Political, geopolitical and regulatory risks

Geopolitical events such as wars, terrorist attacks or environmental catastrophes continue to have a considerable influence on the airline industry. But political decisions – especially at national and European level – can also have wide-reaching effects. This is particularly true when these affect competition, as with subsidies or one-sided burdens for certain market participants.

The national air traffic tax introduced in Germany as of 1 January 2011 is just such an intervention in the field of fiscal and environmental policy. The tax is levied on flights leaving Germany and depends on the distance flown. International transfers and cargo flights are exempt from the tax. Although some effort has been made in this way to accommodate Germany’s fragile air transport structures at least, German air traffic and the export and tourism sector will be affected by the decision. Altogether the federal government expects the tax to generate revenue of EUR 1bn a year.

Similar national taxes exist in the UK, France, Ireland and Austria. The international consensus that air traffic internalises its external costs by means of infrastructure fees is therefore losing further ground.

Something similar is happening with the EU emission trading scheme that is planned from 1 January 2012 and which represents a regional regulatory approach to a worldwide problem in a global industry. Even if it included all airlines flying to the European Union, it would still impact European competitors much more severely than non-European companies. Moreover, at present many non-European countries are refusing to take part in the scheme. More information on the subject can be found in chapter “Current challenges”.

There are further risks in connection with environmental matters. The night-flight ban imposed on Frankfurt Airport at short notice, for example, results in substantial additional costs and restricts growth prospects at Europe’s highest-volume cargo hub. For available capacities to be used economically and in line with demand, a practicable arrangement for night-flights at Frankfurt Airport is indispensable. See section “Regulatory and other factors” for the current status.

In addition to the environmental rules and regulations mentioned, it will be necessary to deal with increasingly robust consumer protection regulation in the years ahead. As a full-service carrier, most of the standards under debate are already a matter of course for Lufthansa, however. One particularly critical point is if European regulation does not lean towards internationally accepted norms, for example in the area of denied boarding compensation, and this exerts one-sided discrimination against the European industry in global competition.

Environmental risks can also materialise suddenly and without warning. One such case was the renewed closure of broad swathes of European airspace in 2011 owing to the possible spread of volcanic ash. Particularly in the previous year, this revealed severe difficulties in the administrative handling of the situation and also showed that cooperation between governments and communication with stakeholders and key players does not function smoothly. In order to cope better with similar scenarios in future, a crisis coordination point has been created at European level, the ICAO Volcanic Ash Contingency Plan for Europe updated and better coordination processes initiated among the EU member states. The ICAO Volcanic Ash Task Force is busy refining global standards for the applicable procedures and defining limits.

Together with other airlines, Lufthansa is striving to be given more decision-making authority. Comprehensive information about atmospheric conditions would enable independent, decentralised decisions on whether flight operations should be maintained or suspended in borderline cases.

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