Regional Co-Operation Models for Air Carriers

18th Annual JAA/FAA International Conference

Geneva, June 4-8, 2001

Topic: REGIONAL CO-OPERATION MODELS

Hand-out material

BALTIC-ADRIATIC AIR CARRIERS COOPERATION ASPECTS

Ass. Prof. Borivoj Galović, Ph.D.

Ass. Prof. Sanja Steiner, Ph.D.

1. INTRODUCTION

European Commission has (1992.) approved “White paper” – Future development of the common transport policy. Validating negative consequences of previous unsystematic transport development based primarily on demand-oriented planning, a new concept of intermodality in transport development has been accepted, namely planning of integrated transport system in which separate transport modulus are complementary. The main reasons for radical change in development philosophy and application of goal-oriented planning with transport policy accompanied with dynamic programs could be summarized as follows:

• Established common market stimulated transport growth, with annual trend of 2% in the period from 1980. to 1994. between today’s EU states. However, the structure of traffic growth was not equalized and some transport modulus was favored on account of the others. Road cargo transport in period 1980. -1996. has had annual growth trend of 3,5% while railway cargo transport has had negative annual trend of 1,1% in the period 1980. -1990. and - 2,6% in the period 1990. -1996. On a long term basis railway’s share in cargo transport is dropping from 32% in 1970. to 14% in 1996. and 8% in 1998. Road cargo transport registered growth from 49% in 1970. To 73,6% in 1996.[1]
• Unequilized development resulted with escalation of negative transport dimension, which are manifested in congestion, ecological pollution and number of accidents in road transportation, as well as negative social implications due to transport drop or losses, and eliminating of some traffic directions and railway services.
• Operating problems (different technical and technological standards) due to partial and traditional development on national level has negative impact on effectiveness of integrated transport system.
• The amount of external transport costs, which is almost reaching profit level, dictates redefining concept of transport infrastructure management.

Concept of a system planing i.e. transport itermodality is applying goals of common EU transport policy, with following objectives:

• Forming trans-european network
• Determine fair transport charges
• Ecology protection
• Transport safety
• Social responsibility
• Strengthening internal market
• Strengthening outer dimension of common market

In air transport complying with TEN[2] and EU Common Transport Policy it is stressed to respect ecological aspects, effectiveness of transport directions management supported with applied intelligent transport systems and especially operation safety aspects. Following that concept EUROCONTROL as support to ECAC is participating in EGNOS[3], ECARDA[4] and TEN programs. To solve problem in forming “Single European Sky” European Commission has established EC High level Group to research on reforming ATM system in Europe. Another significant issue is transition from JAA to EASA[5].

Today countries of middle and Eastern Europe passing transition period tend to join European Union. EU its partner’s interest exhibit through various instruments of technical and financial support to help them in theirs restructuring and equalizing legal frames of integration. In transport system most important applying instruments are PHARE[6] and ISPA[7].

2. COOPERATION ASPECTS FOR TRANSITION COUNTRIES

Unfavorable elements in the process of trade and transport integration of middle and eastern European states into EU system are incompatible regulations and inertia in changing traditional experience of centralized planning system. Therefore structural reforms are necessary which in transport sector means separating (state) regulatory function from operational function (infrastructure and services) for which legal forms of transition from state to private sector should be established. Transport infrastructure (mobile and fixed) has been for a long period adopted for internal market with mainly eastern technology, and therefore incompatible to western European technical standards. Institutional reform of government and public sector should be accompanied with equalizing standards through acceptance of new regulations complement to international technical and technological standards, especially legal EU reference. That process is not only a function of political will, but of time dictated financial and human resources as well.

To speed up the process of establishing and initiating states cooperative regional relationships and getting them closer to European integration a SECI[8] was formed in 1996. SECI is dealing with regional projects in transport and is supported by operational activities of UN Economy Commission for Europe. Additionally this initiative is supported in 1996. by signing Stability Pact for South Eastern Europe[9].

Comparative analyses of air transport in EU states and transition states shows great differences. Air transport in EU states in 1998. is approximately 241 billions passenger-km, while in middle eastern Europe states (EU candidates) is only 18,7 billion passenger-km (13 times less). Standard of using air transport is an annual average of 642 passenger-km per person in EU states versus 178 passenger-km per person (3,5 times less). Analysis of economical development in transition countries shows annual growth of air transport towards Western Europe (EU) but also between transition countries. Number of passengers on main transition country’s airports is analog: Poland 60,5%, Slovakia 57%, Estonia 51%, Czech 44%, Hungary 34%, Latvia 31%, and Slovenia 23% in 1998. in compared to 1995.[10]

Mentioned indicators of air transport growth support tendency of broadening European air transport market toward East and justify validation of demands of establishing more direct connections with region of transition countries. As there is no or not enough direct scheduled flights, one may suppose that great amount of air transport between transition countries is performed via airports and by EU operators. In view of better and rational exploitation of geographical European resources, as well as air transport development, it seems reasonable to justify establishing new air corridors in European Networks – namely Baltic – Adriatic.

3. TRANSITION COUNTRIES AIR CARRIERS

REGULATORY ASPECTS IN TRANSITION COUNTRIES: Since 1970. a concept of unified or complementary European regulations in aviation industry appeared as a solution to upgrade growing demands in air transport. However, even today we are witnesses to great differences in aviation between transition countries. While transition process in some of them is well ahead, in others it has not started yet. In 1999 a number of major East Central European carriers intensified talks with potential buyers – airline privatization. During few passed years, NATO enlarged its membership to more Eastern countries, including Poland, Czech Republic and Hungary, guaranteeing a more secure position for potential Western investors.

