  and  third  countries.  The  protection  of  fair 
competition  should  be  integrated  as  part  of  the  negotiations  of  air  transport  agreements  and 
also  be  further  discussed  at  ICAO  level  since  fair  competition  is  not  a  regional  but  a 
worldwide issue.  

For the Regulation to be effective, the standard of evidence used for any decision should be 
set according to specific circumstances of the airline sector set out in 2.2.1.5 and should be as 

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high  as  that  used  in  EU  competition  cases  and  the  same  analytical  tools  and  quality  of 
evidence  applied.  A  lack  of  transparency  currently  prohibits  the  ability  to  collect  sufficient 
evidence. The revised Regulation should include the possibility for relief measures to be put 
in  place  as  soon  as  the  complaint  is  found  to  be  valid.  Mandatory  rules  for  transparency 
should be included in the new regulatory framework. The revised legal framework needs to 
facilitate  access  to  financial  data  of  third  parties  in  order  to  gather  sufficient  evidence  of 
unfair  pricing  practices  by  third  country  airlines,  subsidies  provided  by  third  countries  to 
airlines  and  consequential  damage  caused  to  the  EU  aviation  industry  and  the  causal  link 
between  a  price  and  the  damage.  Market  behaviour  departing  significantly  from  industry 
trends  on  a  permanent  basis,  vertical  integration  of  aviation  actors  and  impossibility  to 
identify  financial  flows  between  these  actors  should  a  priori  be  considered  as  signals  of 
potential distortions.  

The appropriate standard should be that of a substantiated legal complaint sufficient to launch 
civil  legal  proceedings  and  which  would  not  be  “struck  out”  for  failure  to  state  a  case. 
Investigation  of  unfair  practices  should  not  impose  high  costs  on  the  carrier  being 
investigated.  Any  changes  to  the  regulation  need  to  be  studied  extensively  so  as  to  avoid 
undermining the sovereignty of a third country and hence being deemed extraterritorial under 
international  law.  Consider  only  sanctions  that  are  targeted  and  proportionate  to  the  injury 
caused. These should not include revocation / limitation of traffic rights The Regulation could 
be made more efficient if the term ‘redressive measures’ is defined. In particular, the use of 
robust “free-rider” clauses should be considered as a redressive measure. Redressive measures 
shall preferably take the form of restrictions on traffic rights to, from, within or via the EU air 
market  on  third  country  air  carriers.  Such  restrictions  on  market  access  could  be  applied  to 
third  country  carriers  concerned  and  should  be  enforced  on  an  EU-wide  basis.  Article  4  on 
subsidisation should be amended so that the following cases are covered: 

•  Subsidisation  resulting  from  a  public  guarantee  given  to  the  third  country  air  carriers  that 
allow  them  to  obtain  financing  upon  market  basis  otherwise  not  accessible  to  them  or  on 
conditions that do not meet the private investor test; 

• Subsidisation resulting from the fact that an air carrier with a public participation does not 
behave as a private investor; 

•  Subsidisation  resulting  from  a  discriminatory  access  to  airport  facilities,  fuel  or  other 
reasonable facilities necessary for the normal operation of air services; 

• Subsidisation resulting from a measure imposed on EU air carriers by a third country that 
favours  the  adoption  of  agreements  between  air  carriers,  decisions  by  associations  or  air 
carriers or concerted practices; 

• Subsidisation resulting from policies regarding protection against insolvency 

Deadlines  should  be  reduced  and  authorities  should  have  the  obligation  to  take  redress 
measures if no acceptable solution is reached within these tightened deadlines. 

Airport user charges should not fall within the scope of unfair practices as these adhere to 
the ICAO principles of non-discrimination in their user charges policies. Any focus on unfair 
practices at airports should also include the policy towards slots.  

Question 4.5  

Respondents were then asked to identify and rate any other measure which could improve the 
effectiveness of Regulation 868/2004. The responses received have been documented below:  

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• Introducing a fair competition clause in existing and new ASAs is an important step: This 
policy should be implemented as soon as possible and Member States should be encouraged 
to invoke it. If Member States fail to do so, the EU Commission should be given authority to 
apply and enforce the clause.  

