Open skies could endanger year-round service

It is very easy to dismiss his letter as being just a letter from a businessman with vested interests, trying to protect those interests. While that may be tempting, it would be a mistake.

I fully support the points raised by Mr Coates and share his concerns that the change might prove to be very detrimental to the Bailiwick.

I support his view, well so what? Why should the comments and concerns of an ex-politician be of any relevance?

The reason is that with regard to air route licences, I am in an almost unique position. While a member of the Commerce & Employment Department, the predecessor of the Committee for Economic Development, I was one of three deputies who conducted an in-depth review of all of the air route licences in issue and it is that experience which I call upon when making these comments.

At present, all scheduled flights to and from the UK need to be licensed and those licences may include some service level obligations, such as providing an all-year-round service.

I recall a lot of evidence that some of the UK routes which are operated on an all-year-round basis have very seasonal profitability. The operator makes profits during the summer which offset the losses incurred during the winter.

As Mr Coates noted, such routes are ripe for competitor airlines to ‘cherry-pick’, provide competition only during the summer months by offering lower prices, able to offer lower summer prices because they would not have the losses of the winter season to cover.

The effect of this is potentially reducing the profits of the existing provider and therefore reducing the ability of the existing provider to operate during the winter months.

The result for the consumer is likely to be lower prices in the summer (for a while at least) and a reduction in the winter timetable.

This is just business theory, it could not really happen – or could it?

Deputy Peter Roffey mentioned in his column the situation on the Manchester route which was corrected as a result of the review I referred to, and the result of the liberalisation of the inter-island routes, views I agree with. Unusually, this is one of the rare occasions I totally agree with Deputy Roffey.

Very local examples of the negative effect of competition, both clear warnings of the effect an ‘open skies’ regime could have, yet surprisingly neither were mentioned in the report.

This leads us to a key question to ponder that is not raised in Economic Development’s report, and therefore not answered, but which is central to the question of having a licensing regime or not. What is more important: year-round services, or the lowest airfares in periods of high demand, normally the summer?

If on the one hand you want the lowest possible airfares during peak times, the summer, and don’t care about having many, if any, flights during the winter, then an open skies regime is fine.

If, on the other hand, you feel that it is important to have services which operate all year around, then a licensing regime which has service level obligations is needed.

For me, year-round services are strategically important and therefore I see licences incorporating minimum service levels as being essential.

It is a real shame that the report fails to even discuss this question, let alone explain which option the members of Economic Development prefer.

What I find concerning is that the risk of an open skies policy resulting in some routes being discontinued, an outcome actually identified by Frontier Economics, is discounted by the committee. Furthermore, the committee has recommended the removal of licences for all but the Gatwick and Alderney routes, going further than the recommendations of Frontier Economics, which are for the automatic issuing of licenses on all but the Alderney and Gatwick routes.

Interestingly, the Frontier Economics report says that ‘ ...low-cost carriers said they would be deterred by anything but the lightest-touch licensing regime’. Clearly, attracting low-cost carriers and having a licensing regime are not mutually incompatible.

If the aim of the proposed change is to encourage additional operators to provide services to Guernsey, then any licensing needs to be a very light touch indeed; both quick and offering a new operator some comfort to invest in a new route.

The current licensing process is far too cumbersome, taking five weeks to grant an uncontested licence and up to six months if the application is contested.

Surely therefore, rather than an ‘open skies’ approach with all of its risks, a lower-risk option would be to streamline the licensing process to become the ‘lightest possible’ touch which, while not deterring new airlines, protects the current services.

Perhaps a regime which would reduce the risk of cherry-picking while being light touch and speedy could be one where applications for routes not served by existing carriers are automatically approved, while applications for routes which have an existing operator must offer a level of service at least as good as the incumbent.