Policy Brief

Modernizing Global Policy

Frameworks on Airport Charges:
Ensuring the Efficient Use of Infrastructure
for the Benefit of the Travelling Public
2021

A Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

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i Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

Policy Brief

Modernizing Global Policy Frameworks on Airport Charges:

Ensuring the Efficient Use of Infrastructure for the Benefit of the Travelling Public

November 2021

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©2021 Airports Council International. All rights reserved.

ii Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

iii Policy Brief | Modernizing Global Policy Frameworks on Airport Charges
Contents
Key Findings .................................................................................................................................... 1
Policy Recommendations............................................................................................................... 5
1. Modernizing Airport Charges – From Old Conventions to Existing Industry Realities ...... 7
1.1. Airport charges ........................................................................................................................ 7
1.2. Economic issues regarding airport charges ............................................................................ 7
2. The Aviation Industry: Transformed Beyond Recognition ................................................... 11
2.1. Airline deregulation and liberalization ................................................................................... 11
2.2. Airline consolidation .............................................................................................................. 12
2.3. Increased airport competition ............................................................................................... 13
2.4. Airport commercialization, corporatization, and privatization ................................................ 15
2.5. The changing nature of air passenger demand .................................................................... 17
2.6. Environmental pressures and associated charges ............................................................... 18
2.7. Airport capacity crunch.......................................................................................................... 19
3. Market Realities and the Impact of Economic Charges Regulation – What Does the
Data Reveal? .................................................................................................................................. 21
3.1. Airport charges have declined, and airports share more of the risk ..................................... 21
3.2. Capital spending has increased despite declining airport charges ....................................... 23
3.3. Airport regulation does not lead to lower charges ................................................................ 25
3.4. Where airport charges are regulated, pricing till has implications for charging and CAPEX 28
3.5. Impact of airport charges on passenger airfares .................................................................. 30
4. Airports’ Experiences with Airport Charges Regulation Indicate a Need for a More
Flexible Approach ......................................................................................................................... 31
5. The COVID-19 Pandemic has Further Exposed the Limitations of the Current Approach
to Airport Charges and Regulation ............................................................................................. 35
5.1. What has happened .............................................................................................................. 35
5.2. Airports have responded with relief for airline customers.................................................... 37
5.3. The perceived risk profile of airports has changed ............................................................... 38
6. New Approach to Airport Charges and Regulation is Required.......................................... 41
6.1. Crafting airport charges policies that extend benefits to consumers ................................... 41
6.2. The current framework for airport charges is no longer appropriate for today’s
airport industry ................................................................................................................................ 41
6.3. ACI recommendations for guidance on airport charges and regulation ............................... 44
ANNEX: ICAO’s Policies on Airport Charges ............................................................................. 47

iv Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

 KEY FINDINGS
Airport charges are an important element of the commercial aviation eco-system for
infrastructure development
The level and structure of airport charges are an important part of the commercial aviation eco-
system, affecting decisions on infrastructure development, aviation’s social and economic
connectivity and the prices consumer pay for air travel. They also provide important signals to
airlines regarding optimal and efficient use of scarce airport resources, including airport slots and
reduction in aviation’s climate and other environmental impacts such as noise.

Aviation is a dramatically changed industry – Many airlines have been deregulated,

privatized, and consolidated, and there is increased competition between airports
• In most parts of the world, the approach to setting airport charges is still based on a cost
recovery model encapsulated in ICAO’s policies on airport charges; little has changed since it
was first drafted in 1948.

• However, the aviation industry has transformed beyond recognition since ICAO policies on
charges were first developed. Airlines have been substantially deregulated, many have been
privatized and governments have enabled airline consolidation and antitrust immunized
alliances. Airports have transformed from state-run utilities to commercial entities, often with
private sector involvement or ownership. The approach to airport charges needs to be updated
to reflect the changed environment and the need for airport pricing to focus on achieving
economic efficiency, reflecting both supply and demand elements of the airport market.

• There are a range of factors, including competition between airports and countervailing power
of airlines, which mitigate against the use of market power in a way that damages economic
efficiency.

o Airports today face much greater competition: within their catchment areas from rival
airports, from airports in rival destinations, for transfer passengers, and for air service
capacity deployed by airlines. Over half of surveyed airports reported having a
competing airport within 100kms and analysis of airline schedules reveals a dramatic
increase in competition for connecting passengers.

o There is substantial and growing countervailing market power from airlines due to
consolidation of legacy carriers, antitrust immunized alliances, and the evolution of
airline business models (e.g., Low-Cost Carriers). Research from Europe found that
15–20% of routes are churned each year as airlines shift existing and allocate new
capacity. As a result, airport charges are subject to market forces which mitigate
against abuse of market power.

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 The impact of airport charges on consumers, airlines, and airports
• The impact of airport charges on consumers (passengers) is very small to negligible. The full
basket of airport charges represents only 5.1% of the base airfare and ancillary fees. Landing
charges represent only 1% of the airfare.

• Airport charges have been declining in recent years in all regions. Average global aeronautical
revenues from charges on a per passenger basis declined approximately 20% in real terms
between 2014 and 2019, despite capital expenditures (CAPEX) generally increasing over this
period.

• While airport charges represent a small proportion of airline cost historically (4%), they are a
fundamental revenue source for airport operators to cover the cost of infrastructure. Airport
revenue generated from aeronautical charges represent as much as 55% of all revenues
(including passenger- and aircraft-related charges). Only 24% of all airport revenues come from
charges that are levied on airlines.

Airport capital expenditure, climate change, and airport charges

• Airports have an important role in tackling both local and global environmental impacts,
especially emissions and noise. A study commissioned by the European Commission found
that 61% of European airports applied some sort of charging adjustment for noise and 20% for
emissions. It is appropriate that airports set charges that incentivize reductions in noise and
emissions.

• Despite the impact of COVID-19, there is a long-term need for capacity expansion to meet
future demand. Previous research estimated the needed total global airport CAPEX required by
2040 was US$2.4 trillion globally. Airports need to be able to set airport charges with a
commercial focus to attract the level of investment needed and to signal whether users are
willing to pay for these investments.

• Where there is excess demand for airport capacity (congestion) and where capacity expansion
is difficult to implement, airport charges should play a critical role in signaling which airline
operations would make the best use of the scarce capacity. Charges should signal the scarcity
and whether the market is willing to pay for capacity expansion. Where there is a willingness,
scarcity-based charges can be used to prefund the needed CAPEX.

• Where airport capacity is underutilized, there is a role for airport charges to provide incentives
for new services to increase regional connectivity and hence maximize economic and social
benefits of air transport.

Market developments and the impact of economic regulation on airport charges (pre-COVID-
19 pandemic)
• A number of airports around the world have been subject to economic regulation of their
charges, with governments using a variety of regulatory models from heavy-handed (e.g., rate-
base, price cap) to light-handed (e.g., trigger regulation or pricing and performance monitoring).
Others have not been subject to regulation. Analysis of aeronautical revenues found that
heavy-handed forms of regulation did not result in lower charges than light or no regulation and
in some cases such charges regulation is associated with higher charges, although this may

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 partially be due to some price cap regulated airports having high CAPEX needs. At the same
time, CAPEX is at similar levels for airports subject to light-handed and no regulation as they
are for airports subject to heavy-handed regulation (although CAPEX at light-handed regulated
airports is higher).

• A survey of airports around the world found that half of airports, largely those subject to more
heavy-handed forms of regulation, did not believe that their current regulatory model fostered
innovation, cost efficiency, and innovative charges to stimulate demand where capacity is
available or to signal scarcity to allocate capacity to highest value uses. Respondents indicated
that there can be conflict between government policy and regulatory decisions, impacting the
ability of the airport to make investments and other commercial decisions. Incentives and
discounts have become widespread instruments deployed by airports worldwide. A majority
(62%) of airports surveyed used some form of incentive or discounting for new route
development and another 19% were considering them. Of those using incentives, 82%
considered them effective. However, half of the respondents indicated their regulatory model
limits the effective use of incentives. European airports indicated a more negative result than
airports responding from North America, reflecting regional variation in experience with
regulation.

The impact of the COVID-19 pandemic on the airport industry

• The COVID-19 pandemic has massively impacted the airport sector. Global airport revenues
declined 65% in 2020, a loss of US$122 billion. The outlook for 2021 is similar with a decline
of 57% (compared with 2019).

• Despite the large losses incurred by the COVID-19 pandemic, over two-thirds of surveyed
airports (68%) have implemented some form of discounts or incentives to the airport charging
specifically to address the COVID-19 impacts and recovery.

• Surveyed airports were asked what their most pressing issues arising from the COVID-19
pandemic are regarding airport charges regulation. These are lack of flexibility to adjust prices
rapidly, lack of clarity as to how losses could be recovered in the future and impacts on
financing future investments. Those airports subject to regulation were asked if they would be
able to recover COVID-19-related losses, and only 34% indicate that they would.

