Blue Skies or Storm Clouds? Discussion and Recommendations

By Daan de Jong, Bram Kaashoek and Willem-Jan Zondag

The international air transportation sector is a dynamic one. Think for example of the way this industry is affected by exogenous factors like 9/11, the Iraq war and SARS. Furthermore the dynamics within the industry are obvious: new entrance of low cost carriers, the pressure put on development of sustainable technological aircraft products as well as industry-wide compliance with environmental standards, and inter-organizational dynamics like alliances, takeovers and mergers. The role of policy interventions or the lacking of it, within this story is rather significant. Interventions, like reallocation of sources, regulation, incentives and sanctions of certain behaviour, fiscal measures, public charges and promotion can highly influence performance within the air transportation industry. In a positive as well as a negative manner. Air transport policy making is important for all stakeholders within the industry since it largely determines the competitive landscape and is of vital importance for all companies involved. For that reason, policy making within the field of international air transport is a complex task.

The authors of the essays presented in this book have interestingly addressed inter-market dynamics and the interplay with policy interventions. They discussed how this interplay works and how it will or could develop. Moreover, most of the authors end with policy recommendations. This final chapter highlights these recommendations, using the below-mentioned model. We will elaborate on the four chosen themes and classify recommendations by different levels of analysis: the aviation industry, the governmental level (nation) and the supranational level. Within the following sections we will discuss the findings in dept.

I. Air Transport Policy in an International Context
International air transport policy has a highly national and supranational dimension. In his contribution, Peter Nijkamp expects that the recent U.S. – EU Treaty will open-upmany more opportunities for carriers on both sides of the Atlantic to increase their financial viability and their market shares. However, he says efficiency among European carriers is hindered by the existing patchwork of air traffic control systems, as well as by the fact that most airports are still government-owned while flag carriers still dominate the market. As low cost carriers have rapidly emerged in the European skies the last decade, Nijkamp questions whether– and to which extent – LCCs will be able to befit from the Open Skies agreement on Transatlantic routes. He also points-out that a new major question will be how the industry will respond to tighter environmental policy constraints (e.g., noise, CO2 emission).

In line with Peter Nijkamp’s view, Ken Button believes that transatlantic liberalization will bring unforeseeable structural shifts. As a consequence of the U.S. – EU Treaty, airlines have to be innovative if they are to retain some of the €377 million in economic surplus that the Treaty will generate for the aviation sector. Market forces allow better use of resources, but what the outcome will be is simply unpredictable and according to Button may surprise us.

Despite the unclear future observed by Ken Button, Peter van Fenema in his contribution says that an influx of other Community carriers into the Netherlands – U.S. market is unlikely because of the limited size of third/fourth freedom traffic and the dominance of hub-carrier KLM. Although the Dutch government managed to get the merger between Air France and KLM accepted by third countries without substantial financial or aeropolitical sacrifices, Van Fenema foresees that the U.S. – EU Treaty will make the negotiations on similar topics easier rather than more difficult. According to Van Fenema, aviation is turning into almost a ‘normal industry’ as fiscal, environmental and infrastructural issues are replacing traffic rights and other political issues during negotiations.

A ‘normal industry’ suggests more competition than companies are used to in an unliberalized market. Pablo Mendes de Leon forecasts increasing competition on intra-EU routes as U.S. airlines will enjoy unlimited access to intra-EU routes, thank to the U.S. – EU Treaty. On the supra-national level, Mendes de Leon expects that the Treaty will have a positive spin off for transatlantic cooperation and alliances. However, he warns governments to pay more attention to competition law regimes. Otherwise regulatory innovations (i.c. the U.S. – EU Treaty) might not translate into commercial opportunities.

On behalf of the Association of European Airlines, Athar Husain Khan and David Henderson stress the need for coherent policy and aviation legislation. From their point of view, an integrative policy approach would allow for the best possibilities for the European airline industry to be sustainable. They question whether the respective national, international, pan-European and Community European authorities responsible for aviation deliver the product in the most efficient way.

II. Sustainability and Environmental Issues in Air Transport
Some authors came up with interesting recommendations on the sectoral level. Narisra Limtanakool and her colleagues for example speak highly of the Easyjet case: this airline offers a carbon offsetting scheme. Consequently, passengers are able to see how much C02 they are generating per flight as well as the cost to offset the related emissions. However, Bart Boon strongly states that, although passengers and organizations more and more voluntary offset the climate impact of their flight, voluntary action should not be seen as an alternative to public policy. In other words: in order to really pay attention to sustainability issues within the aviation industry, policy interventions are necessary to stimulate sustainable behaviour of passengers and industry parties. Paul Upham and his colleagues also address that industry incentives are needed. They especially put emphasis on innovation: the sector is obliged to pursue technological and systems options for fuel efficiency and a sector wide innovation program is key. A well-strategic thought and industry wide research & development and deployment (R&D&D) program could be funded with emissions charge revenues. However, Paul Upham et al. note that in the short term reduced passenger growth is necessary. This conclusion implies that implementation of a rise in ticket prices (for example by taxes) on a national level is a valuable proposal in terms of sustainability. Carlijn Jonkman, and Narisra Limtanakool and her colleagues elaborate on this topic. Although taxing might be the solution, Narisra Limtanakool et al. urge that supranational consistency is of elementary importance. In other words, an extra tax on tickets should be implemented by neighbouring countries of the Netherlands (or at least by airports within the overlapping catchments areas), in order to prevent reallocation of economic activity.

Furthermore, airports, local and national governments must understand that a relational planning approach is a needed future perspective; as described in the essay of Bart de Jong. The current situation of glocal complexity asks for an answer: “places become articulated moments in networks of social or economic relations and understanding and simultaneously traditional areas with specific boundaries” (Graham and Healy, 1999; 11). A relational planning approach implies that not just plans or projects should be at the centre of discussion when it comes to spatial developments, but actors, their stakes, needs and ideas as well. Related to the viewpoint of putting actors and stakeholders central, airports do not sufficiently manage noise disturbance at this moment. A more structural perspective on noise disturbance management is of importance. Only in that case, as Callum Thomas and his colleagues of CATE mention, is it possible for an airport to safeguard the quality of life of local residents in the future.

Although above-mentioned recommendations are meant for the industry or national governments, some authors are of the opinion that ‘supranational power’ is needed to increase sustainability in aviation. After all, supranational governmental bodies (European Union, ICAO) in their nature are focused on optimizing social welfare beyond national boundaries. Bart Boon, for that reason, suggests an European Commission scheme in order to tackle noise hindrance. He compared intervention of the Commission in the field of noise hindrance to the successful case of emission trading (EU Emissions Trading Scheme – EU ETS). Paul Upham et al. however, warn the European Commission: a tightly contracting EU ETS cap is recommended, because otherwise the scheme is way too weak and the commitment not exceeding the +2°C threshold is not doable. Finally, Carlijn Jonkman stresses the reconsidering of exemptions of excise duty and VAT for international aviation in the international arena.

III. Challenges of Airport Policy
Scarcity is a driver for innovation (Sass, 2006). In his New York Times contribution, Stephan Sass put emphasis on the usefulness of scarcity-driven innovation: Scarcity, mother of invention. Although the article is focussed on fossil fuel scarcity and the ongoing search for sustainable energy, this issue of scarcity-driven innovation definitely goes for the air transportation industry as well.. Airports like Schiphol have to deal with this. Service innovation is for that reason of importance, think for example of the self service check-ins. These operational innovations are able to increase service quality and efficiency in the near future.

In line with this, Geert Boosten as well as Edwin Koster and Paul Bleumink have recommended to focus more on added value and the importance of our service economy: in order to stay competitive, Schiphol is recommend to add value in economic and logistics networks by upgrading and optimising products/services and processes for the land users close to the airport. Think for example of integration of first and second line logistic activities. The bottom line presented by Edwin Koster and Paul Bleumink is growth in added value instead of growth in volumes. This new paradigm asks for rethinking investments in business climates, increased accessibility and service quality, new and revolutionary logistic concepts, focus on knowledge development, sharpened promotion and marketing activities. Additionally, Geert Boosten explains that air transportation networks are key for our economy, because connectedness is of elementary importance these days, but the same goes for being a hub in virtual networks (Amsterdam Internet Exchange). Thinking of possibilities in order to let both hub positions positively interact should be on the list of strategists. And, last but definitely not least, Geert Boosten recommends Schiphol to take into consideration the effects of new destinations and frequencies on our service economy. In essence, using the service economy criterion while considering network opportunities is a manner of selectivity. Bouke Veldman further gives his point of view on selectivity in air transportation. First of all he speaks of policies on demand management, which include slot allocation and trading, pricing, restrictions, multi airports systems (MAS) and selectivity. Bouke Veldman comes up with a recommendation on a national level, but beforehand he concludes that demand management might be a risky and complex policy issue. Future perspectives are based on a mix of our current situation combined with a MAS policy, or slot reallocation. In the last case night flights will be strongly limited, which supports Schiphols’ mainport function and contributes to sustainability demands.

Three authors, namely Hans Heerkens, Hugo Gordijn and Peter Forsyth, have written about policy making with regard to regional airports. Hans Heerkens, first, concludes that in the Netherlands too many regional airports are present and no policy instruments or measures exist to control this overpopulation. Although he expects that market dynamics and mechanisms will do the job, giving strategic responsibility (spatial development) to regional governments several years ago was not a good thing. After all, currently there is no view of the national government on the field of regional airports. Hugo Gordijn underlines this; an airport will lead to overall regional value and accessibility. However, as in the future negative side effects like noise disturbance will go down, every region probably wants an airport from a regional economic point of view. Peter Forsyth even states that regional airport subsidies are highly questionable. His economic research points out that overall subsidies lower welfare for the nation and even the subsidising region. Supranational agreements on the banning of regional airport subsidies will bring a healthier European mix of regional airports. Market mechanisms will do the rest.

IV. Intermodality: Rail, High Speed Rail and Seaport Opportunities
Although ground transportation modalities have to a large extend a complementary role to air transport, policymakers sometimes suggest to replace air transport, particularly with high speed train. Nicole Adler makes some important notes on the upgrading of Europe’s rail network, based on her research of the Trans European Network links. She concludes that thesociety would be better off without the upgraded links if the rail operator is expected to cover the entire infrastructure cost. According to Adler it is possible to set an environmental charge of €100 per flight and €50 per train service without dramatically changing the transport equilibrium, thus collecting approximately half the estimated environmental damage.But an environmental charge of €200 per flight and €100 per train service would cover the estimated environmental costs generated, while slightly reducing frequencies and the total number of travelling public by approximately 2,000 people per day within Europe. In line with these findings, Grimme concludes that public financial support for mode substitution is justified when external costs, such as from emissions or congestion can be reduced.

But mode substitution (e.g. the train replacing the aircraft) is not recommendable under all circumstances. Moshe Givoni concludes thatreal congestion and environmental benefits arise only when it takes place on a large scale and when the modes complement each other. Substitution efforts make clear that cooperation between airlines and rail operators is not always free of conflict, as the two modes are on the one hand competing for passengers, while being complementary on the other hand, as Wolfgang Grimme elaborates. Grimme also argues that infrastructural prerequisites to achieve attractive journey times and a seamless integration of air and rail infrastructure have to be created, if the goal is to make rails a favourable mode.

In cases where mode substitution is not feasible or not desirable, effective cooperation seems to be the best option. To exploit cooperation opportunities to the fullest, some barriers have to be overcome. Givoni argues that common institutional separation between air and rail transport, even the organizational division between the modes within ministries of transport, is probably the first and main barrier for greater air-rail intermodality. In any way, the potential benefits from air-rail cooperation are greater than the benefits from air-rail competition according to Givoni. Although air-rail integration can contribute to EU transport policy goals of sustainability, the scale of investments and the likely impact of such infrastructure developments make it a matter to deal with at a European level.

Schiphol Airport and the Seaport of Rotterdam are striking examples of the industry level in The Netherlands. These major transportation and logistics nodes are located within a short distance. Hugo Roos discusses the widespread misunderstanding of the possible cargo transfer movements between the seaport and the airport. He points out that the direct transfer between sea and air transport within Europe is very small. The mode choice has a logistical background. Roos concludes that direct transfer between seaports and airports is only a very small percentage of total flows.

Blue skies or storm clouds? The authors of the essays presented in this book have shown that policy making within the field of international air transport is a complex task. Sometimes this complexity is hard to handle because of the number of stakeholders, their opinions and stakes, but also uncertainty: the air transportation industry, and therefore also related industrial policy, is highly influenced by external factors. Considered all, the authors do not forecast “storm clouds”. However, policy recommendations are exposed; on the national as well as the supranational level. Are policy makers ready to take off and fly to the blue skies?

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