The role of state funding in regional air services CEE Aviation - PowerPoint PPT Presentation

The role of state funding in regional air services CEE Aviation Conference Budapest, 3-4 September 2015 www.eraa.org twitter.com/eraaorg

Contents Contents 1. What are regional air services and why are they important 2. A look at the (new) EU state aid guidelines 3. Public Service Obligations routes 4. Are we a subsidised business 5. Conclusions www.eraa.org twitter.com/eraaorg

Contents Contents 1. What are regional air services and why are they important 2. A look at the (new) EU state aid guidelines 3. Public Service Obligations routes 4. Are we a subsidised business 5. Conclusions www.eraa.org twitter.com/eraaorg

What do regional airlines do? • 960,000 passenger and freight flights per year • 45 million passengers per year • 71 minute average sector time • 480km average sector distance • 67 seats average seating capacity • 1,200 point to point routes • 280,000 direct, indirect and induced jobs generated by the industry • The regional industry makes a contribution of € 47bn to Europe’s GDP www.eraa.org twitter.com/eraaorg

What do regionals do? • Core markets  Feeding hubs – up to 40% transfer traffic  Linking lower volume point to point services  Providing essential air services www.eraa.org twitter.com/eraaorg

Population density Conclusion • Higher population densities require better transport links • Higher population densities need hub airports KEY: Darker brown = higher population density Lighter brown = lower population density www.eraa.org twitter.com/eraaorg Source: Eurostat 2014 yearbook. Data for 2012

Employment rate Conclusion • Workers migrate to where jobs are • Workers need air links to move to where jobs and business is KEY: Darker brown = higher employment rates Lighter brown = lower employment rates www.eraa.org twitter.com/eraaorg Source: Eurostat 2014 yearbook. Data for 2012

GDP per inhabitant Conclusion • Workers migrate to higher GDP concentrations • Higher GDP concentrations need air links to allow migration KEY: Darker blue = higher GDP per capita Lighter green = lower GDP per capita www.eraa.org twitter.com/eraaorg Source: Eurostat 2014 yearbook. Data for 2011

ERA’s Network www.eraa.org twitter.com/eraaorg

Linking remoter regions www.eraa.org twitter.com/eraaorg

Linking remoter regions www.eraa.org twitter.com/eraaorg

Feeding primary hubs www.eraa.org twitter.com/eraaorg

Amapola Flyg Atlantic Airways Belavia Cimber Avion Express Air Lithuanica Air Greenland DOT Mistral Air HOP! Regional Luxair Blue Air Blue 1 Astra Airlines Adria Airways Titan Airways Wideroe Binter Canarias Stobart Air Sata Air Acores KLM Cityhopper CityJet Air Nostrum Sky Work Airlines Blue Islands Braathens Regional PGA Portugalia HOP! Brit Air Eastern Airways Montenegro Airlines Sky Express Hahn Air Lines Trade Air ASL Airlines Ireland VLM Airlines Farnair Switzerland Denim Air Air Iceland West Atlantic Cargo Airlines Jota Aviation Avanti Air HOP! Airlinair Welcome Air Aurigny Air Services Air Andorra BMI Regional Estonian Air Air Urga Danish Air Transport Etihad Regional operated by Darwin Airline www.eraa.org Tyrol Air Ambulance Malmo Aviation twitter.com/eraaorg

Air Greenland Wideroe Air Iceland Atlantic Airways Blue 1 BMI Regional Amapola Titan Estonian Air Braathens Regional Jota Aviation West Atlantic Cargo Airlines DAT DOT Malmo Eastern Airways Avion Express Stobart Air KLM Cityhopper CityJet Belavia Denim Air ASL Airlines Ireland VLM Avanti Air Blue Islands Hahn Air Urga Aurigny Air Services HOP! Luxair Tyrol Air Ambulence Airlinair Sky Work HOP! Brit Air Welcome Air HOP! Regional Farnair Trade Air Blue Air Etihad Regional Adria Montenegro Mistral Air Sata Air Acores Air Andorra Astra Airlines PGA www.eraa.org Air Nostrum twitter.com/eraaorg Sky Express Binter Canarias

