Archive for the ‘Aviation’ Category

Flybe rescue: why the government may be putting the green revolution at risk

Boris Johnson may be putting the green revolution at risk by aiding regional airline Flybe, writes Tony Hockley. He argues that while Britain led the way in the liberalisation of air travel, current evidence on climate change as well as the rise of the world wide web have transformed choices for regional development.  

The rescue of Flybe from extinction was one of the first proper decisions that faced the new British government. The decision was a triumph of politics over policy. Whilst communities around Britain celebrated concessions on a £106m tax bill that would have finished off the ailing airline, some of us just saw trouble ahead.

In the early 1990s I opted for a new role employed by the Civil Aviation Authority (CAA) to press the consumer case for air transport liberalisation. At the time, European aviation was trapped in the past. Over-protective governments across Europe were trying to save their airlines from market forces. National airlines and their national airport bases enjoyed this protection. Regional airports and airline users payed the price. Smaller airports would receive the occasional charter flight to the sunshine, or serve as a national airline’s feeder to its hub. For years, for example, Southampton was little more than a feeder for KLM passengers through Amsterdam’s Schiphol.

Along with my CAA colleagues we would to-and-fro to Brussels, pressing the liberalisation case. It took three regulatory reform “packages” over five years to get to a situation in which most standard competition law would apply to airlines and airports. The hardest nut to crack was state aid. Governments came up with ever more imaginative ways to pretend that their bail-outs could be deemed normal “market economy investor” actions. For a while, these games were tolerated as part of a smooth transition to “open skies”. The low-cost airlines would never have survived if we had not remained vigilant in making the case against state aid and routine abuse of dominance.

The biggest winners from liberalisation were, of course, travellers; fares tumbled as competition brought real innovation. The other big winners were the regional airports. New airlines shunned busy, expensive, slot-constrained airports in favour of little-used alternatives. Indeed, a core part of the strategy for step-wise liberalisation was first to open the potential for links between regional airports, in which legacy airlines had no interest. Flybe grew out of this process, developing from a niche carrier serving the Channel Islands into Europe’s largest regional airline with more almost 200 routes.

For those of us who put such time and energy into pressing the (unpopular) case for market liberalisation, it is upsetting to see the UK government using ploys only previously seen from France, Greece and Italy. Allowing Flybe to defer handing over to HMRC the Air Passenger Duty paid to them by their passengers, is a gamble with other people’s money.

What is even more upsetting are the other gambles that the government appears willing to take. Since the market liberalisation work of the 1990s, dramatically improving access to air travel, evidence on climate change and the impact of aviation has mounted. The second shift since then has been the transformation of communications, by the world wide web. Both shift the public policy balance away from the exceptional protection of air transport from normal tax treatment. When Air Passenger Duty was first announced in 1993 many of us in the sector saw it as undermining what was being achieved in reducing the costs of air travel. Today it would be hard to make a rational case against the tax, given that aviation fuel is untaxed. This may be part of the reason why the cheapest Monday morning fare from Southampton to Manchester by Flybe is £99; by train it is £236 (prices correct at the time of publishing). The externalities of short-haul air travel, the socio-demographic profile of those flying, and the lack of hard evidence of the routes’ development value comparative to good rail, road, and broadband links all suggest that short-haul aviation is heavily undertaxed.

In 2018 the Department for Transport commissioned an analysis of the economic impact of regional air services. The conclusion was not compelling evidence for state support. The authors said that these services: ‘May have a role to play in policies associated with re- balancing the economy. The evidence on which this assessment is based is limited.‘ Nevertheless, governments worldwide do support routes where the potential alternatives are limited or inadequate for essential needs.

In the discussions on European liberalisation, we took steps to make this state support transparent and contestable. Instead of supporting individual airlines, governments could support routes and spur innovation in service quality and costs. These Essential Air Services would be put to tender. We thought that the days were over when support for routes was a covert mechanism for supporting a particular carrier. The policy decisions taken this January appear determined to support one airline.

The new UK Government finds itself in an early political bind. The priority of levelling up the regions seems to call for the preservation of all current regional air routes. The priority of moving to net zero carbon calls for the opposite. The conundrum will demand some innovative thinking. Can Flybe reasonably be kept in the air long enough to boost the alternatives, such as cheaper, easier, and better rail connections; the introduction of electric planes; a green revolution on the roads; better availability of fast fibre and the arrival of 5G? The Conservative manifesto did point to these and the Budget in March may reveal how the Government intends to answer some of this, not least in whatever reforms it makes to Air Passenger Duty.

By attempting to preserve Flybe permanently the government would be hindering, not helping this technological shift. The primary effect of airline state aid before liberalisation was to deter innovation. There is no reason to believe that the effect would be any different today.

