The Liberalisation of Ground Handling Services in the European Union

Table of Contents (structure)

Introduction

Section 1: The Liberalisation Process of the Air Traffic Industry in the EU
1.1 The definition of Liberalisation
1.2 The definition of Monopoly
1.3 The Liberalisation Process of the Air Traffic Industry in the EU

Section 2: The Liberalisation of Ground Handling Services
2.1 The Situation before the Liberalisation
2.2 The Airport Service Areas
2.3 The Definition of Ground Handling Services
2.4 The historical Market Situation: Ground Handling Services as a Monopoly?
2.5 The Liberalisation of Ground Handling Services: The Council Directive 96/67/EC
2.5.1 The Council Directive 96/67/EC and its ratification
2.5.2 The application of the Council Directive 96/97/EC
2.5.3 The main Obligation
2.5.4 The compulsory Separation between different Airport Activities
2.5.5 Numerical Restrictions to Third Party Handling Agents
2.5.6 Infrastructural Facilities
2.5.7 Exemptions
2.5.8 Entry to Airport Facilities

Section 3: The Situation after the Liberalisation
3.1 Developments in Prices and Quality
3.2 Employment
3.3 Working Conditions
3.4 The EuGH Decision of
3.4 The Ground Handling Service Market today

Conclusion

1. Table of Attachments

4.1 The Freedoms of Air according to the ICAO Source: Manual on the Regulation of International Air Transport (Doc 9626, Part 4) Retrieved from http://www.icao.int/icao/en/trivia/freedoms_air.htm on July 20th 2006.

4.2 The Council Directive 96/67/EC Retrieved from http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX: 31996L0067:EN:HTML on July 20th 2006

2. Table of Abbreviations

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Introduction

For the longest European air traffic industry was stamped by two contradictive markets: “In the air deregulated, on the ground dominated by monopolies”¹. This statement also described the situation of the market for ground handling services at European airports for the longest. Many books have been published on the liberalisation of the air traffic industry of the United States of America as well as of Europe focusing on the core markets. Still the liberalisation process can only be successful, when the industry’s fringe markets are included in the process.

This paper shall first give a brief overview on the liberalisation of the European air traffic industry provided with certain definitions and then draw a closer look on the liberalisation of ground handling services, which will be rounded up by the European Commission’s legal proceeding against Frankfurt/Main Airport in 1998. Finally it will describe the market situation today, including the effects on prices, quality, employment and working conditions.

Section 1: The Liberalisation Process of the Air Traffic Industry in the EU

1.1 The definition of Liberalisation

The Latin liberare means to free. Liberalisation therefore is “the act of making less strict”².

1.2 The definition of Monopoly

The Merriam-Webster³ online dictionary explains that the word monopoly derives from the Latin monopolium and the Greek monopolion: mono- stands for one and polein for to sell.

A monopoly has “ the exclusive control of a particular market that is marked by the power to control prices and eclude competition and that especially is developed willfully rather than as the result of superior products or skills ” . ⁴

Investor Words⁵ more detailed defines monopoly:

“ A situation in which a single company owns all or nearly all of the market for a given product or service. This would happen in the case that there is a barrier to entry into the industry that allows the single company to operate without competition (for example vast economies of scale, barriers to entry or government regulation). In such an industry structure, the producer will often produce a volume that is less than the amount which would maximize social welfare. ”

And George Stigler¹ adds:

“ But if the monopoly is in fact more profitable than competitive enterprises, economists expect that other enterpreneurs will enter the business to capture some of the higher returns. If enough rivals enter, their competitions will drive prices down and eliminate monopoly

power. ”

1.3 The Liberalisation Process of the Air Traffic Industry in the EU

Until the 1980s the European air traffic was significantly regulated by a numerous bilateral agreements and domestic principles. National “flag carriers” were protected from foreign competitors and able to shape their products and determine their prices accordingly. But the deregulation of air traffic in the mid 70’s in the USA had an utterly effect on Europe: By the end of the decade it had brought about a consciousness for the need on a liberalisation process in Europe as well.²

