Committee Reports > List of Committees > Joint > 1981 > Committee on the Secondary Legislation of the European Communities > Report No. 93 - Labour Market Policy

REPORT

Introduction

1. The Joint Committee has already examined a Commission Memorandum regarding the “contribution of the European Communities to the development of Air Transport Services” in its Seventy-second Report (Prl. 8991) which was adopted on 4th June, 1980. One of the items examined in that Memorandum and in that Report was possible improvements to inter-regional services. The Council invited the Commission to study this area and the Commission sent a proposal to the Council on 3rd December, 1980 [11895/80] for a Regulation concerning the authorisation of scheduled inter-regional air services of passengers, mail and cargo between Member States [COM(80) 624 final].

2. A detailed examination of the proposal was carried out for the Joint Committee by its Sub-Committee on Economic, Commercial and Financial Affairs under the Chairmanship of Senator Noel Mulcahy. The Sub-Committee had discussions on the subject with representatives of Aer Lingus and officials from the Department of Transport. It also considered written memoranda received from Aer Lingus and the Department. The Joint Committee is indebted to Senator Mulcahy and his Sub-Committee for their work.

Existing Irish Framework

3. Scheduled air services to and from Ireland are operated on the basis of air transport agreements which are negotiated bilaterally with other countries. These agreements may cover some or all of the five main “freedom rights”. The 1st and 2nd “freedom rights” are relatively less important than the 3rd, 4th and 5th rights as they are not traffic rights. The latter rights are:—

(i)3rd Freedom: To carry traffic from your own country to the country of the second party to the agreement;

(ii)4th Freedom: To carry traffic from the country of the second party to the agreement to your own country;

(iii)5th Freedom: To carry traffic between the country of the second party to the agreement and third countries.

4. Ireland has bilateral agreements with the following EEC Member States into which Aer Lingus at present operates: UK, France, Denmark, Italy, Netherlands, Belgium and Germany. For example, under the bilateral agreement with the UK the airlines of Ireland and the UK are accorded rights of transit, non-traffic stop and commercial entry for international traffic on scheduled services. Irish airlines have commercial rights on thirty-five routes and the UK airlines have such rights on thirty-six routes, plus rights between any point in the UK via Shannon to any point in the USA and Canada. Not all of these rights, even between the UK and Ireland, are operated at present. Some routes are operated in parallel by one airline of each country. Traffic under the agreement is 3rd and 4th freedom except for the Shannon-North Atlantic route on which the UK carrier is given 5th freedom rights.

Commission’s Aims

5. The Commission’s aims in this area are to try to create a Community-wide set of rules for the authorisation of routes outside the main trunk routes. This system should be supplementary to the trunk route system. The Commission’s purpose is not to design a Community network of routes but rather to create a regulatory framework within which airlines could operate in an innovative way if they considered such services to be commercially interesting.

6. The Commission considers that there are real economic benefits to be achieved by widening airlines’ scope to introduce direct inter-regional air services because

(a)there is a demand for such services, which would result in important time savings (particularly for business travellers);

(b)energy savings could result;

(c)the proposed system would provide an invaluable opportunity to test the results of a more competitive environment for air transport, allowing greater scope for innovation, market access and initiative in pricing;

(d)the diversion of some air traffic from the main trunk routes would ease congestion at the main airports and in the main airways; and

(e)they would help regional development.

Scope of Regulation

7. The Regulation covers scheduled inter-regional air services between Member States, including cargo and mail services but excluding charter services. A minimum distance of 200 km for each stage length is provided for as well as an aircraft capacity limit of 130 seats, or a maximum take-off weight of 55 tons. The definition of an “Inter-Regional Air Service” is specific to this Regulation and aims to separate the services covered by the Regulation from other air services within the Community by classifying them under three categories of airport according to their importance for international passenger air traffic viz:

(a)Category 1—airport with largest volume of passengers (and other following airports until over 60 per cent of country’s traffic is accounted for).

(b)Category 2—next most important airports (which, when combined with Category 1 airports, account for over 90 per cent of country’s traffic).

(c)Category 3—remaining airports.

The Categories of the airports are set out in the Annex to the proposal and in the case of Ireland Dublin is designated Category 1, Shannon Category 2 and other airports Category 3. Inter-regional services would be allowed within the Community between Categories 1 and 3, 2 and 2, 2 and 3 and 3; they would not be allowed between Categories 1 and 1, and 1 and 2. The services would be confined to Community air carriers and would exclude third country carriers.

