2013 GERMAN POLITICAL DIARY

F R O M T H E E X P E R T S I N A P C O S G E R M A N T E A M

German Elections 2013 Aviation Policy

Commentary by Christoph Mielke, associate director, APCO Worldwide in Germany (August 2013)

Uneasy Days for the German Aviation Sector The success of low-cost carriers and airlines from the Middle East, Turkey and Asia is forcing national carriers all over Europe to rethink their business models. Low-cost carriers, such as easyJet and Ryanair, have put the balance sheets of long-established German airlines under pressure for quite some time. Now their profitable business from long-haul flights to the Americas and Asia is under attack from highly competitive airlines such as Emirates, Qatar Airways and Turkish Airlines1. This summer, Lufthansa started transferring its European non-hub routes to the companys former low-cost carrier, Germanwings, as part of their restructuring and consolidation program called Synergies Costs Organization Revenue and Execution (SCORE). The program aims to bring their domestic and European flights back to profitability. Last year, Air Berlin, Germanys second-largest carrier, established Etihad Airways as their new strategic investor and cooperation partner in order to become more competitive. There is a heated domestic debate about Berlin Schnefeld, the new airport in the German capital. It is a symptom of the many problems the industry is facing as a whole. The opening of Schnefeld was originally planned in 2011, and the airport is still not operational. What went wrong? Everyone wants to fly, but no one really wants an airport close to their backyard. Debates surrounding aircraft noise, carbon emissions and a lack of support from politicians and society have laid the foundation for a chaotic situation. Unlike many other industry sectors, the aviation sector did not benefit from a great deal of government support during or after the 2008 financial crisis. While the industry primarily blames the regulatory environment and statutory requirements for the difficult situation it faces today, it is also partly due to the fact that the aviation sector has always been traditionally disunited; thus, its lobbying in Germany is relatively weak. The new airport in Berlin is evidence of politicians favoring short-term populism instead of strategic decision making when it comes to the aviation sector. German industry, and the BDL (Federation of German Aviation Industry) in particular, have warned German politicians to not follow a unilateral national aviation strategy. The issues at the heart of the debate are: the German air passenger tax (also known as the aviation tax or ticket tax), aircraft noise, emission reduction/environmental standards, strikes over wages and working hours, bans on night flights, the role of regional airports, and a lack of progress regarding EU-level efforts to create the Single European Sky. Essentially, regulatory instruments that can potentially hinder growth for any industry are evident in the politics surrounding German aviation. Positions of the Current Government and Major Parties The following overview analyses the position of the four main political parties in Germany with regard to the aviation sector.

APCO Worldwide is supporting the Turkish Airlines PR department in Germany.

1

2013 GERMAN POLITICAL DIARY

F R O M T H E E X P E R T S I N A P C O S G E R M A N T E A M

CDU/CSU (Merkels party) The German government published the latest version of its Aviation Strategy in early 2013. Drafted by the Federal Ministry of Economics, this document highlights a strong commitment to the sector and a willingness to relieve the industry from further regulatory burdens. Given the export-oriented economy of the country, the German government acknowledges the importance of the aviation sector, of Germany as a transport hub, and the necessity of a sound national carrier. The party program reiterates this approach without actually promising anything in particular: We will provide a reliable framework for the German aviation industry so that they can compete with tough international competition. This encompasses the promotion of fair international competition. Therefore, we will examine whether the elimination of air passenger ticket tax is necessary and justifiable in the next legislature. FDP (Merkels current junior partner) In line with its current partner, the CDU/CSU, the liberal party emphasizes the great importance of the aviation sector for Germany and supports a coordinated, demand-oriented development of the airport infrastructure. The focus of this party is also on the reduction of noise and emissions near airports: We will also advance the development of active and passive noise protection in order to reduce noise pollution caused by air transport, especially in the airport area. Thus, we will be able to achieve a fair balance of interests between the aviation industry and residents. In the development of emissions trading for aviation, we want to achieve competitive neutrality and advertise an expansion together with our partners in Europe and elsewhere. One of the main differences, compared to all other parties, is that the FDP makes a clear commitment to get rid of the aviation tax: To improve the competitiveness of Germany, we demand the abolition of the aviation tax. Social Democratic Party (main opposition party) The main opposition party calls for a fresh start for Germanys transport policy. This would help ensure economic competitiveness, sustain and create jobs, and contribute to the prosperity and quality of life. One of the Social Democrats key objectives is to improve noise protection at airports. However, how and when they intend to achieve this goal remains unclear. The party also calls for a coordinated compact between federal and state governments with regard to air traffic. Except for these two concrete points, the Social Democrats election program emphasizes the importance of keeping mobility affordable by improving the energy efficiency of transport and reducing its carbon emissions.

