IATA calls for tighter control over European airport monopolies as airport charges double

The International Air Transport Association (IATA) has called on the European Union to significantly strengthen economic regulation of major European airport monopolies by focusing on the interests of passengers. Enforcing greater cost-efficiency at Europe’s airports will feed through into cheaper air fares, stimulate travel and enhance European competitiveness. In turn, this will support jobs and grow the economy, it says.

The case for stronger airport charges regulation is seen in how European passengers have been denied the full benefits of cheaper air travel, says the industry body, as illustrated over the period 2006-2016 in a just-released IATA study.

This has highlighted that the average cost of an air ticket remained virtually the same (including all ancillary charges such as hold bags it rose 2% from EUR 216 to EUR 220), the revenue portion of the ticket price for airlines fell from 90% to 79% (and from EUR 194/passenger to EUR 173/passenger); the portion of the ticket price taken by the airport doubled and passenger taxes also doubled during the period (airport charges doubled from EUR 16/passenger to EUR 33/ passenger and taxes also doubled from an average of EUR 6/passenger to EUR 14/passenger).

IATA says that had airport charges remained constant over the 2006-2016 period consumers could have benefitted, on average, EUR17 per one-way trip. That price stimulus of nearly 10% of average tickets costs would have improved Europe’s competitiveness, and potentially generated an additional 50 million passengers. In turn that would have unlocked EUR50 billion  in European GDP and created 238,000 jobs.

IATA analysis suggests If, instead of more than doubling, airport passenger charges had remained constant at EUR16 per passenger, the cost of an average one-way ticket in 2016 would have been EUR203 instead of EUR220. Lower fares would, other things being equal, have stimulated additional demand, particularly within Europe, supporting additional connectivity and facilitating increased economic activity, productivity and competitiveness.

TABLE – IATA estimates that lower air fares would have stimulated more than 50 million additional passenger journeysSource: The Blue Swan Daily and IATA Economics

Lower airport charges would have benefited European businesses through lower travel costs and increased competitiveness, stimulating additional tourism and lastly encouraging the continued development of the European aviation sector.

TABLE – IATA suggests cheaper air fares this past ten years would have delivered a EUR50 billion boost to the economySource: The Blue Swan Daily and IATA Economics, using an input-output model developed by Oxford Economics

“Airlines, like all competitive businesses, are in a constant struggle to improve efficiency. Europe’s airports however are largely insulated from competitive forces. Europe’s light-handed Airport Charges Directive has failed Europe’s travellers and its own competitiveness by letting airport charges rise,” says Alexandre de Juniac, director general and chief executive officer, IATA.

IATA says tighter EU regulation is needed to stop airport monopolies from taking money from the pockets of travellers to reward investors. “The goal should be economic regulation of airport monopolies that is an effective proxy for competition—promoting efficiency while protecting consumers,” adds Mr de Juniac.

The trend of increasing private ownership of European airports clearly adds urgency to the situation. Since 2010 the number of European airports in private hands has almost doubled. “In many cases privatisation has failed to deliver promised benefits to passengers and the local economy often suffers the results of higher costs. The balancing role of effective and strong economic regulation is essential,” says Mr de Juniac.

IATA’s view is that airport regulation in Europe has not responded adequately to the changing landscape in the airport sector. The share of fully privately owned airports in Europe increased from 9% to 16% between 2010 and 2016 while the share of mixed ownership models increased from 13% to 25% over the same period.

Where publicly-owned airports may be “considered as benign monopolists, often pursuing economic and social goals to support their local region,” IATA says this is not the case with privately-owned airports who are “driven by investor returns”. It adds that increasing private ownership of airports in Europe “has not been combined with appropriate regulatory oversight” that drives airports to increase cost efficiency and ensure that airports are responsive to consumer demands.

In its Aviation Strategy , the European Commission has identified the need to boost the efficiency of airport services and has engaged in an assessment of whether and how the Airport Charges Directive needs to be reviewed.