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No Milk Today – Is the Airport Cash cow running dry?

No Milk Today – Is the Airport Cash cow running dry?. Morgan Foulkes, Director of Policy. 07 November 2012 AVINOR Conference , Oslo. ACI EUROPE MEMBERSHIP. REGULAR MEMBERS: 180 - Number of Airports operated: 405 - Countries: 46

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No Milk Today – Is the Airport Cash cow running dry?

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  1. No Milk Today – Is the Airport Cash cow running dry? Morgan Foulkes, Director of Policy 07 November 2012AVINOR Conference, Oslo

  2. ACI EUROPE MEMBERSHIP REGULAR MEMBERS:180 - Number of Airports operated: 405 -Countries: 46 WORLD BUSINESS PARTNERS:155 National Airport Associations:8 2

  3. LIBERALIZATION OF THE AVIATION MARKET – A SUCCESS STORY

  4. THE EVOLUTION OF AIRPORTS IN A COMPETITIVE AVIATION MARKET TIMES PAST… Infrastructure provider Focused on flag carrier Exclusive public ownership Public financing TODAY! • Fully fledged businesses & diversified activities • Wide range of customers with different needs • Corporatisation = a “MUST” (Privatisation) • Largely self-financing

  5. OWNERSHIP OF EUROPEAN AIRPORTS PREDOMINANCE OF PUBLIC OWNERSHIP (Number) PRIVATE INVESTORS = LARGER AIRPORTS (Traffic)

  6. COMPETITION BETWEEN AIRPORTS – A NEW REALITY (I) • CHANGES TO AIRLINE BUSINESS MODELS • Flexible business model of ‘point-to-point‘ traffic(footlooseairlines) • High turnover of routes (2011: 2500 new routes, 2000 closed) Increasedmarket power of airlines: Threatto switch to competingairport if conditions not right!

  7. COMPETITION BETWEEN AIRPORTS – A NEW REALITY (II) • MORE CHOICE FOR THE PASSENGER • Almost 2/3 of Europeans are within a 2 hour drive of at least twoairports • Increase of routes: better alternative choiceatnearbyairports • More choice for transferpassengers (hubs): more and better alternatives

  8. THE AIRPORTS’ RESPONSE TO COMPETITION • COMPETITIVE AIRPORT CHARGES & FOCUS ON QUALITY • 65% of Europeanairportskept charges stable or decreasedthembetween April 2011-12 • Under-recovery of aeronauticalcosts a commonplace! • INCREASED MARKETING ACTIVITIES • 96% of European airports are actively marketing their airport to airlines • Marketing/route development expenses have more than doubled over the last 10 years at a number of airports

  9. THE IMPACT OF THE CRISIS: A MIXED PICTURE (TRAFFIC 2011 vs. 2010)

  10. TRAFFIC IN 2012 – SLUGGISH GROWTH & CONCERNS ON FREIGHT TRAFFIC • PASSENGER TRAFFIC • +2.1% in 2012 year-to-date • Q3 + 1.8% but 0.1% EU • FREIGHT TRAFFIC • - 2.4% in 2012 year-to-date • Q3: -1.3%

  11. AIRPORT REVENUES:COMMERCIAL ACTIVITIES ARE VITAL! • KEY IMPORTANCE OF COMMERCIAL REVENUES… • Under-recovery of costs by aeronautical revenues • …AND RISK-SHARING WITH AIRLINES ON CHARGES • Continousincrease of share of passenger-relatedcharges

  12. AIRPORT COSTS: COST-CUTTING MEASURES & THE BURDEN OF CAPITAL • STABLE OPERATING COSTS IN 2010 • Despitehigherpassengernumbers: Cost-cuttingmeasures! • Staff costsatEuropeanairports: -10% compared to 2009 • Largestcost-items: Personnel (38%) and contracted services (18%) • CAPITAL COSTS IN 2010: THE EFFECT OF THE CRISIS • Increase of 23% in 2010to €9 billion • SovereignDebtCrisisongoing

  13. CAPITAL EXPENDITURE & PROFITABILITY: UNCERTAIN OUTLOOK • IMPACT OF THE FINANCIAL CRISIS ON INVESTMENTS • Furtherdecreasein 2010: Total capex of €7.2 billion • LOW TOTAL PROFITABILITY OF AIRPORTS • 48% of airports are loss-making in Europe (2010) • Particular impact on smallregionalairports: public support needed!

  14. REGIONAL AIRPORTS – DIFFICULTIES TO REACH PROFITABILITY

  15. IMPLICATIONS FOR EU STATE AID POLICY • PUBLIC FUNDING MUST ENSURE THAT • Regionalairportscanplaytheirrole as economicengines! • Regionalairports have legalcertainty on theirinvestments! • PUBLIC FUNDING MUST NOT • Distortcompetitionbetweenairports! • Distortcompetitionbetweenairlines!

  16. THE 2005 EU GUIDELINES ON STATE AID:A MIXED ASSESSMENT • OVERLY COMPLEX PROVISIONS • Lack of legalcertainty & high administrative burden for airports • Not adapted to market reality • FINANCING OF AIRPORT INFRASTRUCTURE • All notifiedmeasuresapproved by EU Commission • Pendingappeal case atEuropean Court of Justice (Leipzig/Halle) • START-UP AID TO AIRLINES • Few notifications of start-up aidschemes • Many complaints fromthirdparties, numerous cases

  17. THE UPCOMING GUIDELINES REVISION: AVOID OVERLY RESTRICTIVE RULES • NEED FOR FULL FLEXIBILITY FOR SMALLEST AIRPORTS • No economicviabilitybelow 1 million passengers • No distortion of competition due to lowtraffic volume • Public support to ensureregionaleconomicgrowth & connectivity • POLICY CHANGE AT EU LEVEL • DG Competition in charge of the dossier: stricterapproach! • ‘Integratedapproach’ assessing impact on airportsandairlines • Full implementationcould lead to closure of regionalairports in Europe • TIMELINE • Consultation on draftrevised guidelines in December 2012 • Adoption of new guidelines in 2013

  18. OUTLOOK: FUTURE TRENDS IN THE EUROPEAN AIRPORT INDUSTRY • FURTHER PRESSURE ON AIRPORT REVENUES & COSTS • Impact of the ongoingeconomiccrisis: Fuel prices& impact on demand • Ongoing changes to airline business models (growth of LCCs) • Uncertainty on regulatoryframework (e.g. security; aviation taxes) • One-bag rule • IMPACT OF GLOBAL COMPETITION • Growingcompetitionfromthe new mega-hubs in the Middle East • Biggest aviation market by 2030: Asia

  19. TRAFFIC DEVELOPMENT 2011-2031:ASIA AS MAIN AVIATION MARKET

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