Industry Structure and Contestability in the European Airports Business

1. GARS 20th November 2004 Industry Structure and Contestability in the European Airports Business Colm McCarthy, Jacinta McDonnell DKM Economic Consultants, Dublin

2. ‘The essence of the case for competition is the impossibility of predicting most of its consequences’ - Alfred Kahn

3. Costs of Regulation • Direct agency costs • Compliance costs • Legal actions • Errors • Inappropriate incentives, capture

4. Market Definition in the Airports Business • Connect traffic • Cargo • Hinterland overlap • Destination competition • Competing modes

5. Structure of the European Airports Industry • Who owns Europe’s airports? • Striking Incidence of Monopoly • In both public and private sector • Most PAX at monopoly airports

6. Case Studies • Barcelona • Milan

8. Barcelona

10. Milan

11. Creating a Competitive European Airports Industry • Limits to Competition • Benefits of Competition • European Policy on Mergers and Divestment • A “Minimum Regulation” Regime

12. A Divestment Policy • No common ownership or control up to 300kms, 2 hours by surface, or similar rule • Prohibition of mergers and acquisitions which would breach the rule

13. Benefits • Would encourage capacity provision • Less need for regulation • New Airport Charges Directive Desirable Anyway

14. ‘Every industry that has enough power to utilise the state will seek to control entry’ - George Stigler