Transnational Strategy for Airport City Development

Transcription

1 INSTITUTE FOR TRASNPORT AND LOGISTICS Transnational Strategy for Airport City Development O3.2.9 Bologna, 2014

2 Specification Project: LOCAL ECONOMIC DEVELOPMENT IN AIRPORT CATCHMENT AREAS Type: Action/output Company: ITL Subject: Working group: TRANSNATIONAL STRATEGY FOR AIRPORT CITY DEVELOPMENT Filippo Paganelli Giuseppe Luppino - gluppino@regione.emilia-romagna.it Version nr: 3.0 Status: Final Publication date: 20/09/2014 Elaborated by Institute for transport and Logistics Foundation - ITL Viale A. Moro Bologna Italy Dipartimento di Architettura dell Alma Mater Studiorum (DA Università Di Bologna) 2

3 TABLE OF CONTENTS Introduction... 6 Introduction to the Airport City concept... 6 The concept of airport catchment area The purpose of the airled project Quick overview of the industry: state of the art Chapter 1 : Air traffic market evolution, situation and trends Introduction Passenger traffic at airport Freight traffic at airport Air transport industry: a fast changing history The forecasted capacity shortage issue at airports Likely future of the industry and players responsibilities Chapter 2 - Connectivity Introduction Definition of connectivity and how to measure it Factors affecting connectivity EU countries total, direct & indirect connectivity Non-EU total, countries direct & indirect connectivity Total, direct & indirect connectivity figures per airport group Onward & hub connectivity figures International connectivity Summary Chapter 3 : Economic framework of airports Forms of Airport management and their shareholding Economic regulation Distinction between Aeronautical and Non-Aeronautical revenues Effects on competition

4 Chapter 4 : Strategic overview and relationship with the territory Introduction Airport catchment area planning: an onion made of different layers Assessing which level is in charge of airport city development The role of the airport management The role of planning office The role of the regions and of the municipalities Estimation of the multiplier effect of airport cities in the catchment area The creation of traffic corridor in the vicinities of the airport Chapter 5 : Multi-modal and multi-directional accessibility to/from the airport cities Airport accessibility and their operation and development Accessibility and potential catchment areas of long-haul transcontinental airports in Europe Chapter 6 : The role of technologies to actively promote the airport cities territories Introduction Airport level of service assessment and passenger experience The use of social media by airports Concluding remarks: Final set of joint criteria for the development of the airport city concept Connectivity Surface connectivity to the CBD and between the different clusters Air connectivity Central location (geographic and aviation networkwise) Significant air cargo traffic Intermodal freight connectivity Frequent flights to the world s main capital cities Economic potential of the hinterland Strong local and regional economies to provide a solid base for traffic Specialized suppliers and large local markets Adequate economic profile of the region to potentiate aeronautical activities Available supply of highly skilled labour force Shared field of airport traffic regulation Shared policies along airport ownership and powers Sustainable development context

5 Inclusion in national and regional strategic planning Policies to support the location of airport-oriented companies Comprehensive planning Consensus among the different tiers of territorial authorities Capability for expansion (airside and real estate) Co-ordinated development of airside and real estate Community engagement Commercial attitudes of the airport operator Active management by the airport operator (corporate organization, aggressive marketing and pro-active land acquisition) Creation of a round table between real estate division of the airport operator and public bodies Attention to opportunities made possible by progress in airport technologies with a focus on the synergies between airport, passengers and the territory Attention to design and green techniques Externalities mitigation Recommendations for the upcoming EU programming period Bibliography Summary of Pictures Disclaimer

