Since the last assessment of aircraft turnround fees at European airports by Cranfield University in 1994, airline costs themselves have continued to fall. Yet over the same period, few airports have managed to reduce the user costs they impose on airlines.
A comparison of charges in 1994 and 1996 shows that fees have risen by more than 10 per cent at the nine airports covered by both surveys (see Table 2). Rises were far from uniform: ground handling at Frankfurt shows an increase of over 25 per cent, while Athens recorded a modest 2 per cent rise. Both Frankfurt and Athens increased airport related charges by around 10 per cent, but at Brussels, where the operating companies are attempting to recover their investment in the new passenger terminal and apron, charges shot up by almost 25 per cent.
Manchester and Madrid were unique in reducing their airport related charges. At Manchester the fall was around 12 per cent, reflecting the airport's policy to encourage use of the airport by large aircraft - the cost of the B747 benchmark operation fell by over 20 per cent.
These are the conclusions of a study recently completed by the Air Transport Group at Cranfield University, sponsored by Aena, Spain's airport and air navigation authority. The study splits turnround costs into airport related charges and ground handling fees. Fuel costs are excluded from the report presented here.
Five benchmark operations, compiled to represent operations typical at European airports, are costed in detail; three are shown here (Table 1). Airport related charges are those associated with aircraft movements, the provision of terminal services such as airbridges, and per capita charges levied on passengers. Ground handling covers passenger and ramp handling and the costs of employing agents to supervise these activities.
At most airports ground handling charges are negotiable and agreed rates depend not only on the times and frequencies of operation, but also on the carrier's negotiating power, the extent to which ground handling arrangements may be reciprocal and the geographic spread of the contract. Unfortunately, Frankfurt airport and Iberia were unwilling to reveal the levels of discount our benchmark operations might attract: as this attitude was identical in both study years the comparative increase should be accurate.
The 1994 report painted a picture instantly recognisable to European carriers: a wide spread of costs for airport related services, and low levels of service and high costs for ground handling at airports with ground handling monopolies. Frankfurt stood out as an exception among the monopoly airports, providing exemplary ramp and passenger handling services, but at the highest price.
Little has changed in this general picture. Based on charges for the 12 months to April 1996, Frankfurt still heads the list of study airports in terms of ground handling costs (see Table 3), with Paris/Charles de Gaulle a close second. Although there are two providers of ground handling services at Charles de Gaulle, the de facto choice is severely limited, with Aéroports de Paris and Air France splitting their operations neatly between the two terminals. Airports with multiple service providers encourage the most intense levels of competition, as shown by the positions on the cost index of London/Gatwick and Amsterdam, each with three ground handling agents. Discussing the European ground handling scene with airlines, it quickly becomes apparent that the state-owned carriers of southern Europe, given monopoly status as ground handling suppliers at state-controlled airports, tend to offer the poorest levels of service at relatively high cost.
The explanations offered by airports restricting the supply of handling services to a single provider follow the same pattern in both the 1994 and 1996 reports: congested aprons, the need to ensure availability of handling services throughout an airport's opening hours, and a requirement for high levels of service. That for many of these airports the monopoly provider is the national carrier, and the provision of ground handling services represents the only profit making activity carried out by the airline, is not normally advanced as an explanation for the lack of competition. For an airport to deny that a monopoly exists because carriers can carry out their own ramp and passenger handling is disingenuous: the investment in equipment required to support a ramp handling operation is prohibitive for a carrier with less than about five turnrounds per day, unless it can sell services to other airlines.
Frankfurt explains monopoly status and ground handling prices among the highest in Europe by citing potential apron congestion, high employment costs and the levels of service offered. However at Düsseldorf, where competition exists on the ramp and in passenger handling, ground handling costs are significantly lower.
In terms of airport related charges the range is still wide (see Table 4), but the spread has no systematic explanation. It might be expected that airports providing the best infrastructure would appear at the top of most lists of airport related charges. Indeed, Frankfurt, Amsterdam and Charles de Gaulle do head the relevant tables, but the appearance of Athens among them can only be explained by the Greek authorities' desire to fund the development of the new Athens airport through user charges at the Greek capital's current one.
The Spanish airports in the study, Madrid and Santiago de Compostela, impose charges well below average European levels, defying the notion that a state-owned organisation operating 45 airports must be inefficient. Moreover, Madrid is pursuing major landside and airside developments.
Airport related charges are low at Stockholm/Arlanda airport, where the airport operator seeks to offset the effect of the imposition of 25 per cent VAT on domestic air travel by reducing passenger charges.
Since the 1994 study the UK government has introduced a departure tax. Although the objective is fiscal rather than aviation related, the tax is collected from passengers by airlines and so is no different from a user's point of view than an additional passenger departure charge. For this reason it is included in the analysis, lifting the position of UK airports towards the top of the cost league.
The superficial similarities to the results of the previous study mask a changing environment in European ground handling, changing attitudes towards the provision of ground handling services on the part of some airport authorities, and widely disparate philosophies in fixing the structure and level of airport related charges.
In December 1995, the Council of Transport Ministers adopted a common position on access to the ground handling market in the European Union. This was passed by a majority, with Austria and Germany voting against the proposal. Although no directive has been issued, the position was accepted by the European Parliament in July 1996, subject to some amendments. This plainly shows a collective will to liberalise, but the proposed programme is generally regarded as insufficient by carriers and those waiting to enter the restricted handling markets. Airports currently providing monopoly handling services were no doubt relieved to find that the eventual legislation is likely to allow exemptions on the grounds of apron capacity constraints, the justification most frequently offered for restricting choice in ramp handling.
