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domestic passengers in 2014 and the single-runway airport ranked fourth in the country in terms of aircraft movements.

Morocco

Morocco reported 17.3 million air passengers in 2014, made up of 1.7 million domestic passengers and 15.6 million international passengers (METL, 2014a). Of those passengers, about 12.5 million travelled to and from Europe, 1 million to and from the Middle East, about 1 million to and from Africa and about 0.7 million to and from other Maghreb countries (METL, 2014b). Morocco enjoyed direct flights to 113 foreign airports located in 51 countries, compared to 43 airports in 29 countries a decade earlier. Moroccan airports also handled 54 000 tonnes of air freight, 20% below the 67 000 tonnes record established in 2007.

Morocco’s largest air carrier is Royal Air Maroc (RAM) which carried 7.1 million passengers in 2014. Its ownership includes the Moroccan State (53.9%), the Hassan II State Fund (44.1%) and Air France (1.25%). It has a fleet of 54 aircraft including seven wide-body aircraft. Morocco’s second largest carrier, Air Arabia Maroc, is privately-owned and significantly smaller, operating five Airbus A-320s and carrying over 800 000 passengers. European LCCs play an important role in the Moroccan air transport market, particularly in both the leisure and visiting friends and relatives segment of the market. The five most important on that market, Ryanair, EasyJet, JetairFly, Transavia and Vueling combine to carry about 5.3 million passengers between Europe and Morocco.

Morocco’s airport network is made up of 19 international airports with a combined capacity of 24 million passengers per year. Ground handling services have been fully liberalised since 2005, now with three companies, SwissPort, Globalia and RAM Handling competing in this lucrative market. Casablanca’s Mohammed V International Airport is the country’s main international gateway and RAM’s hub, able to connect Europe and the Americas to 35 destinations in Africa and the Middle East. It handled 8 million passengers in 2014 or 46% of all Moroccan traffic. Marrakech (3.8 million passengers) and Agadir (1.2 million passengers) are the nation’s second and third largest airports.

Morocco has the most flights to Europe out of all African countries and third most amongst non-European countries, after the United States and the UAE. This reflects both the important presence of Moroccan nationals living in Europe and the very developed tourism and business markets between Morocco and Europe. Morocco defines a Moroccan carrier as one belonging in majority to Moroccan nationals or the Moroccan state, as per decree 2.61.161 of 10 July 10 1962. Control is determined by the number of votes held by Moroccan nationals on a board, with a majority being required for the carrier to be deemed Moroccan controlled, except in cases where Morocco has signed an agreement with another country to allow less stringent requirements.

Since 1962, in accordance with a decree related to Moroccan civil aviation, domestic air transport can only be operated by a Moroccan owned and controlled carrier, holding a valid Moroccan airworthiness certificate (Certificat technique d’exploitation). Since June 2000, those Moroccan carriers are free to set routes, capacity, frequency and tariffs according to market conditions. Non-Moroccan carriers are not permitted to operate in the domestic market.

In the early 2000s, Morocco launched an ambitious tourism policy, “Vision 2010” which became “Vision 2020”, aiming to grow tourist arrivals from 4.3 million in 2000 to 20 million by 2020. With the EU being home to about 80% of its visitors, Morocco concluded that achieving such ambitious goals would require far greater connectivity with the European Union than what was already in place (Dobruszkes et al.,

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2013). The EU’s important share of tourism to Morocco is also reflected in the fact that in 2013, about

78.5% of Morocco’s international airline capacity was from and to the EU140.

In December 2006, Morocco signed a very liberal ASA with the EU that provided unlimited third and fourth freedom traffic rights and in the second phase limited fifth freedom opportunities to 16 countries mainly bordering the Mediterranean for EU carriers and to other EU countries for Moroccan carriers, excluding in both cases cabotage. To date, no EU or Moroccan carrier has taken advantage of these fifth freedom rights, reflecting the economic challenges of operating fifth freedom flights in short-haul markets rather than any regulatory or policy constraints.