• The impact of the COVID-19 pandemic on airport traffic has caused investors to re-evaluate
their risk assessment of airports. As a result, a number of airports in North America, Europe,
and Asia-Pacific have had their credit ratings downgraded following the COVID-19 pandemic.
Analysis of asset betas (a measure of financial market risk) of listed airport companies showed
a marked increase in the beta value since the start of the pandemic. This has implications for
airport investment — if airports are not able to recover from COVID-19-related losses through
future airport charges, it is very likely that investors will require higher returns to mitigate this
risk.

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4 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges
POLICY RECOMMENDATIONS
Policies on airport charges should ensure that they serve the best interests of the traveling
public and local communities
Government policy needs to consider what is ultimately best for consumers, independently of the
market relationships of other actors in the aviation ecosystem such as airports and airlines. In
many instances, this means crafting policy that incentivizes sustainability, efficiency, investment in
infrastructure, and generates a multiplier of socio-economic benefits and connectivity.

Right to assess charges

Airports have a right to set and collect charges for airport facilities. While this may seem obvious
and has been an ICAO policy from the beginning, in some countries it is still necessary to enable
this in law.

Strictly cost-based airport charges should be reconsidered as they do not ensure that
infrastructure is used more efficiently for the benefit of the travelling public
The cost-based approach considers only one side of the market. It ignores the demand side and
the need for airport pricing policies to provide the right incentives and signals regarding capacity
utilization, community responsibility regarding noise and environmental impact, traffic growth to
support aviation dependent economic sectors and social connectivity, and non-aeronautical
revenue development.

The primary focus of charges should be on market needs and signals

The primary focus of policies toward airport charges should be on flexibility and responsiveness to
market needs and developments. Airport charges should provide incentives for optimal use of
airport resources and for investments. The cost-relatedness principle should be supplemented by
a market-responsiveness principle that reflects the competitive dimension of the airport industry
and enables incentives and market-based charges to respond to passenger and airline needs and
address impacts such as noise and pollution.

The best way forward is through commercial agreements between airports and airlines
Exceptional cases aside, commercial agreements between airports and airlines are the best way
forward. Such agreements have been successful in a number of jurisdictions and can address
issues of information disclosure by airports and airlines, consultation formats, CAPEX plans and
approvals, noise/congestion/environment incentives and dispute resolution.

The economic oversight function should evaluate the degree to which an airport is subject to
competition in various sectors
The traditional view that airports are natural monopolies that will inevitably exercise market power
no longer holds. Most airports compete in multiple dimensions. Such competition can and does
constrain the pricing conduct of airports. Where airports face competition in one or more of the
dimensions of catchment area, transfer passengers, destination attractiveness, or airline fleet
deployment, the presumption should be that regulation of charges is not necessary and the onus

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 should be on the government to demonstrate that the competition is not sufficiently constraining
prices. The Australian approach of periodic monitoring of airport charges, regarding whether
market power has actually been unduly exercised with negative performance outcomes, is worthy
of consideration.

The economic oversight function should evaluate the degree to which airlines can exercise
countervailing power regarding airport charges
Airlines have the ability to respond to pricing by moving capacity. As well, airline concentration at
many airports is high and growing. Airline mergers and various types of alliances, especially those
with airline pricing and capacity immunity, have enhanced the countervailing power of airlines.

Any consideration of whether to regulate, or continue to regulate airport charges should be

subject to a cost-benefit analysis
Regulation should only be used if the benefits of regulation exceed the costs. Governments
should require any new regulation of airport charges to be justified by cost-benefit analysis, and
they should periodically review whether continued regulation of charges remains justified on a
cost-benefit basis.

Where regulation is deemed necessary, light-handed oversight formats should be preferred

In those few cases where commercial arrangements between airports and airlines will not
satisfactorily constrain airport charges, it may be appropriate to consider a regulatory constraint on
charges. Such consideration must first conduct and pass a cost-benefit test. Any regulation applied
should seek to foster the evolution of competitive forces, and to encourage the market players to
come to their own resolution. The use of lighted-handed formats such as trigger-regulation or
airport charges monitoring should be favored ahead of more intrusive regulatory formats.

Where airports are regulated, dual till regulatory approaches should be considered favorably
Dual till charges allow an airport to retain net non-aeronautical revenues rather than immediately
apply them to offset aeronautical costs. Dual till policies strongly incentivize the airport to
aggressively develop non-aeronautical services. Because passenger traffic volumes are the
primary driver of non-aeronautical revenues dual till airports are strongly incentivized to develop
passenger volumes through marketing incentive-based charges such as volume discounts and
new air service supports. At many airports, dual till income is a key source of financing current and
future CAPEX, either directly or via servicing new debt and/or equity funding for CAPEX. Further,
dual till arrangements encourage airports to develop non-aviation related services in an efficient
way, especially where they have land holding not required for current or future aviation uses.

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1. MODERNIZING AIRPORT CHARGES – FROM
OLD CONVENTIONS TO EXISTING INDUSTRY
REALITIES

1.1. Airport charges freight forwarders for the handling of cargo,

government agencies for the facilities they
Across the globe, charges that are levied by require to carry out their mandates, and a
airports on users of airport infrastructure are, number of other users of airport service and
in many cases, subject to economic facilities).
regulation. Historically, this has been based
on initially well-intentioned pursuits by 1.2. Economic issues regarding airport
regulators. However, outdated global charges
conventions hang over the airport industry
The unintended consequences of the cost
that are not reflective of market realities.
basis for airport charges – ICAO defines an
Inadvertently, this has been to the detriment
airport charge as “a levy that is designed and
of the traveling public and a disservice to the
applied specifically to recover the costs of
economic and social benefits of air transport.
providing facilities and civil aviation services,”
In 1948, when the International Civil Aviation including the operating expenses and costs
Organization (ICAO) issued its first circular on related to capital investments to build and
airport charges, airports were seen essentially maintain airport infrastructure.
as public services provided by the
ICAO’s exclusive cost focus regarding airport
government to facilitate the newly expanding
charges is the fundamental issue raised in this
industry of commercial air travel. More than
Brief. While a cost focus by regulators is well-
70 years later, airports, and the air
intentioned to mimic what economists refer
transportation ecosystem they operate within,
to as a welfare enhancing outcomes based on
have drastically changed. So has how they
the cost-relatedness principle, unfortunately
fund their operations and capital investments.
perverse outcomes have been observed
And yet, the current underlying airport
based on the industry’s historical data. The
charges principles have not evolved much
consequence is that infrastructure
from the definitions set forth in the late
developments that extend benefits to the
1940’s. This is a fundamental issue for
traveling public and the related socio-
airports as they enter the post-COVID-19
economic multiplier benefit to economies has
pandemic recovery phase.
been hindered in many jurisdictions.
What are charges? Airport charges are fees
This issue is of critical importance as global
assessed by airport operators for the services
policy frameworks have been misguiding
they provide to their customers. Customers
approaches to airport charges in those
may be airlines using runway/apron parking/
jurisdictions that impose regulation.
terminal services, passengers using terminal
services/ground transport/other services, and The underlying problem resides in the often-
lessors of airport facilities (such as airlines for taken assumption that airport market
maintenance, office and other purposes, structures are monopolistic and airport

7 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

operators necessarily conduct themselves as and the decarbonization of air transport, for
such. In most cases, empirical data ensuring coverage of infrastructure
demonstrates that pricing behaviour and maintenance and replacement at current
market conduct of airports reflects otherwise. costs, and for increasing regional/national
The belief that airports are monopolies and connectivity via incentives. Financial risks,
would inevitably charge higher prices to users especially in the post-COVID-19 era, also
of infrastructure if left to their own device is a needs to be addressed in airport charges.
fallacy in many jurisdictions. In fact, many
In essence, an important distinction needs to
airports compete along multiple dimensions
be made between airport charges that are
that restrain any market power – the ability to
solely based on cost recovery principles as
raise prices – they may have.
defined by ICAO, versus charges that
A cost basis for regulated charges also risks represent a true measure of value and provide
rewarding cost inefficiencies. signals to airport operators and their
customers alike for the efficient allocation and
Pricing as a signal for the efficient use of
development of resources.
airport infrastructure – Prices that are
exclusively cost-based often provide the Pricing in any market is a result of the
wrong signals to the market. They do not interaction of supply and demand factors. In
incentivize airport operators towards some market conditions, prices will result in
efficiencies, cost reduction and innovation for charges that exactly cover the cost of a
the benefit of the traveling public, and they do specific airport service. In most scenarios,
not incentivize airport users to make the most however, this will not be the case. Prices
optimum and sustainable use of airport have many functions other than cost
infrastructure. Charges based on recovering recovery. For airports, one critical function is
costs do not provide incentives for cost that they need to provide signals on optimum
reduction, nor for improvements in the use of scarce airport resources. Congested
customer experience. airports (those where demand for airport
services exceeds available capacity) should
have prices that incentivize only the flights
that create the most value for passengers and
Airport charges should be viewed as society in general. A congested airport could
price signals for the efficient use of have low unit costs, but low prices provide
airport infrastructure. the wrong incentives for use of the limited
capacity, and do not encourage the airport
operator to invest in capacity expansion.
The view of Airports Council International Charges should signal when users are willing
(ACI) is that airport charges should be market- to pay for investments and prefund needed
based, reflecting not only market supply (cost) capital expenditures.
but also demand aspects. The oversight of Flexible pricing need not be inconsistent
airport charges should not be confined merely with cost recovery over time – Pricing
to the coverage of historical costs. Charges flexibility to better reflect market conditions
should provide incentives for prioritizing uses can mean that prices can be lower than cost
of existing capacity, for signalling when the when demand is low and higher when it is
market needs are able to pay for additional high. This is observed (discussed later) in the
capacity, for signalling changes in behaviour current COVID-19 market conditions where
to mitigate external impacts such as noise many airports offer incentives to carriers to

