Liberalization in Aviation Policy Presented to the Confederation of Mozambican Business Associations (CTA)

1
Liberalization in Aviation PolicyPresented to
the Confederation of Mozambican Business
Associations (CTA)
Trade and Investment Project
Andy Ricover December 15,2005
2
Current effective policy

• Function of two factors

3
Current effective policy (continued)

• Function of two factors
• There is written policy
• But the institutional arrangement can condition
  the real applicable policy

4
Current formal policyLegal framework

• Resolution 40/2002, May 14th - replacing 5/96
  April 2nd
• Does not deal with access to market (5/96 did)
• Domestic market to adjust number of operators
  to demand
• Regulamento 39/98, August 26th
• Defines access to market
• Regular international (intercontinental and
  regional)
• Regular domestic
• Nonregular
• Route allocation to new operator after listen
  to incumbent

5
Current formal policyRegular-Intl operations

• Access to market
• Designated in the BASA (bilateral air services
  agreement)
• Selected by tender
• Regime
• Exclusive rights for 10 years (renewable by
  tender)
• Intercontinental single designation
• Regional one operator per route
• Provision for multiple designation, subject to
  public interest

6
Current formal policyRegular-domestic operations

• Access to market
• Concession
• Regime
• By route
• By tender
• 5 year periods (renewable)
• Subject to public interest exclusive rights

7
Current formal policyNonregular operations

• Access to market
• By obtaining a licence compatible with service
• Regime
• By tender
• In addition to regular services

8
Current institutional frameworkBodies and
functions
Accidents investigation
Regulation
Policymaking
Operation
ATC
Airports
Airlines
Ministry of Transport Communic.
IACM
IACM
ADM
ADM
LAM et al
IACM
9
Institutional frameworkCompetences of IACM

• According to Decree 41/2001
• Concentration of functions
• Regulate procedures of policy application and
  legal framework (Art. 6 1.a n)
• Technical regulation (Art. 6)
• Accidents investigation (Art. 6, g)
• Creates conflict of interest
• Allows policymaking through regulation

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Proposed institutional frameworkBodies and
functions
Accidents investigation
Regulation
Policymaking
Operation
ATC
Airports
Airlines
Parliament
Ministry of Transport Communic.
autonomous bodies(arms length from the
government)
Civil Aviation Board
IACM
ADM
ADM
Airlines
Accidents Investigation Board
11
Current effective policy

• Consequence of formal policy and institutional
  framework
• Formally protective of LAM, considered of
  national interest
• Restrictive access to international markets
• Semi-restrictive for domestic markets
• Informal protection
• Difficulties in obtaining nonregular/special
  permits
• Price control
• Scheduling regulations (SAA should depart 90
  away from LAM)

12
Current situationOperators
Seven operators
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Current situationAirport infrastructure

• 3 international airports
• Maputo, Beira, Nampula
• 6 main airports
• Inhambane, Quilimane, Tete, Lichinga, Pemba
  Vilanculus (by traffic)
• 10 secondary airports
• 6 military
• Plus almost 300 landing strips

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Current situationAirport infrastructure
(continued)

• Operated by ADM
• No prospects of private sector participation
  (PSP)
• Failed ACSA deal for MPM
• Doubtful financial feasibility for whole group
• However
• No capacity/operational constraints
• Market is NOT a function of infrastructure

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Policy backgroundFreedoms of the air

• 1stThe right to fly over another country without
  landing
• 2ndThe right to make a landing for technical
  reasons in another country without picking
  up/setting down revenue traffic
• 3rdThe right to carry revenue traffic from your
  own country A to the country B of your treaty
  partner

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Policy backgroundFreedoms of the air (continued)

• 4thThe right to carry traffic from country B
  back to your own country A
• 5thThe right of an airline from country A to
  carry revenue traffic between country B and other
  countries, such as C or D.
• 6thThe use by an airline of country A of two
  sets of 3rd and 4th rights to carry traffic
  between two other countries but using its base A
  as a transit point

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Current situationIntl carriers

• LAM
• LIS code share with TAP
• TAP
• LIS x 2 via JNB without traffic rights (no 5th
  freedom)
• Poor offer
• Little competition

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Current situationFrance

• BASA from 1991 2x PAR-MPM
• No interest
• Presence of AF in TNR and Reunion
• AF/KLM through Kenya Airways
• 7 freqs a JNB
• Camores

