2016 Eu Air Transport Industry Analyses Report | Airlines | Climate Change Mitigation
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Annual Analyses of the EU

Air Transport Market 2016

Final Report

March 2017
European Commission
Annual Analyses related to the EU
Air Transport Market 2016

328131 ITD ITA 1 F


Annual Analyses of the EU Air Transport Market 2013
March 2015
Final Report
Annual Analyses of the EU Air Transport Market 2013
Final Report
March 2017

European Commission

European Commission
Disclaimer and copyright: This report has been carried out for the Directorate General for Mobility and
Transport in the European Commission and expresses the opinion of the organisation undertaking the
contract MOVE/E1/5-2010/SI2.579402. These views have not been adopted or in any way approved by the
European Commission and should not be relied upon as a statement of the European Commission's or the
Mobility and Transport DG's views. The European Commission does not guarantee the accuracy of the
information given in the report, nor does it accept responsibility for any use made thereof. Copyright in this
report is held by the European Communities. Persons wishing to use the contents of this report (in whole or
in part) for purposes other than their personal use are invited to submit a written request to the following
address: European Commission - DG MOVE - Library (DM28, 0/36) - B-1049 Brussels e-mail
(http://ec.europa.eu/transport/contact/index_en.htm)

Mott MacDonald, Mott MacDonald House, 8-10 Sydenham Road, Croydon CR0 2EE, United Kingdom
T +44 (0)20 8774 2000 F +44 (0)20 8681 5706 W www.mottmac.com
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A 28.03.17 Various K. Tiligadis J. Cole Final Report

This document is issued for the party which commissioned it and We accept no responsibility for the consequences of this
for specific purposes connected with the above-captioned document being relied upon by any other party, or being used
project only. It should not be relied upon by any other party or for any other purpose, or containing any error or omission
used for any other purpose. which is due to an error or omission in data supplied to us by
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Content
Chapter Title Page

Executive Summary 7

1. Air Traffic Trends 21


1.1. Introduction _______________________________________________________________________ 21
1.2. Air Traffic Drivers __________________________________________________________________ 22
1.3. Passenger Traffic Trends ____________________________________________________________ 32
1.4. Air Cargo Traffic ___________________________________________________________________ 72
1.5. Business Aviation Traffic_____________________________________________________________ 77

2. Airlines 81
2.1. Introduction _______________________________________________________________________ 81
2.2. Global Trends _____________________________________________________________________ 81
2.3. Airline Financial Report ______________________________________________________________ 86
2.4. Partnerships, Market Entrances and Exits _______________________________________________ 89
2.5. Airline Performance by Region ________________________________________________________ 90

3. Airport Business & Investments 97


3.1. Introduction _______________________________________________________________________ 97
3.2. Airport Financial Performance ________________________________________________________ 98
3.3. Airport Infrastructure – Emerging Markets ______________________________________________ 102
3.4. Financing and Public Private Partnerships ______________________________________________ 103
3.5. Customer Service Awards __________________________________________________________ 104

4. Aircraft Manufacturers & MRO 107


4.1. Introduction ______________________________________________________________________ 107
4.2. Global Trends ____________________________________________________________________ 107
4.3. Aviation, a Global Industry __________________________________________________________ 110
4.4. Global Fleet Trends in 2015 _________________________________________________________ 111
4.5. Air Transport Industry Performance by Geographical Region ________________________________ 118

5. Air Traffic Management 125


5.1. Introduction ______________________________________________________________________ 125
5.2. Social/Industrial Context ____________________________________________________________ 125
5.3. Global Issues - Flight Tracking _______________________________________________________ 128
5.4. Key ATM Technology Enablers ______________________________________________________ 129
5.5. Strategy/Technology Programmes ____________________________________________________ 133
5.6. Airports _________________________________________________________________________ 136
5.7. Unmanned / Remotely Piloted Aerial Systems UAS/RPAS/Drones ___________________________ 139
5.8. Aireon __________________________________________________________________________ 142
5.9. Demand/Capacity/Performance ______________________________________________________ 144

6. Market & Competition Issues 148


6.1. Introduction ______________________________________________________________________ 148
6.2. EU External Aviation Policy _________________________________________________________ 148
6.3. EU Competition Issues _____________________________________________________________ 153
6.4. International Developments _________________________________________________________ 171

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7. Environment & Sustainable Development 175
7.1. Introduction ______________________________________________________________________ 175
7.2. Institutions, Initiatives and Programs __________________________________________________ 175
7.3. Aviation Emissions ________________________________________________________________ 179
7.4. Climate Change (Adaptation and Resilience) ____________________________________________ 182
7.5. Aircraft Noise ____________________________________________________________________ 184
7.6. Airports _________________________________________________________________________ 185
7.7. Alternative Fuels __________________________________________________________________ 188

8. Safety & Security 189


8.1. Introduction ______________________________________________________________________ 189
8.2. Safety __________________________________________________________________________ 189
8.3. Security _________________________________________________________________________ 208

9. Consumer Issues 212


9.1. Introduction ______________________________________________________________________ 212
9.2. Key Legislation and Recent Developments in the European Union ___________________________ 212
9.3. Passenger Complaints across EU & non-EU Countries ____________________________________ 215
9.4. International Punctuality Research ____________________________________________________ 230

Glossary 238

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Executive Summary
Foreword
The European Commission has concluded annual reports since 1998 as part of its function as an observatory
of the European Air Transport Industry. The reports have highlighted developments on legislative and
regulatory measures and covered analysis of capacity, traffic and financial performance of airlines and
airports, as well as topics such as air traffic control, environment, consumer issues and aircraft
manufacturing.

This 2016 report covers latest developments in the air transport industry during 2015 and the first half of
2016. It is structured in 9 chapters covering:

• Air Traffic Trends


• Airlines
• Airports
• Aircraft Manufacturing and MRO
• Air Traffic Management
• Market and Competition Issues
• Environment and Sustainable Development
• Aviation Safety and Security
• Consumer Issues

In addition to the above chapters, the report is also accompanied by the Statistical Annex. This Annex
provides in tabulated format the key data-sets analysed to support various topics reflected in this report.

This Executive Summary provides highlights of the main report.

The key highlights are:

• For 2016, global traffic was expected to grow by 6.3% over 2015, with annual passengers surpassing
3.7 billion. This growth is a slowdown from the 7.1 per cent achieved in 2015 which was the highest
annual growth rate since 2010, the year following the global recession of 2008-09. This growth is
against a background of global GDP growth in 2015 of around 2.4%.
• Lower air fares (on average, 5% lower in 2015 vs 2014), driven by continuously low fuel jet prices,
boosted passenger traffic growth in 2015.
• Air traffic is projected to grow in the long-term, driven by global GDP growth. Annual Revenue
Passenger Kilometres (RPKs) are forecast to grow over the period 2016-2035 at a rate of 4.5% pa
(Airbus) and 4.8% pa (Boeing).
• The fastest growth rates are anticipated in the developing Asian, Middle Eastern, Latin American
and African markets. In the more mature markets, North American is expected to grow at 2.9% pa
(Airbus) to 3.1%pa (Boeing), and European is expected to grow at an average rate of 3.7% pa (both
Airbus and Boeing).
• Technology advances over the last six years have changed the face of aviation, with the introduction
of more point-to-point flying using advanced aircraft such as the Airbus A350 and the Boeing B787
families of efficient and environmentally-friendly twin-engine aircraft.
• Airlines globally achieved record profitability in 2015 with operating margins of at an all-time high of
8.8%, while average air fares decreased by 5% against a backdrop of fuel prices averaging 44%
lower than in 2014.
• Airline consolidation continued this year, the most notable between the three US majors, resulting
in evident strong performances in relation to revenues, operating profits, RPKs and passengers. Low
Cost Carriers’ share of total 2015 passenger volumes may stand below 20%, but compared to 2014,
this presented a 3% growth. The growth of megahub airports in the Gulf region continued the fastest

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Annual Analysis related to the EU Air Transport Market 2016
development worldwide, whilst political instability and terrorist threats in North Africa and a slowdown
in commodity-driven economies hindered growth in Africa.
• Airport revenues grew by 8.2% in the most recent year reported (2014), and non-aeronautical
revenues now make up 46% of total income.

Air Traffic Trends


The number of air passengers carried worldwide grew by 6.3% to a record 3.7 billion in 2016, continuing the
recovery trend since the global financial crisis on 2008/09. This growth was driven by 3.1% growth in the
global economies and reductions in air fares aided by fuel prices averaging 43% lower in 2015 than in the
previous year.

World Annual Traffic Expressed in Passengers Carried


World Annual Traffic Expressed in Passengers carried
Oil Gulf Asian 9/11 SARS GFC
Crisis Crisis

Source: Airbus, ICAO

In terms of arriving and departing passengers handled at the world’s airports, traffic reached 7 billion
passengers in 2015, up 6.4% on the previous year. This was a faster rate of growth than the 5.5% seen in
2014. Growth accelerated in the North America and Asia-Pacific regions, offset slightly slower growth in
other regions. The Middle East remained the world’s fastest growing region with 9.6% growth driven by
continued growth of the Gulf areas megahub airports, while the slowest growth was seen in Africa at 0.6%
in 2015, sharply slower than in 2014 as result of instability and terrorist threats in North Africa and a slowdown
in commodity-driven economies.

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Airport Passengers Handled - Growth Rate by Region

Source: ACI World Airport Traffic Database, 2016

In the past 5 years there has been faster growth in direct air services than connecting flights – direct
passengers grew at a rate of +6.0% pa between 2010 and 2015, while connecting passengers grew at a rate
of +4.0% pa during the same period. This trend reflects increased use of the latest generation ‘hub bypass’
aircraft types, such as the Boeing 787 and Airbus 350 types now entering service.

Direct & Connecting Passenger Splits (One-Way)

3.5 Top 30 Hubs .


3.0 Others
Direct Traffic
2.5
Pax (bn)

2.0
1.5
1.0
0.5
0.0
2015 2010
Year

Source: Sabre ADI

Looking forward, global air travel measured in Revenue Passenger Kilometres (RPKs) is forecast to grow at
between 4.5% pa (Airbus) and 4.8% pa (Boeing) over the next 20 years to 2035. The fastest growth rates
of around 6% pa are expected in the emerging economies of the Asia-Pacific, Middle East, Africa and Latin
America. The more mature European market is forecast to grow at 3.7% pa, while North America is predicted
to grow at between 2.9% pa (Airbus) and 3.1% pa (Boeing).

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Air Traffic Growth Projections by Region for 2016-2035

4.1%
CIS 3.7%
0.26tn
3.6%
3.7% Europe
2.5% North 3.7% 5.7%
2.9% 1.65tn
America 6.0%
3.1% 1.58tn
Middle
3.6% East
0.59tn Asia Pacific
2.5% 1.98tn

4.8% Africa
0.20tn
6.1% 5.7%
5.2%
5.9%
4.8% Latin
America
5.8% 0.33tn

2015 RPK (Trillion)5.2%


Airbus 2016-2035 YoY % World 4.5%
Boeing 2016-2035 YoY % World 4.8%

Source: Airbus/Boeing, 2016

2014 RPK (Trillion) Airbus


Air2014-34
Cargo YoY % Boeing
Global air YoY
2014-34 cargo
% grew by a modest 2% in 2015 as growth in global trade stalled towards the middle of the
year amid uncertainty emanating from Chinese manufacturing and globally weak industrial production.
However, there is continued demand for the speed and reliability benefits that air freight offers. Industries
that require transport of time-sensitive and high-value commodities such as perishables, consumer
electronics, high-fashion apparel, and pharmaceuticals, as well as the logistics chains serving the rapidly
growing e-commerce industry depend on the unique capabilities that air cargo provides and offers a new
area of growth.

Global Air Freight Historic Volumes (FTK bn)

Source: World Development Indicators

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Airlines
The worldwide airline industry performed strongly in 2015, achieving record operating margins of 8.8%
despite offering consumers lower air fares (on average, 5% lower in 2015 vs 2014), driven by continuously
low fuel jet prices. At the same time, much of the industry also benefited from a period of relative capacity
discipline. Airlines reacted to demand growth by cautiously adding capacity. Between 2014 and 2015, global
market capacity increased by 5.6% compared with 6.5% passenger growth.

Airline Worldwide industry, Operating margin (%) and variation on crude oil prices, Brent (YoY %)

10 50
8 40
6 30
4 20
2 10
0 0
-2 -10
-4 -20
-6 -30
-8 -40
-10 -50
2009
2004

2005

2006

2007

2008

2010

2011

2012

2013

2014

2015F

2016F
Operating margin (%) Brent prices (YoY, %)

Source: IATA Industry Forecast, June 2016

US carriers have led global airline profitability in 2015. Following consolidation in the US industry, the three
US majors (American Airlines, Delta Air Lines and United) are the top performers in all global rankings:
revenue, operating profit, RPK and passengers. Worldwide, the operating profit reported by airlines has been
increasing steadily in the past 5 years, with 18 airlines worldwide recording operating profits of more than
$1bn during 2015.

European carriers also had a successful 2015. Despite low economic growth in the region (+1.6% GDP
growth in the Euro zone in 2015 compared to 2014), European carriers surpassed 2014’s operating profits:
$7.4 billion in 2015 compared to $1 billion in the previous year. Europe’s top three airlines for profitability
were Lufthansa, Ryanair and IAG.

Outside of Europe and North America, Chinese carriers continued their upward momentum with Air China,
China Eastern and China Southern increasing their positions in the rankings in terms of RPKs and total
passengers carried. In the Middle East, Emirates was the only airline placed amongst the top 10 most
profitable airlines in 2015.

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Top Airlines by Airline Groups and Airlines by Operating Revenue, Operating Net Profit, RPKs and Passengers in 2015
Top 10 groups Top 10 groups Top 10 Airlines
Top 10 airlines by
by revenue by net profit by RPK
passengers
American American American
358,823m
Airlines $41.0bn Airlines $7.6bn Airlines American
201.2m
Group Group Delta Air Airlines
337,264m
Delta Air Lines Delta Air
$40.7bn United 179.4m
Lines United Lines
Continental $7.3bn 335,728m
United Airlines Southwest
Holdings 144.6m
Continental $37.9bn Emirates Airlines
Delta Air 255,176m
Holdings $4.5bn Airline United
Lines 140.4m
Lufthansa Southwest Airlines
$35.4bn Emirates 189,057m
Group $2.2bn Airlines Ryanair 106.4m
Air France - Group Lufthansa 162,173m China
$28.7bn Southwest
KLM Group $2.2bn China Eastern 93.8m
FedEx $26.5bn Airlines Southern 153,749m Airlines
Emirates Lufthansa Airlines China
$25.3bn $1.9bn
Group Group China Southern 84.0m
IAG $25.2bn Ryanair $1.7bn Eastern 146,291m Airlines
IAG $1.7bn Airlines Lufthansa 79.3m
Southwest
$19.8bn Japan British EasyJet 68.6m
Airlines $1.5bn 142,016m
Airlines Airways Turkish
China 61.2m
$17.8bn Air China $1.2bn Air France 141,207m Airlines
Southern
Source: Mott MacDonald analysis of ATW

Labour was the second-largest operating expense for airlines after fuel during 2015.

Worldwide Industry Statistics Airlines have generally been effective in


Worldwide Airline 2014 2015 2016F controlling growth in labour costs and improving
Industry productivity in 2015, aided by underlying growth
Labour costs, $ billion 143 144 153
% change over year 4.8% 0.6% 6.4%
in traffic.
Employment, million 2.47 2.54 2.61
% change over year 2.9% 2.8% 2.8% IATA estimates total employment by airlines
Productivity, atk/employee 463,996 479,745 495,912 reached 2.5 million in 2015, a gain of almost 3%
% change over year 2.4% 3.4% 3.4%
compared to 2014. Productivity, measured in
Unit labour cost, $/ATK 0.125 0.118 0.118
% change over year -0.5% -5.4% 0.1% ATK/employee, was also higher in 2015,
GVA/employee, $ 95,646 95,143 100,186 increasing by 3% compared to 2014, and is
% change over year 4.2% -0.5% 5.3% forecast to improve further in 2016. The average
Source: IATA Economic Performance of the Airline Industry, June employee generated close to 480,000 ATKs in
2016 2015. Wages and jobs also rose as employees
shared the benefits of improved performance.

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Worldwide Estimate of Cargo Revenues in the Airline With regards to air cargo, airline revenues
Industry ($ bn) and % of total revenues decreased by 16% between 2014 and 2015 from
80 $62.5 billion to $52.8 billion. The global economy
9.0%
softened towards the end of 2015 leading to
70 11,7% 10.4%
8.4% 8.3% weaker air cargo demand and downward
60 pressure on cargo yields.
7.4%
7.0%
50
In contrast to the passenger side of the
40 business, the airline industry freight load factor
average was below the industry average for the
30 first time since 2004. A combination of soft

2015F

2016F
2010

2011

2012

2013

2014

demand and significant capacity increases,


Cargo Revenues, $ billion particularly in belly-hold cargo capacity,
contributed to the drop in load factor. Low freight
Source: IATA Industry Forecast, June 2016 loads directly impact yields and revenues.

Airports
Worldwide airport revenues reached $142bn in 2014 (the latest year for which data is available), up 8.2% on
previous year, on the back of strong growth in scheduled passenger traffic of 7.2%. Revenue growth was
particularly strong in Latin America, Africa and the Middle East, but below the global average in Europe and
North America.

Airport revenues are principally generated through aeronautical (aircraft and passenger charges) and non-
aeronautical methods (terminal and landside concessions). The table below shows the trend of non-
aeronautical revenues constituting a growing share of total revenues as airports seek to diversify their
revenues streams.

Airport Revenue 2014 (USD m)


Region Total Growth vs % Aero % Non-Aero Aero Rev Non-Aero
Revenue in 2013 Revenue Revenue Growth Growth
2014 YoY YoY
Africa 3,000 17.0% 70% 30% 0% 13%
Asia - Pacific 41,800 8.3% 49% 51% 10% 16%
Europe 50,800 7.0% 59% 41% 0% 5%
Latin America/Caribbean 8,100 25.9% 59% 41% 9% 27%
Middle East 10,900 13.0% 48% 52% 18% 33%
North America 27,900 4.8% 52% 48% 4% 16%
World 142,500 8.2% 54% 46% 5% 14%

Source: ACI Airports Economic Survey (2015)

Airport operating costs grew more slowly than revenues, by 7.3% in 2014, resulting in an overall increase in
airport profitability. In 2014, Return on Invested Capital (ROIC) reached 6.3% for the industry as a whole.
However, there were considerable variations depending on the region and size of the airports.

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Small airports (less than 1 mppa) are markedly less profitable than larger airports, but profitability does not
increase linearly with size – the most profitable airports are in the 5-15 mppa size band. Airports in emerging
economies achieved 9.9% ROIC compared with 5.6% ROIC for airports in advanced economies.

Airport Returns and Size Comparison

Source: ACI 2015 Economics Survey

Aircraft Manufacturing and MRO


There were 2,375 net commercial aircraft orders in 2015, down 30% on the previous years’ orders. Airbus
secured 1,100 new orders in 2015, down 37% on 2014 when over 1,700 orders were placed. Boeing on the
other hand secured 840 new orders during 2015, a 45% reduction on 2014 (1,527 orders).

Narrowbody airliners represented close to two-thirds of total orders, although orders for these types were
sharply down on previous years. Airbus secured 900 of these orders, mainly for the A320neo, while Boeing
recorded 550 orders, most of them for its new 737 Max.

Despite this slowdown in new orders, both Airbus and Boeing have strong order backlogs and are increasing
production rates to meet the long-run demand from airlines.

Airliner Orders 2005-2015

Source: Fleet Watch 2016, Flightglobal

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Airbus and Boeing delivered 1,366 aircraft in 2015, with Boeing delivering a higher share globally and in all
regions apart from Latin America and the Middle East. Of these deliveries, 46% were to airlines in the Asia-
Pacific region.

Airbus and Boeing Deliveries by Region (aircraft units) in 2015

Source: Aircraft & Engines 2016, Airline Business

Looking forward, between 2016 and 2035 growth in air travel demand is expected to result in delivery of
between 33,070 (Airbus forecast) and 37,340 (Boeing forecast) new commercial jet aircraft (excluding
regional jets). Airbus and Boeing broadly agree on the level of demand for wide-body aircraft, but Boeing
sees greater demand for narrow-body aircraft, and only one-third of the number of very large aircraft.

Airbus and Boeing 2016-2035 Forecast Comparison

Source: Mott MacDonald analysis of Airbus Global Market Forecast 2016-2035 and Boeing’s Current Market Outlook 2016

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Global MRO Activity
The global civil MRO spend in 2015 was $64.3 billion, up by 3.5% compared to the $62.1 billion spent in
2014. With the continuing growth of aircraft deliveries and the possibility of deferring older aircraft retirements
(at least until low fuel prices keep reducing the economic benefits of using only new aircrafts and engines),
the medium term prospect for this activity is also positive.

Looking at the MRO global market share by region, North America claimed the largest share in MRO activity
(29%), with Asia-Pacific (28%) and Europe (26%) following close. Based on current aircraft orders, the Asia-
Pacific share of the global MRO market is expected to increase and potentially become the largest global
region for MRO activity in the coming years.

Aviation’s Economic Contribution


Aviation’s global economic impact (direct, indirect, induced and tourism catalytic) is estimated at $2.7 trillion,
equivalent to 3.5% of the world GDP in 2014. At the same time, air transport is a major global employer.
The Air Transport Action Group (ATAG) reports that the air transport industry indirectly generates more than
62 million jobs globally.

Directly, the industry employs over 450,000 people working for airport operators, over 5.5 million working for
other on-airport business (such as retail, car rental, freight services, etc.); close to 2.7 million are employed
by airlines and over 1.1 million are working in civil aerospace for air navigation service providers.

Aviation Global Employment Impact, 2014 (latest report) Aviation Global GDP Impact, 2014 (latest report)

Jobs GDP impact


(million) (trillion)

60 9.9 62.6 2500 664.4 2673

50 11.2 2000
761.4
40 5.2
1500
30 36.3
1000 355
20
892.4
10 500

0 0
Tourism Induced Indirect Aviation Total Tourism Induced Indirect Aviation Total
catalytic Direct catalytic Direct

Source: Aviation Benefits Beyond Boarders, ATAG Source: Aviation Benefits Beyond Boarders, ATAG

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Air Traffic Management
Considerable progress was made in the development and global harmonisation of ATM technology in 2015
and this continued in 2016. This contrasted with a lack of change in the political and regulatory framework in
the industry. The costs of this and importance of ATM were highlighted in several economic studies
sponsored by airspace users.

Both the SESAR programme in Europe and NEXTGEN in the United States continued research and
demonstrated innovative ATM solutions in the en-route and terminal airspace domains and increasingly
including airports as part of the emerging network based future trajectory based management systems.
Similar initiatives are occurring in Asia, the Middle East, Africa and South America as states fulfil the
requirements of the ICAO Global Navigation Plan Block Upgrade Programme. However, the key strand is
one of incremental implementation over a long period rather than large scale change in a short time frame.
The change is coming from the deployment of particular key enablers such as ADS-B, PBN, datalink, SWIM
and new trajectory based flight data processing systems. In addition, safely accommodating and enabling
access to airspace for unmanned aerial systems and drones has become an urgent part of the research and
deployment streams

2016 was marked in the US by a rejection of transforming the air traffic organisation of the FAA into a
NAVCanada style not for profit entity. In Europe minimal progress was made in realising further provisions
of the Single Sky legislation. However, as air traffic rebounds in and between both continents, ATM
deployment is not being impaired by this lack of political change. In the US, upgrades to the national airspace
system are being rolled out as incremental deployment of NEXTGEN technology and in Europe, SESAR had
moved firmly into deployment with corresponding funding in line with the ATM Master Plan.

2016 saw Aireon make final preparations for the deployment of the initial phase of its space based ADS-B
global surveillance programme and signed additional agreements with ANSPs. This is set to revolutionise
CNS across the oceans and remote areas from 2018 as well as fulfilling ICAO and IATA requirements for
enhanced tracking following the 2014 failings.

Cooperation between SESAR, NEXTGEN and other upgrade programmes in other states are increasingly
leading to a harmonised development of global ATM which together with such initiatives such as Aireon, are
going to revolutionise future ATM for the benefit of all airspace users.

Market and Competition Issues


One key factor influencing the EU’s aviation development is the Commission’s Aviation Strategy document
which has both focused regulatory activity in the field of aviation on common macro-economic objectives.
The EU Aviation Strategy thereby also underpins the broad impact of aviation on connectivity for regions,
international competitiveness of the European industry and thereby takes a new EU “holistic” approach to
aviation.

Within the EU, the Commission’s Aviation Strategy has triggered a political debate amongst Member States
about the need to secure connectivity for their respective national interests – these national interest find their
limitations in the State Aid Guidelines. The analysis of the key decisions taken by DG COMP in the Reporting
Period shows that the recently modified Guidelines are evidently applied on each case, on the basis of a
consistent policy. However, the application of the Guidelines does not always reflect the thrust of the
Aviation Strategy. The market issue facing airlines and governments from peripheral regions or thinner,
underserved markets is whether the Guidelines could not become one of several regulatory instruments to
improve connectivity in otherwise underserved markets.

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Internationally, the Commission’s Aviation Strategy has shifted the focus from increasing the number of Open
Skies agreements of the EU to more comprehensive agreements with key destination areas which not only
improve market access opportunities, but seek to ensure fair competition within these markets. Such
negotiations are currently undergoing.

The market is beginning to see structural changes. For European financial and strategic investors to be even
more attracted to investments, the Aviation Strategy recognises the need for interpretative Guidelines on
Ownership and Control restrictions. In the international markets, new structured for commercial co-operation
are being developed by airlines and airline groups, which likewise will require regulatory attention.

The Aviation Strategy has placed the EU aviation policy on the political radar internationally.

However, disruptive challenges appeared in the wake of the UK referendum on the leaving the EU. The new
US Administration has likewise given rise to uncertainty on how the US will position itself on future
international trade agreements and whether it will continue to pursue a market-oriented aviation policy.

2016 was thus a year of progress, both in terms of delivery on the targets set forth in the Strategy paper, as
well as increased growth of the sector albeit amidst structural changes; 2017 is thus far too uncertain to
warrant substantiated forecasts.

Environment
Aviation delivers social and economic benefits to European citizens and to citizens across the world.
However, these benefits come at an environmental cost. Improvements in technology have mitigated some
of aviation’s environmental impacts, however environmental issues remain. Chapter 7, Environment and
Sustainable Development, provides an overview of the main environmental and sustainability issues faced
by the sector, and how these are being addressed though initiatives and technologies during 2015.

During 2015 there were numerous advances in climate change mitigation. Significant progress towards a
global Market-Based-Mechanism (MBM) for managing carbon emissions was made at the International Civil
Aviation Organisation (ICAO). Research into more efficient Air Traffic Management (ATM) was undertaken
under the SESAR research program, and research into new technologies intended to provide more efficient
engines, and reduced drag were undertaken under the Clean Sky research program. Airports continued to
join the Airport Carbon Accreditation program, which aims to reduce carbon and increase airport
sustainability, and progress on bringing alternative jet fuels to market continued.

Air quality issues also continued to be important for airports. In the UK, the debate about airport expansion
in the South East continued to be influenced by air quality issues. In the rest of Europe airports implemented
projects to improve air quality ranging from electric air side vehicles, to promoting model shift in travel to
airports. Noise has also been an issue for airports. In 2015 the EC launched a consultation on the evaluation
of the Environmental Noise Directive (END) (2002/49/EC), which will impact upon the management of noise
by airport, and EC’s Science for Environment Policy published a document capturing the latest research on
‘Noise impacts on health’.

At European level, the Advisory Council for Aeronautics Research in Europe (ACARE) represents 40
members including the EC, as well as airlines, airports, regulators and research establishments. ACARE’s
environmental research is driven by five goals to be achieved by 2050. These are:
• CO2 emissions per passenger kilometre reduced by 75%, NOx emissions by 90% and perceived noise
by 65%, all relative to the year 2000.
• Aircraft movements are emission-free when taxiing.
• Air vehicles are designed and manufactured to be recyclable.

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• Europe is established as a centre of excellence on sustainable alternative fuels, including those for
aviation, based on a strong European energy policy.
• Europe is at the forefront of atmospheric research and takes the lead in formulating a prioritised
environmental action plan and establishes global environmental standards.

Security and Safety


Safety

In 2015, there were in total 186 fatalities from 14 accidents, of which there were no fatal accidents involving
jet aircraft. This makes 2015 the safest year in history. These statistics exclude the Germanwings co-pilot
suicide and the MetroJet mid-air explosion following takeoff from Sharm-el- Sheikh airport deemed to be
“fatal and non-fatal self-inflicted injuries or injuries inflicted by other persons”. Following the Germanwings
accident, the “2-persons-in-the-cockpit” rule was revisited and reconfirmed. Questions also arose with
regards to the adequacy of the processes for the evaluation of the psychological state of pilots.

World Commercial Airline Fatal Accidents and Fatalities 2006 to 2015

1,400 40
33
1,200 34 35

30
1,000 28 26

Fatal Accidents
27 25 26
817 25
Fatalities

800
863 749 21 19
744 671 20
600
15
583 426
400 504 14
281 10
186
200 5

0 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Year
Fatalities 10 year average fatalities
Fatal Accidents 10-year average fatal accidents

Source: Flightglobal, IATA

Security

One Stop Security (OSS) is a bilateral agreement between countries which recognises the security standards
and level of each other as equal. As a result, passengers arriving from one of the countries to transfer in the
other towards their final destination do not need to be security screened an additional time. EC Regulation
2015/1998 introduces these standards and consolidates all amendments to its predecessor. It provides for
the signing of future OSS agreements and regulates the process of auditing countries which apply for their
security level to be recognised as equal to the one of the EU.

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Another example of other countries seeking EU expertise is the ACI-Europe initiated a programme named
“Airport Twinning”. Under this programme an EU Member State will pair with a non-EU Member European
State by seconding airport security staff to the partner country’s airports. The aim is to improve the security
measures and prepare the non-EU Member State for the audit of the EC, which will determine whether its
security standards will be accepted as being equal to those of the EU. IATA also ran a series of training
activities in Africa which aimed at promoting and standardising aviation security practices and educating
personnel across the continent.

Consumer Rights – Air Passengers


Regulation (EC) No 261/2004 is considered as central legislation on air passenger rights. Since its enactment
in 2005, the Regulation has been subject to continuous scrutiny by the European Court.

The EC adopted guidelines on 10 June 2016 which aimed to improve the clarity of the passenger rights
rules, ensure a better application and consistent enforcement by carriers and Member States and finally
achieve a fairer market. This aim was also incorporated into the Aviation Strategy for Europe.

In addition, ICAO adopted its core principles on air passenger protection in 2015. These should serve ICAO
member states as guidance when developing air passenger legislation. ICAO’s core principles comprise
fundamental recommendations and rights before, during and after travelling, including the provision of
information at the airport, the communication in the event of disruptions and complaint handling.

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1. Air Traffic Trends

1.1. Introduction

Preliminary figures released by the International Civil Aviation Organization (ICAO) indicated that the total
number of passengers carried on scheduled services reached 3.7 billion in 2016, a 6.0 per cent increase
over 2015. Global traffic, expressed in terms of total scheduled revenue passenger-kilometers (RPKs),
posted an increase of 6.3%, while (GDP) growth in 2016 was expected to be at around 2.4% 1.

For the global aviation industry, 2015 was an exceptional year in terms of traffic growth and improved industry
performance indicators. Despite differences in economic growth across the globe, overall the airline industry
performance was greatly assisted by a 20% reduction in fuel costs, as fuel prices were on average 50%
lower than in 2014.

Airline passenger traffic (measured in RPKs) grew at +7.4% in 20152, compared with global GDP growth of
+3.1%. The International Air Transport Association (IATA) reported that airlines sustained record load factors
exceeding 80% on average, as capacity grew only by +6.7% year on year 3. Demand growth outpaced
capacity in all major world regions except for the Middle East, where double-digit traffic growth was
surpassed by even higher capacity additions.

For 2015, global passenger airport throughput was +6.4% higher than in 2014. From a regional perspective
passenger growth in 2015 accelerated in regions such as Asia-Pacific and North America with growth of
+8.6% and +5.3% respectively. However, the “sluggish” economic growth and the topical safety and security
concerns have contributed to a slowdown of growth in Europe (+5.2%), Latin America (+5.3%) and especially
Africa (+0.6%). Finally, the Middle East grew at a similar rate (+9.6%) in 2015 as in 2014, as strong growth
rates were witnessed at the major long-haul hubs in the region.

2015 was another challenging year for air cargo, as subdued growth of emerging markets, paired with a
slowdown of Chinese imports, exports and manufacturing activity resulted in a +2.6% growth of total cargo
volumes for the year. Middle East was the only region to avoid this slowdown in cargo volumes (+9.9% up
year-on-year (YoY)), while the Brazilian recession has contributed to a decline in cargo volumes for Latin
America (-1.3%).

Finally, 2015 has noted a small decrease in flight activity of business aviation in Europe and a slow growth
of the sector in the US market, with both trends set to continue in 2016, according to preliminary market
indicators. While healthcare flight operations have shown a growth in recent years, industries such as
manufacturing, construction and power & energy are the key contributors to the decline in average flight
hours.

The purpose of the first section of this report is to:


• Examine the performance of the global and regional commercial aviation activity for the year 2015
• Identify the key drivers of air traffic growth historically, focusing on the past year

1
http://www.icao.int/Newsroom/Pages/traffic-growth-and-airline-profitability-were-highlights-of-air-transport-in-2016.aspx
2 IATA
3 Boeing Current Market Outlook 2016-2035
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• Summarise the projections for air transport growth at a regional and global level, as well as its
implications
• Analyse the performance of airlines, airports and manufacturers over the past year.

1.2. Air Traffic Drivers

According to Boeing, in their 2016 Current Market Outlook, the various influences on a region’s air-travel
growth can be grouped into three categories: economic activity, ease of travel, and local market factors.
These groups explain both the demand and supply impact on air travel. Some factors of market demand,
such as GDP, are easy to quantify, but others (for example, liberalization) are more difficult to assess but
can have a significant effect on market performance4.

Economic activity is the most easily understood and quantified key factor in traffic flows. Figure 1 highlights
key metrics included in this category.

Figure 1 - Economic Activity Components that Affect Air Travel Demand

National /
Regional GDP
Tourism

International
trade and FX rates and
investment fuel prices
links

Labour-force Per capita


composition income

Population
trends

Source: Mott MacDonald

A second important driver of air traffic is ease of travel. Ease of travel is a factor that can experience
improvements in many ways. Some of the more common examples include more open air services
agreements between countries, such as the 2015 revised US-Mexico agreement; Liberalized domestic-
market regulations; Emerging technology such as new airplanes enabling new routes; Business-model
innovation as found in the low cost airline model; Airline-network improvements in nonstop city pair
connectivity or the launch of a new base by a low cost carrier.

Local markets as a factor in forecasting air travel flows is not directly related to either macroeconomic trends
or ease of travel, but its impact on air travel growth can be considerable. Examples of the latter can be found
in the US domestic market airline consolidation or in congestion at specific airports that impedes additional
growth.

4 Boeing Current Market Outlook 2016-2035


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Economic Growth

Relationship of GDP Growth to Air Travel


Amongst the drivers of air traffic demand, economic growth is the primary driver of demand, both as it largely
explains past performance and it forms the basis of forecast continued growth. Figure 2 shows the correlation
of Gross Domestic Product (GDP) and air traffic growth, measured in Available Seat Kilometre (ASKs) flown.
In recent years, air travel has grown significantly more rapidly than growth in GDP.

Figure 2 - Relationship of Real GDP and Air Travel

8%

6%

4%

2%

0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-2%

-4%
Gross domestic product, constant prices Available Seat Kilometres

Source: IMF and SRS Analyser, 2016

However, there is a risk of overstating economic activity as a driving force to air traffic growth, especially
during a downturn, as Figure 3 illustrates below. Although the air transport industry is subject to occasional
market shocks, the industry’s demand is resilient; services are often seen as essential, and spending on
discretionary trips for vacations or family events is frequently high priority. Over the past 30 years, the
aviation industry has experienced recessions, oil-price shocks, near pandemics, wars, and security threats,
yet traffic has continued to grow on average at 5 percent annually.

Figure 3 - World Annual Traffic Expressed in Passengers carried


World Annual Traffic Expressed in Passengers carried
Oil Gulf Asian 9/11 SARS GFC
Crisis Crisis

Source: Airbus, ICAO

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GDP Projections – Short and Medium Term
Global economic expansion is expected to continue, with regional challenges that will contribute to an overall
modest growth. In the past, emerging markets have driven economic growth, but there are now some
regional divergences from this trend. In the short term, the outcome of the UK vote to leave the EU (also
widely referred to as Brexit), which appeared to surprise global financial markets, implies the materialization
of an important downside risk for the world economy.

As a result, according to the International Monetary Fund (IMF), the global outlook for 2016-2017 has
worsened, despite the better-than-expected performance in early 2016 5. This deterioration reflects the
expected macroeconomic consequences of uncertainty, including on the political front. This uncertainty is
projected to affect business confidence and investment, as well as have repercussions on financial
conditions and market sentiment in general.

Regarding Brexit, the initial financial market reaction was severe but generally as projected by most
economists. As of mid-July 2016, the GB pound has weakened by about 10%, despite some rebound after
the initial shock, while equity prices in some sectors and yields on safe assets have both declined.

Figure 4 - Real GDP Growth of Emerging and Advanced Economies

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

-2.0% 2021

-4.0%

-6.0%

Advanced Economies Emerging market and developing economies World

Source: IMF, 2016

Brexit-related downwards revisions are concentrated in advanced European economies, with minimal impact
elsewhere, including the United States and China. Pending further clarity on the exit process, the IMF’s latest
baseline update reflects a gradual reduction in uncertainty going forward, with arrangements between the
European Union and the United Kingdom to avoid a large increase in economic barriers and major financial
market disruptions.

GDP Projections – Long Term


For the long term economic outlook at a global and regional level, recent forecasts agree that structural
transformation and policy reforms are the key drivers that will allow for the necessary industrial capacity and
global trade that will ensure a sustained economic growth in the long term. IHS Economics (which forms the

5
IMF World Economic Outlook July 2016 Update
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basis for the Boeing, Airbus, Bombardier and Embraer long term forecasts) and the Japan Aircraft
Development Corporation (JADC) in their Worldwide Market Forecast both project global economic growth
of 2.9% per annum for the period of 2016-2035 (Figure 5).

Figure 5 - IHS Economics Projections of Real GDP Annual Growth by Region for 2016-35

CIS
2.5%
Europe
North 1.8%
America
2.3%
Middle
East
Asia
3.8%
4.1%
Africa 3.7%

Latin
America
2.9%

World 2.9%

Source: IHS Economics for Boeing CMO 2016-2035


World 3.1%
The Economist Intelligence Unit kept its estimations on the global economic long-term outlook during 2015
and stays with its assumption about the continuing economic prosperity across the Asian Pacific region,
which is expected to account for over 50% of global GDP by 2050. Further growth is also projected in Africa,
almost reaching a 10% share in global GDP by 2050. In light of this expansion, the share of Europe and
America decline, Figure 6. Overall, worldwide GDP is projected to grow at an average rate of around 2.5%
between 2020 and 2030. However, this is forecasted to decrease to 2.1% between 2030 and 2040, while
another slowdown is expected until 2050, assuming an average growth rate of 1.8% 6.

6 EIU Global Forecasting 2050 – Long-term key trends


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Figure 6 - Regional Share of Global GDP

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1981-90 1991-2000 2001-2010 2011-2018 2019-2030 2031-2040 2041-2050

Asia-Pacific Americas Europe Middle East & Africa

Source: Economist Intelligence Unit, 2016

GDP per Capita


Another useful economic indicator for air travel demand is per capita income, which is a measure of
disposable income and correlates strongly with a country population’s propensity to fly. Within a given region,
propensity to fly as measured in number of trips or in revenue passenger kilometres (RPK) that generally
increase with per-capita income.

Generally, markets that are more open are more responsive to changes in per capita income because airlines
are freer to add routes, frequencies, and seats to capture demand. In a more regulated environment, demand
may increase with GDP per capita, but lower service quality and higher pricing may restrain travel growth.
Geography may also influence travel within a region, with islands or poorly connected land masses
necessitating more air travel. Emerging countries are developing large new middle class populations through
increased GDP per capita and wider distribution of wealth. This means that more people in developing
countries are reaching the threshold of wealth where discretionary air travel becomes possible.

Demand for air travel continues to increase rapidly when GDP per capita reaches about $5,000 to $10,000 7
per annum. Figure 7 shows the relationship of trips per capita to the GDP per capita by country, with bubble
size proportionate to the country’s population.

7 JADC Worldwide Market Forecast 2016-2035


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Figure 7 - Propensity to Fly in 2015 (logarithmic scale)

10.00
Trips per capita

UK United States
Italy
1.00 Thailand
Brazil Japan Germany
Turkey France
Philippines
Russian Federation
Viet Nam Indonesia
China
0.10 Myanmar Egypt
India Iran
Nigeria
Pakistan
Bangladesh
Ethiopia
0.01

0.00
100 1,000 10,000 100,000
GDP per Capita ($US)

Source: Sabre, WBG, IHS, Airbus, 2016

Fuel Price

For air travel, lower fuel costs lead to increased airline profitability and reduced air fares. The recent drop in
oil prices has, therefore, helped to stimulate growth in air travel and is likely to create a net positive impact
for the global economy. Although effects differ from country to country, lower oil prices represent a net gain
for global economic growth as resources are shifted to more efficient economies on average, and consumer
spending is stimulated in the world’s largest oil importing economies8.

Spot prices of Brent Crude Oil dropped 73% (from $111.80/barrel in June 2014 to USD30.7/barrel in January
20169), and the price of jet fuel (USA, spot price) also dropped by 68% (from USD2.88/gallon in June of 2014
to USD0.93/gallon in January of 201610). In 2015 the average annual price was USD1.53/gallon or 43%
lower than the USD2.70/gallon in the previous year, so airlines have reduced or abolished their fuel
surcharges. These price falls are due to a combination of the following factors:

• economic growth deceleration of China and decreased demand for crude oil in emerging countries;
• the US government lifting the ban on exports of crude oil following industrialization of shale oil;
• Iran restarting exports of oil after it was released from economic sanctions;
• increased production of crude oil in non-OPEC countries; and,
• OPEC has postponed coordinated production cuts.

8 Boeing Current Market Outlook 2016-2035


9 JADC Worldwide Market Forecast 2016-2035
10 JADC Worldwide Market Forecast 2016-2035
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Most advanced economies, such as those of the United States and the European Union, benefit from the
lower cost of commodity imports and see their economies driven by strong consumer spending. The same
applies to China and other emerging economies with growing middle classes, where consumption remains
strong and supportive of air travel growth.

On the other hand, many emerging markets that are more dependent on export revenue from natural
resource extraction are seeing increased economic pressure. In many cases, declining export revenue goes
hand in hand with slower GDP growth, increased capital outflow, and depreciated exchange rates. In several
countries, political uncertainties exacerbate the fragile economic situation and further reduce near-term
growth prospects by lowering investment incentives.

Figure 8 - Historic Relationship of Brent Crude Oil Price and Aviation Jet Fuel Price

160 6
140
5
120

USD per Gallon


USD per Barrel

4
100
80 3
60
2
40
1
20
0 0
1990 1995 2000 2005 2010 2015
Year

Europe Brent Spot Price FOB (Dollars per Barrel)


U.S. Gulf Coast Kerosene-Type Jet Fuel Spot Price FOB (Dollars per Gallon)

Source: U.S. Energy Information Administration

It is difficult to predict the trajectory of fuel prices in the future. However, the past year of sustained low prices,
despite prolonged and substantial political upheaval in 2015, will give added confidence for that trend to
continue for the medium term.

Market Exchange Rates

There have been significant exchange rate changes in the past year, with most notable the recent sharp
decline of the British pound, following the decision of the UK to exit the European Union. The impact that this
would have on air travel is more clear-cut than the economic effects. The weaker pound has immediately
made outbound trips for UK inhabitants more expensive (because a given amount of GBP will now buy less
goods and services overseas). At the same time, for overseas visitors to the UK, their local-currency earnings
will now stretch further than they did previously.

Consequently, the Euro also weakened against the US Dollar while the general economic conditions and
impact of lower oil prices has kept the Russian Ruble depressed. In some regions, this currency volatility
tempers the near-term benefit of lower fuel prices on consumer spending, as the cost of visiting destinations
with a stronger currency are increased. At the same time, passengers on the opposite travel flow will benefit
from this change.

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Figure 9 - Exchange Rate Indices of Key Currencies to USD

120

100

80

60

40

20

Jun-15
Jan-14

Mar-14

Jun-14
Jul-14

Jan-15

Jul-15
Mar-15

Jan-16

Mar-16

Jun-16
Jul-16
Feb-14

Nov-14
Dec-14

Feb-15

Nov-15
Dec-15

Feb-16
Aug-14
Sep-14

Aug-15
Sep-15
Apr-14
May-14

Oct-14

Apr-15
May-15

Oct-15

Apr-16
May-16
Yen Rubles Yuan A$ Pounds Euro/$

Source: OANDA.com, 2016

Demographics

The Economist Intelligence Unit projects that populations will grow at a gradually decreasing rate through to
205011. The decreasing growth rate is more pronounced for working-age populations, reflecting a global
trend towards aging populations as already seen in Europe and Japan.

These changes in working age populations are shown in

Figure 10 for the top 10 countries with the largest increases, left graph, and decreases, right graph, in
projected labour force between 2014 and 2050. These demographic changes affect both the overall GDP
growth rates and growth in demand for air travel.

Figure 10 - Top 10 Largest Projected Increase and Decrease in Labour Force (in Billion)

0 20 40 60 80 100 120 140 160 180 0 10 20 30 40 50 60 70

Nigeria Japan
Pakistan Germany
Philippines Thailand
Kenya South Korea
Egypt Ukraine
Iran Taiwan
Angola Romania
Algeria Portugal
Kuwait Greece
Libya Lithuania
2050 2014 2050 2014

11 EIU Global Forecasting 2050 – Long-term key trends11


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Source: Economist Intelligence Unit

The growth of working age population is expected to have a major impact on the expansion of the middle
class population of emerging economies, as is identified by Airbus and Oxford Economics on Figure 11.

Figure 11 - Middle Class Population’s Regional Breakdown (millions) and Share of World Population – Present and
Forecast

10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
55%
2,000 46%
38%
1,000
-
2015 2025 2035

Europe & CIS Asia-Pacific North America Other Rest of Population

Source: Oxford Economics, Airbus GMF 2015

Tourism

According to the UN World Tourism Organisation (UNWTO), tourism has grown almost uninterrupted over
time, despite occasional shocks, demonstrating the sector’s strength and resilience. The number of
international tourist arrivals (overnight visitors) in 2015 increased by 4.6% to reach a total of 1.186 million
worldwide, an increase of 52 million over the previous year12. It was the sixth consecutive year of above-
average growth in international tourism following the 2009 global economic crisis.

In 2015, slightly over 50% of overnight visitors travelled to their destination by air, while the remainder
travelled by surface transport, predominantly by car. The trend over time has been for air transport to grow
at a slightly faster pace than surface transport. Travel for holidays, recreation and other forms of leisure
accounted for just over half of all international tourist arrivals in 2015 (53% or 632 million).

France, the United States, Spain and China continued to top the rankings in both international arrivals and
receipts. In receipts, China continues to lead global outbound travel, after registering double-digit growth in
tourism expenditure every year since 2004, benefitting Asian destinations such as Japan and Thailand as
well as the United States and various European destinations. Spending by Chinese travellers increased by
26% in 2015 to reach USD292 billion, as the total number of outbound travellers rose by 10% to 128 million12.

In their Tourism Highlights 2016 Edition, the UNWTO has not drastically revised its long-term projections on
international tourist arrivals. Overall, international tourist arrivals are assumed to grow at an annual rate of
3.3% between 2010 and 2030, reaching 1.8 billion tourists. As illustrated in Figure 12, the majority of growth

12
UNWTO Tourism Highlights 2016 Edition
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is still expected to occur in emerging economies, which are estimated to record a 2.2% annual growth in
international tourist arrivals between 2010 and 2030, reaching 1 billion tourists. This would be equal to 57%
of global international tourist arrivals12.

Figure 12 - History and Projections for International Tourist Arrivals to Advanced and Emerging Economies

3.8%

3.8%
1.8%
2.6%

1.8%
2.6%

Source: UNWTO, 2016

Across the regions, the Americas and Asia/Pacific both recorded close to 6% growth in international tourist
arrivals, with Europe, the world’s most visited region, recording 5% growth. Arrivals in the Middle East
increased by 2%, while in Africa they declined by 3%, mostly due to weak results in North Africa. Prospects
for 2015 are strongest for the Asia/Pacific and the Americas (both +4% to +5%), followed by Europe (+3.5%
to +4.5%). In Africa and the Middle East (both +2% to +5%), prospects are positive but more uncertain and
volatile. The same growth trends are expected in the medium to longer term, as the Asia/Pacific and the
Americas are forecast to attract passengers at a stronger rate, increasing their individual market shares,
while Europe will continue to be the market leader in overall international visitor arrivals.

Figure 13 - International Tourist Arrivals History and Projections by Region of Destination

Source: UNWTO, 2016

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1.3. Passenger Traffic Trends

Global Passenger Performance


Airport Statistics
For 2015, global passenger airport throughput was +6.4% higher than in 2014, with annual passengers
surpassing 7 billion, as opposed to 6.8 billion in 2014. This is the highest annual growth rate since 2010, the
year following the global recession of 2008-09. Meanwhile, total aircraft movements grew by +2% year on
year to 88 million in 201513.

From a regional perspective, the Middle East grew fastest at +9.6% as the three Gulf super-connectors
further expand their capacity worldwide (Figure 14). European traffic grew at +5.2% in 2015, almost the same
as in 2014, far outpacing economic growth in the region, helped by the lower fuel prices and the strong
growth of international tourist arrivals. Relatively modest growth of +5.3% was witnessed in North America’s
mature market, aided by low fuel costs, while mostly due to geopolitical and security challenges in North
Africa, overall the African region registered a slow +0.9% passenger growth in 2015.

Figure 14 - Passenger Growth Rate and Traffic Share by Region

6.4% 2%
World
5.5% 24%
North America 5.3%
3.2%
9.6% 3% 34%
Middle East 24%
10.8% 33%
Latin America - 5.3% 5% 5%
Carribean 6.4% 8%
5.2% 27%
Europe 8%
5.5%
8.6%
Asia - Pacific 6.6%
2015-14 27%
Africa 0.6%
2.7% 2014-13 Africa
Asia - Pacific
0.0% 5.0% 10.0% 15.0% Europe
Latin America - Carribean
YoY Change Middle East
North America
Source: ACI World Airport Traffic Database, 2016

Delving deeper to a more granular level, the passenger performance of the top 30 airports worldwide is
shown in Figure 15. Despite the regional fluctuation in traffic performance described above, the world’s
largest airports have generally been growing strongly in the last 10 years.

The most rapidly growing airports over the past 10 years (2006 to 2015) were: Delhi International (+10.1%
pa), Istanbul-Ataturk (+11.5% pa) and Dubai International (+11.7% pa), as well as the Chinese airports of
Guangzhou (+8.6% pa) and Shanghai-Pudong (+9.4% pa). This reflects sustained strong growth rates in
developing aviation markets, such as China and India, as well as the continued expansion of the connecting
hubs in Middle East and Turkey regions.

13 2015 ACI Annual World Airport Traffic Report

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US airports represent 13 airports of the top 30 airports globally, while 11 airports are located in the Asia
Pacific region. The only airport in the top 30 that registered a passenger decline in 2015 was Jakarta
International, while Delhi International airport made the list for the first time this year, as the focus hub of
Indian aviation domestic air travel.

Figure 15 - Top 30 Airports in 2015 by Passenger Traffic Worldwide

Millions -10%-5% 0% 5% 10%15%20%


0 25 50 75 100
ATL
Atlanta (ATL) PEK
Beijing (PEK) DXB
Dubai (DXB) ORD
Chicago O'Hare (ORD) HND
Tokyo Haned (HND) LHR
London Heathrow (LHR) LAX
Los Angeles (LAX) HKG
Hong Kong (HKG) CDG
Paris (CDG) DFW
Dallas/Ft Worth (DFW)
IST
Istanbul Atatürk (IST)
FRA
Frankfurt (FRA)
PVG
Pudong (PVG)
AMS
Amsterdam (AMS)
JFK
New York (JFK)
SIN
Singapore Changi (SIN)
CAN
Guangzhou (CAN)
CGK
Jakarta (CGK)
DEN
Denver (DEN)
BKK
Bangkok (BKK)
SFO
San Francisco (SFO)
ICN
Seoul Incheon (ICN)
KUL
Kuala Lumpur (KUL)
MAD
Madrid Barajas (MAD)
DEL
Delhi (DEL)
LAS
Las Vegas (LAS)
CLT
Charlotte (CLT)
MIA
Miami (MIA)
PHX
Phoenix (PHX)
IAH
Houston (IAH)

EU 2015 2014 2006 2014-15 YoY 2006-15 CAGR

Source: ACI World Traffic Reports, 2015

Regarding European airports, five airports are within the top 30 in passengers carried: London Heathrow,
Paris Charles de Gaulle, Frankfurt Main and Amsterdam Schiphol and Madrid Barajas airport. Similar to US
airports, growth since 2006 has been low at European airports. However, as the Eurozone economies picked
up in 2015, all five airports recorded a higher year on year growth for 2015 compared to their 10-year average
annual growth rates. Statistical Annex A provides an overview on global passenger and air transport
movements.

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Airport Connectivity
One of the themes that are trending in the last five years in air transport is the strengthening of international
and domestic hub airports around the world. This phenomenon has been mostly attributed to the
consolidation in the airline industry, as witnessed lately in the US domestic market; it also highlights the
emergence of the super connector airline model, as the Big 3 Gulf carriers demonstrate. As airlines merge
to form powerful groups, they are able to consolidate their operations within their main airport hubs. This
allows them to offer increased services from those hubs and increase their profitability and their yields when
operating within those airport “fortresses”.

As a result, the significance of connecting passengers has been growing, as airlines and airports target
services to passengers choosing the hub as a stopover. The airports with the highest share of connecting
passengers for 2015 and the change since 2010 are depicted on Figure 16.

Figure 16 - Top 30 Hub Airports by Connecting Passengers 2015, YoY Performance and Connecting Passenger Share

Millions
0 10 20 30 40 50 -10% 0% 10% 20% 30% 0% 50% 100%
Atlanta (ATL) ATL ATL
Dubai (DXB) DXB DXB
Dallas (DFW) DFW DFW
Frankfurt (FRA) FRA FRA
Chicago (ORD) ORD ORD
Charlotte (CLT) CLT CLT
Istanbul (IST) IST IST
Paris (CDG) CDG CDG
Amsterdam (AMS) AMS AMS
London Heathrow (LHR) LHR LHR
Houston (IAH) IAH IAH
Doha (DOH) DOH DOH
Denver (DEN) DEN DEN
Hong Kong (HKG) HKG HKG
Phoenix (PHX) PHX PHX
Los Angeles (LAX) LAX LAX
Abu Dhabi (AUH) AUH AUH
Munich (MUC) MUC MUC
Miami (MIA) MIA MIA
Detroit (DTW) DTW DTW
Madrid (MAD) MAD MAD
Minneapolis (MSP) MSP MSP
Singapore (SIN) SIN SIN
Moscow (SVO) SVO SVO
Seattle (SEA) SEA SEA
Bangkok (BKK) BKK BKK
Toronto (YYZ) YYZ YYZ
Philadelphia (PHL) PHL PHL
Rome (FCO) FCO FCO
New York (JFK) JFK JFK
Others Connecting (Hundreds) Others
EU Airports 2015 2010 CAGR 2010-15 2015 2010

Source : Sabre ADI

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Figure 17 - Direct & Connecting Passenger Splits (One-Way)

In the past 5 years: an overall growth in direct


3.5 Top 30 Hubs air services over connecting flights has been
3.0 Others observed, with direct passengers growing at a
Direct Traffic rate of +6.0% pa between 2010 and 2015, while
2.5 connecting passengers grew at a rate of +4.0%
Pax (bn)

2.0 pa during the same period. Connecting


passenger growth was evenly split between the
1.5 top 30 and the remaining connecting airports.
1.0
This trend reflects both increased use of ‘hub
0.5
bypass’ aircraft types, such as the Boeing 787,
0.0 and growth of the mega hubs in the Middle East
2015 2010 and other markets.
Year
Source : Sabre ADI

The strong growth of Istanbul Airport and Middle Eastern hubs have changed the travel behaviours of transfer
passengers in recent years and also affected the share of transfer passengers at European hub airports.
Due to their beneficial geographical location between Europe and Asia and notable governmental support,
Turkish and Middle Eastern carriers such as Emirates, Qatar Airways, Etihad Airways and Turkish Airlines
have managed to gradually attract an increasing number of transfer passengers travelling from Europe and
North America to Australia, Far East and South East Asia.

The tables below illustrate the travel behaviour of transfer passengers at Istanbul Airport and Middle Eastern
hubs. The top row shows the share of the particular transfer flow in the airport’s total transfer traffic. The
second row displays the % change of this particular transfer flow between 2010 and 2015. As seen in Table
1, connecting between Europe and the Near & Middle East and other European airports accounted for the
main transfer flows at Istanbul Airport. Notable shares could also be observed for flows ending in Africa.
Transfer traffic between Europe and the Far East & Australasia, as well as between Near & Middle Eastern
countries continue to present the most important markets for the Middle Eastern hubs. Connections between
Europe and the Near & Middle East, as well as from the Near & Middle East to North America also presented
considerable shares. Especially the latter market has not been among the largest transfer flows in 2014.

Statistical Annex B provides an overview on the top 30 hub airports worldwide.