8 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

incentivize and support the restart of services Airport charges policies need to evolve in
and regional connectivity. When demand for favour of passengers (consumers) who are
airport services exceeds available capacity, at the centre of the aviation ecosystem – A
higher charges are desirable and can be used theme of this Brief is that in many cases
to prefund needed CAPEX. One of the government policies toward airport charges
inefficiencies of cost-based regulation is that have not evolved and are now resulting in
it encourages airports to recover costs when economic distortions and inefficiencies.
demand is low to the detriment of customers Charging policies were originally set in an era
and the development of the airport and its where the economics of the aviation sector
connectivity. A more flexible charges were dramatically different from what they
approach is a gain for airlines and consumers are today. Regulators have an important role
and a benefit for the whole aviation to play in monitoring competition in both
ecosystem. airport and airline markets – as opposed to
price determination. Serving the traveling
public through policy tools that incentivize
much needed capital investments, that
Airport charges should reflect not only
enhance connectivity, and that ensure
market supply (cost) but also demand
existing infrastructure is used efficiently is a
elements, especially price signals for key consideration for public policy. Charging
efficient use of airport resources. policies were originally airline-centric and
Charges should provide incentives for were set in an era where the economics of
the aviation sector were dramatically different
prioritizing uses of existing capacity, for
from what they are today. Recognition must
signalling when the market needs and is
also be given to the multiple dimensions of
able to pay for additional capacity, for
airport competition which can constrain
signalling changes in behaviour to
airport charges.
mitigate external impacts such as noise
and environment, and for increasing
connectivity via incentives.

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10 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges
2. THE AVIATION INDUSTRY:
TRANSFORMED BEYOND RECOGNITION

The aviation sector (airlines, airports, and how and where they operate. Air carriers,
consumers) has radically transformed in the especially LCCs, are willing to switch capacity
decades since the ICAO policies of airport between airports (sometimes referred to as
charges were first drafted, as summarized “focus cities”) in response to market demand
below. and cost levels. This is illustrated in Figure 1
which shows the “churn” of routes — the
2.1. Airline deregulation percentage of routes that either started or
and liberalization terminated each year within Europe as
carriers move capacity between airports. This
Starting in the 1970s, governments
figure shows that 15–20% of routes are
deregulated air service and privatized airlines,
churned each year and demonstrates the
removed government controls, and allowed
freedom airlines have to shift existing and
market forces to determine service and price
allocate new capacity, which in turn translates
levels. There has also been a trend towards
into airport competition for traffic
the liberalization of international air services,
development and retention.
with countries pursuing “open skies” bilateral
air service agreements, which remove This ability to move capacity can provide
restrictions on capacity, pricing, and routes, airlines with countervailing buyer power
among other aspects. This deregulation and towards airports, particularly when the airline
liberalization of aviation markets has led to represents a large proportion of an airport’s
greater competition between airlines, the traffic. This is because the action of a single
emergence of new carriers and carrier types, airline (or a group of airlines) can have a
and the dramatic commercial transformation significant effect on the airport’s profitability.
of existing carriers. Most notably (but not
exclusive to deregulated markets) has been Therefore, actual switching, or even just the
the rise of low-cost carriers (LCCs). credible threat of switching some capacity
away from the airport, can provide significant
This more liberal air policy and changing countervailing power for the airline.
business models have resulted in air carriers
becoming more flexible and “footloose” in

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 Route Churn Rates in Europe
FIGURE 1 2003–2016

Source: ACI Europe, “The Continuing Development of Airport Competition in Europe”, reported prepared by Oxera for ACI Europe,
15 September 2017. One route is defined as a service by a unique airline between a unique origin and destination. Based on traffic
between European countries.

2.2. Airline consolidation airline consolidation and airlines’

countervailing power has continuously
In the last two decades, continual airline increased in many markets over the last
consolidation with a smaller number of decades. The rise and prevalence of the LCC
airlines controlling an increasing share of the business model, presence of dominant
air traffic has been seen. This consolidation carriers, formation of oligopolistic airline
process accelerated following the Global alliances, and holding of large portfolios of
Financial Crisis of 2007/08 as some airlines grandfathered airport slots are giving airlines
faced financial distress. As noted in the significant countervailing power vis-à-vis
previous section, dominant airlines controlling airport operators. This consolidation continues
a large share of traffic at an airport can hold to occur through mergers and acquisitions,
bargaining or countervailing power. airline failures, and the emergence and strong
growth of dominant LCCs such as Ryanair,
Such intense competitive trends are shaping
EasyJet, Southwest Airlines, and Air Asia.
the dynamics of the airport industry where

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2.3. Increased airport competition development had increased from 3.7
FTEs (full-time equivalents) to 4.7 FTEs
Airports face competitive pressures to attract over the past ten years (a 28%
and retain passengers and airlines, which increase).2
manifest in several forms:
• Competition for local markets
• Competition for air services There are many instances where airports
With airlines able to move capacity are in proximity of each other and
between airports and focused on compete for passengers (and cargo) in
deploying additional capacity (i.e., new the same catchment area. Many cities
aircraft) where returns are highest, have two or more airports through which
airports are forced to aggressively passengers can access air services. A
compete for air services. This is reflected survey of airports conducted as part of
in the growth of airline network this study found that half of respondents
development conferences where airports indicated that there was another
market themselves to airlines. In a 2019 commercial airport within 100km of their
survey of European airports, 65% airport. This was especially true for those
reported that their route development airports from the Asia-Pacific region, as
budgets were substantially higher than shown in Figure 2. Four of the six global
10 years previously and a further 13% regions have more than 50% of airports
reported their budgets had increased indicating a competing commercial
marginally.1 In addition, the average airport is within 100 km.
number employees assigned to route

1“Airport competition from airports’ perspective: Evidence from a survey of European airports”, Bilotkach, V. and Bush, H.,
Competition and Regulation in Network Industries 21(3), July 2020.
2 Ibid.

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 Percent of Airports Surveyed that have Another Airport Within 100km
FIGURE 2 2021

80%

70%
% of Respondents Indicating Yes

60%

50%

40%

30%

20%

10%

0%

Source: InterVISTAS Analysis of Airport Survey Data (2021)

• Competition for transfer traffic airports, a result from the growth of their
At many major airports, connecting home carriers, from investment by each
traffic, both passenger and cargo, is a airport to facilitate growth, and from
major component of the total traffic leveraging the geographic advantage of
handled. At several major hubs, being located between large population
connecting traffic makes up more than regions. The passenger’s opinion of the
half of the total passenger traffic handled “airport experience” matters in this
by the airport. Transfer traffic can easily competitive equation. Airports with
shift from one airport to another if better passenger facilitation services, a
cheaper, faster, and/or more convenient greater array of terminal services and a
connections become available, or if an better customer experience are favoured
airport offers a better experience for the by many passengers.
traveller. For example, Istanbul and Dubai
have emerged as major connecting

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• Competition with other modes of transport 2.4. Airport commercialization,
On certain short haul routes, air services corporatization and privatization
are competing with rail and road. For
Since the 1980s, there has been a trend
example, the Eurostar service between
towards increased private sector involvement
London and European cities, the TGV
in airports. This has included wholesale or
services in France, and new high speed rail
partial privatization (various UK and European
lines in China. This results in further
airports, Australia, New Zealand), not-for-profit
competitive pressure on airport charges
authorities (Canada), and concession
and services.
arrangements. The latter, sometimes referred
• Competition with other sectors (non- to as Build-Operate-Transfer (BOT) is where
aeronautical revenues) the private sector operates the airport for a
The airport business is two-fold: it period of 20–40 years (the concession period)
combines aeronautical services with non- while committing to invest in required
aeronautical activities such as providing infrastructure improvement and expansion,
retail, food and beverage, parking, hotel while the state retains ownership of the
accommodation, and other various airport.
services to passengers and other
The degree of private sector involvement
stakeholders. Therefore, they also
varies by region, as illustrated in Figure 3.
compete against non-aviation sectors of
Airports with private sector involvement
the economy. The rise of e-commerce,
accounted for 76% of passenger traffic in
sharing economy platforms, ubiquitous
Europe, 77% of passenger traffic in Latin
digitalization, and other significant forces
America and the Caribbean, and 46% of traffic
and trends have enhanced these
in Asia Pacific. Private sector involvement is
competitive pressures. For instance,
lower in other regions, particularly North
airport retail activities – typically the largest
America, where most airports are largely
source of commercial revenues – are now
operated by state or local governments.
in direct competition with online retailers
whereby consumers can compare prices
from stores, buy goods online, and get
these delivered directly to their homes.