6 Introduction Introduction to the Airport City concept When it comes to building an airport, the two most important decisions to be taken regard the location of the infrastructure (and its linkages to the territory) and the capacity to be provided from both landside and airside sub-systems. The need and potential for the development of existing airports or for the construction of new ones is determined by a number of internal and external factors. Internal factors involve, among others, airport management business strategy, cooperation between airport managers and local government (financial participation, promotion of services, management of the surrounding areas, organization of the public transport services), while external factors comprises the spatial, social and economic determinants of airport development. Those choices (carried out either at a municipal/regional or at a national level, let alone the cases of cooperation expected by the governmental layers) are of an utmost importance under the strategic point of view as they have the most relevant fallouts on the economic, environmental (noise, air pollution, carbon emission) and social development (potential detrimental effect on the quality of life for inhabitants and workers) of territories they are located into. A stress is to be made on the fact that also the economic situation of the territory and of the system as a whole has to be kept in mind. For example, public sector investments by governmental layers as well as funding from the EU have so far been playing a determinant role in transport infrastructure funding at almost all countries of the EU (this assumption is more true for some countries rather than others where private investment has already been a widespread practice for a long time): relevant transport infrastructure investments as well as minor investment aimed at fostering development at remote regions are two examples of topics where public sector has so far been playing a key role as far as costs coverage is concerned (building, maintenance and day to day operation). Air transport is still a niche sector as far as people and goods transport is concerned, however it is gaining a crescent strategic role as it encompasses relevant economic investments and high value added items as it is able to provide fast transferral to both people and goods in a matter of hours. This is fundamental to the global economy, affecting everything from the performance of financial services to the range of goods available on supermarket shelves. The traditional vision of airports as public infrastructure where flows gather to be processed from/to a target point to another, projected in order to accommodate present and future travel demand according to estimates (which have often proven to be un-capable of foreseeing and interpreting fast and unexpected variations) is increasingly being challenged by the need to cope with the economic framework and the fast-paced innovation processes which are changing the industry. Recently, aviation and airports have finally been considered capable of influencing the territory at a ranging level: not only the capacity to move goods and people but also the ability to be major employers in their own right and to exert attraction power on companies whose business depends on air travel into their immediate proximity have been considered crucial to planning choices and infrastructure investments plans. Airports have become the first point of contact between visitors and the territory, 6

7 profiting from the increased demand for high quality of life services from the territory (interpreted by the crescent volumes of leisure travels for tourism and visiting relatives and friends VRF flights - which sides the traditional business demand). Then, following recent trends in airport commercialization and the gradual withdrawal of public sector investments (municipality-regioncentral government-chamber of commerce ) in infrastructure and technological development at airports, also the financial point of view is of notable importance; this is mostly true when airports are run under private sector shareholdings. This is not meant to be the end-point of Governments involvement at airports: even if Central/Local layers of the National Government are no longer the main contributors and shareholders of airport infrastructure, they must go on ensuring that the development process is fair to both communities and developers and that local considerations with the national interest are balanced. It is therefore desirable that these decisions are carefully made, and that an attempt is made to achieve as much consensus as possible. Moreover, the Government (whichever level it is) should not abdicate its role of planning and regulating airport development plans and allocation. Airport infrastructures and air transport, however, bring with them also some critical issues beyond the renowned benefits and advantages for local communities and the country as a whole. Indeed, while on the one hand benefits and advantages are shared between local and regional/national level, on the other hand detrimental consequences of aviation have influence only at a local level. This is the case, for example, of global greenhouse gas emissions, annoyance induced on living/working communities by aircraft flyovers, increased congestion levels and poor air quality levels on the local road networks. Moreover, growing evidences in scientific literature suggest a correlation between frequent flyovers and persistent damages on human health. Finally, airport developments request new areas to be removed by public availability, engorgements of existing infrastructures and new infrastructure buildings; hence, landscapes are altered and natural habitats and cultural heritage are affected. Over time an integrated approach to air transport emerged as the only which could ensure that economic, social and environmental factors are taken into consideration when airport cities assessment is concerned: impacts of air connectivity on the economy; interactions between aviation and other transport modes; impacts of airport development on the local environment, landscape, heritage and climate fulfilling of air passengers needs (both business and leisure); impacts of airports on the quality of life for people living and working near airports (such as aircraft flyover noise) impacts on employment, housing and broader social factors; implications for the quality of experience for passengers; prospects for financing and delivering new airport infrastructure. To enable the comprehension of the aims of this project and the how to use the output documents, it is important to make it very clear the current situation of airports as well as to establish a shared and common point of view on the concept of airport city like it has been introduced in the beginning and 7

