Already strained relations between the main airline and airport trade bodies on charges are at a new low, with airport organisation ACI telling its members to bypass IATA and talk directly with airlines
After a troubled few years, the respective trade associations of the world’s airline and airport industries appear to be heading for a trial separation.
This was the clear message from the Airports Council International (ACI) annual general assembly in Auckland, New Zealand during early November. ACI director general Bob Aaronson made it plain that on the crucial issue of charges negotiations, ACI planned to go it alone. “We can no longer rely on IATA as a serious industry partner when it comes to business issues,” he told airport delegates. Instead, airports should negotiate directly with airlines.
IATA’s response showed that it was not about to turn down the volume any time soon. Pointing out that the organisation represents 96% of scheduled international traffic, IATA director general Giovanni Bisignani responds: “ACI has failed to lead its members towards the efficiency that is the reality of aviation today. Quite simply, the air transport industry can no longer afford archaic airport business models that take advantage of monopoly positions to hide inefficiency and rake in profits.” Hardly conciliatory language.
In short, the strained relations between ACI and IATA have hit a new low, having been increasingly under pressure since the post September 2001 downturn. The disparity between the often healthy profit margins of airports and the well-documented financial woes of the airline industry has been a particular source of friction. Figures compiled by Airline Business online sister Air Transport Intelligence show that average airport operating margins for the world’s top 100 airports in 2004-5 were over 20%. The top 150 airlines in the world, in contrast, are just above breakeven.
IATA’s post-9/11 campaign was led by a then relatively new director general, Bisignani, who has tended to eschew diplomatic niceties, whether he is talking to governments, air navigation providers or governments, believing that straight talking is the best way to get his message across.
This has certainly ruffled a few feathers, a notable example being the ACI annual general assembly in Tokyo in 2002, where he took the opportunity to berate the Japanese over charges at Tokyo Narita, which led to a walk out by various local dignitaries. This has not been forgotten by ACI, which clearly feels irked by the public beratings from Bisignani. “We need not respond to those who criticise us mindlessly and shout – rather impolitely, ” says Aaronson.
For his part, Bisignani believes a bit of plain talking is the only way to bring about change in an industry that developed in a highly protected environment. Aaronson, who makes it clear that Bisignani remains a personal friend of his, is at pains to point out that in areas ranging from technology to security the two organisations will continue to work together. For example, IATA and ACI recently co-hosted the AvSec security conference in Geneva. “In these types of areas, we have a great track record on co-operation,” he says.
He also expresses his admiration for the way that IATA got its message across after 9/11. “They did a very affective job in pointing out that these are not normal times,” says Aaronson. He adds that he has some sympathy for those advocating a need to move away from the diplomatic niceties that had characterised the industry in the age of state control of aviation.
He makes it clear, however, that ACI believes IATA has now gone too far. Rather than pointing to any particular speech or airport charges campaign, Aaronson says it is a culmination of both. “They keep on shouting, and we are not going to take it any more.”
He makes the comparison with a domestic argument. “There can sometimes be tension, which leads to outbursts, but if there are constant attacks you can’t live together.” He adds: “I meet Bisignani all the time, but this is simply not getting us anywhere.”
Aaronson clearly feels the ball is now in IATA’s court. However, he also feels that it is time for the airlines and airports themselves to make more effort to communicate. “Trade associations are important, but they need to be the coaches rather than the prime movers,” he says. “I would like to have a high level dialogue initiated between the two industries,” adding that this should be at chief executive, or at least chief financial officer level.
For its part, IATA expects business as normal, and believes that many airports will feel obliged to involve IATA in talks, and that in some cases IATA involvement is mandatory. Most trouble is expected from airports where relations are already somewhat frosty.
Worsening relations
Julian de la Camara, who runs his own consultancy but worked in IATA’s user charges division until 2004, says the move marks a sharp deterioration in relations. “There was always friction in the IATA/ACI relationship, but at least there was discussion. And where there is discussion, there is hope.” He adds: “During my time at IATA we put together some joint position papers with ACI. It looks like that time is over.”
The deterioration in relations between IATA and ACI comes just as the airline industry body and CANSO, the trade organisation for air navigation service providers (ANSP) have established a close working relationship. Jeff Poole, IATA’s director for industry charges and taxation, was invited to a meeting of the CANSO executive committee in Dallas at the end of October. “Our relationship with CANSO is excellent,” says Poole. The two organisations are working closely on developing commonly agreed benchmarking systems to measure productivity, something that has proved elusive with airports.
Bisignani picks up on this point. “If ACI disagrees with our analysis, then ACI must accept our long-standing request to transparently benchmark efficiencies in the same way IATA and ANSPs do with the leadership of their progressive association CANSO. There is nothing to fear but the harsh reality of what truths the numbers may reveal.”
Aaronson puts the lack of a common benchmarking system down to the relative diversity of the airport industry. “Air traffic control (ATC) is much more homogenous,” he says. “If you look at New York La Guardia and Singapore Changi, they are totally different. ATC tends to be ATC.” However, IATA’s Poole says that, if anything, ATC is more complex, from both a technical aspect, with all the variations in airspace forms, but also through the relations with the government and military.
Ironically, the day after Aaronson’s keynote speech, Copenhagen airport met with IATA and airlines (led by SAS) for an agreement that will last from 2006 to 2008. This comes just as Niels Boserup, the airport’s chief executive, takes over as chairman of ACI for a two-year period. Bisignani, sensing perhaps an inconsistency in ACI’s position, is quick to pick up on these developments.
