There have been some tumultuous political developments on both sides of the Atlantic in recent months, and Airside International asked two of the aviation industry’s biggest representative bodies – Airports Council International (ACI) and the International Air Transport Association (IATA) – if they think such issues as Brexit and US President Trump’s inauguration are impacting their members and the wider aviation industry
Certainly ACI is worried about the possible impact of the UK leaving the EU and its economic community – a process known familiarly as Brexit and one that was officially triggered in the spring of this year following a UK-wide referendum on the issue held in June 2016.
“We are deeply concerned about Brexit and in particular the potential implications for aviation, if a new agreement is not arranged within the assigned two years,” declares Robert O’Meara, director, media & communications at ACI Europe.
ACI acts as the trade association of the world’s airports. It represents airports’ interests with governments and international bodies such as the International Civil Aviation Organization (ICAO), develops standards, policies and recommended practices for airports, and provides information and training opportunities to raise standards around the world.
“We even prepared a paper on it, detailing the inter-dependencies of the UK market and the EU27 market vis-à-vis each other,” O’Meara adds (evidence of which can be seen in the accompanying graphs). The EU27 is a shorthand term for the other 27 EU member states.
In late March, as the UK’s Prime Minister Theresa May prepared to trigger Article 50 – thus firing the starting gun on the official process of the UK leaving the EU – ACI Europe went on the record to express its concerns about ongoing uncertainty over rules that would come to govern aviation between the UK and the EU27.
ACI called for clarity for passengers, airlines and airports, so as to enable “continued investment in growing our collective connectivity”. It also cautioned about the possible economic consequences for the UK aviation industry of not remaining closely integrated within the EU27 aviation market.
Olivier Jankovec, director general of ACI, commented: “The ‘sequencing’ of the Brexit negotiations means talks will initially focus on agreeing exit terms for the UK, before they eventually come to define the new relationship between the UK and the EU27 as of 2019. This implies that the aviation industry will be left in the dark for many more months to come about what will happen.
“Unless quickly resolved, this uncertainty will end up constraining route network development for airports, ultimately affecting air connectivity for their communities. This is due to the fact that airline route planning requires both long lead times and legal certainty,” he said.
ACI and other organisations have been quick to point out that failure to come to the necessary agreements prior to the end of the two-year deadline on negotiations and the UK’s then withdrawal from the EU would mean Britain exiting the community without the terms of its new relationship with the bloc yet being clearly defined.
“For aviation, this could well result in market access falling back on more restrictive bilateral provisions between the UK and individual EU27 states – with potentially disruptive effects on air connectivity and the economy,” ACI observes.
Jankovec continued: “The contribution of aviation to the economies of both the UK and the EU27 is largely conditioned by the full integration of their aviation markets – enabled by the Single Aviation Market. This means that this contribution depends not just on the freedom to fly and unrestricted market access for airlines, but also on a wide range of common rules.
“These common rules are an essential part of the fabric of European air transport. They avoid costly duplications and conflicting requirements. Let’s be clear: losing this integration between the UK and EU aviation markets is akin to putting an end to a relationship which creates tremendous value and brings extensive mutual benefits,” he added.
ACI on Heathrow
The decision of the Conservative Government to give the green light to a new runway at London Heathrow has also been big news in the UK, and that is a decision that has been more warmly appreciated by most aviation bodies – including ACI.
Thus, notes O’Meara: “Fresh capacity in the UK is certainly welcome and let’s face it, [this is an] overdue move. Heathrow is the busiest airport in Europe and the capacity constraints it currently operates under are well documented. Beyond Heathrow, the growing length of time airport capacity projects in Europe take to actually be implemented is deeply concerning – such important infrastructure needs to be considered strategically.”
O’Meara points to the ‘Challenges of Growth’ reports of EUROCONTROL – the European Organisation for the Safety of Air Navigation – which continue to highlight the need for more airport capacity. By 2035, 12% of demand for flights could go unaccommodated, unless the required infrastructure is in place, it notes. “This isn’t just about regional or national connectivity,” O’Meara says. “It’s for the efficient running of the European airport network. More governments should be heeding EUROCONTROL’s warnings on this.”
The IATA viewpoint
Paul Steele, senior vice president, member external relations, for the International Air Transport Association (IATA), is more sanguine. He believes that, at least in terms of demand for air travel, it is hard to see any major effects so far from some of the political results of the past year.
Passenger demand remains very strong, he observes – for the first two months of 2017, it was up around 8% year-on-year (allowing for the leap year effect). And cargo has picked up significantly on the back of stronger world trade, up by 12% in February. The oil price has fluctuated, but it is around levels last seen a decade ago, while airline profitability is at a record high.
