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Liberalization in Aviation PolicyPresented to the Confederation of Mozambican Business Associations (CTA)
Trade and Investment Project
Andy RicoverDecember 15,2005
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Formal policyInstitutional framework
Effective policy
Current effective policy
Function of two factors
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Current effective policy (continued)
• Function of two factors―There is written policy―But the institutional arrangement can
condition the real applicable policy
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Current formal policy—Legal 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
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Current formal policy—Regular-Int’l 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
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Current formal policy—Regular-domestic operations
• Access to market―Concession
• Regime―By route―By tender―5 year periods (renewable)―Subject to public interest: exclusive rights
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Current formal policy—Nonregular operations
• Access to market―By obtaining a licence compatible with
service
• Regime―By tender―In addition to regular services
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IACM IACM ADM ADM LAM et al IACM
Ministry of Transport & Communic.
Accidents investigation
RegulationPolicymaking Operation
ATC Airports Airlines
Current institutional framework—Bodies and functions
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Institutional framework—Competences 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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Civil Aviation Board
autonomous bodies(arm’s length from the government)
IACM ADM ADM AirlinesAccidents
Investigation Board
ParliamentMinistry of
Transport & Communic.
Accidents investigation
RegulationPolicymaking Operation
ATC Airports Airlines
Proposed institutional framework—Bodies and functions
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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)
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Seven operators
LAM
Air Corridor
MEX
STA
SAA
TAP
Pelikan Air
Intl Intl RegReg DomDom
√ √ √
√
√
√
√
√
√
Current situation—Operators
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Current situation—Airport 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 situation—Airport 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 background—Freedoms of the air
• 1st—The right to fly over another country without landing
• 2nd—The right to make a landing for technical reasons in another country without picking up/setting down revenue traffic
• 3rd—The right to carry revenue traffic from your own country A to the country B of your treaty partner
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Policy background—Freedoms of the air (continued)
• 4th—The right to carry traffic from country B back to your own country A
• 5th—The right of an airline from country A to carry revenue traffic between country B and other countries, such as C or D.
• 6th—The 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 situation—Int’l 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 situation—France
• 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 situation—Portugal
• 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 situation—South 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 situation—Tour 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 situation—Poor int’l connectivity
JNB
VNX
MPM
LIS
DAR
POL
BEW
LLW / BLZ
HRE
NBO
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JNB
VNX
MPM
LHR
LIS
HRELAD
NBO
DAR
POL
BEW
LLW / BLZ
Liberalized situation—Improved int’l connectivity
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Liberalized situation—Int’l 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 situation—Int’l 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 situation—Regional carriers
• LAM: JNB• MEX: DAR• SAA: JNB• KIA: HRE NBO• Pelikan: VNX• Air Corridor: BLW?• Poor offer• Little competition
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Liberalized situation—Regional 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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JNB
VNX
MPM
LHR
LIS
HRELAD
NBO
DAR
POL
BEW
LLW / BLZ
Liberalized situation—Improved connectivity
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Liberalized situation—Improved int’l 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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Cents of US$ / mile (excursion return fares), by city pair distance
Air fares from Johannesburg
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Cents of US$ / mile (excursion return fares), by city pair distance
Air fares from Maputo
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Excursion and LCC return fares, cents of US$ / mile
Domestic fares Air Corridorfrom MPM Y class RT excursion RT miles $/mls (Y) $/mls (exc) AirlinesBeira 322 252 528 0.61 0.48Quelimane 410 321 830 0.49 0.39Nampula 504 412 800 0.63 0.52Pemba 555 438 975 0.57 0.45from Beira Y class RT excursion RT miles $/mls (Y) $/mls (exc) AirlinesQuelimane 220 172 170 1.29 1.01Nampula 322 252 410 0.79 0.61Pemba 403 318 580 0.69 0.55Maputo 322 252 528 0.61 0.48
LCC fares in RSAfrom JNB RT miles $/mls AirlinesEast London 127 597 0.21 KululaEast London 125 597 0.21 1 TimeCape Town 325 874 0.37 KululaDurban 98 352 0.28 KululaPorth Elizabeth 153 658 0.23 Kulula
Lowest available domestic fares in two markets
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Excursion and LCC return fares, cents of US$ / mile
Lowest available domestic fares in two markets (continued)
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Traffic drivers—Domestic market
• Foreign traffic―Reliability―Offer―Tourism infrastructure―price
• Local traffic―Price―Price―Price
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Traffic drivers—Int’l market
• Foreign traffic―Offer―Development of the domestic market―Price
• Local traffic―Price as a fx(offer)
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Domestic market is not self sustained: local population can hardly
support the system
Domestic market depends on the
international inflow
International inflow is restricted to protect
LAM
LAM fails to exploit the opportunity & no other carriers can try
International market remains undeveloped
Domestic market does not get international
inflow
A vicious cycle
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Trigger: liberalization policy develops the international market
Increases inflow of passengers into
the domestic network
Efficiency and low prices drives
tourism & investment
Increase of foreign traffic into domestic market
Gained support on the domestic market
Increases international traffic
The virtuous cycle
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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