Airlines believe their long fight to gain leverage over airport charges could bear fruit in Europe, but elsewhere the mood is less optimistic.
To be frank it is probably the worst in the world,” says Rob McDonald, chief financial officer of Air New Zealand (ANZ). He is commenting on the charging regime at Auckland International airport, ANZ’s homebase. “There is no effective regulation whatsoever in New Zealand – the profits being made by airports in New Zealand are obscene.”
Such strong language has been heard from airlines and their associations with increasing frequency in the five years since they stepped up their campaign to tackle what they see as uncontrollable cost increases. The spotlight will turn squarely on New Zealand this year as it enters an airport charges review. It has also focused sharply on Latin America. “This region is probably the worst example we have because of outright fleecing of the industry,” says Jeff Poole, director industry charges at IATA. “Airports are seen as a big revenue earning facility for the governments.”
IATA has lobbied furiously to highlight the charges issue and has concrete results to show for its efforts. For example, after a lengthy battle Tokyo Narita lowered its charges by 10-31%, depending on aircraft type, in June 2005. Since 2003 the association has also worked hard to show that the partial privatisation plan for Hong Kong International airport could raise fees unjustifiably. This plan has sunk, for now, into Hong Kong government bureaucracy. Less hard to judge is the effect airline lobbying has had on charges reviews that received less publicity because they turned out to be modest hikes or even price freezes.
The core worry for airlines is that they feel toothless. “It comes down to a sense that they lack power,” says Ulrich Schulte-Strathaus, the secretary general of the Association of European Airlines (AEA). “Our concern is primarily the market behaviour of major airports in Europe. We find we have little or no leverage when negotiating charges at major hubs.”
IATA’s shotgun approach to this issue is not to everyone’s taste, and irritates those in the airport community that feel many gateways are behaving responsibly and responsively to their airline customers. But it pulls no punches. “They don’t like it when I call them monopolies, but I don’t see any other name,” says IATA head Giovanni Bisignani.
Today’s target is Paris Charles de Gaulle, which Bisignani describes as “our worst offender”, along with the French government. It says that Aeroports de Paris (ADP), which manages the Paris airports system, has increased airline charges by 26.5% in the last five years, while the government has approved a 5% annual increase for the next five. “What business other than an unregulated monopoly can plan such increases?” says Bisignani.
This is taking place against the background of a proposed privatisation of state-owned ADP, which is scheduled this year. At the start of the latest charges review for Paris, ADP suggested a charges increase of 5% plus inflation. The government’s economic consultative committee said it believed a rise of less than 5% excluding inflation was more appropriate. French transport minister Dominique Perben ignored this expert advice and reverted to an increase similar to that put forward by ADP, says Poole.
Fattening up
Put simply, IATA views this as a means of “fattening ADP for privatisation” so that it will sell for a high price, says Poole. “Over the next five years this is in effect improving the financial performance of ADP,” he adds, while paradoxically the cost-effectiveness of the airport falls.
So incensed is IATA with the Paris situation that it believes simple lobbying is not enough and has taken the unprecedented step of taking the French government to court. IATA argues that the minister has not fulfilled his responsibilities correctly in approving the charges hike, and that there are deficiencies in the contract between the state and ADP that have allowed the charges review to proceed in the way it did, explains Poole.
IATA is scathing about the state’s oversight of this process, Bisignani calling the French approach “phantom regulation”. With this situation in mind, IATA’s strategy has been refined over recent months to specify what it sees as the way forward. “We are asking for a European Directive for efficient national regulation of Europe’s airport monopolies,” says Bisignani. A directive is a legally binding decision made by member states.
The aim is to ensure that principles laid down by ICAO on how states and airports should set charges are followed by individual countries. ICAO’s guidelines are universally agreed as fair, setting out principles of non-discrimination, transparency and consultation. But they are just guidelines with no legal force and are applied erratically across the globe.
IATA’s focus in Europe has been to lobby hard to get its message across to the European Commission’s (EC) top transport man, commissioner Jacques Barrot. And it seems he is prepared to listen. “There is far more openness towards the industry than there was before,” says the AEA’s Schulte-Strathaus. “The European Union institutions are saying up front ‘what would you like us to do’?”
This willingness to open a dialogue saw Barrot hosting a colloquium on airport capacity and charges in early April, with views being sought from across the airline and airport divide. This is a significant step by the EC, which has until now largely kept out of the airport charges wrangle. Critically, it appears more interested in consensus building than finger pointing. “In former times we would be caught in the ritual of one blaming the other for being the root cause,” says Schulte-Strathaus. “We invited the regulators to sit back and watch, and see how the industry was fighting it out internally.”
New regulation
For carriers that need action, this is no longer good enough. The airline’s wish is for regulation that “takes the politics out of airport management, complies with ICAO principles, ensures stakeholder engagement…and acts as a substitute for competition,” says Bisignani. In today’s environment this sounds remarkably uncontroversial, and does not get the thumbs down from airports. “The EC drew the conclusion that the broad ICAO principles represent common ground, provided they are applied,” explains Roy Griffins, director general of ACI Europe, which represents the region’s airport community. He believes that “aviation needs to be normalised as an industry, becoming just like any other service industry.
