It has been three decades since the EU dismantled national barriers to air travel
By VICTORIA MOORES
It is a little-known fact that a 1980s court case drastically reshaped European aviation. This legal challenge became the catalyst that sparked European air transport liberalization, ultimately leading to the creation of easyJet and Ryanair. But with 30 years’ hindsight, did European liberalization actually deliver on its promises, and were there any unexpected consequences?
“It was a hard slog,” recalls former UK CAA head of air services policy Barry Humphreys, who was involved in the liberalization discussions. “We were making no real progress at all, until the Nouvelles Frontières court case.”
In his new book, “The Regulation of Air Transport: From Protection to Liberalisation, and Back Again,” Humphreys describes how French travel agent Nouvelles Frontières faced legal action in 1986 for selling KLM fares that had not been approved by the French authorities. In those days, airfares were agreed between governments, along with who could operate and how often. In practice, this meant intra-European routes were only served by the national carriers of each country, with price-fixing and minimal competition.
However, the Nouvelles Frontières case triggered a European Court of Justice (ECJ) ruling that air transport was covered by European competition laws. Humphreys described this as a historic “bombshell” for Europe’s flag carriers.
“I remember very distinctly. I was in a meeting in Paris,” Humphreys said. “The court case came out in the afternoon. The next morning, the change in the position of the French delegation was absolutely incredible. I mean, before they were just sitting there very smugly, saying ‘No, it's not going to happen. No, no, no.’ And then suddenly it was ‘Let's start to negotiate.’”
Shortly afterward, the commission launched legal proceedings against 10 airlines for breaking EU competition laws.
“The ECJ effectively said that a lot of what the airlines were doing was illegal. From that moment on, it became a question of when change would happen, not if it would happen,” Humphreys said.
European liberalization was ultimately achieved through three “packages” of regulation, which gradually opened the market to competition. The Third Package, which brought the most significant change, went into effect on Dec. 31, 1992. Three decades on, LCCs like easyJet and Ryanair now dominate intra-European flying. This would not have been possible without liberalization.
One of Europe’s few independent airlines at the time, UK carrier British Midland, was a vocal advocate for competition. British Midland published a report in 1997 that analyzed the immediate aftermath of liberalization, exploring the positive impacts and the “unfinished business” of the process, such as access to congested airports, which is an ongoing competitive barrier. Back then, 27 of Europe’s top 40 routes started or ended at constrained airports. Today, that figure has risen to 39 out of 40.
While it is unclear exactly which European countries are included in the 1997 British Midland data, it paints a clear picture of how much the market has changed over the past 30 years. For example, when the Third Package took effect in 1993, there were 488 intra-European routes. This compares with over 5,500 in today’s enlarged market.
Back then, just 2% of intra-European routes were served by three or more airlines. A very rough analysis using OAG data shows this has grown to around 8%. While six percentage points may not sound like much of an increase across three decades, in absolute terms the shift is huge. Using 2019 data (to remove the “COVID effect”), that 8% proportion translates into 482 routes served by three or more airlines – nearly the same as the entire 488-route intra-European network back in 1993.
Interestingly, over the past 30 years, the percentage of intra-European duopolies has fallen from 37% to around 20%. Meanwhile, monopoly routes have increased from 61% to 71%. Proportionally, it appears that the market has been squeezed in two opposite directions, creating more monopolies and oligopolies. While this sounds counterintuitive, it makes sense. More airlines are competing – 190 carriers in 2023, compared with 132 in 1993 – and a vast array of previously unserved point-to-point routes were sparked by liberalization.
If the objective of liberalization was to increase European competition and connectivity, that mission was clearly accomplished. However, one unexpected outcome was the huge impact of LCCs. “At the time, there was no real discussion about the likely growth of low-cost carriers, despite what had happened in the States,” Humphreys said.
These new airlines went on to commoditize short-haul air travel, pushing out the network airlines. “A free market for air services has shown that, particularly on short haul, the lowest fare wins,” said Cranfield University professor Keith Mason.
Around this time, the former flag carriers made two fundamental missteps, according to aviation author and former Olympic Airways CEO Rigas Doganis.
“They failed to see the future opportunities with low-cost carriers, even though they could see the success of Ryanair and easyJet quite quickly after 1995,” he said. Then they overlooked the opportunity of flying between two non-home countries, which the LCCs ultimately seized to create matrix networks across Europe. “Therefore, they’ve lost the short-haul market,” Doganis said.
And while airlines have “concentrated” into airline groups, they have not truly consolidated as seen in the US.
“Consolidation is when airlines merge, or some airlines disappear. We've seen some concentration of ownership. We haven't seen consolidation of operations,” Doganis explained. Lufthansa may have acquired Austrian, Brussels Airlines and SWISS, but they continued as separate airlines.
European liberalization also caused a global ripple effect. It gave the EU centralized negotiating powers, which led to the pivotal transatlantic EU-US Open Skies agreement, as well as EU-wide aviation deals with third countries. However, this centralized negotiating power has also indirectly led to re-regulation, such as state-aid rules, passenger rights legislation (EU261) and the creation of EU safety body EASA.
“The commission always wants to press for more power and more centralization,” Humphreys said. “It was very focused on the creation of the internal market; it would have been counterproductive for them to say: ‘Well, this is just step one. Wait and see what we've got in store for tomorrow.’”
Looking forward 30 years to 2050, sustainability challenges are threatening to raise airfares and impose fresh limits on aviation growth. The EU’s centralized regulatory powers will undoubtedly play a key role in managing the transition to sustainable flying, further shaping the European landscape.
In a final cruel twist of fate, this landscape no longer includes British Midland, which unknowingly predicted its own demise in the 1997 report.
“Within 20 years, many of the new startup airlines will be trading under different identities, will have gone bankrupt, or been acquired by one or other of the alliance groupings,” British Midland said.
This plucky independent was ultimately absorbed into British Airways, becoming a victim of the free competition that it so fiercely campaigned for.