2013 GERMAN POLITICAL DIARY

F R O M T H E E X P E R T S I N A P C O S G E R M A N T E A M

Green Party (potential junior partner in a Social Democrat led coalition) The Green Party is the party that is most precise about its objectives for the aviation sector. At the heart of the partys program are environmental concerns: Air travel is associated with strong air and noise pollution. We want to promote the protection from traffic noise and advocate for a ban on night flights at airports, improve noise protection on roads and railways, and invest in quieter vehicle technology. We want to abolish the noise privilege for trains, roads and air traffic. People who are affected by noise should have their rights strengthened and have a broader claim for protection against noise. We want to double the investment in the transport budget for active elimination of noise sources and passive noise protection to 400 million per year. The goal is a 10-year comprehensive noise reduction program. In this context, operating limits play a major role for the Green Party: To combat aircraft noise, we want an amendment of the Civil Aviation Act with stricter noise limits and operating limitations for night flights (10 p.m.-6 a.m.). In balancing interests, the noise protection of people must be given a higher priority than the interests of the economy. At the EU level, we will argue for the respective frameworks. The second key point is their strong commitment to the aviation tax: The growth of air traffic is greatly supported by municipal aid for regional airports and the subsidy from tax breaks on energy taxation and VAT on international flights. We want to end these subsidies and formulate the aviation tax and emissions trading more ecologically. We want to shift short distance traffic to rail. The third point of interest is the Green Partys call for a more citizen-friendly decision making approach in the aviation sector: We want to make the air route planning more transparent and citizen-friendly. A modern infrastructure is only successful when it is socially accepted. Key Players in the Debate

Dr. Philipp Rsler, Federal Economics Minister, is a supporter of the aviation industry and it seems he is open to the abolition of the ticket tax. His party, the business-friendly FDP, agreed to adopt a policy position to eliminate the tax at their last party convention. Dr. Peter Ramsauer, Federal Transport Minister, is actively involved in a dialogue with the industry. Hartmut Koschyk, State Secretary in the Federal Finance Ministry, recently reiterated that he will not abolish the ticket tax, as he is not keen on losing a source of government revenue. Members of parliament (Bundestag) with aviation focus, this range of stakeholders covers a broad spectrum of viewpoints on aviation. They have leverage to influence government policy and define party positions on the issues. German states, the premiers and state transport ministers play a key role in the Bundesrat, Germanys co-legislative body. This holds particularly true for the larger states such as Hesse, North-Rhine Westphalia, Bavaria and Baden-Wrttemberg. They have to directly deal with protests at airports in their

2013 GERMAN POLITICAL DIARY

F R O M T H E E X P E R T S I N A P C O S G E R M A N T E A M

state and are often very aware of the economic importance of airports as they tend to be shareholders in regional airports. Klaus-Peter Siegloch, President of the Federation of German Aviation Industry (BDL). Founded only in 2011, this association is the key lobby group for the German aviation industry. Trade unions (e.g. Cockpit/ UFO), these are very powerful interest groups and remain one of the biggest challenges the aviation industry faces in order to remain competitive. They often use strikes as an effective way of protesting and raising wages. Outlook and Opportunities All political parties in Germany are aware that an independent, unilateral national effort will not help the German aviation industry. Therefore, politicians are claiming that they are seeking to find European and global solutions. However, such solutions remain to be seen. Germanys highly regulated approach affecting not only labor rules, but also taxation issues and very strict operating limitations (such as a ban on night flights) - is certainly a challenge to the competitiveness of the German-based aviation sector. Lufthansa and its subsidiaries dominate the German market, benefiting from a high public reputation for their quality, services and state-of-the-art airplanes. They also enjoy the natural advantage of direct routes to key international destinations while simultaneously keeping international carriers out of the domestic flight market. However, others have good or even better strategies to compete on long-haul flights, especially when it comes to pricing and service. The industry may well be successful in their fight to avoid additional regulation. German airports remain important hubs in Western Europe; however, the number of small regional airports has become inflationary and tends to increase the revenue cannibalism in a limited market. In terms of passenger numbers, Frankfurt is Europes third-busiest airport, and Munich also ranks in the top 10. Given Germanys leading position in Europes economy, the countrys air traffic will clearly remain significant, especially with regard to the connections to emerging markets. Due to the privatization of the aviation sector, the business environment is extremely competitive. For the near future, new competitors will find the German market difficult, and it seems like there will be a consolidation and formation of new alliances of the existing players rather than room for new ones to enter. ***
For more information on the German election campaigns or APCOs services in Germany please contact: Christoph Mielke associate director APCO Worldwide Franzsische Strae 24 10117Berlin - Germany Tel: +49 (0)30 59.000.20.10
Email: cmielke@apcoworldwide.com

2013 APCO Worldwide. All rights reserved. Design: StudioAPCO