Europe’s airports welcomed a record 2.23 billion passengers in 2017, according to new figures from the Airports Council International
Airport profits under pressure
The figures are set to grow in future, but growth in airport profits is slowing as additional security costs and rising interest rates take their toll.
Air passenger totals up 6.9% since start of year
Since January, passenger numbers are up 6.9% and in the past five years they have risen by 513million.
Numbers set to rise 108% by 2040
The trend is set to continue and by 2040, passenger traffic at Europe’s airports is set to more than double, rising 108%, predicts ACI, the global trade representative of the world’s airport authorities.
Growth presents ‘significant challenges’
However, the growth is presenting Europe’s airports with challenges, says Olivier Jankovec, Director General of ACI EUROPE.
“That kind of growth comes with significant operational challenges and puts a lot of pressure on our staff and facilities. As Eurocontrol’s latest data shows, congestion is becoming an issue at an increasing number of airports across Europe - especially at peak times.
Customer satisfaction rising
“Yet, it is remarkable that European airports have not just maintained but actually improved quality for passengers. Our customer satisfaction ratings have increased in each of the past five years for all aspects of the airport experience .”
Effect of millennials and baby boomers
The rise in passenger numbers is due in part to changing consumer behaviours from ultra-mobile millennials and affluent and healthy retired baby boomers - as well as rising inbound demand from emerging markets (the new Global middle class) and new aircraft technology enabling direct connectivity developments.
Changing Europe’s status as mature aviation market
Mr Jankovec explains, “These new fundamentals are challenging the status of Europe as a mature aviation market. They are pointing to significant growth potential in the medium to long-term.
The fact that last year EU airports alone were the largest contributors to global aviation growth along with Chinese airports is already reflective of that. However, the short-term is all about downside risks – with rising oil prices, trade wars and a possible economic deceleration. This is testing the resilience of our growth dynamic.”
In 2017, Chinese airports accounted for 22.8% of Global air passenger growth and European airports 20.4%. North American airports (US & Canada) accounted for 11.2% and ASEAN airports 10.8%.
Financial performance improving
The financial performance of Europe’s airports has kept improving, with the industry’s return on invested capital (ROIC) standing at +8.5% - up from +5.1% in 2011.
Profits due to cost-cutting not revenue growth
However, EU airports are underperforming airports in emerging markets (+10%). The main improving factors have been efficiencies and cost reduction – not revenue growth. These have pushed operating costs per passenger down by an impressive -17.8% since 2011, a reflection of increasing competitive and shareholder pressure.
Why costs are set to rise in future
And costs are set to rise in coming years, says Mr Jankovec. “First, because if cost cutting is the right thing to do, there is only so much you can squeeze the lemon when traffic keeps growing. Second, because we are facing a sharp increase in security costs – with an estimated €15billion investment between now and 2022 in new screening technology. And finally, because of rising interest rates.
“Airports are very capital intensive and with the industry’s debt standing at €86billion, the financial impact will be significant.”
Role of budget airlines
The growth in budget airlines is also putting pressure on airports. “Looking at revenues, airports are also facing a new reality. The fact that low cost carriers are driving traffic growth comes with significant pressure on aeronautical revenues (airport charges). The convergence of airlines business models (hybridization) and consolidation will only reinforce these competitive pressures – including for larger airports.
Mr Jankovec says, “We now live in the era of rebates, incentives and ‘marketing support’ for airlines. Ninety percent of Europe’s airports offer discounts to attract, retain and grow air traffic. This is truly emblematic of how the airport-airline relationship has changed.”
Commercial revenue under threat
Airports’ commercial revenues (from retail, food & beverage, real estate, parking, car rental and advertising) are also under threat.
The combination of less affluent but more frequent travellers, endless online retail and advertising competition, restrictive airline cabin-bag policies and shared urban mobility are all combining to dilute these revenues. In fact, since 2011, airports commercial revenues per passenger have fallen by -4.8%.
How can airports ‘grow the pie’?
Mr Jankovec concludes, “Airports have relied on ever increasing commercial revenues to offer airlines competitive user charges – and fill the €4billon gap left by these charges to cover the full costs of operating and developing their facilities. The headwinds we now face in growing these commercial revenues are clearly challenging our business model.
“Along with the wider impact of the mega digital platforms, this is something airports and airlines should look at together. Not to share the pie – but to look at how we could grow the pie by sharing data and leveraging its content through joint commercial initiatives.”
ACI EUROPE represents the interests of 500 airports across Europe.