• The EU Commission should address the practise of some governments to connect access to 
the EU aviation market with other files, such as purchase of military weapons etc. Although it 
is a fact of life that such relations exist, the often open and unabashed linking of these issues 
should not be tolerated.  

• On a long term perspective, EU and Member States should thoroughly evaluate the pros and 
cons of including aviation in the WTO/GATS framework.  

• With the aim of establishing a level-playing field at global level, it could be an option that 
ICAO plays a role to modernise the global framework for international air transport, including 
the development of basic principles for fair competition and related instruments.  

•  At  EU  level  the  overall  aim  should  be  regulatory  convergence  in  order  to  ensure  the 
transparency  of  data,  the  independence  of  national  competition  authorities,  as  well  as 
governance and better enforcement through an appropriate dispute resolution mechanism. For 
easier  assessment  and  enforcement  of  Regulation  868/2004,  it  is  essential  to  establish  an 
appropriate  EU  authority  which  based  on  EU  law  is  controlling  and  sanctioning  the 
compliance of third country airlines. To this end, the comparable body established under the 
International Air Transportation Act can be taken as an example.  

• An EU wide comprehensive strategy to strengthen the aviation sector, its competiveness and 
the quality of the employments (direct and indirect) it generates.  

• Development of effective external air services negotiations strategy that puts more emphasis 
on advancing the EU airline industry’s commercial interests, instead of an ‘open market for 
all’ approach.  

• Prevention of social dumping and flag of convenience by using Europe’s fragmented social, 
tax and employment regulation.  

• Set up of  a legal framework to allow and provide legal certainty trans-national bargaining 
(including,  negotiation,  agreement  and  enforcement).  The  lack  of  substantial  trans-national 
representation  and  negotiation  of  labour  in  Europe  demonstrate  to  some  like-minded  third 
countries  –  such  as  the  US  –  that  Europe  allows  unfair  practices  (the  non-respect  of  the 
collective labour rights) to develop. 

•  Firm  commitment  to  the  social  dimension  of  international  air  services  agreements  both 
during the negotiations and during their implementation. Liberalised air traffic rights must not 
be used to undermine existing social standards. 

•  All  carriers  subject  to  applicable  competition  laws  worldwide.  These  laws  are 
complementary to the legal provisions that govern bilateral ASAs, in turn providing operating 
carriers protection against practices that cause injury and distort market forces.   

Section 4.6 – Impact of policy changes on suggested indicators 

Respondents  were  asked  to  consider  a  range  of  possible  impacts  that  the  policy  measures 
discussed  above  may  have  if  they  were  incorporated  into  the  revised  Regulation  868/2004. 
The nature of the question was for respondents to consider whether they agreed that the policy 
measures previously discussed would impact the particular indicator. 

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The  possible  analysis  within  this  section  is  limited  as  only  nine  of  the  suggested  indicators 
garnered a response rate in excess of 50% from the twenty participants who responded with 
quantitative answers. Further, out  of 72 possible responses for the four non-EU airlines and 
industry  associations  only  23  (32%)  were  received  in  agreement  or  disagreement. 
Consequently, it is very difficult to ascertain whether there is a significant divide between EU 
and non-EU outlooks with respect to the likely impact of policy changes in this sphere. 

Taking the aggregated responses and considering them as part of a wider narrative, it is clear 
that respondents generally agree that there would be an impact on EU business alongside an 
impact on the market share of non-EU businesses operating within the EU itself. This would 
appear to be consistent with the narrative of EU entities, particularly EU airlines, viewing the 
current situation as unfavourable. However, the findings from Section 4.6 would suggest that 
respondents  would  consider  some  of  the  policy  changes  suggested  in  4.3  as  correcting 
existing imbalances within the regulation, and thus having the most impact upon EU entities 
and their operations. 

Conclusion of Section 4.6 analysis  

From  the  analysis  completed  for  Section  4,  it  is  clear  that  the  impact  on  EU  issues  is  of 
considerably more concern to EU entities. Whilst some responses were offered for the impact 
on non-EU entities, this was limited and represented an issue which EU entities were, largely, 
ambivalent  towards.  It  would  appear  from  the  overall  analysis  that  EU  respondents  largely 
favour  new  policy  initiatives,  whilst  they  believe  that  the  implementation  of  these  policies 
will have a resultant impact on a number of EU-specific indicators. There appears to be little 
interest from EU entities in any ultimate impact that these new policy initiatives may have on 
non-EU entities.  

