Caribbean Airports: ACI Latin America & Caribbean, CEO, Rafael Echevarne

Transcript

Rafael:Thank you, CAPA, for allowing me to present the last session of the day. And I'm amazed, actually, there are so many of you still around. I thought that you would be doing something else, probably more interesting. I'll be very quick because I know that we have, you know, we are already exceeding the time allocated for the program for today. Um, I'm just going to talk very quickly about, uh, not so much Caribbean airports but airports in the region, okay, Latin America and the Caribbean. And what I'm going to do is 3 things basically: just tell you very quickly what airports are doing in relation to the environment, and also give you some highlights about the economics of airports, because I think that it is Something that is probably not very well known. How do airports— what are the economic characteristics of airports, particularly the small ones? And then talk about a bit more about an initiative that we have— well, not an initiative, a study that we just published on liberalization of air transportation. And as— because as I was saying earlier today, that is a very, very important topic on the agenda of airports around the world. Very quickly, I think I mentioned it before, ACI is the International Airports Association. The way that I describe it is ACI is the IATA of the airport industry. I think that that way everyone understands. So basically, ACI represents the interests of the airport industry. We— it's the only organization of its kind in the world. We have over 1,900 airports worldwide. In our part of the world, it's 360. Okay. And the objectives of this organization basically are 4: say, you know, ensure there is a safer industry, a professional industry, meaning that, you know, professionals are at the helm of the airports, that it is efficient, and of course it is sustainable. And on sustainability is what I wanted to actually say some, a few words. Um, the airport industry is really taking, uh, the issue of sustainability very seriously. And our organization, ACI, actually our colleagues in Europe launched an initiative, a program called Airport Carbon Accreditation. And it is the only program of its kind that is devoted to the airport industry. And basically what it does is evaluates plans and reduces with the objective of reducing CO2. Okay? Reducing CO2 of those activities that are actually controlled by the airports. Of course, the airports cannot control the emissions of the aircraft, but actually the airports themselves generate, you know, a number of— a sizable amount of emissions, and this program is devoted to that. Interestingly, it's actually managed independently, and ICAO is actually one of the— recognizes this program and actually is very much involved also in that planning, in that management. Now, interesting thing here, as you can see, uh, the airports in the Caribbean and Latin American region have been very active and have taken really the issue of sustainability very seriously. And as you can see, we have right now as many airports in Latin America and the Caribbean as in the United States in terms of being part of this program. Okay. Um, In Europe, of course, they have many more because in Europe, actually, it is— if you are going to finance an airport development, if you actually are not linked to a program similar to ACCA, it is practically impossible to obtain financing, okay? And that is actually the trend that we are seeing around the world. Obviously, you know, other parts of the world are going to grow tremendously in terms of the number of airports joining this program, but I feel that it's actually very interesting that We are at a par with the US at this stage and Asia-Pacific. It is not a race, okay? It is actually a reflection of the situation, but that demonstrates that commitment. And actually, I don't know if you are aware of the fact that in Latin America and the Caribbean is the part of the world with the highest percentage of airports managed by the private sector in percentage terms, more than even Europe. Okay? And so those European management companies, because it's mainly dominated by European companies, when they come to Latin America, immediately they get their airports to join Airport Carbon Accreditation because that's what they have done in Europe. For example, the latest one to join in has been AENA, which is the world's largest airport management company of Spain, and they just joined the ACCA program for their Brazilian airport. Just switching gears here, I wanted to show a couple of graphs that are, I think, very, very interesting because they reflect the challenge that airports around the world— and we will see in a moment in this part of the world— the challenge that they have in order to attract traffic, both passengers and cargo. Yeah. What I'm showing here is the 20 largest airports in the world. What is the percentage of the total passenger and cargo traffic that they handle? So the 20 largest airports handle 17% of the world traffic, passenger traffic, and 41% of the cargo traffic. The 20 largest airports. Remember that we have in our organisation 1,950 airports. The 20 largest in terms of cargo handle 41%. So this is actually very interesting because very often we hear politicians say whenever they talk about airports, well, you know, yes, traffic, passenger traffic is difficult and so on and so forth, but, you know, we will go after cargo. Really? Really? What cargo are you going to get when the 20 largest are already handling half of it? Look at Latin America and the Caribbean. 