This page is part of an ECA archive on Fair Competition.
Safe, comfortable and affordable air travel is a common desire of passengers and crews alike. This is why having airlines to compete freely with each other, based on the best product, quality service and price is a welcome and necessary precondition for aviation. But to grow, connect people and create jobs, Europe’s airlines should compete on a level playing field with a common set of rules.
However, this competition is on the point of turning into a ‘race to the bottom’. Airlines are increasingly seeking unfair advantage through market-distorting business practices,such as social dumping and “forum shopping” to benefit from light regulation and favorable taxation in countries that serve them as ‘flag of convenience’. This, in turn, puts pressure on other companies to use similar practices to safeguard their market share.
Gulf carriers distorting competition
This situation is exacerbated by ‘booming’ airlines from the Gulf region – notably Emirates, Qatar Airways and Etihad Airways – expanding their capacity on many of the routes previously serviced by European carriers. As a consequence, European airlines are not only losing market share, they are losing entire markets while the Gulf carriers are not creating additional demand. The problem is that many of these airlines are (partly) state-owned, supported by state aid, benefitting from access to cheap (airport) infrastructure, fuel and capital. European airlines can compete with Middle Eastern airlines; however, it is an entirely different thing to compete with Middle Eastern governments that heavily subsidise their state-owned airlines for strategic geo-economic reasons.
The Gulf’s success is based on the combination of at least two anti-competitive strategies:
- Dumping capacity on the market: launching or increasing capacity on unprofitable, unsustainable routes, ‘inundating’ it and destroying competitors, subsequently absorbing capacity to eventually be able to set prices and control the market.
- Acquiring equity in EU airlines to circumvent the EU rules on market access (‘Trojan Horse’ strategy) and to expand their network both within Europe and beyond (e.g. notably towards the US, incl. through Fifth Freedom rights).
In addition, Gulf airlines are not subject to measures such as night-curfews at airports (noise restrictions), ticket taxes and environmental charges as their European competitors. This hinders the ‘level playing field’ even further.
The state-sponsored rapid expansion of Persian Gulf carriers has harmed the competitiveness of Europe’s aviation, and will continue to do so, if not contained. The European Commission has received a mandate to negotiate a comprehensive air transport agreements with Qatar and with the United Arab Emirates. Through these agreements Gulf airlines could receive an opportunity for growth and expansion in return for a commitment to compete fairly. In 2016, ECA joined a coalition of aviation stakeholders ‘Europeans for Fair Competition’ (E4FC) and actively raises awareness about the damaging effect of Gulf airlines on European aviation, and the need to restore fair competition.
Unfair competition in Europe
In Europe, a new industry trend to distort competition is emerging: complex, in-transparent “innovative” business models and contractual set-ups. This includes:
- airlines arbitrarily relocating their business (i.e. their operating license and Air Operator Certificate) to ‘flags of convenience’ countries. The aim is to avoid tax and social security contributions for their employees, and/or to benefit from lax safety oversight by the authorities that offer their ‘flag’;
- airlines using flexible contractual set-ups that are often at the edge of what is legal and what is necessary to guarantee flight safety. These set-ups force employees into temporary contract relationships, fake self-employment (e.g. requiring air crew to set up their own limited liability company that offers its services though agencies to the airline), and/or making use of fake work bases in non-European countries, and ‘pay to fly’ (P2F) schemes (whereby newly graduated pilots have to pay their airline for gaining flying experience on an aircraft).
- At the same time, certain airlines are seeking direct or indirect subsidies from airports (e.g. lower airport changes), from local authorities (e.g. a fixed euro amount per passenger transported to their region) and/or from national government bodies (e.g. Gulf country governments helping their carriers to gain international market share). This allows them to unfairly cross-subsidise their operations and ticket prices – to the detriment of their non-subsidised competitors.
Europe must safeguard the principles of fair competition, before ‘honest players’ are pushed out of the market and governments lose control.
What can be done!
- Promote fair competition by stopping abusive business models, social dumping, subsidy-hunting, and regulatory ‘forum shopping’;
- Eradicate fake self-employment, zero-hours contracts and Pay-to-fly schemes used by certain airline operators;
- Ensure a competitive level playing field with 3rd country airlines.
Safe, fast and affordable air travel is a common desire of any passenger. To achieve this, the legislator set the ground for the airlines to compete freely with each other. Nonetheless, while ‘competition’ has become the name of the game, “unfair” is the term that has started to creep in – to the detriment of the industry, its employees and the long-term future of the sector.
Media & News
- European Commission wins four Open Skies Mandates – Aviation Week, June 2016
- Press Release: European Pilots Join Coalition for Fair Competition in Aviation – ECA, May 2016
- Understanding what’s behind Emirates’ potential Budapest-U.S. Flights – Huffington Post, March 2016
- "No single industry can compete without a level playing field" – ECA Statement at European Parliament Hearing, December 2015
- Commission mulls new measures against aviation subsidies from third countries – EurActiv, Nov 2015
- European flyers need reassurance that pilots are free to place safety first at all times – The Parliament Magazine, Sept 2015
- OPINION: Why Norway is challenging pilot employment rules – Flight Global, Apr 2015
- Norway prepares report on new airline business practices – Flight Global, Apr 2015
- Feeling the heat – The Economist, Mar 2015
- U.S. airlines contend Gulf rivals are subsidized unfairly – USA Today, Mar 2015
- Open-Skies Agreements Challenged – New York Times, Feb 2015
- U.S. and European Transport Unions Meet in Washington, Continue Push to Deny NAI – PRnewswire, Nov 2014
- ALPA Welcomes 'Fair Competition' From Dreamjet – Aero News, May 2014
- Pilots confronting Norwegian Air International’s rights’ avoidance scheme – ECA Press Release, Feb 2014
- Even the pilots pay on some low-cost flights – Independent, Dec 2013
- EU-Gulf negotiating mandate – ECA Recommendations – June, 2016
- ECA Handout - Unfair Competition from Gulf Carriers – December, 2015
- ECA Position Paper - For a 3-Dimensional EU Aviation Strategy – November, 2015
- European Parliament Resolution on Aviation Package – November, 2015
- EESC opinion on social dumping in aviation – September, 2015
- ECA submission to US consultation on Gulf carriers – August 2015
- Report on Social Dumping & Rule shopping in aviation – Danish Transport Authority, March 2015
- Restoring Open Skies: the need to address subsidized competition from state-owned airlines – Whitepaper Partnership for Open & Fair Skies, January 2015
- Atypical Employment in Aviation – University of Ghent study report, February 2015
- The case for fair competition in Europe's aviation – ECA booklet, November 2014
- Flags of INconvenience – ECA Press Kit, July 2014
- Report on Social Dumping – Danish Transport Authority, April 2014
- "The Gulf Giants" – IATA factsheet
- Social dumping in aviation: a view from the cockpit – ppt
- Norwegian Air International Scheme – ALPA flyer