Slide 1

Report
Bureau of Transport & Regional Economics,
Transport Colloquium 2007
Liberalise or Bust:
The Aviation Policy Conundrum
13 June 2007
BTRE Transport Colloquium ‘07
1
Introduction

International aviation liberalisation back on track

EU-US Agreement heads dramatic changes over the next five years

Pace of change challenges government policy options

Two strategic options:
1)
“Big bang”
-
Full deregulation
2)
“Softly, softly”
-
Incremental liberalisation

Airline industry increasingly setting the agenda; developing new
alliance structures/JVs

Progress has been uneven globally. Some roadblocks remain –
especially ownership & control
BTRE Transport Colloquium ‘07
2
The transatlantic agreement bridges two biggest
aviation markets in an “open skies” structure
65% Global Air Traffic
39%
Agreement
Agenda
Phase 2 2010
• Subject to negotiation
•Achieve Open Aviation Area
• Reforms to US ownership
Source: IATA, CAPA Consulting
26%
Phase 1, March 2008:
 Unlimited EU-US services
• Greater access to Heathrow
• Cargo freed up
• Recognition of multinational
airline ownership within EU
• No change to US ownership rules
BTRE Transport Colloquium ‘07
3
Implications of the Agreement
1)
Recognition of EU rights
2)
Encourages further EU airline consolidation, US still limited
3)
Lead to debatable levels of growth on the Atlantic, driven by
greater efficiencies, lower fares
4)
Provides impetus to EU horizontal mandate negotiations, also US
bilateral “open skies” programme
5)
Some resistance to EU agreements as they provide natural
advantage for European airlines over national operators in other
markets (e.g. Asia Pacific):



6)
Opportunity to operate from multiple bases in Europe;
Greater flexibility; and
Better economies of scale
IATA generally disappointed with lack of progress in EU-US pact
on ownership/control, turns focus to Asia for reforms to
traditional criteria
BTRE Transport Colloquium ‘07
4
Asia, Middle East poised to take leading
roles in aviation liberalisation
Middle East:
“Open skies” by
UAE, 7 other
Arab states
China:
Domestic
deregulation
2010
Japan:
Asia Gateway Plan
Open access to
regional, secondary
airports
SE Asia:
Middle East:
Arab Maghreb
Union “open
skies” 2008
ASEAN “open skies” 2010
10 member states + China,
Japan, India?
Source: IATA, CAPA Consutling
BTRE Transport Colloquium ‘07
But progress to date has been uneven
across region, fragmented


ASEAN agenda most significant (though no fait accomplit)
Other initiatives being pursued in Asia:
(1) APEC:
Mixed results to date
(2) MALIAT:
Broke new ground, but little support
(3) Low-Cost Carrier JVs: More successful, commerciallydriven
(4) Equity alliances:
New opportunities, focus on China
(5) Sub-regional groupings
Trilateral (Japan, China, Korea):
Potentially very powerful, still
some resistance
SE Asia, Mekong:
Heavy tourism emphasis


Reforms are largely a response to market opportunities (e.g. greater
foreign access to China), capital requirements
Impasses still unresolved (e.g. Singapore-KL)
BTRE Transport Colloquium ‘07
Where does Australia stand….
 Generally supports liberalisation moves, reflects end-of-the-line position
 Risk that developments in Asia, US & EU could further isolate Australia.
Already signs that Asian tourists opting for closer (and cheaper) regional
destinations
 Government policy needs to:
– Address changes taking place, engage more with Asia
– Further capitalise on Australia’s strong liberalisation credentials, history of
deregulation
 Recent development of Middle East market further indication of intent
 Signals changing competitive dynamics on the “kangaroo route”
BTRE Transport Colloquium ‘07
Australia maintains substantial surplus of seats
over available capacity in international market
30% pax, seats growth Calendar Year 2007 vs 2000
35
30
25
m
20
Total Seats
Total Pax
15
10
5
0
2000
2001
2002
2003
2004
2005
2006
Source: BTRE
Australia International Capacity & Passenger Traffic
2000-2006
BTRE Transport Colloquium ‘07
Middle East may dominate “kangaroo
route”; also emerging routes via China
Middle
East
Airline share of Average Weekly Seats
Australia-Europe by Region of Origin
200000
180000
Emerging
China
Option
QF/BA,
Asian 6th
freedom
160000
140000
120000
100000
80000
60000
Middle East
Other Europe
Asian 6th freedom
BA/Qantas
40000
20000
0
2000 2001 2002 2003 2004 2005 2006 2007
Source: IATA/CAPA Consulting
3.7% Average Annual Growth in
Aust-Europe Weekly Seats, 2000-2007
BTRE Transport Colloquium ‘07
What does this mean for Government
policy – and Qantas?
 Australia’s perspective very different, end-of-line destination with
limited prospects
 Maintaining international services a priority...and Qantas is central to
the equation
 Government has adopted broader economic benefits argument with its
air services policy
 Factors in the interests of:
– Tourism,
– Airports and
– The national carrier
BTRE Transport Colloquium ‘07
The exodus of European airlines from the
Australia-Europe market
Exit of
Alitalia,
KLM
30000.0
Olympic
Airlines
exits
market
Lauda
departs;
entry of
Austrian
Austrian
returns Lauda
exits
Lauda
returns,
Austrian exits
Virgin
Atlantic
arrives
25000.0
Total Seats
Per week
Austrian
exits
20000.0
15000.0
10000.0
5000.0
0.0
2000
2001
Source: IATA, CAPA Consulting
2002
2003
2004
2005
2006
2007
From 5 airlines in 2000 to two in 2007
BTRE Transport Colloquium ‘07
Qantas responds to the challenge
through development of Jetstar
Source: IATA, CAPA Consulting
BTRE Transport Colloquium ‘07
1
The LCC Growth Strategy
Qantas Group
100%
100%
Cooperation
Jetstar
Qantas Mainline
100%
45%
Jetstar
International
46%
Orangestar
100%
The Asian
LCC
Network
Jetstar
Asia
Air Pacific
30%
Valuair
The Future: Franchises in Indonesia, The Philippines, Thailand
Source: CAPA Consulting, Qantas
BTRE Transport Colloquium ‘07
Conclusion: The Outlook for Liberalisation
 An Asian aviation bloc + Japan, China & India will emerge in the next 3-5
years
 Further deregulation will take place in the high growth markets of the
Middle East, China and India
 The EU/US will ratify Phase 2 of their agreement
 Operational restrictions to, from and within the major markets will
continue to recede
 Nationality clauses in air services agreements progressively replaced by
commercial solutions based on place of business and incorporation
 Australia will respond over time with changes to its own policy; the
ownership strategy for Qantas will be redefined; and closer engagement
will be sought with Asia
BTRE Transport Colloquium ‘07
Thank You!
BTRE Transport Colloquium ‘07

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