European Air Transport Market • The air transport market has evolved dramatically in recent years.  Low-Cost Carriers (LCCs) have developed new business models linked to regional airports • Gained large market share (over 40% in Europe) • But rapid decisions on entering and leaving routes introduces greater risk for airports  Europe’s regions are losing links with capitals via their hub airports (11% decline in 10 years) www.eraa.org twitter.com/eraaorg

Contents Contents 1. What are regional air services and why are they important 2. A look at the (new) EU state aid guidelines 3. Public Service Obligations routes 4. Are we a subsidised business 5. Conclusions www.eraa.org twitter.com/eraaorg

The role of state funding • The mention of state funding for air transport has become a dirty word • But it has a critical role to play, in particular in regional, low density but economically and socially important routes • Two main means of access:  In compliance with the 2005 & updated 2014 EU state aid guidelines  Use of the EU Public Service Obligation (PSO) regulations www.eraa.org twitter.com/eraaorg

Guidelines on State aid to airports & airlines www.eraa.org twitter.com/eraaorg

2014 Guidelines - summary Four major changes: 1. Aid for airport operating costs allowed during a transitional period of 10 years. 2. Investment aid not permitted for airports with a passenger volume > 5 million/year + new caps for smaller airports now introduced 3. Start-up aid to airlines for launching new routes or new schedules (higher frequency) will vary depending on the size of the airport + aid plan must be established in advance 4. Remote/peripheral regions : more flexible rules www.eraa.org twitter.com/eraaorg

2014 Guidelines - summary Investment in airport infrastructure: • allowed if genuine transport need and public support necessary to regional accessibility: (stricter and clearer compatibility conditions now set) • max permissible aid intensities depending on airport size: 3 – 5 million pax: up to 25 % (of costs for infrastr. + equip.)   1 – 3 million pax: up to 50 %  < 1 million pax: up to 75 % (under the 2005 guidelines no guidance as to which airports would qualify for investment aid or how much aid could be used) www.eraa.org twitter.com/eraaorg

2014 Guidelines - summary Operating aid to regional airports • Allowed to airport < 3 million pax (in the 2005 regime: no limit on the size of airport) • up to 50% of funding gap (in the 2005: no requirement for a percentage contribution to the operating deficit from the airport) • allowed for a transitional period of 10 years under certain conditions, in order to give airports time to adjust their business model (in the 2005 regime: no mention to end of aid after a transitional period) • airports need to work out a business plan paving the way towards full coverage of operating costs at the end of the transitional period (in the 2005 regime: no ex ante business plan required). • airports with an annual passenger traffic <700 000: special regime with higher aid intensities (up to 80%) and a re-assessment of the situation after 5 years (in the 2005 regime: no mention to this www.eraa.org threshold) twitter.com/eraaorg

2014 Guidelines - summary Start-up aid to airlines Compared to 2005 Guidelines: more simplified procedure, clearer definition of aid intensity and eligible costs, well defined duration of aid • Allowed for launching new routes or schedules (higher frequencies) • Allowed for carriers departing airports < 3 mil pax/year • Airports between 3-5 million passengers: exceptional circumstances • Maximum aid: covering 50% of airport charges • Limited to three years, not eligible if route already operated by HSR • An ex ante business plan must show the route will become profitable after the start-up period. Otherwise, the airline must provide an irrevocable commitment to continue operating the route for at least the same period as the one during which it received start-up aid. • No airport size restrictions for routes to remote airports www.eraa.org twitter.com/eraaorg

2014 Guidelines - summary • Positive new elements for regional aviation:  remote regions : irrespective of airport size , the maximum intensities for investment aid to finance airport infrastructure may be increased by up to 20%  peripheral regions: for airports <1 million pax/year maximum intensity of investment aid may exceed 75% in exceptional circumstances (case-by-case assessment)  Compliance with Regulation 1008/2008 on Public Service Obligations re-emphasized www.eraa.org twitter.com/eraaorg

2014 Guidelines - summary Preferential treatment to rail transport? No start-up aid to airlines allowed on routes already covered by HSR, however… …heavy subsidies to rail transport allowed although commercially profitable air link already operating www.eraa.org twitter.com/eraaorg

Weaknesses of the guidelines  The new regime tightens the availability of state funding  The previous guidelines were already clear, but were being abused  Implementation and fair enforcement across the EU is weak and inconsistent  There is no simple, effective and expeditious complaints procedure other that to the EC and the courts which is long a slow www.eraa.org twitter.com/eraaorg