“If you have mature supplier-customer relationships then if one gets into a situation where one is in a dominant position you get competition regulation that bites,” says Griffins. But this does not mean “a one-size fits all regime imposed at a micro level in Brussels”. Griffins, who in his former post at the UK’s transport department in was instrumental in preparing the regulations governing privatised UK airports group BAA, is in favour of a local “independent, knowledgeable regulator”.
Most parties expect the EC to take action, probably in the coming few months. “We have rightly said that we should not expect Brussels to get this issue high on the political agenda, the aim is only to create a level playing field,” says Joergen Lindegaard, chief executive of SAS. “We want an efficient, good airport that people want to come to and that we can rely on. On the other hand normal capitalist rules should be applied to a monopoly supplier.”
ANZ would be delighted to see a regulatory regime with real teeth to watch over New Zealand’s private airports, but McDonald is not optimistic. “We enter the next review with a great deal of trepidation,” he says. McDonald still bears the scars of the first charging review in 1999, when ANZ took Auckland International Airport Ltd (AIAL) to court over its fees proposals and won a review of price controls. But just as it thought it had cleared a major hurdle the bid for restraint was turned down by the government.
Vigorous protest
“We are going to vigorously protest any attempt to increase prices,” says McDonald. “But if history is anything to go by we will have a real battle on our hands.” ANZ objects to the high profits AIAL and Wellington International airport make, and to the capital returns both airports have given to shareholders in the past five years. On top of this there is a NZ$25 ($15) departure fee that AIAL charges departing international travellers, which McDonald says is described as an airport development tax but goes into general airport revenues.
AIAL has said it believes airline requests for more regulation misrepresent the actual situation and that there is comprehensive information disclosure and consultation with key stakeholders. New Zealand’s airports were established under a “light-handed” price regulatory regime and moved to a disclosure regime, a situation similar to that at Australian airports. “We do have a disclosure regime, but it almost promotes monopoly abuse rather than preventing it,” claims McDonald.
“New Zealand is held up in the airports community as a nirvana,” says McDonald. Some argue that if airlines don’t like a particular airport’s approach they have the ability to take their business elsewhere, potentially leaving an airport high and dry. This may be true when carriers are evaluating new routes, but when it comes to whether or not they operate from their home base there is no choice. “We have no countervailing power,” he says. “At the end of the day the airport always imposes its will.” So deep is airline malcontent in New Zealand that it would not be a surprise to see IATA’s campaign trail leading down under some time soon.
Latin American carriers feel similarly powerless in their ability to tackle excessive charging. The Latin American Airlines Association (ALTA) “is trying to educate our governments that airlines shouldn’t be looked at as piggybanks, but as really strong development engines”, says Alex de Gunten, director general of ALTA. However, the privatisation models that many states adopted for their airports with built-in royalty payments of 40-60% of annual revenue persist. “Privatisation created monopolies that basically do what they want,” says de Gunten.
ALTA has made some progress. For example, its pressure helped more positive privatisation models for Panama and El Salvador. But changing the existing royalty schemes is proving difficult. “There is some willingness and we are receiving some positive messages to achieve lower government commissions,” says de Gunten, but there are no concrete talks or negotiations on this issue yet.
The association is trying to widen the discussion before the charges talks begin. “The approach operators and the authorities need to take is to sit down together and put a plan in place that benefits all involved instead of trying to take advantage of one another all the time,” says de Gunten. ■
| Private airports: good, bad or indifferent? There was a time when airlines were generally keen on private or corporately owned airports. The thinking was that private firms would operate more efficiently and be better managed than their state-owned predecessors and that charges might even fall or at worst not increase. This has happened in some cases, but is by no means a universal truth. “Even three to four years ago we were actively supporting the privatisation of airports as a good thing,” says IATA’s director, industry charges, Jeff Poole. Today, airlines are distinctly nervous. Airports are an attractive investment. Like other utility businesses, such as water or electricity companies, the returns are steady and to a degree largely sheltered from the economic cycle. This has led to bidding wars between interested parties. “So they pay over the odds and then increase charges to pay for that overpayment,” says Poole. With more privatisations expected, IATA says the need for independent economic regulation is urgent. Scandinavian flag carrier SAS has been very nervous over the recent acquisition of its Danish hub Copenhagen airport by Australian investment group Macquarie Airports. “They paid 30% higher than the market price and will have a natural desire to get their money back,” says SAS chief executive Joergen Lindegaard. He has met Macquarie Airports chief executive Kerrie Mather. “They wanted to reassure us that they still share the vision of growing Copenhagen and that we have a mutual interest of developing Copenhagen as the main SAS hub. And that I shouldn’t be frightened of the price [it paid for the airport].” Lindegaard’s fears have been somewhat allayed. The UK’s airport charges regulator, the Civil Aviation Authority (CAA), has taken the step of warning potential buyers of UK airports group BAA, which has been the subject of unsolicited bids from highly leveraged takeover groups. “The CAA has made it clear that it will not accommodate in price control decisions the costs and risks arising from any financial transactions entered into as a result of that bidding process. These will be for the owners and financiers of BAA – present or future – to bear.” The CAA is reviewing price controls at BAA’s London airports. New price controls are due to come into force in March 2008. British Airways immediately welcomed the CAA’s intervention, saying it would protect customers at BAA airports from being overcharged to fund payments to BAA’s shareholders during its current bid battle. |
Source: Airline Business
