ACI World’s director general, Angela Gittens, used her opening address to look at the provisional 2016 traffic results for the world’s airports, reflect on last year’s key performance indicators and discuss a new Policy Brief on airport ownership, economic regulation and financial performance.
She revealed that despite the global uncertainty hanging over the global economy in 2016 – citing events such as the Brexit vote, the US presidential elections, hostilities in Syria, acts of terrorism and increased protectionist rhetoric from some countries – airports across the globe enjoyed their busiest ever year to ensure that passenger traffic has risen by 5.5% on an annualised basis since the end of ‘Great Recession’ of 2009/2010.
This was, in part, due to air transport’s resilience and the industry’s ability to adapt and recover from adversity in addition to other factors such as lower fare offerings by the airlines and historically low jet fuel prices.
Both global international (+6.5%) and domestic (+4.9%) passenger traffic grew in 2016, said Gittens, who stated that with the exception of Africa, every region experienced an upturn in passenger volumes.
The upturn, she added, ranged from 2.2% in the Latin America and Caribbean to over 9% in “the buoyant” Asia-Pacific and Middle East regions.
The “mature markets” of Europe and North America grew by 5% and 3.9% respectively in 2016, and continue to perform “well above historical growth levels” in the opening months of 2017.
Global airfreight staged a revival in the second half of 2016 to end the year with a 3.5% increase in volumes.
“The overall health of the airport industry remained intact in 2016 as revenues grew inline with global transport demand,” said Gittens.
“The slow, yet persistent recovery of the Euro area and the United States, combined with the resilience of aviation in emerging markets in spite of impending downside risks, translated into gains in airport revenues.”
Indeed, global airport revenues increased by 6% to $151.8 billion in 2016, with airports in emerging economies seeing their revenues grow by 11% compared to 4% in developed economies.
Aeronautical revenues accounted for 56% of the total, with European airports continuing to lead the way in terms of non-aeronautical revenues, generating 35% of the global total followed by Asia-Pacific (30%) and North America (19%).
Retail (26%), car parking (22.6%), property and real estate (15.7%) remain the key global sources of non-aeronautical revenue.
The capital intensive nature of airports, however, means that rising revenues doesn’t necessarily equate to a profit, with Gittens quick to point out that profitability continues to elude most airports handling less than one million passengers per annum.
“Size remains the main contributing factor whether airports are profitable or not,” she remarked. “High fixed costs for infrastructure ensure that airports which serve fewer than one million passengers per year show a negative return on invested capital of 1.7%.”
Talking about the need to invest in future facilities in a far from certain market, she stated: “Airport operators are often placed in a position where they must engage in high-wire balancing act.
"On the one hand they are faced with stringent regulations governing their aeronautical revenues and in certain cases must finance small or loss making airports in their network.
“On the other hand they must finance expand their infrastructure capacity to meet growing demand for air transport. Economists often coin the phrase, there is no such thing as a free lunch, and the fact remains that someone or some entity must pay for the use of the infrastructure.”
And according to ACI statistics that burden is increasingly falling to passengers as opposed to the airlines due to rising passenger related fees across the globe.
Gittens commented that the new trend led ACI to anticipate that going forward, worldwide, airlines “will contribute an even lower share of overall airport revenues than they did in the past”.
With ACI forecasts predicting a 33% growth in passenger volumes between 2015 and 2020, she reiterated previous warnings that for many countries this might mean air transport demand outstripping airport infrastructure.
She pointed out that in line with the United Nations’ Sustainable Development Goal 9 (SDG9) to “build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation, ACI has released a new policy brief on airport ownership, economic regulation and financial performance that it hopes will help attract investment in the industry.
“Under the umbrella of SDG 9, the ACI Policy Brief aims to provide the state of the industry based on a robust dataset and inventory of the world’s major commercial airports and puts forth several practical policy recommendations to ensure that investment is attracted to the industry.
“The Brief emphasises the need for flexibility and consistency in regulatory frameworks that govern airport revenues and capital investments.”
