EUROPE. Passenger traffic at Europe’s airports will continue its “˜two-speed’ momentum, non-aeronautical activities will grow their share of airports’ incomes and security and LAGs problems still require industry vigilance and action. Those are some of the key themes from a wide-ranging interview with ACI Europe Director General Olivier Jankovec. He was speaking to The Moodie Report this week ahead of the ACI Europe Trading Conference & Exhibition, which takes place in Hamburg from 22-24 April.

The big question is whether we’ll see some light at the end of the tunnel, and if the European economy will pick up in the second half.
Olivier Jankovec
Director General
ACI Europe

Twin-track traffic
“I think we’ll see a two-speed Europe become more pronounced in traffic terms,” said Jankovec. He’s speaking of the variance in growth rates between EU and non-EU states. In February for example, EU airports posted an average decrease of -2.8% in the month, compared to February 2012, while passenger traffic at non-EU airports reported an average +10.4% growth. It’s a trend that mirrors recent months and 2012 as a whole.

“There are two main factors,” said Jankovec. “The western European market is more mature so the potential for growth is lower. Besides that, the EU market is more heavily affected by the sovereign debt crisis. This has an added impact on business and consumer confidence, and of course in a number of states such as Italy, France and those that have taken assistance programmes from the troika, there is political crisis too. We have been going through a rollercoaster, hoping for a resolution to the sovereign debt crisis, and then came Cyprus, which dented business confidence once more. So this is not a normal situation.

“And all of that has connected into lack of demand for air travel. For January and February combined we are -0.9% on passengers Europe-wide, but with non-EU traffic strongly outperforming the EU. In fact I’m surprised that non-EU countries have not been as badly affected as they rely heavily on western European traffic.

“But against that you have huge growth in markets such as Turkey and Russia, where air travel is not only to and from the EU, but emerging countries too. Look at the network expansion of Turkish Airlines for example, to other regions such as Asia or Africa, where it was absent before. So that explains some of the dynamism of these non-EU markets.”

Facing the big challenges
Against the background of weak traffic, the biggest challenge of all is the current trading conditions, notes Jankovec. “The big question is whether we’ll see some light at the end of the tunnel, and if the European economy will pick up in the second half,” he says.

Not only that but airline capacity is as tight as it can possibly be, which affects the market’s ability to grow. “If you look at capacity planning by the major network groups – Air France/KLM, AIG and Lufthansa – they are all negative in 2013 in short- and medium-haul and they are only adding capacity on long-haul. Plus we’ve also seen low-cost carriers being very careful about adding capacity and their focus is very much on yields. That means we are -5% down for aircraft movements in January and February and that’s not good for airports who depend on volumes, or for concessionaires.”

Yet there are some positive signals for 2014, Jankovec adds. “There was a recent study by Eurocontrol for the five years from next year to 2019, which forecast that every national aviation market in Europe would begin growing again from 2014. It sounds optimistic, but then you factor in the massive aircraft orders from some airlines such as Ryanair and Turkish – some 300 combined over the next three years – and it hints at a return to increased capacity.

“Plus there’s the fact that airlines have really maximised their load factors to close to physical limits. So the next move is to go beyond increasing load factors and adding new aircraft, and I think we may be coming close to that point next year, which would confirm the rather positive outlook for 2014 and beyond.
“So we are forced to be negative about this year, but there are some green shoots for next year and beyond.”

Security and LAGS
Security and LAGs rules remain a blight on international travel, yet there are some reasons to hope for a relaxation of the existing rules in the years ahead. Jankovec notes: “We have an agreement with the EU Commission to relax the rules on passengers transiting within Europe with LAGs purchases from outside Europe from 31 January 2014 [originally planned for April 2013 but deferred -Ed]. We are fairly confident that this will fly and that the technology will work and that operationally it will succeed. The costs are significant, but we know we need to make a first move to improve the lives of our passengers. Airports recognise that, plus we have been reassured about the evolution of the technology, and the Commission acknowledges that it’s a partial rather than full withdraw of the restrictions.

“There will be issues of communication that need to be solved, but it’s a step forward. And we need to test the technology in a live environment so we can proceed to the next level of a full withdrawal of the rules. It’s difficult to put a timeframe on that, but maybe we could look at this within two more years, 2016 or beyond. It depends on the technology evolving too of course.”

On the “˜one-bag’ issue, there is support for a solution (to remove airlines’ ability to charge for airport purchases if passengers then carry two bags onto the plane) at EU Parliament level. It is here, plus at EU Council level that progress is being sought, noted Jankovec.

“There is support in the Parliament for a ban on the one-bag rule, and we note that the EU Commission did not include this rule in its recent Air Passenger Rights legislation. We are focusing our efforts on Parliament and the Council. We have seen a move also by several national authorities towards a ban on the one-bag rule, which is encouraging. A notable exception is the UK. So we are moving towards getting a majority of states in favour of a ban at Council level, and I’m confident we’ll get the necessary amendments to the Air Passenger Rights legislation when it’s read at Parliament. But it’s an open game and there will be opposition from airlines and their associations so we need to still fight this tooth and nail.”

The role of commercial
Solving the key legislative and regulatory challenges around security and LAGs are vital against a backdrop of falling airport revenues from airlines, and an increasing reliance on non-aeronautical activities.

Jankovec acknowledges that this remains a challenge in a climate of low traffic growth and weak consumer confidence. “It’s clear that the greater revenue growth potential lies in commercial, and that has been the case for a number of years,” he says. “Low business and consumer confidence mean people are less inclined to buy at airport and that’s a significant challenge. But there are still opportunities. Commercial can be maximised by more innovation, more collaboration between the stakeholders and better use of technology. And these will be some of the big themes for next week in Hamburg.”

There, at the ACI Europe Trading Conference & Exhibition, airport commercial managers and leading concessionaires gather to discuss the future of the business. It’s a key event in the airports calendar.

“This event has grown in volume of delegates and in content over the past few years,” said Jankovec, “and I like the fact that we have attracted people from outside the industry to speak and to challenge us. [Keynote speaker on day one is Cassidy Morgan, CEO Central and Eastern Europe for Interbrand, the world’s largest brand consultancy – Ed]

“And when you’re looking for innovation,” adds Jankovec, “you need those outside voices to deliver a different perspective. It promises to be a fantastic event.”

*The 22nd annual ACI Europe Trading Conference & Exhibition takes place in the Congress Centre, Hamburg, on 22-24 April. The Moodie Report is Media Partner for the event. Click on the banner above for the programme and further details.