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Time for reflection: Airport charges

By Jackie Thompson and Brendan Sobie

Airports and airlines continue to battle over charges. Will warmer relations at some airports and new European regulations change the scene?

Although the slanging matches of the past have subsided somewhat, airport charges continue to exercise the minds of the world's airlines. IATA's aggressive public campaign against what it sees as excessive charges from airports in a monopoly position has calmed over the last several months following a long series of vicious attacks against several major airports. The debate seemed to reach a peak a year ago when Airports Council International (ACI) launched a counterattack on behalf of its infuriated members, claiming IATA had manipulated the facts.

Relations have since improved somewhat, and airports claim it was really never as bad as IATA made it sound. But airports and airlines acknowledge their relationships have always been at times strained and the contentious issue of airport charges will simply never go away entirely. "That issue will always be there. It just kicks around," says Vancouver International Airport Authority chief executive Larry Berg.

"There's been a lot of fighting between the trade associations, but there are good relations between airports and airlines," says ACI-Europe director general Olivier Jankovec. "Airlines are good partners. When it comes to lobbying in Brussels or elsewhere we should join together. With charges our interests are not the same but there should be a common platform."

Such a platform could be established following the release of a new European Commission (EC) document on airport regulation. This will create a European framework for charging but will let individual states implement the necessary regulations under national law. It is due to be completed in late December or at the beginning of next year.

 
© Auckland International Airport   
"Airports can set charges as they choose" Rob Fyfe, Chief  executive, Air New Zealand

Transparency

"This is a fairly critical milestone and we hope it will be sufficiently broad and deep - and have teeth," says IATA director of industry charges, fuel and taxation Jeff Poole. "We want it to capture all of the ICAO and IATA principles concerning transparency and cost allocation, and member states must have an independent national regulator who is not part of its government or civil aviation authority."

Adds Jankovec: "It's good to have a regulator stepping in and setting a guideline." But he admits the document may not be strong enough to avoid a repeat of events in Italy and Ireland.

The Italian government last year passed without any consultation a new law changing the framework for setting charges at its airports. Jankovec claims the new policy favours airlines by abolishing night surcharges and a pre-existing alignment of airport charges at Italian airports with the rest of Europe.

In Ireland last year the regulator, persuaded by Ryanair's staunch opposition, blocked the construction of a second terminal at Dublin after concluding it was 38% bigger than required. "It's a bad example for transport policy. It isn't good for the travelling public or the Irish economy," says Jankovec. "You prevent an airport from doing its job, building for the future."

Dublin Airport Authority (DAA) director of market development and strategy Tom Haughey says the airport is now operating with too little capacity and passengers are being forced to wait for flights in temporary lounges with no air conditioning and crude toilets. "You have to make the airport experience comfortable to ensure passengers have a pleasurable experience. It's counter-productive for airlines to argue otherwise," says Haughey. "By focusing on something that is not the central problem, which is what IATA is doing, it is distracting from the core problems."

DAA has since spoken to those airlines set to move to the new terminal - which does not include Ryanair - and were told they need twice as much space. The regulator may still not approve the project, which now cannot be completed any earlier than 2009. Ryanair, which is proposing to build its own low-cost terminal, continues to vehemently oppose the project and has filed a complaint with the EC accusing DAA of abusing its monopoly position.

"There's still a great risk a regulatory determination won't be reached that will facilitate expansion of Dublin airport," says Haughey. "This has been reviewed and reviewed while the airport is operating at incredibly low capacity."

Haughey and Jankovec point out Dublin has the lowest airport charges, currently capped at €6 ($7.70) per passenger, among all major European airports. The other European airports that have come under attack recently by airlines have much higher charges and have been steadily adopting increases. Aeroports de Paris (AdP), for example, has increased charges at Charles de Gaulle by 27% since 2001. IATA claims the French government has already approved further 5% annual increases through 2010, a move it says is "fattening the airport for privatisation".

The proposed increase is now the subject of a court case that IATA has brought against both the airport operator and the French government. The case is still in the legal process, says Poole, adding: "AdP is seeking to raise charges while its performance declines by every measure."

Athens, which has the highest charges in Europe according to ACI data, also has come under fire for charging too much since opening for the 2004 Olympics. Aegean Airlines chief operating officer Antonis Simigdalaas says its home airport is the most expensive in its network, including Frankfurt. He says carriers have been lobbying the Athens operator to lower charges, arguing it would stimulate more traffic, but its requests have fallen on deaf ears.

EasyJet has been attacking several airports it calls "gold-plated", in particular London Stansted and its £2.5 billion ($4.7 billion) upgrade plan. EasyJet airport development manager Nigel Fanning claims Stansted's operator, BAA, wants to build "facilities that are neither needed or wanted. All we want is a tin shed and access to our aircraft."

IATA, meanwhile, is concerned upgrades at Stansted, which is primarily served by low-cost carriers, will be partly funded by charges at other BAA airports. "Wherever there is an opportunity to change IATA would like to see it," Poole says. "In particular we would like to see an end to BAA's attempted cross-subsidy for Stansted. What is needed is transparency on such cost-allocation issues."

Airports, especially European, are having a tough time balancing the requirements of legacy and low-cost carriers. Copenhagen Airports chief executive and ACI chairman Niels Boserup suggests it may be time to rethink the way charges are packaged and unbundle them because airlines today have vastly different operating models. But he admits it is impossible to please all carriers because they all want something different and therefore stormy relations with at least some may be unavoidable.

