COVID-19: Tailoring airport charges to support the economic recovery of airports
The COVID-19 pandemic has had a dramatic impact on airport traffic, which continues to record historic low records. The airport...
Like other businesses in the aviation ecosystem, airports are businesses in their own right. However, even with significant cost-cutting exercises throughout the pandemic, the financial stress endured by airport operators due to sustained passenger traffic losses could have longer term consequences in terms of slowing down future infrastructure development. Fundamentally, airports will remain infrastructure-intensive businesses for the foreseeable future—this translates into unavoidable high fixed costs that must be financed. On top of this challenge, there is also no denying the fact that financial support from governments to airports due to COVID-19 has been relatively limited across multiple jurisdictions compared to air carriers.
The current crisis represents an unprecedented challenge for the industry’s financial viability as airports have had to refinance and negotiate terms with creditors. Debt levels continue to balloon. As airports remain an immovable asset with limited or no alternative uses, the heightened debt levels and the changing risk profiles of the industry has meant that financing costs are increasing.
The industry is also at an important crossroads in how we think about the economic regulation of airports and airport charges. That is, if airports had price flexibility based on the competitive landscape many of them face, charges that are levied on airlines would adjust to certain realities and market conditions. Yet, it is important to remind critics that regulated airport charges across many jurisdictions in their current state are inversely linked to traffic levels. In other words, this means that when traffic rises, charges fall (and vice versa).
Even though airport charges represent a small proportion of airline costs and have a minimal impact on passengers, the revenue generated from aeronautical charges represent as much as 55% of all airport revenues (including passenger and aircraft related charges). And 24% of all airport revenues come from charges that are levied on airlines. Even though airline-related revenues rank third after non-aeronautical revenues and passenger related charges in terms of airport revenues source, they are still vital for the financial viability of airports. Revenues from airport charges are the lifeblood of airports needed to recover costs and to finance infrastructure for the benefit of the traveling public.
There is full recognition that both airlines and airports have suffered greatly from this crisis and the resulting financial shortfall. Both need each other to thrive along with many other actors in the ecosystem. Thus, developing models of airport charges that allow better risk sharing between airports and airlines will be an important consideration going forward. Such transactions and commercial agreements are more apt at dealing with market realities and ensuring that infrastructure is used efficiently for the benefit of the traveling public.
In supporting a more efficient aviation ecosystem, ACI World has developed a new Policy Brief on the critical need to modernize global policy frameworks on airport charges. The Policy Brief considers the significantly altered competitive landscape that both the airport and airline industries have experienced over the last decades and following the pandemic. It recommends that:
ACI World acknowledges the assistance of InterVISTAS Consulting Inc. and the support of Oman Airports Management Company, ACI Africa, ACI Latin America-Caribbean, and ACI North America in preparing this Policy Brief.