8. The general principle [Article 4] is that a service must originate in the State where the carrier is established (“State of Registry”). However this general principle is extended to include inter-regional air services between Member States other than the State of Registry as long as these services constitute an extension of services, referred to in the previous sentence, which are already operated or applied for by the Community Air Carrier. This service could include several Member States and for each flight the air carrier would have the right to pick up and set down passengers, mail and/or cargo for commercial purposes i.e. 5th freedom rights. The 5th freedom right proposed does not include extensions of a service beyond a Category 1 airport, in order not to disrupt the main trunk scheduled air service. Neither would the proposal include traffic within a Member State [Article 5.1].

9. The Regulation [Article 3] establishes an obligation on Member States to authorise inter-regional air sevices which conform to the Regulation. However, it is also stated that Member States may apply more liberal provisions than those contained in certain articles of the Regulation. Article 6 specifies the procedure which a Community Air Carrier must follow in order to obtain an authorisation and the role of the State of Registry to which the application is made. This State must check that the service applied for conforms to the Regulation, and must examine the economic and technical viability of the air carrier and the economic viability of the proposed services. The State affected may refuse [Article 7] an authorisation or impose conditions only for certain clearly-defined reasons viz. airport capacity, air safety and tariffs which have to conform to certain criteria as laid down in Article 8. There is provision [Article 9] that an application is treated without unnecessary delay and that normally a decision has to be given within four months. When disputes arise the basic principle [Article 10] is to let the parties affected try to reach a solution first and, if they do not succeed, there is provision for arbitration procedure by the Commission, or for recourse to a competent court.

Justification for Proposal

10. The Commission bases its justification for the Regulation on the fact that there is a need for more regional services which could be viable but which are prevented or restricted from operating owing to the present system of national regulatory barriers. The Joint Committee could find no clear evidence that there was a large area of unsatisfied demand in the air transport field which could be catered for by the Commission’s proposal. Furthermore the Commission states that it invited experts to provide an evaluation of the effects of liberalising market access for inter-regional air services and that the opinions expressed in the meetings ranged widely.

11. Aer Lingus points out that the European Civil Aviation Conference (ECAC) addressed this question in 1977/1978* and concluded:

“The European network between 1965 and 1977 has by no means been static. On the contrary, a significant increase of new routes has been recorded…. The overall size of the European international network seems to be about right and one can expect a certain development. There does not seem to be any general need for linking regional airports of two countries with each other”.

12. On the other hand the Commission states that on the basis of this study and of another study that it “seems possible to conclude that there is at present a certain distortion in favour of trunk routes and that a potential demand for more direct inter-regional services exists.”.

13. The Joint Committee would have thought that airlines whose financial success depended significantly on growth, would be keen to develop such opportunities. It would also expect that new routes would be opened whenever market evaluation pointed to potential traffic demands which could be served in economically acceptable conditions for both the travellers and the operators.

Effect of Proposal on Existing Irish Legislation

14. Sections 7 and 8 of the Air Navigation and Transport Act, 1965 invested power in the Minister to authorise by order the operation of air services and to exercise absolute discretion in the grant or refusal of authorisations for the operation of such services.

15. Sections 9 and 10 empower the Minister to fix by order fares and rates charged on air services and to approve or refuse to approve any proposed fares or rates.

16. The adoption of the present proposal may involve supplementary legislation to bring national legislation into line with Community law depending on the final form of the proposal.

Effect of Proposal on Bilateral Arrangements

17. Under present conditions Government negotiators, at bilateral discussions, take account of the totality of the routes both “prime” and “thin” enjoyed by the two countries concerned. The draft Regulation proposes to take the inter-regional routes affected by it out of this negotiating arena and grant them to the country of an applicant airline without any “quid pro quo”. This would seriously erode the power of the Member States and significantly broaden the competence of the Commission by setting up an autonomous regime for inter-regional air services which would affect the existing system of bilateral air transport agreements.

Other Effects of Proposal

18. From the airline point of view, Aer Lingus is concerned at the suggestion that the fundamentals of the present IATA system might be undermined and is also concerned that the multilateral co-ordination of tariffs which is organised under the aegis of IATA would be weakened through the withdrawal of some of the flexibility associated with that system. It considers that multilateral tariff co-ordination, through the IATA Conference system, subject to Government approval, remains the most efficient, stable, equitable, economic and market-responsive system which is practicable. Working through IATA, the airlines have successfully endeavoured to increase the number of competitive options open to travellers and to minimise any financial penalties for the passenger resulting from the need or desire to travel between airports by transitting another point. The mechanisms devised are the “add-on” allowance and the “mileage deviation” allowance:

