Former European Central Bank President Mario Draghi has issued a stark warning that Europe’s competitiveness is slipping amid intensifying economic challenges.
In a recent report, Draghi called for urgent reforms to boost productivity, reduce regulatory barriers, and address critical issues within aviation.
In his report, Draghi stressed that “raising the EU’s competitiveness is necessary to reignite productivity and sustain growth in this changing world”.
Troubling trends, including the relocation of 30 per cent of European ‘unicorn’ start-ups to the United States from 2008 to 2021, reflect Europe’s struggle to retain its economic vitality.
The EU-US GDP gap at 2015 prices has widened significantly—from just over 15 per cent in 2002 to 30 per cent in 2023—underlining the urgency of reform.
The report also acknowledges the central role of aviation, noting that it “enables the prosperity of other branches of the economy.”
Rafael Schvartzman, IATA’s Regional Vice President for Europe, said that the European Commission (EC) must address “myriad problems in the industry,” including over-regulation and structural failure in air traffic management (ATM), which are set to be key topics at the Wings of Change Europe event in Rome on November 20-21.
“The Draghi report is clear that Europe is falling behind in sustainable competitiveness,” Schvartzman noted, adding that “It has become more and more difficult to do business in the region.”
He continues, “The new EC must adopt a mindset that is less inclined to regulate and more determined to incentivise. That would be welcomed in aviation and all other industries in Europe.”
Sustainability remains at the heart of the EU’s strategy, with the adoption of ReFuelEU in October 2023, mandating that airlines incorporate a minimum of 2 per cent sustainable aviation fuel (SAF) by 2025, rising to 70 per cent by 2050.
However, SAF availability falls far short of demand, with production needing to increase a thousand-fold by 2050 to meet targets.
Unlike the US, where incentives have spurred SAF growth, Europe’s focus on mandates alone may struggle to drive down costs and expand production.
“In Spain and Portugal, there are proposals to move forward,” said Schvartzman.
However, he continues, “this is not consistent across Europe.”
He adds that, “Nor are we seeing the fuel producers investing enough. It is a real cause for concern.”
Further complicating matters is the high tax burden on European airlines, holding back their ability to invest in sustainable practices.
The report notes that France, for example, is set to increase passenger taxes to reduce its budget deficit—a move likely to slow recovery post-pandemic.
Meanwhile, Sweden has abolished its aviation tax to stimulate growth.
“There is a tendency in Europe to tax aviation without any strategic consideration,” Schvartzman said.
“There is no acknowledgement of the consequences on tourism, jobs, sustainability, and more,” he adds firmly. “Aviation is not a luxury item.”
Europe’s airspace, meanwhile, remains congested and inefficient. Progress on the Single European Sky project has been limited, despite efforts by SESAR, and major delays are expected to continue, particularly as summer demand rises.
“The EC must pursue structural change,” said Schvartzman. “ATM inefficiency has an enormous negative impact on sustainability.”
He emphasised the missed opportunity, explaining, “European airlines need ATM reform first and foremost. The EC must embrace the challenge and ensure a unified system.”
The geopolitical climate adds further complications, as European airlines face restrictions on overflying Russia, affecting routes to the Far East and China.
Airport capacity also poses challenges, with limited expansion plans across Europe to support long-term growth.
Schvartzman is clear that restrictions—like those proposed in the Netherlands and Belgium—are not the way forward.
Instead, he backs a balanced approach that enables sustainable growth, noting that “restrictions should not be on the agenda when there is no alternative to aviation connectivity and the social and economic benefits that entails.”
Wings of Change Europe will also tackle other significant concerns, including EU 261—a consumer regulation that Schvartzman argues is not fit-for-purpose.
Citing Eurocontrol data, he explained that while airlines are disproportionately liable for delays, they are rarely the main cause.
“Most delays are not caused by airlines,” he pointed out, yet “only airlines—alone among the entire aviation system—are liable for compensation whatever the cause.”
Schvartzman also notes that the level of compensation is disproportionate, particularly considering the limited investment in areas that could alleviate delays, such as air traffic management.
He believes EU 261 not only distorts the market but also sets a troubling precedent globally. To position Europe as a leader in multimodality, he argues, a swift revision of EU 261 is essential.
“Wings of Change Europe will focus on policy options to strengthen European aviation’s competitiveness,” Schvartzman concludes. “A lot of work lies ahead for the new European Commission.”