Table 1 - Istanbul Airport (IST) Transfer Flow Shares (% Change 2015 vs 2010)
Region (Origin / Africa Europe Far East & Latin & North Near & Grand Total
Destination) Australasia Central America Middle
America East
Africa 0.36% 5.30% 0.23% 0.04% 0.56% 1.93% 8.42%
292% 301% 103% 58% 281% 69% 196%
Europe 5.10% 8.65% 4.58% 0.22% 2.20% 23.32% 44.07%
288% 472% 265% 451% 677% 90% 164%
Far East & Australasia 0.23% 4.53% 0.00% 0.08% 0.08% 0.97% 5.88%
79% 252% 174% 804% 610% 55% 186%
Latin & Central America 0.04% 0.19% 0.08% 0.00% 0.00% 0.29% 0.60%
41% 371% 1141% -40% -48% 158% 222%
North America 0.53% 2.19% 0.08% 0.00% 0.01% 3.15% 5.97%
330% 686% 749% -23% 59% 256% 357%
Near & Middle East 1.86% 23.78% 0.92% 0.29% 3.23% 4.97% 35.05%
77% 93% 150% 165% 268% 62% 97%

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Region (Origin / Africa Europe Far East & Latin & North Near & Grand Total
Destination) Australasia Central America Middle
America East
Total % 8.13% 44.64% 5.89% 0.63% 6.08% 34.63% 100.00%
197% 166% 236% 242% 358% 91% 145%
Total Pax 2015 (000s) 1,705 5,905 780 83 804 4,581 13,228

Key: 1St Largest Flow / 2Nd Largest Flow / 3Rd Largest Flow Source: Sabre ADI

Table 2 - Doha Airport (DOH) Transfer Flow Shares (% Change 2015 vs 2010)
Region (Origin / Africa Europe Far East & Latin & North Near & Grand
Destination) Australasia Central America Middle Total
America East
Africa 0.28% 1.43% 1.61% 0.02% 0.62% 4.99% 8.94%
177% 139% 45% 83% 489% 96% 100%
Europe 1.40% 0.01% 11.55% 0.02% 0.03% 11.38% 24.38%
173% 528% 197% 36% 2355% 98% 140%
Far East & Australasia 1.62% 11.56% 0.00% 0.19% 0.69% 4.33% 18.38%
51% 193% 589% 2% 373% 86% 139%
Latin & Central America 0.02% 0.02% 0.34% 0.00% 0.00% 0.36% 0.74%
134% 34% 110% - -100% 116% 111%
North America 0.43% 0.01% 0.61% 0.00% 0.00% 4.56% 5.61%
450% 639% 227% - 44% 124% 143%
Near & Middle East 5.18% 12.13% 4.55% 0.32% 5.12% 14.65% 41.94%
99% 105% 69% 65% 124% 114% 104%
Total 8.92% 25.16% 18.67% 0.55% 6.44% 40.26% 100.00%
104% 140% 132% 36% 154% 105% 120%
Total Pax 2015 (000s) 988 2,788 2,068 61 714 4,462 11,081

Key: 1St Largest Flow / 2Nd Largest Flow / 3Rd Largest Flow Source: Sabre ADI

Table 3 - Abu Dhabi Airport (AUH) Transfer Flow Shares (% Change 2015 vs 2010)
Region (Origin / Africa Europe Far East & Latin & North Near & Grand
Destination) Australasia Central America Middle Total
America East
Africa 0.06% 1.41% 1.17% 0.02% 0.27% 2.59% 5.51%
119% 191% 248% 7767% 693% 248% 238%
Europe 1.32% 0.03% 13.13% 0.01% 0.07% 9.54% 24.09%
176% 509% 178% 25318% 7346% 170% 176%
Far East & Australasia 1.13% 13.59% 0.01% 0.49% 0.46% 5.52% 21.20%
241% 182% 1068% 3077% 517% 50% 138%
Latin & Central America 0.01% 0.01% 0.49% 0.00% 0.00% 0.38% 0.89%
1341% 3562% 6612% - - 2518% 3795%
North America 0.22% 0.06% 0.33% 0.00% 0.00% 6.11% 6.72%
530% 13837% 476% - 213% 168% 183%
Near & Middle East 2.59% 9.96% 5.45% 0.37% 6.99% 16.22% 41.58%
206% 181% 30% 1974% 184% 198% 152%
Total 5.35% 25.05% 20.58% 0.89% 7.78% 40.35% 100.00%
210% 183% 121% 2553% 203% 157% 162%
Total Pax 2015 (000s) 455 2,134 1,753 76 663 3,437 8,518

Key: 1St Largest Flow / 2Nd Largest Flow / 3Rd Largest Flow Source: Sabre ADI

Table 4 - Dubai Airport (DXB) Transfer Flow Shares (% Change 2015 vs 2010)
Region (Origin / Africa Europe Far East & Latin & North Near & Grand
Destination) Australasia Central America Middle Total
America East
Africa 0.43% 4.09% 1.56% 0.06% 0.96% 3.81% 10.90%
81% 147% 23% 171% 264% 41% 78%
Europe 3.86% 0.02% 13.09% 0.03% 0.02% 9.58% 26.60%
132% 109% 114% 1332% 476% 60% 93%
Far East & Australasia 1.49% 13.10% 0.01% 0.46% 0.56% 3.18% 18.80%
16% 115% 26% 181% 356% 13% 79%

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Region (Origin / Africa Europe Far East & Latin & North Near & Grand
Destination) Australasia Central America Middle Total
America East
Latin & Central America 0.06% 0.03% 0.44% 0.00% 0.00% 0.41% 0.94%
154% 1278% 217% - 134% 107% 160%
North America 0.78% 0.01% 0.51% 0.00% 0.00% 5.12% 6.43%
245% 318% 432% 940% 172% 139% 160%
Near & Middle East 3.65% 9.65% 3.40% 0.38% 5.38% 13.89% 36.34%
35% 58% 9% 95% 144% 59% 58%
Total 10.27% 26.90% 19.01% 0.93% 6.91% 35.99% 100.00%
67% 94% 77% 143% 167% 59% 78%
Total Pax 2015 (000s) 2,233 5,849 4,133 202 1,503 7,826 21,746

Key: 1St Largest Flow / 2Nd Largest Flow / 3Rd Largest Flow Source: Sabre ADI

Airline Statistics
Airline passenger traffic (measured in RPKs) grew at +6.7% in 2015, compared with global GDP growth of
+3.1%. The International Civil Aviation Organisation (ICAO) reported that airlines carried 3.5 billion
passengers in 2015, a +6.8% increase on 201414. For 2016, global traffic was expected to grow 6.3% over
2015, with annual passengers surpassing 3.7 billion and with approximately 7,015 billion RPKs performed1.
The global airline industry has grown at or above the long-term growth rate for five consecutive years, while
productivity continued to increase on historically high aircraft utilization and passenger load factors.
Specifically, load factors in 2015 remained at about 80%, showing that airlines are matching demand without
oversupplying capacity15.

Table 5 - Top 150 Airline Key Traffic Figures by Region

Region Passenger traffic Load Factors Passenger Comparing traffic performance on a


(million RPK & (% and YoY Numbers region by region basis, Middle East and
YoY Growth) Growth) (Actual in
millions & YoY) Asia Pacific once again led all regions
Africa 92,818 2.7% 68.2 0.2% 34 3.5% with high year on year traffic growth.
Asia 1,954,254 8.9% 79.6 1.5% 1,035 8.4% European passenger volumes grew at
Pacific +6.2% in 2015, outpacing economic
Europe 1,714,827 4.9% 83.2 0.8% 868 6.2%
growth, while North America traffic grew
Latin 273,305 7.8% 80.0 0.4% 181 4.3%
America at +4.7%, helped by a solid domestic
Middle 598,380 10.9% 77.1 -1.8% 173 9.9% market performance. Carriers in Africa
East and Latin America saw slower growth in
North 1,669,165 4.8% 83.7 0.3% 924 4.7% 2015 due to softer commodity prices that
America
had an impact on economic
Grand 6,302,749 6.7% 81.2 0.5% 3,215 6.5%
Total performance, as well as increased
political challenges.

Source: FlightGlobal, World Airline Rankings, 2015

14
http://www.icao.int/annual-report-2015/Documents/Appendix_1_en.pdf
15 Boeing Current Market Outlook 2016-2035
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Figure 18 - Top 200 Passenger Airlines Traffic by Region When measured in RPKs, Asia Pacific airlines
(RPK) outgrew the traffic share of North American and
European carriers (31% share vs 27% and 27%
1% respectively). Middle Eastern airlines captured 10% of
Africa
global traffic in 2015 and increased their share in total
RPK through double digit growth rates for 2015.
Asia Pacific
27%
31% Regarding business models, it is becoming
Europe increasingly difficult to discern between full
service/mainline and low cost carries, at least on short
Latin America haul flights where many of the features of the low cost
10%
business model have been emulated by full service
Middle East operators and vice versa. However, using
4% 27% FlightGlobal groupings, 77% of RPKs were flown by
North America mainline airlines in 2015, which, combined with the
lower fuel prices explains the improved profitability of
a considerable number of full service carriers.
Source: FlightGlobal, World Airline Rankings, 2015

Low cost carriers captured less than 20% of the total


Figure 19 - Traffic Shares for Main Airline Groups 2015 2015 passenger volumes, but compared to 2014, this
presented a 3% growth. The three main airline
alliances handled 30% of total passenger traffic,
LCCs
which was 2% above 2014 levels. While Skyteam’s
18%
share remained constant, both oneworld and Star
oneworld Alliance noted a 1% increase each. Just over 50% of
2015 passenger volume was carried by unaligned
9% airlines, which was 5% less than 2014 and particularly
52% Skyteam
driven by the strong growth of LCC.
10%

11% Star Alliance

Unaligned
Source: FlightGlobal, Star Alliance/SkyTeam/oneworld factsheets

Long Term Global Outlook


Every year, and as part of their long term strategic planning, aircraft manufacturers Airbus and Boeing publish
their forecasts of air travel demand for the next 20 years. Their long-term predictions updated in 2016
remained largely unchanged against to last year’s projections (2015 to 2034 publication).

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Figure 20 - Air Traffic Growth Projections by Region for 2016-2035

4.1%
CIS 3.7%
0.26tn
3.6%
3.7% Europe
2.5% North 3.7% 5.7%
2.9% 1.65tn
America 6.0%
3.1% 1.58tn
Middle
3.6% East
0.59tn Asia Pacific
2.5% 1.98tn

4.8% Africa
0.20tn
6.1% 5.7%
5.2%
5.9%
4.8% Latin
America
5.8% 0.33tn

2015 RPK (Trillion)5.2%


Airbus 2016-2035 YoY % World 4.5%
Boeing 2016-2035 YoY % World 4.8%

Source: Airbus/Boeing, 2016

Figure 20 shows that Airbus assumes that global RPK grow at an annual average rate of 4.5% between
2016
2014and 2035,
RPK is only 0.1% below Airbus’ last year projections published for the period between 2015
whichAirbus
(Trillion)
and 2034. Similarly,
2014-34 YoY % BoeingBoeing expects an annual average increase of 4.8% between 2016 and 2035, which is
again in the
2014-34 YoYregion
% of 0.1% less than its forecast for the period between 2015 and 2034. Although both
manufacturers appear to have similar assumptions on the future development of global RPK, it also emerges
that their regional expectations vary. Africa shows the largest differences. While Airbus projects an annual
growth rate of 4.8%, Boeing forecasts an increase a higher increase of 6.1%. While Airbus seems to be less
optimistic compared to Boeing in most regions, its expectations for the CIS countries are 0.4% above the
projections of Airbus. Further information on worldwide intra and inter regional flows history and expectations
are provided in Annex E.

The Japanese Aircraft Development Corporation (JADC) expects an annual increase of 4.7% in worldwide
RPKs between 2016 and 2035, which is in line with the long-term projections of Boeing and Airbus16.

Passenger Performance by Region: Europe

Introduction
Europe’s air travel market remained strong in 2015 despite significant economic uncertainties. Europe’s GDP
grew by 1.9% in 2015 and is forecast to grow by 1.8% annually through 2035. As illustrated in Figure 21, the
key Extra-EU air passenger flows for 2015 were between EU and other European (non-EU) countries,
accounting for 37% of the traffic, which was 3% less than in 2014. Along with the trend observed in recent
years, especially low-cost carriers continued to expand their route networks between EU and non-EU
European countries, which strongly supported the dominance of this flow sector and the 33% rise since 2010.
Similar to 2014, connections between North America and EU accounted for the second highest share.

16
JADC Worldwide Market Forecast 2016-2035
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Routes between the two continents are traditionally one of the most profitable ones, thus, it is unsurprising
that air passenger flows grew by 15% between 2010 and 2015. However, the highest growth rate since 2010
was observed in passenger flows between Europe and the Near & Middle East (+49%) due to the strong
expansion of Middle Eastern carriers. In contrast, North Africa’s share in passenger flows decreased by 21%
during 2010-2015, after a 7% decline was already recorded between 2008 and 2014. A series of multiple
terrorist attacks and political instability in many North African countries have largely driven this negative
development.

Figure 21 - Air Passenger Flows 2015 Share and Historic Evolution From/To Europe (EU28)

Other Europe (non-EU) 37.22%


(Evolution 2010-2015: +33%)
North America 19.11%
(Evolution 2010-2015: +15%)

North Africa 8.67%


(Evolution 2010-2015: -21%)
Near & Middle East: 12.65%
(Evolution 2010-2015: +49%)
Central America & Caribbean 3.46%
(Evolution 2010-2015: +17%)

Far East and Australasia: 11.12%


(Evolution 2010-2015: +9%)
South America 3.6% Rest of Africa 4.17%
(Evolution 2010-2015: +15%) (Evolution 2010-2015: +5%)

Source: Eurostat

Airline Outlook
The Association of European Airlines reports that member airlines carried 311 million passengers in 2015,
which was a 4% growth over 2014, while the average load factor remained constant at 81%17. Members of
the European Low Fares Airline Association reported a strong 37% increase in passengers between July
2014 and June 201518. Overall, European airlines experience strong growth in passenger traffic for 2015,
with Wizz Air, Aeroflot, Aegean, Turkish Airlines, Pegasus, Vueling, Iberia and Ryanair achieving double
digit growth rates. Air Berlin, with its continuous restructuring, recorded the only significant year on year
passenger decline in 2015, while minor traffic losses were also reported by SAS, Alitalia, TAP Portugal and
Austrian.

17 http://www.aea.be/statistics.html
18 http://www.elfaa.com/151007_ELFAA_PressRelease_Statistics_Jul14_Jun15.pdf
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Figure 22 - Top 20 Airlines in Passengers Carried in 2015 - Europe

Passengers (m)
120 +17.4% Passengers Carried (Million) and YoY Change %

100
+2.3%
80 +6.0%
+11.8%
60 +1.3%
+4.4% +10.6%
+3.0% +15.4%
+13.2% +16.0%
40 -4.6% -1.1% +7.4% +15.2%
-0.8% +21.2% -3.0%
+0.9%
20 -0.2%

Source: Airline Business, 2016

Airline operations in Europe continue to evolve with the launch of new ventures, routes, and business
models. Norwegian Air Shuttle continues to expand their long-haul low-cost carrier operations, while
Lufthansa has launched a long-haul LCC subsidiary to compete for leisure passengers. European operators
have been on the forefront of this trend, with 96 long-haul routes introduced since 2012—the most of any
region19. The introduction of more efficient aircraft has helped European carriers both to improve their load
factors, but also to increase their RPKs and ASKs as they fly routes of longer length.

LCCs continued to play a major role in European air traffic market during 2015 and saw some of the highest
increases in passenger traffic, such as Ryanair (17%), EasyJet (6%), Vueling (15%) and Wizz Air (21%). As
illustrated in Figure 23, average low-cost capacity across Europe was 40% in 2015, while especially the large
LCC’s home countries ranked above the average low-cost capacity share. Hungarian carrier Wizz Air
continued its expansion in Eastern-European countries, Ryanair (Ireland) pushed its growth across
European markets, including Spain and Portugal. In contrast, low-cost capacity in countries such as France,
the Netherlands and Germany was below the average, partly driven by the strong presence of large full-
service carriers such as Air France, KLM and Lufthansa.

Figure 23 - LCC Capacity Share of Selected European Countries

70%
LCC Seat Share Average
60%
50%
40%
30%
20%
10%
0%

Source: CAPA Centre for Aviation, OAG, 2016

19 Boeing Current Market Outlook 2016-2035


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During 2015 European airlines continued the development observed in 2014 by managing to match demand
with capacity efficiently and achieving on average high load factors. Similar to 2014, Thomson Airways
recorded the highest load factor of 94%, which was close to 1% above the previous year level. Despite an
increase of almost 1%, EasyJet lost its second place to Ryanair, which noted a load factor of almost 93%.
SAS ranked last with a load factor of just above 76%.

Figure 24 - Top 20 Passenger Airlines in RPKs for 2015 - Europe

RPK/ASK (m)
250
92.9 92.6 93.8
90.0
200 88.2
86.4 86.2
84.2 83.4
84.1 81.1
150 80.2 79.3 80.4
77.9 77.4 76.3 78.6
81.5 76.8
100

50

Seat capacity (ASK million) Passenger traffic (RPK million) Load Factor (%)
Source: Airline Business

There are more airline groups operating in Europe than in any other region in the world (this includes
operators based on other regions that fly to/from each region). According to schedules data from OAG for
the week of 30 May 2016, there are 237 airline groups operating in Europe 20.This could suggest that Europe
has too many airline groups for the size of the market when compared with North America.

Table 6 - Indicators of Market Concentration based on Seat Share by Region


Share of Seats of Top 5 Number of groups to reach cumulative share indicated
groups 25% 50% 90%
N America 72% 2 3 16
Middle East 57% 2 4 30
Lat America 51% 2 5 25
Europe 43% 3 7 47
Africa 36% 3 9 47
Asia Pacific 33% 4 11 49
Source: CAPA, 2016

20
http://centreforaviation.com/analysis/european-airline-consolidation-and-profitability-part-1-top-5-airline-groups-have-only-43-share-
275322
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Annual Analysis related to the EU Air Transport Market 2016
Airport Outlook
Figure 25 - Top 10 Airports in 2015 by Passenger Traffic (m) - Europe
Millions
0 50 100 0% 5% 10% 15%
London Heathrow (LHR)
Paris (CDG)
Istanbul Atatürk (IST)
Frankfurt (FRA)
Amsterdam (AMS)
Madrid Barajas (MAD)
Munich (MUC)
Rome (FCO)
London Gatwick (LGW)
Barcelona (BCN)
2015 2014 2006 2014-15 YoY 2006-15 CAGR

Source: ACI World Traffic Reports, 2016

The improved macroeconomic performance of many countries of the Eurozone, combined with the impact
of a full year of reduced oil prices on consumer purchasing power has resulted in a strong traffic performance
across European airports. Namely, all the airports in the Top 10 traffic performance table experienced
passenger growth in 2015. Geopolitical uncertainties drove European tourists back to Southern European
countries and away from many North African and Turkish resorts.

Figure 26 illustrates the performance of direct, indirect and airport connectivity from EU airports to world
regions in 2016 compared to 2008, the year of the global financial crisis. The results are based on the ACI
Europe Airport Connectivity Report 201621. Indirect and airport connectivity continued to grow in 2016 and
thus followed the positive trend which was already observed in 2015. Direct connectivity from European
airports to world regions, which still recorded a negative development between 2008 and 2015, achieved a
turnaround in 2016 and noted a 1% increase. This was largely caused by the growth of direct connectivity
between EU airports, which benefitted from the continuous expansion of LCC. While in 2015 this was 4.2%
below 2008 levels, it lay 0.9% above 2008 results in 2016. Similarly, direct connectivity from EU airports to
Latin America outperformed 2008 levels for the first time in 2016. Direct connectivity from EU airports to
North America was still less than during the global financial crisis, but recorded a considerable improvement
from -3.1% in 2015 to -0.4% in 2016. These positive developments in direct connectivity were strongly driven
by airlines adding capacity in light of lower oil price levels and continuous demand21.

21
ACI EUROPE Airport Industry Connectivity Report 2016
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Figure 26 - Direct, Indirect & Airport Connectivity from EU Airports by World Region (2016 vs 2008)

Direct Connectivity

Indirect Connectivity

Airport Connectivity

Source: ACI EUROPE Airport Industry Connectivity Report 2016

Figure 27 shows the hub connectivity between Europe and World Regions in 2016, the market split and the
performance compared to 2015. Hub connectivity refers to the ability of European airports to facilitate
connecting to airports in the various world regions. Similar to the results above, these findings were published
by the ACI Europe Airport Connectivity Report 201621. While total hub connectivity between Europe and
world regions experienced a 5.5% growth in 2015, it only increased by 1% in 2016. This has been primarily
due to considerable restructuring efforts undertaken by the major European full-service carriers, which also
affected their presence at Europe’s hub airports and hence the connection possibilities for passengers.
Solely hub connectivity between Europe and North America, as well as Europe and Latin America continued
its positive development in 2016, whereas all other markets experienced stagnation or declines. Hub
connectivity between Europe and Africa recorded the highest loss, strongly affected by the ongoing tense
political situation across many African countries. The 2016 market split remained largely unchanged
compared to 2015, with intra-European and North American hub connectivity presenting the largest shares.
The most notable increase in market share was observed for hub connectivity to Latin America, which grew
from 8.5% to 9.1% between 2015 and 2016.

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Figure 27 - Hub Connectivity between Europe and World Regions - 2015/16 Growth and 2016 Share

Europe – North America 3.0%


4.8%
6.7%
Intra-Europe -0.8%
28.3%
Europe – Latin America 7.4%

Europe – Middle East -0.4% 19.0%

Europe – Asia 0.02%

Europe – Africa -2.9% 4.9%

Intercontinental -1.3% 9.1%


27.3%
Total 1.0%

Source: ACI EUROPE Airport Industry Connectivity Report 2016

Table 7 - New and cancelled scheduled routes from/to the EU in 2015 and 2016 by region and by country (20 most active
countries)

Destination Cancelled Started Destination Cancelled Started


Continent Country
2015 2016 2015 2016 2015 2016 2015 2016

Africa 117 141 88 80 Egypt 32 23 29 9

Asia 46 39 39 56 Tunisia 23 84 21 7

North 23 10 32 52 Morocco 24 17 15 26
America
United States 17 4 24 36
Middle East 42 37 43 55
Israel 16 14 14 16
South 7 7 6 5
Cape Verde 13 2 4 9
America
United Arab 7 3 8 8
Central 1 0 1 3
Emirates
America
Russia 19 12 2 5
Lebanon 7 2 3 9
Algeria 3 1 4 11
China 3 4 11 14
Canada 4 4 6 10
Hong Kong 0 1 3 3
Qatar 1 0 1 4
Brazil 4 0 0 2
Thailand 1 1 3 2
Mexico 2 2 2 5
Japan 2 2 1 3
India 2 0 0 3
Source: SRS Analyser
Saudi Arabia 2 0 1 4

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Table 7 further highlights the observations made above. It illustrates the new and cancelled scheduled routes
from/to the EU. Along with the continuing instable political situation in North Africa, the continent has seen
another substantial reduction in routes during 2016, especially in Egypt and Tunisia. Although Morocco
mainly followed this trend, the country also recorded a noteworthy number of new services. A positive
development was also observed in Algeria and Cape Verde. While few routes were cancelled in 2016,
considerable additional services were launched in both countries during this time. Moreover, routes between
Europe and Asian countries such as China, as well as between Europe and the Middle East, including the
UAE, Lebanon, Israel, continued to grow in 2016. While the latter was partly due to the further expansion of
Middle Eastern carriers across Europe, it was also driven by national airlines. Israeli carriers such as El Al,
Arkia and Israir have been gradually developing their presence in Europe since Israel and the EU signed an
Open Skies agreement in 2013. Notable additional services were also started between Europe and North
America, which includes Mexico. As the country is increasingly developing into a popular holiday destination,
European charter and leisure carriers such as TUIfly, Thomas Cook and Thomson Airways strongly
expanded their air services. In contrast, the additional flights between the US and Europe were driven by
carriers on both sides, American and European airlines.

Long Term Outlook


The long-term projections for RPK development in Europe between 2016 and 2035 did not change
considerably from the outlook for the period between 2015 and 2034. The European aviation market, which
noted 1.7 trillion RPKs in 2015, is forecasted to grow at an annual rate of 3.7% from 2016 to 2035. However,
looking at a regional level, it emerges that there are notable differences in growth projections of air traffic
flows from and to Europe (additional information provided in Statistical Annex E).

Compared to the regional projections for 2015 to 2034, a slide decline in growth rates was recorded across
all markets. Air traffic flows between Europe and South Asia experienced the largest decrease. While they
were expected to rise by 6.5% between 2015 and 2034, this rate dropped to 5.8% for the period from 2016
to 2035. Nevertheless, the market remains the strongest growing. Overall, intercontinental traffic is further
impacted by the general tendency of network airlines to focus less on short-haul point-to-point traffic, while
increasing hub operation. In this context, South and South East Asian destinations are expected to benefit
from Middle Eastern airlines, which are expanding their transfer traffic from European airports, via Middle
Eastern hubs to these markets. European network carriers in contrast, largely focus on long-haul operations
to North, Central and South American regions.

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Figure 28 - Air Traffic Flows From/To Europe Growth Projections for 2016-2035

Northeast Asia 2.7%


North America 2.9%

Within Europe 3.2% China


5.5%

Central America 4.1% Middle East 5.4%

Africa
4.7%
Southeast Asia 4.2%
South America 5.3%
South Asia 5.8%

Source: Boeing, 2016

Air traffic flows within Europe are projected to increase by 3.2% between 2016 and 2035, which remained
almost stable to the growth assumption for the period from 2015 to 2034. Intra-European traffic development
is particularly driven by the continuous expansion of short-haul low-cost point-to-point traffic. This is expected
to result in fiercer competition for network and charter airlines, which also explains why long-term projections
for intra-European flows are among the lowest compared to traffic development from/to other regions.

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Market Developments
Moving to the internal European market, a kick to the foundations of the European Union took place on 23
June 2016, when the UK voted in favour of a British exit from the EU.

From an economic point of view, Brexit is likely to have a negative impact on air traffic volumes in three
ways:

• Due to the relationship between GDP growth and growth in passenger traffic, a reduction in
economic growth in the UK (and/or the rest of the EU) will negatively affect air travel demand.
• The fall in GBP versus other currencies, EUR in particular that has followed the referendum is
effectively a price change for UK airlines' air fares.
• Air cargo volumes are closely related to levels of international trade, which are themselves affected
by economic growth and trading agreements between nations.

The UK air market is dominated by outbound traffic, with such traffic accounting for just over two-thirds of
total flows (in 2015 there were 53.9 million visits overseas by air by UK residents, compared to 26.2 million
visits to the UK by overseas residents) 22.

The shape of the transatlantic market and its stakeholders on both sides of the ocean is another area of
focus for this section. Following the regulators’ approval of the immunised joint ventures (JVs), there have
been some improvements in capacity and frequency coordination, as well as a convergence of product and
service quality towards that provided by the superior partner.

Consequently, a strong market concentration has been observed, with 77% of all ASKs between North
America and Europe being controlled by joint ventures with antitrust immunity during summer 2016 (the three
JVs within the three global alliances plus the Delta-Virgin Atlantic JV)23.

Figure 29 - Share of Europe-North America ASKs Operated within all joint ventures* with antitrust immunity, summer
schedule 2006 to 2016

90%
80% 2%
5% 5% 5%
70%
60% 31% 29% 29% 29%
29% 29%
50%
40% 30%
17% 18% 23% 23%
30% 25% 24% 24% 22%

20%
16% 16% 26% 26% 26%
10% 19% 20% 19% 23% 22% 21%
7% 7%
0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Oneworld SkyTeam Star Alliance Virgin Atlantic Aer Lingus

22
IATA - The impact of ‘BREXIT’ on UK Air Transport – June 2016
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*Note that capacity share shown for the three global alliances relates only to ASKs in the joint ventures that operate within the alliances,
and not to all alliance capacity on the North Atlantic; assumes that Aer Lingus joins the oneworld JV in summer 2016.
Source: CAPA, OAG Schedule Analyser, 2016

This will increase to 78% if Aer Lingus joins the oneworld JV, based on summer 2016 capacity (although Aer
Lingus is not expected to join until 2017). The share on US-EU routes would be even higher, as all three US
major global network airlines have highlighted oversupply in the trans-Atlantic during the 2016 peak summer
travel period.

In contrast, LCCs captured just 3.0% of total ASKs on North America-Europe routes in summer 2016,
growing 1.6% from summer 2015. This growth was primarily expressed by Norwegian Air Shuttle amidst
strong opposition by the US big three airlines and heavy scrutiny by US regulators. With a tentative approval
for its Irish subsidiary secured in April 2015, the transatlantic network of the airline is shown below.

Figure 30 - Norwegian's Transatlantic Network Summer 2016

Source: Norwegian Air Shuttle 1Q2016 results presentation 21-Apr-2016

In addition to LCCs, other operators also grew rapidly on the North Atlantic. Turkish Airlines had 3.7% of
total ASKs in summer 2016, more than all the LCCs combined, and grew by 36% compared to summer 2015
24. Its summer 2016 North Atlantic ASKs almost doubled the summer 2013 level.

The combined scheduled ASKs of two large European leisure groups, Thomas Cook Group and TUI Group,
grew by 40% in summer 2016, being almost 80% higher than in summer 2013. The leisure groups' combined
2.1% ASK share is not far behind that of the LCCs (if charter capacity was included, it might even be higher)
24.

Passenger Performance by Region: North America

Airline Outlook
Despite economic and political uncertainty in various regions across the globe, the North American airline
industry grew strongly in both passenger traffic and capacity terms in 2015. Domestic services in the United

24
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States recorded the highest growth rates across all airline business segments. The Big three network carriers
(American, Delta and United Airlines) managed to grow domestic load factors to about 86 % in 2015 as
demand outpaced supply, with a 3.5% YoY traffic growth, while capacity grew by only 3% during the same
period.

Figure 31 - Top 10 Airlines in RPKs for 2015 – North America

RPK/ASK (m)
500
84.9 83.6 84.4 84.7 84.5 84.7
450 83.0 83.4 83.1
400 80.0
350
300
250
200
150
100
50
0

Seat capacity (ASK million) Passenger traffic (RPK million) Load Factor (%)

Source: Airline Business, 2016

North American airlines can now be categorised into four business models – full service airlines; low cost,
high value airlines; ultra-low cost airlines. While Southwest keeps true to its original low cost paradigm it is
jetBlue who has pushed the boundaries of low cost product evolution with its successful Mint experiment,
featuring a fully lie-flat business seat. This has helped the airline record almost double digit YoY growth.
Canada's flag carrier, Air Canada also saw the highest growth in traffic in 2015.

Figure 32 - Top 10 Airlines in Passengers Carried in 2015 – North America


Passengers (m)
250 Passengers Carried (Million) and YoY Change %
+2.0%
200 +4.7%
+6.5% +1.7%
150
100
50 +9.4% +8.2% +11.3% -16.0% +9.0% +3.2%
0

Source: Airline Business, 2016

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The expectation is that over time, the industry will further consolidate, with the LCCs and smaller network
carriers becoming potential consolidation targets. Due to new expanded air-service agreements with Mexico
and Cuba, which will be furthered discussed later on, traffic between North and Central America is expected
to grow stronger than previously forecast. Also, once ratified by Brazil’s National Congress, the long-waited
open skies between US and Brazil would remove air service limitations between these countries. Further
expectations for a liberalized air-services agreement between the United States and China in the near future,
is also expected to further boost travel and trade between the two countries.

Airport Outlook
Atlanta International airport has in 2015 served once again the most passengers in North America as well
as globally. The major hub of Delta Airlines and one of the main hubs of Southwest Airlines has been growing
steadily in the past ten years, focusing on the domestic market. Chicago O’Hare surpassed Los Angeles
International airport to regain the second spot, with a 10% year on year passenger growth. Overall, the
consolidation of operations of the major three US carriers has emphasised the importance of their major
airport hubs as central pieces of their route rationalisation. This can be seen in the growing traffic at those
airports year after year, and is expected to continue during 2016 and onwards.

Figure 33 - Top 10 Airports in 2015 by Passenger Traffic (m) – North America


Millions
0 25 50 75 100 -5% 0% 5% 10% 15%
Atlanta (ATL)
Chicago O'Hare (ORD)
Los Angeles (LAX)
Dallas/Ft Worth (DFW)
New York (JFK)
Denver (DEN)
San Francisco (SFO)
Las Vegas (LAS)
Charlotte (CLT)
Miami (MIA)

2015 2014 2006 2014-15 YoY 2006-15 CAGR

Source: ACI World Traffic Reports, 2016

Market Developments
Starting with the US Big 3 vs Gulf 3, in early 2015 American, Delta and United Airlines delivered a white
paper claiming that Emirates, Etihad and Qatar had received USD42 billion in illegal subsidies. The US
government has not yet held talks with the UAE and Qatar regarding their open skies policies, but the recent
decision to grant Norwegian Air tentative approval for its new service suggests that the government may
avoid slipping into a protectionist mind-set25. Recently American and Delta have suggested they have no
plans to relent in their efforts to convince the US government that Emirates, Etihad and Qatar are unfairly
subsidised.

Arguably, the 3 Gulf carriers pose little threat directly to the US airlines, mostly due to geographical
limitations. In fact, their respective networks are highly complementary. However, there is a clear impact on
their European hub partners and the routing of traffic volumes over their own hubs and onto the closed JVs

25
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of the North Atlantic. At the moment, the advantages to be gained by forging closer links to one or more of
the Gulf 3 are capitalised only by the smaller US airlines on their Gulf airline traffic feed25.

Figure 34 - Top 5 Airlines Operating between the US & During 2015 Cuba and the US reached a deal to
Caribbean (% of seats per week, one-way, between 9 March start liberalising scheduled flights between the two
2015 and 7 Mar 2016) countries, the last of which occurred close to 56
years ago. The agreement between the two
4%
countries prohibits tourist travel and instead requires
11% that passengers must fall into 12 opaque categories,
ranging from family visits to educational activities.
33% Now that Cuba and the US have finalised an
agreement that liberalises some, but not all, air
travel between the countries, a number of US
17%
airlines has applied to launch services to Cuba. The
three large US global network airlines are among
the contenders for new services, each one offerings
different reasoning for the merits of their prospective
20% routes. One of the important discussion points in air
services between Cuba and the US is the potential
American JetBlue Delta United Caribbean
lack of infrastructure in Cuba to handle an influx of
Source: CAPA, 2016 visitors from the US. There could be serious
capacity issues at Cuban airports and limited hotel accommodation. However, an increasing investment and
expansion of tourism infrastructure is expected in the long run. The Cuban government already announced
over 50 projects which are supposed to support managing the strong rise in visitor arrivals26. This would also
benefit European tourists. Besides Canada, the UK, France and Germany are among Cuba’s largest source
markets, but in light of the expected influx of US travellers, these markets had already raised concerns about
capacity issues and rising price levels27.

Figure 37 - Top 10 Cuban - American Populations in the US


by Metro Area ('000s)
0 500 1000 1500

Miami-Fort Lauderdale
NY-NJ-Long Island
Tampa
Los Angeles
Orlando
Chicago
Las Vegas
Fort Myers
Houston
Atlanta

Source: Delta Airlines, 2016

26
http://www.travelindustrytoday.com/2015-06-05-fitcuba-2015::21798
27
http://www.travelpulse.com/news/tour-operators/cuba-the-capacity-issue.html
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The Havana route award proceedings were a rare case in which both large global network airlines, Low
Cost and Ultra Low Cost Carriers all had the opportunity to compete for approval to operate to Cuba’s
capital.
With the tentative awards the US Department of Transport (DoT) can be credited for creating a level playing
field on flights to Havana. Aside from the closely watched contest to win services to Havana, the US DoT
also awarded service rights to nine other secondary Cuban cities with South Florida featuring prominently in
those route assignments. With a 50-plus year absence of scheduled airline flights between the US and Cuba,
there is no up-to-date data from which to measure demand patterns. The full list of the tentative awards can
be found in the following page.

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Table 8 - US Airline Route Awards to Cuba
Secondary cities Havana

Airline Route/Frequency Airline Route/Frequency

Once daily from Miami to Camaguey and Cienfuegos Miami, four times daily
American American
Twice daily from Miami to Holguin, Santa Clara and Varadero Charlotte, once daily

Once daily from Chicago O'Hare to Santiago


Four times weekly from Philadelphia to Camaguey Fort Lauderdale, once daily (except for Saturday)
Frontier Three times weekly from Philadelphia to Santa Clara jetBlue New York JFK, once daily
Saturday service from Chicago O'Hare to Varadero Orlando, once daily
Saturday service from Philadelphia to Varadero
jetBlue Once daily from Fort Lauderdale to Camaguey, Holguin and Santa Clara Frontier Miami, once daily
All service is from Fort Lauderdale:
Five weekly flights to Camaguey
Three weekly flights to Cayo Coco
Saturday service to Cayo Largo
New York JFK, once daily
Two weekly flights to Cienfuegos
Silver Airways Delta Atlanta, once daily
Once daily to Holguin
Miami, once daily
Three weekly flights to Manzanillo
Four weekly flights to Varadero
One daily flight to Santa Clara
One daily flight to Santiago
Southwest Twice daily from Fort Lauderdale to Varadero Newark, once daily
United
Airlines Once daily from Fort Lauderdale to Santa Clara Houston Intercontinental, once weekly

Saturday service from Minneapolis to Varadero Southwest Fort Lauderdale, twice daily
Sun Country
Sunday service form Minneapolis to Santa Clara Airlines Tampa, once daily
Spirit Fort Lauderdale, twice daily
Alaska Los Angeles, once daily

Source: DoT, 2016


54

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Passenger Performance by Region: Latin America

Market Developments
The Latin American region has a history of cyclical ups and downs, but the fundamental drivers for future
expansion remain in place: the middle class is growing, income levels are expected to rise, and the
commodities and resources that have enabled growth during previous periods still remain. Several countries
in the region are working through near-term economic challenges. The Brazilian and Venezuelan economies
are contracting, and Argentina is on the edge, although the new government is taking positive actions for
improvement. Conversely, the economies of many other nations, including Mexico, Panama, Peru, and
Colombia, are performing well and are positioned for continued expansion. Chile is still growing, although
affected by the commodities slump, and Cuba is gradually opening its borders 28.

Figure 35 - Latin America International Traffic and Capacity Overall, while the near-term economic outlook is
Figure 36 - Latin America International Traffic and Capacity
Growth between 2013 and 2015 challenging, long-term prospects for the region as a
Growth 2013 to 2015
whole are promising. Even with the formidable
10% challenges that Venezuela and Brazil are creating
RPK growth ASK growth
9% for Latin American aviation, data from IATA show
8% international traffic and capacity growth of 9% for
7% the region in 2015, which is higher than the
6% industry’s performance in both 2014 and 2013. The
5% numbers reflect the overarching belief in Latin
4% America’s stance as one of the largest growth
3%
markets in the future.29
2%
A pending open skies agreement with Brazil, a new
1%
bilateral with Mexico and the recently concluded
0%
agreement to resume scheduled flights between the
2013 2014 2015
US and Cuba have created new opportunities for
Source: IATA, 2016
US airlines to broaden their reach in Latin America
and the Caribbean. As Venezuela continues to shut
itself off from the international aviation industry, other governments in Latin America are moving towards a
more liberalised stance.

Low cost airline representation is less pronounced in South and Latin America and varies by market. Brazil’s
second largest airline Gol is a low cost airline, but for the moment is mired in Brazil’s economic woes. At the
moment Gol is not undertaking any growth; it is working to revise its fleet and debt, as access to credit by
Brazilian companies remains a challenge.

Mexico has Latin America's highest concentration of low cost airlines. In the mid-2000s three Mexican low
cost airlines emerged, gaining further opportunity in 2010 with the demise of the full service airline Mexicana.
In 1Q2016 Volaris, VivaAerobus and Interjet combined represented 63% of Mexico’s domestic market, and
Aeromexico remained the market leader with a 32% share.

28 Boeing Current Market Outlook 2016-2035


29
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Figure 37 - Mexico LCC Capacity Share (%) of Total Seats: 2007 to 2016 Jan-May

70%
International
60%
Domestic
50%
40%
30%
20%
10%
0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Source: CAPA, 2016 *Year to month indicated

In late 2014 the US and Mexico agreed to a revised bilateral air agreement that lifted restrictions on the
number of airlines allowed to operate on routes between the two countries. Due to the lack of specified fifth
freedom rights in the agreement, it is not a full open skies agreement.

Meanwhile, in March 2015 SkyTeam partners Aeromexico and Delta revealed plans to establish a cross-
border joint venture in the context of the revised agreement. The joint venture has all the requisite approvals
but has yet to be formally finalised. Combined, those two airlines represent 25% of the seats deployed
between the US and Mexico for the week of 18-Jul-2016, surpassing the market leaders American and
United – each having a 20% share.

Airline Outlook
Airlines are adjusting capacity and rationalizing their fleets as needed to deal with the current situations and
to position themselves for growth. Challenges provide incentive for change. Brazil is proposing to raise the
maximum-permitted level of foreign ownership of Brazilian airlines to 49%, and airlines and airline-related
entities are calling for reforms on taxes, policies, and regulations that constrain growth 30.

Figure 38 - Top 10 Airlines in RPKs for 2015 – Latin America

RPK/ASK (m)
80 84.9
70 82.2 80.7 82.3
79.7 79.6 80.0
60 77.2 78.3
50 75.2
40
30
20
10
0

Seat capacity (ASK million) Passenger traffic (RPK million) Load Factor (%)

Source: Airline Business, 2016

30 Boeing Current Market Outlook 2016-2035

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Looking at Figure 39 the challenges of the Brazilian economy and political scene have taken a toll on airline
passenger performance with GOL and TAM traffic volumes declining by 3.1% and 2.3% YoY respectively.
Of note are also the growth rates of the three Mexican airlines in the Top 10 ranking Aeromexico, Volaris
and Interjet, indicating the strong growth of the Mexican aviation industry. Finally, the impressive growth of
Aerolineas Argentinas signals a path to recovery for Argentinian aviation following the recently elected more
liberal government.

Figure 39 - Top 10 Airlines in Passengers Carried in 2015 – Latin America

Passengers (m)
45 -3.1% Passengers Carried (Million) and YoY Change %
40 -2.3%
35 +7.9%
30
25 +2.7%
20
15 +22.2% +9.5% +20.6% +1.0% +24.2% +5.3%
10
5
0

Source: Airline Business

Despite a struggle for profitability observed in many airlines operating in the region, airport traffic
performance in Latin America has been mixed, with four airports on Figure 40 achieving year on year growth
of between 8-10%. Furthermore, the anaemic performance of Brazilian aviation is apparent on the figure as
four of the top ten airports in passengers are located in Brazil and have been affected by the country
developments.

Figure 40 - Top 10 Airports in 2015 by Passenger Traffic (m) – Latin America


Millions
0 25 50 -5% 0% 5% 10% 15%
Sao Paolo Guarulhos (GRU)
Mexico City (MEX)
Bogota (BOG)
Cancún (CUN)
Brasilia (BSB)
Sao Paolo (CGH)
Santiago (SCL)
Lima (LIM)
Rio de Janeiro (GIG)
Belo Horizonte (CNF)
2015 2014 2006 2014-15 YoY 2006-15 CAGR

Source: ACI World Traffic Reports

Passenger Performance by Region: Middle East

Located at the crossroads between Asia, Africa, and Europe, airlines in the Middle East are well positioned
to compete for traffic connecting these regions. About 80% of the world’s population lives within an eight-

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hour flight of the Gulf, allowing carriers in the Middle East to aggregate traffic at their hubs and offer one-
stop service between many city pairs that would not otherwise enjoy such direct itineraries.

Lower oil prices challenged many Middle East economies in 2015 and 2016. Although not every country in
the region has oil, many of its governments often use oil revenues in place of VATs, income taxes, or taxes
on corporate profits to finance their operations. The 2016 Iran nuclear deal represents an impressive
opportunity for the region which will be further analysed below.

Airline Outlook
Middle Eastern carriers continue to form various partnerships with international airlines to sustain future
growth. These range from code sharing and buying equity stakes, to expanding the commitment in airline
alliances. This results in numerous growth opportunities, especially considering that Middle Eastern carriers
still face considerable access limitations in many international markets.

In this context, low-cost carriers such as flydubai and Flynas are strengthening their position by a continuous
development of their business model and the expansion into new markets. Besides gradually reducing air
fares and customer experience and service improvements, they are also establishing cross-border
subsidiaries and enlarge networks into previously underserved areas, such as the Commonwealth of
Independent States.

Figure 41 - Top 10 Airlines in Passengers Carried in 2015 – Middle East

Passengers (m)
60
+7.7%
50
40
30 -1.1% +19.7%
+18.9%
20
+24.7% +12.1%
10 +26.0% +24.0% +2.8% -5.9%

0
Emirates Saudia Qatar Etihad flydubai Air Arabia Oman Air Flynas* Gulf Air Mahan Air
Airline Airways Airways

Passengers Carried (Million) and YoY Change %

Source: Airline Business

All the above have resulted in is yet another year of strong growth for Middle Eastern airlines, with double
digit year on year growth for half of the carriers on Figure 41. Load factors for Middle Eastern airlines ranged
from 71% (Oman Air) to 83 % (El Al) (Figure 42).

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Figure 42 - Top 10 Airlines in RPKs for 2015 – Middle East

RPK/ASK (m)
400 82.6
350 79.4 79.0
300 76.5 75.3
250 73.0 72.4
71.4 72.1
200
150
100
50
0
Emirates Qatar Etihad Saudia El Al Air Oman Air Gulf Air Mahan flydubai
Airline Airways Airways Arabia Air

Seat capacity (ASK million) Passenger traffic (RPK million) Load Factor (%)
Source: Airline Business Note: Information on flydubai’s load-factor was not available

Airport Outlook
Middle East hub airports have been upheld as examples of integrated planning and successful execution
that boost economies. In a fast-growth region like the Middle East breaking records is the norm.
Unsurprisingly, the region's three hub airports – Dubai International, Doha and Abu Dhabi – posted record
traffic in 2015. Abu Dhabi posted an additional 3.4 million passengers (+17%) and Doha 4.6 million (+17%).
Although Abu Dhabi and Doha are collectively 68% the size of Dubai, together they added more passengers
(8 million) than Dubai (7.5 million, +11%).

Figure 43 - Top 10 Airports in 2015 by Passenger Traffic (m) – Middle East


Millions
0 50 100 0% 10% 20%
Dubai (DXB)
Doha (DOH)
Jeddah (JED)
Abu Dhabi (AUH)
Riyadh (RUH)
Tel Aviv (TLV)
Kuwait (KWI)
Muscat (MCT)
Sharjah (SHJ)
Dammam (DMM)
2015 2014 2006 2014-15 YoY 2006-15 CAGR

Source: ACI World Traffic Reports

Now the region has the challenge of maintaining growth despite increasing taxes and fees. On 30-Mar-2016
Dubai announced a new AED35 (USD9.53) departure fee 31. It will be the only fee currently imposed on
transfer passengers and Dubai could generate significant millions of dollars from it in 2016. This is especially
a concern since the increase does not appear to be associated with any increased cost of operation – six
months prior, Dubai wrote off any increase. Capacity constraints at Dubai may mean there is little risk of

31
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losing passengers to alternative hubs. Abu Dhabi and Doha remain tax free for transfer passengers. Oman
has doubled passenger fees over two years, while Bahrain is considering increases as well.

Figure 44 - Dubai International slot usage: northern summer 2015

100%
95%
90%
85%
80%
75%
70%
65%
60%
55%
Arrivals Departures Totals
50%

Source: ACL

Market Developments
Following the lifting of nuclear-related sanctions against Iran in January 2016 a potentially significant global
aviation market was once again reopened to the world, after almost four decades of isolation. Iran has huge
pent-up demand and potential after almost 40 years of isolation from the international community. Despite
the isolation, Iran’s economy approaches those of Turkey and Spain, which are 15-20% larger than Iran's,
but their fleet sizes are 100-200% greater.

Table 9 - Comparison of Iran’s Economy and Aviation Sector with Selected Markets
GDP (PPP) 2015 Fleet Size Domestic Seats per
Capita

Spain USD1.62 trillion 369 0.83


Turkey USD1.59 trillion 465 0.63
Iran USD1.37 trillion 160* 0.25
Source; CAPA, IMF, OAG

Soon after sanctions were removed Iran Air placed firm orders for 118 Airbus aircraft and 20 ATRs, with
options for a further 20 ATRs. Private airlines are estimated to have an interest in entering into commitments
for a further 100 aircraft over the next twelve months32.

The country has a young population with a median age of 28 years, with strong aspirations to travel and
engage with the rest of the world. Geographically, Iran enjoys almost the same aviation advantages as the
Gulf states. Decades of sanctions have had a significant negative impact on Iran’s aviation sector, which is
underdeveloped relative to comparable markets33. At the moment, Iran’s aviation could be compared with
Indian aviation a decade ago. If it were to follow a similar path of development as India post sanctions, there
are clearly significant opportunities for Iranian aviation and for the international aviation community.

32
http://centreforaviation.com/analysis/iran-airs-fleet-order-signals-serious-intent-for-the-iranian-aviation-industry-266339
33
http://centreforaviation.com/analysis/iata-iran-with-an-educated-populace-of-80-million-becomes-a-potentially-major-aviation-force-
282989

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Table 10 - Comparison of Iran’s Economy and Aviation Sector with India
India FY2004 Iran FY2016 India FY2016
GDP (PPP) USD1.1 trillion USD1.4 trillion USD2.3 trillion
Airport pax 48 million 48 million 224 million
Domestic share of pax 74% 74% 76%
Fleet size 158 160 4,200
LCC share of domestic 1% 0% 60%
Source: CAPA, IMF, Airports Authority of India, Iran Airports Company, Directorate General of Civil Aviation India

Passenger Performance by Region: Asia Pacific

Asia is gaining prominence in global aviation and is expected to become the world’s leading travel market.
Airlines and airports in this region are growing strongly, with many of them ranked among the largest in the
world. This evolution has been due largely to regional economic growth; liberalization and deregulation; new,
efficient airplanes, and new business models. Over the past decade, both the number of the airlines and
their jet fleets have almost doubled, while the capacity they provide grows by 7% on average each year.

Demand in commercial aviation is also coming from the continuing expansion of the middle class in Asia,
where a greater sector of the population is reaching income levels that make flying more affordable. Despite
the presence of geopolitical conflict and currency fluctuation, liberalization and robust economic growth are
primarily responsible for the significant expansion in Asia’s aviation industry. Changes, such as open skies,
enable the air-travel market in the region to expand beyond national boundaries and support airlines in
implementing new low-cost carrier (LCC) business models, which is a viable and growing option for this
emerging market.

Total air traffic for the region is forecast to grow at an average of 6.0% as airlines, airport capacity, and
passenger traffic all expand in the next 20 years. Driven by the region’s strong economic development, highly
effective industry structure, and increasing accessibility of air transport services, more than 100 million new
passengers are projected to enter the market annually.

However, it is also essential to note that the Asian Pacific aviation market has experienced a series of
unfortunate events involving Asian airlines during 2014 and 2015, including the loss of two Malaysian Airlines
aircraft, the TransAsia Airways accident in Taiwan or Air Asia crash into the Java Sea. These raised concerns
about the level of safety in the industry.

Traffic Outlook
Asia Pacific continued in 2015 to be dominated by three Chinese airlines, China Southern, Eastern and Air
China, having the highest RPK and ASK in the market, see Figure 45. However, from a load factor
perspective, it is Hainan Airlines and Cathay Pacific which lead the ranking, with 88% and 86% respectively.
These two carriers achieved higher load factors compared to those of the remaining carriers. Nevertheless,
with most of the load factors being around 80%, Asian Pacific airlines appear to benefit from the growing air
travel demand in the region. it should however be noted that the dominance of the Chinese airlines has
largely been the result of their vast domestic route networks, while Cathay Pacific and Singapore Airlines
mainly focused on international operation.

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Figure 45 - Top 10 Airlines in RPKs for 2015 – Asia Pacific

RPK/ASK (m) 88.2


200 86.6
180
160 81.5 80.5 79.8 79.6 78.7
140 76.9
120 73.3
100
80 69.3
60
40
20
0
China China Air China Cathay Singapore All Nippon Qantas Korean Air Hainan Thai
Southern Eastern Pacific Airlines Airways Airlines Airways

Seat capacity (ASK million) Passenger traffic (RPK million) Load Factor (%)

Source: Airline Business

Figure 46 - Top 10 Airlines in Passengers Carried in 2015 – Asia Pacific

Passengers (m)
100 +11.9% Passengers Carried (Million) and YoY Change %
90 +7.8%
80
70 +7.6%
60 +0.8%
50 +9.3%
40 +15.0% -1.8% +37.1% -1.2% +10.0%
30
20
10
0
China China Air China All Nippon Hainan Japan Lion Air IndiGo Qantas Shenzhen
Eastern Southern Airways Airlines Airlines Airlines

Source: Airline Business

In terms of passengers carried, Japan Airlines is continuing its growing trend since its restructuring, with
traffic growing 15% year on year in 2015, following a 17.2% in 2014. Half of these top 10 airlines in terms of
passengers carried are Chinese, while the impressive growth of 37.1% of IndiGo is a sign for the promising
Indian aviation prospect.

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Figure 47 - Top 10 Airports in 2015 by Passenger Traffic (m) – Asia Pacific
Millions
0 50 100 -10% -5% 0% 5% 10% 15% 20%
Beijing (PEK)
Tokyo Haned (HND)
Hong Kong (HKG)
Pudong (PVG)
Singapore Changi (SIN)
Guangzhou (CAN)
Jakarta (CGK)
Bangkok (BKK)
Seoul Incheon (ICN)
Kuala Lumpur (KUL)
2015 2014 2006 2014-15 YoY 2006-15 CAGR

Source: ACI World Traffic Reports

Figure 47 illustrates the top 10 airports in Asia Pacific and their passenger traffic volumes since 2006. In line
with the developments described above, the majority of the airports recorded a considerable increase in
passenger traffic during this time. While Beijing handled the largest amount of passengers in 2015, Pudong
recorded the highest growth compared to 2014 (16%), followed by Bangkok (14%). Solely Jakarta
experienced a decline in passenger volume during 2014 (-5%). This has been partly due to the growing
competition of another airport in Jakarta, Halim Perdanakusuma (HLP), which gradually expands its
passenger numbers since operational restrictions were lifted in early 2014 34. The strongest development
since 2006 was observed at Pudong, Guangzhou and Kuala Lumpur airports, whose passenger volumes
grew at CAGR’s of 9.4%, 8.6% and 8.2% respectively. Interestingly, Kuala Lumpur’s passenger traffic in
2015 almost remained on 2014 levels. As the airport is a hub of Malaysian Airlines, its traffic had been
considerably affected by the extensive restructuring and route cuts of Malaysian Airlines following its two
accidents during 201435. Besides this, it also emerges that four of the top 10 airports in the region are in
China. Similarly to Chinese airlines, they have not only been benefitting from large domestic route networks,
but also a strong rise in Chinese air travel demand and the country’s growing economy.

Market Developments
China

China has continued its development into the world’s largest air transport system during 2015. 440 million
passengers were served by around 206 airports, eight of these even handled passenger volumes of over 30
million. By 2020, annual passenger traffic is expected to have surpassed the 700 million mark and by 2024,
China is estimated to be the largest air passenger market in the world 36. The rates at which Chinese carriers
were growing in 2015 reflected this strong performance. In the first eight months alone, their total passenger
volume noted a 37% rise compared to the previous-year period. This is equal to the total amount of
passenger traffic Chinese airlines gained between 2010 and 2014. This growth has been largely driven by a
steady increase in air travel demand across China, which came along with economic prosperity and a
growing middle class. In 2015, Chinese outbound tourism strengthened its position as largest in the world 37,
totalling at 133 million travellers, which was 20% above 2014 levels 38. Besides Hong Kong and Macau,

34
http://www.anna.aero/2016/08/23/jakarta-soekarno-hatta-international-handled-52-million-passengers-in-2015/
35
http://www.thestar.com.my/business/business-news/2015/12/10/lower-passenger-traffic-in-malaysian-airports-last-month/
36
http://www.icao.int/Meetings/a39/Documents/WP/wp_304_en.pdf
37
http://www.e-unwto.org/doi/pdf/10.18111/9789284418145
38
http://www.forbes.com/sites/profdrwolfganggarlt/2015/12/30/2015-year-of-resilient-growth-and-further-segmentation-of-chinas-
outbound-tourism/#52a4fc9b1d46

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Australia is among the most popular destinations 39. The number of Chinese tourist arrivals crossed the one
million mark for the first time in 2015 and the country developed into China’s second largest long haul market
outside Asia, only the USA ranked ahead. It is expected that by 2016, China and Australia will be connected
by flights on 21 city pairs. For comparison, there are 22 city pairs between Australia and New Zealand, which
is Australia’s biggest incoming market40. Besides the flourishing outbound travel demand, China also
recorded the fourth highest international tourist arrivals in 2015, highlighting its importance as leading global
business and leisure destination37. In addition, the country is experiencing a gradual liberalisation of its air
traffic. The Chinese government increasingly values the industry as a decisive factor for economic
development and thus has made significant efforts to facilitate its expansion, including international
negotiations on visa requirements and air service agreements41.

However, along with its growth, China’s air transport system is also facing an increasing number of
challenges, ranging from a lack of specialists such as pilots and mechanics, to limited air traffic management
capabilities and financial bottlenecks of regional airports and several Chinese airlines. In addition, the rapid
expansion of the China’s high-speed rail system is considered to present a considerable competition for
domestic air services42.

Japan

International tourist arrivals to Japan noted an exceptional growth of 47% to 19.7 million between 2014 and
2015, making it the fifth largest market across the Asia and Pacific region 37. Originally, the country was
expected to surpass the 20 million mark in 2020, but in light of 11 million incoming tourists gained since
2010, this target is likely to be achieved earlier than planned and an ambitious new goal of 40 million annual
tourists has already been set for 2020 43. A gradual deregulation in Japan’s airline sector, as well as the
facilitation of visa procedures for large source markets such as China, Malaysia and Thailand, have strongly
supported the development of Japan’s tourism industry in recent years 44. Unsurprisingly, this has also
triggered considerable growth in Japanese air passenger volume, which grew by 5% between 2014 and
2015. The vast majority of incoming tourists in 2015 came from surrounding Asian regions (84%) 44, with
China being the largest source market, accounting for a quarter of total tourist arrivals45. This is also reflected
in Japanese air traffic. Between 2014 and 2015 alone, four Chinese carriers started serving Japan and the
number of Chinese airports offering flights to Japan rose to 34, which was almost twice as high as in 2010,
while scheduled seat capacity reached an all-time high46. The USA presented the biggest market outside
Asia, accounting for 5% of total incoming tourists in 2015 47 and the fourth largest scheduled seat capacity48.

