By Olivier Jankovec, Director General, ACI EUROPE
This is it. Once again, aviation has entered a period of heavy turbulence. It all started with an unprecedented rise in oil prices and just as the pressure eased, there came what many portray as the worst financial crisis since the great depression of the 1930’s.
As this crisis has already spread around the world, impacting ‘from Wall Street to Main Street’, demand for air transport in Europe will continue to decrease in the coming months. Of course, airlines are the first to suffer. Initially hit on the cost side with oil prices, they now see load factors and revenues going down. But airports too, are far from immune.
Fewer flights and fewer passengers mean that airports take the hit on both their aeronautical and commercial revenues. Indeed, ETRC recently reported that retailing revenues were already flat for the first six month of the year, that is even before traffic started decreasing in several markets. Against this background, being asset-heavy enterprises means that airports have limited possibilities to reduce operating costs, in particular when it comes to safety and security. Moreover, as airports also happen to be highly capital-intensive businesses, an escalating cost of money or even the unavailability of financing only adds to the challenge.
Certainly, European airports are better geared to face this crisis than preceding ones. The positive evolution of airports over the last 15 years has seen them becoming commercial entities, operating just like any other business. This means that they are now more flexible and able to respond to market pressure. Charging policies have indeed evolved considerably, with incentives and risk-sharing schemes working to the benefits of airlines.
Airports are also more conscious than ever of the need to strive for operational improvements that generate efficiency and savings for their clients.
Still, this crisis appears to be different, with potentially far-reaching repercussions on the structure of the European aviation market. While a small number of airlines have exited the market, airline consolidation is finally set to happen, heralding the start of a new era for European aviation.
Fewer airlines and the pre-eminence of a limited number of airline groups will only heighten the competitive pressure on airports. This trend will actually reinforce what many airports, especially regional ones, are already experiencing: the fact that airlines can be the very dominant party in the airline-airport relationship. Under such circumstances, it is crucial for European airports that consolidation finally allows airlines to become viable businesses. Economic viability will indeed be a prerequisite if airlines are to finally accept paying a fairer share of the cost of the airport infrastructure and services they use. Beyond this, economic viability will also be a prerequisite if airlines are to be in a condition to develop their network and, together with airports, fulfil the aspirations of Europeans for more sustainable and even greater mobility.
Although limited so far, experience tends to show that consolidation does not per se guarantee economic viability for airlines. Consolidation can only be one part of a delicate equation, where strict corporate and market discipline is paramount, but where the right policy and an adequate regulatory framework are just as important. In this regard, European aviation is clearly at a crossroads with the re-launching of the Single European Sky, renewed efforts to relax outdated airlines control and ownership restrictions and the inclusion of aviation in the EU Emissions Trading Scheme. All three issues are key in the viability equation. Depending on which direction will be followed and what will be achieved, they have the ability to shape European aviation for the better… or for the worse.