The process started slowly. In 1986 the “Nouvelles Frontières” sentence by the European Court of Justice (ECJ) had for the first time clearly stated that the European Competition Protection Act would also be applicable and affective for the air traffic industry. Since then the liberalisation in the European air traffic has taken place continuously and in three major steps. Within a few years the European Commission released three “Packages of Measures”, which one after another newly settled certain areas and extended liberalisations, which had already begun. The first Package of Measures of 1987 was fundamental in settling tariffs, sharing capacities and entry of new airlines into existing routes. The first Package of Measures did not bring about major changes due to numerous exceptions of application. However it was yet a major step towards competition.³

The second Package of Measures in 1990 more or less provided further settlements on the market entry. In 1992 the third Package of Measures focused on the instructions for the issuance of operating licences as well as the comprehensive application of the law of competition. The latter also focused on liberalisation of the so called “secondary markets”, which included new provisions for slot allocations and the opening of the market for ground handling services.¹ By 1997 the air traffic industry was fully liberalised on the air side: Based on the so called “5 Freedoms of the Air”². And unofficially another three freedoms were added. The 8th freedom - the freedom of cabotage - is today applicable in the airspace of the EU within the single open sky policy.³

Section 2: The Liberalisation of Ground Handling Services

2.1 The Situation before the Liberalisation

The absence of competition was characteristic for the market of ground handling services. The Airport Authorities / Airport operating company resepctively the large national airlines had held monopolistic positions for decades. This historic positions were not questioned as the following example of the court case Frankfurt/Main Airport against Delta Airlines of 1986 shows: Frankfurt/Main Airport sued Delta Airlines to restrain them from offering their push back service to other airlines at the Frankfurt/Main Airport. The regional court in Frankfurt announced the verdict in the favor of the airport, because it did not recognise any conflicts with the German antitrust law by Frankfurt/Main Airport not accepting another handling agent. The court reasoned, that the monopoly in this area was justifyed by technical reasons: the airport authorities’ function, beeing the organiser and coordinator at their airport, would oblige them of optimised transactions of any airport events. Granting thus optimised transactions would allow the airport authorities, to exclude any other agent from rendering its handling service due to security reasons.⁴

These times, in which airport authorities could monopolise easily with such arguments have gone. At the airlines’ urging and against the airports’ massive resistance, the European Commission conducted the opening of the market in the mid 90’s. With the “access to the groundhandling market at Community airports” (Council Directive 96/67/EC) the last “Bastion”⁵ of monpolies in the European air traffic industry has fallen.

2.2 The Airport Service Areas

There are four different service areas, which are offered at the airport:⁶

1. The Infrastructure:

The infrastructural services include the provision and maintainance of the runway and navigation systems for take-off and landing as well as the apron facilities; provision and maintainance of equipment such as the terminal, the baggage sorting and x-ray machines etc.

2. The ground handling area:

The ground handling services include terminal handling and ramp handling.

3. The commercial area:

The commercial services include the provision and operation of real estates such as duty free shops,entertainment, hotels and lounges.

4. Other services:

This includes services which cannot be clearly defined with the three services areas mentioned, such as administration and security services.

To assure the focus on the topic of ground handling services, the fact that airports also have or had a monopolic positions in the three other service areas, will not be discussed.

2.3 The Definition of Ground Handling Services

To clearly understand the liberalisation process of ground hanlidng services, it first needs to be determined what ground handling services are. The European Council defines eleven categories in its Directive 96/67/EC.¹

1. Ground administration and supervision
2. Passenger handling
3. Baggage handling
4. Freight and mail handling
5. Ramp handling
6. Aircraft services
7. Fuel and oil handling
8. Aircraft Maintenance
9. Flight operations and crew administration
10. Surface transportation
11. Catering services

[...]

¹ Ann, C.: [Monopole], titel translated into English: “ Deregulierung in der Luft, Monopole auf dem Boden ”

² Princeton, a.u.: [WordNet]

³ Merriam-Webster Inc., a.u.: [Dictionary]

⁴ Merriam-Webster Inc., a.u.: [Law]

⁵ Investor Words, a.u.: [monopoly]

¹ Stigler, G.: [Monopoly]

² Einem, A. von: [Liberalisierung], p. 26

³ ibid., p. 28

¹ Einem, A. von: [Liberalisierung], pp. 28f

² ICAO: [Freedoms]

³ Wolf, H.: [Flughafensektor], p. 70ff

⁴ Sentenced on 20.07.1986, in Einem, A. von: [Liberalisierung], p. 29

⁵ Einem, A. von: [Liberalisierung], p. 30

⁶ ibid. P. 41

¹ European Council: [Directive], Annex