Regional Airports and Air Transport in Europe

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Regional Airports and Air Transport in Europe

• Stefano Baronci, Policy Manager, ACI EUROPE

EUROPEAN REGIONAL AIRPORTS POLICY FORUM Ancona,
28th November 2007
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Agenda

• ACI EUROPE who are we?
• A changing market
• The dilemma of regional airports
• Is the legislator correctly interpreting the role
  of regional airports?
• Conclusions

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The voice of Europes airports

• Represents the interests of close to 450 airports
  in 45 countries 90 of commercial air traffic
  in Europe
• 193 airport operators
• 171 World Business Partners
• 5 national airport associations
• ADV, AOA, ALFA ACI, ASSAEROPORTI, UAF

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• What is SMAG?
• Represents the interests of some 237 airports in
  45 countries, who are Members of ACI EUROPE
• 136 airports have already joined SMAG
• 5 national airport associations
• ALFA ACI
• UAF
• Assaeroporti
• AOA
• ADV

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Europes airlines fast changing business
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The LCC traffic
EUROCONTROL 2007
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Europes airlines fast changing business

• LCCs dominate future aircraft orders
• Market share forecast to rise from 25 now to 56
  by 2020

Expected Short-Haul Fleet Development to 2020
Expected Short-HaulFleet Composition at 2020
Source Macquarie
Airline Development Creates Opportunities for
Airport Product Differentiation
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Europes airports fast changing business

• Times past...
• Mere infrastructure providers
• Supported by public finances
• Exclusive public ownership
• Securing the needs of flag carriers

• Today

• Fully fledged businesses with
• diversified activities
• Commercial revenue
• Self financed
• Invest millions of Euros annually to meet
  customer demands
• Being corporatised is a must
• Privatisation is a growing trend
• Increasing competition

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GROWING AIRPORTS COMPETITION
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THE GERMAN EXAMPLE
Airport charges are market driven at most
airports
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Traffic growth of airports in some new EU MS (up
to 1 mil pax) - 98 to 06
CONSIDERABLE AVERAGE GROWTH
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Traffic growth of airports in some new EU MS (1
to 5 mil PAX) - 98 to 06
CONSIDERABLE AVERAGE GROWTH
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Traffic growth of airports in some other EU MS
(up to 1 mil pax) - 98 to 06
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Traffic growth of airports in some other EU MS (1
to 5 mil pax) - 98 to 06
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BUT SOME AIRPORTS ARE MORE SUCCESSFUL (up to 1
mil pax)
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BUT SOME AIRPORTS ARE MORE SUCCESSFUL (1 to 5 mil
pax)
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UK Regional airports
Regional Airports are growing faster
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UK REGIOANAL AIRPORTS

• Most of them are Privatised
• Pressure on cost and yield efficiency
• Continuing downward pressure on charges

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• Is the legislator correctly interpreting the role
  of regional airports?

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A case study - Directive on airport charges

• Some key specifics
• Scope
• Independent Regulatory/Supervisory Body and right
  of appeal
• Transparency

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THE EC PROPOSAL A BIASED ASSUMPTION

• The EC impact assessment
• Airport competition exists on various levels.
  However, in general competition between airports
  is judged to be relatively limited

• THE REALITY the vast majority of airports
• do not exercise market power

• competition between airports
• airlines buyer power gt airport market power
• Increasing competition from surface modes

How often have airlines actually lodged
complaints about the level of charges?
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THE EC PROPOSAL THE WRONG SCOPE

• 1 Million pax
• Arbitrary
• Incorrect indicator of market power
• Will be quickly outdated
• In 2005 about 144 airports impacted...
• BUT
• in 2011 36
  additional airports impacted!

180 AIRPORTS IMPACTED UPON ENTRY INTO FORCE
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IS RAISING THE PASSENGER VOLUME BETTER?

• 5 Million pax?
• Arbitrary
• Incorrect indicator of market power
• It will be quickly outdated
• In 2005 about 55 airports impacted...
• BUT
• in 2011 15 additional
  airports impacted!

70 AIRPORTS IMPACTED UPON ENTRY INTO FORCE
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COMBINING LEGAL CERTAINTY AND FLEXIBILITY

• LEGAL CERTAINTY
• Target the top 25 EU airports
• At least 1 airport/MS
• Better indicator of market power

• FLEXIBILITY
• Reflect actual situation of abuse of dominant
  position irrespective of airport size

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THE OPT-IN/OPT-OUT CLAUSE

• Based on a competition assessment
• What is it?
• Test to determine whether or not an airport
  operates in a competitive environment and abuses
  its market power
• Who should conduct it?
• The Independent National Regulator or National
  Competition Authority
• How should it be carried out?
• Market definition
• ?Determination of relevant market
• Market power assessment
• ? Consideration of the competitive constraints
  within the relevant market

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THE OPT-IN/OPT-OUT CLAUSE (2)
CRITERIA SHOWING ABSENCE OF MARKET POWER

• No dominant national market share
• Easily available/nearby substitute airports
• Competitive charges
• Spare capacity, also available in substitute
  airports.
• Slots have little or no value
• Airline and route turnover at high levels or
  increasing
• Significant marketing and sales development
  undertaken
• Good and improving service quality, active
  efforts to lower operating expenditure

No Regulation is necessary !
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The independent supervisory body (ISB)

• ACI supports independent supervision..
• ..But concern about dispute resolution role
• Risks undermining normal commercial relationships
• Arbitration becomes default option
• Dispute resolution becomes charges setting
  (costly, lengthy)
• Could create uncertainty with impact on
  investment incentives
• Recourse to ISB if evidence of anti-competitive
  conduct
• Guarantor of the fundamental ICAO principles
• Criteria for assessing the dispute
• Based on existing Competition Law

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Transparency

• Disclosure requirements beyond those for other
  sectors and international accounting standards
• Risks imposing burdens, stifling competition and
  deterring investment
• Not undermine competitive/ commercial positions

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Conclusions

• There will be winners and losers
• Regional airports and low cost carriers will play
  a key role in the transport system
• The legislator should focus activity in areas
  where it can add maximum value
• The benefits of any proposed regulation should be
  shown to outweigh its direct costs and the costs
  arising from any resultant distortions to the
  market
• Any new regulation should recognise the different
  market and institutional structures across Member
  States and avoid where possible "one-size fits
  all" approaches that are most likely to produce
  unintended and undesirable effects.

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• In times of change, those who learn inherit the
  Earth
• while the learned find themselves beautifully
  equipped to deal with a world that no longer
  exists
• Eric Hoffer (1902 1983), American philosopher

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