To date, low-cost carriers have only played a minor role in Japan compared to other large air transport
markets, handling about 10% of total passenger traffic 49. However, along with the increasing liberalisation of
Japanese air traffic, an increasing expansion of domestic and international low-cost carriers could be

39
http://www.goldmansachs.com/our-thinking/pages/macroeconomic-insights-folder/chinese-tourist-boom/report.pdf
40
http://centreforaviation.com/analysis/china-australia-aviation-one-million-visitors-flights-on-21-city-pairs-from-12-chinese-cities-
261773
41
http://centreforaviation.com/analysis/chinas-secondary-airlines-plan-long-haul-growth-10-airlines-to-have-widebody-aircraft-part-1-
253336
42
http://www.nextor.org/Conferences/201502_NEXTOR_Workshop/Zhang%20&%20Zhao-Asilomar-2015.pdf
43
http://centreforaviation.com/analysis/japan-tourism-targets-doubled-despite-airline-capacity-decreases-long-haul-focus-275209
44
McKinsey&Company (October 2016): “The Future of Japan’s tourism: Path for sustainable growth towards 2020”
45
http://www.eastasiaforum.org/2016/06/25/making-the-most-of-japans-tourism-boom/
46
http://centreforaviation.com/analysis/china-japan-market-grows-with-doubling-of-tourism-four-new-airlines-and-greater-city-pairs-
242946
47
http://www.tourism.jp/en/tourism-database/stats/inbound/#country
48
http://centreforaviation.com/profiles/countries/japan
49
http://www.thenational.ae/business/aviation/japans-airline-sector-steady-but-requires-lift

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observed. While the share of low-cost in total domestic seat capacity grew from 6% in 2009 to 18% in 2015,
the share of low-cost in total international seat capacity climbed from 1% to 12% during the same time 50.

Notable capacity limitations in Japans’ infrastructure could present considerable challenges to the country’s
ambitious targets in tourist arrivals. Almost half of the incoming tourist volume remains in the country’s largest
cities Osaka, Tokyo and Kyoto, which will increase the pressure on accommodation and transport facilities.
It is estimated that in 2020, Tokyo’s Haneda and Narita Airports may be short of 30% capacity. This is also
the year where they city will host the Olympic Games44. Moreover, Japan’s incoming tourist volumes strongly
rely on the Chinese market and potential downturns in demand from this region could already have a
considerably negative impact on incoming tourist arrivals in Japan 44. In order to decrease this dependency,
Japan plans to further liberalise visa requirements for visitors from the Philippines, India, Russia and
Vietnam, which is also expected to positively affect air traffic demand from these countries 51.

India

India became the fastest growing aviation market in the world during 2015. While passenger volume in China
and the USA rose by 10% and 5% respectively compared to 2014, India recorded an extraordinary increase
of 20% to over 80 million passengers. This strong development was largely driven by a drop in fuel prices,
which reached a five-year low, a remarkable domestic air travel demand, as well as higher income levels
and a booming economy52.

According to IATA, domestic Indian air traffic alone grew by 25% between 2014 and 2015, which was not
only the highest rate recorded worldwide, but also far above the global average of 5% 53. International
passenger volumes recorded a notably smaller growth of 8%. This has largely been the result of the still
strongly regulated Indian air traffic market, which does not only limit the accessibility for foreign airlines, but
also the international operation of domestic carriers. Although over 70 foreign airlines offer international
connections to the country compared to five Indian carriers 54, the latter handled around 1/4 of international
passenger volume in 201555.

Indian airlines were growing along with the country’s air travel demand during 2015, while especially the
decreasing fuel price improved their profitability. CAPA expects that in 2016, combined industry losses will
fall by 75%54. Low-cost carrier IndiGo and Jet Airways were the largest domestic airlines in 2015, serving
37% and 19% respectively of total domestic passengers. The latter was also the dominating carrier in
international traffic, handling 10% of international passenger volume in Q42015, followed by Air India (8%).
Emirates and Etihad were the largest foreign airlines with an 8% and 4% share in international passenger
traffic55.

India’s future domestic and international air travel is expected to benefit from a gradual liberalisation and
public investment into the sector. In 2015, India expanded its air service agreements with several countries,
including Finland, Kazakhstan, Kenya, Sweden, Norway, Denmark, Oman and Ethiopia. In addition, the
Indian government continued to work on its new aviation policy, which will promote the international operation

50
http://centreforaviation.com/analysis/china-japan-aviation-lccs-peach-jetstar-japan-gain-traffic-rights-raising-overcapacity-concerns-
296147
51
http://www.forbes.com/sites/profdrwolfganggarlt/2015/12/30/2015-year-of-resilient-growth-and-further-segmentation-of-chinas-
outbound-tourism/#52a4fc9b1d46
52
http://www.telegraph.co.uk/finance/economics/12077311/India-crowned-worlds-fastest-growing-aviation-market-in-2015-as-
economy-takes-off.html
53
http://www.iata.org/pressroom/pr/Pages/2016-02-04-01.aspx
54
http://centreforaviation.com/analysis/iata-indias-aviation-market-surges-20-on-economic-growth-and-low-fuel-prices-283494
55
http://dgca.gov.in/reports/rep-ind.htm

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of domestic airlines, the registration of foreign aircraft, airport construction and expansion, as well as
bureaucracy reduction and administrative improvements regarding licensing and training 59.

India’s air travel was also strongly driven by the growing tourism sector. In 2015, the country ranked among
the top destinations in South Asia, recording 8 million international tourist arrivals, which presented a 5%
increase over 2014. Since 2010, international tourist arrivals grew at a CAGR of 7% 37. The liberalisation of
visa requirements, such as the introduction of a medical visa, as well as considerable financial investments
and tax reduction by the Indian government strongly supported the development of the sector. In 2015,
tourism was the country’s third largest foreign exchange earner56.

Growing foreign investment into India’s aviation industry is expected to further sustain the sector’s growth.
Aircraft manufacturers Boeing and Airbus are increasingly cooperating with Indian companies regarding
production, maintenance and training59. Both also share the optimistic view on India’s future air travel growth.
Over the next 20 years, Boeing expects India to account for 5% of worldwide demand for new airplanes57,
while Airbus estimates that the country’s passenger traffic will grow at 8% annually58. By 2020. India aims at
becoming the third-largest air travel market in the world59.

Myanmar

Myanmar has long been isolated from global trade, which also limited its aviation sector, but along with a
removal of economic sanctions in 2012, both sectors have since experienced strong growth. While the
country only handled 0.8 million international air passengers in 2008, these climbed to 2 million in 2012. By
2015, Myanmar recorded 3.4 million passengers, which presented a 7.5% increase over 2014. Nevertheless,
this was below the CAGR of 23% at which international passenger volume has grown since 2008 60. Domestic
passenger traffic is slightly smaller in volume, at 2.3 million passengers in 2015. This was 4% higher than in
2014, but considerably less than the 14% CAGR at which it had grown since 2010 61.

It appears that Myanmar’s air traffic market started to experience a slowdown in 2015. While 12 international
airlines started operations Myanmar between 2012 and 2013, only two new carriers launched routes between
2014 and 201562. Moreover, considering that the country is served by 24 foreign airlines, Burmese carriers
face difficulties gaining market shares in international traffic. Four Asian airlines handled 50% of Myanmar’s
international passenger volume in 2015. Air Asia was the largest carrier (17%), followed by Thai Airways
(13%), Bangkok Airways (10%) and Singapore Airlines (10%). Myanmar Airways (9%), which ranks fifth, is
the largest Burmese carrier handling international traffic60.

At the same time, 10 airlines compete in Myanmar’s domestic market despite its small size, which results in
notable overcapacity, fierce competition, fragmentation and unprofitability. Despite this, Myanmar National
Airlines, Air KBZ and Mann Yadanarpon were the largest domestic carriers, operating over 60% of total
domestic seat capacity63. In addition to rivalry completion, domestic airlines also face notable challenges
from high taxes on fuel, on aircraft and parts 66. With many of the domestic carriers operate less than five

56
http://www.ibef.org/industry/indian-tourism-and-hospitality-industry-analysis-presentation
57
http://www.boeing.co.in/news-and-media-room/news-releases/2016/july/boeing-forecasts-demand-for-1850-new-airplanes-in-
india.page
58
https://www.flightglobal.com/news/articles/india-to-require-1600-new-aircraft-by-2034-airbus-423226/
59
http://www.ibef.org/industry/indian-aviation.aspx
60
http://centreforaviation.com/analysis/myanmar-aviation-part-1-rapid-international-growth-but-challenging-conditions-as-emirates-
enters-274760
61
https://centreforaviation.com/analysis/draft-myanmar-aviation-part-3-domestic-growth-slows-but-consolidation-remains-elusive-
275215
62
http://www.ainonline.com/aviation-news/air-transport/2016-02-12/myanmar-boom-wanes-overcapacity-bites
63
http://centreforaviation.com/profiles/countries/myanmar

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aircraft, some experts have request the introduction of a minimum fleet size or consolidation to improve the
market environment62.

Along with the gradual opening of the country, Myanmar welcomed a record level of 4.7 million total
international tourist arrivals in 201537 and the industry has already developed in one of the most essential
economic sectors of the country64, accounting for 4% of total GDP65. Although it is one of the smallest tourism
markets in South-East Asia, this presented an exceptional 52% growth over 2015, which was far above the
regional average of 8%37. The World Travel and Tourism Council estimates that Myanmar will be among the
strongest growing tourism markets in the next 10 years65, while the country itself expects to reach 7.5 million
by 202060. The strong tourism development is also reflected in air traffic development. While almost one third
of incoming tourists in 2015 arrived by air, Emirates and Qatar Airlines announced to considerably increase
their existing capacity between Myanmar and their hub airports in the Middle East during 2016 60. This would
provide valuable European source markets such as France or Germany with additional travel opportunities 66.
However, in order to successfully accommodate the expected increasing number of international
passengers, current airport infrastructure will require continuous investment and expansion. In addition,
ongoing security issues and instability might present affect future international tourist arrivals 64, while it
should be noted, that the strong growth rates achieved in the past were driven by the opening of the country
to international visitors and it remains to be seen whether the country is able to overcome its status as one-
time destination67.

Cambodia

Air passenger traffic in Cambodia rose to 6.5 million in 2015, which is 13% above 2014 levels. Since the
economic crisis in 2009, passenger volumes had been growing at a CAGR of 15%, which makes it one of
the fastest growing air traffic markets in Asia68.

Since over 85% of Cambodian air traffic is international, this development has been strongly driven by the
increase in foreign tourist arrivals. These have almost doubled since 2010 and reached 4.8 million in 2015,
6% more than in 201437. A stronger performance was only prohibited by the global fear of terrorist attacks,
the MERS outbreak and the economic crisis in Russia 69. China contributed in particular to this performance,
as Chinese tourists appreciate the geographic proximity, close cultural links and affordability 70. China is the
second largest source market and accounted for 15% of international tourist arrivals in 2015, only Vietnam
ranked ahead, presenting a 20% share72. However, in contrast to Chinese tourists, most Vietnamese arrivals
occur by road due to the geographical proximity68. While Cambodia welcomed 128K Chinese tourists in
200968, it aims to attract 2 million tourists from China alone by 202071. The USA was the largest source
market outside Asia (5%) and the UK the largest European one (4%) 72. Tourist arrivals from non-Asian
markets reduced considerably with the economic crisis in 2009 and although a gradual recovery has been
overserved since then, tourism representatives pointed out that a lack of flight capacity is responsible for the
small share of non-Asian markets. In addition to the continuous investment into the tourism sector,

64
https://www.tourism-watch.de/en/content/run-myanmar
65
http://www.oxfordbusinessgroup.com/news/myanmar%E2%80%99s-tourism-industry-set-rapidly-expand
66
http://www.mmtimes.com/index.php/business/19504-myanmar-s-airlines-face-pressure-at-home-and-abroad.html
67
https://centreforaviation.com/analysis/myanmar-international-airline-market-starts-to-see-much-slower-growth-has-the-bubble-burst-
233458
68
http://centreforaviation.com/analysis/cambodia-part-1-china-thailand-drive-double-digit-passenger-growth-for-sixth-consecutive-
year-266343
69
http://www.ttrweekly.com/site/2015/07/cambodia-finalises-tourism-strategy/
70
http://centreforaviation.com/analysis/cambodia-aviation-part-1-china-visitor-surge-makes-cambodia-the-fastest-growth-market-in-
se-asia-207130
71
https://www.cambodiadaily.com/news/cambodias-airport-passenger-figures-display-robust-growth-104662/
72
http://centreforaviation.com/profiles/countries/cambodia

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Cambodia’s future air passenger volume will also strongly depend on a stable inner security 73, considering
that the country has been facing recurring political protests and terrorist attacks in recent years 74.

Passenger Performance by Region: Africa

Africa is a region of huge opportunity - as has been observed for decades - but even bigger challenges.
Africa’s airlines continue to struggle and collectively remain in the red while airlines in every other region in
today’s favourable environment are profitable. A shift in external conditions with lower commodity prices, a
slowdown in major trading partners, changes in foreign exchange rates and tightening borrowing conditions
caused Africa’s economic activity to slow from 3.4% in 2014 to 3.0% in 2015.

The recent downturn in commodity pricing has hurt the African economy though GDP decline is projected to
slow in 2016, as prices stabilize and supply constraints ease. The region has an immensely improved
business and macroeconomic environment, supporting higher investment through improved policies.
Population projections for Africa indicate an annual growth of 3.1% over the next 25 years, with urban growth
outpacing the growth of the rural population 75. Structural changes and a new mind-set from African
governments are desperately needed. Political interference and government meddling in airlines is a
common problem, as well as protectionism and unnecessarily high taxation.

Figure 48 - Top 10 Airports in 2015 by Passenger Traffic (m) – Africa


Millions
0 25 50 -10% 0% 10%
Johanesburg (JNB)
Cairo (CAI)
Cape Town (CPT)
Casablanca (CMN)
Lagos (LOS)
Algiers (ALG)
Hurghada (HRG)
Nairobi (NBO)
Sharm El Sheikh (SSH)
Durban (DUR)
2015 2014 2006 2014-15 YoY 2006-15 CAGR

Source: ACI World Traffic Reports

Regarding airport traffic, the geopolitical shocks that took place in Africa in 2015, in the form of terrorist
attacks and military conflicts, are obvious. From the three airports that recorded year on year declines in
traffic in 2015, two are located in Egypt, namely Hurghada and Sharm El Sheikh. Traffic decline is attributed
almost exclusively to the reduction of inbound tourist flows, following the downing of a Russian aircraft in the
Sinai region. Its impact will be further analysed below. The last poor performing airport is Lagos in Nigeria,
which could be attributed to the sentiment of insecurity and uncertainty in the north part of the country.

73
https://www.cambodiadaily.com/business/travel-industry-downplays-bombing-fallout-116660/
74
http://www.phnompenhpost.com/national/political-deadlock-broken
75
Boeing Current Market Outlook 2016-2035

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Figure 49 - Top 10 Airlines in RPKs for 2015 - Africa

RPK/ASK (m)
40 82.8
35 78.7
30 76.0
74.1
25
20 70.7 70.8

15 66.9 65.9
10 64.5 63.6
5
0
Ethiopian South Egyptair Royal Air Kenya Air Comair Air Austral Tunisair TAAG
Airlines African Maroc Airways Mauritius Angola
Airways Airlines

Seat capacity (ASK million) Passenger traffic (RPK million) Load Factor (%)

Source: Airline Business

South African Airways, once the major healthy airline of the African region, now faces a prolonged
restructuring period that could enable the carrier to grow once more. As a result, the airline has lost its first
spot in RPKs and ASKs flown to Ethiopian Airlines, currently the success story of the continent, despite the
below 70% average load factors. With LCCs penetration still quite low, it is no wonder that the average load
factor of the market is in the region of 70% for 2015. In terms of passengers carried, Egyptair remained in
the top for 2015, marginally growing their passenger volumes, while Ethiopian and Kenya Airways
experienced the highest year on year passenger growth, 12.9% and 14.8% respectively. In contrast, Tunisair
lost a notable 18% in passenger volume, partly as a result of Tunisia’s political instability and the associated
decline in tourist arrivals. Similar reasons in Morocco also contributed to the 5% drop in passengers carried
by Royal Air Maroc.

Figure 50 - Top 10 Airlines in Passengers Carried in 2015 - Africa

Passengers (m)
10 +0.4%
9 Passengers Carried (Million) and YoY Change %
8 +12.9% +0.2%
7 -5.1%
6 +10.5%
5 +14.8%
4 -17.7%
3
2 +9.4% -1.7% -4.1%
1
0
Egyptair Ethiopian South Royal Air Comair Kenya Tunisair Air TAAG Air Austral
Airlines African Maroc Airways Mauritius Angola
Airways Airlines

Source: Airline Business

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Market Developments
Air travel to Egypt continues to be very susceptible to geopolitical events. The fall-out from the Russian airline
Metrojet incident at the end of October 2015 continued to be felt during the summer 2016. All flights between
Russia and Egypt were suspended, as well many flights from the EU. Additionally, the March 2016 hijacking
of an Egyptair domestic flight, causing its diversion to Larnaca, further threw the spotlight on security
concerns in Egyptian aviation.

International seat capacity to Egypt enjoyed a number of years of double-digit growth (+15% pa) before this
was interrupted by the Arab Spring of 2011. There followed a period of virtually stagnant capacity.
International capacity returned to growth in 2015 (+10% YoY), before being interrupted once more by these
more recent events. According to OAG data, international seat numbers will fall by 4% in summer 2016.

Figure 51 - One-way Scheduled Flights to Egypt between 2006 and 2016

90,000

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Russian Federation EU Other countries

Source: SRS Analyser

Russian and UK airlines were the biggest contributors to the fall in capacity the summer 2016, while Egyptian
airlines and many from other countries in the Middle East are set to grow on international routes to Egypt.
The Egypt tourism market has in the past demonstrated its powers of recovery and is likely to do so again.
A slightly more reliable view can be taken of the summer 2016 schedule, rather than calendar 2016 data.
According to OAG, international scheduled seats to Egypt were 4% lower in summer 2016 versus summer
2015. Among the 18 airlines that no longer planned scheduled flights to Egypt in summer 2016, the most
significant withdrawal was from the now bankrupt Russian airline Transaero, which was the third largest
Russian operator of international seats in summer 2015 76. Egypt has recovered from geopolitical demand
softness in the past and will continue to work hard to do so again. As is often and understandably the case
in such matters, perception is all important and can lag reality.

Looking at sub-Sahara market developments, South African Airways (SAA) is again looking at opportunities
for new partnerships and network expansion. SAA is now re-engaging with Etihad following an unsuccessful
initial partnership and is keen to launch new routes after the delivery of its first two A330-300s in 4Q2016.

76
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274771

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Any growth, however, is unlikely to be profitable until SAA addresses its longstanding challenges. The airline
has still not fully implemented its previous turnaround plan and urgently needs yet another capital injection.
A full and deep restructuring is required but seems impossible in the current political environment. Exploring
fifth freedom opportunities from other faster growing African countries is logical, given the relatively limited
opportunities and challenges in SAA’s home market. However, SAA needs to focus first on resolving internal
issues and improving its position in South Africa.

An even bigger setback with implementing the recovery plan occurred in mid-2015 when SAA board approval
for a new partnership with Emirates was revoked at the last moment. Emirates and SAA management had
agreed to a comprehensive codeshare, and for SAA to operate alongside Emirates on the Johannesburg-
Dubai route, with a rare revenue guarantee from Emirates. The Emirates partnership was to replace a much
more limited partnership with Etihad and it was critical for SAA’s long-term sustainability. Unfortunately,
politics intervened and this opportunity was lost 77.

A contrast is however emerging in Angola. The strategy being implemented by TAAG Angola following its
partnership with Emirates represents a model that perhaps can be emulated by other ailing airlines in Africa.
The Emirates partnership gives TAAG a much brighter long term outlook. A codeshare is now in the process
of being implemented, which will extend TAAG’s network globally. Having dropped services to Dubai in 2015,
TAAG is using the partnership to learn from Emirates, as Emirates took over management of TAAG in
October 2015. TAAG is also now looking at expanding in China, which is currently served with two weekly
Beijing flights and is its only other long haul market. The new business plan being implemented with the help
of Emirates also envisages turning Luanda into a hub 78.

Mauritius also has an ambitious plan to develop a new hub and expand its flag carrier with a new focus on
transit traffic. Air Mauritius has historically been focused on point-to-point traffic including inbound visitors,
but is eager to tap into rapid growth in traffic between Asia and continental Africa. Air Mauritius already has
a strong network in Asia but is relatively weak regionally. In May2016 the airline launched services to Maputo
in Mozambique and Dar es Salaam in Tanzania, which are its first destinations in continental Africa outside
South Africa and Kenya. Air Mauritius now serves six cities in continental Africa along with three destinations
in neighbouring islands, giving it nine regional international destinations. It has a larger Asian network, which
currently consist of 11 destinations78.

As for Ethiopian, the airline has expanded rapidly in Asia over the last several years, as well as regionally
within Africa, recognising the huge opportunities in the Africa-Asia market. Ethiopian now has almost 50
regional international destinations and almost 70 when its West African affiliate ASKY is included. Ethiopian
currently serves 11 destinations in Asia-Pacific but has nearly three times as much nonstop capacity to Asia
as Air Mauritius.

Addis Ababa has emerged as the biggest hub in Africa and Ethiopian has emerged as Africa’s largest and
by far the most profitable African airline group. Ethiopian has doubled in size in the past five years, with Asia-
Africa transit traffic driving a majority of the growth. During the same five years, traffic at Africa’s other four
main airline groups has been flat, or only grown modestly, and three of these groups have been highly
unprofitable.

77
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1.4. Air Cargo Traffic

Air Cargo Traffic Outlook

Despite a strong start to the year, 2015 was a year of many challenges for air cargo. Global trade stalled
towards the middle of the year amid uncertainty emanating from Chinese manufacturing and globally weak
industrial production. Lower production of goods worldwide meant less trade. However, throughout the
second half of the year, the global trade picture has been modestly improving. International trade is picking
up speed throughout 2016. Trade will allow productivity increases in global-production chains and expand
availability and variety of products to consumers around the world. The many benefits of a global and open
economy have motivated policy makers to advance free-trade initiatives of historic proportions. Statistical
Annex A provides an overview on worldwide cargo volume development.

Figure 52 - Global Air Freight Historic Volumes (FTK bn)

FTK (bn)
200
180
160
140
120
100
80
60
40
20 World Air transport, freight (bn ton-km)
0

Year

Source: World Development Indicators

World air-cargo volume, in spite of exogenous shocks arising from economic and political events and natural
disasters, grew at an average of 5.2 % per year over the last three decades. After a period of stagnation that
followed the global economic slowdown, air cargo traffic started to recover in late 2013. This recovery
continued through 2014 and, with the aid of the US West Coast port labour dispute that extended into the
first quarter of 2015, world air-cargo volume grew about 5% by year-end. In the second quarter of 2015,
global trade and industrial production slumped. As a result, air-cargo growth slowed with world air-cargo
volume growing about 2 % for the full year.

However, there is continued demand for the speed and reliability benefits that air freight offers. Industries
that require transport of time-sensitive and high-value commodities such as perishables, consumer
electronics, high-fashion apparel, pharmaceuticals, industrial machinery, and automobile components
recognize the value of air freight, and this value will continue to play a significant role in their shipping
decisions. The restructuring of logistics chains to serve the rapidly growing e-commerce industry also
requires the unique capabilities that air cargo provides and offers a new area of growth 79.

79 Boeing Current Market Outlook 2016-2035

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Figure 53 - Relationship of Global Trade to International and Domestic Air Freight

25%
20%
World Trade
15%
Total Sum of Freight: International
10%
5%
0%
-5%
-10%
-15%
2007 2008 2009 2010 2011 2012 2013 2014 2015
Year

Source: ACI World Traffic Reports, CPB World Trade Monitor, WTO

As illustrated in Figure 54, over 50% of total air cargo volumes from/to the European Union were transported
to/from North America (26%) or Far East and Australasia (32%). However, in comparison to 2014, the latter
market lost 1% in market share, while the former gained 1%. This development becomes even clearer when
looking at the performance since 2010, showing that the North American flow grew by 14%, whereas the
share of the Far Eastern and Australasian market dropped by 4% during the same time. Total cargo volume
between EU and other European (non-EU) countries recorded the highest increase since 2010 (+45%),
however, this market only held a comparatively small share of 7% in total cargo volumes. A strong expansion
between 2010 and 2015 was also observed to/from the Near and Middle East (+25%) and to/from Central
America and the Caribbean (+17%). Besides this, one positive and one negative turnaround in growth rates
could be observed in two markets when comparing their development between 2008 and 2014 to the change
between 2010 and 2015. While air cargo volumes to/from the Rest of Africa declined by 9% in the former,
they recorded an 8% in the latter period. The opposite development occurred in air cargo volumes between
Europe and South America. These had increased by 13% between 2008 and 2014, but dropped by 1%
between 2010 and 2015, largely due to the recent economic downturn in several South American countries
such as Brazil.

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Figure 54- Air Freight and Mail 2015 Market Share and Historic Evolution from/to Europe (EU28)

Other Europe (non-EU) 7.39%


(Evolution 2010-2015: +45%)

North America 26.14%


(Evolution 2010-2015: +14%)

North Africa: 1.62%


(Evolution 2010-2015: -20%)

Near & Middle East: 19.23%


(Evolution 2010-2015: +25%)

Central America & Caribbean 2.29%


(Evolution 2010-2015: +17%)

Far East and Australasia: 32.06%


(Evolution 2010-2015: -4%)

South America 4.46% Rest of Africa 6.8%


(Evolution 2010-2015: -1%) (Evolution 2010-2015: +8%)

Source: Eurostat

Air Cargo Airlines and Airports Performance

Despite the recent weak performance of air freight traffic, there are many airlines that, helped by the
improved capabilities of passenger aircrafts in providing belly hold cargo capacity, have continued to account
air freight as an important segment of their operations. Nevertheless, the sector faces a growing issue of
overcapacity, forcing carriers to create additional strategies in order to boost their freight revenues. While
Emirates raised their cargo price levels, Cathay Pacific reintroduced a fuel surcharge, which previously had
been gradually abolished by cargo airlines. Lufthansa has been increasingly focussing on the development
of its cargo e-commerce and express services 80. This included the introduction of a Lufthansa Cargo
eServices app, which enables customers to manage and track their shipment 81, as well as targeting a
cooperation with large online retailers such as Amazon 82.

The figure below shows the performance of the top 25 Airline by FTKs during 2015. Overall there was little
movement across the ranking compared to the previous year and airlines largely kept their positions. It
emerges that especially Middle Eastern and Chinese carriers recorded growth, while European airlines
Lufthansa and Air France – KLM, as well as the South American LATAM Group noted considerable declines.
FedEx Express remained the dominant courier delivery services company worldwide despite a 1% drop in
FTKs. It is followed by Emirates Airlines, which rose its cargo capacity by 9% and thus strengthened its
second place. Cathay Pacific experienced a strong growth of 5%, surpassing Lufthansa and catching up with
UPS. Nevertheless, the latter was able to defended its 3rd place although its FTKs fell by 1%. Lufthansa and
Air France-KLM saw considerable declines of 15% and 9% respectively. DHL Express recorded one of the
strongest growth rates compared to 2014 (+17%) and hence became the sixth largest cargo airline in 2015.

80
http://aircargoworld.com/the-freight-50-top-carriers-vie-for-answers-to-overcapacity/
81
https://lufthansa-cargo.com/eservices-app
82
http://www.lloydsloadinglist.com/freight-directory/news/Lufthansa-Cargo-talking-to-Amazon-Alibaba-on-possible-co-
operation/66903.htm#.WC9Ln2dvhjo

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Figure 55 - Top 25 Airline Groups in Cargo (billion FTKs) Worldwide in 2015 and YoY Growth

18 -1.4%
16
14 8.8%
-0.7%
FTKs (b)

12 5.4% 16.9%
10 -14.5% -8.8% 0%
27.7% 29.7%
8 8.7% 28.4% 1% -1.5%1.6% 1.4% 4.5% 25.1%
6 5.9% -0.4% 0% 5.1% -10.4%
4 -12% -0.6%
2
0

Source: Air Cargo World August 201680

Looking at the top 30 airports in terms of air freight, North American and Asian airports are dominating the
rankings helped by the large domestic markets of individual countries in the regions. However, the major
hubs of Europe and Middle East, such as Frankfurt, Paris or Dubai and Doha, do make it to the rankings, as
they provide access to a large market of end point customers for goods flown by air freight. Statistical Annex
A provides an overview on global airport cargo volumes.

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Figure 56 - Top 30 Airports Worldwide in Cargo (Tons) for 2015

Thousands
0 2,500 5,000 -15% 0% 15% 30% 45% 60%
Hong Kong (HKK) HKG
Memphis (MEM) MEM
Pudong (PVG) PVG
Anchorage (ANC) ANC
Seoul Incheon (ICN) ICN
Dubai (DBX) DXB
Louisville(SDF) SDF
Tokyo Narita (NRT) NRT
Frankfurt (FRA) FRA
Taipei (TPE) TPE
Miami (MIA) MIA
Los Angeles (LAX) LAX
Beijing (PEK) PEK
Singapore (SIN) SIN
Paris (CDG) CDG
Chicago O'Hare (ORD) ORD
Amsterdam (AMS) AMS
London Heathrow (LHR) LHR
Guangzhou (CAN) CAN
Doha (DOH) DOH
New York (JFK) JFK
Bangkok (BKK) BKK
Tokyo Haneda (HND) HND
Shenzhen (SZX) SZX
Indianapolis (IND) IND
Leipzig (LEJ) LEJ
Dubai World (DWC) DWC
Abu Dhabi (AUH) AUH
Delhi (DEL) DEL
Istanbul (IST) IST
2015 2014 2006 2014-15 2006-2015 CAGR
Source: ACI World Traffic Reports

Air Cargo Long Term Projections

The world economy and industrial production, which are primary leading indicators of air cargo traffic, are
forecast to recover and return to long-term trend growth rates in 2017. As global GDP and world-trade growth
accelerate, air cargo traffic, as measured in revenue tonne-kilometres, is projected to grow an average 4.2%
per year over the next 20 years. In turn, air-cargo traffic will grow, and sustained growth should lead to
improvements in capacity balance and yields.

For Europe freight flows in particular, the following figure helps with illustrating what are the anticipated
growth rates of air cargo volumes between Europe and its major trading partners. For European exports
carried by air, the Indian subcontinent and the various Asian emerging economies will be the key growth end
markets, with 6.1% and 6% pa respectively. For imports, the flows from Central America and again the Indian
subcontinent, emphasizing the importance of this partner to Europe, will show the highest growth rates, with
4.1% and 3.8% pa.

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Figure 57 - Air Freight Flows From/To Europe Growth Projections for 2016-2035

CIS
(+3.7% / +4.0%)

North America
(+2.4% / +3.1%)

Middle East
(+3.9% / +1.9%)
Indian Subcontinent
(+6.1% / +3.8%)
Central America
(+3.4% / +4.1%)
Asia Emerging
(+6% / +3.6%)

South America Africa


(+3.7% / +3.6%) (+4.1% / +3.6%)

To Europe
ToFrom
Europe
Europe
From Europe
Source: Boeing

1.5. Business Aviation Traffic

Business aviation is defined as the use of any general aviation aircraft for business aviation purposes 83. The
main indicators that measure the performance of this industry are the business jet transaction prices and
sales activity, as well as the hours or segments flown by business jets. The present section will focus on the
later metric of traffic performance, while a brief overview of the business jet transaction activity and demand
forecast can be found in the MRO section.

According to the Jet Support Services Inc. (JSSI), the average utilization of the aircraft in our report has
maintained a steady decline since its brief bounce back in 2010. Despite the fact that markets have returned
to the pre-financial crisis levels, flight hours and the underlying use of business aircraft have yet to illustrate
the same recovery on a global scale84.

83 National Business Aviation Association (NBAA), www.nbaa.org/business-aviation


84 JSSI Business Aviation Index Q1 2016

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Figure 58 - Flight Hour Activity (Average flight hours) by Industry (years 2008 to 2016)

50
40
30
20
10
0

2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: JSSI Business Aviation Index Q2 2016

Additionally, business aviation performance varied between the industries, with healthcare being the main
industry that have experienced a steady growth of flight activity, while the manufacturing and construction
industries saw declines directly related to the fragile state those industries were in during the year and the
significant reduction in orders from China that impacts the construction industry (Figure 59)85. Since 2010
only three sectors have shown an overall upward trend in utilization: Construction, Consumer Goods and
Health Care. Aviation and Business Services have maintained close to level numbers since 2010 while the
other sectors have seen a significant decrease. The power and energy sector also saw a decrease in flight
hours, as many energy companies have taken cost reduction measures to manage the significant decline in
the price of oil over the last two years 86.

Figure 59 - Quarterly Flight Hour Activity (Average flight hours) by Region (years 2008 to 2016)

50
40
30
20
10
0
Africa Asia Pacific Central America Europe Middle East North America South America

2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: JSSI Business Aviation Index Q2 2016

Analysis of the quarterly flight hour activity by aircraft, Figure 59, shows that the majority of regions have
seen some stabilization over the past few years. With only slight changes since 2013 in the South American,
Asia-Pacific, North American, and European markets, utilization has become less volatile per annum. On the
contrary, Africa continues to see a steady decline in utilization since reaching highs in 2011, with five
consecutive years of decreasing average flight hours the African market is showing little signs of recovery 87.

85 JSSI, http://www.jetsupport.com/jssiglobal-business-indicator-business-aviation-picks-up-in-2014/
86
http://www.jetsupport.com/jssi-index-business-aviation-enters-new-normal-in-2016/
87
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The two most important markets for business aviation are the United States and Europe. The North American
region has stabilized and is experiencing subtle growth, while Europe, as the second largest business
aviation market, has recovered within 9% of its all-time high in 2008, but is still experiencing utilization
volatility. The same holds true for the Central American region, which was on par with North America in 2008
but has yet to recover to the same levels. While all other regions have illustrated some recovery from their
low points, Middle East and Africa are two regions that are still down 42% and 50% respectively.

Regarding individual airport performance, the two airports serving New York City hold the first two spots of
domestic flights, signifying the importance of the city for business activity.

Figure 60 - FAA Annual Jet Operations by Traffic Segment (‘000s and %YoY) and 2015 domestic flights for the Top 10
Airports (‘000s)

0 50 100 150
-2,000 0 2,000 4,000 6,000
TEB
2.3%
Total 2.4%
1.7% HPN
4.0%
3.9% DAL
4.6%
PBI
1.3%
Domestic 2.21%
-3.2%
HOU
0.0%
0.0% IAD
0.0%

LAS
678
International 709
686
VNY
0.0%
0.0% MDW
0.0%

APA
2013 2014 2015

Source: Federal Aviation Administration - Business Jet Report: January 2016 Issue

European business aviation activity has been “sluggish” in 2015 with a sharp decline in departures and
arrivals of -5.9% year on year88. Overall 2015 performance was below 2014 by -1.7% year on year for the
sector. Furthermore, individual airport performance is highlighted below, where it is obvious that most airports
had a weaker performance when compared to 2014 (Figure 61). At a market level, Sweden domestic
operations witnessed the highest growth year on year, while the UK-France market remained the largest
intra-Europe market segment, recording 1.3% growth in average daily flights year on year.

88 European Business Aviation Association (EBAA), December 2015 Traffic Tracker Europe

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Figure 61 - Top 10 European Airports and Country Pairs in Average Daily Flights and YoY Change for 2015

0 20 40 60 80 0 50 100 150 200

Paris Le Bourget -4.7% France - France 0.1%


Geneve Cointrin -10.7% Germany - Germany -2.8%
Nice 1.6% UK - UK -1.6%
London Luton -0.5% Italy - Italy -3.4%
Zurich -2.2% Norway - Norway -3.2%
Farnborough -4.6% Sweden - Sweden 2.4%
Milano Linate -6.5% Spain - Spain -3.0%
Roma Ciampino -1.7% Turkey - Turkey -12.0%
Wien Schwechat -6.6% UK - France 1.3%
Biggin Hill 4.0% France - UK 0.2%

Source: European Business Aviation Association (EBAA), December 2015 Traffic Tracker Europe

First indicators for 2016 suggest weaker business aviation flight activity, with average flight hours in Q1 and
Q2 for 2016 compared to 201589. However, Bombardier, a leading manufacturer of business jets, in their
2016 market forecast are expecting a promising future for business aviation in the years ahead. Within the
next two years, as the collective world economy gradually returns to stronger growth rates, emerging markets
such as Latin America, China and Russia will once again be the key drivers of future growth for business
aviation, once their current challenges subside 90.

89 JSSI Business Aviation Index Q2 2016


90 2016-2025 Bombardier Business Aircraft Market Forecast

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2. Airlines

2.1. Introduction

This chapter provides an overview of performance of the airline industry in 2015 (with key developments
during the second half of the year) and the first half of 2016. The chapter highlights the most important global
trends (such as economic drivers and revenue sources), analyses the airline industry financial metrics and
summarises regional performance of the airline industry. For further details, the data presented on this
chapter is presented in Tables of the Statistical Annex.

2.2. Global Trends


Economic Drivers

The worldwide airline industry continued growing rapidly in 2015. Operating margins in 2015 peaked at a
new record since 2000, according to IATA. Global demand increased despite the weaker global economy
during 2015.

Lower air fares (on average, 5% lower in 2015 vs 201491), driven by continuously low fuel jet prices, boosted
passenger traffic in 2015, 6.5% above 2014 levels. At the same time, much of the industry also benefited
from a period of relative capacity discipline. Airlines reacted to demand growth by cautiously adding capacity.
Between 2014 and 2015, global market capacity increased by 5.6%.

Figure 62 – Airline Worldwide industry, Operating margin (%) and variation on crude oil prices, Brent (YoY %)

10 50
8 40
6 30
4 20
2 10
0 0
-2 -10
-4 -20
-6 -30
-8 -40
-10 -50
2015F

2016F
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Operating margin (%) Brent prices (YoY, %)

Source: IATA Industry Forecast, June 2016

In fact, during 2015, the global economy strengthened at a modest level of passenger traffic growth. The UK
and the USA experienced the strongest growth of the world’s most developed economies while Japan and
Italy continue to underperform. Developing markets saw the Indian economy outpace China and Russia
while Brazil was mired in recession. IMF estimated global growth to be 3.1% in 2015, slightly lower than in
2014 (3.4%). For 2016, IMF predicts global growth to be 3.4%.

91
IATA, Air Passenger Market Analysis – December 2015

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Early results in 2016 indicate a continuing robust performance for the industry. However, in July 2016, IMF
revised its global economic forecast due to the substantial increase in economic, political, institutional
uncertainty caused by the Brexit vote, which was projected to have negative macroeconomic consequences,
especially in advanced European economies. The previous 2017 global passenger traffic forecast was cut
by 0.1%.

In general, the economic drivers have been favourable to the global airline industry since mid-2014.
However, for the second half of 2016 and 2017, there are emerging challenges. The biggest challenge for
the airline industry will be to try to sustain the operational margin levels.

Airline Performance

American carriers have reported the highest global profit levels in 2015 with an increasing number of airlines
profiting from operational improvements. In fact, American Airlines, Delta Air Lines and United Continental
Holdings are the top performers in all global rankings: revenue, operating profit, RPK and passengers. The
dominance of consolidated US major carriers has occurred not only in domestic markets but also globally.

Worldwide, the operating profit reported by airlines has been increasing steadily in the past 5 years, with
1892 airlines worldwide recording operating profit of more than $1bn during 2015.

European carriers had a successful 2015. Despite low economic growth in the region (+1.6% GDP growth
in the Euro zone in 2015 compared to 2014), European carriers surpassed 2014’s operating profits: $7.4
billion in 2015 compared to $1 billion in the previous year.

Table 63 – Top Airlines by Airline Groups and Airlines by Operating Revenue, Operating Net Profit, RPKs and
Passengers in 2015
Top 10 groups Top 10 groups Top 10 Airlines
Top 10 airlines by
by revenue by net profit by RPK
passengers
American American American
358,823m
Airlines $41.0bn Airlines $7.6bn Airlines American
201.2m
Group Group Delta Air Airlines
337,264m
Delta Air Lines Delta Air
$40.7bn United 179.4m
Lines United Lines
Continental $7.3bn 335,728m
United Airlines Southwest
Continental $37.9bn Holdings 144.6m
Emirates Airlines
Delta Air 255,176m
Holdings $4.5bn Airline United
Lines 140.4m
Lufthansa Southwest Airlines
$35.4bn Emirates 189,057m
Group $2.2bn Airlines Ryanair 106.4m
Air France - Group Lufthansa 162,173m China
$28.7bn Southwest
KLM Group $2.2bn China Eastern 93.8m
FedEx $26.5bn Airlines Southern 153,749m Airlines
Emirates Lufthansa Airlines China
$25.3bn $1.9bn
Group Group China Southern 84.0m
IAG $25.2bn Ryanair $1.7bn Eastern 146,291m Airlines
IAG $1.7bn Airlines Lufthansa 79.3m
Southwest
$19.8bn Japan British EasyJet 68.6m
Airlines $1.5bn 142,016m
Airlines Airways Turkish
China 61.2m
Air China $1.2bn Air France 141,207m Airlines
Southern Air $17.8bn
Holding
Source: Mott MacDonald analysis of ATW

In 2015, Europe’s top three airlines for profitability were Lufthansa, Ryanair and IAG, the first and the latter
Full Service Carriers (FSC), while Ryanair operates as a Low Cost Carrier (LCC).

92
FlightGlobal, World Airline Rankings 2016

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In terms of total revenues, the three big European airline groups (Lufthansa Group, Air France-KLM and
IAG) were in the lead. In terms of passenger volumes, Ryanair was the top European carrier in 2015, followed
by Lufthansa and EasyJet. Turkish Airlines was the 4th largest European carrier by passenger volume in
2015 and 10th largest worldwide.

Outside Europe and North America, Chinese carriers continued their upward momentum with Air China,
China Eastern and China Southern increasing their positions in the rankings in terms of RPKs and total
passengers carried. In Middle East, Emirates was the only airline keeping a place among the top 10 most
profitable airlines in 2015.

Overall, the North American market retained its position as the most profitable worldwide, with operating
profits among leading North American carriers almost doubling in 2015. European carriers also produced
solid results despite economic challenges. The distribution of the top Airline Groups and Airlines by key KPIs
is presented in the following figure.

Figure 64 - Distribution of Top-10 Airline Groups and Airlines by Operating Revenue, Operating Net Profit RPKs and
Passenger Volumes in 2015

Source: Mott MacDonald analysis of ATW

2016 started with the global outlook for airline collective profit as positive. IATA revised its 2016 financial
outlook for the industry upwards, projecting revenues of $39.4 bn in 2016 from $36.3 bn in 2015.

Since then the outlook has changed considerably, particularly in Europe. A number of terrorist-related events
took place in Belgium, France, Germany and Turkey. But, more likely, the uncertainty brought by the UK
decision to leave the European Union (Brexit) has generated higher uncertainties and the precise detail of
the exit could take two or more years to define. IATA expects that “prolonged uncertainty will influence both
the magnitude and persistence of the economic impacts” with initial estimates suggesting that the number
of UK air passengers could be 3-5% lower by 2020, driven by “the expected downturn in economic activity
and the fall in the sterling exchange rate”.

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Annual Analysis related to the EU Air Transport Market 2016
Revenue – boosted by ancillaries

Favourable economic drivers, capacity discipline and low jet fuel prices were not the only reasons airlines
achieved excellent 2015 results. During the first half of 2015, margins were still increasing on the back of
airlines improving long term hedging contracts. Margins continued to improve in the second half of the year,
partially due to ancillary revenues.

According to IATA, between 2004 and 2016, airline revenues excluding cargo and passenger-related
charges are projected to increase from $38.4 billion in 2004 to an estimated $148.4 billion in 2016. This
equates to an increase from 10% of total revenues in 2004 to 21% in 2016. Other revenue sources consist
of all other activity carried out by airlines, including MRO, catering, ancillary revenue, and other non-
aeronautical services.

Figure 65 – Airline Worldwide Industry, Revenue by Ancillary revenues have become a major revenue
Category ($ billion) source for airlines. Airlines are continuously
600 looking for more ways to earn revenue from all
aspects of the customer experience. For example,
500 the number of full-service carriers which have
implemented separate charges for seat allocation
400
and checked luggage has risen sharply, or the
300 increasing number of airlines using portable Wi-Fi
network for inflight entertainment, but charging a
200 fee to connect to the service.
100 Ancillary revenues are generated by activities and
services that provide revenue for airlines beyond
0
the sale of tickets, which may be generated by
2015F
2005

2016F
2004

2006
2007
2008
2009
2010
2011
2012
2013
2014

direct sales to passengers, or indirectly as a part


Passenger Cargo Other revenues of the travel experience, such as sales
commissions from hotel accommodation or car
Source: IATA Industry Forecast, June 2016 rentals.
Figure 66 – Worldwide Estimate of Ancillary Revenues The increase in percentage of total ancillary
($ bn) revenue has been significant in recent years and
70 7.8% of
seems to be a good indicator for the airline
global industry in finding new and diverse sources of
revenue
60 6.7% of revenues aside from the more traditional
global
6% of rervenue passenger and cargo elements.
50 global
5.4% fo revenue It is hardly surprising that within the list of 135
5.6% of global
40 global revenue
airlines analysed in a 2015 Top 10 Ancillary
revenue Revenue Rankings report, prepared by
2.8% of
30 global IdeaWorksCompany, that airlines with higher
revenue
ancillary revenues are those with lower average
20 fares, in most instances, low cost carriers.

10 The US carriers are responsible for the biggest


share of the global ancillary revenue worldwide,
0 where, collectively their estimated total ancillary
2010

2011

2012

2013

2014

2015

revenue during 2015 was of $22.0 billion


Worlwide Estimate of Ancillary Revenue
compared to $13.3 billion in the whole of Europe.

Source: IdeaWorks/Cartrawler, for Ancillary Revenue, 2016

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Annual Analysis related to the EU Air Transport Market 2016
There are different sources of ancillary revenue for airlines and this is closely associated with the different
carrier groupings. For example, the so-called traditional airlines (full service carriers), that represent the
largest group of carriers, have fees associated with excess or heavy bags, or extra legroom. Low Cost
Carriers, the second largest group, rely more upon a mix of a la carte charges to generate good levels of
ancillary revenue, thus dropping their base tickets prices.

There is no doubt this trend will continue in the future. Tickets no longer guarantee free checked bags, seat
assignment or a meal. But the necessity of lowering ticket prices and allowing passengers to choose their
most desired combination of services “a la carte” will enable low fares to coexist with airline operating profit,
provided by ancillary revenues. And it will only be a matter of time before airlines that have not adopted this
practice, start to do so.

Figure 67 – Top 10 Airlines – Ancillary Revenue as a Figure 68 – Estimated sources of Ancillary Revenue
% of Total Revenue in 2015 for US Major Airlines and outside US

100%
Alaska…
Baggage
90%
Baggage fees, 20%
Tigerair
fees, 30%
80%
Flybe Other a la
carte
70%
Jetstar services,
Other a la 20%
60% carte Travel
Volaris services, retail, 5%
50% 25%
Ryannair
40% Onboard
Jet2.com retail, 15%
30% Sales on
Wizz Air FFP miles,
Travel 55%
20% retail, 15%
Allegiant
10% Sales on
Spirit FFP miles,
15%
0%
0% 10% 20% 30% 40% 50%
Outside US (non LCC) US major
Source: IdeaWorks, 2015 Top Ancillary Revenue by Airline Source: IdeaWorks, 2015 Top Ancillary Revenue by Airline

Costs – Sensitive Labour Relations

Labour was the second-largest operating expense for airlines after fuel during 2015.

Table 11 - Labour Airlines have generally been effective in holding


Worldwide Airline 2014 2015 2016F down labour costs and improving productivity in
Industry
2015, aided by underlying growth in traffic.
Labour costs, $ billion 143 144 153
% change over year 4.8% 0.6% 6.4%
IATA estimates total employment by airlines
Employment, million 2.47 2.54 2.61 reached 2.5 million in 2015, a gain of almost 3%
% change over year 2.9% 2.8% 2.8% compared to 2014. Productivity, measured in
Productivity, atk/employee 463,996 479,745 495,912
ATK/employee, was also higher in 2015,
% change over year 2.4% 3.4% 3.4%
Unit labour cost, $/ATK 0.125 0.118 0.118 increasing by 3% in contrast to 2014. The
% change over year -0.5% -5.4% 0.1% average employee generated close to 480,000
GVA/employee, $ 95,646 95,143 100,186 ATKs in 2015. Wages and jobs also rose as
% change over year 4.2% -0.5% 5.3%
employees shared the benefits of improved
Source: IATA Economic Performance of the Airline Industry, June
2016 performance.

But labour relations between airlines and employees were neither simple nor easy, with several strikes taking
place during the last year, in particular in Europe.

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Lufthansa saw its cabin crew and pilots taking part in several strikes during 2015, protesting against pension
arrangements and Lufthansa’s growing use of its LCC subsidiary Germanwings and its lower-cost LCC
Eurowings. Also Air France-KLM, despite experiencing a big improvement on its strike-hit 2014, failed to
reach agreement with its pilots over restructuring plans and, in particular, the planned expansion of the LCC
subsidiary Transavia France.

In 2016 the airline industry continues having its labour force engaging in action against decisions made by
their employers. One of the most publicised cases took place during June 2016, with a rare strike involving
EasyJet. EasyJet pilots, members of the Dutch Pilot Association, carrying out an eight-hour strike at
Amsterdam Schiphol.

2.3. Airline Financial Report

Compared to 2014, the financial performance of airlines in 2015 reported a record year in operating profit
and margins, despite a decrease in revenues. This decrease was largely offset by a reduction in operating
expenses, hence the record numbers reported, as noted in Table 12.

As indicated in Table 12, worldwide industry net profits of $35.3 billion were 158% higher than in 2014,
amounting to $21.6 billion, with net profit per passenger more than double 2014 figures, increasing from $4.1
to $9.9. Revenues decreased by 4.4% while expenses decreased by 8%, particularly driven by continuing
reduction in fuel costs. Operating profit was up 70% to $59.5 billion, generating an operational margin of
8.3%. Also the expected return on invested capital (9.3%) was for the second year in a row, and only for the
second time in the airline industry’s history, in excess of its cost of capital (estimated at 6.8%) 93.

The outlook for 2016 is also positive. IATA projects revenues are estimated to drop by1.3%, however
expenses are anticipated to decrease by 1.9% that could lead to improve net profits by 5.6% and break a
new record ($39.4 billion). Net profit by passenger is expected to exceed $10. 2016 is anticipated to be the
fifth consecutive year of improving aggregate industry profits.

Table 12 - Economic Performance of Airline Industry

Worldwide airline Industry 2010 2011 2012 2013 2014 2015F 2016F

REVENUES, $ billion 564 642 706 720 751 718 709


% change 18.4 14 9.8 2.1 4.3 -4.4 -1.3
Passenger, $ billion 445 512 531 539 539 518 511
Cargo, $ billion 66.1 66.9 63.5 60.7 62.5 52.8 49.6
Traffic volumes
Passenger growth, rpk, % 8 6.3 5.3 5.2 5.7 7.4 6.2
Sched passenger numbers, millions 2700 2864 2999 3152 3328 3568 3783
Cargo growth, ftk+mtk, % 19.4 0.4 -0.9 0.6 5 2.3 2.1
Freight tonnes, millions 49.1 49.3 48.8 49.5 51.5 52.2 53.2
World economic growth, % 4.1 2.9 2.4 2.5 2.6 2.4 2.3
Passenger yield, % 9.5 7.5 -1.4 -3.9 -5.5 -10.7 -7
Cargo yield % 14.4 0.8 -4.2 -4.9 -2 -17.4 -8

EXPENSES, $ billion 536 623 687 695 716 659 647


% change 13.1 16.2 10.4 1.1 3.1 -8 -1.9
Fuel, $ billion 152 191 228 230 226 181 127
% of expenses 28.3 30.8 33.1 33.1 31.6 27.5 19.7
Crude oil price, Brent, $/b 79.4 111.2 111.8 108.8 99.9 53.9 45
Jet kerosene price, $/b 91.4 127.5 129.6 124.5 114.8 66.7 55.4
Fuel consumption, billion gallons 70 72 73 74 78 82 86
CO2 emissions, million tonnes 665 685 693 709 739 781 817

93
IATA, Industry Profitability Improves, June 2016

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Worldwide airline Industry 2010 2011 2012 2013 2014 2015F 2016F

Non-fuel, $ billion 384 431 460 465 490 478 519


cents per atk (non-fuel unit cost) 40 42.3 43.8 42.7 42.7 39.2 40.1
% change 9.1 5.8 3.5 -2.5 0.1 -8.3 2.2
Capacity growth, atk, % 3.7 6 3 3.7 5.4 6.3 6.3
Flights, million 27.8 30.1 31.2 32 33 34.8 36.8
Break-even weight load factor, % 63.5 64.1 64.7 64.5 63.9 61.3 60.4
Weight load factor achieved, % 66.8 66.1 66.4 66.8 67 66.9 66.2
Passenger load factor achieved, % 78.7 78.5 79.4 79.7 79.9 80.4 80

OPERATING PROFIT, $ billion 27.6 19.8 18.4 25.3 35.1 59.5 62.2
% margin 4.9 3.1 2.6 3.5 4.7 8.3 8.8

NET PROFIT, $ billion 17.3 8.3 9.2 10.7 13.7 35.3 39.4
% margin 3.1 1.3 1.3 1.5 1.8 4.9 5.6
per departing passenger, $ 6.4 2.9 3.1 3.4 4.1 9.9 10.4

RETURN ON INVESTED CAPITAL, % 6.2 4.7 4.6 4.8 5.9 9.3 9.8
Source: IATA Industry Forecast, June 2016

Globally, airline operational efficiencies are improving. Traffic, represented by revenue passenger kilometres
(RPKs), kept growing at a faster pace than capacity, considering available seat capacity (ASKs). This led to
a worldwide improvement in load factor from 79.9% in 2014 to 80.4% in 2015, consequently improving
operating margins. Breakeven load factors decreased to 61.3% in 2015, and are anticipated to drop further
to 60.4% in 2016, highlighting the improvements in operating margins.

Table 13 – System-wide Global Commercial Airlines


Passenger traffic (RPK) % change over Passenger capacity (ASK) % change
year over year
2013 2014 2015 2016F 2013 2014 2015 2016F
Global 5.2 5.7 7.4 6.2 5.2 5.7 7.4 6.2
Regions
North America 2.3 2.7 5.3 4.0 2.3 2.7 5.3 4.0
Europe 3.9 5.7 6.0 4.9 3.9 5.7 6.0 4.9
Asia-Pacific 7.2 6.9 10.1 8.5 7.2 6.9 10.1 8.5
Middle East 11.6 12.1 10.4 11.2 11.6 12.1 10.4 11.2
Latin America 6.3 7.0 7.6 4.2 6.3 7.0 7.6 4.2
Africa 4.6 0.3 0.0 4.5 4.6 0.3 0.0 4.5

Source: IATA Industry Forecast, June 2016

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Figure 69 – Worldwide Estimate of Cargo Revenues in the With regards to cargo, revenues decreased by
Airline Industry ($ bn) and % of total revenues 16% between 2014 and 2015 from $62.5 billion
80 to $52.8 billion. The global economy softened
75 towards the end of 2015 leading to weaker air
70 11,7% 10.4% 9.0%
8.4% 8.3%
cargo demand.
65
60
55 7.4% In contrast to the commercial passenger side of
7.0%
50 the business, the airline industry freight load
45 factor average was below the industry average
40
for the first time since 2004. A combination of
35
30 soft demand and significant capacity increases,
particularly in belly cargo, contributed to the drop
2015F

2016F
2010

2011

2012

2013

2014

in load factor. Low freight loads directly impact


Cargo Revenues, $ billion
yields and revenues.
Source: IATA Industry Forecast, June 2016

Although the overall performance was very positive, mainly in improved profitability in 2015, there were
regional differences. More than half of global cargo net profits were generated in North America.

North American carriers’ efficiency led the industry’s performance and generated close to 60% of industry
total profits in 2015, improving from $11.2 billion in 2014 to $21.5 billion in 2015. These resulted from a
strong economy, a better performing currency (US dollar) and efficiency improvements from the majority of
airlines.

On the other hand, both Latin America and Africa reported losses. In Latin America, the performance was
weak on the back of the deepening economic crisis in Brazil, weak commodity prices and adverse currency
fluctuations. The region reported $1.5 billion in losses in 2015, but is expected to recover in 2016. African
carriers also presented losses in 2015 and are expected to remain in the red throughout 2016. The African
region suffers from weaker operating airlines as well as higher political instability impacting important tourism
markets in the North of the continent.

