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IATA pushes for alternative airport ownership models

By: Maclean Kwofi
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The new Terminal Three at the Kotoka International Airport (KIA) was funded on the balance sheet of the Ghana Airport Company.

 

THE International Air Transport Association (IATA) is campaigning for a change in the way governments approach the privatisation and corporatisation of airports.

It indicated that governments should consider alternative ownership models rather than focusing on private investors to sell a stake in state-owned airports to raise money or reduce operating costs.

The association’s annual review for 2018, which was released last month, observed that exploring alternative business models that did not necessarily involve the transfer of assets to private owners was crucial to the development of the industry.

“IATA is campaigning to change the way governments approach the privatisation and corporatisation of airports.

“IATA’s main objectivtes are to ensure that airlines, as a major stakeholder, are consulted on privatisation or corporatisation plans,” it said.

Involving stakeholders, the report stated that it was crucial to confirm that the rationale for any privatisation or corporatisation was in the interests of the industry, users and customers.

The report also identified that no airport privatisation to date had met long-term expectations, however, primarily for lack of regulatory controls and balances.

It stated that governments need to put regulatory safeguards in place that protected the interests of airlines, passengers, and other airport users.

“Too often, the driver for privatisation or corporatisation is raising quick cash for governments.

“Airport privatisation or corporatisation is not new. But its success must be measured in service levels and cost-effectiveness and not in financial gain for governments or investors,” it stated.

 New investors

The world has seen a push towards privatising state-owned assets, including airports, as some governments seek to finance budget deficits when oil prices are low.

When airports are privatised or corporatized, returns too often outweighs the core objective of delivering user and consumer benefits. Ironclad regulation must prevent a privatised or corporatized airport from becoming an out-of-control monopoly.

The issues are becoming particularly disturbing with new investors entering the private or corporate airport market and pushing back on regulation designed to protect consumers.

Short-term returns are being maximised at the expense of long-term economic benefits.

Operational and financial improvements

The report also showed that the provision of aviation infrastructure should be considered a fundamental public service and an essential economic generator for any country.

It must be seen as part of a long-term vision serving consumer demand for air transport and for economic development. Airports do not naturally or usually have competition.

The number of passengers using air transport is set to nearly double by 2036. Infrastructure, though, is not keeping pace, and a crisis is looming.

Airlines require access to sufficient, high-quality infrastructure at competitive costs to meet the rising demand for air freight and passenger travel and to continue to deliver social and economic benefits.

The industry’s collaboration with infrastructure partners is critical to maximise customer service and to boost air connectivity.

Cost-efficiency and lower charges

Infrastructure charges must be set at levels that are fair, justified and reflective of a value service proposition for airlines and passengers. Economic regulation that promotes transparency, consultation and productivity in establishing an equitable charges structure is key to improving airport cost-efficiency.

Yet, despite ongoing work to ensure that transparent consultation processes are in place for the productive establishment of fair infrastructure charges, challenges remain.

For several years, IATA highlighted shortcomings in the European Commission (EC)’s Airport Charges Directive. And in 2017, the EC formally acknowledged that airports could misuse their market power and was, therefore, evaluating changes to its legislation.

IATA has been successful in promoting the industry’s agenda. Results in 2017 included charges reductions in South Africa and India, in Delhi, and changes in the Danish regulation that will have important favourable consequences on the level of airport charges at Copenhagen airport.

It also became apparent that the 2015 fee reduction at the airport in Cartagena, Colombia—from US$92 to US$38—was a positive move. Tourism arrivals rose 38 per cent, with the additional tourist spending doing much more for the local economy than the airport fee ever could.

Privatisation or corporatisation in various industry sectors, if structured appropriately and carefully monitored, could deliver benefits, including improved customer service and increased efficiency, investment and innovation. — GB