Hemant Mistry, IATA’s Director, Global Airport Infrastructure and Fuel, says that industry partners simply haven’t faced the same sense of urgency as airlines.
“Airlines started burning through the cash as soon as flights were grounded but, generally speaking, airports and ANSPs are monopolies, they aren’t used to controlling costs, and they never tried to adjust to the new market realities.”
Some airports and ANSPs have worked hard, especially in the initial phase of the pandemic. Early on, EUROCONTROL ANSPs deferred about €1 billion in airline charges and several airports made similar moves to ease airline costs.
The problem is that not only are many suppliers now looking to recoup deferred payments but also that they want to recover all monies estimated to have been lost because of the pandemic, including profits.
Confirmed airport and ANSP charge increases have already reached $2.3 billion, and this figure will certainly rise. It is estimated, for example, that European ANSPs, particularly the 29 EC states—most of which are state owned—are looking to recoup almost $9.3 billion (€8 billion) from airlines to cover revenues not realized in 2020. Monies will begin to be recovered in 2023 and stretch over the following 5–7 years.
Among airports, London Heathrow epitomizes this reckless approach with reports suggesting it will double long haul charges from 2022. It has even been noted that its operating company hopes to pay shareholders a dividend.
Virgin Atlantic’s Chief Operating Officer, Cornell Koster, has labelled this as “prioritizing shareholders at the expense of airlines and consumers.”
Heathrow is also planning a new levy on cargo that has been branded a “tax on trade.”
Amsterdam Schiphol is no less a concern. “Schiphol’s intention to massively raise its charges in the middle of a crisis is an absurdity that only a delusional monopoly could propose,” says Willie Walsh, IATA’s Director General. “The idea that airlines should pay higher charges to make up for airport revenue shortfalls when demand evaporates for everybody is totally unacceptable. The real-world solution is first to cut costs and improve efficiency. After that, if substantial financial gaps still exist, then it should seek support from investors who benefited from years of steady returns before the crisis. Schiphol needs to contribute to recovery, not set it back.”
Although Europe contains the most egregious examples, IATA expects airlines to face serious challenges in Australia, Canada, India, South Africa, and the United States. “We need to contain this now before it becomes a global issue,” says Mistry.
Some regulators have understood the danger being posed by the behavior of infrastructure providers. Regulators in India and Spain successfully intervened on the increases proposed by airports. They provide an example for other regulators to follow.
And the Australian Competition & Consumer Commission warned in their recently published report that increasing charges to recover lost profits from the pandemic will demonstrate airports systematically taking advantage of their market power, damaging the vulnerable airline sector’s ability to recover at the expense of both consumers and the economy.
IATA forecasts that global airport costs will reach 2019 levels in 2022 but air traffic will lag about two years behind that. Its modelling further suggests that if airports were to adjust charges to recover their 2020 revenue losses and 2021 forecast losses, it would potentially increase the cost of travel by as much as 20% in some markets.
Exacerbating the problem is the lack of incentives for cost efficiency, which basically allows airports and ANSPs in many jurisdictions to get back anything they spend, plus a profit. “Airports and ANSPs want to act as if the pandemic hadn’t happened,” says Mistry. “They are increasing charges not because they need to but because they can.”
The latest Single European Sky Performance Scheme is a prime example of this. In 2020, European ANSPs saved just 2% of their cost base despite traffic dropping more than 50%. But they intend to hike costs about 11% by 2024 even though traffic will still be 6%–8% below 2019 levels.
It is not impossible for these ANSPs to reduce cost. The Portuguese ANSP, a rare bright light, has reduced its cost base 16% compared with 2019.
“Airports and ANSPs must control costs,” says Mistry. “They are still broadly recognized as investment grade so they can access credit lines and raise debt. They don’t need to increase charges to raise financing, there are other measures available to them.”
German airport operator, Fraport, has issued a bond worth € 1.15 billion at an annual yield below 2%, Schiphol issued a € 750 million green bond with a 2% yield, and NAV Canada issued an additional $539 million in bonds in February 2021.
“If such measures are not possible,” Mistry continues, “then airports and ANSPs must rely on shareholders, be they private or public, to put their hands in their pockets. The shareholders profited in the good times and just like in any other business they must help out in the bad times.
“The truth is that many airports and ANSPs failed to take actions they should have taken.”
Suppliers argue that they are capital intensive and have huge long-term infrastructure projects to consider. But airlines cannot easily shift markets and assets as they claim. Many are restricted by various commitments, including state agreements. Aircraft are also big expenditure items with long-lasting influence on network planning.
Nor is it true that airlines had access to free money during the pandemic. The majority of government support simply raised the level of debt in airlines. Of the $243 billion that was made available to airlines, $81 billion supported payrolls and approximately $110 billion was in support that needs to be paid back. As a result, airlines have amassed a huge debt burden of over $650 billion. Airlines must find a way to deal with that debt level, even as traffic struggles to recover, even as supplier costs are rising.
Particularly pertinent at the current time is the supplier argument for money to invest in green initiatives and avoid a capacity crunch in the future. But addressing aviation’s sustainability goals won’t be solved by raising charges to airlines.
A sustainable development strategy for airport infrastructure requires a comprehensive environmental assessment to not only ensure airport design and investments drive environmental improvement and decarbonization but also increased efficiency for users. Securing the greatest environmental benefits means not impeding airlines’ ability to make investments in new fleet, new fuels, and new technologies that can have an even larger impact on tackling the climate crisis.
“Unnecessarily high airport and ANSP charges will have a negative impact on the entire industry and will stall the recovery,” Mistry sums up. “They will put pressure on sustainability initiatives and dampen aviation connectivity, stifling economies and jobs. Every provider, together with their owners, must do everything possible to avoid charges increases. Any attempt to regenerate revenues not collected because airlines were unable to fly during the pandemic has to be stopped.”