ACI and IATA chiefs see a new dawn for slot allocation and charges

posted on 21st June 2018 by Justin Burns
ACI and IATA chiefs see a new dawn for slot allocation and charges

The heads of the International Air Transport Association (IATA) and the Airports Council International (ACI) both see the possibility of an independent body to decide on slot allocations and charges that airlines pay-out to airports.

IATA’s chief executive officer, Alexandre de Juniac and ACI’s director general, Angela Gittens gave their views during a joint interview with FlightGlobal senior reporter, Oliver Clark at ACI Europe/World General Assembly in Brussels yesterday.

In the opinion of many airlines, airports charge them too much and Clark asked Gittens and de Juniac if they were too high, and much to the amusement of delegates, Gittens immediately replied “No“.

De Juniac said the key point is airlines want to pay the “right price” for the “right service”. “We don’t want to pay for something that we think we don’t have the benefit from, but that is not good customer behaviour. Are airports charges too high? – sometimes they are ok,” he said.

But Gittens said a survey of 25 of the largest airports and 56 per cent of them lowered charges in 2016 compared to 2015 and more than half were privatised airports and all of them had a hybrid till bringing all the things they fight about into one.

REGULATION

Both heads agreed that regulation “infantilizes” the relationship between airlines and airports and causes more problems after Clark asked if there was an issue with how prices are regulated and whether it adds another level of complexity and affects the arrangements thrashed out.

Gittens: “I kind of liken the issues about regulation to keeping us as children. The regulator is the parent and we are the children and we are both fighting about who gets better treatment. The head of Lufthansa (Carsten Spohr) talked about it in the opposite way (yesterday) but mentioned we are like a family and like siblings.”

Gittens said she would like to see that the regulatory environment be more normal like it is in any other industry and business environment. “Most countries have a competition commission or some kind of institution that can be brought in to look at abuse of a dominant power whether it is the airline or the airport and start to move away from this special attention that is given to the airline-airport relationship that is making us act like children,” she said.

De Juniac believes where you have big hubs who have a strong market power there should be regulation. “For these types of airports regulation is absolutely essential. But we have not found anywhere regulatory framework or system that is working well for us and nowhere in the world is it working well from our point of view,” he said.

“For the airports we made a complete survey of what is being done in the world in terms of regulation of privatised airports and we haven’t found anything that is very efficient.”

Gittens believes the complaint about charges goes on with highly regulated airports like Heathrow, where you hear complaints all the time and it is probably the most regulated airport in the system.

And she said you hear nothing but complaints from their dominant carrier (BA) in terms of charges and then you have airports that are not regulated at all and you don’t hear a word – so regulation is “not the answer” but is probably an answer for a handful of situations at least for a time.

“It would make more sense for me to throw it into the competition arena just like other industries that are regulated that way and where you have people that understand market economics and can look at the situation and do some assessment as to whether there has been some abuse of market power,” Gittens said.

De Juniac responded: “There should be an independent agency, whatever it is, independent from the government, partly the airport, or partly the airline and the voice of the airlines and airports should be properly taken into account when the regulatory makes decisions.

“You have to work with a body that is heavily specialised and good with people that know the business and independent from everyone and listening to all the stakeholders involved in the issue.”

For Gittens, any independent body regulating charges between airports and airlines would not be about finding the price, but it should focus on finding any abuse. “The price can be negotiated between the airlines and airports. The question is why is their someone else in that relationship and the only reason there would be, is because one side has so much market power that that it is not a true commercial transaction. The situation is where the airline or the airport has the leverage,” she said.

SLOT ALLOCATION

Airport slots are allocated and regulated by IATA in association with national slot coordinators with no airport input in the system. This system is currently under review, and Clark asked if they had any initial thoughts over whether airports should have more involvement.

De Juniac and Gittens both agreed airports should be part of the process. “The fact the airports were not part of the governance system is a weakness and we think that they should be part of it and we should have an agreement with the airports to have them on board and then we will review the technicalities and it should be ready by the beginning of next year. It is complex,” de Juniac said.

Gittens responded: “As a minimum the airports should be part of it as it is the airport’s property that is actually being allocated. It is a complex system and process with a lot of legacy issues that have to be taken into account. There is a lot of work to be done on the detail but we need to be on the inside first.”

As for some kind of ownership of slots or money generation – Gittens said it has to be something pragmatic that works and gives an incentives for the “most efficient and effective utilisation of the airport space” and that is the “bottom-line” of what airports need.

“It costs a lot money to expand, so it is incumbent on us to use what we have as close to 100% as you can get. That’s what we really want out of the slot allocation system,” she said.

AIRPORT PRIVATISATION

IATA has recently published guidance materials for governments considering public-private partnerships (PPP) and other forms of privatisation programs for airport infrastructure, and called for caution among governments when it comes to privatising their airports.

De Juniac there has in the past 20 to 30 years been a trend to privatise airports, and structure and utilities and viewed from the airline, they had “very high expectations” and while there have seen some very good outcomes from that with modernisation of airports, airlines have generally found the airport charges, and the cost of the airlines has “sky-rocketed” and not at the same level as level the service.

“What we tell governments is please do not imagine that privatisation is the ‘magic solution’ and look at all possible solutions – management contracts and concessions before jumping to privatisation without thinking properly and thoroughly about what you are doing with your asset. Privatisation should not be done to only to raise money, which I think we both agree on,” he added.

Gittens said she agreed, but privatisation was also about build, operations, transfer, management contract and that range needs to be suited to what the government’s objectives are.

“The governments have to be clear and transparent about their objectives as that drives what it she should be doing and can do. I think it is a mistake for governments to just assume away the value of their aviation sector by trying to extract the most money and not leave funds for capital investments which for most government as that is why they are privatising – that is usually why they need capital investments,” she said.

She said there are successful developments where charges have gone up due to capital investments made, but this has saved airlines money as their operating expenses have fallen and they are now better off, due to better efficiency at airports.

ACI AND IATA COLLABORATION

As to what IATA and ACI are doing to deal with the capacity crunch in Europe, and whether it is an area where collaboration takes place, Gittens said they are now working behind the scenes together on nine to 10 projects.

She said the next project is about using technology and the digital transformation to make the passenger journey for both baggage and cargo faster, more efficient and cheaper which will help the capacity crunch.

“You would be surprised to know that, with all the rhetoric that goes back and forth between us, that we are collaborating on a number of projects,” she said.

Gittens added: “We know we can’t keep doing things the way we are doing them now with passenger traffic going to double in the next 15 years. No matter what else we do with infrastructure it is going to be impossible and we can’t double the number of airports and security lanes and all of that so that is something we are working on.”

Other projects IATA and ACI are working on she said is an airport smart security project that they have working on for four to five years, looking at near term and short term improvements in processes, technology and other ideas piloted.

Gittens said some airports are already using some of the ideas are using some of the lessons learnt, making the process more efficient and affective.

De Juniac agreed and said ACI and IATA cooperate with each other every day, as airlines and airports are always working together with the same objective to offer passengers’ with the “best possible service on the ground”.

Both DGs said that IATA and ACI are working on an initiative looking at the ‘airport of the future’ and what the best possible airport should look like for both.