Talking about the types of airport ownership, she added: “Airports no longer operate as homogenous groups or public utilities but exhibit a range of ownership structures ranging from fully government owned and operated to partially or fully privatised.
“They compete with each other to the gateways to cities, regions and even entire continents. In 2016 there was as many 614 airports with some form of private sector involvement on a large scale.
“There is no one-size fits all when it comes to airport ownership and ACI does not prescribe a specific ownership model, per se. Global, political, social and economic circumstances dictate the appropriate type of ownership and the participation or not of private capital.”
She did, however, add that “there was no denying that private investment and entrepreneurship go hand in hand”, before noting that over 40% of passenger traffic across the globe is handled by airports with private stakeholder involvement.
Airports in Europe (75%) and Latin America and the Caribbean (60%) handle the largest proportion of passengers through airports with private stakeholders.
“Where infrastructure constraints persist, and renewal is required, airport companies, private investors and other consortium provide viable solutions to many of our infrastructure problems,” she told delegates.
“Private sector stakeholders bring commercially-driven management and expertise, which in turn generate value and innovations for airline customers and passengers, but they also expect a return for the risk in investment.
“Whenever government financing and airport reconstruction is not an option, well practiced economic incentives enables private equity to flow to the airport industry as a rule.
“At the end of the day, airports are wealth generators for other stakeholders in the air transport value chain and their socio-economic impact and multiplier effect extends to the broader economy.”
She concluded: “According to the Air Transport Action Group (ATAG), in 2014 the airport transport industry generated an estimated 9.9 million direct jobs worldwide and $665 billion of the world’s GDP.
“ACI seeks to work in partnership with governments, regulators and other aviation stakeholders to ensure that we develop a fertile ground for industry investments to achieve the 2030 SDGs.”
Traffic boom in Europe and Brexit fears
ACI Europe’s director general, Olivier Jankovec, delivered a largely positive presentation about the performance of the continent’s airports, which handled over two billion passengers (+5%) for the first time in 2016, although he did end on a note of caution about the potential negative impact of Brexit.
He pointed out that breaking the two billion milestone meant that Europe’s airports have handled 300 million more passengers since 2013 years, with the lion’s share of the additional travellers using EU airports, reflecting the recent trend of EU gateways (+6.7% in 2016) outperforming their counterparts in non-EU countries (-0.9% in 2016).
Mid-size airports handing 5-10 million passengers (+10.3%) fared best in 2016, Jankovec revealing that the “low-cost dynamic proved significant” for this group of gateways that is largely made up of secondary hubs or large regional airports.
He told delegates that the outlook for 2017 looks good, even admitting to be being surprised by just how well Europe’s airports have performed in the opening months of the year, but pondered whether performance levels were “at the top of the cycle” due to the upturn in the global economy that had led to a huge increase in airline seat capacity across the continent.
“How long can we continue growing like this?” asked Jankovec. “There is a lot of capacity in the market and airline yields are suffering. Airline costs are also starting to be affected by exchange rates.
“We are also seeing an increase and change in risks, in particular geopolitical risks with our neighbours, and also challenges within Europe, such as Brexit, and new political priorities in other parts of the world. The risk of terrorism also remains.”
Jankovec joked that Europe’s airports “were enjoying the party” at the moment in terms of the financials, enjoying a 7.7% return on invested capital (ROIC) in 2016, largely due to cost reductions. Despite this 47% of Europe’s operated at a loss, although this was a drop on 51% in 2015.
He noted that Frankfurt and Amsterdam Schiphol topped the global rankings for the most connected hubs in the world, although on the downside Jankovec revealed that connectivity at the continent’s small regional airports has dropped 30% since 2008.
Talking about Brexit, he said: “Brexit is crucial for us because it challenges the EU Single Aviation Market, which is based on the freedom to fly and has been a success story that has delivered tremendous connectivity for Europe.
