Impact of Price Regulation on Airport Charges

priceAirport Charges and Price Regulation in Germany

As part of the master program Transport and Supply Chain Management (TSCM) at VU University in Amsterdam I did a thesis research concerning the impact of price regulation on airport charges.The research was aimed to provide an answer to the literature discussion whether airports have the incentive to charge excessive tariffs and if they do so whether price regulation is the right method to avoid this incentive. Results and insights gained from the thesis research will be treated in this article.
Download PDF

 

Advertisements

Airports Developing Air Services for Cargo versus Passenger Airlines

klm-cargoOver the years Air Service Development has developed into a valuable tool for airports to keep their fate into their own hands. By actively providing air service analyses to airlines,airports are able to expand their client and route portfolio. Besides actively targeting passenger airlines also cargo airlines are being targeted by airports. At the yearly held World Route Development Forum airlines are approached by airports in attempts to convince airlines of flying to their respective airports. This paper provides an overview of the differences in approaching cargo airlines versus passenger airlines. Besides, for sure, cargo plays a contributing role in the revenue generation of passenger airlines, once a passenger airline has decided to start operating a route. The majority of the information provided is from experience of the author, having done passenger and cargo air service development for airports, amongst others: Amsterdam, New Delhi and Cologne Bonn.

Download PDF

Networks in Aviation – Strategies and Structures

networks-in-aviationWith this book one can discover the main aspects of an airline’s network structure. It iswritten clearly, which allows also people without profound knowledge about network managementto understand the topics adequately. The book is, however, also interesting formanagers in the industry: the preface written by Dr.Christoph Franz (CEO of Lufthansa) welcomes readers. Since Lufthansa Group serves more than 270 destinations under variousbrand names such as Lufthansa, Swiss, Austrian, bmi, Brussels Airlines, and Germanwings, Dr.Franz’s foreword is symbolically important.

Download PDF

Ethical Issues in Aviation

ethical_issuesThe book is dedicated to the first 7 students who have completed the Aviation Ethics course at Lewis University. This emphasizes the need to explicitly incorporate ethics in education and training. As such, the book is a novelty in its kind and provides a unique opportunity for aviation students, scientists and practitioners to get explicitly acquainted with ethics in aviation beyond the level of codes of conduct, normative behavior and anecdotic, operational dilemmas.

Download PDF

One year later: The German Ticket Tax

ticket-taxGermany has introduced in January 2011 an aviation tax (luftverkehrsabgabe). The effects of the tax are as expected : small and medium sized airports which are dependent on low cost carriers have suffered a loss of passengers. The larger airports have grown. For the country as a whole the growth in passenger numbers is 5%. This is comparable with other large European aviation nations. So, what’s the problem ? And what can be expected from the EU-ETS ?

First we give some more detailed figures about gains and losses by type of airport. We compare the results with the developments on taxation in other countries. We end with the developments around the European ETS and the opposition of non-European countries. Will there be a global carbon tax for the aviation (and maritime) sector ?

Passenger growth and decline at German airports in 2011
The German government introduced the ticket tax in January 2011. The tax is 8 Euro for European flights, 25 for mid-range flights and 45 Euro for long haul flights. No taxes on Freight or Transfers.  Low cost carrier Ryanair reacted by publishing a list of routes and flights to be scrapped from airports Hahn, Berlin, Weeze and Bremen. Indeed routes and flights were scrapped, but some were restored later on.

Ryanair cuts 2011 Route Cuts Weekly Flights Traffic loss (Ryanair website) Actual loss ADV,2012
Berlin

-4

-122

-900,000

– 170.344

Bremen

-8

-58

-400,000

-111.772

Düsseldorf Weeze

-13

-84

-700,000

– 471.240

Frankfurt Hahn

-9

-150

-1,000,000

-629.939

Total Loss (to date)

-34

-414

-3,000,000

1.383.295

Table 1 Flights Threatened to be scrapped by Ryanair at German airports following implementation of air passenger tax. Sources: Ryanair, 2010 & ADV,2012

If we look at the realizations of 2011 we can observe that the real effects were less than half of what Ryanair predicted (or threatened with). However, for Hahn and Weeze the effects were very substantial : 18% and 16% loss of passengers. This finding is in line with the effects of the (now abolished) Dutch ticket tax where low cost airports near the border with other countries appeared to be the most vulnerable.

Airport size

Passengers 2010 (million)

Growth in 2011 (million)

Growth %

>10 million

134,2

10,5

8%

5-10 million

31,3

0,3

1%

1 to 5 million

21,9

-1,3

-6%

The largest German airports (Frankfurt, München, Dusseldorf, Berlin-Tegel and Hamburg) had on average a growth of 8%. The smallest airports experienced a loss of 6% and the middle airports remained stable. The overall growth was 5%.