 LOT, a state-owned Polish airline moved towards Qualifier airline alliance in October after SairGroup acquired a 37,6% stake. The intense battle for LOT also involved two major alliances, one headed by British Airways, and Star Alliance headed by Lufthansa. CSA and Malev are also being wooed by Star Alliance, SairGroup, KLM/Alitalia/Northwest and Delta/Air France groups.

 Malev is achieving its goal of turning Budapest International Airport into Central-Eastern European hub. With the construction of the new terminal it’s capacity is 5,5m passengers a year, and has advanteges over rivals in Vienna and Prague with lower costs and unparalleled infrastructure. Malev introduced in 1999. new flights from Budapest to Toronto, Sarajevo, Riga, Tripoli, Zagreb, Dublin and Oslo using Boeing. The path to privatisation is cleared after Hungarian government bought back a 35% stake from Alitalia in 1997. BA hopes to get Malev, and the move make sense as they lost LOT in favour of Qualifier Group and Austrian Airlines in favour to Star Alliance.

 CSA – Czech Ailines operates Boeing and Airbus and is not yet considering a foreign investment, but they aim to find alliance partner. It’s particularities is that CSA has code-share relationship with world’s leading alliances; Star Alliance, Qualifier, KLM/Alitalia/Northwest and Delta/Air France. KLM and Continental have codeshare on routes from Prague to Rome, Milan, New York Newark and Amsterdam.

 Croatia Airlines operates Airbus, it is 90,61% state owned and has code share agreement with Lufthansa on routes from Zagreb, Split, Frankfurt and Munchen. Its load factor is improving over last decade, as is now 51.2 % with high reliability and safety scores. Republic of Croatia is ICAO, ECAC, Eurocontrol (EATM) member, but is not JAA member mainly due to incompatible regulations and standards.

Table 1. Airlines and jet capacity in Baltic- Adriatic transition countries region

(ref.: The Avmark Aviation Economist Vol. 16 Nr.9 and Vol. 17 Nr.1)

BALTIC – ADRIATIC JET CAPACITY – December 1999

Airbus

Boeing

AN72

TU134

TU154

YAK

Others

Total

Estonia

Elk Airways

1

1

2

Enimex

5

5

Estonian Air

35

3

Latvia

Air Baltic

212

2

Baltic Express Line

1

1

Inversia

3

3

LAT Charter

2

2

Transeat AL

1

1

Lithuania

Air Lithuania

1

3

4

Aurela

1

1

Litjuanian AL

37

2

5

Slovenia

Adria Airways

3

41

7

Croatia

Croatia airlines

52

5

Albania

Albanian AL

35

3

Arberia AW

-

1. CONCLUSION REMARKS

All states in Baltic-Adriatic region are ICAO members, ECAC members, EATM, but only Czech, Estonia, Latvia, Poland, Slovak Republik and Slovenia are JAA member states or candidates. There is an obvious trend to replace Eatern technology (aircrafts) with Western type certified aircraft. Due to historical mistake that ICAO has not recognized significanse of Type Certificate document, many air carriers has to overcome eastern technology barriers before being fully eligible to join common European air transport market. Additionaly, they must adopt EU legal reference (regulations) applicable to aviation to operate and compete at free European market. There are possibilities for some air carriers to cooperate and establish direct regional routes - Baltic-Adriatic - at least on a code-sharing basis. This could result with higher utilization, load factor and consequently better economical results.
However, unequilized transition stage and development may jeopardize safety and result with escalation of negative air transport dimension. In many transition states we may observe common problem: when foundations shifts and commitment culture is shaken – it’s hard to change. Last year, on 17th Annual JAA/FAA Conference I have commented topic: WOLDWIDE STANDARDS IMPLEMENTATION ASPECTS FOR TRANSITION COUNTRIES, and although we may observe some radical changes in some areas, we are still faced with already stressed problems. While part of Europe is galloping to transfer from JAA to EASA, some parts has not joint JAA yet. In other words some has not truly completed transfer from communistic centralism (system with centralized administration based on a political theory advocating a society in which all property is publicly owned, an organizational system in which policy is decided centrally and is binding on all members) to a free market economy, a market in which prices are determined by unrestricted competition. In such enviroment, common regulatory system must be firmly stressed for the sake of safety, or we cannot speak of “Single European Sky”.

[1] Reference: EU-European Commission - General Directorate for Energy and Transport; White paper / A strategy for revitalizing the Community’s railways (COM/96/421)

[2] TEN – Trans-European Networks

[3] EGNOS – European Geostationary Navigation Overlay Service

[4] ECARDA – European Coherent Approach for Research and Development in ATM

[5] EASA – European Aviation Safety Agency

[6] PHARE – Poland Hungary Aid for the Reconstruction of the Economy (later on expanded for states of middle and eastern Europe transition countries- for 2000. PHARE budget is 1,56 bill. Era)

[7] ISPA – The Instrument for Structural Policies for Pre-accession (financial support to EU candidate states for infrastructure projects in the area of transport and ecology – for 2000. ISPA budget is 1,04 bill. Era)

[8] SECI – Southeast European Cooperative Initiative (participants are: Albany, Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Hungary, Macedonian, Moldavia, Romania, Russian Federation, Slovenia and Turkey)

[9] Stability Pact for South Eastern Europe (participants: Albany, Bosnia and Herzegovina, Bulgaria, Croatia, Hungary, Macedonian, Romania, Russian Federation, Slovenia and Turkey, USA, European Commission, OSCE; supporting and helped by: Canada, Japan, UN, UNHCR, NATO, OECD, WEU, IMF, EIB, EBRD, CEI and SECI)

[10] Reference: Airport Council International