According to preliminary traffic data for 2010, global passenger numbers exceeded the five billion per annum mark for the first time.
The 6% upturn in passengers during 2010 represented a better than expected recovery from a two-year slump, and has catapulted the industry back into fi rm growth territory.
However, merely looking at the global fi gures disguises the fundamental shift that has occurred in regional traffic patterns since the onset of the crisis almost three years ago. Indeed, the difference in growth patterns between the established North American and European markets and the emerging regions of Middle East, Asia-Pacifi c and Latin America & Caribbean
while still moderate in 2008, increased and solidifi ed in 2009 and 2010.
Traffi c across the Middle East, Asia-Pacifi c and Latin America & Caribbean regions, for example, has accelerated during the last three years – each recording double-digit growth in 2010 – while throughput in Europe and North America initially declined and has yet to return to 2007 levels.
The biggest winner has been the Middle East, whose 32.7% rise in passenger traffic since 2007 is in marked contrast to the 1.5% and 6% declines in volumes reported by Europe and North America respectively.
The picture is more consistent in airfreight where the recovery has been broad with signifi cantly fewer deviations between the regions resulting in complete recovery.
The recovery has been two-paced and certain countries and markets have emerged stronger and leaner from the crisis. Certainly, exportoriented economies such as Germany and China have been the notable benefi ciaries of the recent upturn.
Consumer and business confi dence is positive and the propensity to travel remains high. Demand for premium travel has also returned as companies once again make profits.
Asia remains an attractive market for European and US companies, and it has now been joined by Latin America, where foreign investment has surged. Similaly, Chinese companies are entering Africa and Latin America in a bid to secure commodities.
This bodes well for the travel sector. The growth of the middle class in emerging economies continues, especially in India, China and Indonesia, as well as Brazil and Colombia. More and more people have the means to travel by air to visit families or take holidays.
Also, the internationalisation of labour is becoming ever more important. Working abroad, away from home and family, is a common property of today’s working world and a growing factor in air travel demand.
As passenger numbers increase, airport revenues will grow again, but the airport industry cannot rest on its laurels.
In 2009 airport industry income was performing in line with passenger numbers. A 2% revenue decline resulted in total income of $95 billion. The ratio of non-aeronautical revenues versus aeronautical revenues marginally shifted, in favour of the former to 46.5% of total income.
A third of aeronautical income ($51 billion) was derived from aircraft related revenues, confirming the long-term trend of declining aircraftrelated user charges which account for approximately 3.5% of total global airline operating costs.
At the same time, income from passenger-related user charges continued to increase due to disproportionately fewer aircraft movements and a general trend to levy user charges on a passenger basis.
There are compelling reasons for the shift away from aircraft-related to passenger-based charging. None so more than the fact that passenger-related charges do not impact on airline
balance sheets as it is only a pass-through item eventually paid by the passenger. As a result, the actual operating costs of carriers can be reduced.
By applying this charging scheme, airports share the risk of decreasing traffic with the carriers as revenues are more dependent on the actual number of passengers departing from the airport and less on the number of aircraft movements or aircraft size.
Airlines cut back capacity during the crisis and generated higher load factors with fewer movements and this charging model has proven fruitful for both airports and airlines.
Non-aeronautical revenues declined by 1.5% in 2009. Revenues from the core commercial areas, however, have gone up by 3%, driven by retail (+2%), real estate (+10%), car rental car concessions (+9%) and food and beverage (+7%).
Car parking (-3.5%) and advertising (-11%) revenues have dropped.
Performances in the retail and real estate sectors underscore the resilience of the airport business model and have helped to protect the bottom line of many airports in a difficult year.
Rising revenues from passenger spending may be unexpected in an environment of falling passenger numbers, yet several reasons and circumstances support the increase.
Premium travel was the segment hardest hit by the downturn with demand down by a third at the height of the crisis. With the related reduced access to airline premium lounges, more travellers have been spending dwell time in the public airport areas with exposure to retail and F&B offerings.
Furthermore, those who continued to fly demonstrated sustained buying power that translated into commercial sales.
A higher demand for low-cost travel during the economic crisis on carriers offering reduced or fee-based in-flight services, also may have contributed to increased airport sales, particularly in F&B.
Lastly, fewer passengers meant shorter waiting times in queues at check-in and security, resulting in passengers having longer dwell (and spend) time.
Since the onset of the crisis, airlines have shown considerable restraint in adding capacity back to the market to avoid overcapacity and dropping fares, a strategy that has led them back to profitability.
This is good news for the airport industry, which has an interest in a healthy and sustainable airline industry and one that is not constantly threatened by bankruptcy, but it also weighs on passenger numbers and growth.
Profitable airlines, optimistic consumers and growing economies will be the ingredients of the foreseeable future and these support a positive outlook. Yet airports are challenged to look ahead fi ve, 10, 20 years and to guess what the right airport needs to look like. That means vision, risk and investment.
In early December 2010, Airbus predicted that the global commercial aircraft fl eet will double within 20 years. During the same period ACI forecast global passenger numbers will exceed 10 billion passengers.
Airports are the cornerstones of that growth and will be hard pushed to deliver the infrastructure to enable expansion in an effi cient and qualitative way. Yet it remains unclear how the additional infrastructure will be funded and whether it will be available in time or whether capacity shortfalls will slow down air traffi c growth.
Governments need to step up to the plate and defi ne airports as strategic assets that are key to economic growth in the future. To this end, they need to invest heavily in airport infrastructure themselves or provide a framework that incentivises private operators and investors to engage in the airport industry.
Letting things run its course will further widen the spread of dynamics between old and new markets and mean that Europe and North America will fall behind and lose competiveness against other regions.
The future investment needed in the airport sector is signifi cant and will further add to a daunting amount of debt of $280 billion.
The industry will no longer be able to look to the public sector for funding. It is the private sector that needs to be attracted to airports even more than it currently is. Thus, return on investment will be the watch words in the airport industry going forward.
The industry will need a lot of cash and the invariable cost of capital will continue to rise relative to operating cost, which will make it more diffi cult to protect the bottom line.
Looking at the global economy, risks remain, and they are signifi cant. Sovereign debt, particularly in Europe, but also in the US and Japan, necessitate public budget austerity which means spending cuts and higher taxes that weigh on disposable income and public sector employment.
Questions remain over the health of the banking sector in Europe and the United States as they are closely tied to the housing market, which has not yet recovered.
New bubbles may be growing, spurred by ‘easy’ and cheap money in housing and stock markets, and, of course, in commodities where we are witnessing a super-cycle.
That pushes infl ation higher and may pressure central banks to raise interest rates sooner rather than later, which will result in a slowdown of lending and economic output.
Demand for air travel remains a dependent variable and the industry continues to operate at the mercy of the global economy, weather, nature, unions, geopolitics and, last but not
least, the price of oil.
That being said, air transport will remain a growth industry and whatever setbacks may occur, the industry continues to exhibit extraordinary resilience and bounces back stronger and better than before.
Airports need to contribute their part in the recovery of the global economy by providing switch points of trade and commerce that generate economic value and act as catalysts of growth.