JOINT COMMITTEE ON EUROPEAN AFFAIRS díospóireacht -
Wednesday, 18 Oct 2006

Scrutiny of EU Legislative Proposals on Air Transport Services: Discussion.

Acting Chairman

Today's meeting concerns scrutiny of EU legislative proposals for common rules on the operation of air transport services in the Community. The proposal was referred from the Sub-Committee on European Affairs. I welcome Ms Eithne Brogan and Mr. Dick Davis from the Department of Transport.

We also invited Ryanair and Aer Lingus to share their wisdom. Mr. Jim Callaghan of Ryanair was to attend but a message on 17 October informed us that he was unable to attend given the current status of the Aer Lingus bid. As well as having an additional workload, Ryanair was advised it would be unwise to appear before the committee given the position taken by the Government on the proposed merger. Mr. Callaghan adds that he would be happy to appear before the committee once the merger process has been completed and apologises for any inconvenience. Representatives of Aer Lingus were also invited to attend but replied this morning that they could not do so due to diary pressures.

I draw attention to the fact that while members of the committee have absolute privilege this privilege does not apply to witnesses appearing before the committee. Members are also reminded of long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official, by name or in such a way as to make him or her identifiable. Members are also reminded that civil servants, while giving evidence to a committee, may not question or express an opinion on the merits of any Government policy or policy objectives or produce or send to a committee any documents in which a civil servant questions or expresses an opinion on the merits of any Government policy or policy objectives.

A briefing note from the delegation has been circulated.

Deputy Costello

It is rather disappointing that at the 11th hour both Ryanair and Aer Lingus notified us that they would not be attending. The matters are in the public domain and are being discussed in the media. It would be appropriate that we have the opportunity to tease out these matters in this committee. We should respond and express our disappointment. There may be confidential matters that we could not discuss but general principles could be discussed here if they are being discussed everywhere else. We are delighted to have the officials from the Department of Transport attend but those who we specifically invited have not bothered to turn up.

Acting Chairman

I do not disagree but I can understand the sensitivity of the situation. We cannot summons these people; we must invite them to attend. One party felt it was not the appropriate time while the other referred to diary pressures, which I find unacceptable. However, they are the facts of life and we will have to carry on without representatives of Aer Lingus. Mr. Callan from Ryanair indicated that he would attend once the merger process has been finalised.

Senator Quinn

I understand exactly what Deputy Costello and the Chairman have said but on the other hand, these are two private, independent companies. Aer Lingus is no longer State owned. Therefore, I am not sure we have a right to get involved in that topic. I would welcome the opportunity to debate topics with both parties but I am not sure the debate could focus on the current take-over challenge.

Acting Chairman

They are the facts of life. We will carry on with the business of the committee now. I call Ms Ethna Brogan to make her opening statement.

Ms Ethna Brogan

I thank the Chairman. The proposal under scrutiny today concerns a regulation of the European Parliament and European Council on common rules for the operation of air transport services in the community. European aviation was liberalised in 1992 by the third air package, which comprised three separate regulations, namely, EU Regulation 2407/92 on the licensing of air carriers, EU Regulation 2408/92 on access to inter-community air routes and EU Regulation 2409/92 on fares and rates for air services. Under those regulations any business that has the necessary financial and technical resources will be granted an air carrier operating licence and every licensed air carrier is entitled to operate air services throughout the community.

The community now comprises 25 member states and earlier this year it concluded an agreement to extend the European common aviation area to ten additional countries. An air transport agreement was also concluded in 1999 between the community and Switzerland. Therefore, the effective market for community air services now encompasses almost 36 countries.

The proposed new regulation will replace the three regulations from 1992. It is intended to simplify and streamline the regulatory process and provide a variety of additional safeguards for the public. The new regulation will involve a number of changes to the existing regulatory framework. It will introduce stricter financial requirements for airlines. New airlines will have to show a viable business plan covering a three-year period whereas under current regulations, they only have to provide one for a two-year period. All airlines must be able to show, at any time, that they can meet their obligations for the next 12 months. This requirement also exists under the current regulations.

The new regulation will also introduce stricter requirements regarding wet leasing of aircraft from third countries. The aim is to deal with concerns that some third country safety and social regulation is not equivalent to community standards. Community carriers will only be able to wet lease third country aircraft for a maximum of two six-month periods and only if safety standards are satisfactory.

The proposed new regulation will also provide simpler and clearer rules relating to public service obligations in the community. Public service obligations, or PSOs as they are more commonly known, may simply be a regulatory requirement without any financial payment to the operator or may involve a subsidy to the operator. The new regulation will limit the use of air service PSOs if there are adequate services using other modes of public transport, especially rail. The rules for public notification and tendering for proposed PSOs are greatly simplified under the proposed regulation.

There will be more consistency between the internal EU aviation market and services to third countries. Community carriers will be entitled to co-chair on inter-community routes with other third country services. Co-chairing with a third country carrier will depend on the existence of an air services agreement with that country. There will also be clearer rules for distributing air traffic between adjacent airports. This relates to situations where a city is served by two or more airports. In such circumstances, member states may impose traffic distribution rules between those airports. The new regulation will simplify the process without reducing the non-discrimination requirements. The proposed regulation will introduce greater transparency with regard to ticket prices. Prices will have to be shown inclusive of all taxes and charges and may not discriminate due to the place of residence of the passenger.

Acting Chairman

I thank Ms Brogan. A number of members wish to contribute but before calling them, I have a question on the public service obligation. Has the Department assessed the possible impact of the new limitations to PSOs on regional carriers like Aer Arann?

Ms Brogan

The Department has not made that assessment yet. The regulation is relatively recent and indications are that it will not be discussed in the European Council in the immediate future. It has been introduced but discussions are not likely to take place on it until next year. In the interim, the Department will undertake such an assessment.

Acting Chairman

On the issue of ticket prices and the requirement that pricing must be more transparent, will the Department be insisting on full transparency of ticket pricing before the deadline for enforcement of the regulation, which is December 2007? There is nothing more frustrating than purchasing a ticket for €2.99 only to discover that one must pay €44 each way when all additional charges are added. Linked to that, does the Department have evidence that airlines are charging different prices in different countries for tickets? Is there evidence, for example, that prices from Cork to Amsterdam are different from prices from Amsterdam to Cork with some airlines?

Ms Brogan

We have no specific evidence in that regard but there is evidence of some discrimination in terms of fares charged, depending on where the ticket is purchased. For example, if one is travelling from Dublin to London and purchases the ticket in Dublin, it will cost X but if one purchases it in London, it will cost Y. There is certainly evidence in that regard and this regulation aims to stamp out that practice.

On the question of the Department acting before the regulation comes into force, there are no plans to do so at present, but it is an idea we will take from this meeting and examine further.

Acting Chairman

It would be very welcome if the Department could issue a directive before the absolute legal deadline of December 2007.

Deputy Kirk

I thank the chairman and welcome the officials from the Department of Transport. With regard to the wet leasing of aircraft from third countries and safety standards, responsibility for health and safety inspection lies with the Department of Transport. I ask Ms Brogan to explain how it operates.

Ms Brogan stated that co-chairing with a third country carrier will depend on the existence of an air services agreement with that country. Does this refer to bilateral arrangements between member states and third countries outside the EU?

The new regulation is the result of a process of consolidation of earlier regulations. Is it intended that the new regulation will cover airport management in addition to the organisation of flights with airlines?

Ms Brogan

The safety inspection function is carried out by the Irish Aviation Authority and is not within the remit of the Department of Transport. The co-chairing provisions indeed refer to bilateral arrangements with third countries. The Deputy is correct in saying that this regulation is a consolidating one in that one regulation will replace three earlier regulations.

The Community has changed considerably since the third air package was introduced in the early 1990s. The number of member states has increased and the nature of the industry has been transformed by the package. This regulation does not represent a major policy shift, rather it consolidates and modernises existing legislation to remove some of the obsolete elements of previous regulations and update the regulatory framework to ensure it reflects the changes which have taken place in the industry.

Deputy Kirk

With regard to changes in each member state, will the regulation arrangements have to be renewed?

Ms Brogan

The method of transposition, if and when the proposal is agreed by the Council and Parliament, is likely to be a statutory instrument but that will depend on the final shape of the regulation.

Senator Quinn

I welcome our visitors. Compared with a decade ago, there is virtually a free-for-all in the European air transport sector. This has been great for airlines and passengers but also given rise to serious problems in the provision of airport infrastructure. In this low cost environment can we be sure the cost of infrastructure is being carried by passengers rather than subsidised by taxpayers? I do not refer to Ireland, in particular, but, in general terms, I am concerned that passengers may not be paying the correct fare because of the subsidies paid to airports.