Perhaps the two most significant points within Section 4.6 pertain to 4-6-1 (fair competition in 
the  external  aviation  market)  and  4-6-2  (better  functioning  of  the  internal  EU  aviation 
market).  Both  received  strong  positive  responses  from  EU  entities  and  relate  to  the 
fundamental  issue  at  the  centre  of  the  survey  which  seeks  to  redress  apparent  imbalances 
within the existing regulation and offer stronger protection to EU airlines from unfair practice. 
EU entities in particular agreed that new policy initiatives would result in fairer competition 
in  the  external  aviation  market  and  a  better  functioning  of  the  internal  EU  aviation  market. 
Specific  policy  initiatives  would  therefore  be  implemented  in  an  environment  which  EU 

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entities  believe  will  ultimately  benefit  the  markets  in  which  they  operate  and  allow  greater 
competition and opportunities to improve their own performance.  

Respondents were  asked to  provide qualitative responses  in sections 4.7 to  4.9, however no 
responses in this regard were received from those who completed the survey. 

VI. 

Responses to Section 5 - General Qualitative Responses  

Respondents  were  asked  to  provide  general  comments  at  specific  points  during  the  survey. 
The  responses  received  are  of  a  general  nature,  and  contain  commentary  on  the  general 
aviation  market  and  also  suggestions  on  where  improvements  may  be  made.  The  responses 
received  in  this  regard,  which  do  not  necessarily  fall  under  the  remit  of  any  other  question 
contained within the survey, have been included below.  

  The IATFCPA instrument has demonstrated over time both its practicability as well as 
its efficiency. It could form a good basis for a European trade defence instrument.  
  To  look  at  fair  balance  and  reciprocity;  Transparency  of  investments'  sources;  Fair 
social conditions for employees in non-EU countries; and there is no control power of 
EU institutions on non-EU countries.  

  The  new  instrument  would  provide  sufficient  tools  to  enable  access  to  the  financial 

 

data of third country air carriers.  
Introduction of "fair competition" clauses in EU Horizontal Air Transport Agreements 
is an effective instrument of control but, considering the long time frame to conclude 
such an agreement with third countries, this is still a long term goal. 

  a  scheme  similar  to  the  US  International  Air  Transportation  Competition  Act  1979, 
would set the necessary framework to embark on an effective defence instrument, to 
safeguard fair competition in EU external aviation relations.  

  Mechanisms and instruments of the WTO should be considered in the revision process  
  Social standards and labour legislation (including job quality) in 3rd countries should 

not be overlooked while dealing with ‘unfair practices’.  

  Consideration  of  environmental  regulations  (i.e.  night  restrictions,  operational 

restrictions.  

  Differences  in  countries’  economies,  political  and  legal  systems,  geographical 
position, population size and histories of participation in civil aviation mean that “fair 
competition”  can  never  equate  to  a  requirement  that  identical  operating  conditions 
must exist with respect to air services offered by the airlines of ASA partner countries. 
An approach should be to accept these differences, to establish the broadest possible 
market access for airlines of all sides taking such differences into account, and then to 
delimit  carefully  and  narrowly  the  circumstances  in  which  intervention  to  address 
alleged “unfair practices” is legitimate. 

  A  fundamental  objective  should  be  to  foster  airline  competition  in  the  interests  of 

consumers, economic growth, and prosperity.  

  There  is  concern  that  the  study  appears  to  be  more  included  towards  securing  the 
interest of EU carriers rather than the EU air transport stakeholders in general and the 
consumer in particular.  

  Risk  that  revision  of  Regulation  868/2004  may  lead  to  unnecessary  protectionist 

treatment. 

  Extreme  options  considered  could  trigger  disputes  with  non-EU  countries  similar  to 
the one following the inclusion of international aviation in the EU emissions Trading 
Scheme.  

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  Any  changes  to  the  regulation  need  to  be  studied  extensively  so  as  to  avoid 
third  country  and  hence  being  deemed 

the  sovereignty  of  a 
undermining 
extraterritorial under international law. 