56% of the passenger traffic and 77% of the cargo traffic is handled by the 20 largest airports in our region. So even more difficult here. And I'm not joking when I say that very often they say, well, you know, cargo, we'll go after cargo. Well, good luck. You know what I mean? Maybe you will get some letters delivered by UPS, but— Yeah. Anyway, so this is actually a reflection, okay, of some of the challenges that you will see airports face, the airport industry faces. Let me talk a little bit about airport charges. I mean, I'm surprised that during the conversations today, you know, I haven't been attacked with— in relation to airport charges because I'm actually quite used to that sort of thing. But anyway, let me talk about airport charges because I think it's very important too. Okay. To discuss this very briefly. The current, and I would like to stress the word current, principles on airport charges are basically emanate from a document that is actually from ICAO called Document 9082, which is Policies on Charges for Airports and Air Navigation Services. And there are a number of principles that come, you know, that come out of this document, like for example, the non-discrimination, the cost-relatedness, and so on and so forth. But anyway, this is like the mother of all documents right now worldwide when it comes to airport charges. And why do I stress the word current? I stress the word current because we will see next year at that very big ICAO meeting that will be held in Montreal that ACI is going to be actually questioning some of the principles that actually are mentioned in this document. But anyway, So how are the airport charges determined? How do you go about in setting the airport charge? Well, basically, it's a very simple equation. You take the costs of running the show, you actually— and that is what we call the cost basis for the airport charges— and you divide it by traffic. And hey presto, then you get a unit airport charge. That's the way you go about setting charges. Now, And this is actually the traditional way of actually setting charges, determining charges, and it's been blessed by the ICAO document and it's been blessed by everyone. Now imagine that suddenly traffic disappears. There is a pandemic and traffic, you know, just evaporates. What is going to happen to the unit airport charge? It's going to skyrocket, skyrocket. Okay. And this was a real issue that we faced during the COVID pandemic because according to the traffic, according to the formula that has been so strongly, you know, supported by governments, among others, airport charges should have skyrocketed. Okay. So this is the sort of thing that we are going to be challenging, as I was saying before, in the upcoming ICAO, big ICAO conference next year. That be careful how you wish things are because, you know, suddenly you may get a surprise, okay? And so this is what I wanted to share with you. So this is how the charges are set, okay? Now, who sets those charges and who approves those charges? This is very important too. Because very often we feel that there is criticism to airports as if airports were to capriciously determine a charge. The airport does not capriciously set the charge. The charge is set by the economic regulator because it is the economic regulator that determines that formula. who blesses that result of that number that comes out of that formula. OK? The airport just does what the economic regulator allows it to do. Now, very quick story on this. There are airports, there are countries in the world where the airport charges are not regulated. One country is the United Kingdom. There is only one airport in the United Kingdom where there is a formula and an economic regulation that applies to it, and it is London Heathrow. All the other airports in the UK can set the charges as they please. But the interesting thing of this is as follows. The only airport where there is a big debate about the airport charges is Heathrow, despite the fact that it is regulated. And what I'm saying with this is that when you let airports discuss with airlines and come to some sort of agreements, you know, and solutions, there is a balanced situation. Okay. And a very good example, as I say, is the United Kingdom. Okay. So once again, we believe that there is a possibility of reaching consensus when you let The airports and the airlines discuss and talk and come to agreements, okay? You know that very well. Okay, so, and who pays for the airport charges? Well, ultimately the passengers pay for everything, okay? But the important thing here is this: the passenger charges— and I will see, I will show you in a moment what the importance of the passenger charges is— is not something that is paid by the airlines. It's paid by the passengers, okay? And does not have an impact