26 th November 2008 Europe’s Aviation Challenge Will European Aviation remain a force to be reckoned with? Steve Ridgway Chief Executive

We’re heading into a new world …

Europe is at the centre of the global economy

For aviation to play this role … What do we need to fix? What do we need to protect against?

5 Aviation – a triumph of the European Union Powerful flag carriers – LH/AF/BA Successful low cost carriers – EZ/Ryanair Niche carriers – VS/Finnair EU consumer has benefited Against most measures, EU deregulation has been a success

6 Regulatory policy Role of Regulator should be to facilitate : sustainable growth and success of industry by removing barriers and reducing costs Regulators’ role should be limited to: ensure safety and security enforce compliance with competition law deliver infrastructure

Infrastructure Single European Sky New Airport Infrastructure Airport Regulation

Environment ETS – sound in principle but opponents have turned it into a punitive tax National taxes UK Netherlands Ireland

Liberalisation Airlines need barriers to liberalisation removed IATA Istanbul declaration makes this clear UK/Singapore Air Services Agreement a perfect model Removed all barriers No limits on traffic rights or foreign ownership Yet governments and regulators still regard aviation as a special case EU/US must deliver the EU mandate on OAA

Competition law and consolidation Removing barriers will speed up consolidation Too many airlines today Good and bad consolidation Future is not 3 giant global airlines operating out of different hubs If this happened: – Competition would be weakened – Consumers wouldn’t benefit as fares would increase with less choice – Only winner would be dominant monopoly airline at given hub

LHR is larger than all other European hubs, and BA already offers the most capacity to the US Total Seat Capacity (k) to and from the US, April 2008 to Mar 2009 Source: OAG, Virgin Analysis +5% +52%+87% +29%

Other global alliances barely challenge BA on the overlap routes Capacity Share on BA/AA Overlapping Routes from LHR, April 2008 to Mar 2009 Source: OAG, Virgin Analysis

14 No Way BA/AA Nearly 50% of slots at Heathrow would belong to BA/AA/IB Heathrow is closed to new entrants Heathrow is unique – – 26% of LHR-US passengers connect from other EU airports at LHR – only 2% of LHR-US passengers travel via other European airports JFK has severe flight restrictions BA/AA trying to lock down both ends of LHR-JFK market and dominate with hourly shuttle

15 Open Skies First phase of EU/US Open Skies not brought promised benefits on routes out of LHR Minimal new competition for BA because of a lack of capacity at LHR Regulators need to safeguard against anti- competitive proposals Must not suspend rules because of economic downturn Liberalisation should not be at any cost to consumers or competition

Europe at a crossroads EU Regulators can abdicate EU leadership to other regions or EU Regulators could help to ensure EU airline industry is at the centre of the global economy ‐ Deliver Single European Sky ‐ Effective Regulation of Monopoly Service Providers ‐ Provide sufficient infrastructure ‐ Adopt Sensible Environment policy that incentivises behaviour but doesn’t unduly penalise ‐ Remove bilateral/multilateral barriers ‐ Effectively enforce competition law to protect against anti- competitive alliances.

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