Figure 70 – Net Profits by Region, 2015 Estimates

Source: IATA Industry Forecast, June 2016

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Annual Analysis related to the EU Air Transport Market 2016
2.4. Partnerships, Market Entrances and Exits

CAPA reported 62 new start-ups worldwide since August 2015. At a regional level, Europe led with 21 new
airlines commencing operations followed by Latin America and Asia-Pacific, each with 13 new airlines. Full-
service (21) and charter (18) services were the preferred business models for the start-up carriers.
Figure 71 – Recently launched start-ups by Region, Aug Figure 72 – Recently launched start-ups by Business
2015-Aug 2016 Model

Europe Cargo
3% 5%
11% 3%
North America 16% Charter
34%
29%
Asia-Pacific Full Service Carrier
21%
Latin America 13% Low Cost Carrier

10% Africa Regional/Commuter


21%
34%
Middle East Virtual Carrier

Source : CAPA – Centre for Aviation Source: CAPA News – Centre for Aviation

Figure 73 – Recently launched start-ups by region, Aug 2015- During the same period, 45 airlines ceased
Aug 2016 operations.
2% Europe Europe was the region where most airlines
13%
North America
ceasing operations took place, with 26
5% airlines grounding their operations. Of these,
Asia-Pacific
most (12) were regional/commuter services.
13% Latin America
58% Asia-Pacific and Africa were the other
9% Africa regions where more airlines ceased
Middle East operations with six carriers in each region.
Source: CAPA – Centre for Aviation

In Europe, probably the most notable exit was made by Cyprus Airways, after years of poor financial results
as the Commission ordered Cyprus Airways to repay EUR65M in aid deemed to have been granted
unlawfully. Estonian Air and Air Lituanica, two Baltic carriers, also ceased operation in 2015. Further details
on these cases can be found in Section 6.3 (Competition Issues) of this Report.

At the same time other European carriers sought private investment. Some carriers were successful while
others are still looking for the best option. AirBaltic and Croatia Airlines were two positive examples. Air Baltic
appear to have secured investment by a German investor with EUR52 million for a 20% stake of the Latvian
airline, with the government agreeing to invest a further EUR80 million. For the Croatian carrier, the
government continues to seek an investor with Aegean Airlines, Lufthansa and Turkish Airlines all reported
to have expressed an interest.

However, IAG was responsible for the biggest transaction in the European market. 2015 saw a conclusion
to the takeover of Aer Lingus. The British Airways, Iberia and Vueling owner agreed to pay EUR1.36 bn for
the Irish state-owned airline.

TAP Portugal saw a new shareholder purchase a stake in the company. Atlantic Gateway Consortium, which
includes David Neelman, Chairman of Brazilian Azul, acquired a 61% stake in TAP in November 2015. The
stake was subsequently scaled back to 45% with the Portuguese government retaining a 50% share and 5%
was made available for the carriers’ employees.

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Annual Analysis related to the EU Air Transport Market 2016
In 2016 Lufthansa moved a step closer to complete the takeover of Brussels Airlines. Lufthansa’s board
approved the exercise of its call option to buy the remaining 55% of SN Airholding, the parent company of
Brussels Airline. Lufthansa acquired 45% of the company in 2009 and negotiated the option to buy the
balance of the shares for no more than EUR250million. The deal is expected to close in early 2017.

A high-profile airline grounding occurred in Russia. The market, still impacted by the combined effects of the
Ruble devaluation, an economic slowdown linked to falling oil prices, and sanctions following the Crimean
crisis, witnessed Transaero suspend services in October 2015 following a decision by the Russian Federal
Air Transport Agency to revoke its Air Operators Certificate (AOC).

In April 2016, North American full-service Seattle-based carrier Alaska Airlines announced that their board
of directors unanimously approved a merger agreement with San Francisco-based Virgin America with
Alaska Air Group acquiring Virgin America for $57.0 per share. This price included existing Virgin America
indebtedness and capitalised aircraft operation leases. The aggregate transaction value is estimated to be
approximately $4.0 billion. The merger is still subject to approval by the Department of Justice (DOJ), focused
on competition, service and price for passenger sand satisfaction of other customary closing conditions. The
companies expect to complete the transaction with regulators’ approval in the 4th quarter of 2016. The
merger will present Alaska with hub-sized operations at all four top west-coast airports.

In Asia partnerships are playing an important role. In 2015 Qantas has received the authorisation from the
Australian Competition and Consumer Commission for its planned joint-venture with China Eastern Airlines.
In Southeast Asia, airlines struggled to find profitability in long haul markets. Singapore Airlines therefore
undertook a joint venture with Lufthansa while Malaysia Airlines took a similar approach with Emirates. Both
agreements were confirmed in first half of 2016. Also during 2016,Virgin Australia announced its board
approval for the $159million investment of HNA Group, parent of China-based Hainan Airlines, for a 19%
stake of the Australian airline,

Another development in Asia was the U-FLY Alliance, an alliance of independent low-cost carriers founded
in 2016 by HK Express, Lucky Air, Urumqi Air and West Air with the vision of stablishing a low-cost network,
and deliver flexible, affordable services to passengers. U-FLY is the world first LCC alliance. All four founding
airlines are affiliated with HNA Group.

In Latin America partnerships are also paying an important role. HNA Group invested $450 million for a
23.7% stake in Azul Brazilian Airlines. HNA followed United Airlines as an investor in Azul after United, earlier
in 2015, agreed to acquire a 5% stake in Azul for $100 million. Delta also expanded its investment in GOL
in July 2015, and in November expressed its intention to increase its holding in Aeromexico to as much as
49%. In July 2016, Qatar Airways confirmed a 10% stake acquisition of LATAM for USD613million. Despite
the regional difficulties, some non-Latin American airlines see this as the opportunistic time to gain a foothold
in the market.

2.5. Airline Performance by Region


Europe

During 2015 European carriers experienced a strong increase in profitability. However, issues like softening
economies, the impact of terrorist attacks against air travel and continuing uncertainties surrounding Brexit
are challenging this trend in the future.

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Annual Analysis related to the EU Air Transport Market 2016
Table 14 – Europe Airline Industry European airlines experienced a strong
Airline Industry 2014 2015 2016F
increase in profitability in 2015, driven by the
decrease in oil prices. This despite breakeven
Net post-tax profit, load factor being higher compared to other
1.0 7.4 7.5
$billion
Per passenger, $ 1.15 8.03 7.83 world markets due to the competitive open
% revenue 0.5% 3.8% 4.0% aviation market and the relatively high costs.
RPK growth, % 5.7% 6.0% 4.9% Net profits went up from $1 billion in 2014 to
ASK growth, % 5.1% 4.8% 5.8% $7.4 billion in 2015. Net profits are projected to
Load factor, % ATK 67.2% 67.4% 66.6%
Breakeven load factor, rise to $7.5 billion in 2016.
65.8% 63.8% 62.9%
% ATK
Net profit per passenger improved from $1.15
Source: IATA Economic Performance of the Airline Industry, to $8.03 between 2014 and 2015. Operating
June 2016
margins improved year on year compared with
Figure 74 – Top 10 Europe Airlines by Revenue previous periods, increasing from 0.5% in 3.8%
in 2015.
Europe Airline Groups
Revenue, $ billion
40 100% The vast majority of European carriers were
Thousands

35 90% profitable during 2015. The first months of 2016


80% initially projected even higher profits for 2016,
30
70% but the UK vote to leave the EU in June 2016
25 60% has added uncertainty to the region.
20 50%
15 40%
30%
The big three European groups (IAG, Air
10 France-KLM and Lufthansa group) experienced
20%
5 10% growth in operating revenue between 2014 and
- 0% 2015, representing over 60% of the total
Ryanair

SAS Group
IAG
Air France-KLM

EasyJet

Virgin Group
Lufthansa Group

Air Berlin
Turkish Airlines

Aeroflot

operating revenue among the top 10 European


Airlines.
Group

With respect to operating profits, IAG reported


the highest growth in Europe at $2.5 billion, with
all its airline units being profitable. Lufthansa
Source: World Airline Rankings 2016, Flightglobal
was second with $1.8 billion.
Figure 75 – LCC Capacity Share (%) of Total Seats
within Europe (2007 vs 2015) European Low Cost Carries continue to
perform well. Ryanair and EasyJet were third
2007 2015 and fourth with high operating profits compared
30 with other European airlines. Both carriers
% 39
% achieved higher operating margins, 22.3% and
14.7% respectively, compared to those
presented by IAG and Lufthansa, 10.1% and
5.2% respectively.
61
71 %
% Low Cost capacity, within the Europe remained
LCC Other Airlines LCC Other Airlines flat between 2014 and 2015. Ryanair and
EasyJet are by far the two larger carriers in this
Source: CAPA with data provided by OAG market, being responsible for 50% of total
capacity offered in the market.

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Annual Analysis related to the EU Air Transport Market 2016
North America
An increasing number of North American carriers are profiting financially from their operations. At the same
time, lower fuel cost created interesting dynamics within the market. These are explained below.

Table 15 – North American Airline Industry Performance In 2015, North American carriers reported the
Airline Industry 2014 2015 2016F strongest financial performance in the world. Net
profits were $21.9 billion in 2015, a net profit of
Net post-tax profit,
$billion
11.2 21.5 22.9 $24.48 per passenger. This produced net
Per passenger, $ 13.30 24.48 25.34 margins of almost 10%.
% revenue 5.1% 9.8% 10.8%
RPK growth, % 2.7% 5.3% 4.0%
Combined with lower fuel costs, the consolidation
ASK growth, % 2.5% 5.0% 4.3%
Load factor, % ATK 65.1% 64.3% 64.0% experienced in the market and ancillary revenues
Breakeven load factor,
57.9% 54.8% 54.2%
helped raise load factors to 64% pushing
% ATK breakeven load factors down to 55.5% in 2015.
Results are projected to be even better in 2016.
Source: IATA Economic Performance of the Airline Industry,
June 2016
Operating profits among leading North American
Figure 76 - Top 10 N. American Airlines by Revenues carriers almost doubled to $32.8 billion in 2015,
North America Airline Groups with total reported revenues of $218.3 billion.
Revenue, $ billion
45 100%
The big three North American groups (American
Thousands

40 90%
35 80% Airlines, Delta and United) were responsible for
70%
30
60%
almost 60% of total operating revenue among top
25 10 North American carriers.
50%
20
40%
15 30%
10 20% Delta Air Lines profits of nearly $8 billion led the
5 10% way in the industry for 2015. American Airlines
- 0%
and United followed with $6.2 billion and $5.2
WestJet
Alaska Air Group
United Continental

Southwest

JetBlue Airways
Delta Air Lines

FedEx
Airlines Group

Air Canada

UPS Airlines
Airlines

billion respectively. Southwest also had a stellar


American

Holdings

year, with $4.1 billion in operation profits. The top


4 most profitable North American carriers were
also the most profitable worldwide.

In fact, Southwest is the original and largest LCC


Source: World Airline Rankings 2016, Flightglobal within the North American market, being
Figure 77 – LCC capacity share (%) of total seats within responsible for approximately 55% of capacity
North America (2007 vs 2015) offered within this carrier group. Between 2014
and 2015 the LCC share of seat capacity within
2007 2015 the North American market remained flat.
26 31
In the meanwhile, it was the ultra-low-cost
% % segment with carriers such as Frontier and Spirit
that experienced the biggest challenges in the
market during 2015, with the low unit costs
allowing price matching by major US airlines.

69
74
%
%
LCC Other Airlines LCC Other Airlines

Source: CAPA with data provided by OAG

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Annual Analysis related to the EU Air Transport Market 2016
Asia-Pacific

Chinese carriers led the way during the most profitable year in recent times.

Table 16 – Asia-Pacific Airline Industry Performance Net profits in the Asian-Pacific increased from
Airline Industry 2014 2015 2016F $1.8 billion in 2014 to $7.2 billion in 2015. This
performance has been driven by lower fuel costs.
Net post-tax profit,
$billion
1.8 7.2 7.8 Breakeven load factor decreased from 65.2% to
Per passenger, $ 1.63 5.95 5.94 61.5% between 2014 and 2015 while passenger
% revenue 0.9% 3.6% 3.9% load factor increased from 66.9% to 67.3%.
RPK growth, % 6.9% 10.1% 8.5%
ASK growth, % 7.4% 8.4% 9.1%
Load factor, % ATK 66.9% 67.3% 66.7% Net profit per passenger improved from $1.63 to
Breakeven load factor,
65.2% 61.5% 60.5%
$5.95 between 2014 and 2015. Operating profits
% ATK among main airlines in the region was of $15.8
billion in 2015 with total reported revenues of
Source: IATA Economic Performance of the Airline Industry, $200.1 billion.
June 2016

Figure 78 – Top 10 Asia-Pacific airlines by revenues The competitiveness of the Asian-Pacific market
Asia-Pacific Airline Groups is demonstrated when assessing the well-
Revenue, $ billion balanced spread of revenues among the top 10
20 100% airlines, with 9 out of 10 reporting revenues
Thousands

18 90% between $18 and $10 billion.


16 80%
14 70%
12 60%
The big three Chinese carriers: Air China, China
10 50%
Southern and China Eastern Airlines all posted
8 40% operating profits in excess of $2 billion during
6 30% 2015. The two main Japanese carriers, Japan
4 20% Airlines and ANA, completed the top-5 ranking of
2 10% most profitable airlines by operation result, with
0 0% profits exceeding $1 billion.
Air China

ANA Group
Cathay Pacific
China Southern

Qantas Group

Korean Air
Hainan Airlines
China Eastern

Japan Airlines
Singapore Airlines
Air Holding Co

Airlines

Group

Group
Group

Across the entire region, the LCC share of


capacity remained flat in 2015. However, within
the region there were large variations. For
instance, LCCs represented 60% of seat
Source: World Airline Rankings 2016, Flightglobal capacity within the Southeast Asia while in the
Northeast region LCCs were only responsible for
Figure 79 – LCC capacity share (%) of total seats within
12% of seat capacity. LCCs have been growing
Asia-Pacific (2007 vs 2015)
strongly in the past 8 years in the Asia Pacific
region.
2007 11 2015
% 25
% The key development in the Asia-Pacific LCC
market during 2015 was due to eight that formed
a new standards-based collaborative marketing
group. The group, Value Alliance, covers more
than 160 destinations in the region with a
89 75
combined fleet of 176 aircraft.
% %
LCC Other Airlines LCC Other Airlines

Source: CAPA with data provided by OAG

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Middle East

Despite conflicts in the region and a slump in oil prices, Middle Eastern carriers reported healthy growth in
2015. Lifting of sanctions on Iran was an additional good indicator for a profitable year during 2016.

Table 17 – Middle East Airline Industry Performance Driven by its low unit costs, Middle Eastern
Airline Industry 2014 2015 2016F airlines continued being profitable despite the
region reporting one of the lowest load factor
Net post-tax profit,
$billion
0.4 1.4 1.6 levels in the world. The market presented net
Per passenger, $ 2.44 7.56 7.83 profits of $1.4 billion in 2015, $1 billion higher
% revenue 0.7% 2.3% 2.5% than in 2014, as Table 17 indicates.
RPK growth, % 12.1% 10.4% 11.2%
ASK growth, % 10.9% 12.9% 12.2%
Load factor, % ATK 61.0% 60.1% 58.8% Local carriers achieved a profit of $7.56 per
Breakeven load factor,
60.3% 58.6% 57.2%
passenger (vs $2.44 in 2014) and margins
% ATK increased from 0.7% to 2.3%. As in all other
markets, 2016 is projected to be even stronger
Source: IATA Economic Performance of the Airline Industry, than in 2015.
June 2016

Figure 80 – Top 10 M. East Airlines by Revenues During 2015, Emirates’ momentum continued,
Middle East Airline Groups with operating revenues reaching $25 billion and
Revenue, $ billion respective operation profit of $2.6 billion.
30 100%
Thousands

90% The other two big Gulf Carriers (Qatar and


25 Etihad) followed in second and third place with
80%

20
70% far more modest revenues. The “Big 3” were
60% responsible for 77% of total revenues in the
15 50% region during 2015. The three carriers kept
40% profiting from rapid investment and growth.
10
30%

5
20% Worldwide, the airlines’ influence expanded with
10% Qatar Airways increasing its shareholding in IAG,
0 0% from an initial 10% to 20%. It also has planned to
Flydubai

invest in Italy’s Meridiana and Morocco’s Royal


Etihad Airways

El Al

Jordanian
Oman Air

Air Arabia

Gulf Air
Qatar Airways
Emirates Group

Saudia

Royal
Group

Air Maroc.

Looking at the region’s smaller players, Iran and


Saudi Arabia were once considered the main
Source: World Airline Rankings 2016, Flighglobal carriers in the region but that might be about to
Figure 81 – LCC capacity share (%) of total seats within change, with Tehran vowing to become sixth-
Middle East (2007 vs 2015) freedom hub after the lifting of nuclear sanctions.

2007 5% 2015 The LCC share of seating capacity offered within


20
% the market increased to 20%. Flydubai,
responsible for 60% of scheduled LCC seats
within Middle East led the expansion, with
additional 28% capacity seats allocated to the
market between 2014 and 2015.
80
95
%
%

LCC Other Airlines LCC Other Airlines

Source: CAPA with data provided by OAG

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Latin America

Brazil’s economy dragged down the region’s growth in 2015, this despite a positive report from Mexico.
Economic uncertainty in the region is driving a slow recovery projection for 2016.

Table 18 – Latin America Airline Industry Performance Latin American airlines faced challenges in 2015.
Airline Industry It can be seen on the financial performance
2014 2015 2016F reports, where the net losses in 2015 were $1.5
Net post-tax profit,
$billion 0.0 -1.5 0.1
billion. This was a result of weak home markets
Per passenger, $ 0.08 -5.47 0.38 and currencies, despite a degree of airline
% revenue 0.1% -4.7% 0.4% consolidation and limited long-haul success.
RPK growth, % 6.3% 7.6% 4.2%
ASK growth, % 4.1% 6.9% 3.7%
Load factor, % ATK 62.6% 62.1% 62.5% For 2016, the market is expected to recover
Breakeven load factor, slightly, with projected net profits of $0.1 billion
% ATK 61.3% 60.9% 60.9% and revenue per passenger of $0.38.
Source: IATA Economic Performance of the Airline Industry,
June 2016 The Latin American market was challenging for
carriers in 2015. In particular Brazil, once a fast
Figure 82 – Top 10 Latin America Airlines by Revenues rising economy and Latin America’s largest
Latin America Airline Groups market is mired in a corruption scandal, hurting
Revenue, $ billion from consecutive quarters of currency
12 100% depreciation and facing the need to cut capacity.
Thousands

90% As a result, foreign airlines’ response at large has


10 been to reduce operations to the country as
80%

8
70% demand plummeted whilst some have recently
60% announced plans to pull some of the Brazilian
6 50% flights.
40%
4
30% During 2015, LATAM Airlines Group reported the
2
20% highest revenue in the region ($10 billion) but this
10% represented a 19% decrease compared to 2014.
0 0% LATAM Airlines Group reported $514 million of
Azul
Avianca Holdings

Aeromexico
GOL

Argentinas

Interjet

Air Caraibes
Volaris
Holdings S A
Airlines Group

Aerolineas

operational profit.
Grupo
LATAM

Copa

Across the market, Mexican carriers were among


the most profitable in the region during 2015.
Source: World Airline Rankings 2016, Flightglobal
Following Europe, Latin America is the second
Figure 83 – LCC Capacity Share (%) of Total Seats largest market in terms of proportionate capacity
within Latin America (2007 vs 2015) for LCCs. Despite this fact, Latin America has a
relatively low number of LCCs and all operate in
2007 2015 only three countries. This represents a
21
% 36
significantly underpenetrated market with
% opportunity to expand.

Between 2014 and 2015 LCCs share of capacity


64 within the market remained flat at 36%.
%
79
%

LCC Other Airlines LCC Other Airlines

Source: CAPA with data provided by OAG

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Africa

Despite good performances, i.e. Ethiopian Airlines, most African carriers continued to struggle in 2015. Air
traffic liberalisation in the continent is very much needed for air traffic to develop to its full potential.

Table 19 – Africa Airline Industry Performance Africa also experienced a challenging year in
Airline Industry 201 201 201 2015. Low commodity prices, weak markets and
4 5 6F regional conflicts drove losses of $0.7 billion in
Net post-tax profit,
$billion
-0.8 -0.7 -0.5 2015. Angola and Nigeria, Africa’s two largest oil
Per passenger, $ -9.81 -8.60 -5.64 exporters, have been hit particularly hard by the
% revenue - - - downturn.
4.8% 4.7% 3.3%
RPK growth, % 0.3% 0.0% 4.5%
ASK growth, % - As presented on Table 19, average breakeven
2.5% 5.3%
0.2% load factor is relatively low, as yields are a little
Load factor, % ATK 56.1 55.5 54.6 higher than global average and costs are lower.
% % %
Breakeven load 57.3 56.9 55.3 However, load factors are the lowest globally.
factor, % ATK % % %
For 2016, projections are set to improve,
Source: IATA Economic Performance of the Airline however still anticipated to result in losses for the
Industry, June 2016
airlines.
Figure 84 – Top 10 Africa airlines by revenues
Africa Airline Groups
During 2015, Ethiopian Airlines continued on its
Revenue, $ billion positive track. The airline, which took delivery of
3.0 100% its first Airbus 350-900, reported revenues of
90% $2.5 billion and margins of almost 10% (-USD198
2.5 80%
70%
million).
2.0
60%
1.5 50% For other carriers in the region the challenges
40% were significant. The other two sub-Saharan big
1.0 30%
20%
carriers, Kenya Airways and South African
0.5
10% Airways, are still working on restructuring
0.0 0% projects - while the North African markets were
Egyptair
Ethiopian Airlines
South African

Kenya Airways

Air Algerie

Tunisair
Royal Air Maroc

Air Mauritius

(South Africa)
Angola Airlines

hit by terrorist attacks.


Airways

Comair
TAAG

LCC penetration is the lowest within any global


region. LCC share of capacity within the market
remained flat during the last 3 years. But there
Source: World Airline Rankings 2016, Flightglobal are hopes that this might change with the long
awaited opening of the intra-African markets to
Figure 85 – LCC Capacity Share (%) of Total Seats
within Africa (2007 vs 2015)
free competition, expected to happen in the near
future.
2007 2015 16
7%
%
Mango Airlines, a South African low-cost airline
and subsidiary of South African Airways is the
main LCC in the market, offering almost 50% of
scheduled seat capacity.

84
93 %
%
LCC Other Airlines LCC Other Airlines

Source: CAPA with data provided by OAG

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3. Airport Business & Investments

3.1. Introduction

In 2015, 3.6bn passengers travelled on scheduled services representing an increase of 7.2% over 2014
(IATA) which led to strong airport passenger performance during the year vs 2014. This growth was
principally driven by an increase in the Asia-Pacific Region (+10%) and the Middle East (+8.1%) passenger
traffic market. The Asia- Pacific region now accounts for 34% of total passenger traffic shown by Figure 86.

Figure 86 - 2015 Distribution of Passenger Traffic

5% 2%
Asia-Pacific
8% Europe
34%
North America
25% Latin America
Middle East
26% Africa

Source: IATA Press Release 5th July 2016

On the back of this strong performance, the world’s largest airports recorded the following passenger traffic
numbers in 2015:

Table 20 - Global Top 20 Airports – Passenger Traffic 2015


Total 2014-2015 YoY
Rank 2015 Rank 2014 Country Airport / Code
Passengers Growth %
1 -1 USA Atlanta (ATL) 101,491,106 5.5
2 -2 China Beijing (PEK) 89,938,628 4.4
3 -6 UAE Dubai (DXB) 78,010,265 10.7
4 -7 USA Chicago (ORD) 76,949,504 9.8
5 -4 Japan Tokyo (HND) 75,316,718 3.4
6 -3 UK London (LHR) 74,989,795 2.2

7 -5 USA Los Angeles (LAX) 74,937,004 6.1

8 -10 Hong Kong Hong Kong (HKG) 68,283,407 8.2


9 -8 France Paris (CDG) 65,766,986 3.1
10 -9 USA Dallas Fort Worth (DFW) 64,072,468 0.9
11 -13 Turkey Istanbul (IST) 61,836,781 9.2
12 -11 Germany Frankfurt (FRA) 61,032,022 2.5
13 -19 China Shanghai (PVG) 60,053,387 16.3

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Total 2014-2015 YoY
Rank 2015 Rank 2014 Country Airport / Code
Passengers Growth %
14 -14 Netherlands Amsterdam (AMS) 58,284,864 6
15 -18 USA New York (JFK) 56,827,154 6.8
16 -16 Singapore Singapore (SIN) 55,449,000 2.5
17 -15 China Guangzhou (CAN) 55,201,915 0.8
18 -12 Indonesia Jakarta (CGK) 54,053,905 -5.5
19 -17 USA Denver (DEN) 54,014,502 1
20 -22 Thailand Bangkok (BKK) 52,902,110 14

Though Atlanta and Beijing Airports held their positions, growth was most evident at Dubai (+10.7%), Hong
Kong (+8.2%), Istanbul (+9.2%), Shanghai (+16.3%) and Bangkok (+14%). However, one of Asia’s largest
airports’ – Jakarta Airport (CGK), recorded a decline in passenger volumes compared to 2014. This was a
result of the lifting of operational restrictions at Jakarta’s second airport - Halim Perdanakusuma (HLP) airport
that increased its passengers by 86% (from circa 1.6mppa to 3.1mppa) 94.

The increasing demand in these regions through growing populations and rising incomes is changing the
composition of the top 20 busiest airports with a shift from the West to the East.

This growth in passenger traffic demand is bringing additional challenges to airports across the world, most
notably in high growth areas – Asia Pacific for example, that require significant investment, expansion, and
rehabilitation programs to meet future demand.

In many circumstances, government owners/operators of airports do not have the required capital or
expertise to provide the required expansion and seek private sector involvement to deliver new infrastructure.
The following section provides an overview of the key airport infrastructure challenges faced by emerging
markets.

3.2. Airport Financial Performance

Airport financial data is available for the 2014 period due to the time delays in assembling the information
across the ACI airports. Nevertheless, the airport industry continued to report strong growth in revenues on
the back of strong traffic in 2014. Figure 87 shows the development in total revenue between 2008 and 2014.

94
Directorate General of Civil Aviation – Ministry of Transportation Republic of Indonesia, Air Transport Traffic Database

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Figure 87 ACI Airports – Evolution of total revenue 2008-2014

Source: ACI Airports Economic Survey (2015)

Worldwide revenues reached $142bn representing a YoY increase of 8.2% on the back of strong growth in
scheduled passenger traffic of 7.2%.

Airport revenues are principally generated through aeronautical (aircraft and passenger charges) and non-
aeronautical methods (terminal and landside concessions). Table 21 shows the trend of non-aeronautical
revenues constituting a growing share of total revenues as airports seek to diversify their revenues streams.

Table 21 Airport Revenue 2014 (USD m)


Region Total Growth vs % Aero % Non-Aero Aero Rev Non-Aero
Revenue in 2013 Revenue Revenue Growth Growth
2014 YoY YoY
Africa 3,000 17.0% 70% 30% 0% 13%
Asia - Pacific 41,800 8.3% 49% 51% 10% 16%
Europe 50,800 7.0% 59% 41% 0% 5%
Latin America/Caribbean 8,100 25.9% 59% 41% 9% 27%
Middle East 10,900 13.0% 48% 52% 18% 33%
North America 27,900 4.8% 52% 48% 4% 16%
World 142,500 8.2% 54% 46% 5% 14%

As demonstrated in Table 21 Airport Revenue 2014 (USD m), airport revenues recorded strong growth
across all regions with Latin America and Caribbean recording a 25.9% increase in revenues against 2013
followed by Africa (1%) and the Middle East (13%). Worldwide revenues reached a total of $142bn
representing a YoY increase of 8.2% which is expected, considering the growth in scheduled passenger
traffic by 7.2%.

Revenue from aeronautical streams still constituted the largest revenue source for airports compared with
non-aeronautical revenues. However, revenues from non-aeronautical streams grew at a faster rate when

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compared against 2013. Airports across the world are seeking new opportunities to maximise revenues from
commercial opportunities within the terminals and from the wider airport boundary.

Airports are facing increasing pressure on yields from aeronautical activities such as passenger fees, landing
charges and aircraft services charges. ICAO states that airports seek to offer competitive charging levels to
airlines to attract and retain traffic to secure future growth95. Therefore, non-aeronautical revenue generation
becomes a priority for airports. This revenue helps the airport to reduce capital needs in a dual till regulatory
environment (keeping aeronautical and non-aeronautical revenues separate) with profits from non-
aeronautical revenues being reinvested into airport infrastructure.

Airport Operating Costs

Operating costs continued to increase for airports across the world, increasing by +7.3% vs 2013. This was
principally driven by higher concession/lease fees, higher maintenance costs and higher staff salary costs.
The evolution of operating costs between 2008 and 2014 is shown by Figure 88.

Figure 88 ACI Airports – Evolution of total costs 2008-2014

Source: ACI Airports Economic Survey (2015)

Staff salary costs constituted the largest proportion of an airport’s operating costs at 22%, followed by
contracted services (15%), capital costs and general costs (7%) and utilities/communications (5%).

Though as a whole, the airport sector performed well in 2015, there are airports groupings that have not
performed so well and continue to face financial pressures with smaller airports facing these challenges.
These smaller airports do not benefit from economies of scale through critical mass of passenger traffic or
exploit to the full non-aeronautical revenues development or commercial opportunities. ACI highlight in their
research that airports with fewer than 1mmpa often have negative margins due to higher total costs as they
are spread over fewer passengers 96.

95
ICAO Working Paper – “Worldwide Air Transport Conference, 6th Meeting, Montreal 18-22 March 2013 -Economics of Airports
96
2015 ACI Economics Report

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Return on Invested Capital (ROIC)

The return on invested capital (ROIC) is a measure used to assess profitability of airports which considers
all invested capital – both debt and equity. The following section uses the most recent available data from
ACI which is for the year 2014.

In 2014, ROIC reached 6.3% for the industry as a whole. However there were considerable variations
depending on the region and size of the airports.

Airports in emerging economies and those airports handling over 1mmpa had higher ROIC vs advanced
economies and smaller (<1mppa) airports. This is shown by Figure 89 and Figure 90.

Figure 89: Airport Returns and Size Comparison

Source: ACI 2015 Economics Survey

Figure 89 indicates that the larger the airport, the greater economies of scale it delivered through spreading
the capital costs across the higher throughout. Smaller airports experienced a negative ROA and ROIC due
to the low traffic volumes to drive down costs adequately.

Figure 90: Airport Return on Invested Capital (ROIC)

Source: ACI 2015 Economics Survey

Emerging markets demonstrated the largest ROIC vs advanced economies at 9.9% or 77% higher than
advanced economies.

The 2015 ACI Report highlights that the ROIC is a sound measure of profitability, and that the weighted
average cost of capital (WACC) should also be considered as it demonstrates the opportunity cost of capital.
The ACI Report notes that studies have shown the cost WACC to be in the region of 6-8%. Based on this
metric, the results from the industry show that in 2014 many airports were only breaking even and real

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economic losses were experienced. The WACC can be higher at larger airports due to financing instruments
used to fund large scale investments with higher financing costs (interest).

3.3. Airport Infrastructure – Emerging Markets

Airports in high aviation growth areas are facing significant challenges in providing the infrastructure to meet
the high levels of traffic growth.

This is prevalent in the Asia and Pacific region. Rising middle classes and incomes in these high population
countries (Thailand, Philippines, Indonesia, and India etc.) are expected to significantly increase the
propensity to fly of these populations in the future. Major airports in these countries have inadequate capacity
and there is considerable pressure on the existing infrastructure and to meet future demand. This section
provides a high level overview of major Asia Pacific countries that faced these challenges in 2015.

Thailand

The state owned Bangkok Suvarnabhumi Airport, the country’s main international airport, handled over 52m
passengers in 2015 but has a designed terminal capacity to handle 45 million passengers (IATA, 2016). In
addition, the airport was handling over 800 flights per day vs the 600 flight capacity. The airport has struggled
to provide capacity to meet the double digit passenger growth over recent years. Numerous expansion plans
have been delayed for the airport with cost estimates in billions (€) due to scrutiny over the plans from the
Government on high cost projects (reported to be on projects >$31m).

Indonesia

Indonesia’s capital city and gateway airport to the country, Jakarta Soekarno-Hatta International Airport,
handled 54 million passengers in 2015 - though the existing infrastructure has a capacity of 38mppa. In
addition, the airfield, terminal and airspace management is operating beyond capacity.

The airport is state owned and operated but has limited budget resources to finance the scale of investment
required not only at Jakarta Airport (CKG) but across the islands 97. However, the newly constructed Terminal
3 is expected to open in 2016 and to relieve terminal capacity. However, this would bring total capacity in
line with current throughput by adding 25 mppa to the existing 38 (total 63mppa). At the time of publication,
there has been no private investment in Indonesia airport projects.

India

Indian Terminal Capacity is currently 250mmpa with 190mppa currently being utilised. However, 10 of these
airports’ capacity are already saturated. Research undertaken by the Centre for Asia Pacific Aviation (CAPA)
expects that the main airports of Bangalore, Hyderabad, Delhi, Kolkata and Chennai will be saturated by
202698. This presents a significant challenge for India as it expects to become one of the world’s largest
aviation markets as its populations surpasses the 1bn mark.

97
PWC Report: Indonesia’s airports sector expects investments of up to US$25bn in 10 years, double the present level due to 4.8%
expected increased air traffic growth
98
CAPA “India’s Airport Capacity Crises” 27th January 2017

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Philippines

Philippine airports are facing current and short term capacity constraints with Manila airport operating at
capacity after years of high single digit passenger growth (2015 - 37mmpa). The second largest airport in
the country – Mactan Cebu airport handled over 7.5mppa in 2015 but operated within a terminal infrastructure
designed for circa 4.5mppa99. However, the Indian company GMR, have commenced construction on a new
terminal to provide additional capacity to 12.5mppa.

The above examples show the capacity issues surrounding major South East Asia airports. The
infrastructure required is large scale and the high levels of expertise and resources required are often limited
in government owned/operated airport infrastructure. Many of the above countries are seeking private
involvement in airport development and this will be explored further in the following section.

3.4. Financing and Public Private Partnerships

In 2015, momentum continued in the growing trend of private sector involvement in the financing and
operation of airport infrastructure across the globe as the markets had liquidity with relatively cheap cost of
capital, investor appetite for long term assets and governments still were recovering from the 2008 financial
crises with limited financial budgets.

The scale of investment required to meet demands is large and private finance will be required to fund part
of the total capital requirements.

It is estimated that in ASEAN alone (Association of South East Asian Nations100) over $33bn dollars of airport
investment is required in the next 5 years to meet demand 101. This is a considerable sum considering many
of these member states of ASEAN are developing countries with limited government budgets.

The Indian Government has announced that they will be investing over $120bn in airport infrastructure in a
combination of existing expansion and new green-field airports as the country looks to become the 3rd largest
aviation market in the world by 2020102. The Indian Government is seeking private investment to provide
capital and expertise that it does not have in order provide additional capacity. Approximately 50% of traffic
in India is handled through 4 PPP airports (Delhi, Mumbai, Bangalore and Hyderabad). The initial Delhi
investment was over $1bn, Bangalore airport has invested over $400m 103, Hyderabad airport construction
was expected to be circa $370m and the new Mumbai Terminal 2 when completed is expected to cost over
$1.5bn104. These projects were all funded through private investment.

Major airport privatisations (or PPP’s) that commenced in 2015 are summarised below.

99
Mott MacDonald
100
ASEAN countries consist of Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and
Vietnam.
101
ASEAN-UNCTAD, Part One – FDI and MNEs ’Development in ASEAN
102
KPMG- FICCI Report. 5th International Exhibition & Conference on Civil Aviation: India Aviation 2016, March 16-20 2016, Begumpet
Airport, Hyderabad, India.
103
Airport Technology Project Database – Bangalore Airport
104
CSIA Press Release – Geodesic Techniques

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Table 22 - Major Airport Transactions and Deals 2015
Airport Type Structure Details
Navi Mumbai Airport Greenfield PPP June: Shortlist of Private Operators for the development
of the new Mumbai airport
14 Greek Regional Airports Brownfield PPP December: Signed Agreement with Greek Government
for 40 Concession for 14 regional airports (Deal value -
€1.2bn)
6 Philippines Airports Brownfield PPP 5 private bidders pre-qualify for the two bundles of
airports – 2 in Bundle 1 and 3 in Bundle 2. 30-year
concession to operate, maintain and expand the
airports.
Brazil 4 Regional Airports Brownfield Infraero launch data room to allow private investors to
undertake feasibility studies on the following airports;
Salvador, Porte Alegre, Florianopolis, Fortaleza
Japan – Kansai and Osaka Brownfield PPP December: Private consortium (Vinci Concessions and
Airports Orix Corporation) signed agreement with Kansai
Airports for the 44 concession rights to operate and
maintain the airports including expanding the facilities
(Value of deal - $18bn)
Madagascar Airports – Ivato Brownfield PPP Preferred Proponent (Consortium of ADP, Bouygues,
and NosyBe Colas, Meridiam) reached for the concession of NosyBe
and Ivato airports for the operation, maintenance, and
expansion (Ivato) - ~28 years’ concession.
Istanbul Airport Greenfield BOT Achieved Financial Close in November 2015. 6
runways 150 mppa airport for 25-year concession
length (Value of deal €28bn)

Source: Multiple Sources: InfraNews, CAPA

The theme of private investment in airport infrastructure is evident in the major transaction list for 2015. Both
Japanese airports listed in Table 22 had accumulated large government debt circa $14.7bn105 and the Greek
Regionals106, Brazil 4107 regional airports and the Madagascar airports all required large investment to
modernise and expand the facilities with the Governments facing fiscal pressures and turning to the private
sector to provide the expertise and necessary investment.

3.5. Customer Service Awards

Airports Council International (ACI) is an industry body representing nearly 2,000 airports worldwide that
advances the interests of airports and promotes professional excellence amongst its members. Each year
ACI presents awards to the airports that have achieved high customer satisfaction through their Air Service
Quality (ASQ) benchmarking studies. This survey allows passengers to rate an airport performance through
34 key service areas covering 8 major categories such as check-in, security, airport facilities and commercial
offering.

In 2015, over 600,000 passengers were surveyed to obtain feedback. This allows airports – through
benchmarking analysis to set or monitor KPIs, as well as optimise investments and initiatives to improve
passenger satisfaction levels and make strategic decisions on where to focus financial and human resources.
In addition, it allows best practice to be shared amongst the airport community through initiatives that have
worked well and highlighting key development and changes in passenger satisfaction trends.

105
Clifford Chance – “Fasten Seat Belts – Japan Infra to take off”
106
These include Aktion, Chania, Corfu, Kavala, Kefalonia, Kos, Lesvos, Mykonos, Rhodes, Samos, Santorini, Thessaloniki, Zakynthos.
107
The Brazilian regional airports include Fortaleza, Florianopolis, Porte Algre and Salvador

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The following airports were the major ASQ award winners for 2015, classified by region and by size of airport.

Figure 91: ASQ Award Winners 2015 (airports over 2mppa – top 5)

North America Europe Middle East


Best by Region: Best by Region: Best by Region:
1. Indianapolis 1. Pulkovo 1. Amman - Queen Alia
2. Grand Rapids 2. Sochi 2. Abu Dhabi
3. Tampa 3. Moscow Sheremetyevo 3. Doha
4. Dallas Lovefield 4. Zurich 4. Dammam
5. Jacksonville 5. Malta 5. Dubai

Latin America & Caribbean Africa Asia Pacific


Best by Region: Best by Region: Best by Region:
1. Guayaquil 1. Mauritius 1. Seoul Incheon
2. Quito 2. Durban 2. Singapore
3. Monterrey 3. Cape Town 3. New Delhi
4. Punta Cana 4. Johannesburg 4. Mumbai
5. Santo Domingo 5. Shanghai Pudong

Source: ACI ASQ

The result for the best performing airports in the world showed a mixed number of airport sizes and types
receiving the awards. In the Middle East and in the Asia Pacific region, some of the largest airports in these
regions achieved the highest rankings.

The airport winners were principally new airports or airports that have had significant new infrastructure
added having being built within the last 15 years. These include;
 Amman Airport – opened in 2013
 Doha Airport – opened in 2014
 Abu Dhabi Airport – major terminal and airfield developments in the 2000’s
 Dubai Airport – major terminal and airfield development in the 2000’s
 Seoul Incheon Airport – opened in 2001
 Singapore Airport – Terminal 3 opened in 2008
 New Delhi – Terminal 3 opened in 2010

In North America and Europe, smaller airports were recognised as the top performers with Russian airports
considered high performers; the North Americas airports that were ranked highest all handled under 10mppa.

ACI North America highlights that North American gateway airports lack sufficient funds to invest in the
rehabilitation and expansion of airports 108. Old and capacity constrained facilities –a common feature at some
of America’s largest airport – will impact customer’s satisfaction and therefore reflected in absence of these
large airports in the ASQ winners.

108
Airline Leader, Issue 27 citing ACI North America research

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Figure 92: Best Airport by Size
• 1. Jaipur • 1. Sanya Phoenix • 1. Gimpo • 1. New Delhi and
• 2. Lucknow • 2.Tianjin Binhai • 2. Wuhan Mumbai
• 3. Guayaquil • 3. Hyderabad • 3. Denpasar • 2. Taiwan Taoyuan
• 3.Shangai
Hongqiao

2-5 5-15 15 -25 25-40


million million million million

• 1. Incheon and
Singapore
• 2. Shanghai and
Beijing
• 3. Guangzhou
Baiyun
+40
million
Source: ACI ASQ

The highest ranking airports in the ASQ survey across all sizes are principally located in the Asia-Pacific
region with no airports in Europe appearing in the highest rankings.

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4. Aircraft Manufacturers & MRO

4.1. Introduction

This chapter provides an overview of performance of civil aircraft manufacturing and Maintenance, Repair
and Overhaul (MRO) industries in 2015 and the first half of 2016. The chapter highlights the most important
global trends, analyses the composition of the current global fleet, aircraft orders and projections from the
main manufacturers and summarises regional performance of the industry.

4.2. Global Trends

The worldwide airline industry continued to present a positive financial performance in 2015, largely driven
by favourable oil prices. While profitability has returned, operators continue to seek opportunities to reduce
costs. With labour (i.e. salaries, wages, and benefits) and fuel costs being more challenging to control,
airlines focus significant attention on their fleets and, in particular, in maintenance.

The spend in MRO activities in 2015 ($64.3B) was 3.5% higher compared to 2014 ($62.1B)109, with the
North American region claiming the largest share of the global market regions expenditure. One of the key
discussions emerging in 2015 was on how technology advances are expected to impact the MRO industry.
As presented ahead, the entrance of new generation airliners in replacement of older aircraft will drive
significant changes in maintenance frequencies as well as in maintenance methodologies 110.

Consolidation in the MRO segment was robust in 2015 with scale and global presence becoming
increasingly important. This trend is expected to continue as the aviation industry anticipates healthy
growth in the next decade with the number of new aircraft deliveries (more than 1,600 in 2015 and aircraft
orders growing year after year111) accelerating the process. The majority of these aircraft orders (623)
were delivered in Asia-Pacific, primarily to serve the regional market.

In total, there were 2,660 new commercial aircraft net orders in 2015, reflecting a 30% decline against the
2014 peak. But while orders failed to match the highs of recent years, they remain above pre-economic
crisis levels112.

In 2015 the aviation industry continued to cement its role as a source of considerable economic activity.
The global air transport industry supported nearly 63 million jobs worldwide and is estimated to contribute
$ 2.7 trillion (3.5%) to Global GDP113.

109
ICF MRO Industry Outlook, April 2016
110
Oliver Wyman, MRO Big Data – A Lion or a Lamb, Innovation and adoption in aviation MRO, MRO Survey, 2016
111
Flight International, World Aurliner Census, 2016
112
Flightglobal, Fleet Watch 2016, A review of commercial aircraft orders and deliveries for 2015, 2016
113
ATAG, Aviation Benefits Beyond Borders, July 2016

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New Generation Aircraft

The aviation industry is entering an era of new technology that will bring a new generation of intelligent
aircraft in the market. The new generation of airliners will allow longer maintenance intervals and repair
changes as well as better health monitoring and prognostics of maintenance needs.

Figure 93 – 10 Year Fleet Forecast by Aircraft Generation Category The entry into service of the A350, with its
40,000 first commercial flight in January 2015 by
18,896
Qatar Airways, has been the latest
35,000
milestone of the arrivals of new generation
30,000 aircraft. Together with the A380, B747-8,
2,993
B787-9, and soon the A320neo and the
25,000
22,212 B737max, these new aircraft types will
20,000 replace ageing and maintenance intensive
18,487
15,000 aircraft types.

10,000
ICF International, in its 2016 MRO
5,000 Forecast and Market Trends report 114,
1,909 517 projects an increase of 531% of new
0
2015 2025 generation aircraft between 2015 and
Old Generation Mid Generation New Generation 2025. Old generation aircraft in operation
Old Gen: B727, B737 Classic, B747 Classic, DC10, L1011 and A300; by 2025 are expected to be 73% less than
Mid Gen: B757, B767, B747-400, A320 Family, A330/A340,B 737NG, ERJ, 2015 figures.
CRJ;
New Gen: B777X, B787, A350, A330neo, A380, E170/175/190/195, CRJ- The systematic replacement of old gen
7/9/1000, B737MAX and A320neo
aircraft will drive significant change in the
business for MRO providers. Less
maintenance will be required as it will be
Source: ICF, 2016 MRO Forecast and Market Trends replaced by more sophisticated
monitoring of aircraft performance and
predictive maintenance tools. This will
reduce the overall time-on-tool
requirements for individual checks with
fewer repairs, and thus drive a need for
change from an MRO provider
perspective.

Global MRO Activity

The global civil MRO spend in 2015 was $ 64.3 billion, up by 3.5% compared to the $ 62.1 billion spent in
2014. The strongest driver for these values was the engines segment that represents 40% of the total MRO
market, accordingly to ICF International. With the continuing growth of aircraft deliveries and the possibility
of deferring older aircraft retirements (at least until low fuel prices keep reducing the economic benefits of
using only new aircrafts and engines115), the medium term prospect for this activity is also positive.

Looking at the MRO global market share by region, North America claimed the largest share in MRO activity
(29%), with Asia-Pacific (28%) and Europe (26%) following close. Based on current aircraft orders, the Asia-
Pacific share of the global MRO market is expected to increase and potentially become the largest global
region for MRO activity in the coming years.

114
ICF MRO Industry Outlook, April 2016

115
Oliver Wyman, As Oil Prices Fall, New Aircraft Lose Competitive Edge, 2015

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Figure 94 – 2015 MRO Demand by Global Region (%) Figure 95 – 2015 MRO Demand by Segment (%)

8% Europe
4% Engines
6% 26% North America 7%
14% Components
Asia-Pacific
40%

28%
Latin America Line
17%
29% Africa
Airframe
Middle East 22%
Modifications
Source: ICF, 2016 MRO Forecast and Market Trends
Source: ICF, 2016 MRO Forecast and Market Trends

Aerospace Industry Merges and Acquisitions

Despite that the aerospace and defence industry reported lower revenues in 2015 compared to 2014, see
Table 23 below, the results still reflect a record of revenues and operating profits for five consecutive years.116

Aggregated reported revenues for the top 20 aerospace companies indicated a 1.5% decline between 2014
and 2015. Revenues for the top 20 global defence companies reported a 3.2% decrease to $ 177.8 billion in
2015 while the commercial aerospace subsector continued to report growth, with the top 20 global
companies reporting 0.3% increase in revenues.

In 2016, the global commercial aerospace sector is expected to grow driven by strong passenger traffic and
continued demand for commercial aircraft from growing economies. The global military MRO expenditure is
also expected to recover on account of growing tensions and instability in the Middle East.

Table 23 – Top 20 Global and U.S. Aerospace and defence companies – Commercial Aerospace versus defence
Subsector Financial Performance (2015 and 2014*)

Top global aerospace 9 months ending 9 months ending Percentage


and defence companies September 2015 September 2014 change

Revenues (US$ billion)

Top 20 global aerospace Commercial aerospace $175.5 $174.9 -0.3%


and defence companies Defence $177.8 $183.7 -3.2%
Operating earnings (US$ billion)

Top 20 global aerospace Commercial aerospace $18.7 $18.4 1.6%


and defence companies Defence $20.0 $19.2 4.2%
Note: Years reflect nine months ending September 2015 and September 2014

Source: 2016 Global Aerospace and Defence Industry Outlook, Deloitte

2015 was a record year for Mergers and Acquisitions (M&A) activity, with a total value of $ 62.8 billion in
deals, which was approximately 50% higher than the previous record. The year was highlighted by the largest
deal recorded in the Aerospace & Defence industry, with Berkshire Hathaway’s (American multination
conglomerate holding company) $ 32 billion acquisition of Precision Castparts (American industrial goods

116
Deloitte, Global Aerospace and Defence Industry Outlook, 2016

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and metal fabrication company), twice the value of the previous record deal, which was UTC’s (American
aerospace and defence product supplier) acquisition of Goodrich (American aerospace manufacturing
company). The year also included Lockheed Martin’s (American global aerospace, defence, security and
advanced technologies company) $ 9 billion acquisition of Sikorsky (American aircraft manufacturer), the
industry’s sixth largest deal ever117.

Table 24 - Megadeals in 2015 (disclosed value of at least US$ 1 billion)


Target Acquirer Status Value of transaction Category
in US$ billion

Precision Castparts Corp. Berkshire Hathaway Inc. Completed 31,595 Other


Sikorsky Aircraft Corp. Lockheed Martin Corp. Completed 9,000 Aircrafts &
Parts
ExelisInc. Harris Corp. Completed 4,561 Other
Landmark Aviation BBA Aviation PLC Completed 2,065 Other
Websense Inc. Raytheon Co. Completed 1,900 Other
ShifangMingriYuhangIndu Completed 1,804 Aircraft &
stry Co. Ltd. Xinjiang Machinery Research Parts
Institute Co. Ltd.
Source: Aerospace and Defence – 2015 year in review and 2016 forecast, PWC

4.3. Aviation, a Global Industry

Before further analysing the Manufacturers and MRO performance, in this section we explore the
importance of the Aviation Industry to work and GDP around the world.

Aviation is the only worldwide transportation network making it an essential contributor to global business
and tourism. It thus plays a vital role in facilitating economic growth. Air transport facilitates world trade; it
is indispensable for tourism across the globe and it offers connectivity that indirectly contributes to
improved productivity and is closely linked with investment and innovation. Aviation’s global economic
impact (direct, indirect, induced and tourism catalytic) is estimated at $ 2.7 trillion, equivalent to 3.5% of
the world GDP in 2014118.

At the same time, air transport is a major global employer. The Air Transport Action Group (ATAG) reports
that the air transport industry indirectly generates more than 62 million jobs globally.

Directly, the industry employs over 450,000 people working for airport operators, over 5.5 million working
for other on-airport business (such as retail, car rental, freight services, etc.); close to 2.7 million are
employed by airlines and over 1.1 million are working in civil aerospace for air navigation service providers.

117
PWC, Aerospace and Defence – 2015 year in review and 2016 forecast, 2016
118
ATAG, Aviation Beyond Borders, 2016; All figures for 2014

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Figure 96 - Aviation Global Employment Impact, 2014 Figure 97 - Aviation Global GDP Impact,
(latest report) 2014 (latest report)

Jobs GDP impact


(million) (trillion)
60 9.9 62.6 2500 664.4 2673

50 11.2 2000
761.4
40 5.2 1500
30 36.3
1000 355
20
892.4
10 500

0 0
Tourism catalyticInduced Indirect Aviation Direct Total Tourism catalyticInduced Indirect Aviation Direct Total

Source: Aviation Benefits Beyond Boarders, ATAG Source: Aviation Benefits Beyond Boarders, ATAG

4.4. Global Fleet Trends in 2015

Global Fleet

During 2015 commercial operators took delivery of almost 1,400 aircraft from both Boeing and Airbus, 3%
more aircraft than those delivered in 2014, with the worlds’ two largest airliners producers raising the
production benchmark to a new high. The regional aircraft market also experienced much activity, with
274 new unit deliveries occurring in 2015. Combined with aircraft removals and other additions to the
global fleet (e.g. removal from storage), global in-service fleet experienced a 3.2% annual growth rate.

Figure 98 - 2016 Global Airline Fleet Distribution (July North America remained the largest aviation region
2016) as its market share accounted for 30% of total
number of commercial units in service around the
world. However, this represented a 1% decrease
4% Europe
5% compared to previous year.
8% 25% North America
It was the Asia Pacific region which gained in total
Asia-Pacific
Total market share, being responsible for 28% of
Latin America commercial airline fleets globally during 2015.
28%
27,186
30% Africa Europe’s share of commercial airlines also
Middle East
increased, to 25%, representing the third largest
aviation global region. Last year the region’s share
Source: Flight Fleets Analyser 2016, Flightglobal was 24%. This has been driven by a combination
of both old gen aircraft replacements as well as
new orders as airlines expand their operations.

Table 25 and Table 26 below present the top 10 fleet per aircraft category in 2015 and 2016 to July 2016.
With regards to mainline aircraft, the number of current generation A320s and B737s in service rose
respectively 7.8% and 8.8% compared to the previous year. In 2016 there were more than 6,500 Airbus

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320 family jets in service and more than 5,500 Boeing B737s in operation. Boeing had good news about
the 787, with 135 units having entered the market between 2015 and 2016.

The small-airliner sector had also a positive year. The total number of Embraer 170/175/190/195 and ATR
42/72 in service went up by 4.0% and 6.2% respectively between 2015 and 2016. Nonetheless, note the
9% reduction in the active Embraer ERJ 135/140/145 fleet to 553 units.

Table 25 – Top 10 Fleet in Service – Mainline Aircraft Table 26 – Top 10 Fleet in Service – Regional Aircraft

Fleet in Fleet in Fleet in Fleet in


Manufacturer & YoY Manufacturer & YoY
service service service service
aircraft family Change aircraft family Change
in 2016 in 2015 in 2015 in 2016

Airbus A320 family 6,510 6,041 7.8%


Embraer 1,146 1,102 4.0%
5,567 5,115 8.8% 170/175/190/195
Boeing 737-600/
700/800/900 941 886 6.2%
ATR 42/72
1,324 1,258 5.2%
Boeing 777
Bombardier 751 696 7.9%
1,154 1,093 5.6% CRJ700/900/1000
Airbus A330

Bombardier 560 558 0.4%


Boeing 737- 945 1,006 -6.1%
CRJ100/200
200/300/400/500
Boeing 767 742 762 -2.6%
Embraer ERJ- 553 606 -8.7%
688 737 -6.6% 135/140/145
Boeing 757

Bombardier Dash 8 468 451 3.8%


Boeing 717/MD-80/ 655 668 -1.9%
Q400
MD-90/DC-9

515 558 -7.7% Bombardier Dash 8- 393 424 -7.3%


Boeing 747 100/200/300
423 288 46.9% 334 347 -3.7%
Boeing 787 Beechcraft 1900

Source: Flight Fleets Analyser 2016, Flightglobal


De Havilland Canada 281 268 4.9%
Twin Otter

232 228 1.8%


Saab 340

Source: Flight Fleets Analyser 2016, Flightglobal

Global Deliveries in 2015

In 2015 over 1,600 new aircraft were delivered worldwide. Boeing led the increase, shipping over 100
more units than its European rival Airbus. Boeing delivered 739 new airliners, which presents a 5%
increase compared to 2014, while Airbus deliveries remained almost flat, with 628 airliners shipped in
2015, only 1% above 2014 figures.

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Figure 99 – Airbus/Boeing 2015 Delieveries by Category Mainline aircraft deliveries rose by 3% in 2015,
& split by Region reaching 1,367. Asia-Pacific contributed most with
623 new units entering the market. Irrespective of
700 regions, it is worth noting that local airlines
623 Narrowbody
600 accounted for almost half of all single aisle aircraft
Widebody
500 delivered worldwide in 2015. The value of these
400
deliveries represented over two-fifths of the
industry’s entire investment in new aircrafts.
300
243 252
200
123 Deliveries in North America raised by 10% to 252
100 97
29 aircraft, 9 more than those delivered in Europe.
0
Despite this fact, Europe’s airlines were the second
America

America

Africa
Europe

Pacific

Middle
Asia-

East
North

Latin

biggest spenders with their deliveries valuing at


almost $ 18 billion119.

Source: Flight Fleets Analyser 2016, Flightglobal

In terms of unit deliveries, the market share between Airbus and Boeing was fairly even in most of the
markets, apart from North America and Africa. In terms of total sales, Airbus delivered the equivalent of $
31,693 million while Boeing shipped $ 59,075 million in aircraft. Grand total value of deliveries of Boeing
and Airbus airliners across the world exceeded $ 100,758 million in 2015.

Figure 100 – Airbus and Boeing Deliveries by Region (aircraft units) in 2015

Source: Aircraft & Engines 2016, Airline Business

119
Airline Business, Mainline Aircraft Statistics 2015, 2016

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Figure 101 – Regional Aircraft Deliveries in 2015 For the regional and turboprop market, the number
of new deliveries remained relatively flat between
140 2014 and 2015.
126 Regional jet
120
Turboprop Embraer, ATR and Bombardier were the biggest
100
manufacturers in 2015, with the Brazilian company
80
68 (Embraer) delivering 101 new aircraft (additional
60
10 compared to 2014), ATR 81 (additional 3
40 34 34 against 2014) and Bombardier 72 (less 6 units than
20 the ones delivered during 2014).
5 7
0
America

America

Africa
Europe

Pacific

Middle

Sukhoi and Comac, the two new regional jet


Asia-

East
North

Latin

manufacturers, were responsible for 19 and 1 unit


deliveries during 2015, respectively.

Source: Flight Fleets Analyser 2016, Flightglobal

Globally, and as Figure 101 shows, North America was the market with the highest number of new regional
aircraft units delivered in 2015, 126 in total. Asia-Pacific followed in second place with new 68 regional
aircrafts delivered. Europe and Latin America, with 34 new units, were the third largest markets for this
aircraft models.

Figure 102 – Regional Aircraft Deliveries by Region (aircraft units) in 2015

Source: Aircraft & Engines 2016, Airline Business

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2015 Orders by Aircraft Manufacture

Flightglobal reported 2,684 commercial aircraft ordered during the year 120. Taking into account the 310
cancellations and 123 swaps, net orders for the year closed at 2,375. This represented a 30% decrease
on the orders reported in 2014.

Figure 103 – Airliner Orders 2005-2015 Airbus, the European manufacturer,


received 1,100 new orders in 2015. This
reflects a 37% decline compared to 2014
when over 1,700 orders were placed.

Boeing on the other hand secured 840 new


orders during 2015, a 45% reduction
compared to 2014 (1,527orders).

Narrowbody airliners represented close to


two-thirds of total orders. Airbus secured
900 of these requests, mainly for the
A320neo, while Boeing recorded 550
Source: Fleet Watch 2016, Flightglobal orders, most of them for its new 737 Max.

