A cocktail of low-cost carrier pressure on aeronautical revenues, changing passenger behaviour and online competition on airport retail and advertising mean ‘strong headwinds in commercial revenue generation for Europe’s airports – where 47% already make losses.

 

This was the dire ‘state of the nation warning’ delivered by ACI Europe Director General Olivier Jankovec to a packed delegation at this week’s European airport industry Annual General Meeting in Paris yesterday,

 

He warned the association’s senior airport managers present that 47% of Europe’ airports make losses compared to 60% in 2013 and this is even worse for smaller regional airports, who have not seen finances improve and where 76% are still in the red – a percentage almost unchanged in the last three years.

 

Jankovec says revenue-generating options are also limited, with low cost carriers ‘having moved upmarket’ and airlines generally focusing on primary and larger markets. As a result, he says network development opportunities and revenue generation are becoming harder to secure at these airports following years of cost-cutting which now limit the extent of further efficiency gains.

 

RECORD GROWTH – QUESTIONABLE PROFITABILITY…

Ironically, all of this pressure comes at the same time that Europe’s airports handled more than 2bn passengers for the very first time in 2016, following three years of welcome sustained growth in excess of +5%. At the same time, Europe’s airports have added more than 300m passengers since 2013 – making significant economic contributions, together with airlines and other aviation partners.

 

Jankovec said: “In the EU alone, passenger traffic has expanded by +22.2% since the global financial crisis – three times faster than GDP. This primarily reflects wider dynamics in the travel and tourism industry driven by digitalisation, experiential consumerism, rising inbound demand from emerging markets, affluent baby boomers and ultra-mobile millennials in Europe.”

 

He added that this traffic ‘continues to be extremely dynamic’ and growing at +9% since January of this year, helped by an improved freight contribution ‘a synchronised uplift in the global economy, plus continued airline capacity expansion.

 

More positives include the demand recovery being seen at Russian airports, as well as those countries hit by terrorism last year, including Turkey, as well as Belgium and France which were badly affected.

 

VERY MIXED RESULTS FOR SOME CARRIERS

He added: “So far, air traffic is clearly defying increased geopolitical risks, much like the rest of the economy. However, Europe’s airports reiterated their concerns at the ongoing uncertainty resulting from the UK leaving the European Union – uncertainty which has only increased following the results of the UK election last week.”

 

Turning to the economic and financial performance of the industry, Jankovec said that the performance of Europe’s airports has continued to improve, with the average return on invested capital now standing at +7.7% – in line with the cost of capital.

 

However, he warned that airports within the Eurozone nevertheless keep underperforming (+6.1%), and the performance gap is even wider when compared to airports in the BRICS or other emerging markets (+9.7% and 12.2% respectively).

 

Moving on to the low cost ‘revolution’ and airport competition, Jankovec said that while it was once a reality mainly for regional airports, airport competition has now moved ‘upmarket’, along with the expansion of low cost carriers into primary markets and larger airports.

 

99% OF GROWTH IN LAST 10 YEARS CAME FROM LCCS

He said: “Over the past 10 years, 99% of the growth in passenger traffic of the top twenty European airports has been delivered by low cost carriers. This clearly shows that whatever their size and location, Europe’s airports all end up chasing the same airlines and increasingly compete with each other.”

 

He added that the LCC revolution marches on and ‘nothing will stop it’. He added: “Low cost carriers have moved into larger airports and hubs and they are now making inroads into the long-haul market.

 

“Europe’s airports will see 87 long-haul routes being operated by low cost carriers this summer, up from 14 just four years ago. The next step – which Ryanair has just started experimenting – is to offer feeds to network carriers, or even develop their own connecting product.”

 

 

Jankovec warned ACI delegates that this could have dire consequences for larger airports if smaller facilities offer these low cost carriers the opportunity to effectively ‘by-pass’ their bigger competition at a lower price.

 

TRBusiness also notes that this could also play havoc with commercial contracts at airports and especially if retailers and service providers find themselves locked into medium-term contracts, which later rely upon ‘projected traffic growth’ which simply doesn’t materialise.