I heard this morning that a successful action was taken against Ryanair because the terms and conditions of the tickets issued by the airline allowed it to refuse refunds if a flight was cancelled. To what extent do the people of this country have a say on the terms and conditions imposed by airlines on passengers? In the case against Ryanair it has been determined that the airline cannot impose a rule which states, "Hard luck if your flight is cancelled". I am not sure if that matter comes within the remit of the Department of Transport or the Irish Aviation Authority.

Ms Brogan

I have no details on the case to which the Senator referred. My brief is confined to the proposed regulation before us. Therefore, I am not in a position to address the matter.

Senator Quinn

Under the proposed regulation, the European Union will take over in all negotiations with third countries on traffic rights. How will this affect Ireland?

Mr. Dick Davis

With regard to the Senator's previous question, the Commission for Aviation Regulation acts as adjudicator in respect of the denied boarding regulations. Therefore, without the specific details of the case, I cannot comment on it. The commission has a website and could be consulted on the matter.

On the negotiation of traffic rights, it has long been the case that horizontal agreements are negotiated with third countries, under which an EU carrier can operate from Ireland to third countries. One such agreement was recently concluded with Morocco. The European Union negotiates on behalf the entire community, including Ireland, to open up new routes for carriers from member states.

Acting Chairman

Did Ms Brogan answer the question on subsidisation?

Ms Brogan

I am not briefed to answer it.

Acting Chairman

I ask Ms Brogan to submit a note to the committee on the matter.

Deputy Costello

Why is Turkey not one of the ten non-EU countries included in the European common aviation area, even though it, like the other ten, is an applicant for EU membership?

With regard to the simplification of the licence granting procedure, all one need do is demonstrate that one has the necessary financial technical resources to be granted an air carrier licence. Is the past record of air carriers considered or is there any mechanism to investigate a carrier which, for example, previously lost its licence? It seems anybody can gain free access to the entire Community. Do costs arise in respect of licences? How often can they be renewed and what standards are imposed with regard to health and safety? There have been several reports in the newspapers about pilots and cabin crew staff being made to work back-to-back shifts or not having sufficient time for rest or lunch. If this matter is not part of the regulatory process, how will it be managed?

The regulation is silent on the issue of competition and does not express any opinion on monopolies or routes dominated by one airline. With regard to ticket prices, the regulation will require published prices to be inclusive of all taxes and charges. Presumably, it will no longer be possible to advertise tickets as costing €1.

Mr. Davis

The agreement referred to by the Deputy is a recent one. Bilateral agreements have been reached between Ireland and Turkey. Horizontal agreements have also been made on our behalf by the European Union. I will revert to the committee with specific information on the issue but I know there are flights between Ireland and Turkey.

There are two aspects to the granting of a licence, namely, financial probity which is dealt with by the Commission for Aviation Regulation, taking past record into account, and safety assurances which require an air operator's certificate to be issued by the Irish Aviation Authority. The highest possible standards are observed, both in Ireland and the remainder of the European Union, while a list of banned air carriers is available on the Internet. It does not currently include any EU carriers.

The requirements in respect of ticket prices were proposed in response to complaints made about advertisements for cheap tickets which became much more expensive when they were finally purchased and represent an attempt to bring greater transparency to the area.

Deputy Costello

Will Internet advertisements offering 1 million seats at €1 each be banned?

Mr. Davis

Yes; the regulation will address that issue by requiring complete transparency in ticket prices.

Acting Chairman

Arising from Deputy Costello's question and Mr. Davis's answer, if a chartered aircraft lands in Dublin to pick up passengers but becomes defective at the last minute and has to be replaced, what mechanism is in place to provide for a replacement?

Mr. Davis

The Irish Aviation Authority has a presence in all major Irish airports and there is a robust and rigorous inspection regime both to inspect the defective aircraft that had broken down and the replacement aircraft. This operates 24 hours a day, seven days a week.