—the “add-on” allowance: this permits passengers to travel to and from a regional airport by transitting a hub airport, plus an agreed “add-on” for the hub-to-region portion of the journey;

—the “mileage deviation” allowance with some fares permits a passenger to pay only the direct fare between any two points even though there may be many stops en route, provided that the actual distance flown is not more than 115 per cent of the direct distance. This device gives passengers from the regions a greater number of (free) choices than could be justified if the authorities were to demand that each leg of the journey should be charged for separately. For example, a passenger wishing to travel from Cork to Frankfurt can avail of connections at any one of a number of transfer points, including Dublin, Manchester, London, Amsterdam and Paris—at no extra charge. A similar type of multi-sector journey under the terms of the present proposal would require that the charge for the total journey should be the sum of the charge for each leg.

19. The Joint Committee in its Seventy-second Report (par. 12) stated:

“In the Committee’s view the company (i.e. Aer Lingus) can justly claim that it does not fear competition. However it has expressed a fear that the Commission liberalisation proposals could lead to the predatory entry by a carrier on its prime routes who takes only what suits him and for as long as it suits him. The Commission itself recognises the need to avoid predatory market entry but the Committee doubts if the control it envisages is adequate. In the Committee’s view safeguards are essential to ensure that the public service aspects of airline operations in terms of routes, frequencies and spread of fares are maintained.”.

The fresh evidence offered to the Joint Committee would lead to a reinforcement of those views. For example, Aer Lingus points out, inter alia, that on the Liverpool route it has outlasted no less than three UK carriers. However, it is concerned that there may not be a fair and equitable balance of opportunity between all States. If there is to be an opening of routes between Ireland and other Member States, Aer Lingus would wish to have access to fifth freedom traffic between these other more populated States and accordingly it welcomes the fifth freedom aspect of the draft Regulation.

Granting of Rights to Other Airlines

20. The Joint Committee could find no evidence that the Irish authorities were anything but liberal in granting operationg rights to foreign airlines. The Committee also understands that Aer Lingus generally does not object to other airlines operating on a route which it does not serve itself, but dis-economies associated with the fragmentation of traffic and diversion of traffic from existing routes need to be taken into account before allowing a proliferation of minor routes, operated by carriers who have no commitment to public service. For example, it would regard it as necessary to ensure that any “new” regional service would be new in reality and not merely the splitting up of present traffic among a greater number of carriers. The Joint Committee does not consider that there are sufficient safeguards in the proposal to ensure that the public service aspects of airline operations are maintained e.g. regular, long-term, year-round flights.

Regional Development

21. The Commission emphasises that the availability and easy accessibility of air services is in many cases a major consideration in business decisions whether or not to choose a site in an outlying region for setting up a new industrial plant. Thus the expansion of inter-regional air services becomes an integral part of a policy designed to encourage industrial investment in the regions. This aspect could be important for Ireland in the context of attracting technological and highly sophisticated industries to the underdeveloped regions. In Ireland, the new airports scheduled or built at Donegal, Kerry, Mayo, Sligo and Waterford could have services to airports in other Member States which under the terms of the proposal would be largely outside the control of the Minister for Transport.

22. The Minister for Transport stated in the Dáil on 4th February last [Official Report, Col. 1047] “the Government see local airports as forming an important part of the infrastructure required for the fuller development of relatively remote areas. Considerable interest is being shown in this development and in the related question of internal air services and I think that the time has, in fact, come for a thorough review of policy in the matter. I am arranging to have such a review undertaken, so as to provide the basis for a co-ordinated approach to the development of local airports throughout the country.”. The Joint Committee recommends that the review should include consideration of the implications of the proposal for the development of such services. If the proposal is adopted, the Joint Committee recommends that the Commission should provide financial incentives for the development of such inter-regional services, in the context of the Community regional policy.

Treaty Provisions and Legal Aspects

23. Air transport is excluded from the Common Transport Policy as laid down in the EEC Treaty, but Article 84.2 of the Treaty pursuant to which the Regulation is being proposed provides “The Council may, acting unanimously, decide whether, to what extent and by what procedure appropriate provisions may be laid down for sea and air transport.”. Article 15 of the proposed Regulation states: “In the light of the experience acquired the Council may, as from 1st January, 1984, acting by a qualified majority on a proposal from the Commission and after consulting the Parliament, amend the provisions of this Regulation.”. In accordance with Article 148.2 of the Treaty, such an amendment in order to be adopted would require at least 45 votes in favour out of the total of 63 votes, of which Ireland would have 3 votes.