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About the Author

Tony Hockley ia Director of the Policy Analysis Centre and Visiting Senior Fellow, Department of Social Policy, LSE. Dr Hockley was Economic Adviser to the Air Transport Users Council at the Civil Aviation Authority, and Secretary of the Federation of Air Transport User Representatives in the EU during the completion of the Single Market in Air Transport. He was Special Adviser in the government led by John Major.

 

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science. Featured image credit: Pixabay (Public Domain).

Salami tactics loom for Brexit trade talks

Facing a brutal timetable to negotiate a comprehensive deal on their future relations by the end of the year, Brussels and London are weighing up a more slice-by-slice approach to talks.

While both sides insist a traditional, all-inclusive trade pact is still possible, they are now also considering more piecemeal tactics to avoid a catastrophic cliff-edge of tariffs and trade barriers from January 2021.

To the EU side, that means a potential Plan B of more sector-by-sector agreements, while the British are mapping out the attractions of negotiations that move forward by incrementally locking in wins, rather than waiting for one last-minute finale.

“We are very clear we want to get on in terms of negotiating a deal and so maybe the approach of nothing is agreed until everything is agreed which characterized previous negotiations is not an approach that we are interested in taking,” a British government spokesperson said during a briefing in London while U.K. Prime Minister Boris Johnson was meeting European Commission President Ursula von der Leyen.

“Nothing is agreed until everything is agreed” is a long-standing mantra for EU trade negotiators, who have never faced such a tight political deadline on a major pact as December 31, when the transition period runs out — and which Johnson says he won’t extend.

“We might want to take a reconsideration of the time frame before July 1.” — Ursula von der Leyen

The logic of keeping all the elements on the table in talks is that both parties will be able to play to to their strengths — one side could be strong in farming, the other in chemicals, for example — and the endgame will provide an opportunity for the final big cross-sectoral trade offs.

EU officials have always insisted that this kind of wide-reaching, ambitious agreement is their goal. One of their chief fears is that Britain could emerge as a light-regulation competitor to the EU after Brexit, so they have traditionally not wanted Britain locking down small sector-by-sector zero-tariff trade deals before it commits not to deviate from EU rules and regulations.

However, given the intense pressure of Johnson’s deadline, EU officials and diplomats say the European Commission is now considering a safety net option of negotiating separate, limited deals in four to five sectors, covering trade, fisheries, security and foreign policy as well as transport and aviation.

Race against the clock

Speaking at the London School of Economics on Wednesday, von der Leyen hinted at such a change of negotiating tactics when she pointed out that the clock was ticking.

“The transition time is very, very tight,” she said. “So it is basically impossible to negotiate all … so we will have to prioritize.”

She added that negotiators should primarily focus on areas where there are no international trade treaties to fall back on. “It is not an all or nothing thing, but it is a question of priorities,” she said.

One EU diplomat cautioned, however, that “of course, these potential sectorial agreements would not be completely independent from each other.”

“There are areas where the EU has more leverage, like market access, and others like fisheries where the U.K. has more leverage, so that wouldn’t mean that they pull us over the barrel on fish and we do the same with them on trade.”

One EU official said that EU chief Brexit negotiator Michel Barnier had first brought up the idea of sectorial deals in December after technical experts made clear that it was completely unrealistic to negotiate and ratify a comprehensive future relations deal before the end of the year. The salami tactics were described as an emergency measure.

Von der Leyen, in her speech on Wednesday, made another attempt to urge Johnson to rethink his position. “We might want to take a reconsideration of the time frame before July 1,” she said.

July is the deadline by which the EU and U.K. will have to agree whether they extend the transition period beyond the end of the year.

Mixing it up

The question of the timetable and scope of the U.K.-EU trade deal is squarely in focus in Brussels, where a decision must be taken on whether the deal is legally considered a “mixed” agreement.

That is highly significant for the timetable. If it is a “mixed” agreement it will need ratification by some 40 national and regional parliaments across the EU. That makes an 11-month timetable practically impossible, and greatly increases the prospect of opposition. The EU’s trade deal with Canada, for example, was almost torpedoed in 2016 by resistance from the parliament of the Belgian region of Wallonia.

British Prime Minister Boris Johnson meets EU Commission President Ursula von der Leyen at 10 Downing Street on January 8, 2020 in London, England | Peter Summers/Getty Images

During an initial preparatory meeting on future relations, attended by attachés from the EU27 countries on Wednesday, the Commission said that it would offer more clarity on the structure of the future agreement during a special briefing session, which will likely take place on January 21.

These preparatory briefings are meant to inform the countries about the Commission’s plans for the negotiations on the future relations and facilitate talks on an EU negotiating mandate, which will have to be adopted by EU countries in February, once the U.K. has officially left the bloc.

One diplomat predicted that these legal questions on the architecture of the deal will develop into a bigger discussion that would have to be held among EU ambassadors, “as it is such a big political issue.”

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