15 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

 Distribution of Passenger Traffic by Ownership Structure and Region
FIGURE 3 2019

10% 4%
27%
46% 45%

76% 77%

96%
90%
73%
54% 55%

24% 23%

Africa Asia-Pacific Europe Latin America - Middle East North America World
Caribbean

Proportion of Passenger Traffic Held by Aiprorts with Private Sector Participation

Proportion of Passenger Traffic Held by Government Owned Airports

(No Private Sector Participation)

Source: Updated with 2019 Passenger Data based on “Policy Brief: Creating fertile grounds for private investment in airports”,
2018, Airport Council International.

Often the BOT concession agreement to improve value for money to the taxpayer
specifies the scale and nature of the capital and in recognition of the wider benefits of
investment and indicates the airport charges stimulating additional traffic and connectivity.
that can be applied, providing certainty for There is a recognition that these airports
investors and airlines alike. Even at airports should seek to accommodate the travel needs
that remain under government control, such of the local region and contribute to the local
as those in the United States, airport economy.
managers have shown a greater focus on
commercial operations, as governments seek

16 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

2.5. The changing nature of air passenger This is illustrated in Figure 4, which shows the
demand proportion of passengers at London airports
travelling for leisure purposes. While this is a
As air services have become more affordable specific example (given the data availability in
and more accessible, there has been a the UK), this is also a general trend.
general trend toward greater leisure travel.

Share of Passengers at London Airports Travelling for Leisure Purposes

FIGURE 4 1978–2019

85%
81%
% Travelling for Leisure Purposes

80% 78%

75%
75% 73%

70% 69%
67% 68%
66%
65%
65% 63%

60%

55%

50%
1978 1984 1987 1991 1996 2000 2005 2010 2015 2019

Source: UK CAA Departing Passenger Survey Reports 1991-2019. Includes Heathrow, Gatwick, Stansted, and Luton. Years
selected prior to 2000 are based on availability of data.

Leisure travelers tend to be more price are willing to travel to more distant airports to
sensitive than business travelers as the latter obtain cheaper air travel. Therefore, the
are generally not personally paying the bill for changes in passenger mix place greater
their travel. This has been found repeatedly in competitive pressure on airports seeking to
empirical research. In addition, leisure attract price sensitive leisure passengers.
travelers tend to be less time sensitive and

17 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

Another factor to consider for the evolving community responsibility targets. A study
passenger profile is the impact of service commissioned by the European Commission
quality and the evolution of passenger needs found that in 2016, 61% of European airports
regarding service quality. Many airports applied some sort of charging adjustment for
around the world are making investments to noise and 20% for emissions.4
ensure passengers want to return to their
airport (airports can compete on service
quality), and this is especially true for airports
in close proximity or airports that compete for Prices are not merely a means to
transfer traffic. achieve coverage of costs. They are
critical signals for achieving economic
2.6. Environmental pressures and efficiency, including those from
associated charges externalities such as noise, emissions,
and congestion.
Noise and emissions from activity at airports,
including aircraft landing and taking off, can
frequently impact communities around the
airport. While many actors are responsible for It is important to note that there is a
these impacts (airlines, passengers, ground difference between modulations of charges to
handlers, cargo operators, etc.), airports are incentivize airlines to use quieter or lower-
the public’s primary focus for such concerns, emissions aircraft, which may be revenue
and they are expected to manage these neutral, and the application of noise or
“externalities.” In addition, airports have a emissions charges. The former may be
role to play in tackling the growing climate revenue neutral to the airport, while the latter
crisis linked to the emission of greenhouse is not part of general revenues but are
gases. ACI and its members set out a long- typically used to provide funds for noise
term goal to reach net zero carbon by 2050: mitigation purposes or local environmental
actions.
“ACI member airports at a global level
commit to reach net zero carbon emissions by There is a need for airports to set charges at
2050 and urge governments to provide the levels that would provide meaningful price
necessary support in this endeavor.” June signals to achieve economic efficiency by
2021.3 reductions in noise and emissions. Prices are
not merely a means to achieve coverage of
The ability to apply surcharges to airlines that costs. They are critical signals for achieving
use heavily emitting or noisy aircraft (or use economic efficiency, including from
the airport at noise sensitive times) and to externalities such as noise, emissions, and
offer discounts to those airlines that use
congestion. Some may be of the view that
cleaner, quieter aircraft can be crucial to
charges incentives at a single airport for noise
airports achieving their environmental and
and emissions reductions would be
ineffective. However, such charges can
provide meaningful incentives for fleet

3ACI World (2021) Net zero by 2050: ACI sets global long term carbon goal for airports, https://aci.aero/2021/06/08/net-zero-by-
2050-aci-sets-global-long-term-carbon-goal-for-airports/
4 Support study to the ex-post evaluation of Directive 2009/12/EC on Airport Charges, Steer Davies Gleave, December 2017.

18 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

renewal and deployment. As well, as developing economies, and increased air
additional airports adopt such incentive service affordability, choice, and convenience.
schemes, the cumulative impact on fleet
These rising traffic volumes will need to be
decisions potentially becomes significant.
accommodated at airports and with many
2.7. Airport capacity crunch airports already at or close to capacity, there
will be a need for substantial capacity
Airports aim to achieve the best use of expansion through a combination of
existing capacity – rationing scarce capacity to expanding existing airports or developing new
the highest value uses when there is airports. A comprehensive study
congestion and excess demand, and incenting commissioned by ACI World estimated the
new services when capacity is underutilized. total CAPEX required up to 2040 was US$2.4
A more commercial approach to airport trillion globally, as summarized in Figure 5.5
charges can contribute to achieving this Approximately 70% of this expenditure will be
objective. spent on expanding and upgrading existing
airport facilities (“brownfield”) and 30% will
While the COVID-19 pandemic has led to a
be spent on the development of new airports
dramatic decline in air traffic volumes, traffic
(“greenfield”).
is projected to recover in the next few years.
In the medium-term, air traffic is forecast to
return to robust growth driven by rising
incomes, growth in working populations in

5“Global Outlook of Airport Expenditure: Meeting Sustainable Development Goals and Future Air Travel Demand”, ACI World,
June 2021.

19 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

 Total CAPEX Needs by Region
FIGURE 5 2021–2040

021-204

Source: “Global Outlook of Airport Expenditure: Meeting Sustainable Development Goals and Future Air Travel Demand”, ACI
World, June 2021.

Attracting US$2.4 trillion in investment will be investments are made. Without this, it will be
challenging, especially as the investment near impossible to attract the necessary
needs tend to be “lumpy” (large amounts are investment, or the returns required will be too
required at a time) and will deliver returns prohibitive. It is essential that the return on
over a long period of time. Airports need to be invested capital in the airport business is
able to set airport charges with a commercial commensurate with the cost of its debt and
focus, ensuring that they have market-based equity instruments, which the evidence
mechanisms that allow the airport operators clearly indicates have increased
to ensure that efficient and needed post-COVID-19.

