Frictions on the runway

A debate on what constitute fair or reasonable airport charges will heat up this summer as the European Commission prepares an EU-wide directive on the subject.

Although airports and airlines have every reason to get along, because they are dependent on each other, but relations have been strained in recent years as all parties seek to reduce costs.

Airports defend their imposition of charges by warning of an imminent 'capacity crunch'. Investment is needed to improve capacity and, given the reluctance of public authorities to foot the bill, airports must improve their revenue stream to make those investments, they argue.

According to Airports Council International Europe (ACI Europe), a lobby group representing airports, airline traffic is expected to double by 2020. That will require investment in runways, terminals and baggage-handling, as well as in car parks and shopping, which are an increasingly important source of airport revenue. Airports will have to invest large sums of money in increasing their capacity: €8 billion over the next decade according to ACI estimates.

The airlines in turn claim that airports are abusing their monopoly position, extracting up to 10% of airlines' total operating costs for airport and air traffic control charges.

They regard a capacity crunch with trepidation, fearing that it will weaken their bargaining power, and that airports will hit them with additional charges, at the same time that they must cope with stringent security requirements, rising fuel prices and increasingly tight margins.

"It's quite incredible," says Anthony Concil, spokesperson at the International Air Transport Association (IATA), which represents airlines. "You have a monopoly provider of infrastructure like Heathrow making a 42% profit margin. We would like a directive on charges that would include a strong requirement for national regulators to challenge the airports in the absence of competition to increase efficiency."

Oliver Jankovec, director of strategy at ACI Europe, claims that airports, which have had to diversify their business models to create new sources of revenue, are actually cross-subsidising airlines by investing more on infrastructure than is being paid for. "We know that even if we lower charges, airlines will not pass on savings to passengers, but to shareholders," he said.

"Airlines say they are not making money as they cannot handle costs. Even if we gave them a free ride they would still be loss-making. The IATA campaign is based on misunderstanding and biased information."

Airlines accuse airports of inefficiency, comparing figures such as the overall drop of 30% in consumer prices for air tickets with rising airport infrastructure costs of 13% per passenger in Europe in the past four years. "If the airports are making money, that's fantastic," says Concil, "but we'd like to see an increase in overall efficiency. Who is paying at the end of the day? It's the traveller that pays the airline that goes on to pay the airport."

The poster child for the bad behaviour of EU airports is undoubtedly Aéroports de Paris (ADP), which, according to IATA, hit passengers with a 44% increase in charges between 2001 and 2004. To the fury of airlines, the French government went on to give its blessing to increasing fees by 5% a year until 2010 to build new facilities at Charles de Gaulle Airport and Paris Orly.

But not all airports are in IATA's bad books. Concil highlights the case of Manchester airport, which was able to reduce costs per passenger by 38% from 2001 to 2004 by efficiency gains. Rome and Birmingham in the UK also receive praise for reducing charges by 25% and 13% respectively. "It's a mixed bag," he says. "Clearly, there is the need for consistency at EU level. It is the job of the Commission to make the sector more competitive."

Transport Commissioner Jacques Barrot has vowed to take action on the issue, promising a directive on charges by the end of the year. "We have to pursue opening markets in a balanced way, eliminating obstacles which damage us," he said at IATA's annual meeting last month in Paris.

ACI Europe is urging the Commission to take a light-touch approach to regulation of charges. "A one-size-fits-all approach will not work as there are huge variations in the business models of airports," says Jankovec. "IATA have a history of making audacious claims. We are happy to cross-subsidise by investing in infrastructure, but they should not complain."

For the time being, it seems, airlines will continue complaining. "ACI is living in another world," says Concil. "We regard airports as partners. But sometimes they forget that the reason why people go to airports is not to shop, but because they want to take a plane. If you were to take planes out of the equation, I don't think people would be shopping there."

A debate on what constitute fair or reasonable airport charges will heat up this summer as the European Commission prepares an EU-wide directive on the subject.