Editorial: Investment Crunch, Cost Recovery & Sustainability – All Part of the Same Equation

By Olivier Jankovec, Director General, ACI EUROPE

As I am writing these lines, our industry has been bracing with the COVID-19 pandemic for more than a year. Yet, with most of Europe still reeling from a third wave of infections, aviation remains in the doldrums. Our latest passenger traffic data for Q1 does look pretty miserable, at close to -83% across the European airport network – and with airports in the EU, EEA, Switzerland and the UK even lower at -88%.

Beyond figures, there is so much to say about this crisis and its enormous human, economic, social and cultural toll. And while we all have been affected in our personal and professional lives to varying degrees – the two things that our industry and its people have certainly stood for all along these past 14 months are resilience and cooperation.

Despite the echoing empty halls and disappearing revenues, Europe’s airports have kept serving their communities – enabling the provision of essential supplies and emergency services. They have ensured the health safety of those still taking to the skies, implementing extensive sanitary protocols and offering efficient testing facilities. They have supported their airlines and other business partners, whenever possible. Europe’s airports have offered relief to commercial tenants, waived aircraft parking charges, lowered landing and passenger charges through incentives, extended payment terms – in a desperate attempt to keep whatever air connectivity could be saved. Crucially, they have stood by their staff, trying to limit layoffs by using furlough schemes whenever available.

All this with rather limited external financial support: at the last count, Europe’s airports have received just €2.2 billion in state support compared to the €36.5 billion extended to the continent’s airlines.

As recovery prospects keep being pushed back, airports will emerge from this crisis in an unprecedented state of financial weakness. This will impact their ability to invest, right at a time when they need to accelerate decarbonisation and further embrace digitalisation – things that do not come cheap. There is no escaping that Europe’s airports might be facing an investment crunch.

Of course, some will be quick to downplay that risk, pointing to investment in new capacity becoming irrelevant. But that ignores the impact of the new health safety normal on airport operations and passenger flows. EUROCONTROL estimates that many airport terminals will actually run out of capacity once they get back to just 60%/70% of their pre-pandemic traffic volumes. The need to plan and develop capacity will not go away.

With limited financial support and massive airline bailouts not trickling down to airports, the extent of our investment crunch will largely depend on whether regulators allow us to recover at least part of our costs.

Cost recovery has been a staple of airport regulation for decades. It is meant to ensure the stability and continued development of airports, which in turn enables healthy airline competition as well as diversified and affordable air connectivity. But talking about cost recovery does – prima facie – look impossible right now: if anything, it is argued, airport charges should be decreasing. That is indeed what the new IATA CEO was quick to call for last month, targeting specifically London-Heathrow – an airport he happens to know quite well.

Decreasing airport charges in bad times would be both logical and fair… if airports were able to charge market rates in good times. But that is not the case. Airport charges are usually capped to “protect airlines” from airport’s supposed abuses of market power – with regulators keen to ensure “airport affordability” for airlines, without regard as to whether air fares are equally affordable for passengers.

This regulatory asymmetry (or shall we dare to say double standard?) is a reality not just at Heathrow but also at many other airports across Europe. Charges paid by airlines at Europe’s airports have been tightly controlled and capped, while the air fares that airlines charge to passengers can be sky high. At the same time, airlines are also able to extract considerable value through airport slots trading. These factors combined mean that scarcity rents have only gone one way, and that is the airline way.

So, if regulation de facto protects airlines in good times, it also needs to protect airports in bad times – and it would actually be both logical and fair to allow airports to recover their costs throughout the crisis. Of course, this should happen gradually and be smoothed over a number of years – as nobody questions the hardship also suffered by airlines.

But there is no escaping the fact that in the absence of public financing, cost recovery is going to be the only way to keep developing ever greener and digitalised airport infrastructure. It is the key to ensuring a more sustainable, competitive and efficient air transport system meeting the needs of people, businesses and communities. This means airport charges regulation, when needed, will also need to be aligned with the new societal imperatives and policy priorities of the post COVID-19 era. That in turn will require Governments explicitly reframing the role and mandate of their regulators accordingly.

This edition of Airport Business marks the end of an era, as it will be the last. For almost two decades, Airport Business has brought you the very best of our industry via news, in-depth interviews, analysis and more recently digital updates. Our thanks go to Airport Business’ editor, Ross Falconer, to all our contributors, and to you our readers for making Airport Business a go-to staple over the years.

Rest assured that all your industry news and insights will still be coming to you, and in faster, smarter and more immediate ways. As we adapt our communications channels to all the possibilities that digital platforms bring, we’ll be unveiling after the Summer a suite of new ACI EUROPE products. Ranging from a monthly Bulletin through to in-depth interviews, social media soundbites and video shorts, there will be more ways than ever to connect with the very best of our business. So watch this space.

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