Airline Regulation and Brexit Dr Barry Humphreys CBE (barry@bkhaviation.com)

The Chicago Convention (1944) The complete and exclusive sovereignty of States over the airspace above their territories. No air service may be operated in the territory of a State except with that State’s explicit permission or authorisation.

The Chicago Agreement was a compromise, essentially between the two major aviation nations at the time, the US and UK. Resulted in the bilateral approach to the regulation of international air services: - strict control of schedules, capacity and tariffs. - co-ordination via the airlines’ international trade body, IATA. - very limited competition. - no cabotage services. Dictated the structure of the airline industry: - mostly State owned - nation based - ownership and control rules.

- became the model for most ASAs. The Bermuda Agreement, 1946 - became the model for most ASAs. Aviation not seen as a ‘normal’ industry - mix of social service and strategic business. Result was predictable: - inefficient - loss making - little consumer focus - expensive. But not a total lost cause: technological advances Charters.

This remained the situation for the 1950s, 1960s and most of the 1970s. 1978, US deregulation: - “momentous decision” - “effect reverberated around the world.” But only affected US domestic air services. International services still governed by the Chicago principles, driven essentially by self interest.

US deregulation eventually duplicated in other countries, most notably in Europe. European liberalisation: - First Package, 1983 – 1987 - Second Package, 1988 – 1990 - Third package, 1990 – 1992 Creation of the EU internal aviation market. Gradual expansion of EU competency. But still essentially ‘domestic’.

Growth of Open Skies bilaterals: - led by the US - UK prominent, but selective - gradual spread around the world. However, still numerous countries committed to elements of protection.

Open Skies removes most of the old bilateral restrictions, such as: - tariffs - routes - capacity. But it is not deregulation. Still retains key protectionist elements: - cabotage - ownership and control.

Ownership and control rules are the main barrier to the ‘normalisation’ of the airline industry. Continue to dictate the structure of the industry: - sub-optimal alliances - added costs and complexity. EU/US negotiations held out the hope of radical change. Failed. Chipping away gradually, but risks remain.

Since Chicago we have seen the gradual liberalisation of international air services. The trend has been clear and relatively constant. However, this is now at risk. Clear signs of pressure to cease further liberalisation, and even go backwards. Brexit risks adding to these protectionist pressures.

Brexit

Important to remember: The UK was one of the main lobbyists in favour of the EU internal aviation market. EU aviation legislation meets virtually all of the UK’s needs. The internal aviation market is widely regarded as a success, transforming the European airline industry and producing significant consumer benefits. Retaining the status quo is supported by the vast majority of industry stakeholders in Europe. But, not everyone is a fan, especially unions and certain legacy carriers who see commercial advantage in less liberalisation.

There are three elements to Brexit in relation to civil aviation: Market access Safety Air traffic control

Air Traffic Control: SESAR Single European Sky Economic regulation

Safety: The European Aviation Safety Agency (EASA) An EU agency, with full membership restricted to EU Member States UK is currently the major contributor of manpower and finance Makes no sense for anyone that the UK should be excluded Associate Membership.

Market Access: The UK is the largest aviation market in Europe, a major source of business and leisure traffic. Nonsense to suggest that all air services between the UK and Europe will cease. Problem of intra-EU services by UK carriers, and potentially of intra-UK services by EU carriers. Solved (apparently) by new AOCs. Pressures for the EU to take a tough line.

The big problem is ownership and control: Several airlines potentially affected. Relatively easy (but not painless) solutions available for some. But not all. Eg, IAG. Commission seems to be softening its position, but not totally. Key factor could be the reaction of the UK Government.

Assuming an exit agreement is reached, then what? UK/EU Air Services Agreement EU policy, and precedents But will probably affect global pressure for less liberalisation. So message is: STAY CALM AND CARRY ON!

THANK YOU