on the cost structure of the airlines. It does not affect the airline balance sheet at all because it's passed on directly to the, to the, to the passenger. Now, so how— what is the— where is the weight of the passenger charge in the entire pie chart of the aeronautical income of the airports? How important, how much of, of the costs is actually paid by the passenger? Well, look at this: 69% of the airport aeronautical revenue generated by an airport is actually related to passenger charge, to the passenger charge. And if we actually add together all the different things that it is passed on to the passenger and what is paid by the airlines, the situation is this: 83% of the airport aeronautical revenues are linked directly to passenger charges, and 16% are related to aircraft charges. Once again, I would like to stress one thing. I'm not here to criticize anything. I'm just wanted— I just want to share with you the fundamentals of airport economics, because I, I believe, and probably you are— I don't know if you are familiar with these numbers, you know, because I know that many people are not. Okay, by the way, we in ACI every year produce a document. Actually, it's called the KPIs, uh, Economic KPIs document, which is actually available. Yeah. And it's based on information that we gather from airports like, for example, Trinidad and Tobago. Okay, now, uh, next. So what is the impact of airport charges on airlines? Okay, so this is actually information that I actually got out of the published airline annual reports. And here, by the way, it's actually very difficult sometimes to determine exactly how much it is because sometimes they link— they have together both Airport charges together with air navigation services and handling. Okay, but as you can see, and actually the reference that we have for the entire world is that the airport charges represent approximately between 6% and 7%, or between say 5% and 7% of airline operating costs. Okay, all right, so once again, this is very important. I wanted to share that with you. The rest is actually some— it's by someone else. Okay? Now, okay. So what is the evolution of airport charges? Well, if we just look at a document from IATA, you know, the WATS, it shows that actually airport charges as a percentage has been going down over time. This actually is confirmed by a document, by a publication by ICAO, which also shows that it's been stable or, you know, or declining basis on the last few years. So, you know, this is once again not come— it doesn't come from the airport organization. This actually comes from IATA and ICAO. Now, with this, we did mention this morning that indeed taxes actually do have an impact on airline ticket costs— sorry, prices. And indeed, in some airports, in some countries, like for example Jamaica, and I was saying before this morning, hey, welcome to Jamaica, please, $80. Okay, this is without, without the airport charge. This is purely taxes. In other words, money that nobody knows exactly where it ends up. The tourism tax, the development whatever, the, the, the environmental this, the environmental that. Does it really have an impact on the aviation industry? Well, I don't know. I don't know. But indeed, in some countries, it is quite hefty. And I think it's very important. And actually, we both, airlines and airports, agree in that this actually does have an impact too. And that whenever— actually, it's very interesting. I remember years ago, I was flying somewhere with a minister of tourism. And I was actually showing this minister, by the way— he says, well, how much is the tax? I said, well, No, how much is the passenger charge? I said, well, sir, it's not so much the passenger charge, it's the tax. And how much is the tax? I said, well, it's $80. Is it? Yes, it is. They were not aware because they are used to actually criticizing the airport charge because sometimes when we talk about airport charges or better still, when we call— when we talk about airport taxes, you know, actually, we are referring to the passenger charge, no, or the airport charge. One thing is the airport charges, which are directly related to the cost of the infrastructure and the services provided by an airport, and everything else is a tax, okay? And unfortunately, there is a lot of confusion of mixing there of concepts, okay? No. Okay. Now, interestingly enough, indeed, Many airports provide incentives, rebates, volume discounts, or whatever. As a matter of fact, 68% of the world's airports provide that. Okay? All right? So this is actually very interesting too. Now, at the same time, airports actually compete with each other. So one of the things that airports are doing is to try to improve the quality of the services that they provide. And we have a program that is called Airport Service Quality, ASQ, that actually measures in an objective way, by the way, in an objective way based on scientifically proven surveys rather than on popular votes, as happens with certain programs. You know, this is based on surveys. Actually, the quality of the services provided by the airports is going up despite the fact that there are 2 elements of this survey on which airports have zero control or very little control, which is the queues related to immigration and security. No matter how much you complain as an airport director in front of immigration, That is not controlled by the airport. And guess what? When you are an airport CEO and you are in the middle of the Christmas holidays, you get a call from the Minister of Tourism saying, what's going on with the queues at the airport? And I say, sir, beats me because I have no clue. I don't control that. What do you mean that you don't control that? It's actually immigration. Well, get it sorted out. And then you go down there to the area where all the passengers are queuing and you say, hey, you know, can you bring more people? No, no, no, we are, you know, we don't have staff. They are actually, you know, on holiday. Oh, well, okay. So anyway, despite that, you know, the quality of service is actually going on. And that is why we as airports are very much pushing or trying to convince governments of the importance of the introduction of technology. Because as I was saying earlier, most of the queues related to immigration and security happen because governments let it happen. If a government wanted, that could be eliminated at a stroke. So it is the fault of governments. They don't want to deal with it. And I will be very emphatic about that because I know it is true. It is the way I'm telling you. They don't want to deal with the unions that represent the immigration officers. It is as simple as that because I've lived it and I see it every single day. Okay? So anyone can, you know, challenge me on that. I'll tell them what I think. Anyway. So all these, all these actually means that the relationship between the airlines and the airports is actually changing. The airports are not that dominating. As a matter of fact, the fact that CAPA has an organisation, well, it's part of an organisation that organises a conference called Routes, demonstrates that the airports actually are begging the airlines to fly into them. Which tells you that, you know, that balance is not so much towards the airports. I'm not saying that it's on the side of the airlines, but it's actually more balanced than many, many politicians believe. Anyway, now going back to economics. So there is an interesting paradox in the airport industry. Overall, if we look at the entire aviation airport industry worldwide, the revenues exceed the costs. So that's good. There is a profit. The airport industry makes a profit worldwide, adding all these 1,920 airports. However, only 33% of the airports make a profit. So what's going on here? What's going on here? Only 33%. 67% of the airports worldwide are losing money. Well, have I got news for you. Look at this. Find out that actually 93% of those loss-making airports are airports handling less than 1 million passengers. Okay? There is a rule of thumb in the airport industry. If you handle less than 1 million passengers, I've got very, very bad news for you because you probably ain't making any money. Okay? It doesn't mean that you cannot, but it's very, very difficult. Among other things, the economies of scale related to the infrastructure, not airport only, infrastructure industry. But guess what, by the way? 72% of the airports in Latin America and the Caribbean handle less than 1 million passengers. 71% handle less than 1 million passengers. And actually, 87% handle less than 2 million passengers. So, you know, it's a very, very tough business. It's a very, very tough business when you are a small airport. And this is neither good nor bad. It's a fact. It's a fact. Because that runway that is measuring, I don't know, 2,700 meters, OK? 8,000 feet. that can take a 737 costs the same no matter how many passengers you have. The cost is exactly the same. And that in Economics 101 is called economies of scale. Okay? So once again, the infrastructure industry is very much based on the economies of scale. All right. So now, and we are going to— I'm going to be finishing very soon. Okay. Now, indeed, I tell you, we have news here too. The fewer airline competitors, the higher the fares. The higher the fares. It's once again basic laws of supply and demand and basic business laws. Look at this. Between Buenos Aires and Santiago de Chile, there are 5 airlines flying. Wow. Between Buenos Aires and Punta del Este, actually Porto Alegre is more or less the same distance. There is only one airline flying. Look at the price difference. The more competitors you have on a route, the lower the airport, the the the lower the ticket costs. It's a fact. It's not just something that I'm making up. It's based on real facts. So this has led us. in ACI Latin America to come up with a study to really push on the idea of liberalisation of air transportation, because we know that the only way to really give the airports the opportunity to attract airlines is with that liberalisation. And we just published this. I think— did I send it already? Yes. It already sent it this month. And basically what it does, it looks at the potential routes that we have in our part of the world towards this liberalization. Because the liberalization that I'm talking about here is not an open skies agreement with the U.S. Somehow, many ministers