Table 2 Passenger growth at German airports in 2011.

Compared to other large European  aviation countries (France +6,6%, Italy +6,4%,Spain +6,0 %, UK +4,1%) Germany has had a little smaller growth except for the UK. The latter experienced a substantial growth in taxation by the APD (Airport Duty Tax).

The income for the German government was expected to be 1 billion Euro. The actual income was 905 million Euro#. The difference can be attributed to the avoidance behavior of travelers# and airlines (Ryanair and Germanwings). Weeze reported# a drop in the share of Dutch travelers from 52% to 40%. Conclusion : The ticket tax leads to a drop in demand in the lowest segment of aviation. The effects are especially noticeable at smaller regional airports served by low-cost carriers.

From the start of 2012, emissions from all domestic and international flights that arrive at or depart from an EU airport will be covered by the EU Emissions Trading System. This was heavily opposed by non-European airlines and states. But the European Court of Justice ruled that EU-ETS “infringes neither the principle of territoriality nor the sovereignty of third states, since the scheme is applicable to the operators only when their aircraft are physically in the territory of one of the member states of the EU”.  But important countries like the US, China, India, Japan and Russia want a world-wide system negotiated in ICAO. In total 26 countries form a ‘coalition of the unwilling’ to prevent the inclusion of non-European airlines. They prepare retaliatory measures.

Meanwhile the German government has lowered the luftverkehrsabgabe (-5.5%) with the expected costs of the ETS for the airlines and their customers. This in contrast with the UK government which does not compensate for the ETS but, on the contrary, continues to raise the tax, as indicated in the table below. According to the UK Office of National Statistics the APD-Receipts in 2011 were 2580 million pounds against 2050 mln in 2010 (+26%).

Tax rate

nov 2009 – nov 2010

Tax Rate
nov 2010 – april 2012
Tax rate
>april 2012
Band A (0-2000 miles)

£ 22

£ 24

£ 26

B 2000-4000

90

120

130

C 4000-6000

100

150

162

D > 6000 miles

110

170

184

What next ?
It is uncertain how the struggle around the aviation-ETS will end. But, as we observed in Aerlines 48, there is a strong, permanent pressure from environmental and fiscal considerations to also subject the aviation sector to ‘normal’ taxes. This concerns VAT, which is not levied on international tickets and excise duty on aviation fuel. The European Finance ministers eye for transport levies on aviation and maritime transport to feed a climate fund.

One might expect that there will be some international accepted taxation system.

Variances in Airline Ticket Prices

variances airline ticket pricesLiberalization and deregulation has led to profound changes the airline industry. Diminished governmental influence stimulated airlines to increase their revenues gained by the sales of tickets. Nowadays, airlines issue tickets that are characterized by a great diversity of restrictions to achieve demand segmentation. Most of the current airlines apply complex revenue management systems to determine their ticket prices. These widely applied systems enable airlines to maximize their seat inventory as well as optimizing the charged price for each customer segment. Basically, airlines are charging a wide range of fares to a great diversity of customers for – what is in essence – an identical product.

This paper aims to illustrate the effect of market concentration and competitive forces on the airline ticket price variance. In addition it provides insight in the main drivers causing ticket prices to disperse. Potential groups of interest for this paper include aviation professionals,students and airline passengers, will gain a thorough understanding of the fundamentals in ticket price variances.

Download PDF

The European Commission Appraisal of Airline Mergers

airline mergersAirliners intending to implement mergers witheconomic effects in the EU aviation transportmarkets have to seek the previous authorizationof the European Commission under the EuropeanMerger Control Regulation (EMCR). Since 1989the Commission blocked two airliners mergers (Ryanair/Aer Lingus, Case M.4439 and Olympic/Aegean Airlines, Case M.5830) and conditionally cleared many more by agreeing with the parties on remedies to fix the expected competition problems. The commonest remedy is the divestiture of landing and taking off airport slots, although the effectiveness of these remedies was questioned because in some cases no competitors used the freed slots. The purpose of this article is to discuss the Commission policy on slot remedies. In particular, it focuses on the questions whether slot remedies are effective tools to resolve the competition problems arising out of airline mergers and which elements should be included in slot remedy packages in order to enhance their effectiveness. These are questions of practical relevance given the cautious approach of the Commission in clearing mergers on the basis of efficiency defence. Thus, offering a set of suitable remedies to restore competition may be the only way for the merging parties to obtain the go-ahead from the Commission for a problematic merger.
Download PDF

 

%d bloggers like this: