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ACI's airport connectivity report adds weight to the European aviation liberalisation debate

Airport connectivity is a key theme in the aviation industry, with implications for public policy as well as airline and airport strategy. How should airport connectivity be defined and measured? At the regional level, how has Europe's airport connectivity changed over the past 10 years, both in absolute terms and relative to airports in other regions?

A detailed report published by ACI Europe in partnership with SEO Aviation Economics, entitled Airport Industry Connectivity Report, addresses these questions. It looks at Europe's total airport connectivity (direct and indirect), onward connectivity from Europe and hub connectivity. It also analyses differences between EU and non-EU airports and between different airport size categories.

The report highlights the loss of connectivity market share of EU hubs to non-EU European hubs such as Istanbul and Moscow and to non-European hubs in the Middle East. ACI warns of "the increasing risk of Europe being by-passed as an aviation hub" and calls on the EU to respond with more liberal aviation policies.

Connectivity is linked to economic wealth

Just as there is a close correlation between GDP per capita and the penetration of air travel, so there is also a close relationship between GDP per capita and total connectivity per capita.

This is to be expected, since connectivity and the penetration of air travel are closely related. Nevertheless, measuring connectivity, rather than simply the penetration of air travel, adds a further level of detail to understanding aviation's importance to the economic wealth of countries.

See related report: Air travel rises with a country's wealth. Law of nature, or can government policy make a difference?

Total connectivity per capita vs. GDP per capita

The connectivity methodology combines direct and indirect connections

Before looking at some of the main findings of the ACI report, it is worth outlining the methodology developed by SEO. In essence, SEO defines the connectivity of an airport as the weighted number of weekly flights available from that airport to non-stop destinations and to one-stop destinations involving flights of the same airline or of two airlines in an alliance or codeshare.

Direct connections by jet aircraft are given a weighting of one and indirect connections are weighted from one down to zero by a factor that takes account of the length of time in flight and in transfer. Flights involving turboprops are given a weighting of less than one, even if they are direct, since they are of longer duration than the equivalent jet service. Indirect connections whose total duration is beyond a certain maximum time are weighted zero.

A weighting is calculated for each individual direct and indirect connection. A flight with a daily frequency may have different weightings for each of the seven flights and for each possible connection if different aircraft types are used and if different connections are possible.

In addition to assessing the direct and indirect connectivity of an airport, the ACI report also measures 'hub connectivity'. This employs the same methodology to calculate a weighted number of weekly connections between two other airports via a hub airport.

In all cases, schedule data for the third week of June was used since the Summer season typically has a full range of connectivity, while there are some distortions in the peak holiday season later in the summer.

Different types of connectivity

Europe's total airport connectivity has grown 38% since 2004, but direct connectivity has been flat since 2011

Between 2004 and 2014, total connectivity of Europe's airports increased by 38%, broadly in line with the 37% increase in passenger traffic from 2004 to 2013. Direct connectivity (+19%) increased less rapidly than indirect connectivity (+50%). This is to be expected because a direct connection typically enables a number of indirect connections.

The global financial crisis interrupted the growth in connectivity, which suffered a 4.9% decline in 2009. In absolute terms, the volume of weighted connections lost in 2009 was roughly equivalent to the 2014 volume of connections between Europe and Africa. Direct connectivity fell by 6.1% in 2009, while indirect connectivity fell at the slightly lesser rate of 4.2%, as hub routes were relatively favoured over point to point routes and regions outside Europe were less adversely affected by the crisis.

The recovery brought total connectivity back in 2010 and it is now 10.7% above its 2008 level, almost entirely thanks to a rebound in indirect connectivity. Direct connectivity did not recover its 2008 level until 2011, since when it has remained broadly level. Post financial crisis, the gains in Europe's connectivity have been focused on hub airports.

Airport connectivity & passenger traffic: 2004-2014

Europe to Middle East connectivity has grown fastest

There have been differences in the development of connectivity between Europe and other regions since the financial crisis. The strongest increase in total connectivity from 2008 to 2014 has been between Europe and the Middle East, up 46%. Direct connections with the Middle East have increased by 59% over this period and indirect connections by 43%.

Growth in connectivity with Asia Pacific has also been strong, up 34% since 2008, but this has been driven by a 35% increase in indirect connectivity, while direct connectivity is up 17%. The rapid growth in indirect connectivity with Asia Pacific is closely linked to the increase in direct connectivity with the Middle East and Turkey.

Connectivity to Africa has also grown strongly since 2008 (+26%), driven slightly more by direct connectivity (+33%) than indirect (+25%). For Latin America, North America and within Europe, direct connectivity has not returned to 2008 levels and the recovery in total connectivity is entirely due to indirect connectivity.

Total, direct and indirect connectivity by world regions: 2008-2014

Although Europe has seen the strongest growth in connectivity with the Middle East, the latter accounts for only 4% of its total connectivity, still less than any other region.

The region with the greatest number of weighted connections (apart from Europe itself) is North America, although its share of total connectivity with Europe has fallen from 30% in 2004 to 27% in 2014. Asia Pacific's share has increased from 14% to 19% over the same period.

European Airport connectivity shares by world regions: 2004 & 2014

EU airport connectivity growth has been slower than non-EU Europe

Airports within the European Union have fared less strongly than those from outside the bloc. Non-EU European airports have more than doubled the level of total connectivity since 2004 (+107%, to 2014), while the connectivity of EU airports is up only 27%. As with Europe as a whole, this broadly reflects passenger traffic growth, which increased by 125% in non-EU airports and by 23% in EU airports from 2004 to 2013.

The total connectivity of EU airports is almost four times that of non-EU airports, although their share of the continent's connectivity has fallen from 86% in 2004 to 80% in 2014. EU airports' impact on indirect connectivity is higher, with 2.1 indirect connections per direct flight versus 1.6 for non-EU airports.

EU airports were more heavily hit by the global financial crisis, with their connectivity dropping by 5.7% in 2009 versus a fall of only 0.5% for non-EU airports. EU airport connectivity fell to all regions apart from the Middle East and Africa in 2009.

The recovery since 2009 in EU airport connectivity has been due to "indirect" connectivity only, while EU airport direct connectivity is still 7% below its 2008 level. Non-EU airports have seen post crisis growth in both direct and indirect connectivity.

After the initial recovery, EU airport connectivity fell again from 2011 to 2013, but has picked up again in 2014. The 2011-2013 dip in EU connectivity was not accompanied by a dip in passenger numbers, highlighting a concentration of traffic and higher load factors on existing routes.

Airport, direct and indirect connectivity for EU and non-EU airports: 2004-2014

Large airports provide the most connectivity, but small airports the greatest connectivity growth

The ACI report also looks at differences in connectivity for different size categories of European airports, grouped as shown in the table reproduced below. Group I airports (greater than 25 million passengers) are the most important in terms of their share of total European connectivity, with a share of 32%. Group II airports (10 to 25 million passengers) have a share of 28%, while Group III airports (five to 10 million) have 16% and Group IV (less than five million passengers) have 23%.

ACI Airport groups

From 2004 to 2014, connectivity growth by airport size group has been inversely proportional to airport size. Group IV connectivity is up 46%, Group III 41%, Group II up 35% and Group I up 34%. Growth at the small and regional airports has been driven by direct connections through low-cost airlines and by the network impact of indirect connections with larger airports.

Much of this growth took place before the financial crisis, while Group IV airports had the biggest decrease in total connectivity in 2009 (-6.2%) and had to wait until 2011 before recovering their 2008 level (all the other groups bounced straight back in 2010). Group IV airports are the only size category that has still not recovered its pre-crisis level of direct connectivity. Indirect connectivity is up 15% to 17% from 2008 levels for all groups.

Airport connectivity market share by airport group: 2004 vs 2014

EU hubs provide the majority of onward connectivity to other regions, but other hubs are growing faster

The report includes a section on onward connectivity, which is the indirect connectivity which is channelled through hub airports. It is the total indirect connectivity aggregated by intermediate hub and the analysis identifies which intermediate hubs are the most important in the indirect connectivity of an airport or group of airports.

European hubs are responsible for the largest part of indirect connections from Europe to other regions and the majority of these hubs are within the EU. However, over the past 10 years, the growth in onward connectivity of non-EU European hubs (+307%) and of hubs outside Europe (+53%) has outpaced that of EU hubs (+28%).

The rapid growth in onward connectivity of non-EU European hubs is mainly due to Istanbul Ataturk and also, to a lesser extent, Moscow Sheremetyevo, although this group remains the smallest contributor to onward connectivity. Gulf hubs at Dubai, Abu Dhabi and Doha are responsible for the growth in onward connectivity of hubs outside Europe.

Onward connectivity growth: 2004 vs 2014

FRA, AMS and CDG are the top three for onward connectivity, but losing share

Frankfurt, Amsterdam and Paris CDG are the top three hubs in terms of onward connection from Europe and this is the same top three as in 2004 (but Amsterdam and CDG have swapped their ranking). Nevertheless, whereas they accounted for 32% of onward connectivity 10 years ago, their combined share is now 29%.

Non-EU European hubs Istanbul Ataturk and Moscow Sheremetyevo and non-European hub Dubai have forced their way into the top 20 airports for onward connections from Europe, but were not in the list in 2004.

Top 20 hubs for onward connections from Europe

The falling share of EU airports in providing onward connectivity for Europe has not prevented Brussels and Oslo from sneaking into the top 20. Brussels Airlines' growth and admission to the Star Alliance and Jet Airways' hub operation have boosted the onward connections of BRU, while Norwegian Air Shuttle's rapid growth has helped OSL.

