Men in white coats, James Bond films, regulatory restraints, the importance of non-aeronautical revenues, route development and the continued struggle for profitability faced by 70% of the world’s gateways were all on the agenda at this year’s Airport Economics & Finance Conference and Exhibition in London.
In her opening address, ACI World’s director general, Angela Gittens, announced: “The traffic headline is that in 2015 passenger growth was strong across all regions except for Africa, while air freight growth was weak across all regions except for the Middle East.
“The economics headline is that overall the airport industry in 2014 was healthy, with mature markets bouncing back and emerging markets remaining resilient in the face of weaknesses in their countries’ economies.”
Passenger numbers at the world’s airports grew by 6.1% in 2015, revealed Gittens, noting that it was the best global performance since a 6.6% rise in 2010.
Reflecting on the emerging markets, Gittens stated that there was much more to come in terms of growth, especially in countries with large landmasses or multiple islands with big populations like Indonesia, which have “a growing middle class with a propensity to travel”.
“As these markets deliver airport investment, air traffic control modernisation and liberalisation of air markets, that propensity gets realised and traffic soars,” she stated.
“Right now, the US has 25 more airline trips per capita than India. It wouldn’t take much of a change in that ratio to produce millions more trips in India. That country needs more airport investment and ATC modernisation. China and many African countries have relatively closed air service markets. Removing the constraints will have a big impact.”
Industry income as a whole in 2014 grew by 8.2% over the previous year to $142 billion, Gittens told delegates.
Worldwide, retail concessions remain the leading source of non-aeronautical revenue for airports. Car parking revenue and property revenue/rent follow retail concessions as the second and third-largest sources of income globally.
On a regional basis, Europe (36%) held the largest share of global airport revenues, followed by Asia-Pacific (29%) and North America (19%). Latin America-Caribbean, Africa and Middle East experienced the highest revenue growth, she said.
She also had a few words to say about government regulation and creating the right operating environment to encourage aviation growth.
“As we discussed at our December Economic Regulation conference in India, airports continue to have every incentive to increase passenger throughput, providing regulators with the opportunity to shift to light-handed and facilitated regulation. Introducing these efficiencies will provide more capital and enable growth,” she stated.
“And finally, let’s look at airport bottom lines. Given that airports are asset-intensive businesses, they require large minimum investments to accommodate a single landing. Thus, there is a critical mass that must be achieved before an airport can start recovering its large operating costs and infrastructure investments.
“Their capital-intensive nature is the main reason that the majority of smaller airports are loss-making – they don’t generate enough revenue to cover their capital and operating costs.
“Size is a major contributing factor to whether an airport is profitable or not. The sweet spot for return on invested capital is for airports that serve between five and 15 million passengers per year. Airports that serve fewer than one million passengers per year have a negative return on invested capital – in other words, this represents an actual economic loss.”
Reflecting on the 5.2% upturn in traffic across Europe in 2015, ACI Europe’s regional director, Olivier Jankovec, highlighted that for the first time since the global financial crisis of 2008, growth at EU airports led the way, rising by 5.6% compared to 3.9% at non-EU gateways.
He also revealed that the two extremes of the market, large hubs and small regional airports, “tended to underperform the European average”, attributing this mainly down to capacity issues at the bigger gateways and the connectivity challenges faced by the smaller ones.
“What we saw in 2015 was new market fundamentals taking shape,” said Jankovec. “Traffic has historically grown at twice the rate of GDP growth, but the phenomenal rise in passenger numbers since 2008 has changed things, particularly in the Eurozone, where traffic has increased by 13 times GDP growth, which is quite amazing.”
He noted that record traffic numbers at Istanbul Atatürk in 2015 meant that it was now Europe’s third busiest airport and he expected it to become number one in two or three years time if its current growth rates continue.
Thirteen EU airports accounted for the top 20 busiest passenger airports in Europe compared to 16 in 2008, he told delegates, the biggest climbers over this period being Istanbul Sabiha Gökçen (14 up from 81); Antalya (12 up from 22); and Moscow Sheremetyevo (11 up from 27).
Jankovec said 2016 was looking positive because the European economy was growing again and decreasing oil prices had proven “a bonanza for consumers”.
However, he warned that external risks such as the situation in Russia, economic slowdown in Brazil and China, the migration crisis, Britain’s potential exit from the EU and the threat of terrorist attacks meant that the industry could never rest on its laurels.
He believed that constant efforts to reduce costs and become slimmer and more efficient was key to the improving financials of Europe’s airports, citing cutting staff costs by 17.6% since 2008 as one example of the improvements made.
“Containing investments has also played a part, which is good in the short term and helps improve financial positions but worries me a little about the long-term ability to accommodate future growth,” admitted Jankovec.