Public consultation on the "Aviation package for improving the competitiveness 

2. 
of the EU Aviation sector" 

The question of unfair practices was also a part of the recent public consultation in view of the 
Commission's  work  on  the  development  of  an  Aviation  Strategy  carried  out  between 
19.03.2015 and 10.06.2015150. The Commission received 233 full questionnaire responses and 
41 position papers from stakeholders, representing Member States, non-EU countries, airlines, 
airports, groundhandling companies, pilots, aircraft suppliers and manufacturers, industry and 
workers  associations,  consultancies,  academia  and  individuals.  The  information  gathered  in 
the stakeholders' consultation complements the data gathered by the studies and was used to 
assess the perceived challenges and obstacles that EU carriers face on extra-EU markets.  

Input from stakeholders and the external study have been taken into account and reflected in 
the different sections of the impact assessment report where appropriate. 

The part of the summary report relevant to the impact assessment report is presented below. 

Summary  of  public  consultation  on  the  "Aviation  package  for  improving  the 
competitiveness of the EU Aviation sector" 

External dimension of EU-aviation 

The  overwhelming  majority  of  respondents  agreed  that  EU  carriers  face  challenges  when 
competing  with  non-EU carriers, important issues  being cost  advantages  of non-EU carriers 
versus EU carriers (including lower labour cost) or a more favourable tax regime. 

A  majority of respondents are of the opinion that state  subsidies for non-EU carriers are an 
important  competitive  disadvantage  of  EU  carriers.  Some  respondents,  however,  strongly 
argue against the existence of such support. The same response pattern can be identified when 
it comes to the question of unfair commercial practices of non-EU carriers. 

More neutral opinions were expressed with regard to the question of possible discrimination 
of  EU  carriers  by  non-EU  States  or  non-EU  service  providers.  The  overall  response  is  also 
rather balanced when it comes to the comparison of the attractiveness of products and services 
of EU / non-EU carriers, the question of potential overcapacity in the markets or the potential 
issue of a geographic advantage of non-EU carriers over EU carriers.  

When  asked  to  rank  the  challenges  /  obstacles  EU  carriers  face  on  extra-EU  markets,  the 
issues that were most mentioned, were cost advantages of non-EU carriers, more favourable 
tax regimes and the issue of potential subsidies. 

When it comes to the main areas for future work to improve the framework conditions of the 
EU's  aviation  sector  in  international  competition,  three  areas  were  particularly  highlighted: 
fair competition, regulatory harmonisation and taxation. 

Most  respondents  expressed  the  view  that  these  issues  should  best  be  addressed  at 
international level (ICAO) or at EU-level, e.g. through the negotiation of comprehensive air 
transport agreements. 

150  

All  related  documents  can  be  found  at http://ec.europa.eu/transport/modes/air/consultations/2015-
aviation-package_en.htm 

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Asked  to  name  interesting  countries/regions  for  possible  future  comprehensive  air  transport 
agreements,  most  respondents,  across  industry  sectors  and  from  diverse  stakeholder  groups, 
named  the  Gulf  States  or  the  United  Arab  Emirates  and  Qatar.  China,  Turkey,  ASEAN, 
Mexico  and  Russia  were  mentioned  often.  Japan  and  India,  and  to  a  lesser  extent  African 
States  or  South  Korea,  were  mentioned  also  as  potential  candidates.  Low  cost  airlines 
emphasised EU neighbourhood countries. 

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Annex C 
Affected parties and their key interests 

The table below presents the parties affected by the problem and their key interests. 

Stakeholder 

Consumers 

Description 
Consumers  on  the  European  air 
transport  market  (both  leisure  and 
business travellers) 

Travel/hospitality 
industry 

tourism 
(tour 

European 
providers 
accommodation 
restaurants, 
transport providers).  

