STUDY SUMMARY & FINDINGS
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STUDY SUMMARY & FINDINGS
JUNE 2006
2006/TPT-WG-28/AEG-SRV_004_v2
28th APEC Transportation Working Group Meeting
Vancouver, Canada
5-8 September 2006
Study of the Impacts of Air Transport Liberalization: Study Summary and FindingsPurpose: Information
Submitted by: Michael Tretheway, Executive Vice President, InterVISTAS Consulting Inc.
STUDY SUMMARY & FINDINGS
JUNE 2006
2006_TPT-WG-28_AEG-SRV_004_v2
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Background
• Commercial aviation is governed today by a myriad of arcane rules and regulations that defy logic and the principles of free trade.
• Most airlines are trying to become more competitive and responsive to consumer demand for lower fares.
• Despite the efforts of the U.S. Government, and selected others, some governments and airlines want the protection of today’s regulatory regime.
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Background (cont’d)• Conventional wisdom is that:
– Liberal air service agreements promote economic growth and jobs.
– Airlines, freed of economic regulation, will produce more efficiently, and that will translate into lower fares.
However: – There has been no vehicle for measuring
the potential impacts of liberal agreements until after they have been implemented for a number of years.
– There has been inadequate information available relative to the benefits of free trade in aviation.
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Study Objectives
• Examine air service liberalization and identify the impacts on air travel and economic growth.
• Develop an analytical model that will measure the benefits of liberalization -- prospectively.
• Provide the means to validate liberalization assumptions through case studies.
• Promote a better informed debate on the historical and potential benefits of liberalization.
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The Scope and Scale of the Industry
• World airlines annually transport roughly 2 billion passengers per annum and carried almost 40% of world trade by value.
• “Air transport is a major contributor to job creation and economic growth.”
– 8% of world GDP
– 5 million direct jobs, and an additional 8.5 million indirect and induced jobs
– 15.5 million additional direct and indirect jobs resulting from air transport’s impact on tourism.
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Modeling Liberalization
• Isolate Liberalization Traffic Growth link • Determine Increased Traffic • Drive Demand Against Baseline Economic Data• Generate
– Increased GDP, Employment, Tourism/Business and Catalytic Benefits
Liberalization Traffic growth Economic Growth Jobs
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The Impact of Liberalization:A Cross-Sectional Approach
TRAFFIC
GDP x GDP
* Restrictive 1
Liberal 3 +
* Restrictive 2
Liberal 1 + * Restrictive 4
* Restrictive 3
Liberal 2 +
+ Liberal 5
+ Liberal 4
Restrictive 5 *
Liberal Bilaterals
Restrictive Bilaterals
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Selected Findings-#1
Test the model’s “What If” capability• Examine 320 arbitrary country pairs • Determine economic impact if all were liberalized
RESULT• Liberalizing the 320 ASAs
would generate 24.1 million jobs and generate an incremental $490 billion GDP.
– This approximates the GDP of Brazil.
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Selected Findings-#2
• Examined EU Single Aviation Market (1992 Package) • Traffic growth tracked EU GDP 1990-1994
– 1995 & beyond traffic growth rate well above GDP
• Traffic growth rate 1995-2004 was double the pre-1994 rate of growth.
• Low Cost Carrier (LCC) market share expanded from 1.4% in 1996 to 20.2% in 2003.
RESULT• Incremental GDP $85 billion; new jobs -- 1.4 million.
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Selected Findings-#3
• U.S.-UK agreement was significantly liberalized in mid-1990’s. All markets opened between U.S. and UK, except Heathrow and Gatwick.
• A U.S.-EU Air Transport Agreement would completely liberalize the U.S.-UK market.
RESULT
Traffic between the U.S. & UK would expand by 29%.
GDP would expand by $7.8 billion -- 117,000 new jobs would be created.
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Case Studies: US-UK 199410 City-Pairs 62 Weekly Flights
Belfast
Glasgow
Manchester
Birmingham
Washington Dulles
Atlanta
Chicago O’HareNew York JFK
Boston
Los Angeles
Nonstop US-UK Routes (Excluding Heathrow & Gatwick)Source: May 1994 Official Airline Guide, US/UK Designated Carriers Only
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Case Studies: US-UK 200617 City-Pairs 144 Weekly Flights
Birmingham
Washington Dulles
Atlanta
Chicago O’HareNewark
Boston
Nonstop US-UK Routes (Excluding Heathrow & Gatwick)Source: May 2006 Official Airline Guide, US/UK Designated Carriers Only
Las Vegas
Philadelphia
Orlando (MCO)
BristolLondon Stansted
New York JFK
Belfast
GlasgowEdinburgh
Manchester
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Selected Findings-#4
• Partial liberalization of Malaysia - Thailand agreement• achieved via MoU to allow increase
in capacity, frequency and routes.
RESULT• Traffic between Malaysia and Thailand
grew by 370,000 passengers per annum (37%).• Identical impacts on both countries.
– GDP would expanded by $114 million each
– 4,300 new jobs created.
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Kuala Lumpur (Subang)
Chiang Mai
Bangkok
Penang
Hat Yai
Phuket
Malaysia - Thailand Nonstop Services
April 1996
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Kuala Lumpur (Subang)
Koh Samui
Chiang Mai
Kota Kinabalu
Bangkok
Kuala Lumpur (KLIA)
Penang
Hat Yai
Phuket
Malaysia - Thailand Nonstop Services
April 2006
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Total Monthly Roundtrip Seat CapacityMalaysia - Thailand Nonstop Scheduled Services
0
20
40
60
80
100
120
140
Feb-01
May-01
Aug-01
Nov-01
Feb-02
May-02
Aug-02
Nov-02
Feb-03
May-03
Aug-03
Nov-03
Feb-04
May-04
Aug-04
Nov-04
Feb-05
May-05
Aug-05
Nov-05
Feb-06
May-06
To
tal M
on
thly
Ro
un
dtr
ip S
eats
(000
s)
AirAsia begins Service between Malaysia and Thailand
Source: OAG Schedules – February 2001 – May 2006
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Summary of Case Studies: Job Creation
• Intra Community - 1.4 million jobs
• U.S.-UK - 117,000 jobs
• UAE to Germany and UK - 26,000 jobs
• Australia-New Zealand - 40,000 jobs
• Malaysia-Thailand - 8,600 jobs
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Summary Findings
• Open Skies between U.S. & EU would benefit the U.S. and UK markets by adding 117,000 jobs and $7.8 billion in GDP.
• Liberalizing a sampling of 320 ASAs would generate 24.1 million jobs and generate an incremental $490 billion GDP.
• Case studies uniformly support model results and “conventional wisdom.”
– Intra-EU Open Skies produced doubling of growth rate of traffic for the 1995-2004 period versus pre-1994 regulated environment.
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Conclusions
• World economies are heavily dependent on air transport.
• We now have a model that will test the impact of liberalization on a prospective basis.
– This model documents the economic and job creating benefits of liberalizing air service agreements.
– This study found that if countries want to increase jobs and economic growth, liberalizing their air services will help do this.
STUDY SUMMARY & FINDINGS
Copy of full study available at www.InterVISTAS.com
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