20 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

3. MARKET REALITIES AND THE IMPACT OF
ECONOMIC CHARGES REGULATION – WHAT
DOES THE DATA REVEAL?

3.1. Airport charges have declined, and airports, they are insufficient to cover the full
airports share more of the risk cost airports. After recognizing non-
aeronautical revenues, on average only 24%
Airport charges are assessed on various of total airport revenues come from charges
aeronautical services (e.g., take-off and that are levied on airlines. This is where non-
landing, terminal use, aircraft parking, security aeronautical revenues play an important role
services, etc.) provided by either the airport or (see Figure 6).
the government. The list of charges outlines
all related charges for an airline to operate at On the other hand, of overall airline costs,
an airport. The list also includes any charges only a small proportion is attributable to
directly assessed on passengers. While the airport charges, in the realm of 5%
list of charges presents the base level of historically.7
charges applicable at an airport, these can In a survey of ACI membership globally,
overstate the actual charges paid by airlines, approximately half of respondents indicated
as they do not include discounts or incentives discounts on airport charges averaged
offered to airlines by the airport.6 between 1%–15%. Some respondents
The revenue generated from aeronautical indicated greater than 50% discounts are
charges represent as much as 55% of all offered to airlines via incentives. The use of
airport revenues (including passenger and discounts and incentives show that many
airline related charges). While charges paid by airports operate under competitive conditions.
airlines represent a vital source of revenue for

6Some airports will provide a formal list of incentives and discounts, and criteria for meeting them. An increasing number of airlines
solicit proposals from airports for air services and the airport response might be specific to each request.
7 Based on international scheduled services data from International Civil Aviation Organisation (ICAO) and the International Air
Transport Association (IATA) and World Air Transport Statistics (WATS)

21 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

 Global Airport Revenue by Source
FIGURE 6 2019

Non-operating
5.7%

Aeronautical (Airline)
24.1%

Non-aeronautical
40.2%

Aeronautical
(Passenger and
other)
30.0%

Source: ACI 2021 Airport Key Performance Indicators.

passenger-related charges). This shifts the

revenue risk from the airlines towards the
31% of airports reported that they use airports and can be viewed as a way to
long-term contracts. 28% are incentivize airlines to operate at airports. This
implementing other risk-sharing is one of the many new pricing techniques
mechanisms in their pricing policies. airports have implemented.

In addition, some airports are using long-term

contracts with airlines as a means to
As a result of these competitive pressures determine mutually agreeable charges and
and airport charge discounts, global airport reduce risks for airlines. A survey of ACI
charges per passenger have on average membership globally found that 31% of
declined by approximately 20% in real terms airports reported that they used long-term
in the five years up to 2019, as shown in contracts. A number of airports also indicated
Figure 7. Furthermore, there has been a shift they were implementing other risk-sharing
towards passenger-related charges and away mechanisms in their pricing schemes (28% of
from landing charges (a larger amount of respondents to the question).8
revenue per passenger is generated from

8 InterVISTAS analysis of ACI Member Survey (2021) responses.

22 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

 Declining Aeronautical Revenues per Passenger
FIGURE 7 Global 2014–2019

13.00
12.45
Aeronautical Revenue per Passenger

12.50

12.00

11.50
(Real USD)

10.94
11.00 10.71
10.45 -4.3% CAGR
10.50 10.16
9.99
10.00

9.50

9.00
2014 2015 2016 2017 2018 2019

Source: ACI Economics Dataset

Note: Revenues have been adjusted to USD and inflation adjusted based on IMF figures

3.2. Capital spending has increased

despite declining airport charges

Airport capital spending (CAPEX) can be a

difficult variable to analyse, given the inherent
“lumpiness” of investment in airport
infrastructure. Figure 8 shows the change in
Global airport charges per passenger the 5-year trailing average CAPEX for a
have on average declined by selection of airports globally.9 Since 2009,
approximately 20% in real terms in the 5 across the sample of airports, average capital
years up to 2019. expenditures at airports has increased, as
airports transform to become more
passenger-centric, adjust to new aircraft and
airline business models, and expand capacity
to meet demand. The largest growth in
average annual CAPEX over the period was
seen in the Asia-Pacific region, which is in line
with the large number of airports being built in
the region, including countries such as China,
India, and Vietnam.

9 These airports represent airports of various sizes, ownership, and regulatory models.

23 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

 FIGURE 8 5-Year Trailing Average CAPEX

160 CAGR
5-Year Trailing Average Capital Expenditure, Constant

4%
140

120
1%
2019 US$ (Indexed to 2009)

1%
100 0.3%
-2%
80 -2%
-3%
60

40

20

0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Africa Asia-Pacific Europe

Latin America-Caribbean Middle East North America
World

Source: InterVISTAS analysis of ACI Economics Data

Note: Sample size includes data from 101 airports, across all regions, varying in size, ownership, and other factors.

Even though airport charges were declining, need to generate funds to cover these costs,
this suggests airports were able to make with potentially less traffic due to the impacts
needed at least some of the capital of the COVID-19 pandemic (at least in the
investments to serve the large growth in short- to medium-term). The ability to do so is
passenger traffic, although in part this reflects dependent on the ability for airports to have
lower costs of capital following the 2008/09 flexible, market-based charging schemes, to
financial crisis. However, with the needed ensure that existing infrastructure is used
capital investment for future growth and efficiently, and future infrastructure is funded.
adaptation (e.g., climate change), airports will

24 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

3.3. Airport regulation does not lead to the regulator requiring significant time to
lower charges develop, review, debate, and revise.

Economic regulation, regardless of the • Price or revenue cap regulation

industry, is meant to provide markets with a Under these formats, airport charges are
mechanism that prevents companies from set based on the general inflation level
abusing any market power that they may and expected efficiency targets.
have. Effective competition is preferred to Typically, a CPI-X formula is used, where
regulation (it leads to better economic the airport is allowed to increase charges
outcomes than regulation), but when there is by general inflation (typically measured
an exercise of excess market power, by the consumer price index), and where
regulation in some form may be needed. regulator reduces the allowed increase
by the value of X, which is set based on
Airports have been regulated around the factors such as expected productivity
world, with governments using a variety of gains, allowance for new CAPEX, and
regulatory models, often learning from the improvements in service quality. Price
regulation of other industries. The typical cap was planned as a “lighted-handed”
types of economic regulation in place for form of regulation, but in practice this
airports could be classified along two regulatory format often becomes heavy-
dimensions which include heavy-handed handed, as the regulator requires the
models – government intervention in price same type of detailed information as rate-
determination or light-handed models – based regulation on financial accounts,
market-based approaches with minimal plus forecasts of airport operations and
government intervention: costs, currently and prospectively, in
order to determine the X value.
HEAVY-HANDED MODELS:
• Government approval
• Direct setting of charges by government
In some jurisdictions, the government
This can be an extreme form of heavy-
directly establishes each individual
handed regulation, as it can deny the
charge, for example as part of an annual
airport the ability to establish charges to
government budgeting process or bill.
achieve economic efficiency in terms of
The method of establishing charges
allocation of scarce airport resources to
might be as simple as a uniform increase
the highest value uses, to provide
in all existing airport charges by a given
incentives to increase connectivity,
percentage in order to generate
especially when airport assets are not
incremental revenues to cover
fully utilized, and to provide price signals
anticipated percentage cost increases; or
to reduce environmental noise and
it could be a more involved process
emission impacts.
where the government (e.g., a municipal
• Rate-base or cost-based regulation council for a city operated airport)
This is a heavy-handed regulatory format conducts reviews of a proposed airport
where charges are based on a detailed budget for operating expenses and
analysis of an airport’s costs, CAPEX, and CAPEX, then decides the final budget
traffic levels. This is considered heavy- allocation for the airport, including an
handed as it requires detailed analysis, updated schedule of charges.
financial forecasting and monitoring by

25 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

LIGHT-HANDED MODELS: handed or no regulation. The second group
includes those who identify as subject to
• Trigger regulation or price monitoring
price/revenue cap or other heavy-handed
These are lighted-handed constraints on
regulation.10 Figure 9 indicates that heavy-
airport charges, using the threat of
handed regulation is not observed to lead to
regulatory intervention. The government
lower charges. The figure suggests that
can step in to regulate airport charges if
heavy-handed regulation may result in higher-
they are deemed to jeopardize social
than-average charges, but we are reticent to
welfare, e.g., as determined via an
draw that conclusion as there are many
industry or policy review. Poor
factors that could account for this.
performance can thus trigger a regulatory
intervention.

• Government approval of airport

Price cap regulation does not necessarily
developed schedule of charges
lead to lower airport charges. The need
This would be the case where a
to continue using an expensive form of
municipal or other government operated
regulation should be questioned.
airport is permitted to internally develop
and propose changes in charges which
ultimately are then reviewed and
approved by a local government entity. One potential reason that airports with light-
• Other forms of economic oversight handed or no regulation may have similar or
These include use of airline-airport lower charges than those airports with heavy-
contractual agreements covering handed/price cap regulation is that CAPEX
provision of information, consultation, may be higher for the latter. The concern is
review of proposed CAPEX, levels of that higher charges per passenger for
charges and inflation adjustment, and heavy/price cap regulated airports could be
dispute resolution. Other forms include due to the inflexibility in these heavy-handed
application of competition law for regulatory models, that closely tie charges to
arbitration and mediation. costs, and do not allow for a level of risk-
sharing or incentive to reduce costs.
Using data in the survey of airports conducted However, Figure 10 suggests that higher
by ACI World, Figure 9 compares average charges per passenger are due to higher
airport charges per passenger (as a proxy for CAPEX at such airports is unlikely to be the
airport charges) for two airport classifications. case, on average.11 The figure indicates that
The first group in the figure are those airports the average heavy/price cap regulated airport
who self-identify as being subject to light- has lower CAPEX per passenger.

