Air competition slow to take off

Competition in Europe's airline industry is improving, though progress has been slow, the UK's Civil Aviation Authority said in a report published yesterday.

European Commission regulations, known as the Third Package, were designed to open the market to new entrants, and have significantly improved competition on domestic routes in Germany, Spain and, more recently, France. But in the two years since the rules came into force there has been no uniform increase in competition across Europe, the CAA said.

"Most European routes have still to feel the benefit of competition," said Sir Christopher Chataway, chairman of the CAA. "Nevertheless, taken overall, the way liberalisation has been implemented to date gives real cause for optimism."

The CAA report, The Single European Aviation Market: Progress So Far, said British Midland and British Airways had played an important role. BA had established domestic services in Germany and France, while British Midland had broken traditional duopolies on many routes by becoming a third carrier. But the report notes that only 7 per cent of international routes are operated by more than two airlines, though the number is rising.

The report found that the UK had the highest degree of aviation liberalisation of any EU state. And there was praise for Spain, where Iberia's monopoly has been eroded by domestic competition from Air Europa and Spanair.

Where some countries had tried to block new freedoms, such as the attempt by France to put restrictions on access to Paris's Orly airport, the Commission had acted decisively, said the report.

It went on to say that price competition on international routes was still not widespread, but the cheapest international fares were from London.

Airport capacity is a growing problem and, partly as a result of this, major national airlines have managed to reinforce their dominance at their home airports.

Shortage of landing and take-off slots is a growing impediment to competition at some of the main European airports and already represents an almost total barrier at Heathrow and at Frankfurt and Dusseldorf in Germany.

Fears that the Third Package would lead to the European airline industry being reduced through mergers and acquisitions to a small number of major carriers had so far proved unfounded.

However, the CAA said it saw the future for small airlines which ventured out of their specialised niches as uncertain.