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Current situationPortugal

• BASA from 1977 with modifications
• Single designation designed for TAP
• TAP largest European presence
• 3 freqs a LIS (2 via JNB on one way only)
• Interest in 5th freedoms in the region (not
  allowed today)

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Current situationSouth Africa

• BASA from 2003
• Single designation for LAM SAA
• Price control
• Points in MOZ to CT, Durban, JNB, Nelspruit and
  Lanseria
• Points in RSA to Beira, MPM, Nampula, Pemba,
  Vilanculos
• Effective
• 11 frequencies MPM-JNB (now requesting to 14)
• 3 freqs to JNB-Nampula
• MPM - Vilanculos

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Current situationTour operators/special

• Policy
• Limited entry points
• Technical
• Delays in issuing permits
• No reliability in response time
• Often not granted without explanation

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Current situationPoor intl connectivity
LIS
NBO
DAR
LLW / BLZ
POL
HRE
BEW
VNX
JNB
MPM
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Liberalized situationImproved intl connectivity
LHR
LIS
NBO
DAR
LLW / BLZ
POL
LAD
HRE
BEW
VNX
JNB
MPM
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Liberalized situationIntl carriers

• LAM
• LIS with JNB and LAD (Luanda) by use of 5th
  freedoms
• HRE (Harare), DAR (Dar es Salaam) and NRO
  (Nairobi) with 5th freedoms
• And same with LHR (Heathrow) and LIS, 5th
  freedoms
• TAP
• LIS with JNB by use of 5th freedoms
• LAD with 5th freedoms granted

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Liberalized situationIntl carriers (continued)

• BA
• LHR/LGW MPM JNB (with Comair)
• and LUN (Lusaka)
• Virgin
• LHR MPM JNB (with SAA)
• and LUN

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Current situationRegional carriers

• LAM JNB
• MEX DAR
• SAA JNB
• KIA HRE NBO
• Pelikan VNX
• Air Corridor BLW?
• Poor offer
• Little competition

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Liberalized situationRegional carriers

• LAM JNB others, HRE, DAR NRE with 5th
  freedoms
• SAA JNB
• Pelikan VNX
• Air Corridor BLW?
• Kulula JNB others
• 1Time JNB others
• Air Corridor JNB others
• Comair JNB others

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Liberalized situationImproved connectivity
LHR
LIS
NBO
DAR
LLW / BLZ
POL
LAD
HRE
BEW
VNX
JNB
MPM
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Liberalized situationImproved intl connectivity

• Will open alternatives entry points/routes
• Increasing competition
• Improving quality of service
• Facilitating entry for new services (LCC)
• Reducing prices

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Air fares from Johannesburg
Cents of US / mile (excursion return fares), by
city pair distance
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Air fares from Maputo
Cents of US / mile (excursion return fares), by
city pair distance
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Lowest available domestic fares in two markets
Excursion and LCC return fares, cents of US /
mile
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Lowest available domestic fares in two markets
(continued)
Excursion and LCC return fares, cents of US /
mile
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Traffic driversDomestic market

• Foreign traffic
• Reliability
• Offer
• Tourism infrastructure
• price
• Local traffic
• Price
• Price
• Price

35
Traffic driversIntl market

• Foreign traffic
• Offer
• Development of the domestic market
• Price
• Local traffic
• Price as a fx(offer)

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A vicious cycle
Domestic market is not self sustained local
population can hardly support the system
Domestic market depends on the international
inflow
Domestic market does not get international inflow
International market remains undeveloped
International inflow is restricted to protect LAM
LAM fails to exploit the opportunity no other
carriers can try
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The virtuous cycle
Trigger liberalization policy develops the
international market
Increases international traffic
Increases inflow of passengers into the domestic
network
Gained support on the domestic market
Efficiency and low prices drives tourism
investment
Increase of foreign traffic into domestic market
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Needed reforms

• Liberalization of the international traffic
• Boost offer
• Lowering prices
• Increase inflow into domestic market
• Ease technical barriers in the local market
• Increase providers / offer
• Promote investment in tourism
• Generate more demand
• Which brings more international pax

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Needed reforms (continued)

• LAM Competitiveness Program
• Restructuring reform
• Adapt to the new challenges business plan
• Reallocation of resources
• Capacity building program
• Management options
• Change in ownership structure (PSP)
• Management contract

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• Obrigado