Europe's flag carriers may be leading the charge into the brave new world of liberalisation, but there are signs that the region's airports, too, are beginning to wake up to some of the new commercial realities of running as efficient businesses rather than as government arms.
Airports have been investing at around $4 billion a year, including the new Münich Airport and terminals at Frankfurt, Paris and Vienna. In a recent paper on the sector, Mercer Management Consulting estimates that another $65-80 billion will be spent over the next ten to 15 years as new projects come on line, such as plans for an international hub at Athens and Berlin Brandenburg, and a massive fifth terminal at London Heathrow. More will have to follow if European passenger traffic is to live up to the forecast of doubling over the next 15 years.
With governments already under pressure to cut public spending, it seems that the onus for raising funds will fall on the airports themselves. In short, airports will increasingly have to compete for business and for private financing. Privatisation of the BAA in the UK and partial privatisations at Vienna and Copenhagen are examples. It argues, however, that there is more commercialism to come.
Retailing opportunities have emerged as a highly lucrative stream of revenue, although some do it better than others. BAA, among the most aggressively commercial operations in the world, long ago saw commercial earnings at London Gatwick and Heathrow overtake its income from aeronautical charges, which are anyway capped by the UK Government.
To help put some figures on the relative performance of the airlines, the Symonds Travers Morgan consultancy has added to its established survey of airport user charges, with a set of key performance indicators for a group of leading hubs. Among these is a listing of revenues per passenger including aeronautical charges (landing/parking/fee income)and retail rents or concessions. The figures are taken from annual reports translated into SDRs, an international currency measure now worth around $1.2.
performance indicators
The figures show that, even with relatively low charges, arch retailers like the BAA airports and Dublin, have managed to climb up the ranking. It also reveals the extent to which others could further develop retail strategies.
Mercer adds that potential customers are not confined to passengers. Frankfurt for example takes around 13%of commercial revenues from employees and 11%from other non-flying visitors, including local residents. Amsterdam and Vienna have developed similar neighbouring businesses.
Airports, too, can do more to influence passenger throughput, argues Mercer. Although there is little an airport can do to increase demand for origin and destination traffic, a battleground is opening up for transfer passengers aided by the major carriers' hubbing strategies.
Transfer traffic represents around 45% of traffic at hubs such as Copenhagen and Frankfurt , 40%at Amsterdam and a growing 30%at Heathrow. As other heavyweights such as Air France and Swissair develop hubbing strategies, so the opportunities increase for their home airports. Mercer points to strategies at Frankfurt to offer short, reliable, stopovers of no more than 45min, regardless of airline. Ease of transfer between flights, preferably within the same terminal are crucial - a key argument for going ahead with Heathrow's terminal five. Shopping and leisure options can also influence passenger choice in choosing routes and hub.
Finally, airports can encourage their airline customers to use them for hubbing by offering better service levels and costs, possibly reducing or even waiving landing fees for a carrier's transfer traffic. Such moves would be much welcomed by Europe's carriers, faced with a bewildering spread of taxes and charges for fuel, handling, noise and navigation, around the region. A 1996 study by Cranfield College of Aeronautics revealed a massive spread in average airport turnaround costs and in the rate at which the costs are growing (see graph).
Perhaps the most pointed observation from the study is that competitive price and service structures between airports are "-often based on rumour rather than fact". As the spotlight turns on to airport performance and new competitive measures emerge, perhaps the airline industry will finally see some more order and balance in Europe's airport charges.
Source: Flight International
