As the aviation industry moves closer to the 41st ICAO Assembly (A41), ACI will be sharing its key advocacy positions that will be presented in the form of Working Papers from 27 September–7 October 2022 to 193 Member States (governments) and a large number of international organizations. The ICAO Assembly establishes its worldwide policy for the upcoming triennium and outcomes will guide other bodies of ICAO and its Member States’ future work in civil aviation. ACI has been working diligently to prepare its advocacy positions and engagement strategy to represent its members’ needs at a crucial junction in time and under the theme: #All4one Aviation Ecosystem.
The underlying problem in current regulatory frameworks
ICAO defines an airport charge as “a levy that is designed and applied specifically to recover the costs of providing facilities and civil aviation services,” including the operating expenses and costs related to capital investments to build and maintain airport infrastructure. However, this is only one side of the market. Airport charges should reflect not only market supply (cost) but also demand elements, especially price signals for the efficient use of airport resources.
Responsive airport charging schemes for passengers, airlines and other stakeholders that incentivize more efficient economic behaviour, minimize waste, and maximize choice are vital for the traveling public. In certain instances, the oversight of airport charges should not be confined merely to the coverage of historical costs but also responsive to market needs for the efficient use of infrastructure. For instance, these charges should provide incentives for prioritizing uses of existing capacity, for signalling when the market needs and is able to pay for additional capacity, for signalling changes in behaviour to mitigate external impacts such as noise and environment, and for increasing connectivity via incentives. Such charging schemes support aircraft operators in allocating their capacity efficiently to their valued uses.
The underlying problem in many regulatory frameworks resides in the often-taken assumption that airport market structures are monopolistic and airport operators necessarily conduct themselves as such. In many instances, empirical data demonstrates that pricing behaviour and market conduct of airports reflects otherwise. The belief that airports are monopolies and would inevitably charge higher prices to users of infrastructure if left to their own device is a fallacy in many jurisdictions. In fact, many airports compete along multiple dimensions that restrain any market power – the ability to raise prices – they may have. Thus, guidance material, policies, and regulations on airport charges should be updated and modernized in support of a changed industry for the ultimate benefit of the travelling public.
The socio-economic multiplier of airport infrastructure
Aeronautical charges, which in most cases are regulated, are vital revenue streams for airports – they represented 54% of all airport revenues worldwide during 2019[1]. It is crucial for infrastructure development. Airport infrastructure generates positive socio-economic impacts – it plays an important role in supporting the attainment of certain development goals. Ensuring that existing infrastructure is used efficiently and that funding for additional capacity to meet future infrastructure needs is attained, fosters the socio-economic gains associated with air transport. A study by the Air Transport Action Group (ATAG) found that airport infrastructure investment of US$100 per capita between 2010 and 2019 was associated with nearly 50 more air arrivals per capita. These additional arrivals may have “spent money on goods and services, forged friendships and cultural connections, and done business, all of which would have stimulated economic activity and jobs [2]” Airport capital investments enable increases in capacity and connectivity, representing a key ingredient in long-term economic growth.
Having up-to-date policies on charges will support the pathway to net-zero
Having flexible charges schemes is not only an issue of airports’ financial health and enhancing efficiency, but it also has broader implications on the pathway to decarbonizing the sector. ACI World has established – on behalf of the airport industry – a global long-term carbon goal to reach net-zero emissions by 2050. In addition to government support to the aviation sector in its energy transition, the ambitious targets also require the right pre-funding mechanisms that allow airports to invest in long-term sustainability-oriented projects such as green energy generation and infrastructure to provide for sustainable aviation fuel (SAF). Every little bit counts – charging schemes that account for externalities and help incentivize the use of cleaner aircraft will be important in these efforts as well.
What is the way forward for policies on airport charges?
There are different tools and market instruments that can help in infrastructure development and the modernization of policies on charges. Airports may offer airlines incentive packages to stimulate air services and increase connectivity. Commercial agreements allow for the creation of risk-sharing mechanisms between airports and airlines and bring financial certainty to all parties involved. Price differentiation schemes help improve operational efficiency by incentivizing certain behaviours such as off-peak operations and noise mitigation. Finally, the bundling/unbundling of charges gives users the advantage of defining the type of services they want to use at an airport (e.g., air bridges or boarding buses).
Airport charges policies need to evolve in favour of passengers (consumers) who are at the centre of the aviation ecosystem. In many cases government policies toward airport charges have not evolved and are now resulting in economic distortions and inefficiencies. Charging policies were originally set in an era where the economics of the aviation sector were dramatically different from what they are today. Regulators have an important role to play in monitoring competition in both airport and airline markets – as opposed to price determination. Serving the travelling public through policy tools that incentivize much needed capital investments, that enhance connectivity, and that ensure existing infrastructure is used efficiently is a key consideration for public policy.
[1] Source: ACI World Airport Economics Survey 2019
[2] Source: Air Transport Action Group (ATAG). (2020). Aviation Benefits Beyond Borders. https://aviationbenefits.org/media/167517/aw-oct-final-atag_abbb-2020-publication-digital.pdf
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