in our part of the world think that liberalization consists on having an open skies agreement with the United States. Well, that's fantastic for that— those routes between the United States and your country, but that is not liberalisation as we understand it because that should apply to every single destination, every single destination. If tomorrow Air France decides to fly between Rome and Milan, They just have to get the plane and get— start flying. They don't have to ask for permission from anyone. It is literally as I'm telling you. Tomorrow Air France can fly between, say, Madrid and Barcelona. As simple as that. That's because in the European Union there is a completely liberalized air transport system. It is as simple as that. Not even to your Director General of Civil Aviation. You don't have to communicate that to anyone, to anyone, because there are rules, there are— the regulations are all common. Of course the Director General knows that that airline is safe because the same rules apply to its own airline. Actually, as a matter of fact, the number one airline in Spain and in Italy is an airline called Ryanair from Ireland. And when I say that that's the number one airline, I'm not saying on international flights, on domestic flights, on domestic flights. And unless you have a market that is completely open, you will never get the dynamism that I'm talking about that you actually see in Europe. That dynamism has allowed destinations that no one ever thought of suddenly to become very popular weekend destinations. For example, Reykjavik, the capital of Iceland, is one of the hottest party spots in Europe. 20 years ago, no one in their right mind would have thought of going to freaking Reykjavik. Because to begin with, no one even knew that it existed, okay? But thanks to the liberalization of air transportation, by the way, with a country that is not part of the European Union, but it's part of the European Common Aviation Area, suddenly a destination can position itself as a very good, very interesting destination. And that is what we are advocating for in Latin America and in the Caribbean, to open up the markets. And I'll very quickly go through this. Of course, you know, the deregulation in the United States in 1978, between 1992 and 1997 in Europe, this is what happened. Between New Zealand and Australia, there is a completely open market. In Southeast Asia, there's a very interesting market, but it's looking at connecting regional cities between different countries, because one of the big issues that we have in our part of the world is that the growth of low-cost carriers has happened between, uh, the US and our part of the world and within the countries, but not within the region. I'll repeat that again: 6% of the growth of traffic within our region has only been related to low-cost carriers with Whereas 11% has happened on international routes and 83% on domestic routes. The connectivity that we were complaining about within the Caribbean is very much linked here, is seen here. So that's why I attack so much that ignorance from some governments about this stupid thing about thinking that only an open skies agreement with the United States will make connectivity happen. No, it will happen, that connectivity, with the United States, but not with your neighboring country. Rafael, Okay? So, and just to finish with this, I'll show you a very interesting thing. This is the growth that we have seen in places like Thailand, so in Southeast Asia, as a result of this liberalization. An explosion of connectivity. But even more interesting is this. You probably never heard of, many of you never heard of a country called Georgia. Not in the U.S., okay? Georgia in Eastern Europe, okay? Yeah. Georgia is not part of the European Union, and yet they have embraced the idea of liberalization, and they've said, we are seeing that explosion of destinations happening within Europe, we want a piece of the action. And the European Union said, okay, fantastic, sign an agreement with us so that we open up the market. Morocco has done it. Georgia has done it. Armenia has done it. Lebanon has done it. Israel has done it. In the case of Morocco, the airlines said, wait a second, suddenly we are going to be competing with all these guys. And the government very wisely said, so be it, because it's more important the number of tourists that we are going to get into this country than your survival. So better— you better get your act together and start competing. All right? Rafael, So Georgia, Tbilisi is the name of the capital. And you can see in 9 years how many more additional flights actually came as a result of this signing agreement with the European Union. But even more dramatic is this. This is the second city in Georgia. It's called Kutaisi. They only had 4 flights. Look how many they have now. Wow. as a result of joining in this liberalized environment, okay? And to finish off, as you can see, things can actually happen, but there has to be a clear vision to develop a clear roadmap and have, of course, the political will. That's all I wanted to share with you. Thank you very much. Rafael, thank you.

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