attractions, 

service 
operators, 
providers, 
shops, 

EU air carriers  Mainly  network  carriers  operating 

Third country air 
carriers  
EU airports  

country 

Third 
airports 
Other 
representatives of 
the  air  transport 
value chain 

Employees 

Member  States’ 
regulators 
and 
enforcement 
bodies 

air 

intercontinental networks 
country 
Third 
competing on unfair basis  
EU 
(around 
especially 
international 
airports and their feeder airports 

airports 

460) 
hub 

carriers 

Homebase  of  third  country  air 
carriers  
Aircraft 
manufacturers, 
groundhandling  and  aircraft  repair 
and  maintenance  providers,  air 
providers, 
service 
navigation 
catering  companies,  travel  agents, 
computer 
system 
reservation 
vendors.   
Direct  airlines  employees  but  also 
employees  of  other  entities  within 
the  aviation  value  chain  (around 
2.3 million people in the EU). 
National, regional and local bodies 
regulating 
air 
transport legislation 

enforcing 

and 

for 

important 

Key interests 
A  wide  range  of  convenient  and 
reliable  air  services  provided  at 
high  service  quality  and  low  prices 
(less 
business 
passengers). 
Good  air  connectivity  and  quality 
services at low prices, possibility of 
cooperation  with  airlines/airports 
on 
advertising, 
marketing, 
additional services 
Competitive and sustainable freight 
and passengers services 
Increased  market  share  at 
expense of EU carriers 
Competitive 
sustainable 
and 
services  rendered  to  air  operators 
(aircraft  movements,  passengers 
and freight) 
Strengthened  position  as  global 
hubs 
Profitable  and  sustainable  services 
rendered to air operators. 

the 

Job 
security, 
employment conditions.  

salary 

and 

Facilitation  of  the  decision-making 
process,  well-functioning  market, 
compliance  with  the  rules  by  air 
operators 

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Annex D 
Environmental impacts 

Table  1:  Environmental  impacts  based  on  drivers  broken  down  per  air  carrier  nationality: 
greenhouse emissions generated151 

Aircraft type 

Length of trip 

Take-off 
emissions 

Fleet age 

EU carriers – 
direct 

EU carriers – 
non-direct 

Wide body 

Shortest possible  

Direct flights have 
less emission  

Overall older than 
their counterparts 

First leg of trip 
with Narrow body. 
Second leg of trip 
with wide body 

Hub stops may 
increase length of 
trip  

More emission due 
to non-direct 
flights 

Overall older than 
their counterparts 

Third country 
carrier A 

Wide body 

Increase flight 
length 

More emission due 
to non-direct 
flights 

Aircraft fleet is very 
young 

Third country 
carrier B 

Middle mix 
between wide-body 
and narrow body 
depending on 
origin. Narrow 
body length of 
flight generally 
short 

Best to go to Asia 
in case of non-
direct flights 

More emission due 
to non-direct 
flights 

Aircraft fleet is very 
young 

Source: PWC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from EU 

Table 2: Environmental impacts based on drivers broken down per air carrier nationality: noise 
pollution generated152 

Aircraft type 

Length of trip 

Take-off 
emissions 

Fleet age 

EU carriers, 
direct 

EU carriers, non-
direct 

Third country 
carrier A 

Third country 
carrier B 

Wide body 

Not relevant 

Direct flights have 
less noise pollution 

Overall older than 
their counterparts 

First leg of trip 
with Narrow body. 
Second leg of trip 
with Wide body 

Not relevant 

Wide body 

Not relevant 

Middle mix 
between wide-body 
and narrow body 
depending from 

Not relevant 

More noise 
pollution due to 
non-direct flights 

More noise 
pollution due to 
non-direct flights 

More noise 
pollution due to 
non-direct flights 

Overall older than 
their counterparts 

Aircraft fleet is very 
young 

Aircraft fleet is very 
young 

151  
152  

Light colours: least environmental impacts. Dark colours: most environmental impacts 
Light colours: least environmental impacts. Dark colours: most environmental impacts 

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Aircraft type 

Length of trip 

Take-off 
emissions 

Fleet age 

origin. Narrow 
body length of 
flight generally 
short 

Source: PWC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from EU 

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Annex E 
Market trends in Europe and other regions 

Taking  the example  of  Europe  –  Asia-Pacific  air  traffic  flows,  it  is  evident  that  Europe  has 
been  lagging  behind  the  Middle  East  Region  over  the  last  decade.  While  Europe  has  been 
struggling to record decent levels of growth on this market the Middle East Region has been 
experiencing double digit yearly growth. Moreover, a high growth level was also recorded on 
the  market  between  Europe  and  the  Middle  East  (see  Figure  1).  As  indicated  earlier,  the 
Middle  Eastern  carriers use  traffic  rights  mainly  to  carry  EU  passengers  beyond their  home 
markets,  recording  the  80-85%  ratio  of  transfer  passengers.  It  is  easy  to  imagine  that  the 
staggering  growth  from  the  Middle  East  to  Asia  was  extensively  driven  by  origin  and 
destination traffic from Europe. It must be underlined that the three major Gulf carriers are the 
biggest global airlines in terms of passenger fleet (both in service and on order). 

