European airports: monopolies, or exploiting market power?
Eight years ago a detailed report, commissioned by ACI Europe, was researched in Europe into the market power and monopoly capability of airports in Europe. Broadly, its conclusion was that there was no evidence of excessive market power or monopolisation there.
But the subject has not gone away. Despite capacity issues, the four main airports in Europe remain the four biggest by a margin, and in many countries a small number of airports, sometimes just one, do appear to have considerable power. There are few airports in the region, perhaps only one, which handle LCCs that could be accused of having any sort of monopoly power.
At the recent CAPA Qatar Aviation Aeropolitical and Regulatory Summit the subject was broached again, with examples being offered from Australia and Europe. In the latter case, there were divergent views from speakers.
This short report looks at selected airport examples in Europe and how the landing charges levied on airlines there speak for or against the proposal that there is evidence of monopoly power.
Summary
- Disagreement continues over the degree of market power that some of Europe's airports have.
- Scrutiny of four countries - the UK, France, Germany and Spain - suggests that even the busiest hub airports, serving predominantly full service carriers, are not necessarily the most costly for airlines.
- Ownership (public, private, or public-private) does impact on those charging regimes.
"Airports are not effective monopolies" vs "Most airports are effective monopolies". Discuss.
Two seemingly contradictory statements emerged from the CAPA Qatar Aviation Aeropolitical and Regulatory Summit, held in Doha 5/6-Feb-2020.
On the one hand, ACI Europe's head of Economics and Competition Michael Stanton-Geddes said that "there are airports that have market power", but opined that it is a relatively small number of airports, and ultimately he disagrees that airports are effective monopolies. Mr Stanton-Geddes cited London Heathrow Airport as an example of an airport that has "significant market power".
On the other hand, PA Nyras (part of the PA Group) commercial aviation lead David Huttner said that "most airports are effective monopolies", which is why "regulation acts as a proxy for competition" between airport operators.
So, who is right? Are there a few airports that are 'monopolies', applying excessive market power, or more than there should be? As both commentators are based in Europe, the discussion is limited to that continent.
Market/monopoly power is defined as the ability of a firm (or group of firms) to raise and maintain price above the level that would prevail under competition. The exercise of market power leads to reduced output and loss of economic welfare. A monopoly simply refers to when a company and its product offerings dominate a sector or industry.
The close link between airport competition and airline liberalisation
A formal study of airport competition and market power by Copenhagen Economics was undertaken in 2012. It was sponsored by ACI Europe and concluded that there was little evidence of monopoly activities and that "much current airport regulation is likely to be inappropriate now that airline liberalisation has transformed the demand side of airport markets, has increased airline switching and passenger choice and led to inter-airport substitutability, which has significantly strengthened the competitive constraints on airports."
That is perhaps why the ACI representative, Mr Stanton-Geddes, was so adamant that relatively few airports have market power - although he did acknowledge that London Heathrow is one of them. So, does it, and which are the others? What is the correlation between so-called market power and charges levied?
Heathrow's landing charges are higher, but not significantly
If we begin with Heathrow Airport and stay with the premise that market power is defined by the excessive charges that the airport can apply beyond what would prevail in competition, then it is clear that is correct - but only just, and only in London.
The chart below compares Heathrow with two other London airports, Gatwick and Stansted (there are six in all).
Heathrow is almost exclusively served by full service carriers (FSCs). Gatwick has a mixed traffic base of FSC, low cost and charters, while Stansted is mainly low cost.
Also in the chart is Manchester Airport, serving the country's second biggest conurbations. The charges are for 2019 and in USD throughout.
Landing charges comparison (USD) for 2019 - UK
The results are perhaps a little surprising. Of the three London airports, Heathrow has the highest charges, over Gatwick, but only marginally in the narrow body category which constitutes over half of all flights, and not in the smallest aircraft category (CRJ-200/similar).
Stansted has the lowest charges as might be expected; the level of its charges are precisely what are attractive to LCCs, which make up 95% of seat capacity. In most categories Manchester, which also has a mixed business model base, has lower charges - it is in open competition with airports such as Liverpool, Leeds-Bradford and Doncaster-Sheffield.
In France, Lyon's airport is more expensive than the Paris airports in four of five categories
Of the so-called 'FLAP' airports (Frankfurt, London, Amsterdam, Paris), the busiest in Europe, only Paris can also offer a direct comparison between two airports in the same city - Charles de Gaulle and Orly.
So the other airports here are the next two busiest - Lyon in the centre of the country and connected to Paris by high speed rail and to Nice on the Mediterranean coast. Unfortunately, there are no statistics for the low cost 'Paris' Beauvais Airport to the north.
Landing Charges comparison (USD) for 2019 - France
In this case, the two Paris airports have identical charges - they are under common ownership. But only in the largest aircraft category are they the most expensive. In all other cases that questionable accolade goes to Lyon, which is hugely more expensive than Nice and up to an 'incroyable' 26.5 times in one category.
No indication of market power in Germany - but it is a decentralised country
The German example contrasts the country's leading hub and financial services airport, Frankfurt, with the secondary one, Munich, with the capital city's (Berlin's) main and full service airport, and with two important regional ones at Duesseldorf and Hamburg. Unfortunately, there are no statistics for the low cost Frankfurt Hahn Airport.
Landing Charges (USD) comparison for 2019 - Germany
In this case, the primary airport is only the most expensive in one instance, the smallest aircraft category. Munich Airport closely tallies with Frankfurt across all categories. Both are major Lufthansa hubs.
The surprise is Berlin Tegel, which is the most expensive in four of the five categories, despite not being a major base for any airline and still attempting to boost traffic from what was a low base until fairly recently, and in anticipation of the opening of Berlin Brandenburg Airport later this year.
Germany is a slightly odd case as it is a federal republic with none of the centralisation experienced by other countries and a capital city that only now is becoming a major player, one whose airport(s) can be spoken of in the same breath as the FLAP airports. It is intriguing that it should be the one with the highest charges.
In Spain, common ownership equates to a common charging system
There is no meaningful comparison for Amsterdam Schiphol Airport in the Netherlands, though it arguably might be compared with Brussels.
So for the final example Spain is selected, comparing Madrid (which only has one airport and looks as if it will stay that way) with the country's other leading gateway, Barcelona, and also the busy island airport of Palma de Mallorca. All are owned and managed by AENA.
Airport Charges Comparison (USD) 2019 - for Spain
In this instance there is a correlation between size and charges, but that is only to be expected when the airports are under common ownership and are subject to close regulation that was tied to the semi-privatisation of AENA six years ago.
No evidence here that European airports are monopolies
There are no firm conclusions about monopolies to be drawn from these statistics. Landing charges are only one way of measuring airport charges to airlines and the compared airport types vary between countries. There are some surprising results, like Birmingham and Berlin Tegel.
It can be observed that charges are likely to vary more where there is different ownership at airports, as that is where the rules of supply and demand start to apply. That is the case in the UK, where all six London airports are under separate (private or public-private) ownership, as are the other two in the sample, and only one (Heathrow) is currently regulated; and in Germany where they are too (mainly public).
But there is scant evidence to support a conclusion that airports - at least in Europe - exploit a monopoly position.