1. Introduction
The International Air Carrier Association (IACA) represents 30 airlines that operate various business models to cater for different demands in the travel market, including low-cost, seat-only and tour operator traffic. Their common feature is efficiency in terms of fleet utilisation and load factor.
The Directive 2009/12/EC of 11 March 2009 on airport charges aimed to create a common framework for the regulation of charges at EU airports. It applies to any EU airport:
- with over five million passenger movements
- with the highest number of passengers in the EU country.
Under the Directive, airport users (and their associations) have been given the right amongst others:
- to be consulted regularly with respect to:
- the operation of the system of airport charges
- the level of airport charges and, as appropriate
- the quality of service provided
- to receive transparent data about the components serving as a basis for determining the level of charges.
In the past, IACA has stated that the Directive is a first but tentative step in the right direction. IACA believes that further steps are necessary such as a genuine economic regulation and a charging mechanism built on the “single till concept”, which allows airlines to co-benefit from the wealth their passengers create through lower airport charges.
The European Commission is under a legal obligation to carry out a mid-term evaluation on the application of Directive 2009/12/EC and report on the application of the Directive, assessing progress made in attaining its objective as well as, where appropriate, any suitable proposal. Steer Davies Gleave (SDG) has a mandate from the European Commission to carry out this work on behalf of the European Commission.
IACA, as stakeholder, has been asked for its input to the evaluation and its thoughts on the Directive. This IACA Position Paper replies to this invitation and outlines the association’s views on the application of the directive and in particular the shortcomings that IACA notices with respect to the EU Airport Charges Directive .
2. Summary of the position of the International Air Carrier Association (IACA)
IACA considers that the EU Airport Charges Directive has the following shortcomings which need to be addressed by the European Commission and are outlined more in detail in IACA’s input to SDG (see point 3):
- the Directive provides airlines with only a right to limited transparency and consultation. The Directive is, as an instrument, insufficient to control a monopolistic service provider such as an airport.
- the Directive forces associations and airlines to take part in burdensome consultation processes without any tangible results.
- The unreasonable rise in airport charges has not been halted by the Directive: airports continue to recover all costs from airlines imposing high cost of capital levels and enjoying profit margins that are substantially higher than their customers, and allows them to transfer their commercial risk entirely to airlines.
- The Directive has not provided useful guidance with respect to receiving information from airport management bodies. Airlines still have no access to clear and useful data for making judgements on the proposed charges. Worse, the given information is often only supplied in the national language of the airport’s Member States, instead of English. Finally, information is often provided too late, is incomplete, or is not provided at airport level.
- In some cases, the most important missing information is the cost break-down per airport.
- The allocating of more and more charges on a per passenger basis (even if the correlation is not obvious, e.g. for landing charges) does not incentivize efficiency.
- The collection of airport charges from passengers is an administrative cost for airlines for which they are not remunerated by airports. IACA finds it legitimate that airlines may limit the reimbursement of collected airport charges.
- ICAO principles that airport infrastructure should not be pre-financed by airport users should be respected.
- Monopolies, such as airports, should be regulated to avoid misuse of power.
In several instances below, a reference is made to the airport charges situation in Spain, as it constitutes probably the best illustration on how things can go wrong.
3. IACA’s input to the questions asked by the SDG consultation
Implementation of the Directive
What has been the impact of the introduction of Directive 2009/12 into national law at your airport?
The impact has been negligible, as the Directive only provides for airlines the right for transparency (but in a restricted form) and to be consulted (but without genuine power to refuse charge increases). The Directive is, as an instrument, insufficient to control a monopolistic service provider as an airport.
IACA has been asked by its airline members to intervene when their situation is critical and to such an extent that the association’s intervention is necessary. The need for such interventions has not decreased since the adoption of the Directive, which is a clear indication that the Directive does not remedy an abuse of monopoly/dominant position. As an example, the case of Spain is the most illustrative.
Has Directive 2009/12 increased your administrative burden compared to the previous situation?
The question is not relevant. The fact that the Directive is ill-conceived, is forcing the association and its airline members to take part in a burdersome consultation process, however without any tangible results. The lack of concrete results creates frustration.
Did you notice changes in airport charges as a result of the Directive? If so, please detail. Can a trend be observed?
The unreasonable rise in airport charges has not been halted by the Directive. The declining passenger numbers coupled with the weak Directive have allowed airports to continue recovering all costs from airlines, imposing high cost of capital levels and enjoying profit margins that are substantially higher than their customers, the airlines.
The current Directive is allowing the airports to transfer their commercial risk entirely to airlines. Spain is again the best example: the implementation of an unfair dual-till system, uncontrolled investments and prohibitive cost of capital.
On average, what proportion would airport charges account of your members’ total operating costs?
IACA does not collect any statistical data from its airline members. However we can estimate that, excluding fuel, airport charges (including handling costs) represent more than 20 percent of the total remaining costs.
