1. Airport Competition
Andrew Charlton
August 2018

2. Airlines, Airports, Slots
Competition is agreed to generate good economic outcomes
Competition requires competitors
Policy determines number of airlines/airports
Ability of airports to compete increases options
Access to airports key to how airlines compete
Slot rules control access
These are policy choices for regulators

3. Changing Views on Competition in Aviation
Value Chain
Traditional view
Aviation is a life support for airlines
Driven by Chicago Convention governance
Eco-System
Modern, liberalising view
Each part separately adding value
The choice of vision drives policy choices

4. Airport Competition Natural Monopoly? Competitive players?
Geography
Airline Business Model Change
Resources
Competitive players?
LCCs choose bases
Legacy carriers adjust passenger flow
Airlines look for rebates and marketing support
Policy choices
Chicago Convention makes States directly involved
Regulatory Decisions

6. Airport competition in Europe
Source: ACI and Oxera

7. Categories of airport competition
Competition between airports for airline services on new and existing routes
Competition between airports for connecting passengers
Competition for passengers in local catchment
Effective competition often arises at the margin
Marginal decisions by airlines/passengers have important implications for airports
Source Oxera

8. Economic Imperative Passenger growth continues to expand
Passenger numbers to double by 2030
In Asia, to double by 2025
Putting huge strain on existing infrastructure

9. Total number of planes operating in each region of the world, 2016–36
Global Growth
Total number of planes operating in each region of the world, 2016–36
Source: Boeing (2017), ‘Global Market Overview’.

10. Growth by Aircraft Type

11. Growth by Aircraft Type - Implications
Growth is in new single aisle aircraft
B737-MAX
A320-NEO
Their performance characteristics are now
Medium/long range
Growing numbers of passengers per aircraft
Implication:
More traffic at medium sized airports

12. Airline Dynamics Driving Growth
In Europe, much of the growth is from LCCs and long-haul hubbing carriers

13. LCC Growth

14. Long-haul Hubbing Growth

15. Airport Competition – Airport Churn
Legacy carriers, locked into one State, built hub operations
Based around large hub airports
All transfers/maintenance/administration centralised
LHR/MAD/CDG/EZE
New business model airlines do not rely on one hub
True for LCCs
Long-haul hubbing airlines have a single hub, in a remote geography
Opportunity for airports to provide hubbing/connection services
PTY/LPB
Gives airlines opportunities to find best prices/services
Rebates and discounts
Service enhancements/design enhancements
Routes Conferences

16. Airport Churn

17. Airport Competition – Hub Transfers
As legacy carriers consolidate, legacy networks include increasing numbers of hubs:
IAG – LHR/DUB/MAD
LH – FRA/MUC/ZRH/BRU/VIE
AF/KLM – CDG/AMS
Choice of connections for passengers across network
Airports such as PTY/LPB offer interline connections
Case Study – IAG
LHR – For UK OD passengers
DUB – For Europe-US OD passengers
MAD – For Europe-Latam OD passengers
Missing component? Europe-Asia

19. Airport Competition – Local Passengers
Local area competition has increased for large airports
Largely due to opening/expanding smaller local airports
Proportion of capacity with an alternative available within certain radii, by airport size, 2010 vs 2016
Has policy implications for regulators

20. Regulatory Decisions Regulators face a number of choices
Aviation is positive
Cannot grow without infrastructure
Competition for airport services is growing
Need to make decisions about
Building of airports
Ownership of airports
Oversight and regulation of airports

21. Building/Developing Airports

22. Ownership Traditionally, a national asset
ICAO guidelines & approach favours neutral operation
Private Investors need return
Focus on busy airports
Small airports more complex
Solution has been privatisation
Under attack – IATA resolution in June 2018 opposing privatisation
Published guide to other options
Public Private Partnerships?
Incentive schemes?
Airport Networks?
Cross subsidy of airports to regional airlines
Airline concern is abuse of dominant position

23. Trends in Airport Ownership
Privatisation:
Participation of the private sector in the management, financing, ownership of airport infrastructure
Freehold
Listed companies
Concessions or leases
Management contracts
Government-owned companies
Government-owned airports exclusively managed by public authorities
Growing proportion of airports with private sector participation
Highest propensity for private investment in airports in Europe (75%) and LatAm-Caribbean (60%)
Private equity, rise of global airport companies and networks

24. Airport Ownership – ACI Policies
No ’One size fits all’ approach to airport ownership
There is a need to create economic incentives and guarantee consistency within regulatory frameworks
Evidence-based policymaking
Fostering entrepreneurship and value creation

28. Profiling privatised airports
614 commercial airports have private sector participation
Europe: 266 privatised airports
LatAm-Caribbean: 153 privatised airports

