1 the airport charges after the new eu directive: from regulation to the market? rome, march 13 th...
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1The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
Regulation in turbulent time:an adaptive behavior?
Stefano Paleari (Scientific Director)
THE AIRPORT CHARGES AFTER THE NEW EU DIRECTIVE: FROM REGULATION TO THE MARKET?
Rome, March 13th 2009
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2The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
Why is this time turbulent?
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3The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
Why is this time turbulent?
Expansion of low cost carriers: parallel and mass market% ASK offered in competition
(spring 2007)
Airline% ASK with
altern routes
% ASK with direct
competition
Ryanair 60% 11%easyJet 69% 43%Air Berlin 56% 77%Jet2.com 71% 35%Lufthansa 45% 80%Iberia 42% 87%Air France 65% 58%British Airways 84% 83%SAS 43% 72%Alitalia 56% 89%
Source: ICCSAI elaboration on Eurocontrol data Source: ICCSAI Factbook 2008
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4The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
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
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5The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
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
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6The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
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
11/3/092003200420052006200720086080100120140160180200220MILAN MIB 30 - PRICE INDEXDJ EURO STOXX - PRICE INDEXSource: Thomson Datastream
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7The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
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
EU R O AR EA B O N D YIEL D C O R PO R AT E (EC O N ) - M ID D L E R AT EFR OM 1/1/03 TO 10/3/09 WEEKLY
2003 2004 2005 2006 2007 2008 20093.00
3.50
4.00
4.50
5.00
5.50
6.00
H IGH 5.91 23/ 7/08 LOW 3.32 7/ 9/05 LAST 5.12 Source: Thomson D atastream
EU R O AR EA B O N D YIEL D C O R PO R AT E (EC O N ) - M ID D L E R AT EFR OM 1/1/03 TO 10/3/09 WEEKLY
2003 2004 2005 2006 2007 2008 20093.00
3.50
4.00
4.50
5.00
5.50
6.00
H IGH 5.91 23/ 7/08 LOW 3.32 7/ 9/05 LAST 5.12 Source: Thomson D atastream
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8The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
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%
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9The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
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
€ 50€ 100€ 150€ 200€ 250€ 300€ 350€ 400€ 450
-20-19-18-17-16-15-14-13-12-11-10 -9 -8 -7 -6 -5 -4 -3 -2 -1Advance bookings
London-Paris trip costs (city centre)
BRITISH AIRWAYSAIR FRANCEEASYJETTRENO Eurostar
0.00
1.00
2.00
3.00
4.00
5.00
Dur
ata
Departure time
Travel time "door to door" London-Paris(city centre)
AereoTreno
Source: ICCSAI elaboration
By airBy train
hours
By train
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10The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
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
N.ITA-World
code %hub1 CDG 69,8%2 FRA 68,5%3 MUC 58,8%4 FCO 53,1%5 AMS 48,9%6 LHR 42,4%7 ZRH 40,8%8 MXP 34,3%
% 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
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11The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
Why the behavior is (should be) adaptive?
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12The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
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)
Country Airport Indep.Regulator Type of Regulation Single or Dual
Till Austria Vienna Yes Price cap with sliding scale Single till
Belgium Brussels No Rate of return with yardstick elements Introd. dual till Denmark Copenhagen No Price cap Dual till
Finland Helsinki No No regulation, charges based on cost recovery n/a
France Paris No Hybrid average revenue based price cap Single till
Germany No Price cap with sliding scale (HAM), revenue sharing (FRA,DUS) All other airports are cost plus regulated
HAM/FRA dual? Single till
Greece Athens No Airport sets own charges Dual till Hungary Budapest No Price cap Dual till Ireland Dublin Yes Price cap revenue based Single till Malta Malta Int. n/a Price cap Dual till Netherlands Amsterdam Yes RoR with WACC as asset base Dual till Norway Oslo No Cost based Single till Portugal ANA Yes Cost based Single till Spain AENA No Cost based Single till Sweden Stockholm n/a Cost based Single till UK BAA Yes Price cap Single till Sources: Gillen and Niemeier (2007). Davy, European Commission (2006a), Graham, Cranfield, IATA, Airport websites
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13The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
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
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14The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
Which consequences for the domestic regulators?