EU airports are still in the leading positions for onward connectivity from Europe to each global region, apart from the Middle East, to which Istanbul Ataturk is ranked first. Frankfurt is number one for onward connections to Asia Pacific and North America, Paris CDG to Africa and Madrid to Latin America.

Larger airports provide almost all hub connectivity

The report provides some analysis of hub connectivity, which is the number of connections through a hub linking two other airports. As transfer traffic can help to fill seats on routes for which direct demand is insufficient, hub connectivity allows for higher number of direct connections than would otherwise be sustainable.

The large Group I airports are responsible for 77% of hub connectivity in Europe and Group II airports account for 20%, leaving only 3% for Group III and Group IV combined. Europe-North America is the largest route region for hub connectivity, accounting for 29%, followed by intra-Europe (27%) and Europe-Asia (18%).

Growth in hub connectivity by connecting market: 2004-2014

Total hub connectivity for Europe's hubs increased by 53% from 2004 to 2014, with increases to all regions. Intercontinental hub connectivity, through European airports from two regions outside Europe, represents only 4% of European hub connectivity, but it has more than doubled over the past 10 years (+109%). Hub connectivity between Europe and the Middle East has also more than doubled (+103%) since 2004.

Hub connectivity is growing more rapidly in Turkey, Russia and the Gulf

However, although Europe's hubs are offering more connections to all regions than they did 10 years ago, these growth rates are dwarfed by the fastest growing non-European hubs.

In absolute terms, the three Gulf hubs combined offer hub connectivity levels that are less than one quarter of the combined level of Europe's top three (Frankfurt, CDG and Amsterdam), but 2004-2014 hub connectivity growth rates for Abu Dhabi, Doha and Dubai were 1,913%, 1,861% and 485% respectively, focused on the intercontinental market. The Gulf Three now offer twice the level of intercontinental connectivity of Europe's intercontinental top three (Heathrow, Frankfurt and CDG), whereas in 2004 they offered well under half their level.

Within Europe, non-EU hubs Istanbul Ataturk, Moscow Domodedovo and Moscow Sheremetyevo produced growth in hub connectivity of 1,222%, 774% and 422% respectively.

Growth in hub connectivity: 2004 to 2014

Germany is Europe's number one country for connectivity

By country, Germany has the highest level of airport connectivity, followed by the UK and France. This top three accounts for 44% of total EU connectivity and 35% of total European connectivity.

The top five, which also includes Spain and Italy, provide 65% of EU connectivity and 51% for Europe as a whole. The leading non-EU countries are Turkey, Switzerland and Russia, which together provide 64% of non-EU European connectivity and 13% of total European connectivity.

Germany has three airports in the top 20 by total connectivity and two in the top 20 by hub connectivity.

LHR, FRA, CDG and AMS are Europe's top four airports for connectivity

The top 15 airports in Europe for total connectivity, indirect, direct and hub connectivity are shown in the charts reproduced below. The top four (London Heathrow, Frankfurt, Paris CDG and Amsterdam) are the same in total connectivity, indirect connectivity and direct connectivity. Since direct connections lead to indirect connections, this is perhaps not surprising.

In hub connectivity, Frankfurt takes first place and London Heathrow slips to fourth place, reflecting the latter's relative weaknesses as a hub in terms of infrastructure and the lower market share of its leading airline (British Airways) relative to the leading airlines at the other three major European hubs. Istanbul Ataturk is now just behind Heathrow in the hub connectivity list.

Top 15 airports offering most airport connectivity, direct, indirect and hub connectivity: 2004-2014

The answers to connectivity shortcomings lie in liberalisation, not protectionism

The report summarises its findings by noting that Europe's airports have experienced an impressive increase in connectivity over the past 10 years, but that there have been some notable changes since the global financial crisis.

It highlights the relative weakening of the connectivity of EU airports relative to non-EU airports and airports outside Europe. Indirect connectivity has increased its importance at the expense of direct connectivity, particularly for smaller airports. ACI regards this development as a dilution in the quality of connection due to the longer journey times of indirect connections.

ACI uses the report as an opportunity to stress the importance of pubic policy and regulation in facilitating and enhancing connectivity, which is closely linked to the economic wealth of countries.

It contrasts the European Union's approach to aviation with that of "prominent non-EU and other non-European countries" that have "placed airport connectivity at the heart of the policies and strategies underpinning their economic development".

ACI concludes by calling for progress within the EU on issues such as airport capacity, the liberalisation of market access, the lowering of navigation charges and aviation taxes and lighter economic regulation of airports. This echoes sentiments frequently expressed by CAPA.

There will however undoubtedly be those who will seek to use the report as an argument to limit outside competition and restore the good old days. That would neither be helpful nor likely to achieve any of the economic and other goals that ACI is proposing.

See related report: Unit cost analysis of Emirates, IAG & Virgin; about learning from a new model, not unpicking it

Provided that the report's analysis is not hijacked by the voices of protectionism, it looks to be a useful contribution to the liberalisation debate.

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