An unprecedented enthusiasm for commercialisation is sweeping the world's airports. Old public service concepts are out. The new creed is cost containment, private finance, aggressive marketing and even acquisition strategies. But before the airline customers start to celebrate, there are potential penalties as well as gains from this latest trend.

Behind the new commercial attitudes are the simple issues of less cash and greater competition. While demand for new airport capacity continues to run apace, traditional sources of state funding are getting scarce. At the same time, more open aviation markets leave the risk that if the capacity is not forthcoming at one airport, then airlines will simply decamp elsewhere.

The survey of major building programmes in this issue demonstrates the extent of the expansion now taking place in every region of the world. The Airport Council Inter-national (ACI) puts this year's capital spend at $18 billion - up by 50% on the same figure two years ago. The estimate from ICAO is for a spending requirement of $200-350 million through to 2010. "This will never be realised unless private parties participate in that process," says Alexander Zeverijn, senior corporate strategist at Schiphol Airport.

Already this year a record number of airport privatisation deals have been sealed, including those in Argentina, South Africa and Australia. The bidding process has begun in Mexico, Costa Rica and Uruguay while in Italy, Aeroporti di Roma (ADR) is due to privatise next year and Milan airport operator SEA could follow by 2000.

Even among the US airports, once firmly tied to city or state authorities, there are signs of relaxation in the rules which have deterred private operators - such as the requirement to reinvest all revenues in the airport. Although no major US hub has yet gone private, two smaller airports (New York Stuart and San Diego Montgomery Field) are being sold as part of a pilot programme by the Federal Aviation Administration. The aim is to make good an airport development shortfall of up to $4 billion.

But it is in Europe where the pace is being set. The UK's long-privatised BAA, is aiming to become a global group. Already it operates or manages airports in Europe, Australia and the USA. Italy's ADR, which took a minority stake in the South African airport system and SEA, which took over the bulk of Argentina's airports, too have global ambitions as the dress themselves up for privatisation. ADR is looking for another airport in the "south" possibly ahead of privatisation, says Armando Brunini, head of strategic planning.

The jury is still out on which operators will eventually emerge as global groups, but Schiphol, Frankfurt and Aeroports de Paris (ADR) are potential European players, while private US operators such as AGI and Ogden are also being watched. Mirroring the gathering airline consolidation, observers predict that the world's airport business will come to be dominated by only some six airport companies. Around half of the world's passenger traffic is already concentrated among the top 50 airports (see rankings on page 54). And the number of owners is less than that.

Low cost airports

The new commercialism is not confined to the major hubs. Just as no-frills carriers have sprung up to challenge the the network majors, so smaller regional or downtown airports are beginning to fight for new business. Often backed by low-cost carriers, they are offering a lower cost, hassle-free alternatives to the overcrowded and expensive hubs.

Mike Howarth, managing director of Manchester-based consultants Airport Strategy & Marketing, points to the aggressive marketing efforts of the "low cost airports" in Europe, now out selling their advantages to an increasingly receptive audience of low cost airlines. "Every airport is employing at least one marketing person," he says.

These airports too are turning to the private sector in increasing numbers to fund their ambitions and retain cost advantage. UKroad and rail transport companies such as National Express and Stagecoach, and diversified property firms such as TBI and Peel have already got in on the act in Europe.

There is clearly money to be made from the airport business as a glance across the returns form the major operators shows. BAA is now on course to become a $3 billion business and, thanks to its post-privatisation concentration on retail and property, and has kept net returns at an impressive 22%. Latest ACI estimates put the world industry's operating margins at the 20% mark, around

treble that for the airline business.

Notable too is the fact that BAA has achieved such results while holding charges down - a condition of the privatisation. "All airports face intensified cost pressure from their carriers," adds Adrian Williams of aviation advisors Hawkpoint Partners. In part, the efficiencies brought in by private-sector managers will help cope with this pressure, says one airport analyst, adding that they are also less likely to pursue needlessly expensive national prestige projects. Competition should anyway undermine traditional airport monopoly power. "It may even result in a net transfer of income from to the airlines as airports outdo each other to attract traffic," he says.

On the downside, there is evidence that the competitive rates offered to airlines to attract business to local communities will become less common as hard-nosed private owners seek to maximise profits. The betting is for a greater variation of charges in future, with those airports seeking to grow rapidly offering the best deals.

There may be other negatives. Williams at Hawkpoint worries that some of the recent private buyers have been "overpaying" for their recent airport acquisitions. This should send a "scary message" to airlines says Anders Sviden, director of government charges at SAS and charges chief for the International Air Transport Association (IATA). The fear is that high purchase costs will tempt private operators to raise charges, once price caps are lifted - typically five years after privatisation. "We don't want to see privatisation being about taking money from civil aviation," says Sviden.

In Europe, these worries are compounded by a proposed European Commission

directive which gives the green light to environmental-related charges, peak period charging and cross-subsidisation within national airport systems. Proposed European regulations on the area, building on ICAO recommendations, are slated for introduction by 2002.

To cope with the post-privatisation world, IATA is trying to persuade airports to sign up to a "use agreement". The proposed contract will make "rights and obligations" legally binding on airports and airlines alike and would cover service standards, consultation and dispute procedures.

But airports are not enthusiastic. They believe airlines are becoming less rather than more committed to individual hubs, especially in the wake of global alliance partnerships. In the words of Schiphol's Zeverijn airlines are now "shopping around for capacity". Welcome to the brave new world of commercialisation.

World airport finances 97




$15.2 billion


$12.9 billion


$28.1 billion


$15.4 billion

Operating profit

$5.6 billion


Source: Airline Business