Europe's airlines face intense competition in a liberalised air transport environment. All but the most entrenched of the state-owned dinosaurs have fought hard to reduce costs. It is, therefore, galling for carriers to see monopolies thriving among their service providers, particularly when many of these are departments of the most inefficient European airlines. The more market-orientated carriers must despair at the thought of having to subsidise the inefficiencies of their competitors in this manner.
Airlines dislike monopoly handling environments on grounds other than cost. The monopoly handler is likely to be the airline's competitor. For example, Sabena flying into Madrid is handled by its major competitor on the Brussels-Madrid route, Iberia, which controls allocation of ground handling personnel and equipment at Madrid and has access to commercially sensitive information on Sabena passengers. There is no suggestion that Iberia abuses its position in either of these respects, but in interviews some carriers voiced mistrust of similar situations at other airports.
In particular, many charter carriers continue to believe that their interests are not regarded as equal to those of national carriers, where these also operate as sole suppliers of ramp handling services. Charter airlines often need to employ local agents to supervise the activities of monopoly handling companies to ensure that contracted levels of service are delivered. At Faro airport, TAP Air Portugal offers to absorb this expense by supervising its own handling services: this apparently bizarre arrangement appears to be working well.
A major change in Europe has seen Spain adopt a programme of ground handling liberalisation. Tenders are out for handling at Madrid and other airports, in competition to Iberia, while at Tenerife a second handling company has begun operation. Ironically, the consortium that has broken Iberia's Canary Island monopoly includes Frankfurt airport, which continues to enjoy protected status at home.
Larnaca airport is an example of a benign monopoly: ramp handling here is performed exclusively by the Cypriot civil aviation authority, while passenger handling is open to any organisation able to negotiate a check-in position. This results in total turnround costs among the lowest in the study (see Table 5). The cost of a standard ramp handling package is included in the landing charge, with the provision of additional services charged separately. This distorts the position of Larnaca in the cost indices tables, where its airport related charges are relatively high compared to the other 13 airports, while its handling charges are low.
Aircraft movement charges and passenger related charges represent a major cost item beyond the control of airlines. And the market offers no help here, as the concept of direct competition between airports is largely meaningless. Marketing and logistical considerations supersede cost savings where alternative airports exist to serve a destination. With their high ratio of landings per available seat kilometre, regional operators are particularly sensitive to airport charges.
The structure of charges is broadly similar at all the study airports: weight-based landing charges, aircraft parking generally free for up to three hours, and a per capita charge on passengers. But exceptions abound, among them London's airports, where Gatwick's landing charge is a unit rate, and Heathrow's unit rate varies according to peak times. The system in force at Heathrow effectively penalises operators of regional aircraft, who incur a peak charge of twice the off-peak rates, while operators of aircraft over 50 tonnes experience a differential of only 1.4. The airport operator BAA has said it is phasing out peak charges.
What does distinguish the airports is the level of charges. Icao suggests that charges should reflect costs incurred in providing the service. Thus it might be expected that across a continent with broadly similar labour rates and infrastructure costs, similarly sized airports offering the same service might charge similar fees. It is therefore difficult to explain in economic terms why airport charges attached to the turnround of a Boeing 757 should be over Ecu3,500 (US$2,880) at Manchester and under Ecu1,500 at Madrid. Manchester generally has among the most expensive airport charges for all benchmark operations except for the regional turboprop.
Most airports offer discounts to carriers operating new routes, although the duration of the subsidy and its depth vary. There are also other, less easily justified discounts offered by a number of study airports. One of these is a volume discount generally based on the number of landings in a given period, which means the greatest beneficiary is the national airline. Thus Sabena benefits at Brussels, Iberia at Spanish airports, TAP in Portugal and Cyprus Airways at Larnaca.
For example, a carrier performing over 200 landings in a month at Madrid and Lisbon can expect a discount of around 65 per cent of the normal landing charge, while at Larnaca 1,400 landings are required in a year to qualify for a discount. At Brussels, the discount is based on the value of landing charges each month, rather than on the actual number of landings.
Charges on transfer passengers can also attract discounts and represent a large proportion of passengers at many of the airports in the study: almost 50 per cent of total passengers at Frankfurt and Amsterdam, 34 per cent at Heathrow and around 20 per cent at Brussels and Paris/Charles de Gaulle. The smaller throughput of transit passengers - those arriving on a flight and continuing on a service with the same flight number - attract an airport charge only at Manchester.
A majority of airports charge the same for transfer passengers and terminal passengers, but a number of airports make no charge at all. The cost-related basis for levying no charge is unclear: transfer passengers after all use terminal facilities and their baggage requires sorting between the two flights. Indeed, these passengers may require special services such as rapid transfer, and all or most will need to pass through some security check between flights.
Amsterdam levies a charge of DFl2.60 (US$1.50) on transfers against DFl18.40 charged for terminal passengers, a concession worth around US$40 million in 1995. Frankfurt, like Heathrow and the majority of the airports in the study, charges the full rate on transfers. Exemption, partly or in full as at Athens, Brussels and Charles de Gaulle, may be seen as a means of promoting the airport as a hub, or more cynically as an indirect subsidy to the incumbent carrier's hub costs.
Source: Airline Business
