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06/12/2016

Commission to review competition from Gulf-based airlines

Competition

Commission to review competition from Gulf-based airlines

An Emirates Airlines A380 landing at Birmingham airport.

[Martin Hartland/Flickr]

Transport Commissioner Violeta Bulc said she will seek a new mandate from EU countries to reopen talks with Persian Gulf states over ‘unfair’ subsidies to airlines following a request from France and Germany last Friday (13 March).

Gulf carriers compete with Europe’s airlines on international flights. The subsidies they receive create distortions in the market, denting the competitiveness of EU and US carriers, critics say.

Qatar, Saudi Arabia, and United Arab Emirates airlines have received €39 billion in state aid from their governments since 2004, according to a study compiled for the big three US airlines: American, Delta, and United.

According to the study, Gulf airlines received interest-free loans, free land, and low airport charges, among others. This has allowed them to quickly expand their fleets and routes while “distorting the commercial aviation market place and diverting global traffic to their hubs”. 

Franco-German plea

Alain Vidalies, French Secretary of State for Transport, and his German counterpart, Alexander Dobrindt, complained about the situation at a meeting of EU transport ministers in Brussels on Friday.

“European airlines are losing market share against the Gulf companies, because of their unfair competitive practices, and in particular because of the significant public subsidies and guarantees they enjoy,” the two ministers said in a joint statement after the meeting.

Paris and Berlin called on the European Commission to end such practices by adopting a common strategy on controlling foreign airlines’ operations with traffic rights in the EU.

The Netherlands, Belgium, Sweden and Austria supported the initiative, the two ministers said.

Commission to seek mandate

But clinching a deal with not be easy, warned Violeta Bulc, the EU’s Transport Commissioner.

Previous negotiations with the Gulf countries under the former Transport Commissioner Siim Kallas have failed, Bulc said in a public debate with the EU’s 28 Transport ministers last Friday.

The Commission will now seek a new mandate from EU governments to curb market-distorting state aid to airlines, not only from Persian Gulf states, but also from countries like China, Brazil, and Turkey, Bulc said.

“We have a good internal aviation market in the EU, but we are losing the share on intercontinental flights. We need to address how to be competitive in other markets, and social dumping is part of it,” stated Anrijs Matiss, the Latvian Minister for Transport, whose country currently holds the EU’s rotating Presidency.

EU countries also asked for additional instruments, such as the EU law against subsidies and unfair pricing practices distorting the air transport sector, to be revised in order to avoid unfair competition in the future.

Any future legislative proposal will be presented under the aviation package the Commission intends to put forward in the second half of the year.

Further discussions on the EU’s transport sector’s competitiveness and upcoming initiatives will take place at a joint conferences organised by the European Commission and the European Parliament in June, Bulc said. 

Positions

The European Cockpit Association's Secretary General Philip von Schöppenthau, said:

“Our carriers can neither match the Gulf carriers’ resources, nor can they – or should they – rely on state aid or subsidies. Our airlines can only be profitable if their competitive environment is not distorted. This is why pilots from across Europe call upon Ministers, the new Commission and the newly elected Members of the European Parliament to put fair competition at the centre of the European aviation policy.”

Background

Over the next 20 years, global air traffic growth is projected to increase at a rate of 5% a year, in line with historical trends, according to the US aircraft maker Boeing.

The American aircraft manufacturer now expects air traffic in Europe to grow 3.5% a year, mostly in line with past trends.

However, European airlines are expected to go through a period of consolidation in the coming years. The number of major airlines is still quite high compared to the US. Tough competition from low-cost carriers and and Middle Eastern airlines is expected to further support this consolidation.

>> Read: Clear skies for aviation industry, turbulence ahead for EU airlines

Timeline

  • 4 June 2015: end of European Commission consultation on the aviation package
  • 11 June 2015: EU Transport ministers meeting
  • 2nd semester 2015: Commission to publish aviation package

Further Reading

  • Restoring Open Skies Study: the need to address subsidized competition from state-owned airlines in Qatar and the UAE

Press articles