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Europe proposes open skies to Brazil
Tuesday, 21 May, 2010
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TravelMole guest comment by Euromonitor International travel and tourism analyst Lisandra Minussi
The European Commission has this month proposed the establishment of an open skies agreement between Europe and Brazil.
The timing is of particular relevance as Europe struggles to recover from the impact caused by the global economic crisis and the recent closure of its airspace due to the eruption of an Icelandic volcano.
The increased consolidation in the European air transportation industry and the need for the region to remain competitive pushes the case for greater liberalisation.
Ready to Take-Off
There is no doubt that European airlines have enjoyed a number of benefits following the creation of the European Union.
Nevertheless, most of them remained relatively limited when flying to countries outside the EU, being traditionally governed by bilateral agreements between individual countries, which often restricted the number of airlines, flights and routes. Hence, the EU started to implement a number of actions to overcome those limitations and prepare for future growth.
One way of doing so was to establish a common aviation area with neighbouring countries in the Mediterranean and to the east. Its ultimate objective is to create a single pan-European air transportation market, based on a common set of rules and encompassing up to 60 countries with approximately one billion inhabitants.
Given the EU expects its current air traffic to even increase threefold by 2030, it has implemented a project called SESAR (Single European Sky Air Traffic Management Research) to ensure safe, efficient, economic and environment-friendly handling of the increased air traffic volume in the future.
Another option was to embrace open skies policies and signing agreements with key countries like the US and, most recently, Brazil.
Why Brazil?
The EC estimates that an agreement between Brazil and the European Union will result in 335,000 additional passengers in the first year and generate up to EUR460 million per year.
Aside from being the largest air transportation market in South America, Brazil has gained increased exposure not only because it showed strong resilience to the global economic crisis, but also because it has been chosen to host the 2014 World Cup and the 2016 Olympic Games. All these factors combined are expected to foster travel and tourism activity through large infrastructure developments, a rapidly growing middle class, intense promotional activity and increased air connectivity worldwide.
According to Euromonitor International, air transportation value sales in Brazil are expected to grow at much faster rates when compared to those in Europe.
In 2010, air transportation sales in Brazil are likely to increase 21%, while those for Eastern and Western Europe are set to register a sluggish 3% growth and a 3% decline, respectively.
High Expectations
An open skies agreement with European Union countries is set to expand international passenger and cargo flights to and from Brazil, promoting increased travel and trade and spurring economic growth. Additionally, it will eliminate government interference in the commercial decisions of airlines about routes, capacity, and pricing, which is expected to result in more affordable and efficient air service for Brazilian and European passengers.
Challenges Ahead
Compared to the US, Brazil remains extremely protected. Despite removing pricing floors on international airfares for Brazilian and international airlines in May 2009, there are limited routes and carriers flying to and from Brazil, which has benefited local airlines like TAM.
Furthermore, the country may not be prepared to handle the sudden increase in capacity and competition following open skies. The country’s airports need extensive work to handle the additional passenger traffic expected for the upcoming World Cup and Olympic Games.
Currently, all main airports in Brazil operate 36% above their capacity whereas the opposite should be true. Despite US$3 billion earmarked for airport infrastructure, all problems will not be solved in the next four to six years.
Whether or not an open skies agreement will be signed between Brazil and the EU is yet to be seen. One thing, however, is for certain, high standards of safety and security within air transportation and working closely with partner countries to address the impact of aviation on the environment will be essential.
Phil Davies
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