THE SINGLE AVIATION MARKET

  • Maurice Williamson
Transport

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I welcome the opportunity to be with you today and to talk about an
issue which is of great importance to New Zealand - and if I might say so to
Australia.

First I want to give you a brief history of recent developments in the
Australia - New Zealand air services relationship, then outline the contents of
the recently concluded Single Aviation Market Arrangements.

I'll follow this up with some pointers as to where we see the
relationship developing further.

In 1991, my predecessor addressed the Aviation Law Association
conference and publicly outlined the Government's vision for trans-Tasman
aviation.

Little did he know that, within six months, Australia and New Zealand
would be in the midst of detailed negotiations aimed at implementing that
vision.

Some twelve months later, the Minister came to this Association's 1992
conference to outline the agreement which had been reached about the operation
of air services within, between and beyond Australia and New Zealand.

He would not have imagined that five years later, a New Zealand Minister
would be back in front of you having only just signed a document which
establishes, once again, the framework for the operation of air services within
and between Australia and New Zealand.

Within and between but not yet beyond.

The 1996 Australia-New Zealand Single Aviation Market Arrangements
represent the culmination of a long period of gestation - elephants have
nothing on the single aviation market.

I am thankful that we are now able to look ahead to completing the work
programme on air services.

The 1996 Arrangements establish the framework for the operation of air
services within and between Australia and New Zealand only.

>From November the first, Australian and New Zealand airlines will be
able to access the domestic markets of each country as if those markets were one.

In New Zealand, we have already moved to take advantage of the
liberalised environment.

During this year's negotiations with Australia, New Zealand officials
discussed a proposal to implement a simplified regulatory regime for the single
aviation market -

It did not make a distinction between scheduled and charter services and
reduced the bureaucracy involved.

The Civil Aviation Bill was before Parliament at the time so the
relevant provisions were included in our new legislation.

These provisions enable the Minister of Transport to designate countries
with which we have an open aviation market.

Within such markets, scheduled and non scheduled international flights
may be carried on under an open aviation market licence.

This new type of licence is issued by the Ministry, rather than by me.

The administrative requirements for an open aviation market licence are
simplified in comparison to the usual international air service licence.

This will be particularly the case for new entrants into New Zealand.

I expect these simplified arrangements, which will operate on this side
of the Tasman, will assist in developing flexible, responsive trans-Tasman air
services.

However, after finalising the regulatory regime on this side of the
Tasman, Australian officials discovered that the same action was not so easy to
carry out in Australia.

Nevertheless I look forward to seeing Australia follow a similar path in
due course.

>From a wider perspective, the agreement to allow airlines of one
country to establish purely domestic operations within the other is an
important element of these Arrangements.

A further significant element is the agreement of both Governments to
allow international airlines of one country to carry cabotage traffic on the
domestic sector of an international flight between two international airports
in the other country.

While exchanges of this kind have occurred within the European Union,
they are a rarity outside that region.

You will be aware that restrictions on this type of access are being
cited as one of the issues currently hindering progress between the UK and the
US on the conclusion of an "open skies" agreement.

For the first time, we also have in place an understanding regarding the
opportunity for airlines to code-share on other airlines operating within the
market.

Code-sharing has occurred in the past and the Qantas/Air New Zealand
co-operative arrangements were prime examples.

Explicitly providing for this form of market activity, however, is
recognition of the fact that market access decisions are best left to those
airlines actually carrying on services within a market.

Obviously, the benefits of domestic access would be limited if safety
certification requirements restricted the ability of airlines to establish
operations in both countries and to utilise personnel and equipment in the most
efficient manner.

At present, airlines wishing to operate in both countries would be
required to meet the full certification requirements of both safety
authorities.

This means, for example, that an airline providing domestic air services
in New Zealand which wants to commence operations in Australia must meet
Australia's full certification requirements, even though it is already fully
certified to operate domestic services in New Zealand.

To overcome these potential barriers and all the associated costs of
operation, the Arrangements include provision for the aviation safety
authorities of both countries to work together to achieve the mutual recognition
of all aviation related certification.

Once this mutual recognition system is in place, aviation operations and
services will be transferable across the entire single market, subject only to
the certification requirements of either authority.

Certificates issued by one authority would be recognised by the other
authority as having the same validity as certificates it has issued.

However, actually operating within a market is only one way of
participating.