Table 27 – Top 10 Commercial Aircraft Orders in 2015 With regards to widebodies, both Boeing
and Airbus received orders in the same
Customer Country Aircraft family Orders range, 179 and 137 respectively.
IndiGo India A320neo family 250
110 Regional jets and turboprops recorded an
Wizz Air Hungary A320neo family
100
identical number of orders. Regional jets
AerCap Netherlands B737 Max
secured 281 new orders and one less for
Avianca Colombia A320neo family 98
turboprops. But while this level of demand
Copa Panama B737Max 50
marked a decline in turboprop orders, it
Airlines represented a 55% increase in regional jet
FedEx USA B767 46
orders.
GECAS Ireland/USA A320neo family 43
Smile Air Ghana MA700 40 As Table 27 shows, the fast-growing Indian
Japan Japan RJ90 32 low-cost carrier Indigo placed the largest
Airlines order in 2015, committing for 250 A320neo
airliners. Wizz Air, another low-cost carrier,
Source: Fleet Watch 2016, Flightglobal also ranked high in the orders list, with 110
A320neo orders in 2015.

It is worth stating here that the biggest cancellation in 2015 came from the Russian market, amid the
challenging economic and currency environment. VEB Leasing, a provider of leasing deals for new and used
civil aircraft, freight planes, and business aircraft, cancelled a total of 24 Sukhoi Superjet 100s. Moreover,
the collapse of the Russian carrier Transaero resulted in a further 6 Superjet 100 cancellations.

120
Flightglobal, Fleet Watch 2016, A review of commercial aircraft orders and deliveries for 2015, 2016

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Aircraft Manufacture Projections

Demand for commercial airliners is growing. In emerging markets, demand for air travel is growing driven by
prosperous macroeconomic factors such as GDP and an expanding middle class. In case oil prices remain
in low levels for some time, this may drive airlines to delay the replacement or retirement of less efficient
aircraft types, which will have a knock on effect on airline fleet decisions driven by aircraft fuel efficiency. At
the same time, technological obsolesce is also expected to drive aircraft retirements and make the number
of aircraft deliveries increase year over year. In this section we look at aircraft manufacturer projections.

In their 2016-2035 Market Forecast and Current Market Outlook, Airbus and Boeing continue to present
somewhat different long term projections. Boeing expects 37,420 new units (excluding regional jets) to be
delivered between 2016 and 2035, compared with 33,070 expected by Airbus. The two manufactures have
similar forecast of twin aisle aircraft but Boeing forecasts 4,610 more single-aisle deliveries over the period,
and only one-third of the number of very large aircraft.

Figure 104 - Airbus and Boeing 2016-2035 Forecast Comparison

Source: Mott MacDonald analysis of Airbus Global Market Forecast 2016-2035 and Boeing’s Current Market Outlook 2016

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Figure 105 – Embraer and Bombardier Regional and With respect to regional and turboprop jet aircraft,
Turboprop Jet Forecasts Figure 105 reflects Embraer and Bombardier
manufacturer’s projections.

The Brazilian manufacturer Embraer expects to


deliver 14,750 aircrafts during the next 20 years,
whilst the latest available market forecast by
Bombardier projects 12,700 deliveries for the same
aircraft types.

For both manufacturers, Asia-Pacific and North


America are the regions showing the largest
growth opportunity and where they expect the main
number of orders to come.
Source: Mott MacDonald analysis of Bombardier’s Market
Forecast 2014-2033 and Embraer’s Market Outlook 2015-2034

General Aviation

In 2015, general aviation deliveries were down by 5% compared to 2014, according to the General Aviation
Manufacturers Association (GAMA) 121. There were 2,331 new units entering in service in 2015, against 2,454
in 2014. The 2015 results were impacted by economic uncertainty and currency fluctuation in key general
aviation markets such as Brazil and Europe, as well as in emerging markets like China. On the other hand,
the North America market and in particular Unites States provided stronger delivery numbers.

With regards to business jets, GAMA reports 718 new deliveries in 2015, a flat number compared to 2014
(722 new units). Bombardier projects in its 2016-2025 Business Aircraft Market Forecast that 8,300 new
units will enter in service during the next 10 years, with North America, Europe, Latin America and Greater
China anticipated to be the largest markets for business aircraft.

Figure 106 – Bombardier’s business jets 2016-2025 forecast deliveries

Source: Bombardier’s Business Aircraft Market Forecast 2016-2025

121
GAMA, 2015 General Aviation Statistical Databook & 2016 Industry Outlook, 2016

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4.5. Air Transport Industry Performance by Geographical Region
Europe

It is estimated that the air transport industry in Europe directly generated 2.5 million jobs in 2014 122. This
number was mainly constituted by on-site jobs at the airport (airport management, security, retail and hotels)
64% of the total, and 21% employed by airlines or handling agents. In total and indirectly, the industry
supported 11.9 million jobs and made an $ 860 billion contribution to GDP in Europe. Worldwide, the air
transport industry accounted for 19% of total jobs and 32% of the GDP.
Figure 107 – Direct Jobs Generated by Air Transport in Figure 108 – Total Jobs and GDP Generated by Air
Europe, 2014 Transport in Europe, 2014
3%
7%
12%

21%

57%

Airports Other on-airport


Airlines Aerospace
Air traffic management
Source: Aviation Benefits Beyond Boarders, ATAG Source: Aviation Benefits Beyond Boarders, ATAG

122
ATAG, Aviation Beyond Borders, 2016; All figures for 2014

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Table 28 – 2015 Deliveries: Top 5 European Airlines by Value
Value During 2015, over 240 new mainline airliners
Rank Airline Units entered in service and operated by European
($m)
1 Turkish Airlines (THY) 2,838 33
commercial operators, with a value of over $
2 Lufthansa 1,420 13 17.8 billion. Turkish Airlines and Lufthansa had
3 British Airways 1,155 7 the largest fleet acquisition in 2015 by value ($
4 Ryanair 1,118 24 2.8 million and $ 1.4 million, respectively).
5 EasyJet 1,067 23

Source: Aircraft & Engines 2016, Airline Business Turkish Airlines also acquired the highest
number of total aircraft in 2015 (33 units),
Figure 109- European Fleet: Units in Service by Aircraft followed by the low-cost carriers Ryanair (24)
and EasyJet (23).

Europe maintained the third place as the largest


world region in terms of aircraft in service, with
25% of the total fleet distribution (also 25% of
global market in 2014).

More than half of the world’s aircraft in service


are narrowbody jets. This is also true for Europe.
The region’s fleet is mainly made from
narrowbody jets (55%) followed by widebodies
(17%).
Segment
The dominance of single-aisle aircraft types in
Source: Mott MacDonald analysis of CAPA Fleet Analytics the region will increase in the short-term, as
close to 74% of the confirmed orders are for this
aircraft segment. Turboprop aircraft have a
declining share and make up to only 1% of
aircraft orders.

North America

Figure 110 – Direct Jobs Generated by Air Transport in Figure 111 – Total Jobs and GDP Generated by Air
North America, 2014 Transport in Europe, 2014

2%
2%
22%

53%
21%

Airports Other on-airport


Airlines Aerospace
Air traffic management

Source: Aviation Benefits Beyond Boarders, ATAG Source: Aviation Benefits Beyond Boarders, ATAG

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Table 29 – 2015 Deliveries: Top 5 North American
Airlines by Value During 2015, 252 new mainline airliners entered in
service with commercial operators within North
Rank Airline Value ($m) Units
America. This was worth over $16,369 million.
1 American Airlines 4,474 70
2 United Airlines 2,675 34 American Airlines and United Airlines had the
3 FedEx 1,597 18 largest fleet acquisitions by value in 2015.
4 Delta Air Lines 1,355 23
American spent over $4,474 million in 70 new
5 Southwest Airlines 885 19
aircraft while United spent $2,675 million adding 34
Source: Aircraft & Engines 2016, Airline Business new units to its fleet. American was also the world’s
Figure 112- North America fleet: units in service by top airline by number of units delivered during the
aircraft segment year.

North America leads as major aviation region by


number of aircraft in service. The region was
responsible for 30% of the total airline fleet in 2015.

43% of North-American fleet is made of


narrowbodies, while widebodies make up 13% of
the total number of units in the market. Regional
jets represent 22% of the market, the highest share
for this segment from all the major aviation regions

According to CAPA123 there were 2,172 confirmed


orders for commercial airlines in North America in
2015. From these, 61% were for narrowbodies,
15% for widebodies and 23% for regional jets.

Source: Mott MacDonald analysis of CAPA Fleet Analytics

The air transport industry in North America directly generated an estimated 2.4 million jobs in 2014 124. This
number was mainly driven by on-site jobs across the various airports in the region (55%) and employed in
the manufacture of civil aircraft, including systems, components, airframes and engines (22%). The air
transport sector supported 6.2 million jobs and contributed to $ 654 billion to GDP in North America.

Asia-Pacific

The air transport industry in Asia-Pacific directly generated an estimated 3.3 million jobs in 2014 125. This
number was mainly driven by on-site jobs at airports (63%) and from airline or handling agent jobs (32%).
The air transport sector supported over 8.9 million jobs and contributed $ 364 billion to the GDP in the Asia-
Pacific region.

123
CAPA, Centre for Aviation Fleet database, 2016
124
ATAG, Aviation Beyond Borders, 2016; All figures for 2014
125
ATAG, Aviation Beyond Borders, 2016; All figures for 2014

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Figure 113 – Direct Jobs Generated by Air Transport in Figure 114 – Total Jobs and GDP Generated by Air
Asia Pacific, 2014 Transport in Asia-Pacific, 2014
1%
4%
5%

32%

58%

Airports Other on-airport


Airlines Aerospace
Air traffic management

Source: Aviation Benefits Beyond Boarders, ATAG


Source: Aviation Benefits Beyond Boarders, ATAG
Table 30 – 2015 Deliveries: Top 5 Asia Pacific Airlines by
During 2015, 623 new airliners entered in service
Value
with commercial operators in Asia-Pacific. This was
Rank Airline Value ($m) Units equivalent to over $ 43 billion in value.
1 China Eastern Airlines 3,884 65 China Eastern Airlines was the top regional airline by
2 China Southern Airlines 2,552 34
both value and number of aircraft delivered (65 new
3 Korean Air 2,255 15
4 Air China 2,230 36 units valued at $ 3,884 million). China Southern
5 ANA - All Nippon Airways 1,948 16 Airlines and Korean Air both made it to the top three
with $ 2,552 million and $ 2,255 million spent in new
Source: Aircraft & Engines 2016, Airline Business
aircraft respectively.
Figure 115- Asia-Pacific fleet: units in service by aircraft
Asia-Pacific remained the second largest aviation
segment
world region in 2015 by number of aircraft in service.
During 2015, the region was also responsible for
28% of the global airliner fleet.

61% of the region’s fleet is made of narrow-body


jets, the largest share of this aircraft segment among
all other major aviation regions. This share is
expected to increase as 70% of existing orders for
the market are made for narrow-body units.
Widebodies account for 22% of the region’s fleet.

The share of regional aircraft accounts only for 16%


of the existing fleet and this share is expected to
decrease in the medium term as only 12% of existing
regional requests are made for this aircraft unit 126.

Source: Mott MacDonald analysis of CAPA Fleet Analytics

126
CAPA, Centre for Aviation Fleet database, 2016

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Middle East

The air transport industry in the Middle East directly generated an estimated 427,000 jobs in 2014 127. This
number was mainly driven by on-site jobs at airports (55%) and airline or handling agent jobs (43%). The air
transport industry supported over 1.2 million jobs and contributed $ 60 billion to the region’s GDP in 2014.
Figure 117 – Total Jobs and GDP Generated by Air
Figure 116 – Direct Jobs Generated by Air Transport in
Transport in the Middle East, 2014
the Middle East, 2014
1%1%
5%

43%

50%

Airports Other on-airport


Airlines Aerospace
Air traffic management
Source: Aviation Benefits Beyond Boarders, ATAG
Source: Aviation Benefits Beyond Boarders, ATAG

During 2015, 123 new airliners entered in service on


Table 31 – 2015 Deliveries: Top 5 ME Airlines by Value commercial operators in the Middle East. Emirates
Value was the leader in aircraft deliveries by both unit and
Rank Airline Units value. The Dubai-based airline added 26 units to its
($m)
1 Emirates Airline 5,129 26
fleet, which represented over $ 5,129 million in order
2 Qatar Airways 3,025 21 value. This was the highest value of aircraft
3 Etihad Airways 1,820 15 deliveries of any airline worldwide.
4 Saudia 1,463 9
5 Kuwait Airways 716 10 Qatar Airways was the second largest Middle East
Source: Aircraft & Engines 2016, Airline Business airline by aircraft orders, 21 new aircraft delivered,
followed by Etihad with 15 new units added to its
Figure 118- Middle East fleet: units in service by aircraft fleet.
segment
The region fleet has a strong presence of widebody
jets (49%) which is by far the biggest share for a
major aviation region (Asia-Pacific, the second
largest region by widebody market share,
widebodies account for 22% of the units in service).
This market share is expected to increase as 64% of
the existing 1,051 orders are widebody aircraft.

The share of regional jets is the smallest of all major


aviation regions, representing 15% of the aircraft
fleet in service and accounting for 5% of existing
orders.

Source: Mott MacDonald analysis of CAPA Fleet Analytics

127
ATAG, Aviation Beyond Borders, 2016; All figures for 2014

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Latin-America

The air transport industry in Latin America directly generated an estimated 606,000 jobs in 2014, mainly
driven by on-site jobs (52%) and airline or handling agent jobs (32%)128. The total impacts mean the air
transport sector supported over 2.2 million jobs and contributed $ 107 billion to the market’s GDP.

Figure 119 – Direct Jobs Generated by Air Transport in Figure 120 – Total Jobs and GDP Generated by Air
Latin America, 2014 Transport in Latin America, 2014
5%
2%
10%

50%
32%

Airports Other on-airport


Airlines Aerospace
Air traffic management
Source: Aviation Benefits Beyond Boarders, ATAG Source: Aviation Benefits Beyond Boarders, ATAG
Table 32 – 2015 Deliveries: Top 5 Latin American During 2015, 97 new airliners entered in service with
Airlines by Value commercial operators in the Latin-America. It
Value represented the second lowest number of unit
Rank Airline Units
($m) deliveries by major aviation regions.
1 LAN Airlines 1,290 13
2 Avianca Brazil 843 16 LAN Airlines, with 13 new airliners delivered, was the
3 Avianca 639 9 only airline exceeding $ 1 billion in business value.
4 Aeromexico 635 9
Avianca Brazil and Avianca completed the top three
5 TAM Linhas Aereas 611 10
deliveries by value with respectively $ 843 and $ 639
Source: Aircraft & Engines 2016, Airline Business million spent in new aircraft deliveries.

Figure 121- North America fleet: units in service by The Latin America fleet has a strong presence of
aircraft segment regional and turboprop aircraft in service. Combined
this segment represented 47% of total units in
service in the region during 2015. Narrow-body jets,
responsible for 46% of total airliners in service are
the only segment that exceeds the regional aircraft
share.

The important share of regional aircraft is expected


to decrease; from the 780 orders registered in 2015,
only 8% are for this aircraft segment. The biggest
share (82%) is made for narrow-body jets while the
remaining 10% are for widebodies expected to be
delivered in the next years.

Source: Mott MacDonald analysis of CAPA Fleet Analytics

128
ATAG, Aviation Beyond Borders, 2016; All figures for 2014

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Africa

The transport industry in Africa directly generated an estimated 381,000 jobs in 2014 129. This number was
mainly driven by on-site airport jobs (55%) and jobs with airlines or handling agents (35%). The air transport
sector supported over 1 million jobs and contributed $26.5 billion to Africa’s GDP.
Figure 122 – Direct Jobs Generated by Air Transport in
Figure 123 – Total Jobs and GDP Generated by Air
Africa, 2014
Transport in Africa, 2014
4%
6% 10%

35%
45%

Airports Other on-airport


Airlines Aerospace
Air traffic management
Source: Aviation Benefits Beyond Boarders, ATAG Source: Aviation Benefits Beyond Boarders, ATAG

Table 33 – 2015 Deliveries: Top 5 African Airlines by Value Africa was the region responsible for the lowest
number of aircraft deliveries in 2015. In total only
Value
Rank Airline Units 29 new airliners were delivered. This generated
($m)
$2.623 million for aircraft manufacturers.
1 Ethiopian Airlines 1,149 10
2 Kenya Airways 496 6
3 Air Algerie 384 5 Ethiopian and Kenya Airways were responsible
4 Tunisair 194 2 for more than 50% of the region’s total
5 Royal Air Maroc 119 1 acquisitions, with 10 and 6 units added
Source: Aircraft & Engines 2016, Airline Business
respectively to their fleets in 2015.

Figure 124- Africa fleet: units in service by aircraft segment African airlines account for 5% of total aircraft in
service worldwide. The region’s fleet presents a
very diverse fleet mix, where regional aircraft
represent the biggest share of units in service,
58% of the total fleet, which also represent the
highest presence of the segment among all the
major aviation regions. Narrowbodies and
widebodies account for 31% and 11% of the
existing fleet respectively.

The number of orders is the lowest across all


regions, with only 171 units expected to be
delivered in the short term.

There are 113 narrow-body and 71 widebodies


ordered. The importance of regional aircraft is
Source: Mott MacDonald analysis of CAPA Fleet Analytics expected to decrease as only 7% of total orders
are made for this aircraft segment.

129
ATAG, Aviation Beyond Borders, 2016; All figures for 2014

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5. Air Traffic Management

5.1. Introduction

As global air traffic grew back to record levels during the northern summer of 2016, air navigation service
providers in many parts of the world are facing contrasting issues concerning not only the deployment of
new air traffic management (ATM) technology but also more traditional problems related to the air traffic
controller workforce, overall resource numbers, industrial relations and wider societal problems. Most regions
of the world are gaining from an accelerating trend in the deployment of new ATM technology; but what is
becoming apparent as 2016 progresses is that ATM enhancement is being enabled by the incremental
deployment of individual technologies rather than that resulting from large scale implementation of the multi-
dimensional programmes such NEXTGEN in the US and SESAR in Europe.

While these programmes continue to be refined and acquire additional national and supra-national funding,
they are evolving in line with the development of several key enabling technologies which are also being
deployed in other regions. This process, along with moves to improve harmonisation of the new systems
across the globe, is greatly enhancing the seamless management of air traffic flows. This will set the scene
for the next update of the over-arching ICAO Global Air Navigation Plan (GANP) due following the 39th
assembly in autumn 2016. This review focuses on the latest developments in several of these key enabling
technologies and relates them to regional strategies and the move to a truly global and harmonised ATM
system.

5.2. Social/Industrial Context

In both 2015 and 2016, there have been various statements by air traffic controller groups in both Europe
and the US that at a time of technological change and implementation of new systems, controllers are being
encouraged to stay on beyond retirement age. There are different drivers for this; in the US, the wave of
young controllers hired after President Reagan fired striking controllers in 1981 are now reaching retirement
age. In the fragmented European system, many states are imposing cost reductions following on from
national austerity measures and requirements of the European Single Sky cost regime for RP2 2015-2019.
This has had the effect of reducing hiring, overtime and training, placing additional burden on existing
controllers and the need in some cases, to extend working for some controllers beyond the existing
retirement age.130

In December 2015, the trade association of the largest US scheduled airlines, A4A, stated that the majority
(with the notable exception of Delta Airlines), wished for a speed up in the modernisation of the US air traffic
management system, highlighting the present inefficiencies and making the case for a not–for-profit
organisation, free from the constraints of the US Federal budget process which exists at present with the
Federal Aviation Administration (FAA).131 By February 2016, draft legislation, which would have created such
an entity, had been drafted. Known as the AIRR, Aviation Innovation, Reform, and Reauthorisation Act, it
set out a vision for a not-for-profit version of the Air Traffic Organisation (ATO), modelled on NavCanada.
This was presented to the House Transportation and Infrastructure Committee in February but met
opposition from the large general aviation community. By April 2016, the US Senate moved to re-authorise
FAA funding into 2017 with a bill which required FAA to invest in enhanced surveillance of drones, monitor

130
Press release IFACTA European Regional Meeting Tallinn Estonia October 2015
131
Press release A4A National Media Call on the Need for Modernization and Reform of Nation’s Air Traffic Control December 2015

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cockpit automation, cyber security and provide greater clarity on the economic benefit to airspace users of
investment in new ATM systems.

The Senate Appropriations Committee stated that ”attempts to remove the air traffic control system from the
FAA is fraught with risk, could lead to uncontrollable cost increases to consumers and could ultimately harm
users and operators in the system”.132 It was also suggested that any putative separation of the ATO needed
a degree of union reform, echoing the continuing impact of strike action on European air traffic in both 2015
and 2016. The summer 2016 FAA re-authorisation bill also included language requiring FAA to amend its
hiring and training requirements for new controllers to offset the shortage, which was reported as reaching
crisis levels in for peak summer 2016. In the context of NEXTGEN, it is interesting that August 2016 saw
FAA advertising to recruit up to 1,500 new controllers.

In Europe, spring 2016 was marked by yet more industrial action, with French ATC striking on several
occasions, together with Italian counterparts and others. This action gave focus to the analogous European
airline industry lobby group, Airlines for Europe, A4E, who are demanding action to improve European ATM
by:
• delivering reliable and efficient airspace
• reducing the cost of ATC provision
• completion of the Single European Sky
• better economic regulation of ATM at EU level;
• minimising disruption by ATC strikes
• using new technology to make efficiency savings; and,
• using SESAR funding to drive compliance with the Single Sky framework.

A4E commissioned Price Waterhouse Coopers (PwC)133 to study the costs and dis-benefits that years of
industrial disputes have had on the European economy. Not surprisingly, European ATC unions criticised
this report, accusing it of overstating the impacts and suggesting it was deliberately designed to mislead the
public. Figure 125 below illustrates how these dis-benefits could have approached EUR10bn over the last
six years if the costs of rescheduling are included and delays calculated on the basis of the last filed flight
plan. This approach is somewhat questionable, given that increasingly, airlines, particularly short haul, take
a strategic view to minimise uncertainty and cancel a large number of daily flights in the face of extended
strike action which has been the regrettable case on many occasions in the last few years. The travelling
public then incur a huge amount of personal disruption.

132
Senate Appropriations Committee April 21 2016 S. 2844: Transportation, Housing and Urban Development, and Related Agencies
Appropriations Act, 2017

133
PwC (2016) The economic impact of ATC strikes in Europe Report for A4E 2016

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Figure 125: Estimate of overall economic impact of European ANSP strike action over six years

Source: PwC, 2015

At the same time, IATA commissioned SEO Amsterdam Economics to produce a study 134 on the economic
benefits of European airspace modernisation. Emphasising the importance of connective-ness across the
continent, the study then seeks to quantify the welfare benefits to consumers of airspace modernisation and
removal of airport capacity constraints in the years out to 2035. The large increases in GDP that would also
accrue are discussed. The study relies heavily on Eurocontrol Network Management, Performance Review
and STATFOR data to define the present situation on route inefficiency and airport capacity constraints and
applies a generalised cost model to estimate the economic benefits that would occur with increased traffic
flows which would be generated with a more efficient European airspace route structure and greater airport
capacity costs as shown in Figure 126 with an overview infographic at Figure 127.

Figure 126: Consumer Benefits of Airspace Modernization and Airspace Modernization plus

Source: SEO, 2016

134
SEO (2016): Economic benefits of European airspace modernization Amsterdam, February 2016, Commissioned By IATA

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Figure 127: Overview of Benefits to 2035 of Modernising European Airspace

Source: SEO, 2016

Staffing and resource issues in the context of the deployment of new technology in ATM have not just been
confined to Europe and the US. Airservices Australia has commenced its ambitious Onesky program to
update ATM infrastructure and combine civil and military air traffic control. Ahead of this, the Australian ANS
services provider announced in early summer 2016 that it was looking to lose some 600 staff in a bid to
reduce operating costs and improve profitability.

5.3. Global Issues - Flight Tracking

Although ICAO and IATA led the frenetic level of discussion over potential regulatory standards and solutions
in 2014 and 2015 following the disappearance of Malaysian flight MH370, ICAO itself failed to adopt the 15
minute tracking mandate that emerged out of discussions in September 2015. At about the same time, trials
carried out in the Asia-Pacific region by Qantas and other carriers showed that they could achieve a 14
minute tracking interval using existing autonomous dependent surveillance-contract (ADS-C) technology
which was less than half that obtained in existing operation in the Future Air Navigation System (FANS-1)
environment which has been the cornerstone of Pacific region oceanic operation for the last two decades.

An ICAO committee, Normal Tracking Implementation Initiative (NATII) recommended the cautious ICAO
approach, allowing airlines voluntary implementation and time to develop stakeholder awareness. However,
two other developments late in 2015 made the future path for flight-tracking more clear. Firstly, following
significant lobbying from Europe and other regions, in November 2015, the World Radio Conference (WRC)
endorsed the use of a particular band of the radio frequency spectrum for earth to satellite communication
using ADS-B, Figure 128. This paves the way for aircraft to utilise satellite communication and therefore the
broadcast of aircraft positions worldwide and, in particular, over ocean and remote areas not presently
covered by line-of-sight communication. Secondly, because many individual ANSPs are now requiring
airspace users to have ADS-B communication capability and the fact that ADS-B is the basis of the proposed

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satellite surveillance system being developed by Aireon for operation by 2018, the proposed ICAO flight
tracking standard will actually be achieved by the investment in aircraft equipage to meet other requirements.

Figure 128: Use of the Radio Spectrum for Air Navigation and Surveillance

Source: Eurocontrol presentation at ICNS conference, 2016

Conflict Zones

Within Europe, the High Level Task Force on Conflict Zones completed its final report 135 in March 2016,
recommending a common European risk assessment of conflict zones and a quick alert mechanism to notify
the aviation community of impending threats which would impact flight planning. It emphasised cooperation
within Europe on information sharing and threat identification. It also identified measures needed at national
and European levels to limit the risks to civil aviation from such conflict zones.

5.4. Key ATM Technology Enablers

It became ever more clear in 2016 that air traffic management is becoming increasingly dependent on the
digital exploitation of data with the level of automation on aircraft, both conventional ‘manned’ but increasingly
‘unmanned’ or remotely piloted and that of the ground and satellite systems that are being developed. The
exploitation of digital technology and an increasingly virtualised infrastructure offers huge savings in
hardware and maintenance costs but it is also likely to create vulnerabilities particularly in the area of
cybersecurity, witness recent comments by EASA in Europe and the language in the latest US FAA re-
authorisation bill.

The move to ‘big data’ is also evident in the industrialisation of new products and consolidation of vendors.
In Europe, Airbus had greatly enlarged the capability of its Prosky subsidiary with the purchase of Navtech
to drive the expansion of digital services. The first half of 2016 saw multiple announcements of new products
and adoption by ANSPs, e.g. UK NATS signing up SNOWFLAKE for advanced data handling, Frequentis
and Thales announced advanced network and decision tools. Similarly, in the US in June 2016, the US
Department of Transportation and NASA announced an initiative using big data to reduce congestion at
major airports, a key driver of the performance of the future air transportation system.

135
European Aviation Safety Agency EASA European High Level Task Force on Conflict Zones March 2016

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The next section presents a review of the latest developments in some of the most important enablers that
are driving change in the management of air traffic.

ADS-B: Autonomous Dependent Surveillance-Broadcast

ADS-B is proving to be the key technology for providing a step change in global surveillance. Following on
from its adoption in Australia, the mandate for aircraft flying in controlled airspace by 2020 in the US together
with the completion of a US continental wide system of terrestrial receivers, see Figure 129,. is allowing the
technology to be one of the early wins of the NEXTGEN programme. ADS-B surveillance data from this
network is now being processed at all the US en-route centres by the advanced en-route automation
modernisation (ERAM) technology, giving controllers a layer of surveillance of equipped aircraft in addition
to radar. This capability is driving the FAA move to encourage business and general aviation who fly in
controlled airspace to adopt the new technology and gain the safety benefits.

Figure 129: US Network of Ground ADS-B Receivers and Coverage

Source: FAA, 2016

The larger prize for ADS-B is as the basis of satellite surveillance. This provides a way for many regions and
countries to take a major leap in the provision of modern and comprehensive surveillance facilities at much
less cost than conventional ground facilities. The latest developments in the Aireon project are discussed in
a later section.

PBN: Performance-based Navigation

The exploitation of performance based navigation (PBN) techniques is proving to be a major agent of change
for arrival and departures at many airports around the world, in line with its position as an early win in the
ICAO Block upgrade programme. While the benefits to airports and airspace users of closely defined arrival
and departure routes in terms of predictability and consequent potential capacity increases are clear, the
impact on local populations is less favourable. The concentrative effect of aircraft movement on new routes
close to airports following the trial or permanent introduction of PBN routes has had significant community
pushback in California and Arizona, in particular, in the US as FAA deploys PBN as part of NEXTGEN as
illustrated in Figure 6.

Similarly in the UK, residents in ex-urban and rural areas close to Heathrow, Gatwick and Birmingham
airports have reacted badly to PBN routes, disrupting the UK’s Future Airspace Strategy (FAS) deployment,
designed to meet SESAR and, ultimately, ICAO requirements. Lawyers and politicians have not been slow
to back communities in emphasising the externalities of change.

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Figure 130: Roll out of PBN Procedures at Major US Airports

Source: FAA, 2016

DATALINK

2016 has seen a continuation of the struggle within Europe to develop a mission capable datalink system
that will drive future 4D trajectory management. The first half of the year saw the commissioning of the
Enhance Large Scale ATN deployment consortium (ELSA) study by the SESAR JU to address the
shortcomings in the existing system that had been flagged up by EASA. This study136 reported in July 2016.
The focus is on finding solutions to multi frequency deployments and improvements to VHF data link mode
2 (VDL2). There have been issues between EASA, SESAR JU and Eurocontrol which illustrate the difficulties
that occur in European decision making as a long term solution for datalink is one of the centralised services
envisaged by Eurocontrol as a way of reducing fragmentation in European service provision. This, is turn,
has to be consistent with the European ATM Master Plan which sets out the requirement for datalink
infrastructure over a longer time period and with greater capacity and performance than that might be
achieved by multi-frequency VDL2. In October 2016, and based on the results of the ELSA study, the
European Commission mandated the SESAR Deployment manager to develop and implement, as project
manager, a recovery plan to implement the necessary technological upgrades that will ensure a stable and
reliable ATN/VDL mode 2 technology in Europe.

SWIM

2016 provides more evidence that system wide information management (SWIM) techniques are moving
from disparate concepts for handling data into a harmonised and increasingly global infrastructure that is
going to bring the efficiencies to ATM and analytics that are characteristic of ‘big data’ in other industries.
SWIM techniques have been part of FAA management of US airspace since to 2010 and underpin their
collaborative decision making loop with the now relatively small number of major airline airspace users and
provides the model of how the basic constituents of aeronautical information data, flight planning information,
airport and weather data translate into a core body of operational information that can be shared with ANSP,
airports and airspace users to greatly increase efficient operation of the air traffic system, in contrast to one
where each actor operates within their own silo of data.

136
VDL Mode 2 Measurement, analysis and simulation campaign Final report of the ELSA consortium to the SESAR JU July 2016

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SWIM is a key and well developed component of both the SESAR and NEXTGEN programmes. SESAR
held a key demonstration day in June 2016 illustrating a large variety of specific operational contexts how
SWIM techniques can aid operational techniques. As SWIM initiatives bring a large increase in the amount
of data available, there is increasingly a realisation 137 that this creates an environment where airspace users
may be able to operate with their own decision support system based on new technology and information
which is more independent of ANSPs in their present form with deployment of concepts such as user driven
prioritisation process (UDPP) and selective flight protection (SFP).

In the US, formal SWIM designation is given to the SWIM Terminal Data Distribution System (STDDS),
converting surface data from airport towers into accessible information that is distributed to terminal area
control (TRACON) centres; similarly, the Surface Visualization Tool (SVT) is becoming a key SWIM enabler
by displaying a common picture of airport movements and congestion to the TRACON controllers and is a
platform that will enable the Terminal Flight Data Manager (TDFM) programme to be deployed. In addition,
SWIM Flight Data Publication Service (SFDPS) is providing the aeronautical, flight and weather data in
common format to all FAA and airspace user operational sites.

XMAN

Following a trial in 2015, XMAN techniques for handling the arrival flow into London Heathrow entered
operational service in 2016, with the benefits of reduced holding and consequent reductions in carbon dioxide
emissions from a reduction in extended flight paths on approach. This project involved coordination across
the UK-Irish FABs, with ANSPs NATS and IAA, and Functional Airspace Block Europe Central (FABEC) with
French ANSP DSNA. The key enabler is vastly superior handling of flight planning and surveillance data that
allows controllers to issue instructions to aircraft on speed and height to allow essentially 4D trajectories to
arrive in the London TMA in such a way as to minimise time in the holds. This has involved the use of
advanced data handling using open standard service orientated architecture and exploitation of SWIM
standard flight and data messaging as illustrated in Figure 131.

Figure 131: Heathrow XMAN Data-Flow

Source: Snowflake, 2016

137
Presentation to ICNS conference May 2016, Steve Bradford Chief Technologist FAA NextGEN, Philippe Merlo Director ATM
Eurocontrol

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These data techniques are also likely to be enablers following trials of advanced arrival techniques such as
iSTREAM which follows on from the FAIRSTREAM trial for arrivals at Paris and Zurich using target time of
arrival (TTA) techniques. Munich is also extending its arrival management capability with XMAN
developments with neighbouring area control centres.

5.5. Strategy/Technology Programmes

All world regions continue to evolve established programmes to update, develop and harmonise their air
traffic management infrastructure. However, as the infographic presented at Figure 132 illustrates, it is the
contribution that SESAR and NEXTGEN, together with the support of large CARATS programme in Japan,
that will allow the fulfilment of the ICAO Block upgrade programme to modernise global ATM over the next
10 years.

Figure 132: Overall Schema of Global ATM Development Programmes

Source: SESAR, 2016

EUROPE SES/SESAR

In Europe, 2015 into 2016 saw an important evolution relevant to the SESAR project itself and also the wider
aviation context with the publication by the European Commission of a finalised version of a long awaited
aviation strategy which lays great emphasis on the completion of the Single European Sky and recognises
the importance of the delivery of SESAR and the importance to the European economy of the industrialisation
of that research. The research programme SESAR 1 ends in 2016, with a continuation and funding for a
SESAR 2020 research programme through 2024. The SESAR Joint Undertaking issued a revised version
of the European ATM Master Plan late in 2015. The SESAR Deployment Manager produced a Deployment
Programme in 2015 and a revised draft for the 2016 edition became available in June 2016.

Following the limited progress made in 2015, 2016 was meant to be the year that SES ll legislation in Europe
is completed to enable the efficiencies and increased competitiveness that follow to be unlocked. A common
theme in both the European strategy and SES ll is that of the importance of airports to increasing the capacity
of the European aviation system. It is also becoming clearer that timely industrialisation of the results
emerging directly from SESAR R&D activities under the SESAR Joint Undertaking and now being rolled out
by the SESAR Deployment Manager with funding from the Connecting Europe Facility (CEF), is going to be
the biggest agent of change to modernise ATM.

In fact, some of the structures embodied in the SES legislation, in particular Functional Airspace Blocks
(FABs), are increasingly being seen138 as additional layer of responsibility which act as an obstacle to
decision making, leading to more fragmentation, blurring accountability and therefore increasing costs of

138
PRB white paper RP3 Performance Objectives Peter Griffiths June 2016

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operating and developing European ATM. That said, the revised geometry that some FABs provides is
assisting the deployment of free route airspace (e.g. Borealis initiative in northern Europe) and will provide
wider platforms for the deployment of new advanced trajectory management systems (e.g. ITEC).

The closer cooperation of air navigation service providers (e.g. A6, Borealis, Coopans) in developing and
deploying new systems is also likely to be key in enabling a more rapid delivery of change to the ATM system
in conjunction with the SESAR Deployment Manager. This highlights the importance of the Summer 2016
stakeholder consultation by the Deployment Manager on the Deployment Programme to ensure not only it
is consistent with European ATM Master-Plan, the requirements of the Pilot Common Project (PCP) but also
deliverable by industry to ANSPs. The July 2016 announcement of funding from the CEF provides a secure
platform to underwrite the Deployment Programme.

USA NEXTGEN

In the United States, the annual update to the NEXTGEN programme was published in June 2016,
highlighting the significant progress in deployment of key strands of enabling technology that are having
measurable positive impacts on the performance of the National Airspace System (NAS). The emphasis on
positive outcome follows the negative criticism of the NEXTGEN Advisory Committee in 2014, a further report
139from US DoT Office of the Inspector General in January 2016 relating more generally to FAA organisation

and perhaps, more crucially, the ongoing debate in the US in the first half of 2016 relating to the discussion
on the benefits of separate funding for the ATO. The 2016 update highlights the progress made on the key
strands of ERAM, ADS-B, DATA-COMM, PBN, airport runway and surface operations together with
improvements to data sharing in the context of SWIM developments.

It is significant that elements of the NEXTGEN programme related to airports and terminal areas, such as:
• DATA-COMM, as discussed above;
• the continued rollout of PBN arrival/departure procedures at additional major metropolitan airports
such as Charlotte;
• further deployment of the standard terminal automation system (STARS); and,
• the announcement in July 2016 of the development and implementation of terminal flight data
manager (TDFM) introducing the benefits of electronic flight strips.

…are achieving prominence, highlighting the importance of unlocking capacity at congested airports and
terminal airspace.

Japan CARATS

In Japan, work continues on Collaborative Actions for Renovation of Air Traffic Systems (CARATS),
particularly to align some of the previously envisaged programmes with what is emerging with NEXTGEN
and SESAR and compliance with the ICAO GANP. The modernisation of Japan air traffic management
system is crucial not only to meet these aims but to allow for the predicted rapid growth in air traffic with no
increase in controllers, reaping the gains of better information and managing the move towards trajectory
based operations, integration of satellite surveillance and SWIM data architecture, as shown in Figure 133.
It was announced in March 2016 that Japan and Singapore are going to collaborate on ATM modernisation
and research on ATM concepts and technologies.

139
Office of Inspector General Audit Report FAA reforms have not achieved expected cost, efficiency and modernisation outcomes
January 2016

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Figure 133: Overview of Japan ATM Modernisation

Source: Civil Aviation Bureau of Japan (JCAB), 2016

Australia ONESKY

Airservices Australia continues to make progress in the development of a combined civil and military air
traffic management system for completion in 2021. This will bring safety and efficiency gains and provide the
platform for conversion to ADS-B surveillance. It will also allow 4D trajectory management along with other
similar enablers that are being employed within SESAR and NEXTGEN. In February 2016, Airservices
announced the signing of a contract with Thales for the supply of advanced software that will underpin the
new system. Highlighting the moves already made from ground based navigational infrastructure, Airservices
announced the withdrawal of a significant number of VORs and related equipment from summer 2016.

Canada

NavCanada published the latest version of its air navigation system plan in September 2015. 140 This
highlights both short and medium term deployments of new ATM technology grouped around initiatives in
PBN, communications, surveillance, aeronautical information and weather. It also describes the mapping of
these activities to the ICAO block upgrade programme. Given the importance of the joint venture between
NavCanada and Iridium in the development of space based ADS-B, it is not surprising that the deployment
of this technology first on the North Atlantic in 2018 and then with the potential to replace conventional
secondary radar over the land areas of the nation by 2022 is a prominent goal of the plan. Related to this is
enhancements to air traffic management, particularly reductions on lateral separation on the North Atlantic
but which are dependent on advances in required navigation performance (RNP4), controller pilot downlink
communication (CPDLC) and enhancements to ADS-B and ADS-C.

Middle East

140
Charting the future The Air Navigation System Plan NavCanada September 2015

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2016 has seen continued focus on better cooperation between states, particularly in the Gulf region, to try
and provide for greater capacity to meet the aspirations of fast growing airlines in the region. Following the
announcement of both Airbus and Helios studies in late 2015 to improve planning141, coordination of airspace
change together with the provision of roadmaps for implementation and harmonisation of the latest ATM
solutions, real gains in capacity are yet to materialise across the region. This was also highlighted in an
Oxford Economics report142 which set out some potential gains that could be achieved if the amount of
airspace was increased and fragmentation reduced. Collaboration on implementation is seen as the key with
such a large number of fast growing airlines at large airports that are not situated that apart.

India

Airports Authority of India continues to provide civilian air traffic management across the country and is
adopting many of the technology upgrades adopted in other regions including ADS-B, PBN, airport CDM
and upper airspace harmonisation together with RNP routes. However, the flagship GAGAN project to deploy
a satellite based surveillance augmentation system has proved controversial.

China

Thales announced in late 2015 that they have been awarded a contract to upgrade the Shanghai airspace
and management systems at Pudong and Hongqiao airports which are facing significant traffic growth. 143
This is part of a wider plan to upgrade the six large air traffic control centres to meet the relentless growth in
air traffic, with Beijing, Shanghai and Guangzhou to be completed by 2022. More generally, lower altitude
airspace in China will be able for more general use by civilian aircraft which will provide for a much needed
capacity increase and be an enabler for the potential use by general and business aviation.

Asia Pacific

Countries within the Asia-Pacific region continue to lead with innovating ATM projects, including cooperation
on flight tracking standards, trialling of environmentally favourable ATM techniques on ocean flights e.g. the
Asia and Pacific Initiative to Reduce Emissions ASPIRE programme and joint ventures to study the
implications of deploying space based surveillance. Japan, CAAS Singapore, Airservices Australia and
Airways New Zealand are at the forefront of deploying systems to meet ICAO block upgrade plans, in
particular ADS-B, Required Navigation Performance (RNP) and PBN.

5.6. Airports
Capacity

As discussed above in the context of the United States, there is an increased realisation that airports are
likely to become the main focus of capacity constraints across the air transport system in future years as the
technology enablers unlock significant capacity increases in the en-route and terminal airspace. The political
and environmental agenda is such in most developed countries that new runways are not going to be easy
to construct and existing infrastructure must be used to its maximum potential.

Remote Towers

The most immediate new technology that has achieved the highest profile in 2015 and 2016 is that of remote
tower services (RTS) where the convergence in remote surveillance and communication makes the concept

141
Press release Airbus ProSky/METRON Arab Civil Aviation Commission (ACAC) sign a MOC Sep 6, 2015;also
https://www.askhelios.com/projects/seamless-airspace-study-for-gcc
142
Oxford Economics/NATS Economic benefits of improvements to Middle East Air Traffic Control August 2015
143
Press release Thales to modernise ATM automation in Shanghai ATC Global Dubai, 5th October 2015

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a potentially attractive solution to drive cost reduction and efficiency. Swedish ANSP LFV has made the most
progress with the concept, making the case for the safe deployment and operation of a remote tower system.
A study, in conjunction with the airports operator Swedavia, is looking at the deployment of remote towers
at five airports across the country, Malmo, Visby, Ostersund, Umea and Kiruna, which would be controlled
centrally from Stockholm to establish a large scale reliable and safe remote system. Demonstrating the scale-
ability of the concept, CAAS Singapore announced a project to identify a potential concept of operation and
business case for a remote tower associated with the new Changi East development containing Runway 3
and Terminal 5 with a study of the potential risks, mitigations and stakeholder engagement.

A-CDM

The European deployment of airport collaborative decision making (A-CDM) continues with Milan Linate
being the 20th airport, see Figure 134. A full review of the rollout and discussion of the benefits to ATM has
been published in a Eurocontrol impact assessment report 144. With the threshold of 50% departures across
Europe about to be reached, the information flows, particularly departure planning information (DPI) is having
an increasingly positive impact on network performance.

Figure 134: European A-CDM Airports

Source: Eurocontrol Performance Review Report, 2015

As the pressure on airport capacity increases, particular at the larger airports; smaller incremental increases
in overall capacity are going to be achieved through the deployment of advanced technology. Three
examples of this are presented below.

GBAS

Safety and efficiency of aircraft during the air-to-air transition of an aircraft through an airport i.e.
approach/landing/take-off will be enhanced using satellite based navigation techniques (SBAS). Ground
Based Augmentation Systems (GBAS) that allow a larger number of approach and departure routes to be
flown more accurately are being deployed across Europe, United States and Canada. Figure 135 illustrates
the spread of such capability across Europe using augmentation from the European Geostationary
Navigation Overlay Service (EGNOS) system.

144
A-CDM Impact Assessment Final Report Eurocontrol March 2016

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Figure 135: Implementation of European SBAS

Source: EGNOS, 2016

LPV-200

The implementation of the localizer performance with vertical guidance (LPV) approach route using EGNOS
satellite at Paris Charles de Gaulle airport in May 2016 points the way to allowing for demanding PBN
approaches at European airports and a cost effective way of replacing ageing ground navigational
infrastructure. 145The procedure allows for lateral and angular vertical guidance during final approach without
visual contact down to 200 feet above the runway.

Significant capacity benefits at the busiest airports should become available from the adoption of such
procedures.

TBS: Time Based Separation

Following trials at London Heathrow airport during 2015, involving NATS and Eurocontrol, the deployment
of a time based separation tool has now become fully operational, allowing much greater capacity resilience
to high winds on approach. The key feature of this system is the downlinking of actual winds from Mode S
on board aircraft on approach which provides the tool and controllers with a very accurate picture of wind
conditions and therefore the spacing to avoid vortex effects. Deployment of this tool is changing the concept
of operation for arrivals at this most heavily utilised airport operating at 99% of capacity and reducing the
amount of capacity reduction and holding in poor weather conditions.

Development of this tool in conjunction with Lockheed Martin is enabling the airport to meet revised wake
vortex Re-categorisation (RECAT) standards and innovate in the way groups or pairs of aircraft are set up

145
Press release 12 May 2016 European Global Navigation Systems Agency First EGNOS LPV-200 approach implemented at Charles
de Gaulle Airport

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on approach to minimise gaps and potentially increase capacity, important not only because of the potential
weather impacts but also with the increasing number (20/day) of A380 aircraft arriving at the airport.

5.7. Unmanned / Remotely Piloted Aerial Systems UAS/RPAS/Drones

The extremely rapid growth in small remotely piloted aircraft or drones in many countries is presenting
regulatory authorities and air navigation service providers with the dilemma of balancing the paramount
requirement for safety in the airspace with that of maximising the economic opportunities that will result from
developments in a very innovative industry. The Director General of IATA described drones as “a real and
growing threat to commercial aviation”. This balance has come into sharp focus during the summer of 2016
with some important developments. The review in this section focuses on the operational aspects of these
developments, particularly in the United States and Europe. A review of some of the safety issues related to
drone development is presented in Chapter 3, Safety of this report.

In the United States, June 2016 saw the publication of new regulations146 for the operation of small drones
(under 55 pounds weight) for commercial use in civilian airspace. These come into force in August 2016.
The rules contained in the Part 107 document are aimed at minimising risk to other aircraft flying in airspace,
people and property on the ground by allowing line of sight (VLOS) operations during the daytime and
twilight. There are other operational restrictions and points the way to further rollbacks in the regulation which
would ultimately allow operations at night and beyond line of sight. These are key requirements of
commercial operators, most notable and publicised being Amazon who are seeking a major relaxation of the
rules to allow the development of a package delivery service by small drones. It was significant that only a
few weeks after the publication of the rules in the US, Amazon announced a cooperation agreement with the
UK Civil Aviation Authority for the testing of small drone operation in the UK.

This action followed much preparatory action over the last year. Perhaps the most significant from an
administrative perspective, was the introduction in the US of a drone registration scheme for drones between
0.5 and 55 pounds. This database has grown extremely rapidly during the first half of 2016, recording a
registration and basic personal data relating to the operator.

The issue of operation standards for the key drone technologies has also been a very significant precursor
to the wider deployment of drones within the airspace, particularly with regard to detect and avoid (DAA) and
command and control (C2) technologies which are key to drone operation to fulfil the ‘see and avoid’ basis
of flying. Although drones can fly autonomously using sensors, the technologies depend on radio links which
may fail so operations must build in procedural solutions to maintain separation of the unmanned aircraft
from other aircraft in the airspace. This is particularly important around airports and in terminal manoeuvring
areas. Studies like the TEMPAERIS initiative in Europe show that the operation of unmanned aircraft in
terminal airspace is broadly similar to the operation of small general aviation aircraft in such an
environment.147 More broadly, unmanned aircraft systems must provide a safe way of operating beyond
visual line of sight and have procedures in the event of failure of even high reliability links.

Airservices Australia also published in June an operational concept for RPAS in controlled airspace which
would allow integration with conventional operation. The framework envisaged and approach used is seen
as gradual, proportionate, evolutionary and inclusive.

146
FAA Office of Secretary of Transportation Final Rule Operation and Certification of Small Unmanned Aircraft Systems June 2016
147
Deliverable D02 - TEMPAERIS Final Report SESAR JU October 2015

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Figure 136: The Commercial Opportunity

Source: AirMap, 2016

The more pressing and immediate problem that has emerged as amateur and hobbyists fly drones, together
with potential criminal and terrorist use, is that of drone flying close to airports and the collision risk with
conventional aircraft. Initiatives in this area require collaboration not only between aviation authorities but
also security and law enforcement agencies. This has been illustrated by an exercise carried out at New
York Kennedy airport, identify and deploying counter measures against test rotary and fixed wing unmanned
aircraft.

More widely, FAA is continuing research to detect unmanned vehicles close to airports. This has been
formalised specifically in the language contained in the latest FAA re-authorisation act, requiring the
maintenance of safe and efficient airport environment for both manned and unmanned air traffic operations.
In May, FAA announced that it had signed three research and development agreements to evaluate
procedures and technologies that can identify unauthorised drone operations in and around airports. In the
UK, trials have been carried out at several of the London airports in conjunction with the police and control
authorities on ways of detecting and disabling unmanned vehicles close to airports. This was brought into
sharp focus with an unsubstantiated claim that a drone was detected close to an arriving aircraft at Heathrow
in April 2016 and a subsequent near miss at Newquay in August 2016.

Figure 137: The Nuisance/Security Hazard

Source: as seen on Dorset Jurassic coast UK, 2016

In Europe, July 2016 saw the SESAR JU issued a call within the SESAR 2020 program for exploratory
research into the integration of drones into civil airspace. Again, this comes with the realisation that the

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economic and business opportunities that follow from drone use will only be fully realised if they can operate
safely in all areas of airspace. A key focus of the research is therefore in the very low level (VLL) and beyond
visual line of sight (B-VLOS) environment. The specifications were established in collaboration with the
European Aviation Safety Agency (EASA). This follows the development and consultation, during late 2015
and early 2016, on Europe-wide rules on drone usage. These specified three types of operation; open,
specified and certified. This is based on an assessment and classification of low, medium and higher risks
of drone operation. EASA had also created a drone collision task force in May 2016 to specifically look at
the risk of collision between drones and aircraft, together with the detailed vulnerability of aircraft structures
from such a collision. The results of this study were due to emerge at the end of July 2016.

May 2016 also saw the first meeting of a new group with ambitious aims to create worldwide standards for
unmanned aircraft systems air traffic management (UTM). This would ultimately lead to standardisation
across the globe for the integration of the operation of drones into controlled airspace. The US National
Aeronautics and Space Administration (NASA) is also devoting considerable resources to UTM research
with the aim of handover to FAA by 2019. This is based on four capability levels, with increased complexity
ranging from rural line of site operations up to applications in high density urban areas.

With the latest forecasts indicating that there are already 700,000 drones in US airspace and a forecast, in
April 2016, of 2.7M commercial drones in the US by 2020, it was not surprising that the FAA further extended
oversight through an advisory committee in May 2016 to “identify and prioritise” integration of UAS and drive
safety innovation. They also stated that it was difficult to establish an airspace structure that could safely
manage UAS together with other traffic and stating there was no current plan to reclassify low-altitude
airspace to accommodate small drones. The fact that 02 Aug 2016 was ‘drone day’ by FAA in Washington,
marked by testimony148 by officials to house representatives illustrates how the FAA is now focused on the
importance of UAS to the national airspace system, highlighting the balance between safety requirements
and commercial opportunity and the rapid pace of change.

Technology providers such as Harris are leading the way with the deployment of ADS-B solutions that will
allow UAS operators and airspace managers to enhance safety with views of the occupants of the airspace
below 500ft. Similarly innovative companies like AirMAP are bringing together aeronautical and local weather
information together on portable electronic devices to help drone operators fulfil the emerging FAA rules and
procedures for drone operation.

In May 2016, Price Waterhouse Coopers (PwC) produced a significant report 149on the potential value of the
world drone market together with a discussion of the potential disruptive effects on transportation and
distribution. A summary table at Table 34indicates the scale of the opportunity.

Table 34: Predicted Value of Drone-Powered Solutions in Key Industries - Global View

List of Key Industries Global predicted value ($ billion)

Infrastructure 45.2
Agriculture 32.4
Transport 13
Security 10
Media & Entertainment 8.8
Insurance 6.8
Telecommunication 6.3
Mining 4.4
Total: 127.3

Source: PwC, 2016

148
Testimony of Michael Huerta FAA Administrator Washington August 2 2016
149
“Clarity from above” Global report on commercial applications of drone technology PwC May 2016

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5.8. Aireon

The Aireon initiative which aims to deliver a space based global ADS-B satellite surveillance system gathered
further momentum in 2016. Aireon is a joint venture between the Iridium Corporation, NAVCanada and
several other partners including ENAV of Italy. September 2016 sees the launch of the first batch of the
Iridium NEXT satellites, which incorporate some 81 ADS-B payloads that will form the basis of the
independent global surveillance system as shown in Figure 125.

Figure 138: Satellite Architecture for Deployment of Space-Based ADS-B

Source: Aireon, 2016

Several additional ANSPs announced that they would be using the Aireon solution for surveillance, including
South African ATNS, where the Johannesburg FIR and Cape Town FIR and surrounding area account for
% of world airspace. Given the earlier announcement of Aireon collaboration with the ASECNA group of
ANSPs and a more recent commercial agreement with the Southern African Development Community, this
will further enhance surveillance across Africa where existing radar provision has always been fragmented.

Similarly, Singapore CAAS has also announced a 12-year agreement with Aireon to provide surveillance for
the Singapore FIR, which allows the potential for further sharing of ADS-B data with surrounding airspace in
the Asia Pacific. In July 2016, it was announced that the Myanmar DCA were evaluating the Aireon satellite
system as a way of modernising their surveillance capability for the Burmese FIR without the need for the
construction of expensive ground facilities. NAVIAR of Denmark have also announced a strategy for the
deployment of Aireon ADS-B as an additional layer of surveillance to provide redundancy against the failure
of the radar network and provide additional capability in the Greenland and North Sea areas.

Ahead of the ADS-B satellite network deployment, Iridium is also offering alternative and augmented GPS
technology to aid navigation and announced in May 2016 the Aircraft Locating and Emergency Response
and Tracking service (ALERT), the free global emergency and tracking service that is being operated by the
Irish Aviation Authority (IAA).

The Aireon project was boosted by the World Radio Conference (WRC) decision to allocate ADS-B
communication a dedicated tranche of spectrum. Although there are potentially two competitors to Aireon,
Globestar has already demonstrated ADS-B signal capture from aircraft and SES Techcom announced plans
to develop a rival system, neither seem viable in the new frequency environment or can be available ahead
of the 2018 Aireon timeline when space based ADS-B surveillance is due to be initiated by founding partner

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NAVCANADA and NATS on the North Atlantic Gander and Shanwick areas. It is widely expected that this
move to ADS-B surveillance from the existing procedural environment will allow a significant reduction in
longitudinal separation on the track system with immediate capacity benefits. As already noted, the Aireon
satellite deployment will also allow NAVCanada to change its mode of operation for surveillance and
potentially reduce lateral separation both in polar Canada and oceanic track systems. The overall timeline
for the satellite ADS-B rollout is shown in Figure 139. It is significant that initial live surveillance data from
the satellite constellation may be available late 2016.

Figure 139: Aireon Satellite ADS-B Deployment

Source: Aireon, 2016

Aireon will also provide ICAO with a ready-made solution to its aircraft tracking requirements as ADS-B
satellite surveillance will provide 1 minute updates on global aircraft positions, although ICAO is then faced
with the prospect of Aireon as a monopoly supplier. Different sub-optimal concepts are emerging in other
areas. For example, in India, airlines are resisting the introduction of GPS Aided Geo Augmented Navigation
(GAGAN) as it imposes the costs of additional equipment together with retrofits, training and certification.

Aireon are now also in discussion with two key elements of the Russian federation air traffic control system,
AZIMUT who provide enabling communication, navigation and surveillance (CNS) support to the State Air
Traffic Management Corporation and INFOCOM-via who provide aviation information services. The prize for
Aireon and the ANSP here is huge as the Russian Federation is one of the largest airspace in the world,
containing remote, polar and oceanic areas where the Aireon concept will provide a cost effective solution
to surveillance over a large area.

In June 2016, the Flight Safety Foundation (FSF) released a comprehensive report 150 on the safety benefits
of space based ADS-B surveillance as of now and in the short and medium term as ANSPs reap the rewards
of near real time 100% global coverage. Specifically, the report points to:
• real time surveillance will allow reduced oceanic separation;
• position errors at flight information regions (FIR) should be eliminated;
• 8sec updates will eliminate off-track errors;

150
Benefits Analysis of Space-Based ADS-B Flight Safety Foundation Washington DC June 2016

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• controller and pilot workloads should be reduced with better planning and constant real time airspace
picture;
• better strategic planning and contingency management e.g. in conflict and ash cloud zones; and,
• assistance in collection of black box type data in aircraft incidents and accidents.

The report highlights the need for equipage mandates and system integrity standards to be met together
with the widespread adoption by ANSPs to give the desired global interdependency.

5.9. Demand/Capacity/Performance
Europe

All the detail related to the performance of the European air traffic management system in 2015 and into
2016 is contained in three documents.151 152153 2015 saw an overall 1.5% increase in flights in Europe over
2014. A slightly higher year on year outturn increase is expected in 2016 which will take annual flight volumes
back close to the previous pre-economic downturn totals in 2007 and 2008. As shown in Figure 140, Figure
141 and Figure 142 , the average number of daily instrument flight rule (IFR) flights is below 30,000 in the
peak summer months in 2015 but there were several peak days ahead of 30,000. In 2016, there have been
many more in the first months of the summer as airline schedules increased with a better economic situation.

