Italy's obsession with its troubled flag carrier Alitalia has hampered the country's airports sector, argues David Jarach, professor of marketing at Milan's Bocconi University and managing partner of aviation consultancy diciottofebbraio
For the past couple of years or so the Italian air transport scene has been dominated by the future of carrier Alitalia. The final outcome for the nation's ailing flag carrier, and its prolonged drift towards privatisation, still appears some way from reaching a conclusion.
Few have paid much attention to the economic and financial conditions of the Italian airport industry. Nevertheless, Italy enjoys the fifth European aviation market in terms of passengers (behind UK, Spain, Germany and France), with growth trends that have exceeded both Airports Council International and IATA international figures for the past few years. Quite simply Italy's "boot" and population spread makes it a naturally good market for commercial operations.
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"The rapid influx of low-cost carriers into Italy has not been painless for airports"David Jarach |
But the rapid influx of low-cost players into Italy has not been painless for the country's airports. Quite often airport operating results have suffered at the hands of the low-cost model. To be competitive, as airports have done in many other markets, Italian airports have tempted carriers with lower landing fees and other incentives.
The incentives carriers have negotiated from airports can amount to several euros per incoming passenger. But declining aviation-related revenue streams have often not been completely offset by greater non-aviation related revenues generated by the consequent rise in passenger numbers.
In addition, airports have been prevented from raising landing fees, even if they wanted to, by the country's regulator Civil Aviation Authority ENAC. These fees have not been increased for several years, and in fact have been cut to support Alitalia.
Italy is also an intensely competitive airport market. In northern Italy there is a high concentration of gateways with some 30 airports located in this region alone. Few airports have attempted to specialise, preferring instead to use the blunter instrument of pricing to attract business. Here the influence of public bodies as main shareholders, and hence local politicians, is clearly visible. Each airport has been given a duty to grow its passenger traffic year-on-year, even if local catchment areas are not dense enough or incoming traffic is negligible for both marginal tourism attractions or a lack of industrial activity.
In a nutshell, many Italian airports are still acting as market stimulators, and hence are a bonanza for low-cost carriers, but are seldom acting as businesses where the main goal is profitability for long-term sustainability.
ENAC is far from being a real market maker for airports. It operates with significant political interference and has a lack of human and financial resources that are funnelled primarily to main operational bureaucratic tasks. It also struggles to cope with an unclear strategic outlook.
This said, the outlook in the medium term for the Italian airport industry is paradoxically interesting. Already, international financial institutions and other industrial players have been involved in the progress of airport privatisation in the country. And there is natural growth to tap. The propensity of Italians to fly is still a little behind that of the French and Germans, and significantly behind that of UK and Nordic countries.
Therefore it makes sense to develop sound network connections tailored to emerging clusters of Italian flyers. These can be students, middle managers, point-to-point long-haul scheduled and leisure flyers. All could benefit airports, even if high-speed train connections are coming from 2010.
Moreover the regime that regulates the relationship between the Italian state and individual airport authorities is mainly based on a framework that offers concessions for 40 years. This exceeds the 25-30 year spans offered in other European markets, thus giving the operator a chance to exploit additional local monopolistic regimes and benefits.
The performance of Italian airports can be significantly improved by proactive management and the abandonment of political pressures in favour of market-driven approaches. Where private investors or an initial public offering has been part of the picture, as in the case of airports in Turin, Venice, Olbia, Naples, Pisa and Rome, the economic upside has been remarkable.
In the Airline Business blog features editor Kerry Ezard ponders flagging interest in Alitalia's survival saga: flightglobal.com/alitaliablog
Source: Airline Business