Senator Ormonde

I welcome the two delegates from the transport section to discuss an area of which I have little knowledge. I am delighted about the transparency that is coming into play on issuing ticket prices. The second paragraph stipulates: "stricter requirements regarding wet leasing of aircraft from third countries". If I read that statement at a meeting would the public know what I am talking about? I do not know what "wet leasing" is. If the delegates say some third countries' safety and social regulations are not up to EU standards, does that mean there was previously no monitoring mechanism in place? This could create an impression that aircraft were not up to these standards in the past. I would like to hear the delegates' views on that.

Mr. Davis

Wet leasing was a mystery to me before I joined the aviation division. A footnote in the document explains that it means hiring an aircraft with a pilot. It is an unfortunate term but we are stuck with it.

Senator Ormonde

It is a dreadful term.

Mr. Davis

Experience has taught us that maintenance standards may not be as high in third countries. With all forms of transport we must be vigilant about having the highest maintenance standards. The six-month period is meant to address that by being tighter on maintenance standards.

Senator Dardis

I apologise for being late and I ask pardon if I ask questions that have already been asked. I welcome our visitors. I want to pick up Deputy Costello's point on pricing. I understand about newspaper advertisements, but suppose I log on to an airline's website and a price of €38 is quoted for a flight, as happened recently. When I move to the next stage I am asked to pay for my piece of luggage, followed by the taxes, booking fee and something else that is probably not even flagged, and before I know it I am up to €111. At that point one is not going to withdraw from the deal. Will the regulation put me in a position where I know when I start out where I will finish? I realise the luggage charge is discretionary, and the airline does not know it will charge me for it until I say I am going to put it on board. I can understand that being set aside but the tax and booking fee——

Acting Chairman

This question has been asked already.

Senator Dardis

I apologise and will ask a second question. Is there any negative impact on the Irish Aviation Authority? Are its powers potentially more limited as a result of this measure? What is the impact on the authority. I would like to ask about the withdrawal, rather than the granting of a licence. It is probable that Alitalia will not fulfil the financial requirements laid out in the regulation. Are there instances where the licence could be withdrawn for financial or other reasons?

Ms Brogan

While this regulation does not fundamentally change the role of the Irish Aviation Authority, it imposes stricter requirements on, for example, wet leasing. Its role in scrutinising safety will be enhanced if this proposal is agreed. This regulation proposes to strengthen the requirements for both the granting and revocation of licences to operate as an air carrier. It is being strengthened because there is inconsistency in the application of the current regulations between member states. For example the degree to and precision with which member states check the financial health of a company before granting or renewing a licence differ from one member state to another. This does not always result in a level playing field. This regulation strengthens the requirements. It also gives step-in powers to the European Commission so that if a member state does not revoke a licence, the Commission has powers to step in and revoke that licence if it finds there are grounds to do so, for example if the financial health of the company does not merit its continuing to operate as an air carrier.

Deputy Andrews

I understand a PSO is a way of locking an important or strategic route within or between member states and it is an obligation on a carrier to continue that service, supported by a subsidy in some cases. This regulation says that in circumstances where there is an alternative transport link of less than three hours, for example a rail link, that obligation cannot be imposed by the Government. Is my understanding correct?

Ms Brogan

That is overstating it. The language in the regulation is that the Commission may require a supporting economic case for a PSO, particularly in areas where, for example, it was proven that a rail link with a travel time of three hours was available on the same route. Member states will still have discretion on that.

Deputy Andrews

Will it operate internally, for example the Dublin to Knock route? Do we have any PSOs in Ireland?

Ms Brogan

We have approximately five PSO routes.

Deputy Andrews

So if there were an improved rail link into the west for example, could the European Commission say a PSO must be withdrawn?

Ms Brogan

Yes it may, but the language in the proposed regulation makes it discretionary.

Deputy Andrews

However if, for example, the rail link to Cork is improved the PSO is under threat within the consultation that may occur with the EU.

Ms Brogan

Potentially, but under the current regulations an economic case must be made for a PSO in the first instance. Therefore this should not be a substantial change.

Acting Chairman

At the outset Ms Brogan said that because of this directive she had not assessed the possible impact on internal services. My early question and that of Deputy Andrews, require an early investigation of the impact. Perhaps Ms Brogan would come back to us as soon as possible. It would be catastrophic for internal traffic if it was found that, for example, Aer Arann was in breach of the public service obligation. I could imagine air routes being slashed everywhere. It is important we have an early assessment and a report on the committee's questions. Could Ms Brogan say when she might have this?

