FLYING HIGH - THE AVIATION AGENDA

Aviation is a dynamic industry. It is innovative, competitive and forward thinking.

Not so long ago, flying was seen as an impossible dream. Now, it's an everyday event which has played a major part in turning the world into a global village.

Since the Second World War there has been fantastic growth in the number of people and the amount of goods travelling by air. Especially in recent years in our region - the world of Asia and the Pacific. As living standards rise, trade grows and the real price of air travel falls. For the past 30 years air prices have dropped an average of two per cent annually.

Between 1985 and 1996 visitor arrivals to New Zealand by air have climbed by 138 per cent while New Zealand resident departures rose by 174 per cent.

It is up to all of us in the industry and in Government, to make sure this growth rate goes on unchecked. Not only to link up the world more closely but also to strengthen the economies of each of our countries.

I have strong views on how best to achieve these opportunities for growth. And that is by liberalising air service agreements.

For some years now New Zealand has firmly believed that liberalisation is the way to build a strong international aviation industry that can survive on its own without Government intervention.

The fundamental objective of our international air transport policy is to maximise economic benefits to New Zealand. As in other sectors of the economy, that includes reducing barriers to competition and achieving freer access to markets.

A less regulated environment will encourage competition and be conducive to achieving better prices and services for consumers and businesses.

The optimal outcome is the removal of barriers to free trade in air services and related aviation enterprise. To allow open competition in the market place.

In 1985 New Zealand only had 12 air service agreements - today we have over 30.

I know that while Air New Zealand has found this challenging it has also benefited from the opportunities created by these agreements.

Some governments still protect the commercial interests of their airlines without fully taking into account the wider economic benefits when negotiating the air agreements. In my view that can be a mistake. There are real benefits to be had from greater competition. Benefits for passengers, benefits for countries - and even benefits for airlines.

Certainly to us open skies seem to be the best way to achieve a healthy global aviation industry. I want now to tell you how we go about doing this in New Zealand. What our recent achievements have been and what we are looking to achieve in the future.

In carrying out this liberal policy within the international system of bilateral agreements we take New Zealand's trade, tourism, aviation industry, consumers, foreign policy and strategic considerations into account.

We are pragmatic and willing to be flexible but we expect increased routes and capacity for foreign airlines to be balanced with fair and equal opportunities for New Zealand airlines.

The existence of a viable national carrier is in New Zealand's interests. Nevertheless that airline's interests must not override the country's broader goals.

We also need to be patient. A global liberalisation of bilaterals or multilateral agreement involving an open exchange of traffic rights may be a long-term goal. But in order to get there smaller steps should be taken.

Certainly we should be examining the benefits that come from the elements that make up a fully open skies agreement.

multiple designation
the right to code-share, including on third-country airlines
no requirement to file tariffs
liberal airline ownership provisions while retaining those relating to effective control
an exchange of all points in the respective countries' territories
unconstrained intermediate and beyond rights
seventh-freedom passenger and cargo rights
cabotage; and
unrestricted capacity
I attended the APEC Transportation Ministers' Meeting in Canada a couple of months ago. I was particularly pleased to see signs of a movement towards a more liberal position by a number of countries.

APEC Transport Ministers decided that the APEC Air Services Group would further develop eight options it had identified for the liberalisation of air services. I have to say that this is by no means an acceptance of these options but it is much closer to that goal than we have ever been before.

This study of the options is to be completed next year. Eight countries with differing economies will consider the implications and the speed with which the recommendations could be implemented.

It is a positive step forward.

In this area, there have been three agreements this year that stand out as especially important for New Zealand.

They are the Single Aviation Market Arrangements with Australia, the "Open Skies" Agreement with the United States, and the very recent Memorandum of Understanding with the United Kingdom.

The Single Aviation Market Arrangements with Australia was signed before I became the Minister of Transport. I would like to acknowledge all the hard work my predecessor Maurice Williamson put into bringing together the SAM Arrangements which included gaining the right for New Zealand airlines to carry domestic passengers within Australia - and of course for Australian airlines to carry domestic passengers within New Zealand.

It was a long time coming. Both economies stand to benefit from this.

Work is now underway on replacing the original 1961 Air Service Agreement with a new one that incorporates the SAM Arrangements.

There is of course one bit of unfinished business. We have yet to complete a full exchange of beyond rights between New Zealand and Australia. That is a matter that I am discussing with my Australian counterpart John Sharp.

This is particularly important to New Zealand because of the number of tourists who wish to visit this country that are also visiting Australia on the same trip.

After SAM came the United States "Open Skies" Agreement.

The United States joins New Zealand in its wish for liberal skies. In the agreement between the two countries signed in June both New Zealand and the United States opened their doors even wider. Previously New Zealand airlines had been allowed to fly to four destinations in the States - now they can fly to as many as they want.

The other change is that New Zealand airlines are now able to base themselves in the USA and carry cargo between the United States and a third country ( that is seventh freedom cargo rights). And of course the same rights apply to the United States carrying cargo between New Zealand and a third country.

All that is missing are similar seventh freedom rights for passenger services and an exchange of cabotage rights.

The next step for New Zealand will be to achieve cabotage rights within the United States. This would allow New Zealand airline to carry domestic passengers between two United States destinations on their international flights.

The latest success that we have had is with the United Kingdom.

Under the leadership of the new Minister responsible for aviation, Glenda Jackson, the UK has made a shift towards recognising the unique characteristics of the air route between New Zealand and the UK, one of the longest in the world. I want to commend this action of the New Labour Government in Britain.