One issue that IATA is watching closely is the potential impact of terrorist activity, but the signs are that passengers are becoming more resilient to these events, despite short-term dips in demand as was seen last year on Asia – Europe routes for example.
With regards to political instability in North America and any possible impact on the aviation industry, Steele told Airside in April: “President Trump has not revealed any fiscal or investment policies yet which have impacted the aviation industry, although he has stated a desire to increase investment in much-needed US infrastructure.
“The Trump administration has proposed a travel ban, and we await the outcome of the judicial process in the US. The ban on laptops and other electronic equipment in the cabin, instigated by the US and replicated to some extent by the UK, Australia and Canada, is impacting on some carriers. Emirates, for example, has announced reductions in its services to the US as a result of falling demand – which it is attributing to the laptop ban.”
IATA director general and CEO Alexandre de Juniac has stated publicly that: “The current measures are not an acceptable long-term solution to whatever threat they are trying to mitigate.” And he has called on governments to work with the industry to find a way to keep flying secure without separating passengers from their personal electronics.
As for the UK’s withdrawal from the EU, Steele insists: “We have yet to see a measurable impact on demand from the Brexit issue. Brexit has significant potential regulatory impacts that will need to be agreed by the EU and the UK. IATA’s position is that the people of Europe have come to expect and enjoy the growth in air connectivity over recent decades, and we hope that this will be preserved under any new post-Brexit regulatory settlement.”
Meanwhile, like ACI, IATA has welcomed the decision of the Conservative Government in the UK to give the go-ahead to a new runway at London Heathrow. “Global passenger demand is set to double over the next 20 years and if the UK wishes to take its share of this it will need to have sufficient airport capacity,” Steele points out. “Heathrow is the logical choice to prioritise greater capacity, as it is the existing major hub airport, and an airport close to full capacity.”
But issues remain to be addressed, he says. “The industry has significant concerns over the proposed costs of Heathrow expansion. Airlines will not support a Heathrow expanded at any price. It is outrageous that the proposed cost for the third runway is twice what it cost to build and stage the London Olympics.”
Alongside these issues, IATA continues to promote the value of aviation and push for smarter regulation, Steele says. “Governments need to recognise aviation’s role as an economic catalyst and adopt a regulatory (and taxation) approach that facilitates aviation connectivity,” he argues. “This means consulting the industry on regulatory proposals, ensuring proper cost/benefit analyses are conducted and putting proportionality and simplicity are at the forefront. Similarly, infrastructure in the air and on the ground, such as airports, should be constructed in line with demand and at an affordable price.”
IATA’s role is to represent its members in helping airlines connect the world, Steele continues. “But at a deeper level, IATA believes in the importance of aviation as a means of enabling ‘the business of freedom’. In these sometimes troubled times, the ability to visit and explore other countries and cultures, to study abroad, to trade, or to visit long-distance friends and family, is a precious thing. So we hope that governments will appreciate the aviation industry’s important role and nurture and protect it.”
So: causes for concern?
Does all this mean that uncertainty will characterise the months or even years ahead for the aviation industry? Or should we in fact be a lot more positive about the future on the back of changes we are seeing and are likely to see in the coming months on both sides of the Atlantic?
According to ACI’s O’Meara: “Well, at the moment, the growth dynamic in Europe is very positive and low oil prices and – to some extent – the fall in sterling have played a part in that, but uncertainty will probably start casting a shadow later on this year.
“Ryanair and several other airlines have also highlighted that route network and development decisions will be very difficult to make for 2018/2019, given the unanswered questions about the future arrangement of UK/EU aviation, so that is something that is very much a concern for regional airports.”
But IATA’s Steele considers that the long-term prospects for the industry remain strong. He informs: “2017 also looks as if it is shaping up to be a good year in terms of the popularity of air travel and the profitability of the industry. Although industry profits will possibly be slightly down on last year, the margin should still be in excess of 7%, marking only the third year in the industry’s history that its returns have exceeded the cost of capital, a key benchmark of success for investors.”
Nevertheless, he continues: “There is some cause for concern on the issue of protectionism.” As de Juniac said in a speech in Canada recently: “We are deeply concerned with political developments pointing to a future of more restricted borders and protectionism. These deny the benefits of globalisation to which aviation has made an enabling contribution.”
And Steele concludes: “Aviation seeks to connect the world and any regulations that restrict the movement of people or goods have the potential to limit not just aviation growth, but the growth of the global economy.