To what extent have EU airports made use of the provisions of Article 10 of the Directive allowing them to vary the quality and scope of particular airport services, terminals or parts of terminals and to differentiate the level of airport charges according to the quality and scope of such services (e.g. low-cost terminals, etc.)?
Amongst the airports under the Directive, IACA is aware that some airports have made use of Article 10.
To what extent do EU airports set basic charges and what services are included in such basic charges (e.g. air bridges, remote stands)?
Landing, parking, passenger charges, security, noise and emissions charges are common practice. Some airports have additional charges for centralized infrastructure (check-in/CUTE, lighting, etc… ). Confusion may arise when a mix occurs between charges and taxes. In France and Germany, security costs are included in airport taxes, whereas in other countries, security costs are part of the airport charges. It is therefore impossible to make any meaningful comparison (benchmark) between different airports.
Has the Directive had any impact on airports’ incentive schemes (e.g. volume discounts, discount for new airlines, etc.)
IACA does not collect any information on commercial deals concluded between its airline members and individual airports. IACA is, however, aware that such incentive schemes exist in Europe. IACA reiterates that any such scheme should be non-discriminatory.
Non-discrimination among airport users
In your experience, are airport charges in the airports where your airlines operate set in a non-discriminatory manner for airport users?
The major part of charges imposed by airports are recovered in a discriminatory manner. Most of the airport charges are recovered through a passenger tax, which means that efficient airlines with a high load factor will pay proportionally higher charges than their non-efficient competitors. Many features developed by airports may easily discriminate between airlines or business models. For instance, a high surcharge imposed on all aircraft parked in Lisbon for longer than 18 hours may not only be disproportionate, but also be discriminatory against operators with a fleet based at the airport.
Do you find that incentive schemes are transparent and known by all airport users?
In many cases, incentive schemes are published on airports’ websites. However, this is not a guarantee that these schemes are transparent. In many cases, the real impacts are difficult to assess. The Directive again misses an instrument to remedy this situation.
To what extent are airport charges cost-related at the EU airports that your airlines serve?
The Directive rightly mentions the ICAO principle of cost-relatedness. However, when it comes to reality, only at a limited number of airports, the charges are effectively cost-related; most of the time, airports abuse their monopoly/dominant position to increase charges in an unreasonable and non-cost-related manner. For the 2013/4 charges, Spain has created a disastrous precedent that cannot be prevented by the Directive: unfair dual till system implemented without appropriate consultation, massive uncontrolled investments, prohibitive cost of capital enshrined in tailor-made national law, abuse of the network concept of the Directive forcing airport users to finance useless and cost ineffective infrastructure.
Do you find the criteria set out by the airport managing bodies for modulating and differentiating airport charges relevant, objective and transparent in accordance with Article 3 of Directive 2009/12?
Absolutely not. See above answers.
Consultation and information exchange
Has the introduction of Directive 2009/12 in national law provided useful guidance with respect to providing information to airport managing bodies and receiving information from them?
Absolutely not. Airlines have still no access to clear and useful data for making any judgments on the reasonability of the proposed charges. Worse, the given information is often only supplied in the national language of the airport’s Member States, instead of English. Finally, information is often provided too late, is incomplete, or is not provided at airport level. Spain is once more the illustration of how things can go wrong. In the Directive, transparency criteria are not appropriately specified; requirements for financial, operational and planning data should be defined in more details according to ICAO principles. Three areas should be explicitly detailed: investment planning, single-till versus dual till process, cost of capital and financing structure.
Are you aware of any Member States which apply Article 6 (5) (a) of the Directive on the possibility to establish a mandatory procedure whereby airport charges or their maximum level is determined or approved by the Independent Supervisory Authority? If so, please detail.
IACA is aware that this possibility is applied in many countries such as UK, Ireland and France. Once again, Spain is the classical example where the Directive is misused: the CAA (the so-called Independent Supervisory Authority) is allowing a maximum increase without cost-relatedness of 5 % plus CPI (index) in 2014. The Directive misses corrective actions.
Are you aware of any Member States which apply Article 6 (5) (b) of the Directive on the possibility to establish a mandatory procedure whereby the Independent Supervisory Authority examines whether airports are subject to effective competition? If so, please detail.
IACA is aware that a.o. the UK CAA is in charge of examining whether airports are subject to effective competition. However, IACA challenges the rationale behind the study as we consider that the theory of contestability is not relevant. Moreover, the UK CAA’s independence is questionable.
To what extent do you think airport managing bodies follow the rules for consultation as detailed in Article 7 (2) of the Directive? Have the airlines in your association entered into negotiations with airport managing bodies, with the specific objective to conclude a service level agreement with regard to the quality of service provided at the airport?
IACA considers that no EU airport fully complies with Article 7 para 2. The most important missing information is the cost break-down per airport. The Directive contains ambiguous provisions with regard to a network of airports, which is misused by Spain to consider all the 49 Spanish airports as one network, thereby preventing transparency.
How satisfied are the airlines of your association with the consultation processes at EU airports and what issues remain to be addressed? Please add comments on where it is effective and how it could be improved.