The EU-Morocco ASA recognises that subsidies distort competition and allow subsidies from one of the contracting parties in the pursuit of a “legitimate objective” and that are designed to minimise the impact of the adverse effect on a carrier from the other contracting party. This may reflect Morocco’s policy of fare incentives in which it invested MAD 1.2 billion (about EUR 1.1 million) to lower fares and incentivise traffic.

The immediate impact of this ASA was creating new connectivity between secondary European airports and Morocco. Thus, the number of routes grew from 57 in January 2005 to 118 by January 2012, with the establishment of 70 new routes and the discontinuation of nine existing routes. The number of EU airports with direct air services to Morocco grew from 65 in 2005 to 77 in 2010 (European Parliament, 2013). All types of carriers grew from 22 in 2005 to 42 in 2015. LCCs, which did not operate between the EU and Morocco, had a 45% market share on capacity by January 2012. Some of this growth came at the expense of existing charter carriers, a number of which have folded or were consolidated. However, the net result is that tourist arrivals nearly doubled between 2000 and 2010 to reach over 9 million. Traffic between Morocco and the EU grew by two-thirds between 2006 and 2010, going from 6.6 million to 11 million. It also affected tourism patterns as the lower cost air fares offered by LCCs encouraged Europeans to do weekend visits to Morocco, shifting a share of the tourism product from a typical week in a resort to a weekend escape.

The EU-Morocco liberalised ASA is part of a broader aviation liberalisation strategy that includes an open skies agreement with the United States (2001) and an ASA with unlimited third and fourth freedoms with 75 countries.

The case of Morocco clearly shows how aviation liberalisation can be a catalyst for a more ambitious tourism policy. The combination of market-driven routes and frequencies with the arrival of LCCs has created new tourism opportunities for the country. However, this has come at the expense of a declining market share for the national carrier, Royal Air Maroc, which saw its share of the Morocco-EU decline from 57% in 2005 to 35% in 2012, despite a 48% increase in capacity. Meanwhile, the second largest carrier on the Morocco-EU market, Air France, decreased capacity by 3% and saw its market share decline from 16% to 6%. Thus from a public policy perspective, the liberalised ASA with the EU did stimulate the tourism market as the Moroccan authorities had wished, but it also transformed the market dynamics of air carriers and shifted the tourism offering to reflect the tastes of new passengers travelling increasingly on LCCs.

Policy priorities: Morocco

Morocco is currently looking at developing its domestic market and has launched a study to that effect to determine a short-, mediumand long-term plan to improve domestic connectivity in terms of routes, schedules and fares and better serve remote regions. This study is expected to be completed in the end of 2015.

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Internationally, Morocco is focused both on its long-haul market and the EU, where 80% of its passengers fly to and from. They are also trying to position the country as a gateway hub for Africa. Morocco has a 20-year policy vision, AJWAE 2035, which discussed how to ensure airport infrastructure, labour, investments and the Moroccan airspace will be ready to meet the expected demand in 20 years while positioning the country as an aviation leader, both globally and within Africa.

The Netherlands

The Netherlands currently has five airports with scheduled flights and carriers with international services (TUIfly141 Corendon, KLM, KLM Cityhopper and Transavia). None of the carriers provide domestic scheduled services due to the limited size of the country and the extensive railway network. However, Transavia does operates a handful of unscheduled domestic as consecutive calls at two Dutch airports before or after an international flight, but these are not destined to serve the Dutch domestic market. A small Dutch political party, GroenLinks, argued that flying is too polluting and proposed a ban on Dutch domestic flights as they would be of limited value to passengers, due to the presence of alternative and efficient surface modes of transport. The Dutch government determined that such a ban would be illegal, violating the rights of European airlines to offer domestic flights within the European internal market.

In 2013, there were 36 million international O&D passengers. About 50% of the international O&D traffic originating in the Netherlands is carried by a Dutch carrier, mainly KLM, which only operates from Amsterdam Schiphol, the fourth largest airport of the European Union.