Figure 1 - Capacity growth: ASK CAGR 2004-2014 between regions 

Source: Mott Mac Donald, EU Gulf Topical Report, September 2014 

The imbalance between the two regions is even more evident in terms of the number of new 
city pairs. As shown in Figure 2 below, the Gulf Region managed to add twice as many new 
routes to Asia than Europe. 

Figure 2 - New city pairs between Europe and Gulf and Indian Subcontinent, South-East Asia, East Asia, 
East Africa and Central Africa 

Source: Mott Mac Donald, EU Gulf Topical Report, September 2014 

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 13%2%0.20%3.50%2%4%13%10%14%26%16%17%00.050.10.150.20.250.3EuropeGulfIndian SubCon.S.E. AsiaE.AsiaE. AfricaC. AfricaCAGR between Europe and …CAGR between Gulf and … 3877020406080100EuropeGulf 
 
 
 
It  is  also  striking  that  the  number  of  city  pairs  between  the  Gulf  States  and  Asia  was 
augmented by 77 and the market between Europe and the Gulf States was enlarged by 52 new 
routes.  

Figure 3 - New city pairs 2004 – 2014 between regions 

Source: Mott Mac Donald, EU Gulf Topical Report, September 2014 

This  shift  in  network  balance  affects  European  intercontinental  transfer  flows.  It  is  evident 
that  Europe  is  losing  its  position  as  a  global  hub.  As  shown  on  the  graph  below  European 
hubs managed to increase intercontinental traffic flows from 42 million passengers in 2004 to 
45 million in 2013. However, at the same time, Middle Eastern and Turkish hubs increased 
their transfer traffic from 8 to 30 million and 2 to 10 million respectively. 

Figure 4 - Intercontinental transfer traffic (millions of passengers) by region in 2004 and 2013 

Source: PWC, Improved protection against unfair practices causing injury to EU air carriers in the supply of air 
services from non-EU countries on routes to and from the EU 

The  threat  to  the  European  position  as  an  intercontinental  hub  is  even  more  evident  if  we 
compare  the  individual  traffic  flows.  It  should  be  noted  that  only  transfer  traffic  flows 
between EU28 and Asia as well as North America and India increased slightly their volume at 

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 52-36360-152271320134-100102030405060EuropeGulfIndian SubCon.S.E. AsiaE.AsiaE. AfricaC. AfricaNew city pairs between Europe and …New city pairs between Gulf and … 
 
 
 
European hubs over last 9 years. At the same time passengers travelling between all analysed 
regions (see Figure 4) significantly increased their presence at the Middle Eastern hubs, using 
them as transfer points.  

Figure 5 - Connecting traffic via Europe and Middle East by destination region, 2004 and 2013 

PWC,  Improved  protection  against  unfair  practices  causing  injury  to  EU  air  carriers  in  the  supply  of  air 
services from non-EU countries on routes to and from the EU 

Source: 

What is also important, in the report Challenges of Growth, Task 4: European Air Traffic in 
2035, released by Eurocontrol in June 2013, the organisation assumed growing importance of 
Middle  East  hubs  (namely  Dubai,  Abu  Dhabi  and  Doha)  for  connecting  traffic  between 
Europe  and  Middle-East,  Asia/Pacific  and  Southern  Africa.  According  to  Eurocontrol,  this 
expansion would take place at the expense of the growth of transfer traffic to those regions at 
European hubs. The study forecasts also the growing role of the hub in Istanbul, but to lesser 
extent in comparison to Middle-Eastern hubs.153.    
These prospects for European hubs are also mirrored in Airbus’s latest market forecast154. It 
predicts that European carriers will significantly lose their global market share from 25% in 
2013  to  20%  in  2033  (see  Figure  6).  At  the  same  time  Asia-Pacific  and  Middle  Eastern 
carriers will increase their market presence.  

