Can regional airports prevent capacity crunch in Europe without state aid?

In 2014 European airports saw a 5.4% increase in passenger traffic, reports ACI Europe. The figures indicate that despite the rather slow growth of the European economy and the latest geopolitical developments in the region, European airports keep serving more and more passengers each year. However, aviation hubs are increasingly struggling due to the limited ability to expand their capacities along the demand. In fact, if no changes are implemented, by 2035 every fifth potential passenger will be left un-served. Of course, the development of regional airports might be one of the options. However, can they survive without introducing high fees and receiving state aid?

Based on the results of its latest market forecast issued in February 2014, EUROCONTROL has announced that the number of annual IFR movements in 2021 is expected to increase by almost a million (19% up from 2014). However, some of the projected demand will be left unaccommodated due to the capacity shortage in Europe’s main aviation hubs. According to the European air traffic controller, by 2035 the number of un-served flights may reach up to 20%.

“As concerns aircraft capacity, one has to consider a set of factors which cover the runway, air traffic control, support services and the airport itself. Naturally, the development of such a complex infrastructure requires both geographical and financial flexibility – something the majority of airports cannot afford,” comments Tomas Vaisvila, the CEO of Ramport Aero. “At the same time, European airports have already spent over EUR100 billion on infrastructure development since the early 2000s. The process keeps on going, but even if all current airport expansion projects are implemented, in the mid-term perspective the demand will far outpace the supply.”  

The main aviation hubs in Germany, the UK, France and Italy already today operate on the edge of the projected limits with Heathrow alone reportedly operating at almost 100% of its capacity. At the same time, EUR12 billion-worth Gatwick’s second runway or EUR2 billion Fraport’s third terminal project clearly indicate that expanding the capacity in Europe’s major airports requires sufficient funds which will eventually translate into higher rates for airlines and passengers.

In the meantime, unlike in many other world regions, passenger traffic development in Europe is heavily influenced by no frill carriers. In turn, the latter are exceptionally sensitive to any changes in airport fees, particularly considering that in most cases they don’t pay the full price for airport infrastructure or, for a certain period, pay nothing at all. Thus one of the options to manage the expansion costs is the construction of simpler, yet more efficient terminals – the ones specifically designed for low-cost carriers. Such terminals have more useful space allowing to accommodate more passengers while at the same time ensuring easier commuting inside the building. The latter ensures that all passengers find their gate on time and thus the carrier can effortlessly fit in its 25-30 minutes turn-around time window. 

According to Tomas Vaisvila, a terminal with a simple design for 4-5 million passengers costs approx. USD30-40 million. This might be a perfect choice for regional airports in particular, as they normally do not have the luxury and financial flexibility to build sophisticated terminals. However, in order for a regional airport to attract more carriers, the fees must be extremely low. 

At the same time, low airport fees must be compensated in order to keep the airport profitable. 

“Regional and secondary airports seeking to capture their portion of the market must think far beyond aviation itself as airlines are no longer the only source of income. Simple and thus spacious passenger terminals with Duty Free shops and restaurants as well logistics centres, hotels, shopping malls and other infrastructure situated nearby  may bring from 30% to 50% of additional income for an airport,” shares Tomas Vaisvila. “In other words, the development of regional airports might be one of the options to ease the upcoming major capacity crunch in the region or at least provide extra capacities temporarily. These airports certainly have free slots to accommodate no frill, charter and regional carriers. But what many of them lack is the ability to survive without state aid or high fees. Small regional airports need to re-think their strategies and focus more on becoming the region’s business hub which can survive from combined revenues generated by both aviation and non-aviation related services.”