This article is part of our special report Free Trade for Growth.
With European airlines on course to lose more than €800 million this year, Commission Vice President Siim Kallas today (27 September) called for forging aviation agreements and partnerships in fast-growing Asian and Middle Eastern markets as well as neighbouring Russia.
Kallas’ ‘New horizons for EU aviation’ proposals come as Europe’s passenger airlines are struggling amid an economic slump, fierce price competition and skyrocketing jet fuel prices.
“The European aviation industry has been hard hit by recession and if that was not enough, global aviation is changing rapidly,” said Kallas, who is in charge of transport at the European Commission. “Half of the world’s new traffic during the 20 years will to, from or within the Asia-Pacific region.”
The International Air Transport Association (IATA) forecasts that airlines in major markets – including Asia and North America – will make a profit this year despite the spike in fuel prices. However, the industry group forecasts that European airlines will lose $1.1 billion, or €855 million, despite overall gains worldwide. The Asia-Pacific region is expected to fare the best, with a $2 billion profit.
Belgian MEP Mathieu Grosch, the European People’s Party coordinator in the Parliament's transport committee, welcomed the proposals. "European airlines must be given fair means of competition on a global scale", he said in a statement.
Turbulence over ETS
Kallas denied at a Brussels news conference that the running battle with China, India and the United States over the EU’s Emissions Trading System would harm long-term trade and business dealings, saying those issues are expected to be worked out within the International Civil Aviation Organisation (ICAO).
The EU’s “open skies” trade deals currently extend to North America and negotiations are ongoing with Australia and New Zealand, as well as Ukraine, Turkey and a few other countries. Such agreements are pending with Brazil and Israel, allowing carriers freer access to airports and the ability to forge partnerships with foreign airlines.
But there are no deals with lucrative and rapidly growing markets in the Middle East and Asia – nor with Russia. “We need to give our airlines access to new, fast-growing markets and we need to get away from the old bilateral negotiations,” Kallas said in calling for EU-led negotiations with an eye toward regional deals.
He predicted aviation agreements would be concluded with Turkey, Ukraine, Azerbaijan and Tunisia by 2015.
The Commission estimates that expanded aviation markets would add €12 billion to €365-billion industry that provides 5.1 million jobs.
A more assertive trade arrangement would come on top of other efforts to boost efficiency within the European market. The EU executive’s airports package, released in December 2011, wants to reduce the “capacity crunch” at airports created by an expected doubling of flights by 2030.
EU countries are also supposed to integrate national air traffic control zones into regional blocks to shorten travel times – an objective that was initially meant to be completed by the end of 2012.
But both projects are in doubt. The industry is divided over efforts to reallocate airport slot times, while aviation officials have voiced frustration at the slow progress in integrating national air traffic control zones into regional blocks under the EU’s Single European Sky (SES) initiative.
The brighter side
Despite the economic pressure on passenger airlines, leading aircraft manufacturers are swamped with orders and forecast rising demand for years ahead.
Both Europe’s Airbus and Boeing, the leading American aircraft maker, project a surge in production in the next 40 years, driven by growing passenger numbers in emerging countries and the need for airlines in the traditionally dominant markets of Europe and the United States to replace older, less efficient airplanes.
Boeing’s Current Market Outlook projects that world airlines will need 34,000 new aircraft by 2031, up from 19,890 in service today and more than five times the number of passenger aircraft in service in 1977. Airbus’ forecast anticipates a doubling of the world’s overall passenger aircraft inventory, from 15,500 today to more than 32,500 by 2031.
The US market research firm Forecast International, in a reported released in July, estimates that 14,655 new large airliners will be needed over the next decade, with Airbus and Boeing battling for much of that market.