10 ACI sent the survey to all airports that participate in its World and Regional Economics Committee. A few airports did not identify
their regulation type in in their survey response. For most of these, data from ACI’s Airport Economic Survey was used. Airports
that indicated their charges were set by a form of government approval were not included in Figures 9 and 10. This group included
a number of African airports and the U.S. airports. U.S. airports receive substantial grants, enjoy tax-free bonding financing and their
passenger service charge revenues are treated separately and not included in their operating revenues; including them would have
distorted the comparisons.
11CAPEX is measured as a five year average of annual CAPEX, so that the results would not be distorted by cases where in 2019
an airport had little CAPEX after having just finished a major capital program, and vice-versa.

26 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

These results imply that price caps do not Analysis also found that operating costs were
necessarily lead to lower airport charges, and lower at lightly regulated airports compared
thus the need to continue using an expensive with airports subject to heavy-handed
form of regulation (especially the more heavy- regulation.
handed price caps that have evolved) is
questionable.

Average Annual Aeronautical Revenue per Passenger (2019 US$)

FIGURE 9 2014–2019

Source: InterVISTAS analysis of ACI Economics Data

Note: Sample size includes data from 94 airports, across all regions, varying in size, ownership, and other factors.

Average Annual Capital Expenditure per Passenger (US$ 2019)

FIGURE 10 2014–2019

Source: InterVISTAS analysis of ACI Economics Data

Note: Sample size includes data from 94 airports, across all regions, varying in size, ownership, and other factors.

27 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

3.4. Where airport charges are regulated, • Hybrid till – A form of dual till where a
pricing till has implications for specified fraction of non-aeronautical
charging and CAPEX revenues, or only certain non-aeronautical
revenue streams, are used to subsidize
In addition to the regulatory model, another aeronautical revenues.
element of airport charges is the choice of
pricing till in place at an airport, i.e., which Figures 11 and 12 show the average
prices are being constrained. There are three aeronautical revenue and CAPEX per
main categories of pricing tills: passenger for a selection of airports globally.
Hybrid till airports in the sample have the
• Single till – total airport costs are reduced lowest level of aeronautical revenue per
by the net earnings from non-aeronautical passenger on average, while dual till and
sources before calculating regulated single till airports are larger but similar levels.
aeronautical charges (i.e., landing It is also important to note, however, that
charges, passenger charges, etc.). The hybrid till airports in the survey also have the
cost of aeronautical services is cross lowest level of CAPEX per passenger, while
subsidized by non-aeronautical earnings. dual till have the highest. Lower CAPEX is
This pricing till hinders and provides little typically associated with lower charges, and
incentive for the development of non- this is what the two figures suggest. The
aeronautical activities. results are also consistent with a view that
dual till airports have larger CAPEX, which
• Dual till – Aeronautical services are not
may be tied to the incentive to improve the
cross-subsidized by non-aeronautical
passenger experience through airport
earnings (aeronautical users receive no
adequate capacity and non-aeronautical
benefit nor risk from non-aeronautical
activities.
activities). There is an incentive for the
airport to develop commercial (non-
aeronautical) activities.

28 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

 Average Annual Aeronautical Revenue per Passenger (US$ 2019)
FIGURE 11 2014–2019

16.00
Average Aeronautical Revenue per

14.00
Passenger (2019 USD)

12.00

10.00

8.00

6.00

4.00

2.00

0.00
Dual till Hybrid till Single till

Source: InterVISTAS analysis of ACI Economics Data

Note: Sample size includes data from 75 airports, across all regions, varying in size, ownership, and other factors.

Average Annual Capital Expenditure per Passenger (US$ 2019)

FIGURE 12 2014–2019

7.00
Average Capex per Passenger (2019 USD)

6.00

5.00

4.00

3.00

2.00

1.00

0.00
Dual till Hybrid till Single till
Source: InterVISTAS analysis of ACI Economics Data
Note: Sample size includes data from 86 airports, across all regions, varying in size, ownership, and other factors.

29 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

3.5. Impact of airport charges on estimate of ancillary revenue per passenger,
passenger airfares as shown in Figure 13. Note that this does not
include taxes and some other airline fees;
Airport charges represent a small portion of given the global nature this would be difficult
airline costs compared with labour, fuel, to estimate. In 2019, globally, airport charges
aircraft equipment, maintenance, and accounted for only 5.1% of the augmented
overheads. To illustrate, an augmented base base airfare and would be considerably lower
airfare has been constructed using the global if ticket taxes were included.
average base airfare over time,12 and an

FIGURE 13 Airport Charges as a Percent of Global Airfare in 2019 (US$)

Source: InterVISTAS Analysis of Sabre MIDT Airfare Data, Ancillary Revenue Data from IdeaWorks, and ACI Economics Data.

12The computations are for all regions, domestic and international, short and long-haul traffic. Sabre MIDT Airfare Data was used,
supplemented by ancillary revenue data from IdeaWorks (airline ancillary charges) , and ACI Economics Data (airport charges).

30 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

4. AIRPORTS’ EXPERIENCES WITH AIRPORT
CHARGES REGULATION INDICATE A NEED
FOR A MORE FLEXIBLE APPROACH

A survey of ACI member airports was infrastructure development to achieve the

conducted to understand three key topics: the economic benefits to their communities. As
airport experience with economic regulation, shown below, less than half of respondents
the interplay between airport pricing agreed with the statement. Viewing
strategies and regulation, and finally the responses based on regulatory type suggests
impacts of COVID-19.13 Surveys were sent to that those with light-handed or no regulation
airports covering all ACI regions, and 66 generally agreed that their regulatory model
survey responses were received, covering fostered development while more heavy-
163 airports (as some responses covered handed forms of regulation did not. This was
multiple airports within a network). Airports evident as well in the comments received
covered a variety of sizes (based on from the airports directly, pointing to:
passenger traffic), ownership models, and inflexibility of the regulatory model in allowing
economic regulatory models. A summary of airports to set charges, issues with
their responses is provided below. concession contracts being too restrictive or
too short for long-term investments, and
Many regulatory models are not fostering
issues with development decisions controlled
airport development
by politics rather than by commercial vision
Airports were asked about whether their and strategy.
current regulatory model fosters airport

Source: ACI Survey of Airports (2021).

13 Survey was described in a previous footnote.

31 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

When asked about capital project financing, incentives, aside from those that already have
the majority of respondents indicated that them in place. Similarly, 20% of respondents
they are unable to increase charges ahead of indicated that they have considered noise
capital projects. European airports are more incentives for their airport but have not yet
likely than those in other regions to be able implemented them.
increase charges and fees ahead of capital
Issues with regulatory flexibility and
projects, although there are some airports in
responsiveness
other regions that are able to pre-finance
capital projects. Among airports that can raise The majority of respondents indicated they
charges and fees ahead of capital projects, had challenges with the flexibility of their
the majority of surveyed responses from current regulatory regime in adjusting airport
Africa, Asia-Pacific, Europe, and Latin charges to changing conditions and there is a
America/Caribbean indicated they are unable large commitment for management regarding
to increase charges until construction starts. consultations and regulatory submissions.
In contrast, most survey responses from Respondents were much less impacted by
Middle Eastern and North American airports airlines directly obstructing investment
indicated that they are able to increase fees decisions and regulators changing
and charges prior to construction starting. The development plans. From a regional
majority of surveyed airports from each region perspective, in all regions except North
considered pre-financing capital projects as an America, the majority of survey respondents
appropriate mechanism to support airport indicated that their current regulatory model is
development. However, airports in Africa not responsive, which results in lags in
viewed the practice of pre-financing as a adjusting charges for new CAPEX or other
contentious topic. developments.
Incorporating environment concerns into Extensive use of incentives and related
airport charging marketing initiatives
Airports were asked about using incentives to The majority of airports surveyed in each
innovate, such as charges for mitigating region had some form of new route
airport noise and emissions or for funding incentives in place, with the exception of
sustainability improvements. Based on the African airports. The next most prevalent
survey responses, the use of innovative incentive schemes were for volume discounts
pricing techniques is primarily limited to under which carriers that achieve a targeted
responses from European airports. volume (which may be specific in terms of
either passengers or movements, can qualify
The use of environmental charges (for noise,
for lower charges, with more than half of the
emissions, etc,.) was most prevalent in
airports indicating they have at least
Europe, with a number of surveyed European
considered, if not already implemented, this
airports having implemented noise charges,
form of incentive.
environmental charges, or noise and
environmental discounts. A few airports in the When asked about how effective the different
Asia-Pacific region also had implemented incentive schemes were, airports were
noise-related charges and discounts. Almost a generally very positive about new route
third of respondents (29%) indicated they incentives, but less so about other forms of
were at least considering sustainability incentives (many were undecided).

