by Thomas Biering, Policy Director, A4E
In recent months, ACI Europe and its member airports have claimed that A4E’s campaign for more effective EU regulation of airport charges threatens the development of airport infrastructure; seeks to undermine the “user pays” principle; and that the European Commission’s review of the Airport Charges Directive (ACD) creates uncertainty and risks affecting the value and attractiveness of European airports as assets.
This is a smokescreen and simply not credible. European airlines do not oppose investments in infrastructure and recognise that airport capacity constraints are a challenge. The “user pays” principle means that airports seek to recover their costs through user fees (charges). Some airports “pre-finance infrastructure”, which transfers development risk onto airlines, and generate returns significantly and persistently above the cost of capital. That is the heart of the matter.
Users do pay, with the preliminary results of a Commission study in December 2018 showing that aviation largely covers its infrastructure costs. A4E is not questioning that. But we are questioning how much the users should pay.
Investments must be cost-effective and fit-for-purpose to ensure that airlines and their passengers do not pay more than necessary for airport infrastructure. It is airlines that compete for passengers – not airports – and this competition has lowered fares and increased choices, allowing more people to travel than ever before. However, some major EU airports have significant market power (SMP) and few competitive constraints, which means they can act independently of the interests of airlines and passengers. They can use this power to charge excessively, run inefficient operations, make expensive or unnecessary investments, and offer inadequate service quality.
At present, the ACD does not tackle market power effectively. The gains from airline competition could be reversed if this is not addressed. A 500-page study for the Commission in 2017 recommended “more focussed regulation on airports with the highest levels of market power” and found that “several [major EU] airports’ profit margins are far above the world average and the increase in charges in recent years at some airports has been very high compared to other airports under the Directive.” It also found that the skills, independence and resources of national regulators were inconsistent.
Add to this that some airports are not transparent about their cost of capital and it amounts to European airlines being asked to sign blank cheques for airport investments with limited regulatory scrutiny or intervention. This is one of the reasons we have called for EU-wide rules that require national regulators to identify airports with SMP and, if necessary, intervene to prevent abuse.
This would only be relevant for a subsection of more than 400 airports in Europe and could be achieved by using screening criteria, for example, as set out in a report by Competition Economists Group for A4E and IATA.
It would not be a transformation of the current landscape – indeed economic regulation already exists in some EU Member States, such as Ireland and the UK. There is also little evidence to suggest that a “single till” would lead to any under-investment in aeronautical assets, which has been recognised, for example, by the UK Competition Commission in the past.
And it would not change the user pays principle. It would, however, introduce checks on how much some powerful airports can make users pay. That would ultimately benefit the general travelling public by ensuring that airlines and their customers pay no more than they should.
For the same reason, it is difficult to see how the Commission’s review of the Directive is creating uncertainty. It is looking at different options precisely to ensure that the market for airport services operates efficiently, which is in the public interest.
What we need is a consistent and effective approach that delivers proportionate and targeted regulation where needed. Rather than scaremongering, airports should work with airlines to ensure more cost-effective infrastructure in the future.