Not only did we achieve a daily service with full traffic rights for airlines of both countries, we've also gained beyond rights. This is good news for the economies of New Zealand and Britain.

For too long it has been difficult for the travelling public to get seats on direct flights between New Zealand and the UK. This agreement will help solve that problem. It will also allow New Zealand airlines to use London as a gateway for code share services into Europe.

The UK has become increasingly important to New Zealand as a source of tourists. Indeed this year it overtook the United States as providing the third largest number of visitors to New Zealand.

In addition, New Zealand also negotiated its first Air Services Agreement with South Africa in March. The arrangement, which is being signed this week, allows the airlines as many flights as they want between the two countries through code sharing. And each country's airlines are entitled to operate up to three services per week with its own aircraft.

This is the first air services agreement we have had with an African country and opening the door to that continent is an exciting prospect for us.

Other recent agreements include that negotiated with the United Arab Emirates in April. This is likely to be signed later this year.

Expanding our agreement with Hong Kong in February was also notable. After all it is a gateway into China. And China has potential for major growth in tourism.

Where are we looking to in the future?

Next month we plan to resume negotiations with Singapore on a new Agreement that we hope will be a model in openness.

Malaysia, Chile, Brunei and Chinese Taipei are other possibilities for open skies deals.

I also hope that we can expand existing arrangements with the Germany, Indonesia, Japan and Canada.

As you can see it is an ongoing process for New Zealand - and one that I intend to promote vigorously.

In talking about the air agreements that New Zealand is making and planning to make I'm struck by the amount of change within this industry. It has moved dramatically in the last 50 years and it shows every sign of continuing to do so.

It is also important to acknowledge what has remained constant. A passion for the industry by those who work in it, a commitment to safety and a receptiveness to innovative ideas.

But what are the global trends of change? And what are the changes presently happening in New Zealand?

Privatisation of government owned airlines and airports is clearly a worldwide trend. Of course in our region Air New Zealand was privatised some years ago and Quantas was recently. Fiji plans to privatise Air Pacific shortly.

Massive global alliances are forming and code sharing is becoming more widespread.

There is an increasing role being played by budget or "no frills" airlines. Locally first Kiwi and now Freedom have opened up trans Tasman services from provincial New Zealand.

There has been a drop in the number of airliner manufacturers with Boeing and Airbus now becoming the only major players as names such as Fokker and Douglas have fallen by the wayside.

The aircraft these manufacturers are designing and building are becoming more sophisticated. They are able to fly at lower seat mile costs which means that flying is becoming affordable for more people. With increased range they are also opening up new non stop possibilities across the Pacific. And less noise helping to address increasing environmental concerns.

And they are also helping achieve an improvement in safety.
And in the New Zealand aviation industry?

One change that you will all be interested in is that of the Airways Corporation's pricing structure for aerodrome and air traffic services.

Under the new pricing regime international airport charges will decrease, while charges at regional airports will increase. Those that will have the highest increase are Gisborne, New Plymouth, Tauranga, Invercargill and Napier, along with Ardmore and Milford.

Many of you might be wondering - "why change?".

In 1987 Airways became a State Owned Enterprise. It adopted a network pricing structure for its control services after consulting the aviation industry.

It was felt that a network pricing structure would be most effective for New Zealand. Each type of aircraft was charged the same price at every location - whatever the actual cost was. And it did work.

But 10 years on we look at the world differently. Again and again we have seen the benefits gained through competition in the transport industry.

Aerodrome services have theoretically been contestable for a number of years. But subsidising services at the smaller airports restricts equal basis competition.

The Airways Corporation, after Commerce Commision intervention and consultatation with industry groups, has moved to a user pays pricing structure, where the costs incurred at a location are covered by those who use the services at that location.

Other providers will now be able to compete on an equal basis with Airways Corporation to provide aerodrome services throughout the country.

I am convinced that this is the most effective way to operate. It is time that users face the full costs of the use of the system. And I am pleased to say that last Friday they began to.

With respect to other air traffic services. You may be aware that the Civil Aviation Rule Part 172 relating to Air Traffic Services is nearly completed.

Once this rule is in place the Government will be able to consider repealing the statutory monopoly that currently applies to approach, en-route and oceanic air traffic services.

Even within the aviation industry there are different opinions as to the benefits that introduction of contestability may bring.

I agree with those who say that the Airways Corporation is doing a very good job. They are internationally recognised in this regard. Be that as it may, the new Rule provides an opportunity to review all New Zealand air traffic services to see if we can do things even more efficiently.

As always, your views and those of the rest of the aviation industry will be integral to making the best decision for the country.

Another change that has taken place recently in New Zealand is a significant increase in CAA budget.

Most of the extra funding is to come out of international passenger departure charge. Each passenger will be required to pay an extra dollar.

What makes this change work so well is that at the same time passengers are going to be paying a dollar less for aviation security.

So passengers won't notice a difference, you won't notice a difference.

The last thing I want to talk about today is cockpit voice recorders. There has been much debate in recent weeks in the media and over many a dinner table.

I want to share my concerns with you about the uncertainty surrounding the use of information from cockpit voice recorders.

I believe that the concerns that you as an industry have about cockpit voice recorders do need to be addressed.

I am talking with interested parties on this issue. I met with representatives from your board yesterday and I commend you on that initiative.

I anticipate being able to come out with some proposals on this issue in the very near future.

It is at a forum such as this that the issues that I have raised today can be best discussed.

With so many countries' aviation industries represented here we have the ideal opportunity to compare ideas.

I trust that you find the rest of this meeting productive. I encourage you to debate the best options for keeping your industry flying high.