Tuesday 11 December 2018

Why future air travel is going to be even less romantic

Future could be about using smaller airports, like Charleroi outside Brussels, which is served by airlines such as Ryanair
Future could be about using smaller airports, like Charleroi outside Brussels, which is served by airlines such as Ryanair

David Fickling

For all the disagreement in the industry about the future of aviation, there's perfect accord on one point: There's going to be a lot more of it.

The world's air passengers flew a combined 7.64 trillion kilometres in 2017, according to Boeing's latest 20-year market outlook. By 2037, that will rise to 18.97 trillion kilometres, with about 40pc of the increase happening within five intra-regional markets: China, India, North America, Europe and South-east Asia.

That's sparking a battle over the biggest bottleneck holding back this growth: airports.

The governments that still own many of them should be more open to privatisation to cover a €69bn funding gap in needed capital investments, the Airports Council International, an industry group, argued in a report earlier this year.

Airlines, airports' biggest customers, see things differently: Costs at privatised terminals are higher and governments should be cautious about such actions in the interests of expanding the aviation sector as a whole, the carriers' body, the International Air Transport Association, argued the same month.

The proximate cause of this fight is probably the enthusiasm in President Donald Trump's administration for selling off US infrastructure.

All but a handful of US airports are owned by the government, thanks in part to tax-advantaged bonds and federal funding that's available only to public terminals.

The set-up is so unattractive to private operators that only two sites have bothered to privatise since a federal programme to encourage such moves was established in 1996. Levelling the playing field between public and private operators could go a long way toward kindling private investment. But privatising an airport doesn't necessarily make it more efficient. One 2008 study found there was little difference between the performance of airports 100pc-owned by commercially oriented government corporations and those majority-controlled by private businesses.

The key is instead to avoid structures where the incentives for managers are confused or misaligned, such as where private companies are brought in as minority investors or where managers are essentially bureaucrats swayed by political imperatives.

There's a better solution out there, but it's not likely to be attractive to incumbent airlines, airports, or passengers enamoured of the current generation of gleaming terminals: Build more, cheaper airports.

For all that airlines like to see airports as monopolies, there's often a great deal of competition between them. Airlines that don't like the charges at London's Heathrow can go to Gatwick, or Stansted, or Luton, or Southend, or City Airport instead, for instance.

The route planning and customer proposition needs of major airlines are best served if they can funnel all their passengers through single state-owned mega airports.

Charges may be somewhat higher, but incumbent players will end up with dominant positions, excellent connectivity with other flights on their networks, and infrastructure funded from the public purse below the cost of capital.

Still, the better option is to follow what Southwest Airlines and Ryanair have done in the US and Europe, and spread the coming wave of traffic across a much greater range of airstrips.

That's probably how the world will accommodate its future demand for air travel, but don't expect it to be as gleaming as the present.

Soaring architect-designed roofs, Prada concessions and day spas are all in their way a symptom of the inefficiencies at congested airports.

One 2016 study found that airport revenues actually start falling once capacity goes above about 25 flights per hour, as a reduction in delay times reduces the retail spending that can account for about half of revenue at major terminals.

So savour the boutique shopping and caviar bar at your next visit to an airport. Outside the walled gardens of business-class lounges, the future of aviation is likely to be a whole lot more functional.

Bloomberg

Irish Independent

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