The emergence of global hubs outside Europe, in particular in the Middle East, has added significant competitive pressure for some time on our European hubs. A comprehensive study, Airport Competition in Europe was already released in 2012, documenting and quantifying these developments.
The independent report which reviews the application of the EU Directive on Airport Charges was released in May with minimal fanfare, maybe because there was nothing dramatic or particularly exceptional in the report. The European Commission (EC) talked about the additional transparency achieved by the Directive. For its part, ACI EUROPE underlined the generally successful implementation of the Directive across Europe.
But perhaps the lack of fanfare was also partly itself a sign of how the oldest debate between airlines and airports is moving on.
Historically, the cost of airport charges has been one of the standard gripes that airlines like to make on a regular basis. To get an airline CEO to recognise the full costs involved in running an airport is a rare thing – even rarer still for that CEO to acknowledge that airport charges are actually reasonable.
And yet, airport CEOs regularly acknowledge that the airline business is a difficult one, and often cite the health of their key airline clients as being their number one business concern. One of the reasons for this is that over the past 15 years airports have invested vast amounts of time and resources into understanding what airlines want, in order to be able to attract them to set up new routes, to increase capacity on existing ones and, as often as not, even just to retain existing traffic.
This is where the disconnect occurs between today’s market reality and the EU Directive on Airport Charges. As recent as the Directive is, it is still essentially based on the assumption that airports are natural monopolists and that their charges need to be scrutinised. In the intervening years, the EC has recognised that the development of new airline business models has resulted in a shift in bargaining power between airports and airlines – to the benefit of the latter. As well as being explicitly referenced in the new Communication, this was largely what drove the content of the new EC Guidelines on State aid for the aviation sector, released last February. Even Ryanair’s combative CEO Michael O’Leary has acknowledged several times in the mainstream media that airports are competing with each other.
Moreover, this is no longer limited to regional airports and Low Cost Carriers at a time when ‘airline hybridisation’ is becoming the rule of the game – with Low Cost Carriers moving up market and Full Service Carriers adapting. The emergence of global hubs outside Europe, in particular in the Middle East, has also added significant competitive pressure for some time on our European hubs. A comprehensive study, Airport Competition in Europe was already released in 2012, documenting and quantifying these developments.
Commenting on the release of the EC’s report on the Directive, Olivier Jankovec, Director General ACI EUROPE said “Airports cannot move to a better market location, unlike airlines who enjoy a wide choice of airports to fly from. All airports can do is work hard to make their market location more attractive. This means that for every airport, offering competitive charges is a key business requirement, to retain existing traffic and attract new air services – all without the need for regulatory intervention!”
The tensions between prescriptive regulation and dynamic competition are already evident in issues such as charges incentive schemes that airports have developed to support airline growth, as well as in the differentiation of services offered to airlines. These tensions manifest not only between airports and airlines but also between incumbent airlines and new entrants. There is clearly a risk that regulation ends up caught in the middle – potentially undermining normal commercial interactions and constraining competition.
On this aspect, Jankovec added “Now that we can no longer assume that the airport is the dominant party in the airport-airline relationship, surely the objective of airport regulation needs to be reconsidered – along with its scope and content. The potential benefits for the aviation sector and the travelling public are significant. We are pleased that the Commission seems to be willing to look in that direction and we very much look forward to contributing to the Thessaloniki Forum next month.”
While the EC’s report is looking more in detail at specific issues regarding the way in which the Directive has been implemented in different States (including the consultation of airlines and two-way flow of information between airport and airline), its most significant addition is the establishment of a Forum of national regulators. This Forum is supposed to meet on a regular basis to exchange on the implementation of the Directive and ensure more uniformity and commonality in the way airport charges are regulated at national level. The first meeting of the Forum is scheduled to take place on 13 June in Thessaloniki, under the auspices of the Greek Presidency of the EU. As a result, the Forum has been named the Thessaloniki Forum. ACI EUROPE has been invited to represent the airport sector and it is expected that the Forum will discuss specific aspects of implementation of the Directive as well as the competitive landscape in which airports operate. We look forward to reporting on it in the future.
The Italian exception
While airports in most EU Member States are calling for less regulation, the situation in Italy is uniquely different. After an astonishing 10-year freeze on airport charges under the old system, the newly established Regulatory Authority for Transport in Italy is now responsible for setting the economic regulation in compliance with the EU Directive 12/2009. With this purpose in mind, the Authority has just launched a public consultation with the relevant stakeholders. Assaeroporti, the Association representing 36 airport operators in Italy, expects the future airport charging systems to provide a clear, predictable and transparent regulatory framework. There are many issues which need to be addressed, not least a lack of clearly-defined procedures to allow a timely implementation of new charges at each price review.
According to Stefano Baronci, Secretary General of Assaeroporti, the biggest concern at the moment is how to move from the old system to the new one. Baronci tells Airport Business: “Legal certainty, adequate return on investment, proper cost orientation and procedures, simplicity of rules – these have all been absent from airport regulation in Italy. That needs to change immediately, if we are ever going to be able to attract private capital to finance much needed investment. Currently, the price caps of several airports which were approved under the previous regulation by the Italian CAA have expired or are about to expire. We urgently need to explore transitory solutions which ensure an adequate level of tariffs so as to allow the implementation of planned investments by those airports until the new charging system is in place and fully applied.”
