Finally: Russia to Improve Overflying Conditions for European Carriers

The long-term controversy over royalties payable by many carriers to Moscow for choosing routes across Siberia could soon be settled. If so, competition between airlines would no longer be distorted. 

Crossing Siberian territory becomes presumably less expensive for EU airlines / source HS
Crossing Siberian territory becomes presumably less expensive for EU airlines / source HS

Despite the difficult political situation between the EEU and Russia, the topic of Moscow demanded charges for overflying Russian territory seems to be moving forward. The stalemate ended in January this year with the Russian government announcing that in future royalties shall become cost-related and more transparent. This would mean that carriers with European registered aircraft would have to pay less money for choosing the “fast lane” for their flights linking Asia and Europe. In the past EU air carriers have been obliged to pay much more for crossing Siberian territory on flights to destinations in Asia. It is estimated that these payments added up to around €320m per year – most of it which was channelled directly into Aeroflot’s pockets. The EU has long been concerned that these payments are in breach of both EU antitrust law and international law. Moreover, they unfairly drive up airline costs, making air tickets and air cargo shipments between Europe and Asia more expensive and distorting competition between airlines on these markets.

Dirk Steiger
Dirk Steiger

Future cooperation can only be based upon give and take
As of now, European carriers such as Aerologic, Air France, Cargolux, KLM or Lufthansa should soon be able to remove a major part from their bills that they’ve paid in the past to overfly Siberian territory. In return, Russian carriers such as AirBridge Cargo or Aeroflot could now operate direct flights from Europe onward e.g. to the United States. But the Russians are still protesting the EU imposed Emissions Trading System (ETS) which they’re forced to stay-in when overflying European airspace on their way to North America. Statements from official sources are that negotiations are ongoing to enter into a resolution about this dispute. Considering the current market situation on Asian routes, this deal makes a lot of sense for the ailing European Air Transport industry.   

 

U.S. carriers still have competitive advantages
This all would sound rather positive if we’d not stumbled upon something else during our research work: US-registered carriers can bank upon some so called dormancy conditions. It seems that FedEx, UPS, Polar & Co. have up to 109 weekly “royalty free” grandfathered cargo overflying rights while their European rivals have paid for each cargo flight in the past. If we’d consider that all European operators had similar quantities in the past, royalties for each flight could result in up to approx. EUR 60,000 in extra costs, as seen in the EC’s calculation of the €320m in total annual royalties! These extra costs have been either offset by European and Asian shippers using European air carriers or directly by European carriers in competition with their U.S. rivals.
Just think which kind of political and legal war would have started if American carriers would have received this unequal treatment against their European competition? Surely an item on President Obama’s Top Priority list. 

 

Dirk Steiger