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16 Feb, 2009

Airports Blast Airlines For Pressuring Them on Charges, Costs

The head of the global association of airports has blasted airlines for “having no commitment” to their destinations and suggested they back off from pressuring airports to reduce fees and landing charges.

Speaking at the Airports Council International AGM in London last week, Angela Gittens said: “During bad times, airports vie more than ever for a shrinking base of airline routes and frequencies. Airlines have no commitment to an airport, but an airport has a commitment to its community.”

Ms Gittens was responding to the cacophony of calls from the International Air Transport Association, the representative body of global airlines, to help airlines cut costs and ensure route viability.

In a paper to be presented at an International Civil Aviation Organisation workshop on airport economics in Bangkok later this month, IATA says, “Airlines globally pay nearly US$43.5 billion in airport & ATC charges each year, after fuel, their largest external cost.

Despite strong ICAO policies, airports and ATC providers in 41% of the States in the world do not consult with users, 47% have no transparency at all and 48% have discriminatory charges.”

IATA says “the airline industry is over-regulated while engaged in strong competition, yet infrastructure providers are often allowed to operate as unregulated monopolies in the same market causing significant distortion. This leads to increased consumer prices and has a negative impact on the economy and competition.”

But Ms Gittens rejected the claims.

She said global airports had made capital expenditure commitments of a record US$50 billion in 2008. “That is a fundamental conundrum for airports as enterprises with high fixed costs and a long-term outlook that have to make major capital investments even while operating in an economic downturn.

“This long-term perspective is tied to the strong community role played by airports. They are catalysts for economic growth and employment, and a cornerstone for community business development. They have a service commitment that does not change just because there is a cyclical downturn.

“Airports generally cannot move to a stronger market location – they have to make their market location stronger. Through good times and bad times, airports must manage a facility development cycle that typically runs 5 to 25 years.”

Ms Gittens added, “Airports are not the comfortable ‘monopolies’ one sometimes hears about. They do not get to watch the crisis from the sidelines. They have to pay back their debt, maintain their facilities and keep the highest levels of safety and security even with 5, 10 or 15 percent drops in traffic.”

She said that bad times “put airports into more competition than ever as they vie for a shrinking base of airline routes and frequencies. The wave of traffic rights liberalisation over the past 20 years has meant that airlines increasingly can go ‘airport-shopping’, picking and choosing routes as they please.

“Airlines have no commitment to an airport but an airport must commit to its community to manage heavy investments in infrastructure projects and inflexible running costs tied to the operation and maintenance of the facilities.”

She said that in 2007, airports held their user charges at US$18 billion worldwide, constituting 3.5 percent of airline operating costs, “about the same level it has been for over 30 years. They have done this by using non-aeronautical revenues, about 48 percent on average worldwide, to fund capital investment and to subsidise airfield costs.”

She said that airports, too, are “at considerable financial risk during a downturn. Aeronautical revenues decline, as do non-aeronautical revenues. Fewer movements mean fewer passengers, which in turn means less passenger spending and lower income for airports.

“Airports cannot maintain half of a runway. Airports cannot simply cut off building projects, and may not be able to defer them due to contractual agreements. The bottom line – airports cannot always lower charges to airlines, as airlines request.

“And, frankly, the savings to the airline will not save the airline. That is a message that we need to convey clearly to our airline customers and to the governments, aviation authorities and officials who regulate our industry.”

She said airports recognise the airports’ call for help. However, she added, “Each airport must react and make decisions based on analysis of its specific situation; there is no one-size-fits-all formula nor is a short-term decision always the right one.”

Among her suggestions to the airports:

<> Look at your market; re-evaluate your situation.

<> Build up those cash reserves while you can.

<> Understand your dependencies; on your carriers but also on your community, government, regulators and investors.

<> Recognise the importance of customer retention, but be wary of short-sighted reactions.

<> Move to diversity to spread your financial risks.

<> Pursue investments in staff training and technological modernisation that positions you for the future; streamlined processes will give airports a competitive advantage.

<> Keep the customer in mind, no matter what the traffic numbers say. Invest in quality service and environmentally sound and efficient facilities.

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