32 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

Source: ACI Survey of Airports (2021)

Airports were also asked about their ability to helps facilitate the effectiveness of
effectively use incentives given their incentives. European airports indicated a more
regulatory environment. Half of the negative result than airports responding from
respondents indicated their regulatory model North America, reflecting the regional
limits the effective use of incentives, while variation in experience with regulation.
others indicated that their model of oversight

33 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

Many airports are seeking changes to • Suspending economic regulation
regulation frameworks if airports and airlines reach
commercial agreements regarding
Airports were asked to provide their views on
charges with a process for dispute
what can be done to improve airport pricing
resolution.
policies and regulation. The majority of survey
responses from each region either agreed or • Implementing arrangements that
strongly agreed with: incentivize innovation and
entrepreneurship (e.g., tax credits for
• Moving from heavy-handed to light-
innovation).
handed regulation.
Some airports report that they lack
• Allowing for more freedom and flexibility
legislation authorizing the right to assess
to set the structure and level of charges.
charges
• Implementing arrangements that foster
A few airports indicated that they lack
investment and capacity development.
legislation which authorizes the airport to
• Implementing arrangements that assess charges. An airport’s right to assess
stimulate efficient and environmentally charges has been part of the ICAO Charges
conscious operations. Guidelines since its first edition, and where
this is the case, nations should rectify.

34 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

5. THE COVID-19 PANDEMIC HAS FURTHER
EXPOSED THE LIMITATIONS OF THE CURRENT
APPROACH TO AIRPORT CHARGES AND
REGULATION

5.1. What has happened relative to 2019 (a loss of 5.6 billion

passengers) with the worst impacted regions
At an early stage of the COVID-19 pandemic, being Europe (69% decline), Middle East
governments around the globe put in place (67%) and Africa (66%). Asia Pacific
various restrictions on passenger air travel, experienced the smallest decline (54%)
including the complete or partial closing of largely due to recovery in the sizable Chinese
borders to overseas travellers and the domestic market.
suspension of flights to some or all
destinations (including domestic air travel in The outlook for 2021 is for marginal
some cases). As of November 2021, improvement, with global passenger traffic
restrictions on international air travel are expected to be reduced by 50% compared
easing but remain commonplace. with 2019, and the weakest recoveries
expected in the Middle East (down 66% on
The impact on passenger traffic at airports 2019) Europe (60%), and Africa (54%). North
has been severe and unprecedented across American traffic is expected to recover the
all parts of the globe, as shown in Figure 14. most (down 33%) due to recovery in the US
Global passenger travel declined 61% in 2020 domestic market.

Quarterly Air Passenger Traffic

FIGURE 14 2019–2021
1,000

900
Asia-Pacific
800

700 North
Millions of Passengers

America
600
Europe
500

400 Latin
America-
300
Caribbean
200 Middle East

100
Africa
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2019 2020 2021
Source: ACI World. The impact of COVID-19 on the airport business—and the path to recovery, 30 Oct 2021. Projections based on
ACI analysis.

35 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

Unsurprisingly, the impact has been • Latin America and Caribbean: 60%
devastating to airport finances, as shown in revenue decline – US$6.7 billion
Figure 15. Global airport revenues in 2020
• Middle East: 67% revenue decline –
declined 64%, a reduction of US$115 billion
US$9.6 billion
as compared to 2019. The largest percentage
declines were in Europe, the Middle East, and • North America: 71% revenue decline –
Africa, while the largest dollar declines were US$24.2 billion14
in Europe, Asia-Pacific, and North America
due to the larger air markets in these regions: The outlook for 2021 is only slight better.
Revenues are projected to be down 54%
• Africa: 60% revenue decline – US$2.5 (US$98 billion) from 2019 levels globally.
billion Europe and the Middle East are expected to
be the most affected regions with revenue
• Asia-Pacific: 54% revenue decline –
declines of 59% and 66% respectively with
US$30.4 billion
only the Americas projected to experience a
• Europe: 69% revenue decline – US$47.2 decline of less than 50% (declines of 43% for
billion Latin America and Caribbean and 46% (North
America).

Quarterly Airport Revenue

2019-2021
Quarterly Airport Revenue
FIGURE 15 2019–2021

$20,000

$18,000
Asia-Pacific
$16,000

$14,000 North
America
Millions of USD

$12,000
Europe
$10,000

$8,000 Latin
America-
$6,000
Caribbean
$4,000 Middle East

$2,000
Africa
$0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2019 2020 2021

Source: ACI World. The impact of COVID-19 on the airport business—and the path to recovery, 30 Oct 2021. Projections based on
ACI analysis.

14ACI World (2021). The impact of COVID-19 on the airport business—and the path to recovery, 30 Oct 2021. Projections based on
ACI analysis.

36 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

 implemented some form of discount or
incentive to their airport charges specifically
Two-thirds of airports (68%) have to address the COVID-19 impacts and
implemented some form of discount or recovery. Apart from North America, the
incentive to their airport charges majority of airports in each region have
specifically to address the COVID-19 implemented discount and incentive
impacts and recovery. programs. This form of discounting has been
preferred to wholesale reduction in the airport
charges, which only 25% of airports have
implemented (and another 21% have
considered). The discounts and incentives are
5.2. Airports have responded with relief for flexible and more targeted. None of the
airline customers respondents have implemented blanket
increases in charges other than some North
Surveyed airports were asked about their
American airports, some of whom were
response to COVID-19 in terms of their
required to raise airport charges to meet debt
aeronautical charges. As shown below, a
covenant requirements (e.g., Canadian
super majority of airports (68%) have
airports).

FIGURE 16 COVID-19 Response of Airports Regarding Charges

Source: ACI Survey of Airports (2021).

37 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

Surveyed airports were asked to describe the
most pressing issues around airport charges
regulation that arise from the COVID-19 As a result of COVID-19, investors and
pandemic. Key concerns across all regions credit rating agencies view airports as
were the lack of flexibility to adjust prices riskier assets than previously thought.
rapidly, lack of clarity as to how losses could
be recovered in the future and impacts of
financing future investments. Those airports
subject to regulation were asked if they were
able to recover COVID-19 related losses, and
As a result, a number of airports have had
only 34% indicated that they were.
their credit ratings downgraded following the
5.3. The perceived risk profile of airports COVID-19 pandemic, including those in North
has changed America, Europe, and Asia Pacific.

The impact of the COVID-19 pandemic on There is evidence that asset betas (a measure
airport traffic has caused investors to re- of market risk) of listed airport companies are
evaluate the risk assessment of airports. showing a marked increase since the start of
There remains considerable uncertainty the pandemic, as shown in Figure 17. An
around short-term and long-term impacts of increase in asset betas did not occur with
the pandemic on airport businesses regarding regulated utilities.
the timing and extent of traffic recovery,
changes in the structure and composition of
travel demand (e.g., slower and possibly
permanently reduced business demand), and
changes in market structure and general
economic conditions.

38 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

 FIGURE 17 Asset Betas of Listed Airports

Source: Adapted from Post-COVID Airport Regulation: A Clear Path? March 2021, Oxera.

The dramatic impact of COVID-19 on airport Consideration needs to be given to risk-

financials has implications for airport sharing during shock events. There is a clear
investment and the economic regulation of trade-off between the degree of risk borne by
airports, both in terms of the immediate the airport and the cost of capacity that debt
response and the need for adaptation in the and equity providers will require. As
long-term. Airports have faced considerable demonstrated in previous sections, the risk
losses, as previously documented, and future profile of airports is being re-evaluated in
planned airport development has had to be light of the COVID-19 pandemic and if airports
massively revised due to uncertain traffic are not able to recover COVID-19 related
developments and the unknown timeline losses in future charges, it is very likely that
for recovery. investors will require higher returns (higher
cost of debt, higher equity returns) to mitigate
this risk.

