Belfast Telegraph

Aviation industry sees storm clouds starting to gather

By Colm McCarthy

When contentious trade policy issues arise between the EU and rivals in other parts of the world, the interests of the various EU member states do not always coincide. The big countries, particularly France and Germany, can be quick off the mark in identifying where their advantage lies and are not shy about bending EU policy to their narrow national interest.

It looks as if the French and Germans are seeking to back away from the so-called Open Skies policy in long-haul aviation in order to protect their national carriers, and may find an ally in the United States.

A move back towards protectionism in the air-passenger business does not suit EU countries whose principal airlines are successful and competitive, a category which happily includes Ireland. The routine reaction of going along with an emerging European policy, on the basis that it has nothing to do with little Ireland, could be costly.

Long-established European and North American airlines, such as Air France, Lufthansa, United and Delta, were once the biggest in the world and enjoyed protection from competition. New entrant airlines were simply prohibited by governments, and established players were actually allowed to operate a legal fare cartel. The small countries were included in this happy arrangement.

This world came to an end in the 1980s and the so-called 'legacy' airlines have been struggling ever since. There have been numerous successful entrants in the short-haul business, notably Southwest in the USA and both easyJet and Ryanair in Europe. These new low-cost carriers have taken much of the market, which has also been greatly expanded as fares have fallen dramatically. This revolution, which has brought short-haul travel within the budgets of most people, has come about despite the opposition of the long-established European and North American airlines.

More recently, the long-haul business has also been under attack, this time by new operators from the Gulf states, particularly Emirates, Etihad and Qatar Airways. These airlines, backed by oil-rich governments, have built major hubs at Dubai, Abu Dhabi and Doha, linking North America and Europe to Asia and Australia. The result is that the long-established carriers have been slowly going bust, seeking rescue from their governments, and consolidating into larger units.

In the USA, famous airlines such as Panam and TWA have disappeared, and there are just three major network carriers left - United, which has absorbed Continental; American Airlines, which has absorbed US Air; and Delta, which has absorbed Northwest. In Europe, several former national airlines have gone bust, while Air France and the Dutch carrier KLM, have merged, as have BA and Iberia. Lufthansa has absorbed Swissair and Austrian Airlines. Thus in both the USA and in Europe there are just three major players left in the long-haul business. Step forward Air France and Lufthansa, which are uncompetitive with the upstart easyJet and Ryanair in short-haul, and have also been suffering at the hands of the Gulf carriers in the long-haul business. They have petitioned the EU Commission, a body ostensibly committed to Open Skies, to grant similar restrictions against Gulf operators at European airports.

The third European network carrier is IAG, which owns British Airways and Iberia, and is the suitor for Aer Lingus. Its chief executive, Willie Walsh, has declined to join the Franco-German duet, complaining instead about the dangers of a return to protectionism. Mr Walsh's airlines are doing rather better than Lufthansa (currently on strike, yet again) and Air France, and his attitude is explicable in those terms. Whenever large and long-established corporations complain about 'unfair' competition, there must always be a suspicion that (a) the competition is succeeding and (b) the competition deserves to succeed. Both suspicions are justified in this case.

Aer Lingus is the only Irish carrier currently operating long-haul, and seems to be succeeding. It does not operate eastbound routes and does not appear to have any ambitions to do so. Accordingly, it has nothing to fear from continuing access by the Gulf airlines to the European market. Ryanair (or an affiliate) may at some stage enter the long-haul business, but it too seems to be focused on the westbound opportunity. Irish passengers currently enjoy valuable connectivity through twice-a-day services from Dublin to the hubs at both Abu Dhabi and Dubai. Travel to Australia and to numerous Asian destinations is possible with just one stopover.

No doubt, Air France and Lufthansa would like to put a stop to this embarrassment of choice for Irish passengers, and EU Transport Commissioner Violeta Bulc appears sympathetic.

There is no Irish interest served by this prospective lurch back to protectionism in European aviation policy. Transport minister Paschal Donohoe should oppose this Franco-German manoeuvre, which serves neither the interest of Irish airlines nor the interest of Irish passengers.

Belfast Telegraph