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NEWS Last modified on May 24, 2010

Challenging times

Oliver Clark reports on the highlights of the 2nd Annual ACI Airport Economics and Finance conference.

Airports may take some consolation from the first signs of a global economic recovery, but the more than 200 delegates who attended the recent Airport Economics and Finance conference in London were left in no doubt that the industry still faces many challenges.

Weak passenger demand, tighter credit markets and increased competition for concession revenues from the no-frills carriers are just some of the challenges currently faced by airports, according to industry experts.

Nevertheless, Angela Gittens, director general of ACI World, opened the conference at London’s Royal Lancaster Hotel on an optimistic note, forecasting a 3% to 4% rise in global passenger traffic this year.

However, the impact of weak airlines, declining yields, a tightening of government relief packages and diminished lending markets have made for a more hostile operating environment, she warned.

“Many airlines are hurting and they are broadcasting that message loud and clear, putting pressure on us, as one of their service suppliers, to help them balance the books. But their business model is also putting pressure on airports,” said Gittens.

Echoing her comments Ad Rutten, chairman of ACI Europe and executive vice president and COO of Schiphol Group, noted that 86% of airports had lost traffic in 2009 which meant that many faced a ‘double whammy’ of declining aeronautical revenue and falling commercial income.

He also commented that airports were facing a new market structure, marked by the increasing dominance of Low Cost Carriers (LCC) and the evaporation of the premium, short-haul passenger in Europe.

Eliot Lees, vice president at SH&E, went further suggesting that “LCCs in particular are going to focus on greater additional ancillary revenue, they will be moving into the airport space.” He also asked whether airports and airlines could find a way to share the total ‘customer experience’ rather than competing over it.

There was some good news for those looking to finance future CAPEX projects, with Justin Symonds, managing director of transport and logistics at the Royal Bank of Scotland, claiming that the sector’s strong credit profile was grounds to be “reasonably optimistic” about future projects.

Symonds indicated that short-term loans are increasingly being replaced with long-term, low-risk bonds as the favoured method of finance. Loans to Europe, the Middle East and Africa (EMEA) fell from $1.6 billion in 2007 to $500 million in 2009, while the corporate bonds market increased from $337 million in 2007 to $624 million in 2009.

Micheal McGhee, a partner at Global Infrastructure Partners, which acquired London Gatwick Airport in 2009, explained that the group plans to concentrate on point-to-point traffic and “transforming the passenger experience.”

“We only have one runway so the focus is on point-to-point traffic, whether short or long-haul,“ said McGhee. “Our priority is to transform the customer experience and cut the queues. Improving infrastructure is the key, so we are replacing the entire IT system.”

McGhee also said GIP planned to refinance its €1.3 billion debt and share the risk with partners, referring to investors including the Abu Dhabi Investment Authority and Korean-based National Pension Service, each of whom have taken a stake in the airport.

A major area of discussion on day one centred on the relationship between airports and their airline partners, with debate raging over the role and importance of airline charges.

Tan Sri Bashir Ahmad, managing director and CEO of Malaysia Airports Holdings Berhad (MAHB), pointed out that the group’s airline charges were some of the lowest in the world, but that no matter what they do, it is market forces and location that decide a hub’s attractiveness and profitability.

Day two saw a focus on the impact of government regulation and the pros and cons of corporatising/privatising airports.

Tan Lye Teck, executive vice president corporate for Changi Airport Group (CAG), explained that the airport group has derived a number of benefits from its corporatisation in September 2009, including greater operational independence, adoption of commercial best practice and better recruitment and employee retention.

But not everyone shared this view. Dr Paul Hooper, director of policy and regulation at Abu Dhabi’s Transport Department in particular made the argument that government control, but with a ‘light touch,’ was the best option for the country’s young airport system.

As a lively forum for frank discussion and debate, once again the ACI Airport Economics and Finance conference did not disappoint.

This article features Airport World 2010 - Issue 1

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