IACA members are very dissatisfied. Improvements required: invitations sent to all users, consultations held in the English language, adequate detailed information in advance of the meetings, conclusion of service level agreements, appeal mechanism with genuinely independent supervisory authority, etc..
Passenger airport charges
In your view, is there a direct correlation between the level of airport charges (as defined in the directive) levied by the airport and the ‘airport charges’ indicated in the ticket price? Is this significant in relation to the other charges that are also paid to the airport or other entities operating at the airport (e.g. fuel surcharge, security charges, etc.)?
As mentioned above, allocating more and more charges on a per passenger basis (even if the correlation is not obvious, e.g. for landing charges) does not incentivize efficiency, as airlines with a high load factor pay a higher share of the airport charges.
In case the passenger does not take the flight for which he/she purchased the ticket, what is the practice of your airlines with respect to the reimbursement of the passenger airport charge to the passenger?
IACA does not collect information on commercial practices of its airline members. IACA nevertheless wishes to draw the attention to the fact that the collection of airport charges from its passengers comes at an administrative cost for airlines for which they are not remunerated by airports. IACA hence finds it legitimate that airlines may limit the reimbursement of collected airport charges. Moreover, airports are often forced by airports to provide a bank guarantee for airport charges, which comes with sunk costs.
New infrastructure
What is the current practice in Member States with regard to pre-financing of airport infrastructure?
ICAO principles that airport infrastructure should not be pre-financed by airport users should be respected. However, lack of transparency does not allow a clear view on whether or not pre-financing exists.
Has the Directive had any impact on the financing of new airport infrastructure?
IACA is not aware of any impact.
What has been the experience of your member airlines regarding EU airport user consultation in the case of pre-financing of new airport infrastructure since the Directive was transposed into national law?
IACA holds no particular information on this issue, but is aware that the involvement of the airport users in the investment plans is currently rather limited.
Independent Supervisory Authority
In your view, are Independent Supervisory Authorities effectively independent and legally distinct from any airport managing body and/or carrier? Please refer to specific best practices or malpractices in Member States.
IACA considers that no genuinely Independent Supervisory Authority exists in the EU. This lack of oversight is the major obstacle for the Directive to be meaningful.
In your view, do Independent Supervisory Authorities exercise their powers impartially and transparently according to Article 11(3)? Are their procedures non-discriminatory, transparent and objective? Please refer to specific best practices or malpractices in Member States.
Absolutely not. See above.
Have your airlines had to use the powers of the Independent Supervisory Authority for any disputes or other matters related to airport charges? If so, could you please describe what happened and what the outcome has been, and the time taken to reach decisions (both interim and final)?
In 2012, in Spain, IACA Members tried to use this Authority, but Spain had even not yet established such Authority.
How satisfied are your airlines with the activities of the EU Independent Supervisory Authorities?
How are these authorities making themselves known to airlines?
Looking back
Before the Directive was approved, were the ICAO guidelines on airport charges respected across EU airports?
ICAO guidelines are not binding. As a consequence, airports were free to ignore them.
Was there a need to legislate in 2009?
Absolutely. Monopolies should be regulated to avoid misuse of power. IIACA was recommending a robust economic regulation at EU level, instead of a Directive.
To what extent is the airport charges directive an improvement upon what existed prior to 2011?
It is hardly an improvement, but rather a facade behind which the old story continues
Looking forward
Do you find the Directive addresses the issues it is meant to address appropriately? For example, did the Directive improve transparency? Did the Directive improve the quality of consultation of airlines? Did the Directive have a positive impact on cost-efficiency of operations? What are the main achievements of the Directive?
The Directive misses fundamental concepts one may reasonably expect from an instrument conceived to control monopoly power: a genuine and robust economic regulation, the mandatory signing of service level agreements before charges are effective and the application of the “single till” principle. See above answers.
Are there any short-comings that that the Directive did not address or not address appropriately but that would need to be addressed?
See answers to questions 16, 22, 29 and 31.
Do you find redundancies, overlaps, inefficiencies, inconsistencies?
The concept of network charging systems is inconsistent with the principle that airport charges should be cost-reflective. Airports that are above this threshold should be separated (i.e. ring fenced) from any smaller ones and charges should be site-specific. Moreover, there is an inconsistency in relation to Article 8 which requires that new infrastructure should be consulted with the airport users before plans are finalized, whereas section 17 outlines that pre-financing may occur and could be established based on the own safeguards of the member state. Finally, Art. 6.5. should be clarified as it can be used as an escape route from the appeal procedure.
Is the Directive still fit for purpose? Would self-regulation be more effective?
No. Self-regulation cannot apply to monopoly service providers. Airports must be regulated at EU level.
Should the threshold size of 5 million annual passenger movements to define the airports covered by the Directive be lowered to 1 million? Are there any particular impacts (e.g. threshold effects) arising from the 5 million passenger threshold?
Yes, the threshold should be lowered.
Do you consider any provisions of the Directive as particularly problematic? If yes, please explain.
Yes. See above.