KLM, Royal Dutch Airlines, was founded in 1919 and is the oldest carrier still operating under the same brand name. Although it had started off as a private company, the Dutch government obtained the majority ownership during several periods in KLM’s history. The oil crisis of 1973 resulted in the purchase of KLM shares by the Dutch government to provide it with a 78% stake in the company although management remained under control of the private stakeholders. In 1986 this stake was reduced to below 50% and, anticipating the liberalisation of the European internal market, preparations were made to fully privatise the company again. In 1987 and 1991 KLM acquired 80% of the Dutch carriers Netherlines and Transavia and acquired the remaining 20% in 2003. Netherlines and NLM Cityhopper were merged into KLM Cityhopper in 1991. It also bought stakes in foreign airlines, including a 20% stake in the US carrier Northwest in 1993. In addition, several options for mergers and take-overs were negotiated with different foreign airlines. This included talks with British Airways (in 1991) as well as with Swissair, Austrian Airlines and SAS (in 1993), but no merger agreement was reached.

In 1994, KLM intensified its successful collaboration with Northwest but it was still said to be in need of a European partner to be able to survive in the more competitive European internal market that was being formed. KLM purchased a 26% stake in Kenya Airways in 1996 but failed to complete a successful merger with Alitalia in 2000.

In 2004, Air France merged with KLM, forming the Air France-KLM group in which the stake of the French government was reduced to 44%. Subsequently, the French government announced that it would additionally sell 18.4% of its equity, reducing its shareholding in the Air France-KLM group to just under 20%. About 19% of the shares were allocated to former KLM stakeholders. At present, the Dutch government owns 5.9% of KLM’s outstanding shares but not shares in the Air France-KLM group.

As an attempt to limit the risk that the merger would negatively affect the Dutch economy, it imposed a condition in the merger agreement that assured that KLM’s hub in Amsterdam would not be dismantled in the eight years following the merger. That agreement has been extended indefinitely; it ensures the

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Air France-KLM group will continue to operate a dual hub strategy articulated around Schiphol and Paris-de Gaulle.

The international air transport policy of the Netherlands has been directed towards the development and continuation of Amsterdam as a major aviation hub. The Dutch government has emphasised the importance of Amsterdam Schiphol Airport and its network carrier KLM for the economy of the Netherlands and has stated that its aviation policy will continue to be directed to maintaining and possibly expanding its position in the international aviation market. It has announced that once Schiphol airport faces capacity constraints, it will devote the scarce capacity to carriers that contribute to

Schiphol’s hub function, while trying to attract LCCs that don’t contribute to Schiphol’s hub function and charter airlines into moving to Lelystad airport, which will be expanded for this purpose. For the moment, LCCs have been given access to the slot-constrained airport and in 2014 EasyJet even opened a base at Schiphol. In 2018 Lelystad Airport will open as the sixth Dutch airport providing international scheduled services as a reliever for noise and capacity constrained Amsterdam Airport Schiphol.

The other four Dutch airports are mainly served by LCCs, mainly Ryanair and Transavia. The latter is the second largest Dutch airline and was taken over by Air France-KLM in 1991. It now serves as its low-cost subsidiary mainly targeting leisure passengers. Due to the strong presence of Air France-KLM at Schiphol, which accounts for 53% of movements at Schiphol, the penetration of LCCs into the Dutch market is relatively small by European standards. Eindhoven Airport (4 million passengers annually) has mainly grown because of Ryanair’s expansion. It is still mainly served by charter and ultra-low-cost carriers such as Ryanair and Wizz. Rotterdam the Hague (1.7 million passengers) is also a spoke in the network of fullservice carriers, such as British Airways (service to London Heathrow), Lufthansa (service to Munich) and Turkish Airlines (direct connection to Istanbul Atatürk), although the majority of its flights are provided by Transavia.

The United Kingdom is by far the largest international market (5 to 10 million annual passengers) for the

Netherlands on an enplaned/deplaned basis. This is largely due to KLM’s strategy of serving a broad range of destinations within the United Kingdom to feed its hub in Amsterdam. As British Airways only serves a limited number of UK destinations, many UK passengers departing from secondary cities use Schiphol to connect to intercontinental flights, rather than London Heathrow. Spain and Turkey (2-5 million passengers annually) are the second and third largest markets for the Netherlands. These are predominantly leisure markets that are mainly served by LCCs and charter airlines. Next are Italy, the United States, Germany, France and Switzerland (1-2 million passengers annually), while Greece and Portugal complete the top 10 of largest international market (each having between 0.5-1 million passengers annually). All of these countries belong to the European internal market except for Turkey, which has an ASA with the Netherlands that allows for unlimited third and fourth freedom traffic.