Figure 140: 2015 European Traffic Growth

Source: Performance Review Body (PRB) dashboard, 2015

151
Performance Review Report (PRR) 2015 Eurocontrol June 2016
152
Network Manager Annual Report 2015 Eurocontrol June 2016
153
Performance Review Body dashboard http://www.eurocontrol.int/prudata/dashboard/rp2_2015.html
http://www.eurocontrol.int/prudata/dashboard/rp2_2016.html

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Figure 141: 2016 European Traffic Growth

Source: Performance Review Body (PRB) dashboard, 2016

Figure 142: Variability of Average Daily Flights in Europe 2005-2015

Source: Eurocontrol PRU, 2015

Reviewing the published delay performance, the overview shown on the PRB dashboard in Figure 143 and
Figure 144 confirms that the Reference Period 2 (RP2) target of 0.5min/flight was not met in 2015 and is
unlikely to be met in 2016, given the level of delay. The details of delay cause are analysed in both the
Performance Review and Network management documents but the headline cause in both years is delays
caused by strike action. While ATC capacity and capacity (staffing shortages) contribute to the total and
there are specific issues in several centres and states which are clearly documented, it is clear that the
industrial action discussed earlier is the prime reason for the delay target being so significantly overshot.

Figure 143 Evolution of en-route ATFM Delay 2015

Source: PRB dashboard, 2015

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Figure 144: Evolution of en-route ATFM Delay YTD 2016

Source: PRB dashboard, 2016

The documentation also presents analysis of airport ATFM delays where there is a general increase and
specific issues at certain airports. Notably, there is also a pause in the improvement in horizontal flight
efficiency, both for flight planned and flown, indicating that the scope for improvement through the existing
route improvement programme may be ending. The additional RP2 performance indicator relating to
additional arrival time in terminal areas confirms the expected picture at the busier airports around Europe.
Comparing 2015 and 2016 does not reveal any great deterioration, indicating that ATFM measures and
network management is improving performance as traffic increases.

The documentation also analyses the remaining performance scheme parameters and provides an analysis
of a continuing view that the air traffic management system is safe but opaqueness in safety performance
remains. The picture on costs is complicated with the adoption of the determined cost methodology but
Figure 145 presents a moderately positive picture of the strategic relationship between cost, traffic and delay,
especially when the main driver for delay in recent years has been the industrial action by controllers in
several countries.

Figure 145: High level view of Trends in Costs, Traffic and Delay in European ATM

Source: Eurocontrol PRR, 2015

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United States

Activity forecasts for the US ATM system in terms of tower movements handled and en-route activity is
provided in aggregate in the annual FAA forecasts document 154. Detailed historical data is provided via the
OPSNET databases.

The overall level of activity presented in Figure 146 below is very interesting in the context of the debate over
the ownership, organisation and modernisation of the US air traffic management system as it illustrates that
the impact of the 2008 onwards downturn is forecast to have a much longer impact on flight volumes than
that in Europe. At a time when, as discussed earlier, there is great pressure on controller numbers, the
changing nature and distribution of demand in the US provides a challenging backdrop to the deployment of
new ATM technology and management of what appears a scarce controller resource.

Figure 146: US FAA System Activity Forecasts

Source: FAA Annual Aerospace Forecasts, 2016

154
FAA Annual Aerospace Forecasts 2016-2036

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6. Market & Competition Issues

6.1. Introduction

Whereas in previous editions of this Report, the focus had been on summarizing past developments of the
year covered, this edition seeks to include ongoing developments. When reviewing aviation policy unfold in
a continuum from past to current, three major factors affecting European aviation surfaced:

First, the Commission’s Aviation Strategy document155, adopted end 2015, has provided cornerstones
against which to evaluate the impact of regulatory measures. Thus the external aviation policy, as depicted
in the Strategy document, outlines objectives and priorities and therefore places the measures in a context.
Given the holistic approach pursued by the Commission, the issue is no longer merely whether new
agreements have been concluded with third countries, but whether the European aviation sector has gained
competitiveness globally and is contributing more to connectivity.

Second, in light of the encompassing Aviation Strategy, the State Aid decision must be seen in a broader
context. First of all, the decisions of DG COMP have been evaluated with regard to how the Guidelines on
State aid to airports and airlines 156 ("the Aviation Guidelines") have been implemented. But it is becoming
increasingly clear that DG COMP should be seen as an integral element of the Aviation Strategy: the manner
in which state aids are reviewed in the EU must be seen against aids granted by non-EU states to their
national airlines if the Commission is to succeed in achieving its stated objective of securing fair competition
internationally.

Third, the Brexit decision will be the single most important market issue as of 2017. It is as yet premature to
assess its implications for aviation, but it is a possible game changer for market dynamics within the EU, and
international negotiations on traffic rights.

This Report thus seeks in this chapter to cover the first two abovementioned issues, but also to analyse as
concisely as possible the implications of the regulatory developments for decision makers.

6.2. EU External Aviation Policy

The Communication 2015/598: An Aviation Strategy for Europe

On 7 December 2015, the Commission adopted a new Aviation Strategy for Europe, presented as “a
milestone initiative to boost Europe’s economy, strengthen its industrial base and contribute to the EU global
leadership”157.

155
Communication from the Commission – An Aviation Strategy for Europe, COM/2015/0598 final, http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52015DC0598&from=EN
156
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, p. 3–34, http://eur-
lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52014XC0404(01)&from=EN.
157
European Commission - Press release, Brussels, 7 December 2015, Commission presents a new Aviation Strategy for Europe,
http://europa.eu/rapid/press-release_IP-15-6144_en.htm

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This Aviation Strategy is the result of a public consultation 158 and of an extensive dialogue between the
Commission and EU Member States, the European Parliament, the European Economic and Social
Committee, and stakeholders.

With respect to international developments, this Aviation Strategy highlights the importance of tapping into
growth markets by improving services, market access and investment opportunities with third countries,
whilst guaranteeing a level playing field. The Aviation Strategy supports European air connectivity, the Single
European Sky and liberalised aviation agreements with the BRICs and ASEAN 159.

Figure 147 - One-way Capacity (ASKs) between the EEA and BRICS, ASEAN and Mexico

160
ASKs (Bn)

140
120
100
80
60
40
20
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

BRICS ASEAN Mexico

Source: SRS Analyser, 2016

Additionally, the Commission recommends the negotiation of new comprehensive EU-level air transport
agreements with China, Turkey, Saudi Arabia, Bahrain, UAE (United Arab Emirates), Kuwait, Qatar, Oman,
Mexico and Armenia. Furthermore, new aviation dialogues should be sought with key aviation partners such
as India.

158
http://ec.europa.eu/transport/modes/air/consultations/doc/2015-aviation-package/synopsis-report.pdf
159
http://centreforaviation.com/analysis/european-parliament-on-aviation-build-a-single-sky-promote-liberalisation---and-
protectionism-244496

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Figure 148 - EU-wide Air Transport Agreements Dec-2015

Source: European Commission, 2016

Improve Market Access

Today, Europe's share in worldwide scheduled passenger traffic is 27% 160.

This situation is expected to change in the coming years, given the fast economic development of the Asian
region. With growth forecasts at annual average growth rate of 6%, the passenger transport market in the
Asia Pacific region should represent 40% of the worldwide traffic in 2034. In this context, China should
become the largest market in the world, overtaking the United States in terms of number of transported
passengers from 2023161.

In view of their geographic location, the Gulf States, as well as Turkey, already benefit from the shift of the
centre of gravity of economic growth towards the East.

In order to allow European airlines to take part in the development of these emerging markets, the
Commission recommended negotiating comprehensive EU-level air transport agreements with the following
countries and regions: China, ASEAN, Turkey, Saudi Arabia, Bahrein, UAE, Kuwait, Qatar, Oman, Mexico
and Armenia.

160
Flying by numbers 2015-2034, Global Market Forecast of Airbus, p. 10.

161
Commission Staff Working Document, accompanying the document “Communication from the Commission to the European
Parliament, the Council, the European Economic and Social Committee and the Committee of Regions : An Aviation Strategy for
Europe, COM(2015) 598, http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52015SC0261&from=EN

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On 7 June 2016, the Council adopted mandates that allow the Commission to start negotiations on
comprehensive EU-level air transport agreements with ASEAN, Qatar, UAE and Turkey162.

ASEAN
The agreement with ASEAN is expected to become the first EU bloc-to-bloc aviation agreement. Already in
February 2014, at the end of an EU-ASEAN Aviation Summit, the European Commission and the Association
of Southeast Asian Nations (ASEAN) proposed to take aviation cooperation to a new level by negotiating a
comprehensive air transport agreement163.

The strategic and economic importance of a comprehensive air transport agreement between EU and
ASEAN is obvious:
▪ Air traffic between the two regions nearly doubled over the last 15 years to reach more than 10M
passengers in 2012;
▪ Passenger air traffic between EU and ASEAN is expected to grow by an average rate of 5% per
year over the next 20 years164;
▪ Currently a significant amount of this traffic is flown by airlines from third countries, especially
Emirates, Etihad, Qatar Airways and Turkish Airlines, via hubs in the Gulf (Dubai, Doha and Abu
Dhabi).

Gulf: Qatar, UAE


In 2015, some European carriers, notably Lufthansa and Air France KLM, as well as major U.S. airlines
(American Airlines, Delta Air Lines, and United Airlines), accused Gulf carriers of receiving unfair state
subsidies, allegations these disputed.

In a newly released 55-page white paper to the U.S. government, the three major U.S. airlines claim that the
Gulf carriers have received $ 42bn in subsidies since 2004, which distort the competitive market in direct
violation of U.S. Open Skies policy165.

In response to requests of European carriers, the Commission seeks strict limits on state subsidies to airlines
and the possibility of revoking their traffic rights in the context of new commercial air services agreements
(further explored in the ATM section of this Report).

Improve Investments Opportunities


The consolidation of the European and global markets for transport of passengers creates a need for
operators to benefit from a better access to foreign capital, from a greater freedom to invest in foreign markets
and from a reduction of barriers to joint venture and merger operations.

In its Aviation Strategy concept, the Commission addressed the obstacles facing European airlines in
overcoming the current hurdles. In order to reduce legal uncertainties, the Commission proposed:

162
EC Press Release, 07.06.2016, Comprehensive EU air transport agreements: Council adopts mandates,
http://www.consilium.europa.eu/press-releases-pdf/2016/6/47244641972_en.pdf
163
EC Press Release, 12.02.2014, Aviation: EU-ASEAN Aviation Summit proposes open skies agreement, http://europa.eu/rapid/press-
release_IP-14-133_en.htm
164
EC Memo, 10.02.2014, EU–ASEAN Aviation Summit – Towards stronger relations in aviation, http://europa.eu/rapid/press-
release_MEMO-14-95_en.htm
165
Restoring Open Skies : The need to address subsidized competition from state-owned airlines in Qatar and the UAE, January 28,
2015, http://www.openandfairskies.com/wp-content/themes/custom/media/White.Paper.pdf

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▪ to pursue the relaxation of ownership and control rules on the basis of effective reciprocity through
bilateral air services and trade agreements “with the longer term objective to do so at multilateral
level”; and,
▪ to publish interpretative guidelines on the application of Regulation 1008/2008 with respect to the
provisions on the ownership and control.

These initiatives undoubtedly constitute means to reduce barriers and uncertainties; however, they will
require deeper analysis in the context of the following:

▪ The continued pursuit by Member States and third States of their national strategic and economic
interests. Facilitating effective control by foreign investors into EU holding companies and/or airlines
could be perceived by Member States as undermining the desired impact of investments into
infrastructure or indeed the competitiveness of their respective national economies. To offset the
interest of a non-EU strategic investor to redirect traffic flows via its hub to international third country
destinations, thought should be given to providing Member States with the means to improve
connectivity by enhancing PSO options and facilitating regional consolidation as a means of
safeguarding access to and from European regions;
▪ Means should be elaborated to encourage investments by EU strategic and financial investors into
European infrastructure and airlines and airline groups;
▪ Further analysis will be required to ensure the issue of reciprocity, which the Commission has
identified, as being key. European strategic and financial investors should benefit from ease of
access to invest into growth markets in Asia, i.e. in growth markets also outside the EU. An investor
into an EU airline or airline group will not only seek assurances that his investment is protected
against unfair competition (explored below), but also benefits from growth opportunities by acquiring
or establishing competitors in global growth markets.

Guaranteeing a Level-Playing Field


In its new Aviation Strategy, the Commission not only addresses the goal of further improving market access
opportunities, but also the manner in which the market players will compete within the market.

As already discussed above, several American and European airlines have complained about alleged
subsidies and public aid granted by Gulf States to their national companies (Etihad, Emirates and Qatar
Airways) which are denied to their non-national competitors.

Regulation 868/2004 on the protection against subsidies and unfair pricing practices166 is a regulatory tool
to address such complaints, but has been applied insofar as airlines consider that its enforcement is
complicated and inappropriate to resolve the issue.

This complexity results in particular from:


▪ The definition of active legitimacy for bringing a complaint;
▪ The difficulty of determining the existence of unfair pricing;
▪ The difficulty of determining “non-commercial advantage”;
▪ The difficulty in proving “injury”;
▪ The difficulty in identifying financial transactions in the relationship between a government and an
airline of a third country.

166
Regulation (EC) 868/2004 of the European Parliament and of the Council concerning protection against subsidisation and unfair
pricing practices causing injury to Community air carriers in the supply of air services from countries not members of the European
Community. Official Journal of the European Union, L162, 1–7.

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In its communication, the Commission announced that it considers proposing in 2016 new measures to
address unfair practices; those new measures should differ from the framework of Regulation 868/2004.

The Commission equally considers negotiating effective fair competition provisions in the context of the
negotiation of EU comprehensive air transport agreement.

A "fair competition clause", could:


▪ list the forms of public support that could be considered unfair, such as protection from bankruptcy,
provision of capital, tax relief and cross-subsidisation; and,
▪ set up a consultation period in cases of disputes over unfair subsidies to an airline, after which,
should talks fail, the complaining country would be able to suspend or revoke the airline's air traffic
rights and impose fines.

Gulf companies, such as Emirates, have already taken a firm stand 167 against the inclusion of such clauses
in an Air Service Agreements stating that the clauses in force and Regulation 868/2004 are sufficient tools
to ensure fair and equal competition.

6.3. EU Competition Issues

DG COMP Decision Trends on State Aid to Airports

Principles set by the Aviation Guidelines


The underlying objective of the Aviation Guidelines is to ensure that any public investment is used to finance
the construction of viable airports meeting the demand of airlines and passengers.

In particular, duplication of unprofitable airports in the same catchment area and creation of additional
unused capacity should be avoided.

Moreover, granting of operating aid to airports should be phased out after a 10-year transitional period,
leaving in place only airports being able to finance their operations from their own resources

At the same time, the Aviation Guidelines aim at taking account of certain considerations such as the poor
accessibility of certain regions, the need for local development or the fact that smaller airports need greater
public financing.

On that basis, the Commission will accept investment aid to airports which meet certain conditions. By the
same token, operating aid to airports will also be accepted at certain conditions, until April 2024. The
Commission will reassess the situation of airports with annual passenger traffic of up to 700 000 by 2018 in
order to decide whether and for how long they may receive further operating aid.

167
Emirates, Airline and subsidy : our position, http://www.emirates.com/english/images/Airlines%20and%20subsidy%20-
%20our%20position%20new_tcm233-845771.pdf

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Key DG COMP Decisions on State Aid to Airports
Table 35 Procedures for state aid to airports processed in 2015

Case Country Parties Opening Closing Decision

SA.35388 Poland Setting up the Gdynia-Kosakowo Airport 02/07/2013 26/02/2015 NDR

SA.38936 France Régime d'aide à l'exploitation des petits et 20/06/2014 08/04/2015 NRO
moyens aéroports français

SA.38937 France Régime d'aide à l'investissement des 20/06/2014 12/06/2015 NRO


petits et moyens aéroports français

SA.39757 Ireland Ireland support scheme for aid for 05/11/2014 31/07/2015 NRO
regional airports

SA.39315 Estonia Tallinn Airport airside area development 06/08/2014 10/11/2015 NRO
project

SA.40433 Austria Investitionsprogramm Flughafen 01/01/2015 06/11/2015 NRO


Klagenfurt

SA.33769 Romania Târgu Mureş Airport, Wizz Air and Ryanair 31/07/2015 On-going

SA.32963 Romania Cluj-Napoca Airport: Aid to Wizz Air 31/07/2015 On-going

SA.29064 Ireland Unlawful State aid by Ireland to Aer 28/09/2015 On-going


Lingus, Aer Arann and Dublin Airport
Authority

NDR = Negative Decision with recovery - NRO = Decision not to raise objections

Source: EC Decision

Poland: Setting up the Gdynia-Kosakowo Airport (SA.35388)168

In February 2014, the Commission concluded that the public funding aimed at setting up Gdynia
Kosakowo Airport, a new airport, around 25 km from Gdansk airport (north Poland), provided by the city
of Gdynia and the municipality of Kosakowo constituted incompatible State aid. The Commission ordered
Poland to recover PLN 91.7 million (around EUR. 21.8 million) illegally granted by the municipalities.
Following arguments presented by Poland in the Court proceedings, on 26 February 2015, the
Commission readopted the final decision on Gdynia-Kosakowo Airport excluding from the recovery
amount a part of public financing that had been spent on activities related to public policy remit (fire
brigade, security, police etc.).

An action for annulment of the decision brought by the municipalities of Gdynia and Kosakovo and by the
airport operator is currently pending in front of the General Court169.

168
Commission decision of 26 February 2015 on the measure SA.35388 (2013/C) (ex 2013/NN and ex 2012/N) – Poland - Setting up
the Gdynia-Kosakowo airport, C (2015) 1281 final,
http://ec.europa.eu/competition/state_aid/cases/249231/249231_1654141_224_2.pdf.
169
Action brought on 15 May 2015 — Gmina Miasto Gdynia and Port Lotniczy Gdynia Kosakowo v Commission, OJ C 254 from
03.08.2015, p.16,
http://curia.europa.eu/juris/document/document.jsf?text=&docid=166264&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&pa
rt=1&cid=569496.

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France : Régimes d'aide à l'exploitation des petits et moyens aéroports français et d’aide à
l’investissement des Aéroports Français (SA.38936170; SA.38937171)

On 8 April 2015, the Commission approved two aid schemes notified by France concerned investment
aid and operating aid to airports. The schemes were notified on 20 June 2014.

The investment and operating aid schemes concern all French airports of less than 3 million passengers
annually. In 2012, there were 77 such airports in France, of which 67 served less than 1 million
passengers a year. No aid can be granted where there are other airports in the same catchment area,
meaning at less than 100km or 60 minutes travelling time by car, bus, train or high-speed train.172

The amount of operating aid for airports with up to 700,000 passengers per annum will be 80% of the
initial operating funding gap. For other airports, the maximum permissible aid amount will be limited to
50% of the initial funding gap for a period of 10 years.

The schemes, which have been approved for a period of 10 years, enable France to grant individual aid
that complies with the criteria laid down in the Aviation Guidelines without further intervention by the
Commission. In order to ensure that France complies fully with the Aviation Guidelines, monitoring
arrangements, in a form of annual reports on the application of the schemes, were put in place.

Ireland: Support scheme for operating and investment aid for regional airports (SA.39757)173

On 15 April 2015, the Irish authorities notified to the Commission two aid schemes which aim to provide
support for regional airports in Ireland. The two notified schemes form part of Ireland's "Regional Airports
Programme 2015 - 2019".

Four Irish airports are eligible for the notified aid schemes: Donegal, Waterford, Kerry and Ireland West
Airport Knock (“IWAK”). The four airports are spread out geographically. Each airport is situated at least
100km and 1-hour drive from another Irish airport. The biggest airport, IWAK, served 665,400 passengers
in 2013, 703,700 passengers in 2014 and 684,700 in 2015, while the smallest one, Waterford, served
28,200 passengers in 2013, 35,200 passengers in 2014 and 36.300 in 2015174. Ireland considers that
these airports play an important role for the connectivity of its citizens with the rest of Europe. Currently,
they are focused on bringing in tourism and ensuring international connectivity.

The Commission has decided that the notified schemes fulfil the conditions set in points 83 to 137 of the
Guidelines175 and that they are compatible with the internal market pursuant to Article 107(3)(c) TFEU.
Now that the schemes have been approved, the funds can be allocated across the eligible airports.

170
Commission decision of 8 April 2015 on the measure SA.38936 (2014/N) – France - Régime d’aide à l’exploitation des aéroports
français, C (2015) 2267 final, http://ec.europa.eu/competition/state_aid/cases/253205/253205_1659696_111_2.pdf
171
Commission decision of 8 April 2015 on the measure SA.38937 (2014/N) – France - Régime d’aide à l’investissement des aéroports
français, C (2015) 2270 final, http://ec.europa.eu/competition/state_aid/cases/253206/253206_1659697_128_2.pdf
172
Commission decision of 8 April 2015 on the measure SA.38936 (2014/N), op.cit., para. 6-23 and Commission decision of 8 April
2015 on the measure SA.38937 (2014/N), op.cit., para. 6-21.
173
State aid SA.39757 (2015/N) –Ireland –Regional Airports Programme 2015 –2019, C (2015) 5311 final,
http://ec.europa.eu/competition/state_aid/cases/258116/258116_1676549_114_2.pdf.
174
ACI World Monthly Traffic Reports, Sabre ADI, Central Statistics Office (CSO) of Ireland
175
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 83 to 137.

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Estonia: Airside Infrastructure Tallinn Airport (SA.39315) 176

On 26 June 2015, the Estonian authorities notified a measure concerning the modernisation of the Tallinn
airport's infrastructure

Tallinn airport is Estonia’s busiest airport and the only airport with regular international air traffic. In 2013,
it served around 2 million passengers. In 2014, 15 airlines operate at Tallinn airport, flying to 20
international destinations 177.

On 10 November 2015, the Commission has decided that the aid scheme to finance the modernisation
of infrastructure at Tallinn airport fulfils the conditions set in point 79 of the Guidelines178 and is compatible
with the internal market pursuant to Article 107(3)(c) TFEU.

Austria: Investitionsprogramm Flughafen Klagenfurt (SA.40433) 179

On 14 April 2015, the Austrian authorities notified to the Commission planned public financing for the
modernisation of Kärnten Airport in the Austrian Land Carinthia.

Kärnten airport is located in Carinthia, a mountainous region in the south of Austria, next to Klagenfurt,
Carinthia’s capital. The closest airport is that of Ljubljana in Slovenia, which is situated at 71km but more
than 1-hour drive, due to the mountainous roads. The airport offers connections to major international
airports, namely Vienna, Berlin, Hamburg and Cologne airports. In 2013-2014, the airport served around
200,000 passengers.180

The Commission has decided that the aid to finance the modernisation of infrastructure and equipment
at Kärnten airport fulfils the conditions set in point 79 of the Guidelines 181 and is compatible with the
internal market pursuant to Article 107(3)(c) TFEU.

Romania: Cluj-Napoca Airport: Aid to Wizz Air (SA.32963)182

On 4 May 2011, the Commission received a complaint concerning the potential granting of illegal State
aid to Wizz Air at Cluj - Napoca Airport. On 31 July 2015, the Commission decided to initiate a formal
investigation procedure183, which is still on-going.

The measures subject to the investigation concern:


• agreements between Cluj-Napoca airport and Wizz Air concluded between 2007 and 2010, which
grant Wizz Air remuneration for providing advertising services to the Cluj region, subject to various
conditions related to the presence and scale of operations of Wizz Air at Cluj airport, and which set
terms for ground handling services provided by the airport to Wizz Air;

176
State aid SA.39315 (2015/N) – Estonia Investment in airside infrastructure at Tallinn airport, C (2015) 7700 final,
http://ec.europa.eu/competition/state_aid/cases/259256/259256_1706255_53_2.pdf.
177
Ibid., para. 3-13.
178
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 79.
179
State aid SA.40433 (2015/N) – Austria. Investment Programme Kärnten Airport, Klagenfurt, C( 2015) 7569 final,
http://ec.europa.eu/competition/state_aid/cases/258091/258091_1710939_186_2.pdf.
180
Ibid., para. 4-33.
181
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 79.
182
State aid SA.32963 (2012/NN) (ex 2011/CP) –Romania State aid to Wizz Air and Cluj-Napoca Airport, C (2015) 5346 final,
http://ec.europa.eu/competition/state_aid/cases/260004/260004_1733089_51_2.pdf.
183
State aid SA.32963 (2012/NN) (ex 2011/CP) –Romania State aid to Wizz Air and Cluj-Napoca Airport, C (2015) 5346 final,
http://ec.europa.eu/competition/state_aid/cases/260004/260004_1733089_51_2.pdf.

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• various subsidies from local authorities over the period 2010 – 2014 to Cluj-Napoca airport to cover
capital and operating costs184.

Romania: Târgu Mureş Airport, Wizz Air and Ryanair (SA.33769)185

On 13 October 2011, the Commission received a complaint concerning the potential granting of illegal
State aid to Wizz Air at Târgu Mureş airport. On 31 July 2016, the Commission decided to initiate a formal
investigation procedure186, which is still on-going.

The measures subject to the investigation concern:


• airport charges at Târgu Mureş airport that seem abnormally low and involve significant discounts
linked to traffic level, mainly benefitting Wizz Air but also Ryanair and other airlines operating at that
airport;
• various subsidies received by the airport from local authorities since 2011, in the form of an incorrect
entrustment of the SGEI duties to the airport used to finance the loss created by low airport charges,
and of the financing of ground handling equipment, and car parking facilities187.

Ireland: Unlawful State aid by Ireland to Aer Lingus, Aer Arann and Dublin Airport Authority (SA.29064)188

On 30 March 2009, Ireland introduced a tax to be paid by airlines for each departing passenger. Ryanair
lodged a complaint regarding the alleged unlawful and illegal State aid through five measures connected
with the air travel tax. After a preliminary investigation, the Commission found that four of the alleged aid
measures, including the non-application of the air travel tax to transfer and transit passengers, did not
constitute State aid. The decision was adopted on 13 July 2011 and it was challenged before the General
Court by Ryanair.

In 2014, the General Court annulled the decision on purely procedural grounds, with respect to the exemption
for transit and transfer passengers 189. The Court found the duration of the preliminary investigation too long
and concluded that a formal investigation procedure should have been opened.

In order to comply with the judgment in Case T-512/11, the Commission opened the formal investigation
procedure on the exemption for transfer and transit passengers on 28 September 2015. The investigation is
still on-going.

Analysis in light of the Aviation Guidelines Principles regarding Aid to Airports

In accordance with the Aviation Guidelines, the Commission analyses each case in light of the list of criteria
contained in points 79 (all aid measures), 83 to 111 (investment aid) and 112 to 137 (operating aid) of the
Guidelines.

184
Ibid., para. 21-47; European Commission - Press release, Brussels, 31 July 2015, State aid: Commission opens in-depth
investigations into Romanian measures in favour of two airports and airlines, http://europa.eu/rapid/press-release_IP-15-
5458_en.htm.
185
State aid SA.33769 (2015/NN) (ex-2011/CP) –Romania –Alleged aid to Târgu Mureş Transilvania Airport, Wizz Air, Ryanair and
other airlines, C (2015) 5347 Final, http://ec.europa.eu/competition/state_aid/cases/260005/260005_1733087_31_2.pdf.
186
State aid SA.32963 (2012/NN) (ex 2011/CP) –Romania State aid to Wizz Air and Cluj-Napoca Airport, C (2015) 5346 final,
http://ec.europa.eu/competition/state_aid/cases/260004/260004_1733089_51_2.pdf.
187
Ibid., para. 30-72; European Commission - Press release, Brussels, 31 July 2015, State aid: Commission opens in-depth
investigations into Romanian measures in favour of two airports and airlines, http://europa.eu/rapid/press-release_IP-15-
5458_en.htm.
188
State aid SA.29064 (2015/C) (ex 2011/NN) — Air Transport — Exemption from air passenger tax http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52016XC0617%2804%29&from=EN
189
Case T-512/11 Ryanair v Commission ECLI:EU:T:2014:989.

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Consequently, each criterion has been applied by the Commission as follows.

The aid/scheme contributes to a well-defined objective of common interest

In accordance with the Aviation Guidelines, investment and operating aid to airports will be considered to
contribute to the achievement of an objective of common interest where it:
• increases the mobility of Union citizens and the connectivity of the regions by establishing access
points for intra-Union flights; or
• combats air traffic congestion at major Union hub airports; or
• facilitates regional development190.

In addition as regards investment aid, when the investment aid aims at creating a new airport capacity,
the new infrastructure must, in the medium-term, meet the forecasted demand of the airlines, passengers
and freight forwarders in the catchment area of the airport, without diminishing the medium-term
prospects for use of existing infrastructure in the catchment area191.

Moreover as regards operating aid, where an airport is located in the same catchment area as another
airport with spare capacity the Commission will have doubts as to the prospects for the first airport to
achieve full operating cost coverage at the end of the transitional period. To avoid any unnecessary
duplication, the business plan, based on sound passenger and freight traffic forecasts, must identify the
likely effect on the traffic of the other airport located in that catchment area.

In applying this criterion, the Commission has accepted that an aid contributes to a well-defined objective
of common interest for the following grounds put forward by Member States:
• the aid will improve the accessibility of the region in a sustainable way, since the airport plays an
important role in the country’s transportation system and economy192;
• there are no other airports located in the same catchment area or the airports serve different
markets193;
• without the investment, the airport risks closure, while it is essential for the economy of the province
in which it is situated194;
• the aid schemes aim at optimising the country’s airport network, fighting saturation of the big national
airports, developing European transregional air connections and regional economy.195

The need for State Intervention

In accordance with the Aviation Guidelines, State intervention to finance infrastructure investments will
be considered needed where the annual passenger traffic is less than 3 million passengers and, where
the annual passenger traffic is above 3 and up to 5 million, only under certain case-specific
circumstances196.

As regards operating aid, State intervention will be considered need where the annual traffic of the airport
does not exceed 3 million passengers197.

190
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 84.
191
Ibid., para. 85.
192
SA.39315 Estonia, airside infrastructure Tallinn airport, op.cit., para. 46-48.
193
SA.39757 Ireland, Regional airports programme 2015-2019, op.cit., para. 54-62 and 96-101.
194
SA.40433 Austria, Investitionsprogramm Flughafen Klagenfurt, op.cit., para. 53-58.
195
SA.38937 – France, Régime d’aide à l’investissement des aéroports français, op.cit., para.33-40 and SA.38936 – France, Régime
d’aide à l’exploitation des aéroports français, op.cit., para. 35-42.
196
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 89.
197
Ibid., para. 119.

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The Commission has found a need for State intervention where:
• the aid will bring about a material improvement for the investment project that the market itself does
not deliver given the high funding gap198;
• the airports at stake would risk closure without the aid, while the aid aims at developing the airports
to a viable size, allowing them to cover their own operational costs199;
• in absence of the aid, no financial institution or other investor would invest in the project200;
• the investment aid scheme corresponds to a real need201;

Appropriateness of the Aid Measure

In accordance with the Aviation Guidelines, this criterion means that an aid measure will not be
considered compatible with the internal market if other less distortive policy instruments or aid instruments
allow the same objective to be reached202.

For investment aid, where a Member State has considered other policy options and the use of a selective
instrument, such as a direct grant, has been compared with less distortive forms of aid (such as loans,
guarantees or repayable advances), the measures concerned are considered to constitute an appropriate
instrument203.

For operating aid to be considered appropriate, Member States are required to establish the aid amount
ex ante as a fixed sum covering the expected operating funding gap (determined on the basis of an ex
ante business plan) during a transitional period of 10 years, while no ex post increase of the aid amount
should be possible. In exceptional circumstances the maximum amount of compatible operating aid can
be granted (calculated on the basis of the initial operating funding gap)204.

The Commission has considered aid measures to be appropriate where:


• subsidised interest rates, a loan at reduced interest rates or credit guarantees would not be sufficient
for the implementation of the project since the revenue generated by the latter will not be sufficient
even to cover the principal loan amount or would be too burdensome205;
• the amount of operating aid scheme is established ex ante by a fixed amount for each airport without
it being possible to increase the aid ex post206;
• the French authorities committed to evaluate the possibility to use an instrument less selective than
a direct subsidy, such as loans, guarantees or repayable advances, and to choose the less distortive
form of aid207.

Incentive Effect

In accordance with the Aviation Guidelines, this criterion is only fulfilled as regards investment aid where
works on an individual investment can start only after an application has been submitted to the granting

198
SA.39315 Estonia, airside infrastructure Tallinn airport, op.cit., para. 49-52.
199
SA.39757 Ireland, Regional airports programme 2015-2019, op.cit., para. 102-106.
200
SA.40433 Austria, Investitionsprogramm Flughafen Klagenfurt, op.cit., para. 59-64.
201
SA.38937 – France, Régime d’aide à l’investissement des aéroports français, op.cit., para. 41-42.
202
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 90 and 120.
203
Ibid., para. 91.
204
Ibid., para. 120-122.
205
SA.39315 Estonia, airside infrastructure Tallinn airport, op.cit., para. 53-55; SA.40433 Austria, Investitionsprogramm Flughafen
Klagenfurt, op.cit., para. 65-67; SA.39757 Ireland, Regional airports programme 2015-2019, op.cit., para. 107-109.
206
SA.39757 Ireland, Regional airports programme 2015-2019, op.cit., para. 67-73.
207
SA.38937 – France, Régime d’aide à l’investissement des aéroports français, op.cit., para.43-46 and SA.38936 – France, Régime
d’aide à l’exploitation des aéroports français, op.cit., para. 46-49.

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authority and where the investment would not have been undertaken or would not have been undertaken
to the same extent without any State aid208.

As regards operating aid, this criterion is fulfilled if it is likely that, in the absence of the operating aid, the
level of economic activity of the airport concerned would be significantly reduced209.

The Commission has considered that there is an incentive effect where:


• a profit-driven airport operator would not finance EUR70 million investment in airside infrastructure
without aid210 or the airport operator would not undertake the modernisation of the airport in the
absence of the aid in question211;
• in the absence of operating aid, the level of economic activity of the airport would be seriously
endangered212;
• for projects to be funded under an investment aid scheme, work can begin only after obtaining
permission for payment of aid to the competent authority213, all the more so if a counterfactual
analysis is foreseen in the business plan and the aid is restricted to the cases of creation of new
infrastructure or the improvement of existing airport capacity214;
• the public authority guarantees that the requirements regarding the incentive effect of operating aid
are fulfilled215.

Proportionality of the Aid Amount

In accordance with the Aviation Guidelines, the maximum permissible amount of investment aid is
expressed as a percentage of the eligible costs as follows:
• Up to 75% for airports with less than 1 million average passenger traffic, with average traffic
determined on the basis of the inbound and outbound passenger traffic during the two financial years
preceding that in which the aid is notified or granted in the case of non-notified aid;
• Up to 50% for airports with 1 million to 3 million average passenger traffic;
• Up to 25% for airports with more than 3 million to 5 million average passenger traffic216.

Those numbers can be increased by 20% for airports located in remote regions, irrespective of their
size217.

As regards operating aid, the maximum permissible aid amount during the whole transitional period will
be limited to 50% of the initial funding gap for a period of 10 years starting from 4 April 2014, except for
airports with average passenger traffic of less than 700.000 passengers, in which case the maximum
permissible aid amount will be 80% of the initial operating funding gap for a period of five years, after
which the need for a specific treatment will be reassessed by the Commission for the 5 remaining years 218.

208
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 93-94.
209
Ibid., para. 124.
210
SA.39315 Estonia, airside infrastructure Tallinn airport, op.cit., para. 56-60.
211
SA.40433 Austria, Investitionsprogramm Flughafen Klagenfurt, op.cit., para. 68-75.
212
SA.39757 Ireland, Regional airports programme 2015-2019, op.cit., para. 74-77.
213
Ibid., para. 110-113.
214
SA.38937 – France, Régime d’aide à l’investissement des aéroports français, op.cit., para. 47-49.
215
SA.38936 – France, Régime d’aide à l’exploitation des aéroports français, op.cit., para. 50-52.
216
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 97-101.
217
Ibid., para. 102-103.
218
Ibid., para. 127-129.

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The Commission has considered proportional the following aid scheme amounts:
• 50% of the total investment amount where the aid amount does not exceed the general funding gap
of the total investments in airport infrastructure219;
• 80% of the initial funding gap and then 50% of the initial operating funding gap, with the obligation for
the airports to submit annual reports of the evidence of progress towards being viable without
operating support220;
• amounts allowing operating costs to be fully covered without State aid at the end of the transitional
period for airports of more than 700,000 passengers a year as demonstrated by a business plan,
while for airports of less than 700,000 passengers the Commission will reassess the future prospects
for full operating cost coverage for this category of airports221.

Absence of undue negative effects on competition and trade between Member States

In accordance with the Aviation Guidelines, in order for this criterion to be fulfilled, the airport must not be
located in the same catchment area as another airport with spare capacity222.

However, as regards operating aid, the aid for an airport in the same catchment area can be considered
compatible with the internal market only when the Member State demonstrates that all airports in the
same catchment area will be able to achieve full operating cost coverage at the end of the transitional
period223.

Additionally, both for investment and operating aid, the airport must be open to all potential users and
must not be dedicated to one specific user 224.

The Commission has found that undue negative effects on competition and trade are absent where:
▪ the airport is relatively small a significant competitive threat to other airports being therefore
unlikely225;
▪ the airports subject to the scheme are located at least 100km or 60 minutes’ drive from another
commercial airport, and are open to all potential users without discrimination 226;
▪ the airport is open to all potential users without discrimination 227 and no aid will be granted in the
areas where there are no prospects for development or where there is a significant negative impact
for the airports in the same catchment area228.

219
SA.39315 Estonia, airside infrastructure Tallinn airport, op.cit., para. 61-71; SA.40433 Austria, Investitionsprogramm Flughafen
Klagenfurt, op.cit., para. 76-84.
220
SA.39757 Ireland, Regional airports programme 2015-2019, op.cit., para. 78-85.
221
SA.38936 – France, Régime d’aide à l’exploitation des aéroports français, op.cit., para. 53-57.
222
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 106 and
131.
223
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 132.
224
Ibid., para. 108 and 133.
225
SA.39315 Estonia, airside infrastructure Tallinn airport, op.cit., para. 72-81.
226
SA.39757 Ireland, Regional airports programme 2015-2019, op.cit., para. 86-89 and 117-121.
227
SA.40433 Austria, Investitionsprogramm Flughafen Klagenfurt, op.cit., para. 85-90.
228
SA.38937 – France, Régime d’aide à l’investissement des aéroports français, op.cit., para. 52-57 and SA.38936 – France, Régime
d’aide à l’exploitation des aéroports français, op.cit., para. 58-64.

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DG Comp Decision Trends on Start-up Aid to Airlines
Principles set by the Aviation Guidelines Regarding Start-up Aid to Airlines

In line with the policy objective regarding airports, the underlying objective of the Aviation Guidelines
regarding start-up aid to airlines is to ensure that the allocation of airport capacity to airlines gradually
becomes more efficient, i.e. demand-oriented.

Start-up aid may be granted where it increases the mobility of Union citizens and the connectivity of the
regions by opening new routes; or facilitates regional development of remote regions.

However, the grant of start-up aid is subject to the conditions set out in points 141-155 of the Aviation
Guidelines.

Key DG COMP Decisions on Start-up Aid to Airlines

Table 36 Procedures for start-up aid processed in 2015

Case Country Parties Notif. Closing Dec.

SA.38938 France Régime d'aide au démarrage des compagnies aériennes 20/06/2014 08/04/2015 NRO

SA.39466 UK Start-up aid to airlines operating in the United Kingdom 05/09/2014 31/07/2015 NRO

SA.40744 Italy Trapani airport start-up aid 29/01/2015 12/10/2015 NRO

SA.40605 Lithuania Start-up aid for flights from regional airport 20/01/2015 22/04/2016 NRO

SA.41815 Italy Start-up aid for new routes from/to the airport of Comiso 08/05/2015 23/03/2016 NRO

NRO = Decision not to raise objections


Source: EC Decision

France: Regime d’aide au Démarrage des Companies Aériennes (SA.38938) 229

On 20 June 2014, the French authorities notified to the Commission a start-up aid scheme for new routes.

The aid scheme amounts to a total of EUR135 million for a period of 9 years, designed to cover 50% of
airport charges over a three-year period, the intensity being possibly variable (for instance: 75% the first
year, 50% the second year and 25% the third year). The aid can only be granted for new routes serving
airports of less than 3 million passengers per annum which do not enter in competition with routes from
existing airports in the same catchment area230.

The Commission has decided that the notified scheme fulfils the conditions set out in points 138 to 155
of the Aviation Guidelines231 and is therefore compatible with the internal market based on Article 107
(3)(c) TFEU, on the condition that the French authorities communicate to the Commission an annual
report on the application of the scheme.

229
SA.39938 – France, Régime au démarrage de nouvelles lignes aériennes au départ des aéroports français, C (2015) 2271 final,
http://ec.europa.eu/competition/state_aid/cases/253207/253207_1659698_124_2.pdf.
230
Ibid., para. 3-21.
231
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 83 to 137.

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UK: Start-up Aid to Airlines Operating in the UK (SA.39466)232

On 10 April 2015, the UK authorities notified to the Commission an aid scheme aiming at providing
support for the opening of new air passenger transport services connecting certain UK airports to other
airports in the Common European Aviation Area (CEAA).

The start-up aid scheme will cover up to 50% of airport charges incurred in operating the new route, from
1 September 2015 to 31 March 2019, for new routes between UK airports with less than 3 million
passengers a year and airports located in the CEAA233.

The Commission has decided not to raise objections against that aid scheme since it is compatible with
the internal market based on Article 107 (3)(c) TFEU.

Italy: Start-up Aid to Airlines from Trapani Airport (SA.40744) 234

On 29 January 2015, the Italian authorities notified to the Commission an aid measure aiming at providing
support for the opening of new air passenger transport services connecting Trapani-Birgi Airport in Sicily
with national destinations and other airports in the Union.

The start-up aid concerns new routes from Trapani airport to destinations which have to fulfil certain
criteria, without any geographical limit. The average annual traffic at the airport is below 2 million
passengers. The aid will cover up to 50% of airport charges incurred in operating the new route, for a 3
year period.235

The Commission has decided that the notified scheme fulfils the conditions set in points 138 to 155 of the
Guidelines236 and is therefore compatible with the internal market based on Article 107 (3)(c) TFEU.

Lithuania: Start-up aid for flights from regional airports (SA.40605)237

On 15 December 2015, the Lithuanian authorities notified to the Commission an aid scheme aiming to
provide support for the opening of new air passenger transport services connecting Lithuanian airports to
other airports in the CEAA.

The start-up aid concerns new routes from 3 airports: Vilnius, Kaunas and Palanga. The average annual
traffic at all three airports is below 3M passengers. The aid is granted for a maximum period of 3 years
for new routes to airports located in the CEAA. The aid will cover up to 50% of airport charges incurred
on a specific route for a 3-year period.238

The Commission has decided that the notified scheme fulfils the conditions set in points 138 to 155 of the
Guidelines239 and is therefore compatible with the internal market based on Article 107 (3)(c) TFEU.

232
State aid SA.39466 (2015/N) –United Kingdom –Start-up aid to airlines operating in the United Kingdom, C (2015) 5254 final,
http://ec.europa.eu/competition/state_aid/cases/258034/258034_1678164_84_3.pdf.
233
Ibid., para. 3-40.
234
State Aid SA.40744 (2015/N) – Italy Start-up aid to airlines operating from Trapani airport, C (2015),
http://ec.europa.eu/competition/state_aid/cases/256645/256645_1745683_124_2.pdf.
235
Ibid., para. 4-29.
236
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 83 to 137.
237
State aid SA.40605 (2015/N) – Lithuania – Start-up aid for flights from regional airports, C (2016) 2314 final,
http://ec.europa.eu/competition/state_aid/cases/261836/261836_1764438_62_2.pdf.
238
Ibid., para. 3-37.
239
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 83 to 137.

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Italy: Start-up Aid for New Routes from/to the Airport of Comiso (SA.41815)240

On 8 May 2015, the Italian authorities notified the Commission an aid scheme aiming to provide support
for the opening of new air passenger transport services from the airport ‘Pio La Torre’ in Comiso, Sicily.

The start-up aid concerns new routes from Comiso airport to Spain, Germany, France and the UK. The
average annual traffic at the airport is below 400,000 passengers. The aid will cover up to 50% of airport
charges incurred in operating the new route, for a 2-year period.241

The Commission has decided that the notified scheme fulfils the conditions set in points 138 to 155 of the
Guidelines242 and is therefore compatible with the internal market based on Article 107 (3)(c) TFEU.

Analysis in light of the Aviation Guidelines

Principles regarding Start-up Aid

In accordance with the Aviation Guidelines, the Commission analyses each case in light of the list of
criteria set out in points 138-155 of the Aviation Guidelines.

Consequently, each criterion has been applied by the Commission as follows.

The Aid/Scheme Contributes to a well-defined Objective of Common Interest

In accordance with the Aviation Guidelines, start-up aid to airlines will be considered to contribute to a
well-defined objective of common interest where:
▪ it increases the mobility of Union citizens and the connectivity of the regions by opening new routes;
or
▪ it facilitates regional development; and
▪ the new route is not already operated by a high-speed rail service or from another airport in the same
catchment area under comparable conditions243.

In applying this criterion, the Commission has accepted that start-up aid contributes to a well-defined
objective of common interest when:
▪ the aid encourages airlines to launch new routes from airports with fewer than 3 million passengers,
while it will not duplicate high-speed rail services or an existing air service in the same catchment
area244;
▪ the objectives of the start-up aid are to improve the connectivity of the region, in particular a remote
region, within the meaning of the Aviation Guidelines, and to facilitate its economic development,
while there will be no duplication of high-speed rail services or an existing air service in the same
catchment area245.

The need for State Intervention

240
State aid SA.41815 (2015/N) – Italy Start-up aid for new routes from/to the airport of Comiso (city), C (2016) 1680,
http://ec.europa.eu/competition/state_aid/cases/258485/258485_1747696_117_2.pdf.
241
State aid SA.41815 (2015/N) – Italy Start-up aid for new routes from/to the airport of Comiso (city), op. cit., para. 3-24.
242
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 83 to 137.
243
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 139-140.
244
State aid SA.39466 (2015/N) –United Kingdom –Start-up aid to airlines operating in the United Kingdom, op.cit., para. 48-51; State
aid SA.40605 (2015/N) – Lithuania – Start-up aid for flights from regional airports, op.cit., para. 46-49.
245
State aid SA.41815 (2015/N) – Italy Start-up aid for new routes from/to the airport of Comiso (city), op. cit., para. 34-45; State Aid
SA.40744 (2015/N) – Italy Start-up aid to airlines operating from Trapani airport, op. cit., para. 41-45.

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In accordance with the Aviation Guidelines, start-up aid will only fulfil this criterion for routes linking an
airport with less than 3 million passengers per annum to another airport within the CEAA, except for
routes linking an airport located in a remote region to another airport (within or outside the CEAA), which
will be compatible irrespective of the size of the airports concerned 246.

In 2015 the Commission has approved five start-up aids. All the airports have less than 3 million
passengers per annum247.

Appropriateness of State Aid as Policy Instrument

In accordance with the Aviation Guidelines, the fulfilment of this criterion requires that there are no less
distortive policy instruments or aid instruments allowing the same objective to be reached. In addition, an
ex ante business plan must be prepared by the airline, establishing that the route receiving the aid has
prospects of becoming profitable for the airline without public funding after 3 years or, alternatively, the
airlines must provide an irrevocable commitment to the airport to operate the route for a period at least
equal to the period during which it received start-up aid248.

The Commission has considered start-up aid to airlines to be appropriate where:


▪ the State opted for this support method after the failure of a previously approved start-up aid scheme
under the old Guidelines, as the requirements of the latter were too strict to incentivise airlines to
bid249;
▪ the State opted for start-up aid after analysing various alternative ways to achieve the same
objective250 or where it explained that “start-up aid is the most adequate means to encourage airlines
to take the risk of operating new routes in the current market environment”251;
▪ the airport in question experienced a loss of commercial traffic a couple of years before 252;
▪ the start-up aid consists in reducing airport charges 253.

Finally, in all five decisions, the Commission also approved the proposed start-up aid because airlines
are required to submit an ex ante business plan proving that the route has prospects of becoming
profitable for the airline without public funding after 3 years 254.

Existence of Incentive Effect

The Aviation Guidelines state that start-up aid has an incentive effect if it is likely that, in the absence of
the aid, the level of economic activity of the airline at the airport concerned would not be expanded. The

246
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 142-143.
247
SA.39938 – France, Régime au démarrage de nouvelles lignes aériennes au départ des aéroports français, op.cit., para. 37-38 ;
State aid SA.39466 (2015/N) –United Kingdom –Start-up aid to airlines operating in the United Kingdom, op.cit., para. 52; State aid
SA.40605 (2015/N) – Lithuania – Start-up aid for flights from regional airports, op.cit., para. 50-51; State aid SA.41815 (2015/N) –
Italy Start-up aid for new routes from/to the airport of Comiso (city), op. cit., para. 46-48; State Aid SA.40744 (2015/N) – Italy Start-
up aid to airlines operating from Trapani airport, op. cit., para. 46-48.
248
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 146-147.
249
State aid SA.40605 (2015/N) – Lithuania – Start-up aid for flights from regional airports, op.cit., para. 52-55.
250
State aid SA.39466 (2015/N) –United Kingdom –Start-up aid to airlines operating in the United Kingdom, op.cit., para. 53-54.
251
State aid SA.41815 (2015/N) – Italy Start-up aid for new routes from/to the airport of Comiso (city), op. cit., para. 49-52.
252
State Aid SA.40744 (2015/N) – Italy Start-up aid to airlines operating from Trapani airport, op. cit., para. 49-52.
253
SA.39938 – France, Régime au démarrage de nouvelles lignes aériennes au départ des aéroports français, op.cit., para. 39-42.
254
State aid SA.40605 (2015/N) – Lithuania – Start-up aid for flights from regional airports, op.cit., para. 52-55; State aid SA.39466
(2015/N) –United Kingdom –Start-up aid to airlines operating in the United Kingdom, op.cit., para. 53-54; State aid SA.41815 (2015/N)
– Italy Start-up aid for new routes from/to the airport of Comiso (city), op. cit., para. 49-52; State Aid SA.40744 (2015/N) – Italy Start-
up aid to airlines operating from Trapani airport, op. cit., para. 49-52; SA.39938 – France, Régime au démarrage de nouvelles lignes
aériennes au départ des aéroports français, op.cit., para. 39-42.

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criterion can only be fulfilled if the new route has started after the application for aid has been submitted
to the granting authority.255

Taking this into account, the Commission has concluded in four decisions to the existence of incentive
effect based on the ground that the routes subject to the aid are not currently operated and are not
planned by any airline, while they will only be launched following to the submission of the application for
aid by the airline256.

In one case (France), the Commission found it is sufficient for the State to guarantee that this criterion
will be respected257.

Proportionality of the Aid Amount

Under the Aviation Guidelines, fulfilment of this criterion requires that the start-up aid covers a maximum
of 50% of the airport charges in respect of the new route, those charges being the only eligible costs for
aid, for a maximum period of three years 258.

In accordance with the Aviation Guidelines, the Commission has concluded to the respect of that criterion,
in all five cases, based on the fact that the aid amount is limited to 50% of the airport charges for a
maximum period of three years259.

Avoidance of Undue Negative Effects on Competition and Trade

In accordance with the Aviation Guidelines, undue negative effects on competition and trade will be
avoided where three conditions are met:
▪ the new route is not already operated by a high-speed rail service or by another airport in the same
catchment area under comparable conditions;
▪ adequate publicity in due time should be ensured by public authorities for the new route, in order to
enable all interested airlines to offer their services;
▪ the aid must not be combined with any other type of State aid granted for the operation of a route 260.

The Commission concluded in all five decisions that the criterion is fulfilled on the grounds that the new
routes will not result in a transfer of passengers from an existing route, the State has put into place
adequate publicity of the call for tender, and the start-up aid will not be combined with other types of State
aid granted for the operation of the same route261.

255
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 148-149.
256
State aid SA.40605 (2015/N) – Lithuania – Start-up aid for flights from regional airports, op.cit., para. 56-60; State aid SA.39466
(2015/N) –United Kingdom –Start-up aid to airlines operating in the United Kingdom, op.cit., para. 55-59; State aid SA.41815 (2015/N)
– Italy Start-up aid for new routes from/to the airport of Comiso (city), op. cit., para. 53-55; State Aid SA.40744 (2015/N) – Italy Start-
up aid to airlines operating from Trapani airport, op. cit., para. 53-57.
257
SA.39938 – France, Régime au démarrage de nouvelles lignes aériennes au départ des aéroports français, op.cit., para. 43-44.
258
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 150.
259
SA.39938 – France, Régime au démarrage de nouvelles lignes aériennes au départ des aéroports français, op.cit., para. 45-46 ;
State aid SA.40605 (2015/N) – Lithuania – Start-up aid for flights from regional airports, op.cit., para. 61; State aid SA.39466 (2015/N)
–United Kingdom –Start-up aid to airlines operating in the United Kingdom, op.cit., para. 60; State aid SA.41815 (2015/N) – Italy
Start-up aid for new routes from/to the airport of Comiso (city), op. cit., para. 57-59; State Aid SA.40744 (2015/N) – Italy Start-up aid
to airlines operating from Trapani airport, op. cit., para. 58-60.
260
Communication from the Commission - Guidelines on State aid to airports and airlines, OJ C 99, 4.4.2014, op.cit., para. 151-155.
261
SA.39938 – France, Régime au démarrage de nouvelles lignes aériennes au départ des aéroports français, op.cit., para. 47-53;
State aid SA.40605 (2015/N) – Lithuania – Start-up aid for flights from regional airports, op.cit., para. 62-67; State aid SA.39466
(2015/N) –United Kingdom – Start-up aid to airlines operating in the United Kingdom, op.cit., para. 61-66; State aid SA.41815
(2015/N) – Italy Start-up aid for new routes from/to the airport of Comiso (city), op. cit., para. 60-64; State Aid SA.40744 (2015/N) –
Italy Start-up aid to airlines operating from Trapani airport, op. cit., para. 61-67.

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Key DG COMP Decisions on State Aid to Airlines
Table 37 DG COMP in-depth Investigation

Opening date Closing date

Cyprus Airways 06.03.13 09.01.15

Estonian Air 20.02.13 06.11.15


Source: EC Decision

Cyprus Airways

On 9 January 2015, the Commission closed two in-depth investigations262 into a number of public support
measures provided by Cyprus in favour of Cyprus Airways, mainly by concluding263 that the State aid granted
to Cyprus Airways in 2012 violated the “one time last time” principle, insofar as the Cypriot state had already
granted EUR95 million in restructuring aid to Cyprus Airways264 in 2007.

According to recital 73 of the 2004 R&R Guidelines and recital 71 of the 2014 R&R Guidelines:

“where less than 10 years have elapsed since the aid was granted or the restructuring period came to an
end or implementation of the restructuring plan was halted (whichever occurred the latest), the Commission
will not allow further aid pursuant to these guidelines”265.

This principle aims to avoid situations where firms are artificially kept alive only through repeated State
interventions.

Further, the Commission also found that also other conditions for granting restructuring aid were not fulfilled.
The proposed restructuring plan was based on unrealistic assumptions and did not restore the long-term
viability of Cyprus Airways within a reasonable timescale. In addition, the plan did not limit the aid to the
minimum since it did not include a sufficiently high, real and actual own contribution to the restructuring costs
of Cyprus Airways.

Consequently, the Commission ordered Cyprus Airways to repay EUR65 million in aid deemed to have been
granted unlawfully.

On 10 January 2015, Cyprus Airways announced it was ceasing operations.

262
State aid SA.35888 (2013/C) (2013/NN) – Cyprus – Rescue aid for Cyprus Airways (Public) Ltd, C (2013)1163 final,
http://ec.europa.eu/competition/state_aid/cases/247909/247909_1418834_24_2.pdf ; State aid SA.37220 (2014/C) (ex 2013/NN) –
Cyprus – Restructuring aid for Cyprus Airways (Public) Ltd and SA.38225 (2014/C) (ex 2014/NN) Training aid for Cyprus Airways
(Public) Ltd, C(2014) 470 final, http://ec.europa.eu/competition/state_aid/cases/251734/251734_1523566_55_2.pdf

263
Commission Decision of 09.01.2015 on the state aid SA.35888 (2013/C) (ex 2013/NN)- SA.37220 (2014/C) (ex 2013/NN)- SA.38225
(2014/C) (ex 2013/NN) implemented by Cyprus for Cyprus Airways (Public) Ltd, C(2014) 9362 final,
http://ec.europa.eu/competition/state_aid/cases/251734/251734_1631242_230_2.pdf
264
Commission Decision of 7 March 2007, State aid C 10/06 (ex N555/05), Cyprus Airways Public Ltd — Restructuring plan, http://eur-
lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2008.049.01.0025.01.ENG
265
Communication from the Commission – Community Guidelines on State aid for rescuing and restructuring firms in difficulty, op. cit.,
para. 3.3; Communication from the Commission - Guidelines on State aid for rescuing and restructuring non-financial undertakings
in difficulty, op. cit., para. 70.

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Estonian Air

On 20 February 2013, the European Commission opened an in-depth investigation266 to verify whether
Estonia’s plan to grant a rescue loan of EUR8.3 million to Estonian Air, is in line with EU state aid rules.

On 4 February 2014, the Commission opened a second in-depth investigation267 to verify whether the plan
of Estonia (notified in June 2013) to grant EUR40.7 million State aid for the restructuring of Estonian Air is
in line with EU state aid rules.

On 6 November 2015, the Commission adopted one final decision closing both these in-depth investigations.

Estonia: Measures Implemented in favour of Estonian Air (SA.35956)268

The first in-depth investigation concerned five measures implemented in favour of Estonian Air between
2009 and 2014. The first two measures (a capital increase by the State of EUR2.48 million in February
2009 and a sale of ground-handling section of Estonian Air to the State-owned Tallinn Airport for EUR2.4
million in June 2009) were found to be conducted in line with market conditions and thus not involving
State aid. The three remaining measures constituted State aid in the total amount of EUR84.9M.

