Blue Islands and Aurigny oppose Open Skies

Dear States member



You will be aware of the debate taking place in the States of Deliberation next week on Commerce & Employment’s proposals to introduce an independent air licensing authority and to initiate a liberalised approach to the administration of Air Transport Licenses.

I am writing to tell you that we warmly welcome the introduction of an independent licensing authority as we have always maintained that the process requires more clarity. Where we would like your support is in our opposition to the introduction of what is effectively an ‘Open Skies’ policy for Guernsey. We believe very strongly that C&E’s proposals to change the framework for licensing airlines to operate between Guernsey and the UK are against the interests of the people and business community of the Bailiwick and will ultimately result in higher prices and less choice.



Open skies – a background

‘Open Skies’ started in very large markets such as the USA and the EU and was primarily focused on increasing competition between ‘indigenous’ carriers with the result of reducing the number of small airlines and creating larger, stronger, low- cost models.



Smaller jurisdictions, especially island communities with their dependence on air travel, are careful to nurture and support indigenous carriers. As a rule, such communities continue to be wary of introducing regulatory regimes that could lead to their demise. Our experience is that many people in the Isle of Man are clearly unhappy about the recent demise of their indigenous carrier, Euromanx, which followed the introduction of an ‘Open Skies’ licensing approach there.



Airlines are fighting for survival

Airlines are currently facing the combination of recession, unstable fuel prices, currency swings and environmental issues. This has been described as a ‘perfect storm’ in the industry; Willie Walsh of BA is quoted as saying; “British Airways is fighting for survival.”



Is this really the time to be throwing away the controls we elected to keep in 1995 and strengthened in 2004, to protect our own islands’ interests?



No protection for daily, year-round services

‘Open Skies’ would leave Guernsey powerless to threats against established services provided by current airlines serving the Island by predatory action from new or existing carriers. C&E is proposing amendments to the Guernsey Air Transport Licensing Policy statement of 2004 that removes the obligation of the regulating body to maintain year round services or maintain and protect the island's air links with London. Do we really want these obligations dismissed?



The Island lost its Heathrow link in 1998 due to the emergence of increased competition on Gatwick. The price war that ensued on the Gatwick route had the inevitable effect of impacting yields on Heathrow also. The reduced return to Air UK on its valuable Heathrow slots could not be sustained and the route was lost. Without adequate protection, Gatwick could go the same way.



Their proposal that they will introduce rules to tackle anti-competitive behaviour is not enough given there are no definitions included in the Billet. Where are the details? How can a decision of such importance be made without clarity?



Our finance and tourism industries need year-round services from as many destinations as are economically sustainable. The OUR report talks of letting market forces alone decide our future, it points to lots of ‘summer only’ services creating cheaper seats for tourists and locals, but at what price? The price will be the reduction of services on offer in the winter accompanied by increased prices.



How will that benefit our hoteliers who struggle through the winter as it is and our finance industry which depends on year-round affordable services? This debate is not only about airlines and air services, it is about how we ensure our primary industries have the communications links they need to survive and flourish.



Isle of Man

The Isle of Man is promoted by the OUR as a model of what Guernsey might hope to achieve through ‘Open Skies’. In 2005 the IOM market was 806,656 passengers with the biggest share held by Euromanx being 39%. In 2008 this market had reduced to 763,205, a fall of over 5%, and 64% of this was with Flybe and it’s franchisee. In the same period, the regulated Guernsey market rose by 5.4% from 871,561 to 918,978.



In 2009 flybe’s share of the IOM market has risen to 68%. Ask yourself if we too would want this level of our air services provided by one carrier, especially when that airline’s interest in Guernsey would represent less than 6% of their total business? That is the situation that exists today in the Isle of Man.



Our local airlines will find it increasingly difficult to survive if the profits currently available in the summer months are wiped out by summer-only operators. These summer profits are used to support services through the winter, without which indigenous carriers would have no reserves to maintain the loss-making winter services.



Cherry Picking

Cherry picking destroys year round services and the island needs a licensing system that penalises this practice. In 2008, following flybe’s decision to drop routes to Manchester, Norwich and Paris, Commerce & Employment took the view that “…flybe, to a degree, are cherry picking. What we are looking at on the UK routes is a licensing regime where we have more teeth.”



So, what happened? In our opinion these C&E proposals are exactly the opposite and will extract all their teeth completely.



Why is it that flybe are so keen to support the ‘Open Skies’ concept and have pledged to withdraw their support if the proposal is diluted? Because, they see an opportunity to replicate the IOM situation and create for themselves a very dominant position in Guernsey. We calculate that increases to fares and the introduction of baggage charges on more routes could easily add £5m annually to traveller’s costs. Is that really in the interests of the Bailiwick consumer?



Support the current system

We believe that the current licensing system is designed to meet the needs of our local community in Guernsey. It is entirely adequate for our requirements but the States must commit enough resources to manage it properly.



The OUR view is that the existing system discourages new carriers from flying to Guernsey but there is no evidence to support this. As far as Aurigny is aware, all airlines that have expressed an interest in operating a year-round service to Guernsey from the UK over the last few years, and have made an application for a licence, have had their application granted.



In the OUR’s opinion, the loss of an existing service would be replaced by another operator if market forces warranted it. In 2007 C&E invited any carriers, through an advertising campaign to launch new services with financial support from the States. The outcome was that two new services were launched, both by flybe. These services to Paris and Dublin did not survive a summer season and were stopped with little notice. There is no queue of airlines wanting to fly to Guernsey.



One area that is not fully understood is that the current licensing regime only covers flights between Guernsey and the British Islands, there is no requirement for a license to fly from any other EU country. If an airline wanted to start a Guernsey service tomorrow from anywhere in the EU other than the UK, they could do so.



This year, licenses have been applied for to serve East Midlands and Plymouth from Guernsey, both have been granted and both new services have started.



Stability

Following the fire fighters dispute where the island’s ability to manage its services were called into question what we need is stability and reliability and liberalising the air licensing procedure does the opposite – it leaves us open to unpredictability, insecurity and the distinct possibility that we could lose our local carriers.



We are asking all States members to vote against liberalisation and protect our lifeline routes, which are so important for the wellbeing of the island and our future as an international business centre. Reject proposition 3 of C&E’s report in order to achieve this, so that the 2004 policy statement and the 1995 law all stay in place.



Thank you for spending the time to read this letter and I hope that you will pass on our words to your colleagues. If you have any questions or would like to discuss this subject further please call me on 266444.



Yours sincerely



Malcolm Hart

Managing Director

Aurigny Air Services





Derek Coates

Chairman

Blue Islands