Policy priorities: The Netherlands

An extensive aviation network is deemed necessary for the broader Dutch economy and for maintaining an attractive climate for foreign investment. The Dutch government’s policy is therefore directed towards maintaining and possibly strengthening the network of destinations that are being served from Amsterdam Schiphol Airport. Opening up new aviation markets is a means to accomplish that goal, but priority is given to (groups of) countries that have an aviation policy that closely resembles that of the Netherlands.

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New Zealand

More than 8.4 million passengers travel on domestic services and 3.7 million arrive in New Zealand on international air carriers each year. New Zealand’s national carrier is Air New Zealand, based at Auckland Airport.

Air New Zealand was nationalised in 1965. It was partially privatised in 1989 but returned to public ownership in 2001, in the wake of the collapse of the merger with Ansett, the Australian carrier which ceased operations that same year. It currently operates a domestic and regional network within New Zealand and the Pacific and international services to Australia, Asia, North America and Europe. Air New Zealand has been a member of the Star Alliance since 1999.

Australia is by far its largest international market (2-5 million annual passengers annually), followed by the United States, China and the United Kingdom (0.5-1 million passengers annually). Fiji (250 000-500 000 passengers annually), Japan, Germany, Canada (100 000-250 000 passengers annually each) and India (around 75 000 passengers annually) complete the top 10 of New Zealand’s most important international markets.

Policy priorities: New Zealand

New Zealand is a leader in aviation liberalisation, having followed an increasingly liberal air services policy for more than three decades. Its policy on international aviation is articulated around the benefits aviation can bring to its trade and tourism and not on the benefits to its national carrier. In bilateral negotiations, New Zealand usually defines carrier nationality based on principal place of business rather than nationality of ownership. This is in keeping with its decision in 1986 to remove any foreign ownership restrictions on domestic carriers.

New Zealand is both a signatory and the depository state for the Multilateral Agreement on the Liberalisation of International Air Transport (MALIAT) which provides for a multilateral open skies-type regime (open route schedule, open traffic rights and open capacity but no fifth freedom) between nine countries142. New Zealand is also a signatory of a MALIAT protocol with Brunei, Chile, The Cook Islands and Singapore to allow eighth freedom rights on international flights between those countries.

Norway

The Norwegian air transport market has been historically dominated by SAS and Braathens through a system of route licensing. In 1994, most entry barriers on domestic routes were removed and consequently a third carrier, Color Air, entered the market in August 1998. In October 1999, Color Air filed for bankruptcy, while SAS and Braathens merged in 2001. This resulted in a de facto monopoly on domestic routes and a strong market position on international ones. In an effort to reopen the market for competition, the Norwegian Competition Authority implemented a ban on frequent flyer point (FFP) collection on domestic routes from August 2002. A new carrier, Norwegian Air Shuttle (NAS), entered the domestic market in September the same year and quickly set out to expand their network even to international routes. Since 2013, NAS also operates intercontinental flights to Asia and the USA. The ban on FFP collection was terminated in May 2013, when NAS had obtained market shares comparable to those of SAS and the degree of market competition was deemed satisfactory.

At present, Norway has four national carriers and three of them operate internationally. In 2014 there were 26.2 million domestic O&D passengers and 19.4 million international O&D passengers. The United Kingdom, Denmark, Sweden, Spain and Germany are the largest international markets

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(1-2 million annual passengers annually), followed by the United States, France, Poland and the Netherlands (0.25-0.5 million passengers annually). About 15-20% of the international O&D traffic originating in Norway is carried by Norwegian carriers, while more than half of the international passengers connect via third counties. The share of sixth freedom traffic is between 2% and 5%.