24. In the Committee’s view it is undesirable that amendment of the Regulation should be provided in the Regulation itself by means of qualified majority decision in view of the terms of Article 84.2 of the Treaty as quoted in paragraph 23 above. This is particularly so in the area being considered when the Commission points to the intention “to introduce more flexibility in a limited field, in order to gain experience.” [paragraph 7 of Explanatory Memorandum] and to widen the airlines’ scope in certain areas i.e. innovation, market access and prices [paragraph 35 (c) of Memorandum].

25. Article 189 of the EEC Treaty provides that a “Regulation shall have general application” and “shall be binding in its entirety and directly applicable in all Member States.” That Article also provides that a “Directive shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods.” If it is considered necessary to have a Commission initiative the Joint Committee considers that a Directive rather than a Regulation might be more successful in achieving the results desired by the Commission in the area of inter-regional transport services particularly as it would leave a greater degree of flexibility and competence to the national authorities to take account of regional needs.

Fares

26. The Commission looks to businessmen and tourists as being the main users of the proposed inter-regional services. It implies that lower fares may be achievable through energy saving factors resulting from (a) more direct routes, (b) more use of turboprop aircraft and (c) diversions from road and rail traffic. However Aer Lingus questions the basis for some of the Commission’s most important assumptions, e.g. type of aircraft to be used, fuel efficiency. The Joint Committee understands that ECAC Study Report* concluded that the European Airlines have reasonable fares on Community routes.

27. Some of the flexibility associated with the present system (e.g. stopover, “add-on” allowance and “mileage deviation” referred to at paragraph 18 above) could well be jeopardised under the terms of the Regulation. For example, it is provided in the Regulation [Article 8 (d) that the fares shall be charged solely on the basis of the route flown, with the right of stopover at any intermediate point being charged for separately. However in the final analysis the Joint Committee is not in a position to comment adequately on the likely fares and how they would compare with existing fares, as the Commission does not provide sufficient conclusive data.

Views of Joint Committee

28. The Joint Committee understands that there is a possibility that the fifth freedom aspect may eventually be excluded from the proposal. If so, a liberalisation based only on the third and fourth freedoms could result in foreign carriers being given operating rights into and out of Ireland on routes developed by Aer Lingus, without any compensatory liberalisation of flights for the company, and without sufficient guarantees being provided. The exclusion of the fifth freedom would therefore render the proposal most unacceptable from an Irish point of view and the Committee would regard it as a retrograde step. In fact the Committee feels that, rather than being excluded, the fifth freedom element should be extended.

29. The Joint Committee wishes to advert to the Commission’s view that the Community should pursue an evolutionary approach and it welcomes such an approach. It is important that the benefits accruing from the present system to passengers and airlines should not be jeopardised and that steps on the lines proposed should not be undertaken without the deepest study into their long-term economic effects. Accordingly it would prefer to see the Community’s efforts devoted more to getting national authorities to remove the barriers and restrictions which exist within the present bilateral system rather than transferring the regulation of certain services to the Commission from the national authorities.

30. In view of the Commission’s basic objective [paragraph 4 of Commission Explanatory Memorandum] for the “authorisation of routes outside the main trunk routes” and of its commitment to inter-regional links, the Joint Committee would be in favour of excluding Category 1 airports altogether. Their exclusion would also in the Committee’s view logically follow from the Commission’s own objective of “diverting some air traffic from the main trunk routes to direct inter-regional routes which would ease congestion at the main airports and in the main airways” [paragraph 35 (d) of Commission Explanatory Memorandum].

31. The Joint Committee understands that of the 10 Community Member States only two, the UK and to a lesser extent the Netherlands, are enthusiastic about the Commission’s proposal. It also understands that there could be important changes in the proposed Regulation before it is adopted. However it is not aware at this stage what these changes will be but hopes to have a further opportunity to consider them. In the meantime the Joint Committee trusts that its views may be of assistance to the Irish negotiators. In conclusion it wishes to stress that while it generally welcomes the efforts to remove national barriers which exist at present in the area of inter-regional air transport, it is concerned that the proposal could unbalance the fair and equal opportunities enshrined in many bilateral agreements.

Acknowledgement

32. The Joint Committee wishes to acknowledge its indebtedness to Aer Lingus for the considerable help it provided in order to enable the Committee to consider fully the Commission’s proposal.

(Signed) ALEXIS FITZGERALD,

Chairman of the Joint Committee.

13th May, 1981.

* ECAC Doc. No. 15, Report on Inter-European Air Service, Paris, 1978.

* ECAC Doc. 19, Report of the Task Force of Intra-European Airfares, Paris, 1980.