by Thomas Biering, Policy Director, A4E
It is no secret that A4E has been doggedly campaigning for economic regulation of monopoly airports for several years now.
Why is this so important?
Because our experience — and the initial findings from the European Commission’s review of the Airport Charges Directive (ACD) — shows that some European airports misuse their dominant position, first and foremost in the form of setting excessive airport charges (fees that airlines pay to use airport infrastructure and/or related services).
Thanks to intense competition between airlines, air travel within Europe has never been more accessible or affordable than it is today. Nevertheless, monopoly airports levying excessive charges undermine this competitiveness and airlines’ ability to offer consumers adequate choices at affordable prices.
The European Commission’s ex-post evaluation study on the ACD from December 2017 was striking: Average European airport charges increased by almost a quarter between 2009 and 2016, significantly above inflation, with many airports increasing charges by over 40% and some by more than 100%.
We know that regulation of airport charges is inconsistent and ineffective across Europe. A lack of transparency about airport costs still exists, however, and some airports continue to show monopolistic behaviour. Quite the opposite of the competitive dynamics we see in the airline industry.
So what can be done about this?
Consider the fact that the EU has successfully established frameworks to regulate market power in other sectors, such as energy and telecoms, resulting in lower prices and more consistent regulation. Similar to companies in these sectors, airlines require access to important infrastructure (i.e. airports) to provide a final service to consumers. So why not create a similar framework for those airports with market power?
It is worth noting that we are talking about a sub-section of the more than 400 airports in Europe. This group is powerful, however, in their ability to set excessive charges and generate returns significantly and consistently above the cost of capital. This is a clear indication of significant market power (SMP).
Recently, A4E and IATA asked the Competition Economists Group (CEG) to analyse how a simple yet robust model could be developed to identify airports with SMP. These airports should then be regulated appropriately.
The report, which we are releasing today, identifies a set of tests that can be used to determine whether an airport faces effective competition, or whether it has the market power to enable it to set excessive charges.
For example, the tests examine whether nearby airports are an effective constraint and what can be inferred from an airport’s own pricing behaviour. These tests provide a streamlined way to identify when regulation is needed.
You might ask if this approach is suitable? We think it is.
First, airport markets are relatively stable. For example, new airports are rare and known well in advance because of sheer planning requirements. Second, as the CEG report demonstrates, there are few competitive constraints on airports. It is therefore possible for national regulators to decide to regulate based on an examination of key criteria.
This is a concrete and constructive contribution to the debate around developing a more effective regulatory framework for airport charges in Europe. It shows that there is a practical way to identify and regulate airport market power, where needed, in a uniform manner.
Ultimately, such regulation will help to limit abuse and ensure that air travel remains affordable and accessible to consumers and businesses alike.
We all have an interest in improving the competitiveness of the European aviation industry, including airports. We therefore hope that all stakeholders will read the report carefully and engage in a constructive discussion about how such a model can be implemented as part of a revised EU legal framework.
Surely nobody would disagree with an approach that ensures regulation is timely, targeted and proportionate while being manageable for national authorities and beneficial to passengers?