Policy priorities: Norway

The position of the Norwegian government is that all carriers should have equal and non-discriminatory access to the market. Furthermore, the Norwegian government considers ASAs with other countries as useful for economic efficiency and consumer welfare. In addition, it has stated that it is generally supportive towards NAS’s application for a permanent licence from USDOT to operate low-fare flights between Europe and the United States. Finally, it has reviewed its interpretation on its immigration law and the obligation it places on Norwegian carriers operating Norwegian-registered aircraft to do so with crew made up of Norwegian citizens or residents with a valid work permit. Norway is currently looking at amending this law.

NAS currently depends on a temporary exemption from these regulations for their intercontinental routes operated by means of crew based in a third country. SAS has challenged this exemption as incompatible with a level playing field for competition.

Despite these issues, the Norwegian government remains positive towards further liberalisation of ASAs. Increasing competition and lowering fares is stated as the main objective, followed by increasing efficiency, economies of scale and consumer welfare. Enlarging the influx of tourists is considered as another reason for liberalising ASAs.

As demand is rapidly increasing for intercontinental travel between Europe and Asia/Oceania and many of these routes still rely on bilateral agreements, there is a large potential for growth if and when the markets become liberalised. In addition, the Norwegian government emphasises that there is also room for growth in the transatlantic market, if and when open skies agreements come into force on all corridors and/or if these are made to include all nine freedoms of the air. A drawback of liberalisation that is raised by Norwegian policy makers is the increased impact of aviation on environmental issues, including climate change. In addition, they mention that the possibility of granting state aid to nonEuropean airlines by their respective governments could be a reason to refrain from liberalisation agreements with those countries.

All in all, the Norwegian government states that their main objective is to provide passengers and shippers with more travel options (establishing new routes) and lower prices. Developing domestic airports’ hubbing capabilities and helping domestic airports to attract foreign carriers is considered of secondary importance. The Norwegian government states having no interest in supporting national airlines.

Turkey

Turkey had over 165 million passengers in 2015 (TUIK, 2016), almost evenly split between the domestic and international sectors. This represents an 11% increase over 2013 and the fifth consecutive year of double-digit growth. Passenger traffic nearly doubled between 2009 and 2014, after already having doubled between 1994 and 2004 and again between 2004 and 2009. In this century, Turkey only experienced one year, 2001, with decreasing traffic. Since 2003, Turkey’s airports have experienced passenger traffic growth of about 14% per year (DHMI, 2015). As for air freight, it handled almost 2.9 million tonnes of freight in 2014, up 11% in a year and nearly quadrupling in the last 15 years.

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Turkey enjoys very strong air connectivity with its largest carrier, Turkish Airlines, serving 283 destinations in 111 countries, more countries than any other airline, with a fleet of 298 aircraft, including ten freighters. Other major carriers in Turkey include LCC Pegasus Airlines, SunExpress, a joint venture between Turkish Airlines and Germany’s Lufthansa, Corendon Airlines and Onur Air. These last four, privately-owned Turkish carriers, all began as leisure charter airlines, catering mostly to European travellers vacationing in Turkey. Today, their focus remains European tourists as well as an extensive domestic network. Turkey is also home to MNG Airlines, a freighter airline operating scheduled and charter cargo flights with a fleet of 9 aircraft. It is based in Istanbul, where it operates a hub as well as one in Cologne.

Overall, there are 67 airports in Turkey with commercial services, including about 35 with both domestic and international flights. Of those airports, 47 are operated by DHMI, the publicly-owned air navigation service provider and state airport authority, five are public-private partnerships and 15 are operated by the military. The most important airport, by far, is Istanbul Atatürk International Airport with 61 million passengers in 2015, followed by Istanbul’s Sabiha Gökçen International Airport and Antalya International

Airport with about 28 million passengers each and Ankara and Izmir International Airports with about 12 million passengers each.

Turkey was connected to 258 foreign destinations at time of writing, mainly in Europe and Asia and, increasingly, in Africa. Turkey’s prime geographical location, straddling Europe and Asia, makes it a strategic connection point between major global markets. It’s strong popularity as a leisure destination, which places it sixth in the world (fourth in Europe) in terms of international tourist arrivals with 39.8 million tourists (UNWTO, 2015), distributes international flights across a wide number of airports, rather than only a few main international gateway airports, as is the case in many European countries.

