The International Air Transport Association (IATA) calls on the European Union to significantly strengthen economic regulation of major European airport monopolies by focusing on the interests of passengers.
Enforcing greater cost-efficiency at Europe’s airports will feed through into cheaper air fares, stimulate travel and enhance European competitiveness. In turn, this will support jobs and grow the economy.
The case for stronger airport charges regulation is seen in how European passengers have been denied the full benefits of cheaper air travel, as illustrated over the period 2006-2016 in a just-released IATA study:
- The average cost of an air ticket remained virtually the same (including all ancillary charges such as hold bags)
The revenue portion of the ticket price for airlines fell from 90% to 79%
- The portion of the ticket price taken by the airport doubled. Passenger taxes also doubled
Had airport charges remained constant over the 2006-2016 period consumers could have benefitted, on average, 17 Euros per one-way trip. That price stimulus of nearly 10% of average tickets costs would have improved Europe’s competitiveness, and potentially generated an additional 50 million passengers. In turn that would have unlocked 50 billion Euros in European GDP and created 238,000 jobs.
“Airlines, like all competitive businesses, are in a constant struggle to improve efficiency. Europe’s airports however are largely insulated from competitive forces. Europe’s light-handed Airport Charges Directive has failed Europe’s travelers and its own competitiveness by letting airport charges rise. Tighter EU regulation is needed to stop airport monopolies from taking money from the pockets of travelers to reward investors. The goal should be economic regulation of airport monopolies that is an effective proxy for competition—promoting efficiency while protecting consumers. In that regard the voice and interests of airlines – airports’ main customers – should be carefully listened to. This will ensure effective regulation that will broadly balance the interests of travelers, investors, citizens and economies,” said Alexandre de Juniac, IATA’s Director General and CEO.
The trend of increasing private ownership of European airports adds urgency to the situation. Since 2010 the number of European airports in private hands has almost doubled.
“In many cases privatization has failed to deliver promised benefits to passengers and the local economy often suffers the results of higher costs. The balancing role of effective and strong economic regulation is essential,” said de Juniac.
Why is more effective regulation of European airports needed?
Airport regulation in Europe has not responded adequately to the changing landscape in the airport sector. The share of fully privately owned airports in Europe increased from 9% to 16% between 2010 and 2016 while the share of mixed ownership models increased from 13% to 25% over the same period.
Where publicly-owned airports may be considered as benign monopolists, often pursuing economic and social goals to support their local region, this is not the case with privately-owned airports who are driven by investor returns. Increasing private ownership of airports in Europe has not been combined with appropriate regulatory oversight that drives airports to increase cost efficiency and ensure that airports are responsive to consumer demands.
Consumer benefits of more effective airport regulation
Between 2006 and 2016 the average all-in cost of an air ticket bought to fly from an EU28 airport remained broadly flat, increasing by just 2% in nominal terms from €216 in 2006 to €220 in 20161. However, the distribution of revenues between airlines, airports and governments changed significantly. Average airline revenue per passenger2 fell from €194 in 2006 to €173 in 2016 and shrank from representing 90% to less than 80% of the all-in ticket price. At the same time, both airport passenger charges and taxes have more than doubled, with average charges increasing from €16 to €33 and average taxes from €6 to €14.
Macro-economic benefits of lower passenger charges
The increased demand for air travel would have provided a significant boost to the European economy. Lower airport charges would have benefited European businesses through lower travel costs and increased competitiveness, stimulating additional tourism and lastly encouraging the continued development of the European aviation sector. Economic modelling carried out by IATA suggests that the economic boost from cheaper air travel could have unlocked an additional EUR50 billion in Gross Value Added (GVA) and supported the creation of an additional 238,000 jobs across the EU28.
In its Aviation Strategy, the European Commission has rightly identified the need to boost the efficiency of airport services and has engaged in an assessment of whether and how the Airport Charges Directive needs to be reviewed. IATA fully supports the urgent finalization of this assessment under the leadership of Commissioner Violeta Bulc and of her team.