Airport charges in the post pandemic world
Airport charges are and will be a hot topic in aviation in the post pandemic world. The airport charges are the charges that the airline pays to the airport for the usage of the airport. The charges should be based on the costs that the airport has for creating the infrastructure and the operations for providing the necessary services for the airline operations. Every year the airport looks at their cost structure and they propose a (raised) charge level based on the potential development projects and other factors that would support the price level. Because the charges are regulated, the authorities and the airlines operating to that specific airport then have the consultation process to agree on the airport charges for the coming year.
For a long time this worked rather well since the whole industry was doing rather well: the market was growing and more and more business opportunities were coming to all the stakeholders of the aviation industry. But then the Covid-19 pandemia hit the industry and the hit was very hard. Everybody´s revenue streams were affected. All of a sudden the airports remained with a heavy cost structure but with reduced revenues.
During the pandemia the airports have tried to cut costs everywhere they could. Many projects that aimed to improve the functionality of the infrastructure were put on hold. Safety related projects were completed because of their importance, but most probably in a smaller scale. Or, if possible, they were also put on hold.
The infrastructural services were also cut down wherever it was possible. However, many of those services are regulated and they have to exist for example whether there are 15 or 25 departures from a runway during a certain time period. This makes those services more or less fixed so it doesn´t give too much room for cost savings. Services like these are for example rescue services or runway inspection services.
So what happens to the airport operator´s cost structure in a situation like that? Because important projects were put on hold, that eased up the cost structure that moment, but the projects remained in the portfolio. Those projects would be completed in the future but of course there were plans for other projects in the pipeline for the coming times as well. This means that there would be an escalated need for improvement project funding during the coming years.
The infrastructural services, as you can´t cut them down as much as the traffic is cut down, run on creating losses every day. Those services start to turn profitable most of the times as soon as the traffic recovers again, but the damage stays in the numbers of the airport operator.
The airports have focused extensively also on the other revenues besides the airport charges just to avoid the dependence on the airlines. These revenues would typically be targeted directly towards the passengers. And yes, the passenger services like the shops and the restaurants as well as the car parking has been a growing revenue stream for the airports for many years. However, if the amount of flights go down, also the amount of passengers go down. Therefore the pandemia has caused the airports a big revenue challenge also in this context.
So it´s quite evident that the airports have a big urge to raise the airport charges. This can also be well justified, since the losses during the pandemia and the cost structure for the coming years supports this. This can be shown very transparently.
Despite the need from the airport side it´s very unlikely that the airport charges will rise in the near future as they have been rising earlier. Just like the airports, the airlines have suffered tremendously and made great losses during the pandemia. Even though some of their costs are more flexible than the airports´ costs, they also have many more or less fixed costs like the aircraft maintenance costs. The airlines will fight heavily against any intentions to escalate the airport charges.
Since the airport charges are regulated, the consultation process between the airport and the airlines operating to it should ensure that an extensive discussion and the mutual understanding of the needs should lead to an acceptable conclusion between the airport and the airlines. The regulative authority should make sure that a decent result somewhere in between the requests from the both sides would be gained.
However, the downfall of the industry because of the pandemia has lead to extreme decisions as far as airport charges are concerned. The mutual understanding or accepting each other´s situations has changed into radical financial actions. The airports with more solid attractiveness among the airlines have been able to make bigger financial decisions than the airports that are less attractive as a destination. We can even say that the range of the airport charges has become more polarized. The trust and the open discussion about the price levels and how to get out of the sad financial situation within the whole aviation industry could be much stronger than what it right now is.
London Heathrow is one of the most popular airports in the world. Heathrow is the honey pot where the airlines want to fly and getting slot from there is very difficult. They are in a very good position as far as the airport charges are concerned and they have had rather high airport charges already before. So, they decided to raise the landing fee for 2022 for 37%. The airlines and IATA are of course challenging this heavily and it remains to be seen how the story ends.
At the same time the airports that are at the outskirts from the most popular destinations haven´t really been able to raise their prices. Some have even introduced new discounts to attract traffic. It the airlines feel that the charges are too high they might find more profitable destinations from somewhere else and it would take those airports into even deeper crisis. This will mean of course that it will take a long time for those airports to recover from the pandemia and the very needed improvement projects will be moved further into the future.
The ticket prices will be affected when the charges that the airlines will have to pay get higher. This won´t encourage the passengers to start flying again after the pandemia. This will put the pain back also to the airports.
Somebody will always pay in the end. In the passenger transportation business it´s the passenger. In this vicious circle, in the aviation ecosystem where everybody is depending on each other and everybody is hurt, it might not be the best solution to rob from the poor. Working on good relationships between each other and building trust are an absolute must in this situation. It would be the best way to benefit the passengers and make the best possible recovery for the whole industry as well.