29. Distribution of Airports by type of privatisation

30. IATA Guidelines Ownership
Government strategic objectives for airport ownership and operating models
Macro-Economic objectives
Domestic economic impact
Efficient sector governance and regulation
Sector efficiency and competitiveness
Government control
Financial objectives
Capital receipts for Government
PPP

32. Delivering a Privatisation Program
Financial sustainability
Flexible and dynamic air travel market
New sources of private finance and management capability
Corporatisation and combination of models to achieve the objectives of privatisation
Without sale assets and
Without loss of government control
Not-for-profit governance models
No ‘one size fits all’ solution to airport ownership
Changes justified by clear and transparent objectives
Detailed transaction process and commercial structure design needed

33. Good deliverability of privatisation program
Governments should follow global best practice guidance
Sufficient analysis and planning, aviation industry’s view consideration
Development of the appropriate regulatory framework
A competitive and transparent process is needed
Safeguard public value, ensure continuity of service and appropriate investment in the airport
Be realistic on the timescales required to complete a transaction

34. Best Regulation of Privately-Owned Airport
Safeguards to
Prevent market abuse
Secure efficiencies
Service quality
Regulatory model continually assessed over time
Stronger forms of economic regulation in case of full privatisation

35. Private Capital and Regulatory Framework
Economic policy choices
Necessary financing for much-needed air transport infrastructure
33% growth in passenger volumes from 2015 to 2020
Expected to handle an additional 2.4 billion passengers in 2022.
Abuse of market power:
Rise and prevalence of LCCs business model
Presence of dominant carriers
Formation of oligopolistic airline alliances
…limit the price-cost margin for airport operators
Accounting for non-aeronautical (commercial) revenues
Consistency and continuity to oversight function guarantee:
Predictability
Overall reduction in regulatory risk

36. Financial Performance and Economic Incentives
Multifaceted challenges in the areas of:
Safety
Security
Environment
Compliance with economic regulations governing the pricing of airport services
Value creation
Helps generate returns for investors and stakeholders
Insures future availability of capital to fund operations and innovations
Airports generate real value for the passenger experience
Who owns the passenger?

37. Airport Networks
Airport owners to be free to determine management model
Smaller airports rarely profitable
66% of airports operate at a loss
92% of those have fewer than 1million pax
Cross-subsidisation of smaller airports an option
Compliance with ICAO’s guidelines on charges possible
Regulatory oversight proportionate to airport operator’s market power

38. Trends in Airport Networks
Types of airport management models:
Single-airport
Airport systems (two or more airports in one conurbation)
Airport networks
Common characteristics between airport networks and other network businesses
Benefits of airport networks
Safety
Social and economic development
Positive benefits to airlines

39. Airports networks

41. Airport Networks’ Efficiency and Competitivity
Cost efficiency
132 States with networks;
13 States are advanced economies;
119 are emerging markets and developing economies
Operating a network generates efficiencies in operating and capital costs
No costly duplication of functions at each airport
Easier access to capital markets
Competitive charges
High level of customer experience

42. Regulatory Framework for Airport Networks
Recovery of aeronautical costs through charges
Pool the costs of providing aeronautical services at the network level
Recover these costs from airlines and passengers using the network
ICAO framework common charging schemes
Non-discrimination
Cost-relatedness
Transparency and consultation with airlines – consensus with users
Cross-subsidies earmarked only for airport operation and development
Proportionate framework: intervention only when necessary
Abuse of market power
Price discrimination

43. Economic regulation of airports
ICAO guidelines
Encourages the establishment of autonomous entities
Separation of oversight and operation
Accepts possibility of privatization
Charges to balance interests of Airports and airlines
Minimize the risk of anti-competitive practices
Ensure non-discrimination and transparency
Ascertain current and future demand in a cost-effective manner
Protect the interests of passengers
Obligation for consultation
No position on single/duel tills

44. Airport Regulation Essentially, about charging
Airlines fear airports use monopoly power
Airfares vs airport charges?
Fear of privatisation is creation of a private monopoly
Private monopolies vs public monopolies
Two approaches:
Regulate charges
Europe
Regulate market power
Australia/NZ

45. ECAA – Airport charges regime
Directive 2009/12: Airport Charges
Creates independent supervisor agency per state
Must establish rules for monitoring/enforcing
Obligation to consult
No final view on dual/single till
Allows for pre-funding of investments
Currently under review
Extremely contentious
Airport charges in some airports raising faster than airfares
Raises issues of inter-airport competition

46. Aviation Advocacy Sarl
Rue de la Gare 17
1260 Nyon Switzerland
Phone: