CAA: 'Relax airline ownership rules to reduce air fares'

Air fares would come down if the current highly restrictive rules governing the ownership and control of national airlines were scrapped, the UK's aviation regulator said yesterday.

The Civil Aviation Authority (CAA) argued that liberalisation need not compromise safety standards and would lead to increased efficiency by encouraging more cross-border investment and lower financing costs.

Under the present rules, a UK airline has to be majority-controlled by British nationals in order to gain landing rights in countries outside the European Union. Airlines operating within the EU must be majority owned by EU investors.

The rules, enshrined in a series of bilateral agreements between individual countries, have thwarted past attempts at airline mergers. The proposed takeover of the Dutch carrier KLM by British Airways, for instance, failed because BA could not guarantee being allowed to continue flying from the Netherlands to countries such as the United States if KLM was no longer Dutch- owned and controlled.

The CAA paper said these "anomalous" restrictions were in sharp contrast to the lack of rules governing ownership of other industries, including highly sensitive ones such as oil, utilities and defence.

Sweeping away these rules would mean lower prices and greater choice for consumers.

The CAA said, however, that only airlines from countries which were prepared to reciprocate by liberalising their own aviation markets should be allowed to benefit from the abolition of ownership controls elsewhere to prevent "free riders".

Harry Bush, the CAA's director of economic regulation, said: "Aviation is far adrift from most other sectors of the global economy in retaining anachronistic controls on the nationality of airline ownership and control. Aviation must embrace reform of ownership and control rules if it is to move forward in a sustainable way."