Like Passengers, Airports Have to Stand in Line

IT'S AIRLINES THAT INCREASINGLY DICTATE THE RULES. THEY USED TO BE THE SUITORS, BUT NOW THEY ARE THE ONES BEING COURTED BY AIRPORTS

by Oliviero Baccelli, Dept. of Policy Analysis and Public Manangement, Bocconi
Translated by Alex Foti

Passenger data for the first quarter of 2016 regarding EU airports are particularly favorable, marking an 8.2% increase in traffic, on the tails of a positive 2015 (+5.6%). Between 2008 and 2015 the sector grew by 13.6% compared to overall economic growth of just 3%. These data highlight an economic dynamic that is entirely unrelated to GDP trends and bespeaks of a favorable business context, thanks to liberalization and the record profits posted by airline companies which are now undertaking investments to renew their fleets, made possible by the sharp fall in the price of jet fuel. The framework of reference for an airport management company could therefore be also favorable, and even more so for Italian airports whose traffic has grown more than than the EU average, with a 17.5% increase recorded between 2008 and 2015.
 
But in a context where opportunities should dominate, it's actually problems plaguing Italian airports that are emerging, resulting in considerable uncertainty about ownership structure for several airport companies, including those of Milan, Bergamo, Catania, and difficulties in planning the needed developments in infrastructure required to seize growth opportunities in air travel, as in the case of Florence, Catania and Venice airports. Some issues of concern are typically Italian and translate into excessive management complexity for coordinated planning, since several territorial levels and various agencies are involved (ENAC, ANAS, RFI). An emblematic example is the integration of high-speed rail services to the three Italian airports that have an intercontinental vocation: Roma Fiumicino, Milano Malpensa and Venezia Marco Polo, something that is desired by everyone as it can facilitate economies of scale and enhance territorial reach. The subject has been studied for many years, but nothing has come out in terms of shared design and actual project. Another critical element is the relationship between public and private shareholders, which characterizes many Italian airports, including those in Lombardy, which results in operational orientation and strategic vision that are often too dependent on electoral outcomes or the shifting balance of power between various local authorities, as revealed in the case of the company managing the Catania and Comiso airports which decided to get listed on the stock exchange, and was suddenly halted by the Sicily Region after months of preparatory work.
 
In fact, despite these problems, clarification of the regulatory framework covering Italian airports has generated results in recent years, by achieving important objectives, including  long-term program contracts for the main airports, a process of approval for fee schemes shared with the Authority for Transportation, and the elimination of certain distortions arising from airport marketing initiatives that were not always transparent.
 
The most interesting challenges, shared by most European airports, are closely linked to the processes of concentration and growth prospects of the airline industry, bearing in mind that Ryanair and EasyJet have an order book for new aircraft equivalent to 50% of all orders for commercial airplanes made by over 200 airlines based in Europe. All this changes the balance of power between airports and carriers, which, having adopted an organizational model with bases in many countries, have a choice over where to place their new aircraft, and this forces airport management companies to stage a form of beauty contest to lure air companies. In the segment of long-range air travel, carriers based in the Middle East, such as Emirates, Etihad, Qatar, and since a few months ago also Norwegian Air Shuttle, which applies a business formula comparable to that of low cost flights, have induced similar strategies of confrontation between airports, when companies have to choose where to start new air links. Thus dawns a new era for airports, which from being courted have to transform themselves in being suitors.