On the plus side, he revealed that private investment in Europe’s airports was growing, with 205 gateways or 41% of Europe’s airports now boasting private shareholders, up from 22% in 2010.
Jankovec enthused: “In just six years, private investors have gotten involved in an additional circa 100 airports in Europe.
“This means that the number of European airports with private shareholders has more than doubled – and that three in four passengers are now travelling through an airport with private shareholders.
“Meanwhile, almost all fully publicly-owned airports are now corporatised and managed on a purely commercial basis.
“These are not anecdotal changes to our industry – they are truly transformative changes. They underline the fact that airports are now run as businesses focused on air connectivity development, operational efficiency, service quality, revenue diversification and sustainable investments.”
Nevertheless, 51% of Europe’s airports are loss making, he confirmed, and although this figure is down from 60% in 2013, their debt is still a sizeable €72 million.
ACI Asia-Pacific’s regional director, Patti Chau, took the opportunity to share some of the challenges facing Asia-Pacific’s airports, which continue to grow at a rapid pace with passenger numbers up by 8% and 11.3% in Asia-Pacific and the Middle East respectively in 2015.
The challenges, she said, included a slowdown in the growth rate of the region’s low-cost carriers and the need to invest in new capacity enhancing airport infrastructure to ensure that cities, regions and countries are equipped to meet future demand.
She was, however, quick to point out that the seat capacity of the LCCs has more than trebled in South East Asia in last 12 years and that the low-cost phenomenon is still relatively new in China, where it now has the support of the Civil Aviation Administration of China (CAAC).
The race to keep pace with demand explained why the Asia-Pacific region continues to lead the world in both airport investment projects and the number of greenfield airports being constructed, noted Chau, who made special mention of Dubai Airport’s plan to invest $32 billion on upgrading its infrastructure.
Huge greenfield projects in the pipeline include Beijing’s new international airport set to open in 2019 and new gateways in Mumbai, Manila, Ho Chi Minh City and Sydney, while the Chinese government has announced plans for 66 new airports in the next five years, she told delegates.
Chau hoped that the creation of the multi-lateral Asian Infrastructure Investment Bank (AIIB) would help finance some of the much needed new airport facilities.
Talking about 2016, she said: “I believe the year ahead is set to be one of volatility and challenges. Low oil prices, for instance, coupled with China’s economic slowdown and the Chinese government’s decision to devalue the RMB will stir up uncertainty while fluctuating exchange rates will affect consumer behaviour.”
Next up was an interactive polling session about the health of the aviation industry with the World Bank’s air transport lead, Dr Charles Schlumberger. Never one to miss an opportunity to entertain, he decided to wear a white coat and stethoscope and seek assistance from aviation specialist colleague, and ‘nurse’ for the day, Aldo Giovannitti.
If that seemed a little surreal, the next session on airport competition and connectivity was even stranger when moderator, David Feldman, asked the panelists to try and liken developments to James Bond film titles or Bond villains!
Doing their best, Brussels Airport CEO, Arnaud Feist, insisted that “The World is Not Enough” when it comes to seizing opportunities; Global Infrastructure Partners (GIP) partner, Michael McGhee, joked that when talking to the buyers of London City Airport it was with “A View to a Kill(ing)”; while former Shannon Airport CEO, Neil Pakey, remarked that in an increasingly tough world for small airports where some had already closed, it was very much a case of “Live and Let Die”.
McGhee added that he considered the villain in the room to be the bowler hat wearing Bond baddie ‘Oddjob’, who he said represented all the bureaucrats that over regulated the industry and failed to fully support and encourage aviation growth.
Day one ended with sessions on ‘airport economic regulation’ and ‘airport infrastructure, capital expenditure and finance’ before a highly enjoyable Gala Dinner at the Bluebird restaurant in London’s King’s Road.
Route development dominated most of day two with anna.aero’s chief analyst, Ralf Anker, giving a keynote address about the latest trends before airport bosses Christina Cassotis (Pittsburgh) and Rafael Echevarne (Montego Bay) provided an update of the opportunities and challenges at their gateways and John Strickland (JLS Consulting), George Karamanos (KPI Aviation Marketing Solutions) and Dr Chris Smith (Seabury) discussed issues such as the importance of marketing and promoting the uniqueness of different destinations.
Anker noted that a changing dynamic appeared to be behind Ryanair’s decision to actively compete against other LCCs and legacy carriers on 40% of its new routes.
His data also revealed that only around 50% of the 3,000 new services launched by the world’s airlines each year were genuinely new airport pairings.
A one-on-one interview with Aena’s president and CEO, Jose Manuel Vargas Gomez, followed before the conference concluded with a lively debate about ‘the digital passenger’.