26th November 2008

Europe’s Aviation ChallengeWill European Aviation remain a force to be

reckoned with?

Steve Ridgway Chief Executive

We’re heading into a new world …

Europe is at the centre of the global economy

For aviation to play this role …

• What do we need to fix?• What do we need to protect

against?

5

Aviation – a triumph of the European Union

• Powerful flag carriers – LH/AF/BA• Successful low cost carriers –

EZ/Ryanair• Niche carriers – VS/Finnair

EU consumer has benefitedAgainst most measures, EU

deregulation hasbeen a success

6

Regulatory policy

Role of Regulator should be to facilitate :

• sustainable growth and success of industry by removing barriers and reducing costs

Regulators’ role should be limited to:• ensure safety and security• enforce compliance with competition

law• deliver infrastructure

Infrastructure

• Single European Sky• New Airport Infrastructure• Airport Regulation

Environment

• ETS – sound in principle but opponents have turned it into a punitive tax

• National taxes• UK• Netherlands• Ireland

Liberalisation

• Airlines need barriers to liberalisation removed• IATA Istanbul declaration makes this clear

• UK/Singapore Air Services Agreement a perfect model• Removed all barriers• No limits on traffic rights or foreign

ownership

• Yet governments and regulators still regard aviation as a special case• EU/US must deliver the EU mandate on OAA

Competition law and consolidation

• Removing barriers will speed up consolidation

• Too many airlines today • Good and bad consolidation• Future is not 3 giant global airlines

operating out of different hubs• If this happened:

– Competition would be weakened– Consumers wouldn’t benefit as fares would

increase with less choice– Only winner would be dominant monopoly airline

at given hub

LHR is larger than all other European hubs, and BA already offers the most capacity to the US

Total Seat Capacity (k) to and from the US, April 2008 to Mar 2009Total Seat Capacity (k) to and from the US, April 2008 to Mar 2009

Source: OAG, Virgin Analysis

+5%

+52%+87%

+29%

Other global alliances barely challenge BA on the overlap routes

Capacity Share on BA/AA Overlapping Routes from LHR, April 2008 to Mar 2009Capacity Share on BA/AA Overlapping Routes from LHR, April 2008 to Mar 2009

Source: OAG, Virgin Analysis

100%

80%73%

64% 64%

47%

20%27%

23%

8%

24%

24% 23%

8%

6%5% 4%

LHR-DFW LHR-BOS LHR-MIA LHR-J FK LHR-ORD LHR-LAX

Oneworld VS Star SkyTeam Other

14

No Way BA/AA

• Nearly 50% of slots at Heathrow would belong to BA/AA/IB

• Heathrow is closed to new entrants• Heathrow is unique –

– 26% of LHR-US passengers connect from other EU airports at LHR

– only 2% of LHR-US passengers travel via other European airports

• JFK has severe flight restrictions• BA/AA trying to lock down both ends

of LHR-JFK market and dominate with hourly shuttle

15

Open Skies

• First phase of EU/US Open Skies not brought promised benefits on routes out of LHR

• Minimal new competition for BA because of a lack of capacity at LHR

• Regulators need to safeguard against anti-competitive proposals

• Must not suspend rules because of economic downturn

• Liberalisation should not be at any cost to consumers or competition

Europe at a crossroads

• EU Regulators can abdicate EU leadership to other regions

or• EU Regulators could help to ensure EU airline

industry is at the centre of the global economy ‐ Deliver Single European Sky‐ Effective Regulation of Monopoly Service Providers‐ Provide sufficient infrastructure‐ Adopt Sensible Environment policy that incentivises

behaviour but doesn’t unduly penalise‐ Remove bilateral/multilateral barriers‐ Effectively enforce competition law to protect against

anti-competitive alliances.

17