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15The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
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
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16The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
What about Italy?
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17The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
What about Italy?
Flag carrier Alitalia merged with Air One and completely privatized
?
AP 2008
AZ 2008
Source: ICCSAI Business report 2008
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18The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
What about Italy? Flag carrier Alitalia completely privatized A decreasing “level of investment”
Airport operator2005 2006 2007
Overall (€mln)
Per pax (€)
Overall (€mln)
Per pax (€)
Overall (€mln)
Per pax (€)
ADR 69 2,1 58 1,6 85 2,2Sea 121 3,5 121 3,8 106 3,6SAVE 54 7,6 27 3,5 38 4,4GESAC 19 4,0 13 2,5 34 5,8SACBO 14 3,3 11 2,1 15 2,5GESAP 10 2,7 17 3,9 n.a. n.a.SAB 9 2,5 12 3,0 7 1,6SAT 7 3,1 15 5,0 18 4,7SAGAT 53 16,7 15 4,4 6 1,6ADF 4 2,5 19 12,7 5 1,8SACAL 0,7 0,6 0,2 0,1 0,2 0,1Aeroporti FVG 0,6 0,9 0,5 0,7 0,2 0,2
Average ITA 4,2 3,6 2,5
Weighted average ITA 4,0 2,9 2,6
Average top 20 EU airport operator
7,1 6,2 7,6
Weighted average top 20 EU airport operator
8,6 7,8 12,0
Source: ICCSAI Business report 2008
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19The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
What about Italy? Flag carrier Alitalia completely privatized A decreasing “level of investment” scenario Airport charges among the cheapest in Europe
AirportsAirport charges rank in 2008 (5 typical flight scenarios)
Long Haul Medium-haul Charter Feeder Point to Point (LCC)
Amsterdam-Schiphol 1° 1° 1° 1° 1°Athens Eleftherios 5° 2° 2° 2° 2°Paris Orly 2° 4° 3° 6° 4°London Heathrow 8° 3° 5° 3° 3°Paris CdG 3° 7° 4° 8° 7°Vienna 11° 5° 8° 5° 5°Brussels National 9° 6° 9° 4° 6°Zurich 4° 8° 7° 7° 8°Frankfurt 6° 11° 6° 10° 9°Düsseldorf 7° 14° 16° 9° 11°Oslo 12° 12° 13° 12° 10°Manchester 10° 9° 10° 13° 18°Munich F.J. Strauss 15° 13° 11° 11° 12°Stockholm-Arlanda 20° 16° 15° 17° 14°Copenhagen 17° 15° 14° 24° 13°London Gatwick 23° 10° 23° 14° 15°Lisbon 16° 20° 12° 18° 20°Milano Malpensa 22° 18° 18° 15° 16°Roma Fiumicino 21° 19° 17° 16° 17°Madrid Barajas 13° 21° 19° 20° 21°
Source: ICCSAI Business report 2008
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20The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
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
0
0,5
1
1,5
2
2,5
3
3,5
01/0
702
/07
03/0
704
/07
05/0
706
/07
07/0
708
/07
09/0
710
/07
11/0
712
/07
01/0
802
/08
03/0
804
/08
05/0
806
/08
07/0
808
/08
09/0
810
/08
11/0
812
/08
01/0
902
/09
03/0
9
Mar
ket t
o bo
ok v
alue
FRAPORT
SAVE Venezia
Wien
Zurich
ADP Paris
SAT Pisa
Average (simple)
Passengers in Italian airports:
2008 -1,8%Gen 09 -14,8%
Source: ICCSAI elaboration on Thomson Datastream data
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21The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009
What should we promote?
• Investment
• Flexibility
• Making things easy: a general framework accepted by all the
airports with more than 5 million passengers