European Low Fares Airline Association State Aid and Low Fares Airlines

1. European Low Fares Airline Association State Aid and Low Fares Airlines John Hanlon - Secretary General, ELFAA Association of European Regions (AER) Conference Brussels, 8 September 2009

2. About ELFAA • 150 million passengers in 2008 • 35% of intra-Europe scheduled air travel • over 600 state-of-the-art, environmentally- efficient aircraft with an average fleet age of 5.2 years

3. ELFAA strongly pro-competition • primacy of competition over regulation • market forces should be the determinant • regulation, only where necessary to control monopolies and curb abusive, dominant behaviour.

4. State Aid state aid distorts competition, therefore there is no place for it in the liberalised air transport market legitimate commercial arrangements not to be equated with state aid

5. EC guidelines on state aid for regional airports guidelines date from 2005 little was known at that time of evolution of regional airports and LFAs understandably therefore, generative capacity of LFAs to revitalise failing airports severely underestimated

6. Objectives of Guidelines Extract from EU guidelines – point 2. (20): “increased use of regional airports is an asset in combating air traffic congestion at the major European hubs more access points for intra-European flights increase the mobility of European citizens developing these airports also helps develop the regional economies concerned”

7. Low Fares Airlines and regional airports The low fares business model a poster boy for the objectives of the guidelines by: serving primarily regional and secondary airports linking those airports and regions by direct services, bypassing hubs of 426 new city pairs created within Europe between 2005 and 2007, 413 were by low fares airlines – 96% of total* * York Aviation study on social benefits of Low Fares Airlines in Europe – November 2008

8. Background to guidelines 2005 guidelines were based on Charleroi decision however, Commission’s decision on Charleroi overturned by CFI – December 2008 guidelines due anyway for review by end 2009 that review should be informed by factors which led to CFI decision

9. What constitutes State Aid in context of regional airports? Commission’s Charleroi decision been overtaken by developments in the successful partnership between regional airports and LFAs overriding criterion Market Economy Investor Principle - MEIP Commission took too narrow a view of what a private investor would offer, and in particular failed to take into account private investor’s likely attraction to loss-reducing charging

10. Flawed application of MEIP Commission failed to use relevant comparator data from competing airports fell back on principle of cost-related charging should have ignored sunk cost of infrastructure underestimated pulling power of pilot agreements with launch customers

11. Where should we go from here? the regional airport market has evolved considerably since guidelines issued in 2005 regional airports have generated considerable employment and economic benefits to regions they serve there is now more competition between airports

12. Conclusion ELFAA believes the Commission should consult airlines and regional airports to develop an understanding of the evolution of the airport market and the successful partnership between regional airports and LFAs. the findings of that analysis should inform the Commission’s planned review of the guidelines and provide a comparator for the MEIP analysis

13. Thank you! Please visit: www.elfaa.com and subscribe to our mailing list