As is evident in the Australian Government's approval of Air New
Zealand's purchase of 50% of Ansett Australia, there is also a recognition that
airlines should be able to take part in these markets by way of investing in
current airline operations.

This acknowledges, also, the increasing development of airline
alliances, including through investment.

One outcome of the conclusion of these Arrangements, and the Air New
Zealand/Ansett Australia deal, was the recent decision by the Kiwi shareholder
in Air New Zealand to approve the airline's application to increase the
proportion of "B" shares.

'B' shares are those able to be purchased by non-New Zealand nationals.

An important element of the international aviation system is the trading
of traffic rights between Governments.

Virtually all bilateral air services agreements include provisions
enabling a Government to refuse to issue operating authorisation to an airline
if it is not satisfied that the airline is "substantially owned and
effectively controlled" by nationals of the bilateral partner designating
the airline.

Such provisions are intended to ensure that bilateral requirements are
not circumvented by "flag of convenience" airlines.

In practice, this has resulted in restrictions on foreign investment
levels in international airlines.

When the Australian Government sold its remaining 75% share in Qantas in
mid-1995, it established a limit of 49% on total foreign investment in the
airline.

Foreign airlines were restricted to 35% in aggregate with holdings by a single
foreign airline limited to 25%.

Air New Zealand, fully privatised more than half a decade earlier, had a
limit of 35% on foreign investment, reflecting the perceived outer limit of
what would be acceptable to New Zealand's bilateral partners at the time.

The Kiwi shareholder's decision to align New Zealand's policy with
Australia's reflects the evolution of thinking among our bilateral partners,
and the need for the airline industry, which is a highly capital-intensive
industry, to have wider access to capital markets.

This search for capital is one of the significant changes in the
international aviation environment since the 1992 MOU was concluded.

In an effort to maximise operating efficiencies and global reach,
airlines have increasingly embarked on cooperative strategies.

British Airways' 25% investment in Qantas, and Air New Zealand's 50%
investment in Ansett Australia are two local examples of this phenomenon.

Air New Zealand's efforts to acquire a stake in Ansett Australia mark
the importance those airlines see in establishing a regional airline grouping
of sufficient market power to effectively compete against the British
Airways/Qantas alliance.

This can only be of benefit to Australasian consumers and our tourism
industries.

And I am sure that the culmination of the Air New Zealand/Ansett
Australia deal does not mark the end of alliance building in this part of the
world.

So where to from here?

In 1991, the New Zealand Minister of Transport defined the single
aviation market in the following terms:

  • it would allow any New
    Zealand and Australian carriers to fly as often as they wished on all
    trans-Tasman routes and on domestic routes in both countries;
  • it would also allow
    unrestricted investment by the airlines of each side in the domestic
    airlines of the other; and
  • of equal and fundamental
    importance, it would also give the airlines of Australia and New Zealand
    the freedom to fly beyond each country to a third country, subject only to
    the relevant rights being obtained by each country from the third country.

The last element of this definition continues to prove difficult.

Australia has so far been content to open up air services within and
between the two countries only.

New Zealand's view has been, and continues to be, that this limitation
is insular.

Focused on the long term, we see the single market as being inextricably
linked with the growth of tourism into both our countries, especially from the
booming economies of Asia.

Subsequently, we would prefer to see a single aviation market that is
outward looking and encouraging of links with third countries.

We favour competition.

This is the best way to foster transport links with our regional
neighbours in Asia and elsewhere.

For this reason, a single aviation market is incomplete without a full
exchange of beyond rights without capacity constraints.

Indeed this was included in the 1961 New Zealand - Australia Air
Services Agreement.

Constraints on the use of beyond rights were imposed much later.

The 1992 MOU established a process towards future exchanges of beyond
rights.

Then, in October 1994, I received the now infamous fax from Mr Brereton,
putting a halt to any further progress.

Subsequently as Mr Sharp and I have noted, negotiations have recommenced
on beyond rights.

The New Zealand side believes there is a strong case for increasing the
beyond rights opportunities.

A full exchange of beyond rights would simply mean the removal by both
countries of all economic barriers that each places on airlines owned in the
other.

It is important to remember that, in such a market, New Zealand airlines
would still be able to utilise only those traffic rights the New Zealand
Government is able to negotiate with the third country concerned.

What the New Zealand Government is interested in is creating an
environment where New Zealand airlines have the same opportunity as Australian
airlines to compete for traffic between New Zealand and third countries.