Ms Brogan

No, but I could come back to the committee with a proposed timescale for it.

Deputy Kirk

Is the Irish Aviation Authority responsible for the regulation of PSOs?

Ms Brogan

No, it is the responsibility of the Department of Transport.

Ms Avril Doyle, MEP

I apologise for being late. I express my sincere sympathy, and that of the EPPED group, to Deputy Andrews on the death of his uncle, Niall Andrews. He was very fondly regarded and remembered by all of us. I extend condolences to his family from all of the European Parliament.

Deputy Andrews

I thank Ms Doyle.

Ms Doyle, MEP

I arrived in the middle of this discussion so the Chairman will, no doubt, stop me if my question has been answered. Following the concerns expressed by the Chairman and others about the operation of the PSO, it was stated that discretion would be allowed for in the regulation but who has the final say in that regard? Is there any particular internal Irish route about which the Department may have concerns? I understand from Ms Brogan's last reply that the Department has yet to check the implications for internal Irish aviation routes. Who decides that the alternative transport, whether road or rail, is sufficient not to warrant a PSO on an internal air flight? Could other commercial airlines — I am thinking of none in particular — challenge PSOs on internal routes, perhaps with a view to securing those routes themselves? Are there likely to be difficulties in that area?

Ms Brogan

The Department has not recognised any difficulties because the proposed regulation does not represent a shift from the status quo. For existing PSO routes an economic case must be made. The language may signal a departure from the current requirements but the Department does not regard it as significant. In the coming months we will closely examine the proposal for the regulation recently produced.

Ms Doyle, MEP

The issue could apply equally to internal routes in other countries, given the need for PSOs where demographics might make it inappropriate to operate a route on a strictly commercial basis. If the Department felt there were issues, could it flag them early on committee stage in the European Parliament, so that we can take such concerns on board? In peripheral areas and those countries with a strange demography like ours, where some areas are very highly populated and others very low in population, it is difficult to run a commercial route. There are concerns in Europe as well as Ireland. People should have access to airlines at reasonable cost rather than be penalised because they happen to live in remote areas. We want to encourage people to continue to live in remoter areas and not force everyone to live on the east coast.

Acting Chairman

Before I call Deputy Costello, Ms Brogan said the Department would study the proposal in the coming months. Can I ask her to do it in the coming weeks? Areas outside Dublin have, in the past, been left high and dry by a sudden withdrawal of services. I hope, as Ms Doyle suggested, any concerns will be flagged early enough to avoid leaving areas high and dry.

Deputy Costello

My question is very brief. At what stage is this proposal? Has it been before the European Parliament and the European Council? When is it expected the regulation will be operational? Are any changes envisaged in what has been presented to us today?

Ms Brogan

The proposal has been presented to the Council. I am not aware that it has been presented to the Parliament yet. The Council has initiated discussions under the current Presidency and there has been an opening discussion. The Presidency has signalled that, for the remainder of its term, it does not envisage tabling it for any further discussion as part of its work programme. It is unlikely to be taken within the Council apparatus before the end of the year.

Deputy Costello

What about the Parliament?

Ms Brogan

To the best of my knowledge it has not been presented to the Parliament yet.

Ms Doyle, MEP

On 13 September it went before the transport and tourism committee. The committee appointed a rapporteur, Mr. Arunas Degutis, who is a member of the ALDE or liberal group, though I do not know him personally. The committee has not held any preliminary discussions on it. Little has been activated except for appointing the rapporteur and the shadow spokespersons.

Acting Chairman

What group is it?

Ms Doyle, MEP

ALDE, the liberal group.

Acting Chairman

It sounds like we will have supermarket prices.

Deputy Costello

It will be dealt with sometime in 2007.

Ms Doyle, MEP

Yes.

Acting Chairman

I thank Ms Brogan and Mr. Davis for their presentation. The committee requests it be kept informed of significant developments at national and European levels that might impact on the currently competitive situation in air services in Ireland and the rest of the European Union, particularly in the field of mergers and acquisitions. As we said at the outset we invited Aer Lingus and Ryanair to the meeting today but both, for different reasons, stated they could not attend. We will ask them to attend at another, appropriate time.

The joint committee went into private session at 12.46 p.m. and adjourned at 1.02 p.m. until12 noon on Wednesday, 25 October 2006.