Commercial aviation in Turkey traces its roots back first to the Turkish Aeroplane Society (1926) which launched civilian aviation in Turkey (Gerede, 2010) and Turkish Airmails, established in 1933 with a fleet of five aircraft which had a combined capacity of 28 seats (Dursun et al, 2014). It was rapidly renamed State Airlines Administration and finally Turkish Airlines in 1955 when air transport and aerodrome operations were separated (Çetin et al., 2011). Starting as a domestic carrier, it expanded to international routes in the 1960s. The airline was first part of the Ministry of Defence, then Public Works and finally Transport. From the onset of commercial aviation in Turkey, all aspects of the industry were state-owned, including manufacturing. In fact, in the mid-1940s, Turkey had the third most important aircraft manufacturing industry in Europe (Gerede, 2010).

Until 1983, aviation in Turkey was almost exclusively run by state owned enterprises, but that year Turkey significantly liberalised its economy and sought to reduce the role of the state. Private air carriers, training institutions and maintenance facilities were allowed to be established thanks to Civil Aviation Law 2090 (1983). Ground handling, which had been a private monopoly, operated by Celebi until then, was regulated and the sector was opened to competition from a new state-owned enterprise, Havas, which would be fully privatised in 1998. The catering company USAS was privatised in 1987. Turkish Airlines, meanwhile, was gradually privatised, with the government selling a 1.82% share of the company in 1990, an additional 23% of the company in 2004 and an additional 28.75% in 2006 before a small share (2.7%) was repurchased by the state; today, Turkish Airlines is 50.88% private. In terms of ownership and control requirements, Turkey is on par with those found in the EU, with a limit of 49% foreign ownership of air carriers registered in Turkey.

Meanwhile, the Turkish Government, through the General Directorate of State Airport Authorities (GDSAA), an autonomous state economic enterprise under the Ministry of Transport, Maritime Affairs

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and Communication, manages Turkish airports which have not been privatised as concessions as well as being that country’s air navigation services provider.

The GDSAA has successfully implemented the Build-Operate-Transfer model at a number of airports, including Istanbul-Ataturk, Istanbul Sabiha Gökçen, Antalya and Dalaman. Using this model, it builds a terminal and starts operating and then transfers it for a number of years to the private sector against a concession fee which is then returned to the national treasury. Çetin et al. (2011) found that this process brought in USD 12 billion to the national treasury, including USD 3.1 billion from privatisation of domestic and international terminals.

Meanwhile, Turkish Airlines had a monopoly on the domestic market and was the only Turkish carrier operating international flights. In 1994, the SHY-6A regulation on commercial air carriers enabled the establishment of new, private carriers, but, as we saw with both the US domestic and EU internal market deregulation, this brought on a number of new entrants that quickly became financially non-viable and exited the market. Amendments to this regulation in 1992 imposed a minimum capital threshold of USD 1 million per aircraft and a minimum fleet of five aircraft for any carrier wishing to fly internationally. In 1996, the domestic market was reregulated and private carriers could only operate routes that were not flown by Turkish Airlines or on days when Turkish Airlines was not operating that specific route. Gerede (2010) found that between 1984 and 1992, 22 carriers entered the market and nine exited. He also found that a main impetus for reregulating the domestic market was to ensure the maximum value could be obtained when Turkish Airlines would be privatised. Thus, Turkish Airlines had once again a near 100% market share of the scheduled domestic market.

In 2001, Turkey liberalised prices for the domestic market by amending the Civil Aviation Law, allowing them to be set by market conditions rather than through a regulatory authority. Two years later, in 2003, the 1996 decision to reregulate the domestic market was abolished. Turkish carriers were now free to choose their routes, decide when and how often they would be operated and set their own prices. The Turkish domestic market was now fully deregulated.

