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Regulation in turbulent time: an adaptive behavior?

The airport charges after the new eu directive: from regulation to the market? Rome, March 13 th 2009. Regulation in turbulent time: an adaptive behavior?. Stefano Paleari (Scientific Director). Why is this time turbulent?. Why is this time turbulent?.

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Regulation in turbulent time: an adaptive behavior?

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  1. The airportchargesafter the new eu directive: from regulation to the market? Rome, March 13th 2009 Regulation in turbulent time:an adaptive behavior? Stefano Paleari (Scientific Director)

  2. Why is this time turbulent?

  3. Why is this time turbulent? • Expansion of low cost carriers: parallel and mass market Source: ICCSAI Factbook 2008 Source: ICCSAI elaboration on Eurocontrol data

  4. Why is this time turbulent? • Expansion of low cost carriers: parallel and mass market • Concentration process among traditional carriers • Set up of CAI (Alitalia + AirOne) and Air France Shareholdings in CAI • Takeover/merger Lufthansa over SwissAir, Austrian, SN Brussels • Next merger? AF - KLM - Alitalia ; Lufthansa - SAS ; British Airways - Iberia ? Source: ICCSAI elaboration on AEA data

  5. Why is this time turbulent? • Expansion of low cost carriers parallel and mass market • Concentration process among traditional carriers • Turbulence in oil prices Source: IATA

  6. Why is this time turbulent? • Expansion of low cost carriers : parallel and mass market • Concentration process among traditional carriers • Turbulence in oil prices • Turbulence in financial markets

  7. Why is this time turbulent? • Expansion of low cost carriers : parallel and mass market • Concentration process among traditional carriers • Turbulence in oil prices • Turbulence in financial markets • Credit crunch and rise in risk premium

  8. Why is this time turbulent? • Expansion of low cost carriers : parallel and mass market • Concentration process among traditional carriers • Turbulence in oil prices • Turbulence in financial markets • Credit crunch • Dramatic decrease of the demand due to the economic downturn Forecast 2009 IATA: World RPK -3% ACI: world pass. -4% ACI: EU pass. -5% Eurocont: EU flight -5%

  9. Why is this time turbulent? • Expansion of low cost carriers : parallel and mass market • Concentration process among traditional carriers • Turbulence in oil prices • Turbulence in financial markets • Credit crunch • Dramatic decrease of the demand due to the economic downturn • High speed train competition at work hours Bytrain By air By train Source: ICCSAI elaboration

  10. Why is this time turbulent? • Low cost carriers expansion: parallel and mass market • Concentration process among traditional carriers • Turbulence in oil price • Turbulence in financial markets • Credit crunch • Dramatic decrease of the demand with the economic downturn • High speed train competition at work • Hub competition among “national hubs” now at risk of marginalization % of airport pairs (italian airports toward worldwide airports) that the hub can interconnet with a competitive overall travel time (i.e. the hub is the best choice available or it requires an extra travel time, compared to the best path, less then15%) Source: ICCSAI elaboration on Innovata data

  11. Why the behavior is (should be) adaptive?

  12. Why the behavior is (should be) adaptive? • The new Directive is “adaptive”, at least conceptually. It takes into account the existing differences across Europe (many path dependencies) Sources: Gillen and Niemeier (2007). Davy, European Commission (2006a), Graham, Cranfield, IATA, Airport websites

  13. Why the behavior is (should be) adaptive? • The new Directive is “adaptive”, at least conceptually. It takes into account the existing differences across Europe (many path dependencies) • The situation is changing rapidly and with high volatility • Principles (cost relatedness, non discriminatory, flexibility etc..) are more important than the specific procedures

  14. Which consequences for the domestic regulators?

  15. Which consequences for the domestic regulators? • Monitor competition as a must • Policy targets become more important • Promote or stop investments ? • Attract private capital or government investment program ? • Limit airports’ size? • Flexibility becomes a part of the regulation contract • Role of risk sharing mechanisms in turbulent time • Promote quicker processes

  16. What about Italy?

  17. What about Italy? • Flag carrier Alitalia merged with Air One and completely privatized AP 2008 ? AZ 2008 Source: ICCSAI Business report 2008

  18. What about Italy? • Flag carrier Alitalia completely privatized • A decreasing “level of investment” Source: ICCSAI Business report 2008

  19. What about Italy? • Flag carrier Alitalia completely privatized • A decreasing “level of investment” scenario • Airport charges among the cheapest in Europe Source: ICCSAI Business report 2008

  20. What about Italy? • Flag carrier Alitalia completely privatized • A decreasing “level of investment” scenario • Airport charges among the cheapest in Europe • Economic and financial situation is getting worse also for airports • Passengers in Italianairports: • -1,8% • Gen 09 -14,8% Source: ICCSAI elaboration on Thomson Datastream data

  21. What should we promote? • Investment • Flexibility • Making things easy: a general framework accepted by all the airports with more than 5 million passengers

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