39 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

40 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges
6. A NEW APPROACH TO AIRPORT CHARGES
AND REGULATION IS REQUIRED

6.1. Crafting airport charges policies that relationship between passenger travel and
extend benefits to consumers socio-economic outcomes, for every
1,000,000 foregone passengers due to airport
Regulators must consider what is ultimately capacity constraints in 2040, the global air
best for the traveling public (consumers). In transport industry would support 10,500
many instances this means ensuring that fewer jobs and US$346 million less in GDP.
existing infrastructure is used as efficiently as Estimates of potentially foregone passengers
possible, incentivizing the sustainable due to unmitigated capacity constraints
development of airport infrastructure, and through airport capital investment suggests
enhancing connectivity to generate socio- that up to 5.1 billion passengers may not be
economic benefits. In fact, all the above realized by 2040.15 Failing to revise regulatory
require clear market signals for the efficient approaches that hinder capacity adjustments
allocation of resources. will thus dampen economic development.
Consumer expectations as part of the
6.2. The current framework for airport
passenger journey have also transformed over
charges is no longer appropriate for
the decades. Consumer preferences have
today’s airport industry
increased for easier movement through
airport processes, the range and choices of ICAO has been articulating guidelines for
airport amenities (including food, retail, airport charges since the 1940s and 1950s,
personal/professional service), digital and formally articulated a policy in 1974. This
connectivity (e.g., Wi-Fi services, mobile framework has a number of desirable
phone-based check-in, border /security /health elements – non-discriminatory charges, users
processes) and new ground transportation should bear their fair share of costs, simplicity
options. This, in turn, requires more ambitious and suitability of charges, and user
development efforts to increase efficient consultation. However, it is fundamentally an
infrastructure that is fit for purpose and offers administrative cost-based approach, focused
consumers both value for money and a on cost recovery and not on achieving
pleasurable travel experience. economically and socially beneficial
outcomes. An administrative cost-based
When the aviation industry recovers from the
approach risks providing the wrong incentives
COVID-19 pandemic, it will return to capacity
to both airports in providing services and
constraints and bottlenecks at many airports.
capacity, and to airport users in whether and
There are serious economic and social
how they use that capacity. By ignoring the
implications of capacity shortfalls and
demand side of the airport market in the
associated congestion, and this why it is so
supply and demand equation, the traditional
important to ensure that the right policies
framework can encourage a misallocation of
towards airports are adopted. Based on the

15 Air Transport Action Group (September 30, 2020) Aviation: Benefits Beyond Borders and Oxford Economics’ calculations

41 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

airport resources. Cost-recovery-based switch capacity between airports. This
charges at congested airports can encourage competitive environment is reflected in the
further demand for airport capacity at peak increasing investment made in airport
times, which provides an incorrect price marketing and the use of incentives and
signal. It also does not sufficiently incentivize discounting provided to airline, which is done
airports to expand capacity where demand by nearly two thirds of airports.
exceeds available capacity, or to incent new
Many governments have responded to the
services where capacity is underutilized.
commercialization and privatization of airports,
and the often-unfounded concerns of
monopolist exploitation, by imposing what
The evidence is that many, and has become heavy-handed regulation, without
increasingly most, airports are regard to whether the benefits of regulation
competing with each other. This exceed the costs. The ICAO airport charges
competition is not confined to framework does not have a recommendation
competition in overlapping catchment which states that before regulation is
areas, but also for airline routes and imposed, the costs and benefits of such
regulation need to be assessed.
capacity, for connecting traffic, and
between destinations. There is also As documented previously, airports are
intermodal competition in tackling the twin challenges of ensuring that
many markets. their activities (and those of airlines and other
users) minimize their noise and emissions
impacts while managing sometimes scarce
Most importantly, the traditional framework capacity and investment to accommodate
has not been able to keep up with the future growth.
dramatic changes that have occurred in the
It is clear that the traditional airport charges
aviation industry. Airlines have been privatized
framework no longer provides appropriate
and/or deregulated. Multiple airline business
guidance on airport charges for today’s airport
models have emerged that focus on different
sector. The time has come for a new
market segments, some of which did not
approach toward airport charges.
exist when the ICAO framework was
developed mid-century. Just as airline
passenger demand has been fragmented into
multiple consumer segments with different Price cap regulation was removed from
elasticities with respect to price and service, Australian airports in 2002. Successive
so too have airlines demanded varied airport reviews have shown that the system
services. delivers good market outcomes,
The evidence is that many, and increasingly enhanced passenger satisfaction and
most, airports are competing with each other. effective infrastructure development.
This competition is not confined to
competition in overlapping catchment areas
but also for airline routes and capacity, for
connecting traffic, and between destinations. Australia’s government removed the price cap
In addition, airlines have significant regulation remaining at Australian airports in
countervailing powers due to their ability to May 2002, recognizing that the market had

42 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

effective competition, strong buyer power 2006, 2011, and 2019 have shown that the
from airlines, and airports were unable to use system delivers good market outcomes,
any market power that they may possess. enhanced passenger satisfaction and
Successive reviews by the Australian effective infrastructure development.
Government Productivity Commission in

43 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

6.3. ACI recommendations for guidance on airport charges and regulation

Having the above economic characteristics of airports in mind, ACI puts forward the following key
recommendations for guidance on airport charges.

Policies on airport charges should ensure that they serve the best interests of the
traveling public and local communities
Government policy needs to consider what is ultimately best for consumers, independently
of the market relationships of other actors in the aviation ecosystem such as airports and
airlines. In many instances, this means crafting policy that incentivizes investment in airport
infrastructure and generates a multiplier of socio-economic benefits and connectivity.

Right to assess charges

Airports have a right to set and collect charges for airport facilities. While this may seem
obvious and has been an ICAO policy from the beginning, in some countries it is still
necessary to enable this in law.

Strictly cost-based airport charges should be reconsidered as they do not ensure that
infrastructure is used more efficiently for the benefit of the travelling public
The cost-based approach considers only one side of the market. It ignores the demand side
and the need for airport pricing policies to provide the right incentives and signals regarding
capacity utilization, community responsibility regarding noise and environmental impact,
traffic growth to support aviation dependent economic sectors and social connectivity, and
non-aeronautical revenue development.

The primary focus of charges should be on market needs and signals

The primary focus of policies toward airport charges should be on flexibility and
responsiveness to market needs and developments. Airport charges should provide
incentives for optimal use of airport resources and for investments. The cost-relatedness
principle should be supplemented by a market-responsiveness principle that reflects the
competitive dimension of the airport industry and enables incentives and market-based
charges to respond to passenger and airline needs and address impacts such as noise and
pollution.

The best way forward is through commercial agreements between airports and
airlines
Exceptional cases aside, commercial agreements between airports and airlines are the best
way forward. Such agreements have been successful in a number of jurisdictions and can
address issues of the information airports (and airlines) will provide, consultation formats,
CAPEX plans and approvals, noise/congestion/environment incentives, and dispute
resolution.

The economic oversight function should evaluate the degree to which an airport is
subject to competition in various sectors
The traditional view that airports are natural monopolies that will inevitably exercise market
power no longer holds. Most airports compete in multiple dimensions. Such competition

44 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

 can and does constrain the pricing conduct of airports. Where airports face competition in
one or more of the dimensions of catchment area, transfer passengers, destination
attractiveness, or airline fleet deployment, the presumption should be that regulation of
charges is not necessary and the onus should be on the government to demonstrate that
the competition is not sufficiently constraining prices. The Australian approach of periodic
monitoring of airport charges, regarding whether market power has actually been unduly
exercised with negative performance outcomes, is worthy of consideration.

The economic oversight function should evaluate the degree to which airlines can
exercise countervailing power regarding airport charges
Airlines have the ability to respond to pricing by moving capacity. As well, airline
concentration at many airports is high and growing. Airline mergers and various types of
alliances, especially those with airline pricing and capacity immunity, have enhanced the
countervailing power of airlines.

Any consideration of whether to regulate, or continue to regulate, airport charges

should be subject to a cost-benefit analysis
Regulation should only be used if the benefits of regulation exceed the costs. Governments
should require any new regulation of airport charges to be justified by cost-benefit analysis,
and they should periodically review whether continued regulation of charges remains
justified on a cost-benefit basis.

Where regulation is deemed necessary, light-handed oversight formats should be

preferred
In those few cases where commercial arrangements between airports and airlines will not
satisfactorily constrain airport charges, it may be appropriate to consider a regulatory
constraint on charges. Such consideration must first conduct and pass a cost-benefit test.
Any regulation applied should seek to foster the evolution of competitive forces, and to
encourage the market players to come to their own resolution. The use of lighted-handed
formats such as trigger-regulation or airport charges monitoring should be favored ahead of
more intrusive regulatory formats.

Where airports are regulated, dual till regulatory approaches should be considered
favorably
Dual till charges allow an airport to retain net non-aeronautical revenues rather than
immediately apply them to offset aeronautical costs. Dual till policies strongly incentivize
the airport to aggressively develop non-aeronautical services, by allowing the airport
operators to retain net revenues rather than immediately surrendering them in the form of
reduced aeronautical charges. Because passenger traffic volumes are the primary driver of
non-aeronautical revenues dual till airports are strongly incentivized to develop passenger
volumes through marketing incentive-based charges such as volume discounts and new air
service supports. At many airports, dual till income is a key source of financing current and
future CAPEX, either directly or via servicing new debt and/or equity funding for CAPEX.
Further, dual till arrangements encourage airports to develop non-aviation related services in
an efficient way, especially where they have land holding not required for current or future
aviation uses.

45 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges

46 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges
ANNEX: ICAO’S POLICIES ON AIRPORT CHARGES16

16International Civil Aviation Organization, “ICAO’s Policies on Charges for Airports and Air Navigation Services,” Ninth Edition,
2012. Document 9082. These are policies approved by the Council. See Section II.

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 ACI World
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800 Rue du Square Victoria
Montreal, Quebec, H4Z 1G8
Canada

www.aci.aero

For more information or to access

comprehensive airport data reports, please visit
aci.aero/publications/

55 Policy Brief | Modernizing Global Policy Frameworks on Airport Charges