The results of domestic deregulation in 2003 were very quick and quite pronounced. Domestic traffic jumped from 8.7 million passengers in 2002, the last full year before deregulation, to a record of 14.4 million in 2004. Airports with regular domestic services jumped from eight to over 40 (Demirsoy, 2012). Two years later, in 2006, domestic traffic had doubled again to reach 29 million passengers and it doubled again by 2011 to reach 58 million. By 2014, that number had reached 85 million and shows no signs of levelling off. This rapid growth rapidly created congestion issues at Istanbul’s main airport,

Atatürk International, with capacity becoming increasingly scarce. This provided an opportunity for

Istanbul’s other airport, Sabiha Gökçen, to rapidly develop. Opened in 2001, it first handled a million passengers a year in 2005. By 2010, traffic had grown to 11.6 million and reached 28 million by 2015, with two-thirds of that traffic being domestic.

Deregulation brought three important changes to Turkey’s domestic market. First, prior to 2003, the network was articulated between Istanbul and Ankara, both in the north-western part of the country and the country’s roughly 25 other airports, whereas post-deregulation, a network of point-to-point routes between those other airports made air travel far more convenient and efficient, eliminating the need to connect in one of the two major hubs. Second, the deregulation enabled the establishment of a number of new, privately-owned carriers and the transformation of existing private domestic charter carriers into domestic scheduled carriers. These carriers espoused different variants of the low-cost model, leading to third major change, namely lower air fares, especially on the domestic market.

Increasingly favourable supply-side conditions took place during a period of exceptional economic growth for Turkey and the enactment of tourism-friendly policies, enabling demand to be able to

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respond to this new environment. Between 2004 and 2014, real GDP per capita in local currency grew at 2.9% per year, despite the financial crisis from which Turkey had quickly rebounded. Thus falling air fares were available to an increasingly wealthier population, who had seen their GDP per capita rise by a third between 2004 and 2014 in an increasingly pro-tourism environment. Demirsoy (2012) modelled the impact on passenger demand of various exogenous variables and found that income had a long-run elasticity of 2.6 on demand and that population has a 1.3 long-run elasticity. He also found that the 2003 liberalisation package had a significant impact on demand but that the 1983 package did not.

As the nation’s leading carrier, Turkish Airlines took full advantage of this new liberalised environment, combined with the strategic location of its main hub, Istanbul Atatürk, located less than three hours flying time from 50 countries and the fact there are no night operating restrictions at that airport.

Dursun et al. (2014) show that Turkish Airline’s network out of Istanbul grew from 96 destinations in 2003 to 234 destinations by 2014 and over 260 today. In Europe alone, Turkish Airlines flew to 97 destinations, more than any network carrier. This has helped traffic grow from 10.4 million passengers in 2004 or an estimated 61.7 million in 2015 (Turkish Airlines, 2015).

The absence of a curfew enabled it to increase its fleet utilisation by adopting a rolling type hub143 between 5am and 2am. Dursun et al. (2014) found that when combined with its network structure, Turkish Airlines had an average utilisation of its Airbus A-321 of 13 hours and 16 minutes a day, compared to between 8 and 9 hours for Air France, British Airways and Lufthansa. For an A-320, utilisation was 11 hours and 27 minutes. Higher aircraft utilisation, combined with a lower cost base prevalent in Turkey and significantly higher employee productivity, at least based on the number of passengers per employee, has helped it maintain a lower cost per available seat kilometre than other European network carriers.

Growth in passenger traffic was paralleled by growth in freight transport. Between 2010 and 2015, airfreight carried by Turkish Airlines grew from 314 000 tonnes to about 720 000 tonnes, supported by a fleet of 10 freighters and 73 wide-body aircraft144.

Internationally, Turkey has negotiated 165 ASAs, reflecting the global aspirations of its leading international carrier, Turkish Airlines, however most are not open skies. Turkey experienced a decade of intense ASA negotiations, seeing the number of ASAs jump from 81 in 2003 to 143 by 2012 (Dursun et al, 2014). A notable exception to this is the ASA with the United States, signed in 2000. Aside from that ASA, most of Turkey’s ASAs tend to be restrictive in nature. A challenge Turkey faces in negotiating more liberal ASAs is common with other countries trying to establish a global hub, such as the UAE, Qatar, Singapore or Panama, is that partner countries may want to limit the ability of Turkish carriers to carry sixth freedom traffic and limit traffic rights to third and fourth freedom, to protect the direct market to third countries from the indirect market via Turkey. However, there may also be issues where Turkey attempts to limit the openness of its own markets, especially with respect to fifth freedoms for freighter flights. InterVISTAS-EU (2009b) found that at the time, of Turkey’s ASAs with its 20 largest origin/destination country markets, only one, the one with the United States, did not specify authorised points, was fully open on the issue of capacity and required double disapproval of pricing.