Qantas' James Strong, at the New Zealand Tourism Industry Association
conference in July, outlined the role Qantas sees for itself in the New Zealand
market, describing a win/win situation in marketing Australia and New Zealand
as one destination.

Qantas intends increasing trans-Tasman capacity to tap into this joint
destination travel by providing better, more convenient travel options for
visitors to New Zealand.

Qantas is also intending to provide better connections for New
Zealanders travelling to and from Asia and Europe.

The New Zealand Government, and the New Zealand tourism industry,
welcomes the contribution of Qantas to New Zealand's inbound tourism market.

As Mr Strong indicated in his presentation to the Tourism Industry
Association conference, in the year ended December 1995, Qantas carried around
30% of all inbound visitors to New Zealand.

This puts the airline in a clear, and very strong, second place to Air
New Zealand in the New Zealand inbound market.

Growth in that airline's individual carriage of inbound visitors to New
Zealand exceeded the growth rate of the entire New Zealand market.

And Qantas' traffic is certainly not all between Australia and New
Zealand.

Qantas' New Zealand Manager, Ross Keenan, in a radio interview on 10
September, said, and I quote, "we have 20,000 seats a week in and out of
New Zealand. By far the majority of our traffic goes beyond Australia, it's
long haul traffic".

And that's the case in both directions.

However, while Qantas is able to exploit the access it has to New
Zealand bound visitors from third countries, New Zealand airlines continue to
be restricted in their opportunity to access this same traffic.

We look forward to a situation where Australian and New Zealand airlines
are able to compete on a more equal footing for traffic visiting New Zealand
and Australia.

As well as continuing work on beyond rights, we also propose to work
with the Australian Government to develop a new air services treaty.

The current treaty, which was concluded in 1961, reflects the
international aviation environment of that time.

We are committed to concluding a new treaty which reflects today's
aviation environment and the close economic relationship between Australia and
New Zealand.

The focus of such a treaty as we envisage it would be on the application
of competition policy, and the safety and security standards applicable to air
services within and between the two countries.

There would also be provisions governing the operation of air services
to third countries.

Turning to the Arrangements in general, there is one issue where I must
comment on the quality of some media coverage and particularly regarding the
comprehensiveness of the Arrangements.

There has been criticism that Mr Sharp and I have not solved
facilitation - the movement of travellers through border processes.

I would like to point out that these Arrangements, as was the case with
the 1992 MOU, focus on aviation matters.

While some commentators would have it otherwise, the 1992 MOU did not
make any specific undertakings regarding facilitation.

Then, as now, as Ministers responsible for Transport matters, Mr Sharp
and myself do not consider it appropriate that we make detailed pronouncements
on matters outside our portfolio responsibilities.

While improved facilitation would be complementary to the aviation
arrangements we have just concluded, facilitation is not, and never was, an
integral part of the single aviation market arrangements.

The Ministers responsible for border processing policies, and their
officials, have an ongoing dialogue on the complex issues associated with the
movement of people between New Zealand and Australia.

I am confident that this dialogue will lead, in time, to resolution of
many of these issues.

The New Zealand - Australia air services relationship has made a
significant move forward with the conclusion of the 1996 Single Aviation Market
Arrangements.

These Arrangements reflect the liberalisation focus of New Zealand's
external aviation policy.

Our efforts towards liberalisation are not, however, restricted to the
bilateral arena.

New Zealand continues to be active and supportive of fora such as APEC,
the OECD and the International Civil Aviation Organisation, to promote the
reduction of Governmental intervention in decisions regarding capacity, tariffs
and routes.

Decisions on these matters are best left to those industry players with
an interest in ensuring that air services are operated in the most efficient
and competitive manner.

While this view is not always shared by all of our bilateral partners,
we are confident that progress will continue to be made.

And indeed it is vital that we should continue to move in this
direction.

If we in Australasia want to reap the benefits of the current and projected
growth in travel in the Asia-Pacific region, we must ensure that the
opportunities for airlines to provide necessary capacity are not impeded.

It is our view that the airlines best placed to attract inbound
passengers to Australia and New Zealand are those with a stake in the promotion
of Australia and New Zealand.

While we have some way to go, the 1996 Single Aviation Market
Arrangements establish a solid foundation for the further development of the
Australasian airline industry.

We have taken a major step forward - a step which will bring benefits to
both Australia and New Zealand.