The first measure is a State capital injection of EUR17.9 million on 10 November 2010. The capital was
used for pre-payments of Bombardier CRJ900 aircraft as well as to partly cover a total net loss in 2011
of EUR17.3 million.

The second measure is capital increase of Estonia’s participation in the airline for a total amount of EUR30
million. The capital injection took place on 20 December 2011 for EUR15 million and on 6 March 2012
for the same amount. As a consequence, the stake of Estonia in Estonia air rose to 97.34%. The objective
of the measure was to improve the airline’s competitiveness through a bigger network and more
frequencies.

The third measure concerns a rescue loan facility of a total amount of EUR37 million. A first tranche of
EUR8.3 million was provided by Estonia between 20 December 2012 and 11 February 2013. On 5 March
2013, a rescue loan increase led to granting an additional EUR16.6 million to Estonian Air, as well as a
last tranche of EUR12.1 million on 28 November 2014. The objective of that measure was to cover the
losses of Estonian Air. Those losses amounted to EUR14.9 million in mid-2012, while liquidity problems
continued in 2013 and 2014.

Those measures were all notified by Estonia to the Commission on 3 December 2012. On 4 March 2013,
Estonia as well informed the Commission of its decision to increase the amount of the rescue loan facility.
Since the Commission only took its decision on 6 November 2015, the standstill obligation has not been
respected for those three measures.

266
State aid SA.35956 (2013/C) (ex 2013/NN) (ex 2012/N) – Estonia - Rescue aid to Estonian Air, C (2013) 775 final,
http://ec.europa.eu/competition/state_aid/cases/247780/247780_1426512_104_2.pdf

267
State aid SA.36868 (2014/C)(ex 2013/N) – Estonia - Restructuring aid to Estonian Air, C (2014) 459 final,
http://ec.europa.eu/competition/state_aid/cases/251732/251732_1535769_42_2.pdf
268
Commission decision of 6.11.2015 on the measures SA.35956 (2013/C) (ex 2013/NN) (ex 2012/N) implemented by Estonia for AS
Estonian Air and on the measures SA.36868 (2014/C)(ex 2013/N) which Estonia is planning to implement for AS Estonian Air, C
(2015) 7470 final, http://ec.europa.eu/competition/state_aid/cases/247780/247780_1730087_223_2.pdf.

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Estonia: Measures Planned in favour of Estonian Air (SA. 36868) 269

The second in-depth investigation concerned a planned restructuring aid of EUR40.7 million in the form
of a State capital increase, based on a restructuring plan for a five-year period, from 2013 to 2017.

This plan was aiming at a return to viability by 2016 through measures such as decrease of fleet size,
route network, and staff, implementation of new pricing model and reorganisation of the senior
management team. The plan was also foreseeing compensatory measures.

On 31 October 2014, Estonia substantially modified the restructuring plan, among others by planning
acquisition of Estonian Air by a private investor and by extending the restructuring period and moving it
backwards from November 2010 to November 2016, thereby aiming to capture as restructuring aid also
the aid measures of case SA.35956. However, the Commission did not accept the modified restructuring
plan as a basis for assessing all the measures as part of a single restructuring package. The backward
extension of the restructuring period brought about by the modified plan would effectively mean that three
distinct and even opposing business strategies would be combined into a single restructuring period. In
line with decision-making practice of the Commission270, the measures covered thus could not be
considered as part of a restructuring continuum to be assessed as one restructuring operation.

Legal Considerations

The Commission analyses all the measures in light of the 2004 Guidelines on State aid for rescuing and
restructuring firms in difficulty (“the 2004 R&R Guidelines”)271, except for the third measure of case
SA.35956 (rescue loan facility of a total amount of EUR37 million), which is analysed in accordance with
the New Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty
(“the 2014 R&R Guidelines”)272.

Measure one of case SA.35956 (State capital injection of EUR17.9 million) is considered illegal and
incompatible State aid since the conditions for granting rescue or restructuring aid to Estonian Air as a
firm in difficulty are not fulfilled. As regards rescue aid, the conditions of point 25 of the 2004 R&R
Guidelines are clearly not met. As regards conditions for restructuring aid, the measure was granted
without a credible restructuring plan ensuring long-term viability of the company and it lacked any
compensatory measures and own contribution to the restructuring costs required by the 2004 R&R
Guidelines.

The Commission has considered all subsequent measures as being incompatible State aid, in particular
on the ground of violation of the “one time, last time” principle, absence of a credible restructuring plan
ensuring return to long-term viability of the company and insufficient compensatory measures. Further,
with the exception of the planned restructuring aid, the measures were provided in breach of the standstill
obligation and thus constituted illegal aid that has to be recovered from the beneficiary.

269
Commission decision of 6.11.2015 on the measures SA.35956 (2013/C) (ex 2013/NN) (ex 2012/N) implemented by Estonia for AS
Estonian Air and on the measures SA.36868 (2014/C)(ex 2013/N) which Estonia is planning to implement for AS Estonian Air, C
(2015) 7470 final, http://ec.europa.eu/competition/state_aid/cases/247780/247780_1730087_223_2.pdf.
270
See e.g. Commission decision of 14.10.2010 on the State aid C 8/10 – Varvaressos S.A., or Commission decision of 9.7.2014 on
the State aid SA.34191 (2012/C) – A/S Air Baltic Corporation.
271
Communication from the Commission – Community Guidelines on State aid for rescuing and restructuring firms in difficulty, 2004/C
244/02, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2004:244:0002:0017:EN:PDF.
272
Communication from the Commission - Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty,
2014/C 249/01, http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52014XC0731(01)&from=EN.

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Impact on Passenger Traffic Levels

Pursuant to the negative decision of the Commission, Estonian Air declared bankruptcy on 29 December
2015. At the same time, Estonian authorities created a new airline called Nordic Aviation Group, which
was rebranded to Nordica on 30 March 2016 273.

The new airline was reported to have carried 27,172 passengers in April 2016, almost 60% of the total
passengers (46,089) carried by Estonian Air in April 2015274.

To be able to face competition, Nordica established a partnership with Adria Airways, gaining access to
advantages such as a Lufthansa code-share for its most popular route Tallinn-Munich275.

However, this situation did not have a negative impact on passenger traffic at Tallinn airport. The
bankruptcy of Estonian air seems to have led to healthy competition between the newly created Nordica
and airBaltic, leading to traffic at Tallinn airport of 1.02 million passengers for the first half of 2016, 94.8%
of which was international traffic and the remaining 5.2% (5340) was domestic traffic.

This represents a 1.2% increase year on year largely attributed to increase in international passengers
compared to the same period last year.

The conclusion is therefore that the bankruptcy of Estonian Air did not have a negative impact on Tallinn
airport passenger traffic overall, except for domestic traffic which was reduced after the national carrier’s
bankruptcy.

It is possible to imagine that this reduction in domestic traffic results from the cancellation of certain
domestic routes which were considered unviable.

Figure 149 Tallinn Airport Passenger Traffic (1st half year)

1,020,000

1,000,000
Passenger Traffic

980,000

960,000

940,000

920,000

900,000
2015 2016

International Domestic

Source: Tallinn Airport, Airport Traffic Trends 2016/15

273
http://www.anna.aero/2016/03/16/airbaltic-leads-ryanair-and-wizz-air-in-baltic-region/
274
http://www.baltic-course.com/eng/transport/?doc=120457
275
http://ftnnews.com/aviation/29880-nordica-enters-cooperation-with-lufthansa-via-adria-airways.html

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Airline Mergers and Acquisitions
Table 38 Procedure for Airline Mergers and Acquisitions handled in 2015-2016

Case Parties Notif. Dec. Date Decision

M.7541 IAG / AER LINGUS 27/05/2015 14/07/2015 With conditions

M.7630 FEDEX / TNT EXPRESS 26/06/2015 08/01/2016 Unconditional


clearance
Source: EC Decisions

FedEx – TNT Express

On 8 January 2016, the European Commission approved the acquisition of TNT Express by FedEx without
conditions.276

The Commission is of the opinion that the merger will not give rise to competition concerns, because FedEx
and TNT are not particularly close competitors and the merged entity will continue to face sufficient
competition in all markets concerned. Therefore, the Commission decided that the merger of the two
companies would not significantly impede effective competition in the EEA or any substantial part of it.

This approval comes after the Commission declared on 30 January 2013 a proposed merger of TNT with
UPS, one of the two main competitors of FedEx globally, incompatible with the internal market277.

6.4. International Developments

USA

New International Agreements


The United States concluded six open sky agreements during the period concerned.

Table 39 Open Skies Agreements concluded by the US (2015-2016)

Partners Signature Date Entry into force

US - Togo 07/04/2015 Pending

US - Serbia 29/05/2015 Pending

276
European Commission - Press release, Brussels, 8 January 2016, Mergers: Commission approves acquisition of small package
delivery services provider TNT Express by FedEx, http://europa.eu/rapid/press-release_IP-16-28_en.htm.
277
Summary of Commission Decision of 30 January 2013 declaring a concentration incompatible with the internal market and the
functioning of the EEA Agreement (Case COMP/M.6570 — UPS/TNT Express), 2014/C 137/05, http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=OJ:C:2014:137:FULL&from=EN.

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Partners Signature Date Entry into force

US - Ukraine 14/07/2015 Pending

US - Seychelles 07/12/2015 Pending

US - Mexico 18/12/2015 Pending

US - Azerbaijan 06/04/2016 14/06/2016


Source: US Department of States

The Norwegian Air International Case

In 2014, Norwegian Air International (NAI), an airline company established in Ireland, has applied in the US
to operate services between the EU and US under the EU-US Open Skies agreement.

More than two years later, the US Department of Transportation has only granted a tentative decision in April
2016, submitting the issue for public comment by interested parties 278.

The latest concerns about granting authorisation to operate to NAI are labour-related concerns raised by
American trade unions, based on allegations that NAI would use underpaid foreign flight crews. From a legal
prospective, the question rose as to whether article 17bis of the US-EU Air Transport Agreement of April 30,
2007 279, the so-called “Social Clause”, would be violated. Those concerns were nevertheless rejected by an
opinion from the Department of Justice’s Office of Legal Counsel, which concludes that Article 17bis does
not provide an independent basis upon which the United States may deny a permit to a carrier such as
Norwegian280.

In spite of this, the US has taken no final decision so far281. Therefore, the EU has sent a letter to the US
Department of Transportation informing that the EU will invoke the arbitration clause of the US-EU Air
Transport Agreement. The formal arbitration procedure will however only start in autumn 2016 and would
take several months282.

The Middle East

The civil aviation authorities of Qatar and the United Arab Emirates have conducted numerous negotiations
to conclude agreements, or increase the flight frequency under agreements that have already been
concluded.

During the 2015-2016 period concerned, these negotiations resulted in the following agreements:

278
Department of Transportation, https://www.transportation.gov/briefing-room/us-dot-issues-proposed-order-norwegian-order-
international
279
Protocol to amend Air Transport Agreement between the US and the EU signed on 25 and 30 April 2007,
http://www.state.gov/documents/organization/143930.pdf
280
Interpretation of Article 17 Bis of the US-EU Air Transport Agreement,
https://www.justice.gov/sites/default/files/olc/opinions/attachments/2016/04/21/2016-04-14-ata-article-17.pdf
281
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+WQ+E-2016-005753+0+DOC+XML+V0//EN&language=en
282
Reuters, http://www.reuters.com/article/us-norwegian-air-eu-usa-idUSKCN10628B?il=0

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Qatar
Table 40 Air Services Agreements concluded by Qatar in the period 2015-2016

Date Parties Objective

27/01/2015 Qatar - Guinea Open skies agreement

04/03/2015 Qatar - Kyrgyz Republic Open skies agreement

17/03/2015 Qatar - Irak Increase the number of passenger and cargo flights

22/03/2015 Qatar - UK Air Transport Memorandum of Understanding: open the skies

01/06/2015 Qatar - Philippines Increase traffic rights Doha-Manila, open skies between Doha and
the remaining cities.

09/09/2015 Qatar - New Zealand Open skies agreement

08/11/2015 Qatar - Lithuania Open skies agreement

26/06/2016 Qatar - UAE


Source: Qatar Civil Aviation Authority

United Arab Emirates


Table 41 Air Services Agreements concluded by UAE in the period 2015-2016

Date Parties Objective

15/01/2015 UAE - Iran Agreement to strengthen air transport and aviation safety

07/03/2015 UAE - Burkina Faso Open skies agreement

18/06/2015 UAE - South Sudan Open skies agreement

26/08/2015 UAE - Gabon Open skies agreement

19/11/2015 UAE - Slovakia Open skies agreement

28/01/2016 UAE - Bulgaria Air transport services agreement

01/06/2016 UAE - Congo Air transport services agreement

26/06/2016 UAE - Qatar Air transport services agreement

30/06/2016 UAE - Macedonia Open skies agreement


Source: UAEinteract

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Annual Analysis related to the EU Air Transport Market 2016
China
At the end of 2015, overall air passenger traffic in China was 436.18M passengers, a growth by 11.3%
compared to the end of 2014. International passenger traffic was of 42.07 million passengers, representing
a 33.3% increase year-on-year, while domestic traffic increased by 9.4% to 394.11 million passengers.
Those increases are however in contrast with the number of new air services agreements signed in 2015,
namely 2283. A further air service agreement (ASA) was signed by China with an African nation, and a further
ASA in the Oceana region. 284

At the same time, the number of airlines in China grew to 55 (from 39 airlines 5 years ago), forcing China to
recruit pilots from abroad285.

Earlier in 2016, the European Commission obtained a mandate from the Council to launch negotiations with
China for a new bilateral aviation safety agreements (BASA) in the aviation industry sector286, while the EU-
funded EU-China Aviation Partnership Project (APP), a 5-year and EUR 10 million project managed by the
European Aviation Safety Agency (EASA) has been officially launched on 24 February 2016.

283
Civil Aviation Industry Statistics Report 2015, http://www.caac.gov.cn/XXGK/XXGK/TJSJ/201605/P020160531575434538041.pdf,
p. 2 and 7.
284
Comparison of statistical figures of the Statistical Bulletin of the Civil Aviation Industry Development in 2015 vs 2014.
285
Bloomberg, http://www.bloomberg.com/news/articles/2016-08-17/chinese-airlines-lure-expat-pilots-with-lucrative-pay-perks
286
European Commission – Press release, Brussels, 8 March 2016, http://europa.eu/rapid/press-release_IP-16-661_en.htm

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7. Environment & Sustainable Development

7.1. Introduction

Aviation delivers social and economic benefits to European citizens and to citizens across the world.
However, these benefits come at an environmental cost. Improvements in technology have mitigated some
of aviation’s environmental impacts. Yet demand for aviation has continued to increase, and is forecast to
do so in the future. Consequently, aviation has exerted an increasing pressure on the environment. Public
awareness of environmental issues has also increased and the aviation sector has responded to
environmental issues and there are numerous initiatives globally examining a range of issues. The success
of these initiatives, will allow for aviation to continue delivering benefits for citizens into the future.

This chapter provides an overview of the main environmental and sustainability issues faced by the sector,
namely; climate change mitigation, climate change adaptation, air quality, noise, and health. The chapter
examines how these issues are being addressed through initiatives and technologies. 287

7.2. Institutions, Initiatives and Programs

International Civil Aviation Organisation

The International Civil Aviation Organisation (ICAO) is a United Nations (UN) specialised agency, which
manages the administration and governance of the Convention on International Civil Aviation. As such the
ICAO works with the member states of the convention to implement and develop standard practices and
policies across the aviation sector, including environmental issues.

The ICAO has been developing a global Market-Based-Mechanism (MBM), for managing carbon emissions
since the 37th ICAO assembly in 2010 (see Figure 150 below). The development of the MBM was overseen
by the Environmental Advisory Group (EAG), which met 15 times between March 2014 and January 2016.
The EAG worked with the Committee on Aviation Environmental Protection’s (CAEP) Global MBM Technical
Task Force (GMTF), to develop technical elements of the MBM. To promote the engagement of ICAO
member states in the processes of developing the MBM, two rounds of five Global Aviation Dialogues
(GLADs) were held. The first round was attended by 79 states and 29 international organisations, and the
second round was attended by 60 states and 20 international organisations. The GLADs were held in Lima,
Nairobi, Cairo, Singapore and Madrid288 . In early 2016 the ICAO began discussing a draft assembly
resolution on the MBM. The ICAO set up a high level group on the MBM in early 2016 to work on the draft
assembly resolution text. This text will form the basis for discussions on the MBM at the 39th ICAO Assembly,
which is to be held between the 27 of September and the 7th of October 2016, where a final decision on the
design and implementation of the MBM was agreed in resolution A39-3289 .

287
Additional information from the Europe Commission regarding the environmental impact of aviation in Europe can be found in the
European Aviation Environmental Report (https://www.easa.europa.eu/eaer/). This covers technologies, alternative fuels, air traffic
management, airports, market based mechanisms as a response to climate change and climate adaptation.
288
ICAO, 2015 Global Aviation Dialogues (GLADs), 2016, http://www.icao.int/meetings/GLADs-2015/Pages/default.aspx
289
ICAO, http://www.icao.int/environmental-protection/Documents/Resolution_A39_3.pdf

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Figure 150: ICAO MBM Development Timetable

Source: ICAO Environmental Report 2016

The proposed text identifies the MBM as a Carbon Offsetting Scheme for International Aviation (COSIA).
The scheme aims to cap emissions from international aviation at 2020 levels. This would be achieved
through an offsetting mechanism, whereby emissions growth beyond 2020 levels would be apportioned to
individual operators. The mechanisms for assessing offsets and trading are still under development by
CAEP. The implementation of the COSIA will be phased depending on the level of development of each
member. A pilot phase applies from 2021 through 2023, a first phase from 20124 through 2026 and a second
phase from 2027 through 2035. All states are encouraged to volunteer to participate in the pilot phase and
the first phase, noting that developed States would likely join earlier and Least Developed Countries
later290291.

The 10th meeting of the Committee on Aviation Environmental Protection (CAEP/10) was held in February
2016. As well as discussions on the MBM the CAEP/10 meeting also resulted in agreement of two new
standards. The first is an airplane level CO 2 standard that will come into force for new designs in 2020 and
in production designs in 2023. Any aircraft that does not meet the standard cannot be produced past 2028.
The second standard covers non-volatile particulate matter. This standard is at engine level and comes into
force in 2020292.

290
ICAO, ICAO High-level Meeting on a Global Market-Based Measure (MBM) Scheme; Overview of ICAO’s work on a global MBM
scheme, 2016.
291
ICAO, ICAO High-level Meeting on a Global Market-Based Measure (MBM) Scheme; Introduction to the Draft Assembly Resolution
Text, 2016.
292
ICAO, Environmental Report, 2016.

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State Action Plans

State action plans allow states that are members of the ICAO to report their activities that address
Greenhouse Gas emissions (GHG) from aviation. Action plans contain the information on baseline
emissions, a list of measures to reduce emissions, the expected results of these and information on any
required financial assistance. The process of developing an action plan requires involvement of numerous
stakeholders within a member state. This fosters collaboration and provides a focus for action. During 2015,
13 member states submitted action plans to the ICAO, bringing the total number of states involved to 95 293.
The new member states were:
 Fiji
 Gambia
 Togo
 Cameroon
 Chad
 Israel
 Sudan
 Ghana
 Bahrain
 Lithuania
 Switzerland
 Nigeria
 India

The Atlantic Interoperability Initiative to Reduce Emissions

The Atlantic Interoperability Initiative to Reduce Emissions (AIRE) is collaboration between the European
Commission and the United States. The aim of the AIRE initiative is to reduce GHG emissions from
improvements in aircraft design and through changes in operating procedures. On the European side AIRE
projects are delivered by Single European Sky Air Traffic Management (SESAR). The SESAR program is
part of the Single Europe Sky (SES) initiative. The SES initiative was set up by the European Commission
to restructure European air traffic management, to increase capacity and improve efficiency. SESAR
contributes research and development to the SES initiative 294295.

The Third Cycle of AIRE project was completed in 2014 and the results of seven of the projects were
published in 2015296. These projects were used to assess safety and environmental issues associated with
air traffic control. A summary of these projects is presented in Table 42 below.

293
ICAO, “State Action Plans,” 2016. [Online]. Available: http://www.icao.int/environmental-protection/pages/action-plan.aspx
294
European Comissions, “AIRE – Atlantic Interoperability Initiative to Reduce Emissions,” 2015. [Online]. Available:
http://ec.europa.eu/transport/modes/air/environment/aire_en.htm.
295
SESAR, “SESAR,” 2016. [Online]. Available: http://www.sesarju.eu/.
296
SESAR, “R&D Library,” 2015. [Online]. Available: http://www.sesarju.eu/r-d-
library?shs_term_node_tid_depth=1141&field_stakeholder_category_tid=All&field_solution_term_tid=All&field_benefit_term_tid=All
&populate=AIRE.

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Table 42 - Summary of AIRE Projects
Project Summary
ENGAGE 2 The project was the same as ENGAGE 1 but covered a larger airspace. It allowed pilots to vary their
flight level and Mach over the Atlantic within certain limits to reduce fuel consumption.
WE-FREE The project allows pilots to fly their preferred trajectories without the need to adhere to a
predefined route structure departing Paris for Italy at weekends to reduce fuel consumption.
OPTA-IN The project was designed to provide efficiency in flight by enabling Air Traffic Control to deliver
optimised descent approaches, through the use of specific speed control based tables, in medium
density traffic.
REACT The project implemented Continuous Descent Operations (CDO) and Continuous Climb Operations
PLUS (CCO) at Budapest airport.
SATISFIED The project examined the potential fuel savings from free routing in the South Atlantic region.
AMBER The project designed and tested approaches to Riga airport with reference to fuel consumption and
noise impacts.
CANARIAS The project designed and tested approaches to Lanzarote airport with reference to fuel consumption
and noise impacts.
Source: SESAR, 2015

The detailed output from each of these projects is reported on the SESAR website 297.

European Initiatives

This section examines European environmental and sustainability initiatives. However, SESAR initiatives
have been discussed in Section 0 due to their relationship to AIRE, and are therefore not examined here.

The Advisory Council for Aeronautics Research in Europe (ACARE) is an advisory body coordinating aviation
research across Europe. It represents 40 members including the EC, as well as airlines, airports, regulators
and research establishments. ACARE’s environmental research is driven by five goals to be achieved by
2050. These are:
 CO2 emissions per passenger kilometre have been reduced by 75%, NOx emissions by 90% and
perceived noise by 65%, all relative to the year 2000.
 Aircraft movements are emission-free when taxiing.
 Air vehicles are designed and manufactured to be recyclable.
 Europe is established as a centre of excellence on sustainable alternative fuels, including those for
aviation, based on a strong European energy policy.
 Europe is at the forefront of atmospheric research and takes the lead in formulating a prioritised
environmental action plan and establishes global environmental standards.

297
http://www.sesarju.eu/r-d-
library?shs_term_node_tid_depth=1141&field_stakeholder_category_tid=All&field_solution_term_tid=All&field_benefit_term_tid=All
&populate=AIRE <http://www.sesarju.eu/r-d-
library?shs_term_node_tid_depth=1141&field_stakeholder_category_tid=All&field_solution_term_tid=All&field_benefit_term_tid=All
&populate=AIRE>

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ACARE runs three research projects to achieve these goals; X-Noise EV, which relates to aviation noise
research, Forum AE, which relates to emissions research, and Core-JetFuel, which relates to alternative
aviation fuels. In 2015 ACARE published a 2014/2015 activity update 298. This update reports on the progress
of each of these projects including an assessment of performance against ACARE’s goals. The report
concludes that noise research is on track to meet its target, that significant work is required to meet the
emissions targets, specifically technology maturation, and that a quantitative target is required at European
level for alternative fuels.

7.3. Aviation Emissions

Aviation emissions are produced by aircraft, support vehicles and ground transportation. The emissions from
these sources fall into two categories: emissions that cause deterioration in local air quality, and emissions
that cause climate change. Emissions that cause climate change from aviation also fall into two categories.
The first category is GHGs, which are gases that cause climate change by trapping heat in the atmosphere.
These emissions are produced when fossil fuels are combusted. Secondly, emissions from aircraft can alter
radioactively active substances, trigger the formation of aerosols and lead to changes in clouds. Together
these effects are known as radiative forcing.

Local air quality issues are caused be Nitrogen Oxides (NOx), Sulphur Oxides (SOx) and Particulate Matter
(PM10 and PM2.5). In high concentrations these pollutants have been shown to cause and exacerbate a range
of cardiovascular diseases including; chronic obstructive pulmonary disease (an umbrella term for lung
diseases including chronic bronchitis), heart disease, lung cancer and asthma299.

In aviation, the highest concentrations of these pollutants can be found close to airports where ground
transport and aviation take place in close proximity.

Climate Change

In 2015 aviation produced 781 MTCO2, of which approximately 2% are a result of anthropogenic carbon
emissions300301. Demand for aviation is expected to increase in the future, and emissions are also expected
to grow although not as quickly as demand302. This means that the aviation sector is anticipated to increase
its carbon efficiency. There are three main ways in which the aviation industry can reduce its climate change
impact; increased efficiency due to Air Traffic Management (ATM), technological and design improvement,
and through the use of alternative fuel. The rest of this section will examine improvements in ATM and
technological and design improvements during 2015. Developments in alternative fuels during 2015 are
presented in section 7.7.

298
ACARE, “Activity Summary 2014-2015,” 2015.
World
299
Health Organisation, “Ambient (outdoor) air quality and health,” 2014. [Online]. Available:
http://www.who.int/mediacentre/factsheets/fs313/en/.
300
Air Transport Action Group, “Facts and Figures,” 2016. [Online]. Available: http://www.atag.org/facts-and-figures.html.
301
IATA, “Fact Sheet Climate Change,” 2016.
302
EEA; EASA; Eurocontrol, “European Aviation Environmental Report,” 2016.

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As discussed in section 0, the SES and its research program SESAR, are responsible for delivering
improvements in efficiency, and therefore reductions in carbon emissions in European airspace.
EUROCONTROL publishes annual performance review reports that detail the performance of ATM in
Europe. During 2015 flight efficiency decreased compared to 2014 due to Air Traffic Control (ATC) capacity
issues. This will have resulted in higher emissions. Improvements in ATM in the US are managed under the
Federal Aviation Administration’s (FAA) NextGen program, which aims to improve the efficiency of aviation
within the US. In 2015 the FAA released the NextGen Implementation Plan 2015 303. This report detailed
progress made and future activities.

During 2015 there have been a number activities related to technological and design improvements across
aerodynamics, propulsion and weight savings304. In Europe much of the aviation’s sector’s technological
research is undertaken by the Clean Sky research program. Clean Sky released an annual activity report for
2015305, which reported on progress of it research initiatives during 2015. Two of the most important
achievements were the critical design reviews of the Breakthrough Laminar Aircraft Demonstrator in Europe
(BLADE), and the Open Rotor Ground Demonstrator. BLADE is a carbon fibre leading edge and wing cover,
deigned to reduce drag by promoting laminar flow and therefore increase fuel efficiency. The Open Rotor
Ground Demonstrator is a test engine based on an open rotor design (see Figure 151 below). The design
may allow for an increase in efficiency of up to 30% over high bypass turbo fan engines.

Figure 151: Open Rotor Design

Source: Rolls-Royce, 2016306

303
FAA, “NextGen Implementation Plan 2015,” 2015.
304
EEA; EASA; Eurocontrol, “European Aviation Environmental Report,” 2016.
305
Clean Sky, “Final Annual Activity Report,” 2015.
306
Rolls-Royce, “Sustainable and Green Engine (SAGE) ITD,” 2016. [Online]. Available: http://www.rolls-royce.com/about/our-
technology/research/research-programmes/sustainable-and-green-engine-sage-itd.aspx#open-rotor-technology

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Airbus has continued to develop new efficient aircraft. The new A350-1000 has been under construction
during 2015. It will be the largest and most efficient of the A350 family, typically seating 366, and like the
other A350 aircraft variants is constructed from a carbon-fibre reinforced polymer, which reduces weight and
therefore increases efficiency and reduces emissions 307. Airbus also delivered its first A320Neo to Lufthansa
in January 2016. The new design is expected to be approximately 15% more efficient than its predecessor 308.
Boeing has also continued to develop more fuel efficient aircraft during 2015. Boeing completed the detailed
design of the B787-1000 series during 2015. It will be the largest of the 787 family with a seat capacity of
330 and will have efficiency approximately 25% better than the aircraft it replaces 309. Boeing also runs an
eco-demonstrator program, which is a test bed for noise and fuel consumption reduction technologies. The
B757 aircraft was added to the program in 2015 to add to the research and development of green
technologies310.

During 2015 there were also significant milestones in emissions-free flights. On the 10th July 2015 Airbus
flew its electric aircraft, the E-fan demonstrator, across the English channel 311. On the 9th March 2015 Solar
impulse 2, a solar powered plane, started it’s around the world journey (see Figure 152). The historic
circumnavigation was successfully completed on the 23rd July 2016. The longest leg of the journey took
place on the 28th June 2015. This leg of the flight was between Nagoya in Japan and Killaloe in Hawaii. The
distance covered was 8,924 km, which took 117.5 hours312.

Figure 152: Solar Impulse Route Map

Source: Solar Impulse, 2016

GHG emissions are also produced by ground transportation associated with the aviation sector. This includes
support vehicles and vehicles used to transport passengers and freight to airports. There are a number of
schemes to reduce the emissions from support vehicles including ACARE’s target for emissions-free taxing.

307
Airbus, “A350-1000,” 2016. [Online]. Available: http://www.airbus.com/aircraftfamilies/passengeraircraft/a350xwbfamily/a350-1000/
308
Airbus, “A320Neo,” 2016. [Online]. Available: http://www.airbus.com/aircraftfamilies/passengeraircraft/a320family/spotlight-on-
a320neo/
309
Boeing, “787 Dreamliner Familiy,” 2016. [Online]. Available: http://www.boeing.com/commercial/787/
310
Airbus, “History is made, and the future of electric aircraft is opened with E-Fan’s English Channel crossing,” 2015. [Online]. Available:
http://www.airbusgroup.com/int/en/corporate-social-responsibility/latest-news/History-is-made--and-the-future-of-electric-aircraft-is-
opened-with-E-Fan-s-English-Channel-crossing.html
311
Airbus, “History is made, and the future of electric aircraft is opened with E-Fan’s English Channel crossing,” 2015. [Online]. Available:
http://www.airbusgroup.com/int/en/corporate-social-responsibility/latest-news/History-is-made--and-the-future-of-electric-aircraft-is-
opened-with-E-Fan-s-English-Channel-crossing.html.
312
Solar Impulse, “Exploration to Change the World,” 2016. [Online]. Available: http://www.solarimpulse.com/.

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Airports are also involved in promoting modal shift away from road transportation these and other measures
are discussed further in section 7.6.

Air Quality

As discussed in section 7.3, deteriorations in air quality due to aviation are centred on airports. As with GHG
emissions, emissions that cause poor air quality are associated with combustion. Therefore one of the most
effective ways of managing air quality is to reduce combustion. The improvements in aircraft efficiency
discussed in section 0, as well as leading to reductions in GHG emissions, will also lead to reductions in
pollutants that cause poor air quality. However, it is anticipated that due to the anticipated increased demand
for aviation in the future, aviation related air quality concerns will remain an issue.

The impact of pollutants that cause poor air quality is related to the concentration of the pollutant and
exposure to the pollutants. This means that air quality issues and airport planning are closely linked. During
2015, the debate over airport expansion in the south east of the UK has continued. The UK’s Airport
Commission was set up by the British government to examine the issue recommending expansion of
Heathrow in July 2015. In December 2015 the British Government deferred the decision until 2016. Air quality
concerns have continued to play a major role in the debate 313.

Alternative aviation fuels have the potential to reduce SO x emissions as well as GHG emissions. This is
because biofuels, unlike fossil fuels, do not contain sulphur. A further discussion around developments in
aviation biofuels can be found in section 7.7. Reducing combustion of fuels in support vehicles is another
potential method for improving air quality and reducing GHG emissions. Air quality improvements and
emissions reductions can also be achieved by promoting model shift. Both of these methods of improving
air quality are discussed in section 7.6.

7.4. Climate Change (Adaptation and Resilience)

In April 2014, a research paper titled Adapting European airports to a changing climate was published by
Transportation Research Procedia314. This paper updated the findings of EUROCONTROL’s 2013 report
Challenges of Growth 2013: Task 8 climate change risk and resilience 315. The analysis presents the key
impacts to airport and these can be found in Figure 153 below.

313
Airports Commission, “Airports Commission: Final Report,” 2015.
314
Rachel Burbidge, “Adapting European airports to a changing climate,” Transport Research Procidia, vol. 14, pp. 14-23, 2016.
315
EUROCONTROL, “Challenges of Growth 2013: Task 8: Climate Change Risk and Resilience,” EUROCONTROL, 2013.

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Figure 153: Key Aviation Climate Change Impacts

Source: Rachel Burbidge (EUROCONTROL), 2016

The analysis details the mechanisms through which climate change may impact upon the aviation sector.
 Changes in precipitation may require increased aircraft separation, which may reduce airport capacity
and cause delays. Furthermore, changes in precipitation may also result in airport flooding.
 Increases in convective weather 316 may require increased diversion and associated delay, additionally
diversionary airports may be affected and increased flight planning may be required.
 Changes in wind patterns may result in runways experiencing increased cross winds, this may result in
airspace redesign and noise redistribution.
 Sea level rise and storm surge may reduce capacity and delay and lead to the total loss of capacity
through inundation.
 Increases in temperatures may cause physical infrastructure damage. Additionally, the increase in
temperatures may place additional demands on cooling services. The increased temperatures may also
lead to demand changes and this is likely in the Mediterranean region.

The rest of the analysis looks at barriers to adaptation and examines the key priorities for building aviation
climate change resilience. These are presented in Figure 154 below.

316
Convective weather is a storm or developing storm

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Figure 154: Key priorities for building aviation climate resilience

Source: Rachel Burbidge (EUROCONTROL), 2016


 Understanding the problem relates to identifying the impacts for each stakeholder and identifying
research priorities;
 Assessing the problem refers to undertaking a climate change risk assessment;
 Actions to adapt entail identifying methods to build resilience;
 communication and collaboration is identified as key for awareness raising and for disseminating best
practice.

The UK’s Civil Aviation Authority (CAA) produced a Climate Change Adaptation Report in 2015 317, which is
an update of the CAA’s 2011 Climate Change Adaptation Report. The report identifies aviation as particularly
susceptible to climate change. The report details the risks climate change poses to the CAA, and the wider
aviation industry. It then goes onto discuss how these risks will be addressed. The majority of the risks
identified were expected to impact upon the operation of the CAA, for example weather event making staff
unavailable. However, it was noted that an increase in convective weather may result in changes to routing
and airspace management.

7.5. Aircraft Noise

At the end of 2015, the EC launched a consultation on the evaluation of the Environmental Noise Directive
(END) (2002/49/EC). Along with Regulation (EU) No 598/2014 on noise-related operating restrictions at
airports within a ‘Balanced Approach’ to aircraft noise management318, the END represents the European
legislative framework that controls aircraft noise at airports, following on from the World Health Organization
community noise guidelines (1999319) which highlighted the effects on health of noise from industry and
transport sources).

The END came into force in 2002 with the aim aims to avoid, prevent, or reduce the harmful effects of noise
on human health from road, railways, airports and industrial installations. Specifically:

(1) a common approach to the management of noise in Member States by requiring Member States to map
noise in agglomerations and around major roads, railways, airports and industrial installations, and to draw
up respective action plans, which need to be publicly consulted.

317
CAA, “Climate Change Adaptation Report,” 2015.
318
http://www.icao.int/environmental-protection/pages/noise.aspx
319
http://www.who.int/docstore/peh/noise/guidelines2.html

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(2) a basis for developing EU measures to reduce noise at source (e.g. noise resulting from road traffic,
airports, railways, as well as from outdoor and industrial equipment), as the strategic noise maps inform the
Union on the acoustic environment quality in the EU.

The consultation320 invited stakeholders to comment on the effectiveness and efficiency of the END. This
includes consideration of progress by Member States in achieving the objectives, barriers to achieving
objectives, extent to which a common approach has been reached in the EU, and reactions from the
stakeholders. The consultation also solicited views on how the Directive can contribute to ensuring ‘that by
2020 noise pollution in the Union has significantly decreased, moving closer to WHO recommended levels’
as stated in the 7th Environment Action Programme321.

The END has resulted in individual airports setting out actions plans to control noise and publicly disclosing
these documents. Mapping of environmental noise has also been widely undertaken, but the END did not
specify how these maps should be produced (i.e. the metrics that should be used).

It is expected that the feedback from the consultation exercise will lead to the Directive being updated. This
process will need to be undertaken in the context of a growing bank of scientific evidence relating to the
health effects of noise and calls for the application of noise limits at sources.

Early in 2015 the EC’s Science for Environment Policy322 published a document
capturing the latest research on ‘Noise impacts on health’. This covered key issues
that are relevant to the aviation industry including, the potential effects of aircraft noise
at night on cardiovascular disease, the importance of preserving quiet areas (in urban
and rural locations), and that the health of vulnerable people exposed to noise is
under-researched.

7.6. Airports

European airports have undertaken a range of initiatives to improve their


environmental performance during this reporting period. These cover GHG emissions, air quality pollution,
noise, water and biodiversity323324325. A selection of these initiatives has been listed below:
 Electric vehicles
 Promotion of carpools, active travel and public transport.
 renewable energy generation
 Green tariff electricity
 Electrified airport stands
 LED Lights
 Rainwater harvesting

Airport CO2 Accreditation

320
http://ec.europa.eu/environment/consultations/noise_2015_en.htm
321
http://ec.europa.eu/environment/action-programme/
322
http://ec.europa.eu/environment/integration/research/newsalert/pdf/47si.pdf
323
Schiphol Group, “Annual Report,” 2015.
324
Groupe ADP, “Corporate Social Responsibility,” 2015.
325
Athens Airport, “Corporate Responsibility Report,” 2015.

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Airports Council International (ACI) ran its Airport Carbon Accreditation program (ACA) for the sixth year in
2014/15326. The program aims to “reduce carbon and increase airport sustainability”327. This aim is achieved
through an accreditation scheme that incentivises carbon management activities based on the operational
and public relations benefits of being accredited. Airports seeking to be accredited to the scheme can choose
from four different levels that reflect their maturity (see Figure 155 below). Level 1 refers to mapping, level 2
refers to reduction, level 3 refers to optimisation, and level 3+ refers to neutrality.

Figure 155: ACA Certification Levels

Source: ACA, 2016

During 2014/15 seven airports in Europe entered the scheme. These were:
 Level 1: Bergamo-Orio al Serio (Italy); Marseilles - Provence and Cannes-Mandelieu (France); Bristol
(UK) and Tel Aviv-Ben Gurion (Israel)
 Level 2: Newquay Cornwall Airport (UK), and Stavanger International (Sweden)
 Level 3: London Gatwick (re-joined the programme since withdrawing in Year 5)
During the same period 17 airports upgraded as follows:
 To Level 2: Treviso (Italy); Toulouse-Blagnac (France); Madeira, Faro, Ponta Delgada and Band E ANA
(Horta, Santa Maria, Flores and Porto Santo airports) (Portugal); Tirana (Albania); Budapest (Hungary);
 To Level 3: Nice (France); Istanbul (Turkey);
 To Level 3+: Rome-Fiumicino and Venice-Marco Polo (Italy); Ankara and Antalya (Turkey).
In Europe, the airports in the scheme represent approximately 64% of air passenger traffic. Furthermore,
77% of the airports involved actively managing their carbon emissions, rather than just measuring them.
Figure 156 below summarises the GHG emissions from airports covered by the scheme in 2013/14 and
2014/15 in Europe. The carbon footprint per passenger has continued to fall and is now 1.89kgCO 2 for Scope
1 and 2 emissions328, this is a 27% reduction compared to year 1 of the scheme (2009/10) where emissions
were 2.6 kgCO2 per passenger329. Additionally emissions reductions and offsets have also increased. This
indicates that European airports are increasingly managing their GHG emissions.

326
Airport Carbon Accreditation, “Annual Report 2014-15,” 2015.
327 327
Airport Carbon Accreditation, “Airport carbon accreditation,” 2016. [Online]. Available: http://www.airportcarbonaccreditation.org/.
328
Scopes are a method of apportioning emissions by level of responsibility. Scope 1 emissions are direct emissions, for example
emissions from fuel combustion in an airport vehicle. Scope 2 emissions are for purchased electricity, and scope 3 emissions are
indirect emissions for example emissions from travel in a vehicle owned or operated by another organisation (WBCFSD and WRI,
“The Greenhouse Gas Protocol,” 2004).
329
Airport Carbon Accreditation, “Annual Report 2010-11,” 2011.

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Figure 156: Summary of European emissions covered by the program comparing 2013/14 (year 5) with 2014/15 (year 6)

Source: ACA, 2015

The scheme has also expanded in the rest of the world between 2013/14 and 2014/15. In the Asia-pacific
region nine new airports have joined the scheme, In North America five airports have joined the scheme and
in the Latin America and Caribbean Region one airport has joined the scheme. The number of airports in the
scheme in Africa has stayed the same. In total the Scheme now covers 125 airports representing 28% of
global air passengers330.

330
Airport Carbon Accreditation, “Annual Report 2014-15,” 2015.

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7.7. Alternative Fuels

As discussed in section 7.3 alternative aviation fuels have the potential to reduce GHG emissions and
improve air quality. During 2015 there has been technological progress in the development of alternative
aviation fuels and progress towards making their use commercially viable. More than 2,000 flights have now
occurred using alternative fuels, and the sector is moving from one off demonstration flights to investing in
alternative aviation fuels. However, the economic conditions for alternative aviation fuels have remained
difficult due to the low oil price during 2015. This has meant that effective policy remains crucial to the
sector331.

The SOLAR-JET Project332 produced kerosene from water, CO2, and solar energy for the first time in 2015.
This was achieved by using a two-step solar thermal chemical cycle and a Fischer–Tropsch reaction. This
technology has the potential to produce alternative aviation fuel without displacing food production. There
have also been studies of the potential to produce kerosene from bio-methane and cross condensation of
alcohols to ketones333.

There has also been progress on the commercial side of alternative aviation fuel development during 2015.
A number of off-take agreements were signed between produces as airlines during 2015. This included an
off-take agreement between Fulcrum Bioenergy and United Airlines. United Airlines also took a $30 million
USD equity investment in Fulcrum Bioenergy. This is the single largest investment by an airline in alternative
aviation fuel. Fulcrum Bioenergy’s process converts municipal solid waste into alternative aviation fuel334.
Additionally, from January 2016 Oslo airport made alternative aviation fuel available to all airlines refuelling
from the airport’s main fuel farm.

331
IATA, “IATA 2015 Report on Alternative Fuels,” 2016.
332
SOLAR-JET, “Solar chemical reactor demonstration and Optimization for Long-term Availability of Renewable JET fuel,” 2015.
[Online]. Available: http://www.solar-jet.aero/.
333
IATA, “IATA 2015 Report on Alternative Fuels,” 2016.
334
ICAO, Environmental Report, 2016.

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8. Safety & Security

8.1. Introduction

This report discusses the topics of Safety and Security in the context of 2015. The Safety section first reviews
the safety record for the calendar year and then delves into relevant topics, namely pilots’ psychological
health, updates on Open Skies in the Asia Pacific and the potential challenges faced from the upsurge in the
use of drones. It is then followed by the Security section which introduces the foundations of Aviation Security
discussing the more recent developments in this area.

8.2. Safety

Commercial flights growth in 2015 increased 2% year on year. At the same time, for the second consecutive
year, 2015 was the safest year in aviation history. There were zero fatalities from jet aircraft operations and
fatalities from turboprop aircraft were 186. The latter was an increase from the previous year.

Nevertheless, there were several high profile accidents. These included the Germanwings flight 9525 that
was brought down by the co-pilot and the MetroJet flight 9268 which exploded mid-air during departure from
Sharm-el-Sheikh International Airport in Egypt. Earlier in the year, TransAsia experienced another hull loss
for a second year as flight 235 crashed during take-off.

These aviation accidents have revealed challenges to the regulatory bodies across the world. Following the
Germanwings accident, the “2-persons-in-the-cockpit” rule was revisited and reconfirmed by the EASA
assembled task force. However, questions arose with regards to the adequacy of the processes for the
evaluation of the psychological state of pilots.

Following these incidents, the FAA conducted appropriate research and issued recommendations in the area
of evaluating the psychological fitness of pilots.

The situation in the Asia Pacific region has not changed – traffic continues to increase at a strong pace, while
infrastructure and safety standards fail to cope. This chapter also looks into aviation safety in the Asia Pacific
region. It is expected that the introduction of the ASEAN Open Skies Agreement will have a positive effect
on the safety records in the region. Finally, in this chapter we examine how the North American regulators
have responded to the challenge to establish rules and regulations for registration, certification and operation
of unmanned aircraft vehicles, also known as drones.

2015 Safety Review


2015 Safety Performance
A study by Boeing335 confirms that in 2015 there were zero fatal jet accidents. This is so because the statistics
exclude the Germanwings and the MetroJet aircraft accidents as they both were the result of “fatal and non-
fatal self-inflicted injuries or injuries inflicted by other persons” which were the case in two of the three high
profile accidents discussed in the next section. Furthermore, there were a total of 186 fatalities from 14
aircraft hull-loss accidents. This makes the case for improved global aviation safety even stronger

335
Statistical Summary of Commercial Jet Airplane Accidents (Worldwide Operations 1959-2015), Boeing, 2015

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Figure 157 which follows shows historical commercial airliner passenger fatalities from 2006 to 2015. The
trend is positive and optimistic. The ten-year average for both fatalities and fatal accidents decreased when
compared to 2014th ten-year average. Since 2011, and excluding 2014, fatalities have been below the 10-
year average of 582. Similarly, since 2012, fatal accidents have been below the 10-year average of 25 fatal
accidents with one exception – the 26 fatal accidents in 2013.

Figure 157: World Commercial Airline Fatal Accidents and Fatalities 2006 to 2015

1,400 40
33
1,200 34 35

30
1,000 28 26

Fatal Accidents
27 25 26
817 25
Fatalities

800
863 749 21 19
744 671 20
600
15
583 426
400 504 14
281 10
186
200 5

0 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Year
Fatalities 10 year average fatalities

Fatal Accidents 10-year average fatal accidents

Source: Flightglobal, IATA

2015 Fatal Accidents


2015 was the safest year in aviation history both in terms of fatalities and fatal accidents. This can be stated,
as the amount of flight accidents per year has been diminishing and as the amount of flights performed per
year continued to rise at a global pace of 2% 336.

Table 43 and Table 44 provide further detail to the fatal accidents (passenger and non-passenger flights)
which occurred in 2015337. The accident with the most fatalities was an ATR-42 domestic flight operated in
Indonesia with 54 fatalities following a controlled flight into terrain 338,339. Most of the 2015 accidents listed
below happened while en-route except three which happened during the initial climb phase of the flight plus
one which happened during final approach. Out of the 14 fatal accidents, three incurred fatalities of more
than 10 people. The Antonov 12BK of Allied Services Limited was the cause for 41 fatalities after the aircraft
crashed during initial climb. According to the ASN safety database the cargo flight’s pilot had radioed air
traffic control that there were 12 people on board which following the accident was proven wrong. The
TransAsia accident (43 fatalities) in Taiwan is later discussed in this chapter. Trigana Air Service Flight 267

336
2015 ACI Annual World Airport Traffic Report
337
Aviation Safety Network (ASN) safety database, 2015
338
SKYbrary, “Controlled Flight Into Terrain”, 2014
339
National Transportation Safety Committee (NTSC) – Indonesia, Report KNKT.15.08.17.04 published 3.October 2015

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incurred the most fatalities (54); however, due to lack of sufficient information 340 in the public domain, this
accident is not discussed in the report.

Table 43: Fatal Accidents 2015 – Passenger Flights

Date Operation Operator A/c Type Location Fatalities Phase


04-Feb S.P TransAsia Airways ATR 72 Taiwan 43 C
25-Jun R&C Promech Air DHC-3 Otter USA 9 ER
16-Aug S.P Trigana Air Service ATR 42 Indonesia 54 ER
15-Sep R&C Rainbow King Lodge DHC-3 Otter USA 3 C
02-Oct S.P Aviastar Mandiri DHC-3 Otter Indonesia 10 ER
S.P= Scheduled Pax R&C= Regional and Commuter
ER= En-route L= Landing C= Climb RA= Runway/Final Approach

Source: Aviation Safety Network database, 2015

Table 44: Fatal Accidents 2015 – Non-Passenger Flights

Date Operation Operator A/c Type Location Fatalities Phase


11-Feb N.P Aeropanamericano Beechcraft 1900C USA 4 C
13-Apr N.P Carson Air Swearingen SA226 Canada 2 ER
09-May N.P Airbus Industrie Airbus A400M Spain 4 RA
02-Jun N.P Aeronaves TSM Swearingen SA226 Mexico 5 ER
20-Aug N.P Dubnica Air Let L-410MA Slovakia 3 ER
20-Aug N.P Dubnica Air Let L-410MA Slovakia 4 ER
14-Oct N.P Microsurvey Aerogeofisica e Cessna 208B Grand Colombia 3 ER
Consultoria Cientifica Caravan
04-Nov N.P Allied Services Limited Antonov 12BK South 41 C
Sudan
11-Dec N.P Wasaya Airways Cessna 208B Canada 1 ER
N.P= Non Passenger
ER= En-route L= Landing C= Climb RA= Runway/Final Approach

Source: Aviation Safety Network database, 2015

340
Aircraft Accident Investigation Report KNKT.15.08.17.04

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2015 Safety Review – Focus on Europe
EASA
The European Aviation Safety Agency (EASA) 2016 annual report on aviation safety, published in July
2016341, identifies commercial flights as the domain with the highest number of fatalities. The top 5 aircraft
types in terms of the number of fatalities in 2015 vs the annual average for the past 10 years are: commercial
and non-commercial aeroplanes, gliders and sailplanes, aerial work/part SPO aeroplanes and non-
commercial helicopters.

Before presenting the findings of the EASA annual report, it should be noted that the EASA report classifies
the Germanwings Flight 9525 incident as a safety occurrence, hence the statistics do not match those found
in the IATA Fatality Risk report. IATA considers that the Germanwings incident meets the exclusion rule for
“fatal and non-fatal self-inflicted injuries or injuries inflicted by other persons”, as per the definition provided
in Regulation (EU) 996/2010342. However, EASA counts this as a safety occurrence and includes it in their
statistics, however, no explanation is provided on why it is considered as a safety occurrence and not a
security incident.

Figure 158. Commercial aircraft fatalities per billion passengers transported 2005-2015

Source: EASA Safety Review 2016

Figure 158 presents a 10-year trend in fatalities against total passengers transported in EASA Member
States. Similar to the IATA Report, a negative correlation is found between passenger growth and the
number of fatalities per annum. Notable findings include (1) the 24% drop in the number of serious incidents
over the period, to 58 in 2015, and (2) the sharp decline in fatal accidents over the last 5-year period of non-
EASA MC AOC Holders (from 3.5 per million departures in 2010 to 1 in 2015). EASA MC AOC Holders have
a consistently low rate of fatal accidents per one million departures of less than 0.5 fatal accident per million
departures.

The Report analyses non-fatal against fatal accidents, and confirms that there is no relationship between the
two (e.g. an increase in non-fatal accidents will not necessarily result in an increase of fatal accidents).

341
EASA Annual Safety Review 2016: https://www.easa.europa.eu/newsroom-and-events/news/easa-annual-safety-review-2016
342
Regulation (EU) No 996/2010 of the European Parliament and of the Council of 20 October 2010: http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:295:0035:0050:EN:PDF

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Figure 159. Commercial Air Traffic Aeroplane Accidents by EASA MS AOC Holders

Source: EASA Safety Review 2016

Take-Off, Approach and Landing are the en-route phases when most accidents take place, and passenger
aircraft have significantly more accidents than any of the other categories – cargo, military, pleasure or
unknown, driven also by the volume of flights by passenger aircraft. Aircraft propelled by turbofan and
turboprop engine top the accidents and serious incidents rankings. Turbofan aircraft are impacted by en-
route turbulence (causing more passenger and crew injuries) due to the cruising altitude.

EASA identifies eight key risk areas and the respective actions (part of the European Plan for Aviation Safety,
EPAS) undertaken to mitigate the respective risks which cover:

• Loss of Control while in flight


• Aircraft System Failure
• Ground Collisions and Ground Handling
• Controlled Flight into Terrain (CFIT) – Terrain Conflict
• Runway Incursions
• Abnormal Runway Contact and Excursions
• Airborne Conflict
• Fire

Top key risks areas are grouped as follows:

• Operational Safety Issues: Detection, recognition and recovery from loss of control; Operation in
adverse weather conditions; Calculation and entry of take-off and landing parameters into aircraft
systems; Handling and operation of the aircraft following a technical failure; Maintaining adequate
separation with aircraft (both in the air and on the ground); Ground handling operations; Prevention
and resolution of conflict with aircraft not fitted with transponders.
• Human Factors Safety Issues: Personal readiness and crew impairment; Flight crew perception
and awareness; Crew resource management and communication.
• Organisational Safety Issues: Implementation of reporting systems and safety management
systems; Oversight of organisations.

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In addition the above, the Report also focuses upon risk from conflict zones, with reference to the
disintegration of Malaysian Airlines Flight 17 from impact with a Buk surface-to-air missile343. Following this
tragic accident ICAO set up a central repository where states can voluntarily supply information about risk
from conflict zones. In addition, a European High Level Task Force on conflict zones was set up, and in
March 2016 it published a report344 about its activities, aiming to bring together EU countries to share
intelligence information about emerging conflict zones so that a risk assessment can be produced per conflict
zone that will be issued in the form of Information Bulletin to all Member States and Operator.

Cyber Security also tops EASA’s interests on safety matters. The Agency has a roadmap of identified
“strategic objectives, enablers in the domains of regulation and standards, research and cybersecurity
promotion initiatives” and is in the process of establishing an Aviation Computer Emergency Response Team
(AV-CERT).

The vehicle for EASA to promote and drive aviation safety among EASA MS is the European Plan for Aviation
Safety (EPAS). This Plan is supported by a common Safety Risk Management (SRM) process that consists
of five general steps and engages a number of collaborative groups and advisory bodies. According to the
SRM process, a safety issue needs to be (1) identified, and (2) assessed. Then (3) safety actions are defined
and programmed, before (4) they are implemented. Finally, the safety performance is measured. The
process engages Collaborative Analysis Groups, the Network of Analysts and the Safety Promotion Network.
The Stakeholder Technical Bodies are responsible for reviewing and committing to concrete actions that
address the specific safety issues at Domain level; the Stakeholder and Member State Advisory Bodies
review and discuss the strategic safety activities in the Rulemaking Plan and the EPAS. The Rulemaking
Groups and the Safety Task Groups support EASA in implementing the specific safety actions.

To summarise, aviation safety in Europe has the best track record worldwide for the past 10 years. EASA
achieves this by continuously following recent industry developments and learning from aircraft accidents
both among its Member States but also worldwide.

EU Air Safety List

Following Regulation (EC) No 2111/2005, the European Commission established a list of airlines which are
not allowed to fly in European airspace345 (those banned from operating in Europe, and those restricted from
operating under certain conditions in Europe). The list is maintained publicly on the Commission’s website
and it contains EU operational bans to individual airlines and countries. On a country level, all airlines issued
with an Air Operator’s Certificate from that country are subject to the ban, even if not named explicitly in the
list.

Airlines are added on a case by case basis. Either the EC or a Member State (via its Civil Aviation Authority)
may propose an airline to be either added to or removed from the list, using the following air safety criteria346:

• results of aircraft ramp checks carried out in European airports;


• the use of poorly maintained, antiquated or obsolete aircraft;

343
Final Report from Dutch Safety Board on the MH17 Crash: https://www.onderzoeksraad.nl/uploads/phase-
docs/1006/debcd724fe7breport-mh17-crash.pdf
344
European High Level Task Force on Conflict Zones, 17.03.2016;
https://www.easa.europa.eu/system/files/dfu/208599_EASA_CONFLICT_ZONE_CHAIRMAN_REPORT_no_B_update.pdf
345
The EU Air Safety List – further information: http://ec.europa.eu/transport/modes/air/safety/air-ban/furtherinfo_en
346
Q&A on the list of air carriers subject to an operating ban in the EU (the “blacklist”): http://europa.eu/rapid/press-release_MEMO-09-
162_en.htm?locale=en

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• the inability of the airlines involved to rectify the shortcomings identified during the inspections
(evidenced by a repetition of the same deficiencies over a period of time); and,
• the inability of the authority responsible for overseeing the airline to perform this task and to ensure
that the international safety standards are adhered to at all times.

Citizens of the European Union are encouraged to avoid travel with the airlines present on the “blacklist”
when travelling abroad347.

ENCASIA
The European Network of Civil Aviation Safety Investigation Authorities (ENCASIA) was established in
2010348 to group the air safety investigation authorities (SIAs) of the EU Member States in a single
representative body. Its role is to advise other institutions within the EU on matters in relation to safety
investigations and the prevention of accidents and incidents. One example from 2015 was an Opinion
published by ENCASIA on the approach for investigations of accidents and serious incidents involving
drones.

ENCASIA has six active working groups (WG)349.