“It is however not just about the ability to fly between the UK and the EU as the Single Aviation Market has expanded beyond Europe to other European countries, northern Africa, the Middle East, Canada and the US. As we speak the EU is also in talks with ASEAN countries, Turkey and Qatar, so the stakes are very high.
“Aviation provides nearly nine million jobs in Europe and is responsible for 4.1% of the EU’s GDP. So what’s at stake is our ability to ensure that aviation can continue to be the continent’s engine for economic growth.
“The worst-case scenario is that the UK leaves the EU in two years having failed to agree its exit terms and nobody knows what is going to happen next.
“The potential impact of this on air connectivity, consumers and the wider economy needs to be addressed by Brexit negotiators – on both sides.
“This means that adequate contingencies need to be established promptly in case the UK would exit the EU without any agreement on its future relationship with the bloc.”
Asia-Pacific and Middle East continue to grow
ACI Asia-Pacific’s regional director, Patti Chau, talked about some of the key trends behind the soaring traffic figures across the region in 2016, and revealed that the two dominant players in the Asia-Pacific market, China and India, enjoyed very different growth paths in the past year.
China’s traffic upturn was primarily driven by an in increase in international passenger numbers while India was boosted by domestic growth, which led to most major gateways experiencing double-digit rises in passengers.
Low cost carriers continued to flourish across the entire region in 2016, said Chau, accounting for 31% of all passengers and around 19% of air travellers in China where around 10 LCCs are now present in the Chinese market.
The number of low-cost, long-haul operations is also on the rise, with Lucky Air set to launch operations between Kunming and Moscow this summer and AirAsia recently getting the green-light to launch services to the US.
Last year also saw the formation of two LCC alliances in the region – U-FLY (HK Express, Lucky Air, Urumqi Air and Wes Air) and the Value Alliance (Cebu Pacific, Jeju Air, Nok Air, NokScoot, Scoot, Tigerair Australia, Tigerair Singapore and Vanilla Air).
“The healthy competition between LCCs very much illustrates the abundant opportunities still available in our region,” she commented.
She also took the opportunity to remind delegates that ACI’s Asia-Pacific region leads the way in terms of airport infrastructure projects, stating that China alone intends to build 136 new airports by 2025 and India plans to double its airport capacity by 2019.
“Most the of new Chinese airports are relatively small facilities being built to improve connectivity to secondary cities, but it does include the opening of Daxing Airport in Beijing in 2019, which once fully open will have the capacity to handle 100 million passengers yearly.”
She added that in Japan, Kansai has just opened its new Terminal 2, Tokyo Narita is planning to build a third runway and Tokyo Haneda will shortly start work on a large scale expansion in response to the expected surge in flights ahead of the 2020 Olympic Games in Tokyo.
Other developments, said Chau, include the opening of Singapore Changi’s new Terminal 4 later this year; Malaysia Airports’ $1 billion plan to develop and expand its airports; and the Gulf Cooperation Council’s announcement that $100 billion will be spent on airport expansion projects to accommodate a doubling of passenger numbers in the Middle East by 2035.
She noted that at Kansai, and elsewhere across the region, privatisation projects were allowing the private sector to help develop airports and fund costly airport expansion projects.
“The privatisation drive is most apparent in countries like Japan where the Kansai and Sendai deals were finalised last year and projects are in the pipeline for Tokamatsu, Fukuoka, Kobe and New Chitose, which are expected to be completed in the next two to three years.
“Privatisation is also back on track in the Philippines and India, where a new National Civil Aviation Plan approved the introduction of a hybrid till system for all airports. This provides much needed regulatory certainty in the market that will help attract private participation in projects like Navi Mumbai and Goa Mopa Greenfield Airport.
“The haste for privatisation also appears to be speeding up in the Middle East especially for oil producing nations where PPP projects are increasingly being considered to help reduce the financial burden on them resulting from low oil prices in the long-term.
“Saudi Arabia’s vision is to privatise all of its 27 airports by 2020 and elsewhere in the region privatisation projects are taking shape in Indonesia, Iran, Kuwait and Vietnam.”