In September 2012, the European Commission reviewed its progress in liberalising aviation markets since 2005 and called for “a major and rapid transformation”. One way it is seeking to do this is by adding countries on the edges of Europe to its Common Aviation Area, with the eventual aim of achieving unrestricted open skies between them and Europe. This year, such ‘neighbourhood’ deals are poised to be concluded with Israel, Azerbaijan, and Ukraine, while bilateral negotiations are due to resume with key emerging players such as Brazil.

The rethink has been forced on the EU by the rise of the Middle Eastern carriers, leading to the realisation that European carriers need to gain access to emerging markets. “We analysed some of the new challenges that EU carriers are facing internationally – including, for example, in relation to the Gulf carriers,” a European Commission official explained. But the threat from Middle Eastern carriers has also led to “a certain hesitance among EU carriers for very liberal agreements”, he added, and has led to much debate as to how far liberalisation should be pursued.

Attitudes on EU aviation policy also vary between industry associations. ACI Europe, for instance, welcomes liberalisation on the grounds of economic benefits to regions and airports. “Ensuring a fair, level playing field is paramount to protecting the hub positioning of Europe,” it said in a statement. “But we also need to be realistic and strike the right balance between fair competition and market access. In other words, this cannot be an excuse for systematically blocking negotiations and holding back the ripple effect of wider liberalisation benefits.”

But the Association of European Airlines (AEA) general manager communications Geert Sciot is more cautious. “Our position is that we welcome bilateral agreements that expand air markets in so far that there is a clear business case that guarantees that this opening of the market is in the best interest of European carriers as well,” he said. “We are worried about serious level playing field issues. Let’s give you just one example. While EU airlines are obliged to comply with EU competition law on state aids, a large number of non-EU carriers have benefited from massive subsidies over the past 10 years, including airlines that fly to Europe from China, India, Malaysia and Bahrain.”

The EU Council of Transport Ministers, which has the final say on aviation policy, has endorsed the Commission’s plans to liberalise bilateral restrictions with key trading partners such as Turkey, India, Russia, certain Gulf countries, ASEAN and – “at the earliest opportunity” – China. But slow progress in negotiations with Australia and New Zealand – not to mention complications with an agreement signed with Brazil – suggest immediate gains will be through expanding the Common Aviation Area.

Israel is currently top of the ‘neighbourhood’ list, but the Commission also sees deals with Ukraine and Azerbaijan as imminent. “With Ukraine, I think our hope is that we could finalise that this year,” said the Commission official. “It is the same for Azerbaijan. We hope to finalise it by the end of this year.” Tunisia then heads the schedule. “We have a mandate to negotiate with Tunisia and we hope in the coming months to start those negotiations and bring Tunisia into the European regulatory family,” said the Commission official.

ACI Europe director general Olivier Jankovec generally shares the EU’s optimism. “EU-Israel negotiations are in the final stage. There is agreement on all issues and, despite fierce opposition from the Israeli national airline, we do expect signature in June,” he said. He also expects talks with Azerbaijan to complete “within a year”. But with Ukraine, “less progress has been made and we understand that the situation there is rather confused”, he said. “So I would not expect anything from that in the near term.”

But will the CAA’s expansion deliver the desired benefits? Wizz Air, which has recently announced new routes to all three of the CAA’s top candidates – Azerbaijan, Israel and Ukraine – sees clear gains from rolling out EU regulation, said corporate communications manager Daniel de Carvalho. “Liberalisation has been an important driver of LCC growth,” he said.

In Israel, determined opposition to liberalisation from El Al, Arkia and Israir also attests to the genuine impact of an EU common aviation area deal. While Israel’s exceptional security costs and risks might be expected to be a deterrence for low-cost carriers, this hasn’t been the case for easyJet, which now operates there from the UK and Switzerland.

The EU can also point to gains from earlier deals. An agreement with Morocco in 2006 is credited with bringing an economic benefit of €3.5 billion in 2006–2011. In 2007, traffic rose by about 22% to 8 million, more than 50 routes opened and 12 new carriers entered the market. A Western Balkans agreement covering Albania, Bosnia and Herzegovina, Croatia, Montenegro, Serbia and Kosovo is estimated to have brought economic benefits to the region of €2.4 billion.

But for many European carriers, the key external markets could be Qatar and the UAE. But both lie outside the CAA’s neighbourhood, which includes other Arab states such as Egypt, Lebanon, Tunisia and Morocco. In the face of the fierce competitive challenge from Etihad Airways, Emirates Airline and Qatar Airways, can Europe open up the European market to them?

For Jankovec, liberalising connections with Qatar and the UAE is an “evolving issue”, but he thinks there needs to remain a balance. One answer is partnerships, and several Gulf-based airlines are already opening up to collaboration, such as in the tie-up between Qantas and Emirates or Etihad’s equity partnerships in Aer Lingus and airberlin, he added.

“There must be a way to ensure balance and therefore also benefits for European airlines through establishing new aviation agreements with those countries,” he said. “EU-level negotiations would be preferable – that would be the best way to increase leverage in negotiations with those countries.”

For its part, the European Commission supports negotiation with Qatar and the UAE. A recent report it commissioned picked out these nations among a list of key emerging markets where comprehensive air transport agreements could deliver €12 billion of economic gains. For now, the Commission describes the relationship between Gulf States and the EU as a “one-way process”, opening EU markets without any gains in fair competition. But the Commission must continue to make its case to the European Transport Council. While the Council welcomed most of the Commission’s recent requests, it merely “acknowledges” its intention to engage in a dialogue with pivotal Gulf nations.

This story was modified from an original feature that appeared in the latest issue of Routes News.