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The ACI Europe Trading Conference takes place in Oslo on 23-25 April |
EUROPE. Commercial activity will be the key source of revenues and profits for the airports industry in Europe in the decade ahead. That’s one of the major messages from ACI Europe Director General Olivier Jankovec, speaking to The Moodie Report in an interview just over a month ahead of the vital ACI Trading Conference in Oslo (23-25 April).
Jankovec highlighted the critical role that non-aeronautical incomes are playing in the life of airports today. “In 2010 [the latest year for which global industry results are available -Ed] non-aeronautical revenues grew twice as fast as aeronautical revenues,” he said. “Aeronautical revenues are under pressure and we are seeing more airports restructure their charges to place greater emphasis on passenger-related activity and income, and less on income from airlines. That will only continue. The ability of an airport to keep airline fees low plays a big role in its competitiveness, so it’s logical that every effort is made to focus on commercial. And airports’ profitability will be centred ever more around their commercial business.”
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Olivier Jankovec: Commercial will be the key driver of airport profitability in the future |
As an illustration of this trend, airline-related charges made up 42% of European airports’ revenues in 2008, but just 33% in 2010, against 67% from passenger-related charges. Non-aeronautical activity in 2010 accounted for 48% of airports’ incomes.
Much of this is being driven by the consolidation of airlines into fewer, larger groups, plus the might of a number of low-cost carriers. Jankovec said: “This is a major challenge for airports. What is the future for secondary hubs when some airlines are consolidating but when others are disappearing? The loss of Malev in February was a big blow to Budapest’s positioning as a hub. Some 42% of its passengers were transferring, and while Ryanair has picked up some of the O&D traffic lost, the transfer business has been hit hard. That means the airport has to revise its business strategy.”
Along with developments in the airline market, airports are also under pressure financially from the difficulties in accessing finance today – with a knock-on effect on their ability to build new infrastructure.
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Jankovec said: “In terms of investment it’s a very tough environment today. We saw capital expenditure decrease by -19% in 2010 versus 2009, while at the same time capital costs are going up the wall – +31% in that time. So you invest less, but it costs more than it did, so it’s difficult.
“We are seeing airports invest in improving standards and the quality of their existing facilities, which is good. But in the long term the lack of investment becomes a problem, with a divergence between the alignment of the long-term traffic trends and the infrastructure needed to cope with that growth.”
The challenges of security and the “˜one bag rule’
Jankovec noted other big challenges facing airports and their ability to maximise their non-aeronautical business, notably security, the “˜one bag rule’ and the planned introduction of new LAGs rules.
He said: “On security, we’re not where we want to be. We want the EU to look at reform of the wider aviation security regime. We’re still too focused on detection and not on deterrents, and also on security at the airport, rather than security in the wider context. We’d like to see the regime be more efficient, with resources concentrated not on every passenger but on passengers that could potentially be a threat based on their profile. We need a regime that’s much less predictable: a terrorist today knows exactly what checks are in place at airports.
“So we’d like to see a wide reform, and we’re working on this at EU and national government level. But it requires governments to think differently and work differently with each other. And that’s a major challenge.”
The “˜one bag rule’ remains a priority, he added, with progress being made at EU Parliament level. As reported, a motion introduced and led by UK MEP Philip Bradbourn proposes that airlines are prevented from imposing the “˜one bag rule’ across the EU – which has had a severe impact on retail sales, notably at smaller regional airports. Jankovec said: “The EU Commission will need to look at this, and the motion in place creates some momentum, so we hope to see some progress.”
Jankovec also commented on the restrictions on sales of liquids, aerosols and gels (LAGs) to passengers transiting at EU airports, noting that the technology to detect liquid explosives was still in a test phase. This makes loosening the rules on LAGs a tricky issue.
“There are tests happening at 12 EU airports with new technology and we hope to have a reasonable idea of the results by April,” he said. “Based on those we can take a position on whether change is feasible or not. It’s about having the technology that is mature enough, not only to make for effective security, but also to improve passenger processing. Screening technology that takes twice as long is bad for passenger satisfaction and for commercial activities, so we need to get it right.”
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“We are seeing a transformation in the corporate culture at Europe’s airports, where they are moving from being infrastructure managers to being a service provider and putting the passenger first.“ |
Olivier Jankovec Director General ACI Europe |
Given some of these challenges, notably the macro-economic weakness of the EU economy and the Euro crisis, the solid traffic performance of Europe’s airports in 2011 was remarkable – and that has continued into the early months of 2012.
“We’re continuing to see resilience in passenger traffic,” said Jankovec. “Last year it was highly resilient even if it contrasted sharply between different national markets. What is significant is that passenger traffic has outperformed GDP growth, which underlines its strength and is reassuring.” Within the EU, GDP growth in 2011 was +1.5%, with traffic up by +6.3%; in non-EU states GDP rose by +5.1% and passenger growth by +11.8%.
The latest traffic trends highlight the surging growth in non-EU states compared to those in the EU, something that’s been a defining feature of the regional market for years now, said Jankovec. “There is a sharp divide between Western Europe’s more mature markets and the “˜New Europe’, in particular with the aggressive growth of Turkey and Russia. But what we are seeing is that these countries are also being affected by Western Europe’s slowdown, because their economies are so dependent on the EU.
“Will we see that divide growing or narrowing between these two parts of Europe? If the EU’s growth remains anaemic, it will impact those countries. My bet is that the divide will remain as it is or become less acute in future.”
A vital factor in ensuring airport traffic growth in the EU is the emergence of the fast-growing economies of the BRIC states (Brazil, Russia, India and China) – and these are set to play a major role in the future, Jankovec added.
“We have a new situation created by the crisis. The major hubs are proving highly resilient, with many reporting record figures for 2011. That comes with airlines concentrating reduced capacity in the markets that hold the greatest potential. That can be to the detriment of secondary hubs or regional airports. And that’s a trend we’ve seen accentuated lately.”
Although the year has begun well, the outlook for 2012 remains uncertain. “The market’s resilience has been maintained in January and February,” Jankovec noted, “and there is some hope that the European sovereign debt crisis is on the way to being resolved. But that has had an impact on the real economy, freight traffic is firmly in recession, we are seeing a slowdown in emerging markets economic growth, even if the US is recovering. So it’s a mixed picture for the year ahead.”
For passenger traffic, ACI is forecasting growth of +2% to +3% for 2012. “That could be higher if we see economic activity pick up, but it’s too early to tell,” he added.
Even with this uncertain backdrop, and the difficulties of funding expansion, Jankovec said that Europe’s airports are focusing heavily on raising the quality bar for consumers.
“We are seeing a transformation in the corporate culture at Europe’s airports, where they are moving from being infrastructure managers to being a service provider and putting the passenger first. We are seeing that in airports investing more in quality rather than just quantity today. It’s also reflected in how airports are evolving their services with more emphasis on technology and innovation. We’re in the middle of a period of change with airport trying to redefine the experience at the airport, to ensure all their resources are deployed to benefit the passengers. We’ve already seen improvements in the consumer experience and technology and innovation will drive that process further.”
Those themes of technology and innovation will be a key theme at the ACI Trading event in Oslo, and needs to figure highly on airports’ agendas, noted Jankovec. “The use of digital and social media is of huge interest to our members. This is all about how to empower the passenger, how to communicate with them before they arrive at the airport and while they’re at the airport. And commercial has a big role to play in delivering that.”
The ACI Europe Trading Conference & Exhibition takes place on 23-25 April in Oslo. Go to www.aci-europe-events.com for full details.