“The relationship that IATA has developed with Copenhagen airport is a great example of the transparency that is required to achieve positive results for both airlines and airports.”
The agreement includes the separation of security costs into a specific charge, a “general reduction” of the remaining airport charges and an incentive scheme that will reward airlines for passenger growth by refunding half the passenger charge for the extra travellers. The current handling charge of DKr10 ($1.50) for departing international passengers and DKr5 for departing domestic travellers will be fixed for the period of the agreement.
Copenhagen, or rather the Danish government, adheres to the light-handed regulatory philosophy, with no specific price formula. Peter McKenzie-Williams of UK-based transport consultancy TRL notes that there were no increases from 1993 until 1999, or from 2000 until 2003, when an increase of 2.7% for a three-year period was agreed. “One could point to Copenhagen as offering a pretty good deal,” he says.
Private moves
Copenhagen is also something of a topical airport because it is being acquired by Macquarie Airports, a specialised fund for the airport sector. Airlines have grown increasingly suspicious of the privatisation of airports, complaining about what they see as a transfer of publicly controlled monopolies into private monopolies. “Airlines get hit by a double whammy,” complains Poole. “Firstly, governments try to fatten up airports in the run up to privatisation. Secondly, if you look at the bidding process, the winner tends to be the highest bidder. And they need to recover the money they have made on their investment.” In short, IATA believes that airports are natural monopolies, and regardless of ownership, they need to be regulated.
Aaronson does not agree. “I hear this argument all the time from airline chief executives,” he says. “Look at the competition between Hong Kong, Singapore, Bangkok and Kuala Lumpur, or London Heathrow, Paris Charles de Gaulle and Frankfurt.”
At its annual meeting, ACI called on states to end “arbitrary and costly regulation of airports” and Aaronson says that this was made with the Pacific basin region, where the conference is being held, very much in mind.
In Australia and New Zealand there has been a move from regulation to price monitoring, something which ACI sees as an example for others to follow. “Less regulation is working well,” says Aaronson. “IATA has been advocating there should be more regulation. This is nuts. Regulation brings higher costs,” he adds.
Sydney Kingsford Smith Airport offers a good example of innovation in airline-airport relationships. The airlines, led by home carrier Qantas, struck a deal with the airport that has done away with landing charges completely, and replaced them with a per passenger charge. De La Camara argues this could serve as a useful model for other airports.
He also points to the UK as an example where regulation can work well, but points out that even here the Civil Aviation Authority is trying to minimise the amount of work it has to do, encouraging the country’s leading airport operator BAA, and airlines, to find as much common ground as they can before it has to step in.
McKenzie-Williams notes that there can be some unintended side effects of the UK’s RPI (inflation)-X formula for setting charges. Pointing to the below inflation pricing formula that affects Manchester and the main London airports, he says that this puts Birmingham International at a disadvantage, as the latter is effectively price constrained due to the need to compete with its near neighbours, especially for charter traffic.
There is a chance that regulation in Europe could increase, with the European Commission looking at the possibility of a directive on charges. However, observers doubt this will come to much – de la Camara notes this is at least the third time that Brussels has floated such an idea.
Despite the battles between the trade associations, there has actually been some significant progress made on airport charges this year, including Narita, where talks between airlines and the airport authorities had dragged on for three years. The breakthrough this year came as the two sides debated the need for a new fuel farm, something that airlines thought was unnecessary. Narita eventually agreed not to build one, with a one-off saving to airlines estimated to be as much as $100 million.
These talks led to a breakthrough on the wider issue of airport charges, with IATA estimating that a new agreement covering the next three and a half years will save airlines some ¥6.5 billion ($55 million) a year. Prior to this, airlines were faced with an offer that would have seen landing charges decreased, but increases in fees for parking, use of boarding bridges and passenger charges, among others. Many of these extra charges were thrown out under the new deal.
Toronto breakthrough
Toronto Lester B Pearson airport, like Narita something of an ongoing project for IATA, is still awaiting a similar breakthrough. However, a dispute over crown rents charged by the Canadian government has, at least, seen airlines and the airport on the same side of the desk in negotiations with the government.
Introduced in the mid-1990s as a means of ensuring state assets were not sold off too cheaply, crown rents have been something of a bugbear for both airlines and airports in recent years. IATA, along with Canadian airports and their users, has been calling for the rents to be eliminated now that they have served their purpose. In May, the government announced what it claimed was a 50% reduction in rents, with a saving of C$8 billion ($6.7 billion) over the next 20 years. However, IATA and others have pointed out that this more of an avoidance of future costs rather than an actual reduction of costs.
Some C$5 billion will be to the benefit of Toronto, but the airport and its users are still far from happy, pointing out that the airport bears a disproportionate amount of the crown rent burden. Toronto is paying around two-thirds of the total system-wide rents, but accounts for only one-third of Canadian traffic, IATA complains.
Bisignani points to the progress IATA has made with airports around the world, paying particular attention to Narita. He also offers a hint of an olive branch, pointing out that not all airports are guilty of the same sins. “We have many great partners,” he says. “There are plenty of great examples to follow and there is no time to waste sitting in conclave trying to protect the prehistoric practices of a few airport management teams that refuse to adapt.”
However, there is little sign of any immediate reconciliation. And a cooling off period may be no bad thing. There is also hope that, with both organisations based in Geneva, personal relationships may help smooth things over.
COLIN BAKER/LONDON Analyses by FABRICE TACOUN
Source: Airline Business
