Dear colleagues, in this edition of Airport World you’ll read two articles from different perspectives on the issue of charges, one from ACI Europe’s economics manager, Donagh Cagney, and the other from Stephen Van Beek, ACI World’s interim economics director.
While we work very closely with airlines through the International Air Transport Association on a number of important initiatives, the topic of charges is perennial and one upon which we have agreed to disagree.
ACI’s stance continues to be that the only way to educate regulators on the issue is by taking an evidence-based approach. The bottom line is that the issue of rates and charges is affecting airports’ sustainable development. Here are the facts:
In many instances, airlines are not paying the cost of the airport infrastructure they use. Each year, the revenues collected from airport charges levied on both airlines and passengers frequently fall short of covering airports’ operating expenses and capital costs related to aeronautical activities.
Some airlines are now asking airports to reduce fees, arguing that passengers would save money and employment opportunities would be created. This claim hinges on a key assumption that any reduction in airport charges would be directly passed on to passengers for their benefit solely, which, past practice tells us, is unlikely.
Two clear trends in aeronautical charge structures can be identified that serve to benefit airlines. The first includes a movement away from the use of weight-based charges with a greater reliance on passenger-based revenues, and the second involves an increasing tendency to use a more granular approach to pricing for greater transparency.
Although airports still generate aeronautical revenues through aircraft-related charges, the majority of airports have gradually put their emphasis on charging passengers. In 2014, the relative proportion of global passenger-based revenues to aircraft-related revenues was 56% and 34% respectively (terminal rentals represent 11%).
Fuel, staff costs and aircraft operating costs represent as much as 60% of airlines’ operating costs on international scheduled services. On the other hand, landing and associated airport charges represent only a small proportion of these costs at 3.7%, and this has remained stable.
Indeed, charges as a proportion of airline operating costs for both domestic and international services have slightly declined as compared to two decades ago.
The fact is that increased competition, especially among many of the world’s major airport hubs, has significantly reduced the need for restrictive regulation. With these market realities in mind, airports need to be allowed the freedom to charge their airline customers for the facilities they use to ensure that future demand can be managed safely, securely and efficiently.
ACI strongly shares ICAO’s views that a light-handed oversight is preferable and the best place to start airport-airline negotiations is with airports and their users sitting down to collaboratively address service standards, airport charges and the best way to pay for services the airport renders to its users and passengers.
Investors, too, are likely to prefer this approach given that it avoids the periodic risks associated with successive on-again and off-again regulatory processes.
Of course, at this year’s ACI Airport Economics & Finance Conference and Exhibition, we’ll have occasion to discuss the above and much more as we plot a course for an economically sustainable airport industry.
In closing, I would like to take the opportunity to welcome our new director of economics, Stefano Baronci, who comes to ACI World with a significant depth and breadth of aviation experience across a number of organisations. We look forward to working with him in the months and years ahead.
I would also like to thank interim economics director, Stephen Van Beek, for his substantial contributions to ACI World over the last six months, and extend my gratitude to ICF for lending us his time and expertise.