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ECONOMICS Last modified on April 7, 2016

Setting the record straight

Donagh Cagney, ACI Europe’s economics manager, counters the latest airline call for even more regulation of airport charges and renewed accusations that the continent’s gateways are monopolies.

To those who follow the topic closely, it may at first seem surprising that airport charges should be back on the agenda at all. After all, the implementation of the current EU legislation – the Airport Charges Directive – was the subject of a detailed report and communication by the Commission, published as recently as May 2014. 

In that report, the Commission concluded that it was “too early to draw definitive conclusions on the impact of the Directive due to its recent entry into force” (The Directive had to be implemented by 2011). 

In addition a forum on national airport regulators, known as the Thessaloniki Forum, was set up at the same time to help strengthen the application of the current Directive across the Union. 

Since June of last year however, some major European airlines have been very active at a political level, most prominently the CEOs of ‘the big five’ – Air France-KLM, British Airways, easyJet, Lufthansa and Ryanair – when they unequivocally announced their intention to lobby for additional regulation of airport charges, as part of their ideas for the EU Aviation Strategy in development at that time. 

Even though the EU Strategy was finalised in early December, with specific provisions concerning airport charges, these five carriers subsequently called for a return to an older approach towards the subject at the launch of their new airline association Airlines 4 Europe or A4E) on January 20. 

This demand was accompanied by an A4E-commissioned supportive report (to which ACI Europe will respond shortly). 

The subject of airport charges has always been a divisive one. In recent years, ACI Europe has tried to take a progressive position, focusing on moving the debate forward and finding more sustainable and co-operative ways of working between airports and airlines. 

Much of this work has focused on the role of airport competition and how regulation could best operate in this evolving environment. 

 

Market power tests

A core ACI Europe position is that market power tests of individual airports should be performed, to better understand the relative negotiating power of an airport vis-à-vis its airline clients.

Regulation should only be imposed where it is found that competition is not effective. And regulation should be proportionate to the degree of the market power of the airport. 

This is a balanced, reasonable approach. And it is common sense. Why prescribe a medicine before diagnosing the illness, or before even establishing that there is an illness in the first place?

Of course this approach won’t resolve all the differences between airports and airlines – not least airlines with the kind of power and visibility enjoyed by the big five – but it will offer an objective and neutral means of driving the debate forward, instead of the endless cycle of recrimination and subsequent uneasy peace that seems to engulf the sector periodically. 

And recent history has shown that when such tests demonstrate that an airport is subject to sufficient competitive pressures, airlines have proven themselves to be very quick to adapt to the new reality, putting aside politics and signing up to commercial contracts with the airport, which itself offers additional benefits to passengers and the industry. 

Sadly, despite some initial lip service in favour of this approach in principle, airlines have since strongly retrenched. There may still be a stated support of airport market power tests, but if so it is coupled with a carefully honed absence of curiosity as to what those tests might actually reveal. 

When A4E launched their attack in January, there were no references to airport competition, nor indeed market power tests in the accompanying press release (in spite of several of them having acknowledged airport competition in the past). 

Instead ‘airport monopoly’ was the sound bite of choice.

The phrase is being parroted ad nauseam, and it is being deliberately used to smother any chance of an informed debate.

 

Twenty five years and counting

The latest broadside joins existing and long-standing airline protests about the losses incurred by some amongst their ranks. Best encapsulated in ‘value chain’ treatise, this philosophical approach suggests that airline losses be compensated with airport profits. 

This perspective gently skips over the question as to whether it really is sound policy to take profits from successful (and often publically-owned) companies to prop up failing (and often privately-owned) companies. 

It instead proposes a never-ending bailout of loss making companies without ever fixing the underlying problem. It also nicely sidesteps the awkward question as to whether this is really fair on the travelling public.

 

Some airlines operate profitably

Thankfully, this philosophy is increasingly being confronted by the unavoidable reality that some airlines are consistently able to make significant profits. These airlines have become the darlings of the stock market, despite having come from nothing and all while having faced the exact same policy and commercial environment as their well-established loss-making counterparts. 

It demonstrates quite unambiguously that airport charges have nothing to do with the chronic unprofitability of some airline companies. 

Luckily, those portraying airports as monopolies are increasingly becoming a minority – albeit a very vocal minority. 

Airport competition is almost everywhere to see. Just look at the aggressive marketing and route development efforts that are now a must for every airport across Europe. 

When it comes to airport charges, the facts are also blunt and unequivocal: charges paid by airlines and passengers only make up for 47% total airport revenues. This means that airlines are widely subsidised by airports – leaving us with more than €3 billion in unrecovered operating costs each year.

However, given the media megaphones enjoyed by the CEOs of the big five airlines, you can expect 2016 to be a year in which attacks on airport remain a regular feature. 

On top of all our recent work on this issue, ACI Europe will continue to produce fresh data and analyses all aimed at helping decision makers get past the seductive but empty ‘airport monopoly’ and ‘value chain’ sound bites, and instead to actively think about the substance of the arguments being made.

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