Air travel demand has spiralled after 25 years of privatisation, but big challenges lie ahead as airports look to accommodate for the growth in the industry. Where are the biggest changes so far?
A quarter century of liberalisation and privatisation in the aviation industry has led to an explosion in demand for air travel and fiercer competition than ever before between airports, as they vie to attract airline services.
But the next 25 years will bring challenges on the capacity, regulatory and sustainability fronts as airlines and airports grapple with growth constraints, outdated attitudes from lawmakers and striking the balance between meeting soaring demand while reducing carbon dioxide emissions.
These were some of the main points raised today by a panel of airport development stakeholders tasked with summing up the state of the industry after 25 years of privatisation at the GAD World 2018 conference in Hamburg.
"The big changing point was in the mid-1990s when the European Union started liberalisation. This was the domino that had a ripple effect on the entire industry," Ralph Beisel, managing director of the German Airports Association (ADV), told delegates attending the event. "Now we have great competition between airlines and airports."
However, Beisel points to outdated regulatory attitudes which he believes are "harming" the industry as it attempts to grow with demand.
"What we see in Europe is that some regulators are still in the past and they treat the industry based on old assumptions," said Beisel, describing lengthy airport expansion approval processes and capacity development issues as the "biggest problem" facing the sector.
The ADV chief also wants to see restrictions lifted on airlines from outside the EU, in order to enable airports to diversify their airline offerings and become less reliant on one big carrier.
"Every airport is trying to have a larger variety of airline customers but it's so hard to get traffic rights for airlines outside Europe. Almost every airline in South America, Africa and Southeast Asia has the help of government but this can't be a reason to prevent these airlines from flying to Europe," said Beisel, concluding that "regulators still have lots to do for the future".
Views from the airlines
From an airline perspective, EasyJet – which, as the carrier's chief commercial and strategy officer Robert Carey points out, "didn't exist" 25 years ago – would like to see greater co-operation between airports and airlines going forward.
"We've evolved our thinking on how we work with airports and we now think of it as a partnership," said Carey. He expects a "long-haul transformation" as low-cost, point-to-point carriers such as EasyJet look increasingly at feeding traffic to long-haul airlines and enabling passengers to self-connect via the larger hubs.
EasyJet has signed up 10 airports and 10 airlines to its new self-connection and distribution platform, and has "had conversations with almost every carrier around the world", said Carey. His message to airports on this is that "you need to think more about how you partner with airlines".
Pressure from airlines was also emphasised by HSBC's Andrew Lobbenberg during a later session at the conference, in which he warned that "tensions between airlines and airports are ever-present, and escalating". On the regulatory side, Lobbenberg's advice to airports is: "You've got to be grown up and recognise that aviation is going to remain subject to intense government scrutiny."
That scrutiny is set to intensify as pressure mounts on governments to rein in their countries' carbon dioxide emissions to address climate change. As Thomas Woldbye, group chief executive at Copenhagen Airport, put it: "There will be more and more demand from customers to show how an industry that's so important for bringing people together can also reduce its climate impact. We have to find a way of showing that we take that seriously."
Speaking from an airport investment and financing perspective, Arturo Recio, global co-head of the infrastructure and real estate group at HSBC, looked back on the early days of airport privatisation and how things had changed.
"The starting point in these 25 years was when governments realised they had a big asset. But many had no clue how to market the asset and regulate the asset, so it was a bit of a shambles," said Recio, noting that "early privatisation attempts produced real inefficiencies".
Fast-forward to now and while governments have become savvier and investors have become more accustomed to adapting to changing international security rules and the like, all stakeholders must plan for the possibility of rising interest rates in the future.
"People will have to realise that we're in a very low interest-rate environment, but what will happen if we go back to higher interest rates? Everyone will have to adapt," warned Recio.
Technology will lead the way
Reflecting back on the last 25 years, AviAlliance managing director Holger Linkweiler told delegates that air travel had become "cheaper, safer and open to more people than ever before", with many countries now having "discovered the benefits of privately-owned airports".
To carry that momentum forward into the next 25 years, communications with passengers will need to improve "from the beginning of their journey to the end", and airports will need to ensure that operations are "cost-efficient and time-efficient", according to Linkweiler. Technology will play a key role in both of those factors.
As highlighted by Copenhagen's Woldbye: "Today, on average, it is a better experience to go through an airport anywhere in the world than it was 20 years ago because most airports have upped their game." Technology will "continue to play an increasing role" in improving the passenger experience, from baggage handling, to security, to way-finding, and to boarding.