153  
154  

Eurocontrol, Challenges of Growth, Task 4: European Air Traffic in 2035. 
Airbus, Global Market Forecast 2014-2033 

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Figure 6 - RPK traffic market share by airline domicile.  

Source: Presentation of J. Leahy, Flying on demand, based on Global Market Forecast 2014-2033, Airbus. 

Airbus forecasts that while the European’s market share will drop by 5 percentage points the 
Middle-Eastern  carriers  and  airlines  from  Asia-Pacific  region  will  increase  their  market 
participation by 5 and 6 percentage points respectively (See figure 7).  

Figure 7 - The change in market share between 2013 and 2033 by airline domicile. 

Source: Presentation of J. Leahy, Flying on demand, based on Global Market Forecast 2014-2033, Airbus. 

Airbus  predicts  also  that  Europe  over  the  next  20  years  will  record  second  lowest  yearly 
traffic growth in the World. The highest growth will be at the same time realised by Middle 
Eastern carriers (see Figure 8).  

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 0%5%10%15%20%25%30%35%40%% of 2013 RPK% of 2033 RPK 6%-5%-7%5%1%1%0%-8%-6%-4%-2%0%2%4%6%8%Asia-PacificEuropeNorthAmericaMiddle EastLatinAmericaCISAfricaThe difference in percentage points in traffic share between 2013 and 2033 
 
 
Figure 8 - The yearly growth by airline domicile between 2013 and 2033. 

Source: Presentation of J. Leahy, Flying on demand, based on Global Market Forecast 2014-2033, Airbus. 

It is not surprising though that Eurocontrol predicts that “in terms of air traffic growth, Europe 
will be in the slow lane, with the Middle East and China (Asia/Pacific) growing much more 
rapidly”155.    
Boeing for example forecasts that the share of European traffic156 will drop from 34% in 2013 
to 29% in 2033 (see Figure 9). 

Figure 9 - The global share of European traffic (including intra-European operations) 

Source: Boeing Current Market Outlook 2014-2033 
At  the  same  time  the  share  of  Middle  Eastern  traffic157  is  predicted  to  increase  by  2 
percentage points from 10% in 2013 to 12% in 2033 (see Figure 10).  

155  
156  
157  

Eurocontrol, Challenges of Growth, Task 4: European Air Traffic in 2035, p. 9 
Intra-European flows and major extra-European flows (All carriers – irrespective of their origin) 
Intra-Middle-Eastern flows of and major extra-Middle-Eastern flows (All carriers – irrespective of their 
origin) 

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 5.70%3.60%2.90%7.10%5.40%5.40%4.70%0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%20-year growth 25%27%29%31%33%35%37%39%41%200620072008200920102011201220132033Series1Series2 
 
                                                 
Figure 10 - The global share of Middle Eastern traffic (including intra-Middle-Eastern operations) 

Source: Boeing Current Market Outlook 2014-2033. 

As in case of the whole market the forecasts for the major extra-European direct traffic flows 
are also declining. Traffic between Europe and North America is going to lose its global share 
from 7% in 2013 to 5% in 2033. At the same time, the share of the air traffic flows between 
Europe and the Asia-Pacific is only going to be maintained at the same level.  

Figure 11 - The global share of major intercontinental traffic flows from Europe 

Source: Boeing Current Market Outlook 2014-2033. 

According to Boeing’s forecast the flow between Middle East and Asia is going to increase its 
global market share by half over the forthcoming 20 years.  

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 4%5%6%7%8%9%10%11%12%13%200620072008200920102011201220132033Series1 4%5%6%7%8%9%10%200620072008200920102011201220132033Europe to and from North AmericaEurope to and from Asia-Pacific RegionOther inercontinental flows 
 
 
Figure 12 - The global share of major intercontinental traffic flows from Middle East 

Source: Boeing Current Market Outlook 2014-2033. 

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 0%1%2%3%4%5%6%200620072008200920102011201220132033Middle East to and from North AmericaMiddle East to and from Asia-Pacific RegionOther inercontinental flows