ACI’s new economic policies on competition and fostering market-based pricing strategies for charges

Guest Author by Guest Author | Jan 21, 2021

Written by Sujata Suri, Chair, ACI World Economics Standing Committee (WESC) and Vice President, Strategy & Development, Hamad International Airport

As 2019 was unfolding with yet another year of robust traffic growth and ambitious airport development plans globally, the airport community embarked on journey to review, update, and modernize its long-standing economic policies. The disastrous impact of the COVID-19 crisis on the economic and financial sustainability of the airport industry made the modernization of ACI’s economic policies even more relevant in 2020.

ACI World Assembly: Committed to responsive airport economic policies

Taking stock of the drastic changes in the airport competitive landscape before the pandemic, and envisioning that these changes will only intensify in the COVID-19 recovery period and beyond, the 30th World Annual General Assembly of ACI unanimously adopted the new ACI’s economic policies in the 10th edition of the Policy Handbook.

Departing from the commentary of ICAO’s policies on airport charges, which were the bare bone upon which ACI’s economic policies were articulated, the ACI World Assembly adopted economic policies which stem from acknowledging that competition is the key driver of the airport business. Accordingly, economic oversight frameworks should be proportionate to and reflective of the market situation of airports. Similarly, airport operators should enjoy full flexibility in determining airport charges enabling the sustainable operation and development of airport services.

ACI Policy Handbook, 10th edition – 2020
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ACI’s economic policy: Competition is the key driver

The recognition that competition is the driver of the airport business is the overarching policy statement: airports compete on all aspects of their business—from aeronautical business to on-site and off-site commercial activities. The result is a competitive and dynamic airport market. Consequently, ACI’s main policy is that competition, rather than regulation, should be sought as the most effective way to deliver outcomes in the best interest of consumers.

Following this central policy proposition, a series of economic policies are developed on air transport policy, airport economic oversight, airport charges, and airport ownership and management.

As regards air transport policy, ACI reaffirms the support for the liberalization of air transport. Liberalization, i.e., the relaxation of the rules and regulations governing air carrier ownership and control and market access, contributes to the growth of air transport on a sound and stable economic basis. Liberalization fosters local as well as global socio-economic development. ACI further expresses concerns about the proliferation of various taxes and duties on airports, passengers, and air transport, as well as disproportionate or unwarranted airport concession fees and rents to governments, which all represent an impediment to air transport.

ACI’s position on taxation is also articulated in a dedicated Policy Brief: Taxation of international air transport and airports ─ Economic benefits and costs.

Key policy positions are also taken on airport economic regulatory frameworks. As airports are competing for airline services, passengers, and non-aeronautical activities with the objective to grow their business, they are strongly disincentivized to price themselves out of market. Therefore, intrusive and heavy-handed economic oversight frameworks are often unnecessary. Economic oversight of airport charges should rather focus on ensuring non-discrimination in charges, protecting the interests of consumers and assuring timely and proper investments in capacity. ACI has long been concerned with the imposition of rigid and costly regulatory frameworks which are at odds with the market situation and the specific circumstances of the airports.

Airport charges are vital for airport operators, as they generate revenues to fund airport operations, pay airport staff, and finance airport development. The airport community’s position is that airports should be free to develop and tailor the structure and level of airport charges to their specific circumstances and to develop targeted pricing strategies that meet their competitive and market situations.

Targeted and focused pricing strategies are effective in enabling traffic growth. For instance, incentivizing airline clients to open new routes, grow their operations or increase frequencies though the provision of commercial incentives such as rebates and discounts has been effective in developing traffic. It illustrates the competitive dynamics of the airport industry, whereby airlines are putting airports in competition and allocate their fleets at airports where they receive the best offer. In the long term, the level of airport charges should be related to the full economic costs of aeronautical operations and development, including a reasonable and sufficient return on assets and the development of appropriate reserves to deal with unforeseen adverse circumstances. Of course, consultation with airlines on airport charges is important in such context.

The pandemic situation certainly amplifies ACI’s policies on economic oversight and airport charges in the 10th edition of the Policy Handbook. The Policy Brief: Path to the airport industry recovery ─ Restoring a sustainable economic equilibrium advocates for the move towards light-handed frameworks fostering market-based pricing strategies and commercial agreements so as to  support the recovery of air transport.

Finally, taking into account the the global need to finance the development of airport infrastructure, ACI considers that airports should be permitted to operate under a range of ownership models and airport owners should be free to determine the appropriate management models, namely single airport, airport systems and airport networks, that are best suited to meet public policy and commercial strategic objectives.

The 10th edition of the Policy Handbook

The Policy handbook covers all policy aspects of the airport business, far beyond economics, airport charges, and regulation and competition. Interested readers will also find policy positions and proposals on sustainability, facilitation and services, information technology infrastructure at airports, airport planning, design, operation and safety, environment, security, and emergency medical services, hygiene and sanitation at airports.

Sujata Suri is the Chair for the ACI World Economics Standing Committee (WESC) and Vice President, Strategy & Development at Hamad International Airport

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