InterVISTAS-EU (2009b) developed a gravity model to estimate the impact of liberalising market access and ownership and control in Turkey. They found that a fully liberalised market would increase traffic by 33% whereas fully liberalised ownership and control would increase traffic by 23% as a result of a 16% reduction in fares. They estimated that fully liberalising both would increase employment in the airline industry by 75 600 full-time equivalent employees and would add USD 7.7 billion145 to Turkey’s GDP.

Turkey has a horizontality agreement with the EU in place since March 2010 which allows for a carrier from one EU member to make use of air traffic rights of another EU member; however it has individual

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ASAs with EU members. As part of its Aviation Strategy presented in December 2015, the European Commission has requested the authority to negotiate a comprehensive EU-Turkey ASA. At present, there has been no decision by the Council of the EU and the European Parliament as to whether or not to authorise that request. Turkey has also indicated a willingness to integrate the Single European Sky and is a Pan-European Partner of the European Aviation Safety Agency (EASA), which facilitates its cooperation in implementing aviation safety rules in the EU.

Policy priorities: Turkey

One of Turkey’s major policy challenges will be the construction of Istanbul’s new airport to replace the existing and Atatürk International Airport, now operating at capacity. The new airport, which once fully completed could be the largest in the world, would have six 3 750 metre-long runways and capacity for over 200 million passengers per year. The first of four phases of the airport is expected to be completed by the end of 2017. Turkish Airlines expects the new airport to significantly contribute to its goal of carrying 135 million passengers by 2023, more than double its current traffic. Meanwhile, Eurocontrol (2013) forecasts Turkey to experience a 4.4% growth per year of the number of Instrument Flight Rules (IFR) movements146 between 2012 and 2035 in its most likely scenario, the fourth highest in Europe147 and highest amongst countries with more than a million annual. Finally, Turkey expects its passenger traffic to reach 170 million by 2018, compared to 123 million in 2014 (Turkish Airlines, 2015). Managing this growth could represent an important challenge but also a unique opportunity for Turkey to position itself as a global aviation leader.

The United Kingdom

The United Kingdom had over 238 million passengers in 2014, including 199 million international passengers, 19.4 million domestic passengers and 18 million transit passengers. London’s six airports148 account for the majority of international traffic, with close to 135 million international passengers and 11.8 million domestic passengers. Heathrow is London’s primary gateway with about 70% of scheduled flights amongst the six airports. On an enplaned/deplaned basis, the UK’s biggest markets are Spain, the

United States, Germany, Italy and France, which are responsible for 40% of the market. UK airports also handled 2.3 million tonnes of air freight, almost all international, and with over 1.6 million tonnes transported on passenger aircraft (CAA, 2015).

The United Kingdom enjoys very strong global air connectivity. In 2014, it had direct scheduled flights to 114 states and London’s Heathrow airport ranked first in Europe for both direct and indirect connectivity

(ACI-Europe, 2014). There are 37 airports in the United Kingdom with international flights, but threequarters of international traffic is concentrated at Heathrow, Gatwick, Stansted, Manchester and Luton. This enables the United Kingdom to have more international seats and destinations than any other European country.

Until the late 1960s, scheduled air services in the United Kingdom were operated by government-owned airlines, with British European Airways (BEA) operating domestic and European flights and British Overseas Airways Corporation (BOAC) operating flights overseas. In 1969, the Edwards Committee149 recommended fostering the creation of privately owned airlines, which led to the creation of British Caledonian airlines in 1970. In 1972, BEA and BOAC were merged into British Airways. From then on, the Civil Aviation Authority (CAA), the UK’s air transport regulator, would allocate most long–haul flights to either British Airways or British Caledonian with little or no overlapping services between them. The Civil Aviation Act of 1980 required the CAA to consider the benefits of designating multiple British carriers and the government’s Airline Competition Policy White Paper of 1984 set the promotion of a