Effective economic regulation of airports with significant market power is vital, writes Hemant Mistry, Director Global Airport Infrastructure and Fuel, IATA.
The economic sustainability of the airline sector in Europe has come into sharp focus following the unfortunate bankruptcies of several high-profile European carriers over the past few months. Any airline collapse is deeply regrettable. It is a nightmare for employees and passengers and creates wider negative economic impacts.
Airline operating costs are obviously crucial to financial health. And the costs of doing business in Europe are high. Europe has the highest load-factor to break-even (that is, the number of seats that must be filled per plane just to cover costs) of any region in the world. Fuel and staff are the most obvious costs, but airport charges are also very significant.
Therefore IATA, on behalf of its members, has long been focused on ensuring airports, many of which have significant “market power” – often, monopolistic positions – keep their charges fair and transparent. This perfectly reasonable request has not always been easy to achieve. Airports jealously guard their figures and make it very difficult for airlines to understand exactly how the money they hand over is spent.
A recent judgment of the European Court of Justice (ECJ) could be a game-changer in this respect. Why is Europe involved? Because Directive 2009/12 EC on airport charges is supposed to ensure that airports consult with airlines, and Independent Supervisory Authorities (ISA) can ensure the provisions of the Directive are met.
The ruling will ensure a more consistent application of the ACD so that airport charges are set through a fair process of consultation
However, we have often found that the Airport Charges Directive (ACD) has been applied inconsistently or in some cases completely ignored. A legal challenge on this has finally clarified one key issue in that the charges decisions of the ISA cannot now be circumvented.
The ECJ also confirmed that consultation between airports and airlines must be genuine. It recognized that airports must consult with airlines on proposed changes and take their views into account before any decision on charges is taken. Furthermore, the ruling clarifies that airport users should not be restricted from challenging the decision of an ISA in a civil court.
This ruling is very welcome as it will ensure a more consistent application of the ACD so that airport charges are set through a fair process of consultation, including transparency and non-discrimination for airlines and passengers.
Going forward, it is clear that the ACD in its current form has not fully delivered its objectives, and further strengthening is needed. A key shortfall affecting the effectiveness of the Directive is related to the independence and powers of the ISA.
Earlier this year an evaluation of the ACD by the European Commission highlighted the need to strengthen the Directive to protect consumers. There are still many airports that charge prices that would otherwise not be achieved in a competitive market. The evaluation confirmed that airlines operate in a highly competitive market and that reductions in airport charges are passed through to consumers in the mid-to-long-term.
Effective economic regulation of airports with significant market power is therefore a vital element in ensuring the economic and social benefits of air transport are strengthened.
Why does this matter to passengers? Because airport costs are a relevant portion of the ticket price and reasonable airport charges contribute to a more financially healthy airline sector, able to invest in more routes, more employment, and greener and quieter aircraft. That’s surely an outcome we all want to see.