"Our main customers, legacy airlines, won't allow us to have different service for a newcomer," Boserup says. "The question is how can you create different products without upsetting the legacy carriers? It's difficult but you have to find a solution."

Building low-cost terminals, he adds, may placate low-cost carriers but actually does not generate significant savings because the actual building is not expensive to build while other costs including security and technology are the same. He says low-cost terminals are "more of a marketing decision to attract low-cost carriers". Haughey agrees and says DAA does not think it is worth building a low-cost terminal as suggested by Ryanair because "there is only a €2 difference per passenger from comfortable and enjoyable facilities to a breeze box with no travelators".

"The low-cost airline's position is clear - they want to use everybody's infrastructure for nothing and take all the profits," says Sydney airport chief executive Max Moore-Wilton.

Like their counterparts in Europe, airports in Asia, Africa and Latin America are trying to fend off campaigns from IATA and some of its members.

In Africa and Latin America, a long battle is still being waged by airlines to try to stop governments using airports, many of which have high charges but offer minimum services, as a tool to raise general revenues. Poole says IATA in particular is battling concession contracts in Latin America that guarantee governments more than half of the revenues generated. "The fees are very high - up to 60% of revenue can be claimed by the government, which completely ignores the economic benefits to the country that come from air transport," he says. "IATA is currently carrying out a high-profile campaign in Argentina to get the terms of the concession contracts there renegotiated."

Fees fight down under

In recent months, the battle over airport charges has probably been the most intense in Australasia. Air New Zealand (ANZ) has been one of the most vocal airlines and earlier this year launched a campaign attacking proposed increases at Auckland and Wellington airports.

Chief executive Rob Fyfe says ANZ's highly publicised campaign is focused on persuading the government to amend the current regulation or to appoint mediators to help set airport charges. Fyfe claims the current regulation essentially gives airports "a licence carte blanche to print money" because while they are required to consult with airlines before setting new charges they are free to implement their proposals after the consulting process is completed regardless of what the airlines say.

"There is no balance of power in setting these charges," Fyfe complains. "They can set charges as they choose. Clearly the motivation is to set prices as high as they canWe need some form of mediator to look at the airline position and have some kind of influence on the outcome."

Sydney airport claims it has not raised its charges in five years, but is being pressured by airlines, led by Qantas, to lower its charges. Moore-Wilton complains airlines are refusing to support its capital improvement project unless charges are cut. Sydney's last airport charges agreement with carriers expired in June and the current impasse has forced the airport to temporarily extend the old rates.

"We're having difficulty with Qantas because they want an arbitrated settlement by a government body, which is reverting to the past," says Moore-Wilton. "We think it should go to commercial mediation."

Similar impasses, however, have been broken in the recent past without any mediation or arbitration, giving airports and airlines around the world hope that relations can improve.

Tokyo's Narita airport, for example, was at the centre of IATA's airport charges campaign for several years. But the Narita Airport Authority (NAA) last year agreed to a 22% average reduction of landing fees, which range from 31% for the quietest and 16% for the noisiest aircraft.

NAA former chief executive Toru Nakamura says reducing the fees was difficult because Narita is now undertaking a costly project to extend Narita's second runway. This will provide additional revenues from 2009, when the airport's capacity will increase by at least 20,000 movements a year, but over the next few years it will drain NAA's profits as it involves a very costly land acquisition.

"We're trying to increase non-aeronautical revenues but the costs of airport construction and of co-operation with local communities are very high," says Nakamura, now a senior executive advisor to NAA and the airport's representative to ACI. "It's very difficult to meet the request of the IATA side."

Copenhagen and Munich provide another two examples of how airport-airline relationships can improve.

A decade ago Munich airport and Lufthansa teamed up to establish a joint venture to plan, build, finance and operate a second terminal with the objective of increasing their transfer traffic. Munich airport chief executive Michael Kerkloh recalls it was a bold move because "10 years ago everyone would say the natural enemy of airport director is the airline boss". This is still the case at many airports and Kerkloh acknowledges Lufthansa and Munich airport do not always see eye to eye. But the project overall has been a success - the terminal opened in 2003 and is now profitable - and other airports could learn from it.

"It's not conflict free. We argue and argue how to find a solution based on airport economics rather than airline economics. We are always arguing about passenger fees and the cost of services the airport provides. But so far we have always reached an understanding," Kerkloh says.

"Airports are traditionally more long-term oriented. Airlines are generally more short-sighted. Of course there is antagonism. At first glance it's difficult to bring the two sides together. But it can be achieved with a common objective."

At Copenhagen, Boserup says he was able to begin developing good relationships with airlines by not increasing charges for the first seven years after the airport was privatised. He has since convinced the airlines to help cover the cost of improvements although last year he was persuaded to reduce charges. "Dare to be open," he says. "Put the books in front of the customerThey knew all our secrets but it's harder to fight when you know each other so well."

"In practical terms, airlines and airports relate well," says Moore-Wilton, adding he understands why airports have attacked charges.

"They are run by aggressive entrepreneurs who succeed by driving their cases very hard. They build businesses. That's good for aviation. But you shouldn't necessary agree with what they say."

Berlin Airports Group marketing director Burkhard Kieker sums it up: "Airports and airlines have to learn to talk to each other. There's no choice."

"Low-cost airlines want to use ­every-­body's infrastructure for nothing and take all the profits", Max Moore-Wilton, chief ­executive, Sydney airport

Our writers blog from Cairo and Cape Town as Africa's airlines and the world's airports hold their annual get togethers.


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