Air transport is a large industry that has grown rapidly over the past few decades on account of the globalization of production and distribution, and of the increased significance of foreign tourism. Since 1960 European passenger traffic has risen by 9% annually; and cargo traffic by 11%. It has been a highly regulated sector from its origins: states were granted sovereignty over their air space, and flights were arranged as a series of bilateral agreements. European states each supported their own national flag carrier (e.g. Lufthansa, Air France, Aer Lingus).
Since the 1980s air transport in Europe has undergone a gradual process of deregulation and liberalization. The Treaty of Rome (1957) aimed for full freedom of movement for goods, services, people and capital between member states. Air transport was, however, excluded from this provision because of the special nature of the industry: it had public service obligations, and there are security concerns. From the late 1970s pressure to deregulate air transport grew. The European Commission, consumers and airlines, and the right-wing governments in the United Kingdom and the Netherlands all sought deregulation.
In the late 1980s two events accelerated the process of liberalization. In 1987 the European Court of Justice ruled in the Nouvelles Frontières case that Community competition policy applied to air transport. In the same year the Single European Act, intended to support the completion of the Single European Market, came into force and the Council of the European Union was obliged to liberalize the sector. This was achieved in three packages of measures, implemented in December 1987, June 1990 and July 1992, which liberalized tariffs, capacity (the number of passengers and number of flights), and entry to market, and banned anti-competitive behaviour. They also introduced the freedom to provide multi-designation (more than two carriers can operate on one route) and cabotage (the right of an airline of a member state to operate a route in another member state).
Air transport was fully liberalized by 1 April 1997. The evidence is that the dominant position of national flag carriers in domestic markets has been eroded, a number of new carriers have been introduced to the industry (there was a total of 139 in 2000, compared with 77 in 1992), the number of air routes has increased and tariffs have been reduced, especially by low-cost airlines such as Ryanair. The European Commission introduced further guide-lines on state aid for national flag carriers in 1994: it is now only permitted if it meets the ‘market economy investment principle’. That is, public aid is deemed legitimate if the Commission considers that a private investor would have invested in the same way. Many airlines were given state aid during the period of restructuring in the early 1990s, but the Commission now considers state aid to be no longer necessary. Following the 11 September terrorist attacks in 2001, air transport suffered a severe fall in passenger numbers, which affected a number of European airlines. In October 2001 the Commission allowed Belgium to issue an emergency bridging loan worth €125m. to the debt-ridden national airline Sabena, but it objected to the state offering any additional funds. Sabena was formally declared bankrupt in November 2001.
The next stage in the liberalization of air transport would entail the reform of air traffic control. Air space is currently controlled by 73 different air traffic control centres. Consequently Europe cannot cope with the growth in air traffic, and the difficulty of co-ordinating such a multitude of control centres leads to one flight in four being delayed. The Commission launched proposals for a Single Sky policy in 2001, with the aim of creating a single air space and of achieving better co-ordination between air traffic control centres.
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