• WG 1 “Network Communication and Internet Presence” which focuses on how the Network’s
activities are communicated across the EU;
• WG 2 “Inventory of best practices of investigation in Europe” that collects observed good practices
from Safety Investigation Authorities (which ENCASIA consists of). In 2015 its focus was on
protecting the content from Cockpit Voice Recorders (CVRs). Some countries would delete the
content prior to returning the CVR to its owner. However, in other countries this would be unlawful
and therefore the CVR must be safeguarded as it is an “evidence that can incriminate or exonerate”;
• WG 3 “Procedures for asking and providing help” and WG 4 “Training of investigators”. These WGs
hosted in 2015 a 4-day training event in Portugal which covered all aspects of an investigation. The
event focused on the Safety Recommendations Information System (SRIS) database and the
collection of best practices. The objective of this WG is to ensure that the Safety Investigation
Agencies of individual EU Member States are prepared to manage a major investigation and capable
to pool resources from fellow Member States;
• WG 5 “Peer Reviews” facilitates the reviews of selected SIAs through peer review panels of three
individuals from other SIAs. In 2015, Iceland, Germany, Norway, Portugal, Denmark and Romania
were reviewed. The results showed that collectively the SIAs have the expertise to manage both
small and large aircraft accidents and advised Romanian and Portuguese SIAs to make
arrangements with other SIAs to formalise potential collaborations. Additionally, the UK Air Accidents
Investigation Branch (AAIB) was invited by its Singaporean peer (also called AAIB) via the ICAO
Continuous Monitoring Approach external audit scheme to conduct a peer review and to share
European good practices; and,
• WG 6 “Safety Recommendations”. The objective of this WG is to further develop the European
SRIS350 by improving the analysis of its content. SRIS contains all safety recommendations (SRs)
concluded from every SIA investigation. In this way, for example, the safety recommendations
following the investigation of an accident in Slovakia can potentially prevent a similar accident in
Bulgaria. Since its launch in 2012, a total of 1,810 safety recommendations have been recorded,

347
List of Air Carriers Which Are Banned From Operating Within The Union http://ec.europa.eu/transport/modes/air/safety/air-ban_en
348
European Network of Civil Aviation Safety Investigation Authorities (ENCASIA): https://ec.europa.eu/transport/modes/air/encasia_en
349
ENCASIA Annual Report 2015: https://ec.europa.eu/transport/sites/transport/files/2015-encasia-report.pdf
350
European Central Repository for Safety Recommendations in Aviation: https://ec.europa.eu/jrc/en/scientific-tool/sris-european-
central-repository-safety-recommendations-aviation

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375 of which were safety recommendations from 2015. This represented a drop in the average for
2012-2014 of 478 SRs which should be considered a good sign that either the total number of
accidents being investigated is dropping and/or the amount of safety regulation imperfections is
being reduced.

ENCASIA went one step further with the register of SRs by grouping them and identifying Safety
Recommendations of Union wide Relevance (SRURs). These consisted in the areas of Parachute Jumping,
Pilot Licensing, Ballistic Parachute Recovery Systems, Training for Pilots, Lithium Ion Batteries in Aircraft
Equipment and others. Furthermore, SIAs would conduct their own studies which would output further SRs.
Examples are from France (review of the certification of Thielert engines which were associated with multiple
events of engine malfunction), Italy (review of air show organisation following accidents on shows worldwide)
and the UK (review of airworthiness of aircraft registered overseas and resident in the UK).

An analysis of the SRs collected in 2015 shows that half of them relate to Procedures and Regulation and a
quarter of them – to Aircraft, Equipment, or Facilities. The latter mainly consist of Aircraft Equipment, Aircraft
Systems, Aerodrome Equipment or Facilities and Aircraft Documentation. 21% of the 375 SRs relate to
Aircraft Operations (Procedures). The other major groups of SRs in the Procedures and Regulation category
are Aircraft Certification and Aircraft Maintenance and Inspection.

TCO
In 2014 EASA published the Third Country Operator (TCO) Regulation 351. It applies to all air carriers who
would like to perform commercial flights to any EU destination. Under this regulation, EASA would issue air
carriers, with an AOC issued outside the EU, with a safety authorisation should they meet the ICAO safety
standards. The TCO authorisation covers all EU Member States, the 4 European Free Trade Association
(EFTA) States and all additional territories covered by Regulation (EC) No 216/2008.

It should be noted that the TCO only accounts for the safety-related part of the assessment of the air
carrier352. Member States will continue to issue the required operational permit. Both the TCO and the
European Air Safety List are maintained in a coordinated way. This means that if an air carrier from the list
is given a TCO authorisation, it will be subsequently removed from the “blacklist”.

Exception to the TCO regulation can only be made for air ambulawence or ferry flights and for non-scheduled
flights “to overcome an unforeseen, immediate and urgent operational need”.

2015 Safety Review – Worldwide Focus


Fatality Risk
In its 2015 safety report, IATA introduced a new measure of air traffic safety called “fatality risk”. This
measure seeks to quantify the exposure of a passenger or crew to a fatal injury through dividing the number
of “hull loss equivalents” by the total number of flights or sectors. A hull-loss equivalent is the division of all
fatalities by the total number of passengers and crew carried by the aircraft that have taken part in fatal
accidents. As this is a new measure, it was retroactively applied to the 2010-14 period.

Figure 160 below presents a map indicating the fatality risk per geographical region and providing statistics
for 2015, 2014 and the 5-year average for the period 2010-2014; the 2014 and 5-year average figures were
calculated retroactively based on available data.

351
EASA: Third Country Operators: https://www.easa.europa.eu/easa-and-you/air-operations/tco-third-country-operators
352
EASA FAQ on Third Country Operators: https://www.easa.europa.eu/the-agency/faqs/third-country-operators

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Despite the few data points, the fatality risk statistics indicate a trend of global improvement in aviation safety
over the past few years. However, this needs to be verified as more data becomes available.

Figure 160: Total Jet & Turboprop Aircraft Fatality Risk

Source: IATA Safety Report 2015

Nevertheless, even though there were zero jet aircraft fatalities in 2015, the risk from a fatal injury in an
accident with a turboprop aircraft remains significant, as evident from Figure 161 and Figure 162 presented
below.

In overall, two points can be made from the information in the two figures. First, more fatal accidents are
taking place on turboprop aircraft and, second, there is a general trend of improvement in aircraft fatalities.
From a geographical point of view, Asia remains high in the risk map.

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Figure 161: Total Jet Aircraft Fatality Risk

Source: IATA Safety Report 2015

Figure 162: Total Turboprop Aircraft Fatality Risk

Source: IATA Safety Report 2015

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Although the African region appears in the overall map to have the highest fatality risk – primarily driven by
turboprop aircraft fatalities - North Asia experienced the most fatalities per turboprop flight in 2015.

The World vs IATA member average statistics displayed in the figures above indicate a better safety culture
of IATA member airlines. In order to become a member of IATA an airline needs to go through the IATA
Operational Safety Audit which is internationally accepted to evaluate the operational management and
control systems of the respective airline 353. Nevertheless, the world fatality risk in 2015 indicates an improved
safety performance across both IATA and non-IATA members.

High Profile Accidents

This section of the Safety and Security chapter explores in some detail some of the fatal accidents that
occurred in 2015: Germanwings Flight 9525, MetroJet Flight 9268 and TransAsia Flight 235. The former two
are categorised as criminal activities and are therefore not present in the safety statistics of the aviation
industry. The latter is the accident with second most fatalities in 2015.

Germanwings Flight 9525


On 24th March 2015 a Germanwings aircraft operating from Barcelona, Spain, to Dusseldorf, Germany,
crashed in the French Alps following a deliberate action by the co-pilot. The Airbus A320-200 was carrying
in total 144 passengers plus 6 crew members on board, all of whom died. While en-route, the pilot left the
cockpit leaving the co-pilot alone in the cabin. The latter then reprogrammed the autopilot to descent the
aircraft into the ground. The pilot tried to re-enter the cabin and to gain contact with the co-pilot, however,
due to the security design specifications of the cockpit door system this was not possible. Consequently, the
aircraft crash landed into the mountains in southern France 354.

Following the 9/11 terrorist attacks security of the cockpit was significantly enhanced.
▪ Firstly, cockpit doors were “designed to resist penetration by small arms fire and grenade shrapnel
and to resist forcible intrusions by unauthorized persons”355.
▪ Secondly, a system was put in place to allow the pilot in the cabin to deny access to anyone trying
to enter the emergency entry code for the cockpit door. The only scenario when the door can be
unlocked from the outside without the consent of the people within the cockpit is when the latter are
incapacitated (e.g. Helios Flight 522 356). Flight crew can input an emergency cockpit entry code to
request access to the pilot cabin. If nobody in the pilot cabin reacts to the buzzer, the door would
unlock for a few seconds and thus granting entry from the outside.
▪ Moreover, airlines (mostly American) adopted the “2-persons-in-the-cockpit” rule. It emphasises on
the importance that at all times at least 2 people should be in the cockpit one of whom is certified to
fly the aircraft357. Canadian and European airlines adopted this rule on a wider scale only after the
2015 Germanwings crash. Lufthansa Group, Germania, Wizz Air, Thomas Cook, easyJet and
Norwegian Air Shuttle were the first airlines which adopted the rule in the aftermath of the accident.
Since then, and on 21st July 2016, the European Aviation Safety Agency (EASA) issued a formal
recommendation that all EU-based airlines should adopt it as well358.

353
IATA Membership Application Procedure and Fees, January 2016
354
Aviation Safety Network (ASN) safety database, 2015
355
EASA regulation November 1, 2003
356
ASN safety database, 2005
357
Cabin Safety Subject Index, FAA, 07th April 2015
358
EASA Safety Information Bulletin issued 21st July 2016

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EASA assembled a task force which “delivered a set of 6 evidence-based recommendations to the European
Commission on 16 July 2015”359. The cockpit door system was not seen as the main issue for this accident,
but the primary topic of concern was the psychological evaluation of pilot crews, as little attention was paid
to this area prior to the Germanwings accident. The report assesses the current system within which there
is no specialised psychological evaluation, however such evaluation is part of the generic regular medical
examination of pilot crews. The system expects that pilots would self-check-in when they feel psychologically
unstable, which may result in them being grounded. Therefore, it can be deemed counter-intuitive that
anyone would report themselves and thus risk losing their job.

The six EASA recommendations are listed below.

Table 45: EASA Task Force Recommendations on Measures Following the Germanwings Accident

EASA Task Force Recommendation

Recommendation 1: 2-persons-in-the-cockpit recommendation is maintained.

Recommendation 2: All airline pilots should undergo psychological evaluation as part of training or before
entering service.

Recommendation 3: Mandate drugs and alcohol testing as part of a random programme of testing by the
operator.

Recommendation 4: Establishment of robust oversight programme over the performance of aero-medical


examiners including the practical application of their knowledge.

Recommendation 5: National regulations ensure that an appropriate balance is found between patient
confidentiality and the protection of public safety.

Recommendation 6: Implementation of pilot support and reporting systems, linked to the employer Safety
Management System within the framework of a non-punitive work environment and
without compromising Just Culture principles.

Source: EASA Task Force Report

In addition to the six recommendations presented above, EASA also makes a general recommendation for
the creation of a European aeromedical data repository as a first step to facilitate the sharing of aeromedical
information and tackle the issue of pilot non-declaration. EASA will lead the project to deliver the necessary
software tool.

As indicated in the table above, five of the six EASA recommendations focus on the procedures for medical
and psychological examinations of pilots and the balance between public safety and patient confidentiality.
Patient confidentiality is a major issue in such situations. Doctors depend on the patient sharing the truth
about their state and they can fail to make the correct diagnosis if the patient cannot trust in the confidentiality
of their doctor-patient relationship and share everything relevant. On the other hand, there is the matter of
national security and the respective pilot presenting a threat to the safety and security of multiple people.

359
Task Force on Measures Following the Accident of Germanwings Flight 9525, EASA, 16th July 2015

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MetroJet Flight 9268
On 31st October 2015 an Airbus 321-200 operated by Russian airline MetroJet and carrying 217 passengers
plus 7 crew members on board disintegrated mid-air in the North Sinai province of Egypt. Initial findings
indicate that a bomb was detonated on board mid-flight360.

The black box (Flight Data Recorder, FDR) of the aircraft revealed that the FDR had suddenly stopped
recording during the climb phase of the flight. There were no indications of a bird strike, mechanical failure
or any other malfunction of the aircraft and its systems. There have also been no distress calls or mayday
announcements from the pilots. Despite that the wreckage of the aircraft found on the ground was 13km in
length, the forward fuselage and wings were found at the same place (destroyed upon impact with terrain),
whilst the rest of the aircraft was scattered across the wider area of the wreckage. Based on this information,
investigators have assumed that the aircraft disintegrated mid-air361.

This accident is still under investigation. However, officials from both Russia and Egypt have acknowledged
that the most probable cause for the accident is the explosion of an estimated 1.5kg of TNT explosive on
board of the aircraft. Investigators from the US and the UK have not challenged this conclusion, as it is not
common for aircraft to disintegrate mid-air due to mechanical failure. The statement by the Russian Federal
Security Service (FSB) further reads that there had been traces of bomb residue in the aircraft wreckage. 362

One theory explaining how a bomb has come on board is that an airport employee smuggled the bomb into
the aircraft’s baggage hold or that they assisted those who did. In November 2015, media reported that two
employees of the airport have been detained for questioning363. If this is true, it can pose wider questions for
the security screening of staff working in the security cleared zones at airports.

TransAsia Flight 235


On 4th February 2015, a turbo-prop aircraft crashed in Keelung River in Taipei shortly after taking off from
the Taiwan capital airport. Investigations concluded that pilot error was the cause for the crash. There were
15 survivors (1 of who crew member) out of the 58 people on board. 364

The analysis of the black box revealed that the automatic take-off power control system (ATPCS) wasn’t
enabled during take-off. Despite that, the pilots didn’t abort the take-off nor did the airline have a standard
operating procedure (SOP) in place to dictate such actions, contrary to common practice. Consequently, the
right engine shut down during initial climb and entered auto feather mode 365. The pilots didn’t follow the
existing SOP to identify the malfunctioning engine and reduced the power to the other, left, engine. Following
these, the pilots didn’t have enough time to restart any of the two engines, so the aircraft stalled over a
highway viaduct and fell into the Keelung River. Only 1 crew member and 14 passengers survived this
accident.366

In June 2016, the Aviation Safety Council in Taipei, Taiwan, published the Aviation Occurrence Report which
investigates the crash with the objective of prevention future accidents and incidents. Its findings listed the
following probable causes for the TransAsia incident:

360
ASN safety database, 2015
361
Investigation by Interstate Aviation Committee
362
Announcement by the FSB (Federal Security Bureau, Russia)
363
Reuters: “Egypt detains two airport staff over Russian air crash - security sources”. 17.November 2015
364
ASN safety database, 2015
365
SKYbrary: “AP4ATCO – Turboprop Engine”
366
Aviation Occurrence Report, Aviation Safety Council (Taipei, Taiwan), June 2016

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• power plant issue with the auto feather unit (AFU);
• lack of TransAsia SOP to abort take-off in case the ATPCS doesn’t arm;
• failure of the crew to shut down the engine, the master warning of which had sounded, as well as
failure to follow the airline’s procedures for identifying the fault in the aircraft system;
• The flight crew didn’t coordinate, communicate or manage the threats and errors in an efficient
manner and lost control of the aircraft in a crucial situation.

This was the second fatal accident for TransAsia in two consecutive years following the crash of Flight 222
upon approach caused by adverse weather and failure of the crew to comply with the approach
procedures362. This reiterates the need for the airline to improve its safety culture. Further identifies lessons
learnt and actions taken as a result of the 2016 accident:
• improvement of pilot training;
• need for thorough airline procedures and for flight crews to follow these;
• engine modification release that better tackles issues with the ATPCS and AFUs.

As the main theme arising from the Germanwings high profile accident relates to pilots’ psychological health,
the next section takes a look at this in a bit more detail along with the proposed recommendations in relation
to rulemaking.

Pilots’ Psychological Health

As discussed earlier in this chapter, Germanwings Flight 9525 crashed in the French Alps in October 2015
killing 144 passengers. The most probable cause of the accident was the suicidal psychological state of the
co-pilot who found himself alone in the cockpit after the pilot left the cabin. There is a general understanding
in the aviation community that the enhanced security of the cockpit doors, implemented after the 9/11 terrorist
attacks in the USA, are adequate and it was unfortunate that they played an antagonistic role in this accident.

It is general practice following an aircraft fatal accident that the stakeholder countries set up a task force to
investigate the respective accident. In the event of the Germanwings Flight 9525 accident the relevant task
force focused on the evaluation of the psychological state of pilots 359. It recognised that the current system
depends on doctors identifying psychological issues either during regular generic medical examinations or
from the pilots coming forward themselves. Independent of EASA’s task force, the FAA set up an Aviation
Rulemaking Committee (ARC) to look into the topic of pilot fitness 367. As a result, the Committee conducted
research and produced a comprehensive report that drew from 15 academic sources within the field of
mental health research.

The report synthesises studies on human societies to point out that even though people are becoming more
aware of psychological illnesses, they are not capable of recognising one. In the same time, people who
doubt themselves whether they have such an illness would be more inclined to seek professional advice and
treatment after someone close to them suggests it as well. As noted in the report, this makes it very hard for
psychological illness to be identified in the first place. Should a pilot visit a psychologist, the airline’s
management must be notified who may or may not then act by either suspending the pilot from flying duty
or monitor them more closely.

It should be noted that in the Germanwings accident case the potential route cause was not the discovery of
the mental illness, but the communication between different authorities with regards to identifying the illness
and sharing it, and subsequently working together to resolve this, which relates to patient confidentiality. The

367
FAA: “Pilot Fitness Aviation Rulemaking Committee Report”; 18th November 2015

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ARC report367 concludes that “a risk mitigation process built on SMS (Safety Management Systems 368)
principles should be used by air carriers and pilot representative organisations to create an environment
where early reporting, appropriate treatment and rapid return to the flightdeck are the expectation”. So,
identification of the illness is challenging, but even when an issue is identified, there must be an efficient
system in place to safeguard pilots as well as the community; the pilot from losing their job because a mental
illness poses a threat to the community and the community from future aircraft accidents due to pilots with
psychological illness flying the aircraft.

The ARC research continues with looking into the pilot community. Although there is no data to assess the
presence of similar trends – whether pilots are aware of the nature of mental illnesses – the report ascertains
that all pilots undergo numerous medical examinations during their training to become commercial airline
pilots.

The ARC report indicates three stages in the context of pilot recruiting, when a psychological illness can be
developed: prior to hiring, during training and while on the job. It is interesting to note that hiring practices
have not changed for over 20 years and are largely similar across the various airlines and pilot associations.
This indicates that the industry wouldn’t have taken advantage of any available research on how to better
identify psychological issues. In addition, new hire pilots are “closely scrutinized during their initial training
and qualification period, as well as during their first year or probationary period”. This pushes trainees to
their limits and exposes their weaknesses, so should they be suffering from psychological issues, those
would surface up. In spite of this “scrutiny” failure rates for new pilots amongst all major airlines are relatively
low (12.4%)367.

The final part of the ARC research focused on the scenario where the pilots develop mental illness after
they’ve been hired. Aviation Medical Examiners (AME) conduct regular examinations during which they may
find a reason to believe the pilot is mentally unfit to operate an aircraft and would subsequently produce a
report. It is then the management’s decision whether to remove the respective pilot from flying status. If a
pilot is unsure and visits a medical or mental health professional, this also results into a report based on
which the management of the airline may decide to remove them from flying duty. Therefore, self-reporting
can be perceived by pilots as a high risk scenario.

In addition, the ARC report identified a number of disincentives to a pilot self-reporting. These are listed
below:
▪ Negative impact on career opportunities, or even a career ending possibility;
▪ Financial instability, due to a halt of flying and increased medical costs;
▪ Lack a trust in the system;
▪ Disapproval of people diagnosed with mental illness among the general population,
colleagues, friends and family;
▪ The individual may not recognise the symptoms of present mental illness; and,
▪ The individual does not believe that the treatment would “do any good”.

Thus the following eight-topic recommendations were drawn:

Table 46: ARC Report Recommendations

Topics ARC Recommendations


Doctors’ training to focus mostly on physical medicine and less on psychological.
1. Enhance AME This recommendation suggests that either the doctors are better trained to identify
Training psychological issues with patients, or that the AME system is restructured to
include psychiatrists among the people actively and routinely examining the pilot
community.

368
SKYbrary, “Safety Management System”, 2016

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Topics ARC Recommendations
The ARC does not recommend formal testing as part of the pilot’s hiring process
2. Psychological or during routine FAA routine medical examinations beyond what is currently in
Testing place as no evidence was found to indicate that such testing of pilots would
enhance the ability to assess mental fitness.
Pilots who report mental issues to receive temporary relief from flight duties,
professional support and encouragement to go back to flying as soon as possible.
3. Pilot Assistance This may encourage pilot willingness to report such issues when present.
Programmes
However, for this to be possible, the process must be confidential, non-stigmatised
and provide a safe environment. Patients must be able to trust the system and the
cure.
Airlines should spread awareness of mental illness across their staff and promote
4. Air Carrier acceptance for employees/colleagues experiencing such illnesses.
Education
As a result, it can be expected that self-reporting would increase and therefore
chances of successful treatment would also increase.
5. Informational The FAA should collect and prepare an information bulletin on pilot support
Material on Pilot programmes which may assist airlines in preparing their own info bulletin.
Support
Programmes Sharing best practice should help bring trust to the system and treatment of mental
illness.
6. Medical The development of a national policy on mandatory reporting of pilots who are unfit
Professional to fly an aircraft due to mental illness.
Reporting
Currently, the reporting responsibilities of doctors in this context are unclear.
The current practice in the US of always maintaining two people in the cockpit
should remain unchanged and should also be promoted to airlines of foreign
7. Two Persons on heritage.
Flightdeck and
Flightdeck Access It should be noted that this policy allows other crew members access to the cockpit
and might present a separate threat because cabin crew members undergo
different hiring and medical examination procedures than pilot crew members.
Thus an alignment of the two should be considered.
8. Aircraft Design The ARC didn’t find any new aircraft designs or technologies that would improve
Standards aviation safety in the context of pilot crew mental fitness.

Source: ARC Report

Open Skies in the Asia Pacific

In 2015 TransAsia experienced a hull loss fatal accident for a consecutive year. Even though Indonesia is
part of ASEAN, safety continues to be a concern with the rate of fatal accidents and fatalities still one of the
highest among the world regions and the majority of its commercial airlines still on the EU blacklist.
Simultaneously, ASEAN’s Open Skies policy which came into effect on 1st January 2015369 has the potential
of improving the safety culture in the region.

Asia Pacific had the most accidents per million sectors after Africa and CIS 370. Passengers carried by airlines
of the Association of Asia Pacific Airlines (AAPA) doubled from 2003 to 2012371. According to CAPA372, the
total seat capacity of ASEAN airlines grew with double digit figures for the period 2009-2013. Growth in the

369
ASEAN Briefing: “The State of ASEAN Aviation in 2016”
370
IATA Safety Report, 2015
371
Association of Asia Pacific Airlines (AAPA), Industry Overview and Regulatory Challenges, Presentation by Andrew Herdman,
Director General of AAPA
372
CAPA – Centre for Aviation: “Asian carriers post solid traffic & load factor increases in 2012 but cargo remains a headache: AAPA”

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region is expected to continue to grow from 4.8 trillion Revenue Passenger Kilometres (RPKs) in 2010 to
12.3 trillion RPKs in 2030, representing a third of worldwide RPKs 371. The region is the world’s largest
aviation market with 37% of all orders for aircraft for the period 2014-2033373. In summary, the region has
been entertaining a sustained growth over the past decade. Such a rapid expansion creates safety concerns
if other sectors of the industry such as airport capacity, air traffic management, pilot training and certification
fail to cope. The TransAsia Flight 235 accident backs up the statistics that a reoccurring reason for accidents
in the area is the lack of introduced or enforced standard operating procedures. This is what the Open Skies
policy can improve.

A single aviation market, or Open Skies, is a market which allows airlines from the signatory countries of that
market to fly with granted freedoms of the air – airline from Country A can operate a route between Country
B and Country C. Currently this is only possible under bilateral agreements. In order to make Open Skies
possible, the countries involved need to standardise their safety and security regulations and air traffic
management practices.

ASEAN Single Aviation Market came into effect on 1st January 2015 by removing any present restrictions on
third, fourth and fifth freedoms of the air, as defined per ICAO regulation 374, for airlines based in ASEAN
member states. First, it must be noted that ASEAN is established as an association to bring together the
countries members as communities375. Unifying the aviation markets is part of the association’s agenda. The
main struggle in attaining this Single Aviation Market, however, is the alignment of the regulatory frameworks
of the respective countries. ASEAN achieves this via the Mutual Recognition of Aviation Related Certification
Agreement376. This is based on the establishment of minimum standards and capabilities and refers to air
operator certification, aircraft airworthiness and licensing of flight crew and engineers. There isn't an up-to-
date report in the public domain for the progress of ASEAN’s member states in aligning these standards
among each other.

Challenges from the Upsurge in Drones

Drones are also known as unmanned aircraft vehicles (UAVs) 377. Their main attribute is that there is no pilot
on board but can be controlled either remotely by an operator or through the use of software. Initially they
were developed for military purposes (surveillance and/or fighting); however, in the current decade their use
by the wider public is becoming increasingly popular. The most common UAVs can be of any size – from a
few centimetres to a few meters per dimension. They can be powered either by a mix of rotors powered by
lithium-polymer batteries, or by turbo propellers depending on the intended use. Conventional jet engines
are not deployed378.

Due to their benefits over conventional aircraft, ownership and usage of UAVs is increasing in both
commercial and non-commercial applications. This presents a health and safety risk to commercial aviation,
as regulation is yet to be introduced. Due to the lack of regulation drones are operated in parks, in cities and
near airports. The latter has caught the attention of aircraft pilots and airport operators as near-misses of
UAVs with departing or approaching passenger aircraft have increased drastically in the last year 379. The

373
Boeing, Current Market Outlook 2014-2033
374
ICAO Freedoms of the Air
375
2010 ASEAN Multilateral Agreement on the Full Liberalisation of Passenger Air Services
376
ASEAN, “Building the ASEAN Community: ASEAN Single Aviation Market; One Sky, One Region”
377
CAA: Flying drones
378
ICAO: Unmanned Aircraft Systems (UAS)
379
“Structuring the safety case for unmanned aircraft system operations in non-segregated airspace”, R. Clothier, B. Williams, N. Fulton,
Safety Science journal, Vol. 79, Nov-2015, p.213-228

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danger is not only that the impact is compared to a bird strike, but most importantly that UAVs are highly
explosive because of the batteries that power them.

Figure 163: Reported Near Misses

Source: BBC, 2016

The UK Airprox Board collects statistical information for every “situation in which, in the opinion of a pilot or
air traffic services personnel, the distance between aircraft as well as their relative positions and speed have
been such that the safety of the aircraft involved may have been compromised”380. From January to June
2016 alone there were 34 reported near misses between general aviation aircraft and UAVs, compared to
29 across 2015381. For comparison, in the US there were 764 drone sightings near airplanes in 2015 382. Even
though drones should fly at a maximum height of 400ft, the highest near miss, recorded over Heathrow in
February 2015, was 12,500ft383.

Regulation
To mitigate these risks, the North American governments have started introducing regulations for the use of
UAVs. These regulations divide them in categories based on their weight and type of usage to apply limits
on the height and speed they can operate within. Mexico was the first to introduce such a regulation – on 8th
April 2015384.

The Transport Minister of Canada introduced a “No Drone Zone” sign to remind UAV operators of areas
where they shouldn’t be flying, such as airports 385. The government informs the public about the potential

380
UK Airprox Board Website
381
BBC: “Drones and planes in mid-air near misses increase”
382
Washington Post: “How airports and the drone industry are teaming up to protect planes”
383
BBC: “’Drone’ hits British Airways plane approaching Heathrow Airport”
384
Direccion General de Aeronautica Civil, Mexico: Establishing Requirements for operating unmanned aircraft systems
385
CAPA Centre for Aviation: “Canadian Transport Minister inaugurates drone safety campaign, confirms regulations will be proposed”

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dangers of drones through a dedicated website. The website outlines the “Do’s and Don’ts” and the legal
requirements for obtaining a permission to fly an UAV. The latter depend on the usage of the UAV – if used
for “fun of flying only” and weight of the device is below 35kg, no permission is required; but in any other
case the UAV owner must apply for a “Special Flight Operations Certificate” (SFOC). According to the
ministry website, the Government has issued 5,679 SFOCs between 2010 and 2015 386. However, a full
regulation solely dedicated to UAV is still in the making and a proposal is yet to be published.

Similar rules to those of Canada but applying to drone operators in the USA (albeit with different terminology)
are published on the FAA website as well387. However, a full regulation is not yet in place.

Applications
UAVs have many applications. The regulations in North America tackle unpredictable range of applications
such as “fun of flying” as well as the commercial usage of drones. Many businesses find new generation
solutions via the usage of drones, including businesses in the aviation industry. One example is the airport
operator of Houston airports who is working with a local drone operator to perform airport perimeter
security388. As Texas law permits civilians to carry guns including into the airport terminal building, the
utilisation of UAVs for security purposes is very welcome. Another example is Airbus’ new software for
inspection of aircraft prior to shipment to customers389. Usually a visual inspection requires two inspectors,
a telescopic handler and an average of two hours. In comparison, the drone inspection would take 10 to 15
minutes and upon discovery of any potential non-quality the software produces a 3D image to send to the
engineering department for analysis and correction in real time. This decreases significantly the risk of
mechanical failure of the aircraft during a test flight and after it’s been shipped to the client.

Another innovation in the industry is Airmap390. Over 75 American airports already use Digital Notice and
Awareness System (D-NAS) which enables air navigation for UAVs. Via this application drone operators can
monitor other UAVs in proximity to their own and can also request flight clearance from ATC should one be
required. Reportedly, the FAA would also consider using software of similar function to impose the no fly
zones for UAVs with the aim of minimising the airprox events.

British architects Foster+Partners and the Swiss Federal Institute of Technology have designed in
partnership a “droneport” – an airport solely for UAVs391. This airport will be located in Rwanda and its
purpose will be to coordinate the deliveries of medicine cargo to remote locations comprising 44% of the
country. The construction is expected to finish by 2020 when deliveries would commence. It can be assumed
that drones might be handed their own airspace – something that has been proposed for other similar
projects392.

All these diverse drone applications drive the growth in UAV development, construction and usage. This
brings challenges to regulators to bring all drone operations under the same regulatory framework. The North
American governments have initiated the process, but there is a lot more to be done yet in order to tackle
safety from airprox events.

386
Transport Canada: “Drone Safety: Getting permission to fly your drone”
387
FAA, Unmanned Aircraft Systems
388
CAPA Centre for Aviation: “CAPA Airport Innovation Summit explores opportunities to pursue new technology in Australia & beyond”
389
Airbus: “Airbus demonstrates aircraft inspection by drone at Farnborough”
390
Airmap Inc.
391
Foster and Partners: “Norman Foster’s Droneport Prototype goes on show at the Venice Biennale 2016”
392
BBC: “Amazon suggests a separate airspace for delivery drones”

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8.3. Security

Aviation Security largely relates to the personal identification of the air travelers, as well as the scanning of
cargo and luggage for forbidden items. The standards and regulations in airport security are set out in Annex
17 of the Chicago Convention. As the threat of acts of unlawful interference increases with time, ICAO
continues to amend these standards to tackle more issues. ICAO learns from investigations, but also
conducts its own research by employing working groups on a global scale.

Nevertheless, some issues extend beyond aviation. In order to battle cybercrime and terrorism, ICAO works
with the UN Security Council Counter-Terrorism Committee. The implementation of ePassports and ICAO’s
Public Key Directory (PKD) has had a tangible effect on the decreased ability of criminals to cross borders.
The PKD enables the efficient validation of ePassports.

While ICAO and the UN focus on this increased security level, countries identify another field for
improvement. One Stop Security (OSS) is a bilateral agreement between countries which recognise the
security standards and level of each other as equal. As a result, passengers arriving from one of the countries
to transfer in the other towards their final destination do not need to be security screened an additional time.
This is of a great benefit for both passengers and airport hubs, however of a less benefit to small airports
which need to spend resources in order to meet these new standards without gaining much in return.

EC Regulation 2015/1998 introduces these standards and consolidates all amendments to its predecessor.
It provides for the signing of future OSS agreements and regulates the process of auditing countries which
apply for their security level to be recognised as equal to the one of the EU. Another example of other
countries seeking EU expertise is the employment of European professionals by IATA to conduct a series of
security trainings in Africa.

Legal Foundations for Security

Annex 17 (Security) and Annex 9 (Facilitation) to the Chicago Convention, ICAO’s founding charter,
introduce the standard and recommended practices in terms of security and how to integrate these within
the Standard Operating Procedures (SOPs) of airports, airlines and other operators in the aviation industry.
ICAO utilises three main mediums to ensure that the industry in the area of aviation security universally and
uniformly implement these practises across the industry 393:

1) Policy Initiatives
2) Audits of Member States
3) Assistance to States that lack the infrastructure and/or the resources to keep up with the international
aviation security standards

ICAO implements amendments to the Annexes as an outcome of research conducted by different working
groups from various regions. The latest amendment to Annex 14 was published in 2014, however, since
then work has already started on the next, 15th amendment, which should put more focus on landside security
(airport access, airport roads and car parking, public areas in the terminal buildings) 394. The AFCAC Aviation
Security working group met in 2015 and discussed three working papers relating to potential aviation security
amendments:

• On-entry screening to the terminal building as a means of mitigating acts of unlawful interference
• Guidance material for the utilisation of K-9 screening method

393
ICAO, Security: http://www.icao.int/Security/Pages/default.aspx?p=9
394
AFCAC Air Transport Committee: http://www.afcac.org/en/documents/2015/meeting/May/ATCM/13ATCM/13wp10_avsecp_en.pdf

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• Implementation support and development-security programme (Risk management assistance to
Africa)

One of the practices is already applied at numerous airport locations worldwide (e.g. Turkey and Pakistan)
and it is to also become a standard for the African continent. The K-9 screening method refers to the use of
trained police dogs to sniff bombs, drugs and other prohibited material in passenger bags, whilst the third
working paper emphasises on the need of African nations to receive training and support in managing risk
and build up their capacity and capabilities in this aspect.

Issues that “extend beyond Aviation”

There are some security-related issues which “extend beyond aviation”, according to ICAO. Such issue is
cyber security. The threat and impact of cyber-attack stretches to all industries and has the capacity to impact
both financial and a personal data. In 2015 cyber-criminals gained access to the servers of a cyber security
company and on a separate occasion the personal email account of the CIA Director. These occurrences
give a fair presentation of what the threat from cyber-crime consists of. Due to the large volume of information
sharing in the aviation industry, i.e. personal information such as identification documents, bank account
information, other air traveller personal details, as well as flight details, industry bodies such as ICAO and
IATA are working together with governments towards agreeing on a framework to mitigate against the
inherent risks of cyber-crime, such as a legal framework or set of norms or principles in order to potentially
govern cyber security in aviation. The CANSO-ICAO quarterly update informs the reader that both the
industry and the governments are working together to assess and mitigate the risk and vulnerability from
cyber-attacks.

ICAO also collaborates with the UN Counter-Terrorism Committee (UNCTC). ICAO welcomes the usage of
new technologies and simultaneously appreciates the risk that these bring. With Member States
implementing the ePassports, the UN directly benefits from the active limitation of the movement of terrorists
around the world. Through their collaboration, ICAO and the UN aim to consolidate partnership between the
numerous organisations and working groups. ICAO aims to increase its assistance and technical cooperation
capacity as well as the PKD membership. PKD is a database server which holds personal identity
information. Its role is to allow governments to efficiently share this type of information between each other
in order for border control to be able to validate passengers and their ePassports. The benefit from the PKD
is that governments don’t need to maintain dozens of bilateral exchanges of information, as they only need
a single one – with the PKD. The savings are in the form of network resources and speed of service.

Single Security Standard

One Stop Security

The Germanwings and MetroJet accidents (discussed in the High Profile Accidents sub-section of this
chapter) have reminded the industry that in parallel to safety, security must also be held at high standards.
Airport security is a complex process and one that adds stress to a passenger’s journey, which consists of
two stages – the verification of the passenger’s identity and the security screening of the passenger’s
belongings upon boarding the aircraft.

However, standards vary between countries. Passengers flying to the USA must be screened at the airport
in which their US-bound flight departs from395. If the destination country does not consider security practice

395
US Department of Homeland Security: “Written testimony of TSA Administrator John Pistole for a House Committee on
Appropriations, Subcommittee on Homeland Security budget hearing titled "Resources for Risk-Based Security"”

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is adequate at the passenger’s first point of origin (in the context of a trip consisting of multiple transfers),
the passenger may be required to be security screened at the penultimate airport one additional time. A
fitting example of the threat this rule aims to prevent is the crash of transit flight from Manila to Tokyo Narita
via Cebu in 1994396. In this example security at the first leg of the passenger journey failed to detect the
bomb materials in the passenger’s belongings, which is what the rule outlined above aims to avoid.

Nevertheless, this creates space and facility requirements in airport operation practices, may be the cause
of congestion in terminal buildings and increases the risk for flight delays. As One Stop Security (OSS) would
have a positive effect on a passenger’s journey (less congestion in terminals, less flight delays), OSS
agreements have been on the agenda for airline lobbyists, like IATA and AEA 397. One Stop Security aims to
standardise security practices among participating countries and airports to ensure the same level of
screening. Currently, the EU has One Stop Security agreements in place with Canada, the USA, Montenegro
and the following islands – Greenland, Faroe, Guernsey, Jersey and Isle of Man 398. The agreement with
Canada was announced in 2015 and came into effect in March 2016 399. This means that passengers on a
flight from Canada to an EU airport where they would transfer onto their next destination will no longer be
required to go through security checks at the European airport. However, this is not a reciprocal rule –
passengers travelling from EU airports and transferring in Canada will not benefit from One Stop Security
process, until such an agreement is signed by the Canadian Government – something that happened in
2016.

Furthermore, the issue persists not only for international but also for domestic flights. As reported in 2014 400,
a passenger from Manchester Airport transferring at Heathrow on an US-bound flight needed to undergo a
second security search according to the FAA rule for a compulsory security check at the last point of
departure airport. Another example of this practice was a Memorandum of Understanding between Guyana
and Trinidad and Tobago from December 2015, which allowed One Stop Screening for passengers from
Guyana transferring in Trinidad and Tobago onto US-bound flights. The Transportation Security
Administration (TSA) suspended the Memorandum several months later via an Emergency Amendment.
This was for the exact same reason of a compulsory check at the last point of departure airport.

The process of One Stop Security depends on uniformity among all airports participating in the scheme. It
benefits big airport hubs, as they require less facility space for security operations, and benefits transferring
passengers, as they don’t need to be security screened. However, it does little to benefit small size and
especially domestic only airports. Iceland provides good solution to this issue – the country has decided to
opt out of this EU rule. Only the airport in Reykjavik – the only international airport on the island, has retained
an OSS agreement with the rest of the EU. Regional airports in Norway are making their case for the same
exclusion401.

The Introduction of EC Regulation 2015/1998

In order to standardise the provision of Airport Security across its Member States, the European Commission
adopted Regulation (EU) No 2015/1998 which lays down detailed measures for the implementation of these
security standards. It repeals a previous regulation (Regulation (EU) No 185/2010) which had been amended
more than 20 times and adheres to Regulation (EC) No 300/2008 which lays does the common rules in the

396
ASN safety database
397
Association of European Airlines: “AEA welcomes long-waited One Stop Security agreement with Canada”
398
European Commission, One Stop Security
399
Government of Canada: “New airport security option made available to speed up connections for air travellers”
400
IFSEC Global: “What is Stopping One Stop Aviation Security?”
401
ScienceNordic: “Are we overdoing aviation security”

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field of civil aviation security402. To name a few of the obligations set out in this regulation, countries are
responsible for designating a single authority competent for aviation security and for the respective quality
control programme monitoring said authority. Airports and airlines are responsible for implementing the
security programme and for ensuring internal quality control.

In order for the One Stop Security programme to be successful between an EU and non-EU country, the EU
must first recognise the said country’s security standards as equivalent to EU standards. For this to be
achieved, the EC conducts an audit of the respective national authority supervising the security services in
the country, and of the operational standards in respect to security at the airports and airlines in the country.
If passed, the audit proclaims that the country follows the same standards framework as its EU peers. In
order to ensure the continuity of the programme, the audit is followed by inspections.

Exchange of Experience

At the time of writing this report, ACI-Europe initiated a programme named “Airport Twinning” 403. Under this
programme an EU Member State will pair with a non-EU Member European State by seconding airport
security staff to the partner country’s airports. The aim is to improve the security measures and prepare the
non-EU Member State for the audit of the EC, which will determine whether its security standards will be
accepted as being equal to those of the EU.

Another good example of acts of harmonisation is the IATA security training offered in African countries. In
2014-2015 IATA ran a series of training activities in Africa which aimed at promoting and standardising
aviation security practices and educating personnel across the continent. The locations included Mauritius,
Cameroon and Namibia with future training dates also planned for Senegal, Morocco, Nigeria, Southern
Africa and Mali. These training courses focus on aviation security for senior management; bomb threat
assessment; security risk and crisis management; aviation security quality control and cargo security among
others. The common characteristic between ACI’s Airport Twinning programme and IATA’s security trainings
is that both utilise experienced European professionals to share their expertise and experience with third
parties.

Coming back to ICAO’s three mediums ensuring that aviation universally and uniformly implements these
security practises across the industry, the two examples of collaboration noted above illustrate the third
medium of “Assistance to States”.

402
EU-wide rules on Civil Aviation Scurity: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3Atr0028
403
ACI-Europe: Airport Twinning: http://www.airport-business.com/2016/06/airport-twinning-new-aci-europe-security-project-initiative/

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9. Consumer Issues

9.1. Introduction

This chapter discusses the recent developments in air passenger rights and consumer issues during 2015
and the first half of 2016. It thereby reflects on updates within EU regulation and it also covers current issues
and trends in various countries across the world.

Firstly, the chapter highlights recent policy changes and trends in European air passenger legislation and
presents related industry responses. It thereby focuses in particular on Regulation (EC) No 261/2004.
Following this it presents and analysis of the latest statistics and regulatory differences in two Member States
(UK and Germany) and Switzerland, highlighting key trends across the markets.

The chapter then focusses on the regulation of air passenger rights and complaint handling in non-EU
countries, where information was available. These include India, Malaysia, Australia, South Africa, Nigeria,
Tanzania, the US, Brazil and Saudi Arabia.

Finally, results relating to international punctuality research are presented, including the Eurocontrol CODA
Digest 2015 and the OAG 2015 Punctuality Report, which monitor airline and airport performance across the
world.

9.2. Key Legislation and Recent Developments in the European Union

Overall, the EU legislation on air passenger rights is among the most detailed worldwide, securing
consumer’s rights towards a variety of parties, including airlines, airports and tour operators. Table 47
specifies the three main EU regulations on air passenger rights from an airline perspective. These apply to
all passengers departing from an airport located in the territory of a Member State to which the Treaty applies
and to passengers departing from an airport located in a third country to an airport situated in the territory of
a Member State to which the Treaty applies if the operating air carrier is an EU carrier. This regulation also
applies to Iceland, Switzerland and Norway.

Table 47: Main Regulations on Air Passenger Rights in the EU

EC Regulation Scope

Common rules on the compensation and assistance to


Regulation (EC) No 261/2004 passengers in the event of denied boarding and of
cancellation or long delay of flights.

Common rules on the rights of disabled persons and persons


Regulation (EC) No 1107/2006
with reduced mobility when travelling by air.

Common rules on the liability of air carriers for damage


sustained by a passenger or a passenger's baggage in the
event of accidents. It aligns the EC regulation with the
Regulation (EC) No 2027/97
international rules set out in the Montreal Convention and is
valid irrespective of whether the route is domestic, between
EC countries or international.

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EC Regulation Scope

Common rules for the operation of air transport services in the


Regulation (EC) No 1008/2008 EU, including the licensing of EU air carriers and price
transparency.
Source: European Commission

Regulation (EC) 261/2004

Regulation (EC) No 261/2004 is considered as central legislation on air passenger rights. Since its enactment
in 2005, the Regulation has been subject to continuous scrutiny by the European Court.

The Commission highlighted in 2011 that ensuring the benefits of the Regulation requires “a uniform
interpretation of EU law on passenger rights and a harmonised and effective enforcement” 404. To address
the identified gaps, the EC proposed a revision of the regulation in March 2013. The European Parliament
voted on the proposal on 5 February 2014 (1st reading). Similar to other aviation files, negotiations are
currently blocked in Council.

Along with the publication of the new Aviation Strategy for Europe in December 2015, the EC called for the
resume of the discussions in the Council and informed about its intention to publish interpretative guidelines
on Regulation (EC) No 261/2004. These guidelines were adopted on 10 June 2016405. By publishing those
guidelines, the EC has aimed to improve the clarity of the rules, ensure a better application and consistent
enforcement by carriers and Member States and finally achieve a fairer market405. This aim was also
incorporated into the Aviation Strategy for Europe.

These guidelines do not create additional rules, but present the position of the Commission on the existing
rules laid down in the Regulation and the current jurisprudence of the European Court of Justice. Following
the observations made in the practical implementation of the Regulation and feedback gathered from various
industry stakeholders, it emerged that there were uncertainties and discrepancies regarding the correct
application of the Regulation.

Though comprehensive, the practical implementation of the Regulation revealed gaps in the content and
case law has often been used to seek clarification. However, national case law is based on judgements of
national courts and thus, decisions and rulings varied across EU Member States. Even if clarification was
provided by the EU Court of Justice, it did not necessarily lead to a common enforcement in all EU countries.
Thus, the need for interpretative guidelines on the Regulation became evident to secure the overall aim of
establishing a common set of rules on air passenger rights across the EU Member States.

In addition to this, ICAO adopted its core principles on air passenger protection in 2015. These should serve
ICAO member states as guidance when developing air passenger legislation. ICAO’s core principles
comprise fundamental recommendations and rights before, during and after travelling, including the provision
of information at the airport, the communication in the event of disruptions and complaint handling 406. Table
48 provides a detailed description of the principles.

404
The Commission’s White Paper on Transport, adopted on 28 March 2011; Roadmap to a Single European Transport Area —
Towards a competitive and resource efficient transport system COM(2011) 144 final, p 23:
http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0144:FIN:EN:PDF
405
European Commission (10th June 2016): “Air Passenger Rights: European Commission wants better enforcement of rules ahead of
summer holidays”, http://ec.europa.eu/transport/themes/passengers/news/2016-06-10-better-enforcement-pax-rights_en.htm
406
ICAO press release 9th July 2015: “ICAO council adopts core principles on consumer protection and new long-term vision for air
transport liberalization”; http://www.icao.int/Newsroom/Pages/ICAO-Council-Adopts-Core-Principles-on-Consumer-Protection-and-
New-Long-Term-Vision-for-Air-Transport-Liberalization.aspx

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Table 48: ICAO Core Principles on Air Transport Consumer Protection

Core Principle Scope

Prior to travel Passengers should benefit from sufficient levels of advance information and customer
guidance, given the wide variety of air transport products in the market and associated legal
and other protections which may apply. Product and price transparency is also
recommended as a basic customer right.

During travel Passengers are to be provided regular updates on any special circumstances or service
disruptions which arise, as well as due attention in cases of a service disruption. The core
principles also call on airlines and other stakeholders to have planning in place for situations
of massive disruptions, and reiterate the fundamental right to fair access for persons with
disabilities.

After travel Efficient complaint handling procedures should be established and clearly communicated to
customers.

Source: ICAO, 2015

Industry Reactions

The proposed revision of the Regulation (EC) No 261/2004, as well as the publication of the interpretative
guidelines on this Regulation triggered a wide range of industry reactions. The latter was overall highly
welcomed due to the additional clarity and uniformity they provide. Nevertheless, it was also stressed that
the need for a revision of the Regulation (EC) No 261/2004 still remains407 and that air passenger rights
around the world still differ significantly408. The International Air Transport Association (IATA) pointed out
that a lack of harmonisation continues to create confusion and dissatisfaction among customers and called
for the development of a unified international solution 409.

Similarly to the reactions on the publication of the interpretative guidelines, the proposed revision of the
Regulation (EC) No 261/2004 received overall positive reactions410. The European Consumers Centres
Network (ECC-NET), which provides consumers across all EU Member States as well as Iceland and
Norway with information on their rights, welcomed the improved level of clarity provided by the proposed
revision, especially on the definition of extraordinary circumstances and Passengers with Reduced Mobility
(PRM)410. This view was also echoed by providers of legal support to air passengers across Europe 411. While
a largely positive response was also received from airport associations such as the ACI, these highlighted
at the same time that it will become essential to have local airline representatives at each airport in order to
provide the best assistance and guidance to passengers410. IATA pointed out that a revision of the Regulation
“would help to provide a better balance between passenger rights and airline obligations” 407.

The following part presents how passenger complaints are handled in the UK, Germany and Switzerland, as
well as the latest research, recent regulatory changes, differences and trends in this context.

407
G. Dunn (10th June 2016): “EC adopts guidelines to clarify existing passenger rights rules”, Flightglobal,
http://dashboard.flightglobal.com/app/#/articles/426244?context=federated
408
IATA press release 10th June 2016: “Industry Welcomes Clarity on EU Passenger Rights”,
http://www.iata.org/pressroom/pr/Pages/2016-06-10-01.aspx
409
CAPA (21st October 2015): “IATA: New approach needed for aviation consumer protection legislation”,
http://centreforaviation.com/news/iata-new-approach-needed-for-aviation-consumer-protection-legislation-491912
410
European Parliament (May 2015): “Strengthening air passenger rights in the EU”,
http://www.europarl.europa.eu/RegData/etudes/BRIE/2015/556983/EPRS_BRI(2015)556983_EN.pdf
411
EU Claim (26th February 2016): “EU strengthens passenger rights”, http://www.euclaim.de/ueber/presse/meldungen/currentpage/1

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9.3. Passenger Complaints across EU & non-EU Countries

United Kingdom

The Civil Aviation Authority (CAA) is the national enforcement body of the Regulation (EC) 261/2004 in the
UK. Amongst other duties, its role is to protect air passenger rights contained within the Regulation and
ensure compliance with the legislation by all parties. In this context, the CAA can also take legal action in
case of violation or breach of any rule set out in the Regulation.

In the course of 2015, the CAA launched action against several airlines, including Wizz Air, Ryanair, Aer
Lingus and Jet2, as they were providing insufficient passenger service in the event of flight disruptions and
did not fully comply with compensation obligations 412. In addition, the CAA initiated investigations about a
potential lack of pricing transparency of the online travel agents Opodo and eDreams 413.

CAA Aviation Ombudsman Scheme


Amongst other tasks, one of CAA’s role has to date been the handling of passenger complaints and dispute
settlement between airlines and passengers. However, in April 2015, the CAA announced to transfer this
role to an aviation ombudsman. The CAA lacks legal powers to enforce financial or non-financial
compensation claims against airlines. In contrast, the aviation ombudsman would be an independent
provider, who would not only be able to make legally binding claims, but also able to process passenger
complaints faster than the CAA. This approach is also called Alternative Dispute Resolution (ADR) scheme.
ADR schemes have already proven successful in other sectors such as energy or telecommunication.
Despite transferring its active role as complaint handler, the CAA pointed out that it remains an essential
factor in this process. The CAA will still be responsible for approving all ADR providers and for ensuring their
reliability and independency. However, while ADR providers are legally allowed to charge for their work, the
CAA strongly advocates for ADR schemes to be for free, similarly to their own passenger complaint handling
services414.

Industry reactions on the CAA’s aviation ombudsman scheme have been positive. The next steps aim at
obtaining the full voluntary commitment of airlines to join this complaint handling approach, whereby the CAA
targets all those carriers serving at least 50% of UK passenger traffic. However, if airlines refrain from joining
by the end of 2016, the CAA plans to make participation to this scheme compulsory.

Consumer Research 2015


Passenger Complaints 2015

The following section presents the results of the 2015 CAA Passenger Complaint Survey and their
development in comparison to 2014415.

The CAA registered around 6.6K passenger complaints in the UK in 2015. This is in light of 251M annual
passengers across all UK airports. Compared to 2014, the number of passenger complaints declined by

412
CAA (19th August 2015): “CAA action leads to airlines changing policies and means passengers will get better support in the future”
413
CAA (17th December 2015): “CAA launches investigation into the pricing practices of Opodo and eDreams”
414
CAA (15th April 2015): “CAA confirms plans for creation of aviation ombudsman”, https://www.caa.co.uk/News/CAA-confirms-plans-
for-creation-of-aviation-ombudsman/
415
Sourced from CAA website on 21st of July 2016

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83%. Until 2014, passenger complaints have been increasing as a result of greater public awareness of
consumer rights and the constant development of air passenger legislation. A considerable jump in
complaints was noted after the EU Court of Justice clarified the entitlement of passengers to compensation
in the event of flight delays over three hours at the end of 2009.

As illustrated in Figure 164, delays were the most frequent reason for filing a complaint with an airline in
2015 (55% of total complaints). Moreover, flight cancellations (11%), missed connections (7%) and issues
about refunds (6%) and baggage (5%) accounted for over a quarter of complaints in 2015. Although delays
also ranked number one in 2014, Figure 165, their share dropped by 10%pts in 2015. This could have been
caused by improved airport operations, better weather conditions or fewer strike actions. Complaints due to
flight cancellations stayed constant, while missed connections climbed by 2%pts in 2015. It also emerges
that whereas complaints related to in flight issues did not present a notable share in 2014, they accounted
for 2% in 2015.

Figure 164: Reasons for Passenger Complaints 2015 Figure 165: Reasons for Passenger Complaints 2014

Delay
2% 2% 2% Delay
3%
8% Cancellation 8%
3% 3% Cancellation
Missed connection 4% Missed connection
5% Refunds
5% Refunds
6% Baggage
55% 11% Baggage
7% Denied boarding
65% Diversion
Diversion
11% Denied boarding
In flight
Other
Other

Source: CAA, 2016 Source: CAA, 2016

With 29% of total complaints, the first quarter of 2015 recorded the majority of complaints (14.5K). The third
(12.6K) and fourth quarter (12.3K) were almost equal, noting 25% each, while the second quarter lied further
behind (21%, 10.3K). Similar to 2015, quarter one also accounted for the majority of complaints in 2014
(29%, 27.8K), as indicated in Figure 166. However, it also emerges, that the second quarter in 2014 showed
the second highest number of complaints during that year (26%, 25.5K). The variances between 2014 and
2015 could have been the result of different weather conditions or industrial action.

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Figure 166: Quarterly Distribution of Passenger Complaints in 2014 and 2015

100%

90% 21.42% 24.64%


80%

70%
23.59%
25.38%
60% Q4

50% Q3

26.27% Q2
40% 20.80%
Q1
30%

20%
28.72% 29.18%
10%

0%
2014 2015

Source: CAA, 2016

The CAA also publishes complaints information broken down by carrier. Thomson Airways (16%), British
Airways (12%) and easyJet (11%) received most out of the 16.6K passenger complaints in 2015, Figure 167.
Thomson Airways and British Airways continue to receive the most complaints amongst all participating
airlines receiving since 2014, with similarly high shares of 17% and 11% respectively. Thomas Cook, in
contrast, accounted for 23% of total passenger complaints in 2014, but dropped to 10% in 2015. Ryanair
and easyJet, which only presented 4% and 7% respectively in 2014, recorded higher shares in 2015.

Figure 167: Top 10 Airlines with most Passenger Complaints 2015

Thomson Airways
16% British Airways

Other easyJet
24% Thomas Cook Airlines
Ryanair
12%
3% Monarch Airlines
3% Wizz Air
3% Emirates
11%
4% Flybe
5% Norwegian Air Shuttle
9% 10%
Other

Source: CAA, 2016

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However, the airlines named above also serve the largest shares in passenger traffic to and from UK airports,
as presented in Figure 168. Handling more passengers also increases the likelihood of complaints.

Figure 168: Top 10 Airlines by Share in Passenger Traffic at UK Airports 2015

Total of 618.6M pax


British Airways
easyJet
Other
21% Ryanair
21%
Thomson Airways
2%
Flybe
3%
Monarch Airlines
3%
3% Virgin Atlantic Airways
19%
4% Thomas Cook Airlines
4% Jet2.Com
5% Emirates
17%
Other

Therefore, it is unsurprising that when looking at complaints per million passengers, Figure 169 a different
picture is shown. Vietnam Airlines and Condor noted by far the highest number of complaints, with 6.5K and
4.9K per one million passengers respectively. Onurair also recorded above 1,000 complaints per million
passengers, while the remaining carriers are below the 1,000 threshold. It should be noted that all airlines
listed in the figure below only handled 0.05% each of total passengers at UK airports in 2015.

Figure 169: Airlines with most Complaints per Million Passengers in the UK 2015

Malaysian Airlines 223

Pakistan Airlines 257

Iberia 272

Vueling 348

Pegasus Airlines 381

Air India 387

US Airways 658

Onur Air 1,388

Condor 4,904

Vietnam Airlines 6,563

0 2,000 4,000 6,000 8,000

Source: CAA, 2016

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Passenger Satisfaction 2015

Alongside to passenger complaints, the CAA also conducts annual research on customer satisfaction. The
2015 survey revealed that UK air passengers have an overall high level of satisfaction, with 84% of
respondents very satisfied or satisfied with their air travel experience. Disabled passengers and those with
mobility restrictions (PRM) indicated a similarly high overall satisfaction regarding travel assistance provided
by airlines and airports, with an average score of more than 4 out of 5. Nevertheless, the results also showed
that PRM passengers faced a considerable level of uncertainty prior to their trip about whether their
requirements would be met, noting an average informed score of 3.6 out of 5416.

Interestingly, the survey also revealed that 10% of the survey respondents experienced a disruption during
their most recent flight. 90% of these disruptions were caused by delays. However, and most importantly,
most passengers were satisfied with the handling of the disruption by the airline, as shown in Table 49.

Table 49: Passenger Satisfaction with Handling of Disruption

How satisfied or dissatisfied were you with the following aspects of how this was handled?

Information and updates provided Arrangements made to assist


to passengers (%) passengers, such as food,
accommodation etc. (%)

5 Very satisfied 25 22

4 30 31

3 25 20

2 10 12

1 Very dissatisfied 10 15

Mean score 3.52 3.31


Source: CAA (2015): “Consumer research for the UK aviation sector – final report”, p.51

In a second report published by the CAA in 2015, the authority benchmarked airline compliance with a set
of passenger rights from Regulation (EC) No 261/2004 417. A particular focus was laid on the provision of
information to passengers in the event of denied boarding, cancellation or long delays (Recital 20 and Article
14 of the Regulat