8 how this concept has been fit to suit the framework of the European Airport Industry context. First of all it should be understood what an Airport City should be and which those features are which make them different from the existing infrastructures analysed so far. The concept was first introduces in the USA by Professor J. Kasarda and developed over time up to present 1 : Airports like cities are never static. They are constantly evolving in form and function. Historically, airports have been understood as places where aircraft operate, including runways, control towers, terminals, hangers and other facilities which directly serve aircraft, passengers and cargo. This traditional understanding is giving way to a more encompassing concept known as the Airport City [ ]. In addition to their core aeronautical infrastructure and services, major airports have developed significant non-aeronautical facilities, services and revenue streams. At the same time they are extending their commercial reach and economic impact well beyond airport boundaries. Airport terminals are fast becoming luxurious shopping malls and artistic and recreational venues. No longer restricted to magazine shops, fast food outlets, and duty free, they now feature brand name boutiques, specialty retail, and upscale restaurants along with entertainment and cultural attractions (high-end designer clothing shops, cinemas, saunas, museums and art galleries). Others host clinic, hotels, corporate headquarters, banks, chapel, shopping streets, gallerias, gourmet and culinary clusters, as well as arts, entertainment and cultural zones. Given the huge volumes of passengers flowing through the terminals (up to 85 million annually compared to 8-12 million annually for a large mall), it is not surprising that major airport retail sales per square metre average three to four times greater than shopping malls and downtown shops. As a result, their terminal commercial lease rates tend to be the highest in the metropolitan area. In addition to incorporating a variety of commercial and entertainment venues into passenger terminals, airports are developing their landside areas with hospitality clusters, office and retail complexes, conference and exhibition centres, logistics and free trade zones and facilities for processing time-sensitive goods. Revenues from such developments are being reinforced by major financial streams from advertising and parking, that is to say non-aeronautical sources as opposed to aeronautical ones (such as, for example, landing fees, gate leases, passenger service charges). Non-aeronautical revenues have been becoming critical to airports meeting their facility modernisation and aeronautical infrastructure expansion needs, along with their being cost-competitive in attracting and retaining airlines. [ ] Airports terminals, in fact, are taking on many features of metropolitan central business districts, increasingly operating as regional and national points of multimodal surface transportation convergence and commercial development. This evolution in function and form has essentially transformed numerous city airports into airport cities. Airport Cities have evolved following different paths depending on the amount of available land in the vicinities, presence and itineraries of ground transportation infrastructures and territorial management law in force. All in all, authors have identified four basic drivers in the scientific literature: 1. need to create new non-aeronautical revenue sources, both to compete and to better serve traditional aviation functions; 2. commercial sector s pursuit of affordable, accessible land; 3. increased gateway passengers and cargo traffic generated by airports; 1 John D. Kasarda: Airport Cities: The Evolution; Chapter 1 (London: Insight Media, 2008) 8

9 4. airports serving as a catalyst and magnet for landside business development. The idea is worldwide accepted and accordingly used in the different development projects and strategies of the airports worldwide to connect regions with supply chains of time-sensitive products, tourism and businesses nodes. In this context the different activities at and around the airport should be distinguished, (according to the classification provided by Güller and Güller 2 ) into: core aeronautical activities technical operation of the airport, directly supporting the air traffic function; airport-related activities which have a direct relation to air-freight or air-passenger movements, (e.g., logistics and distribution activities or terminal retail and hotels) whose performances are closely tied to the scale of air traffic; airport-oriented activities activities which choose the airport area because of the image and ground accessibility of the airport. The price of land and surface connectivity are key factors in attracting those activities into the airport area. Dr. Kasarda adds that the nature of the local market (industrial structure and population commercial demand) and the extension of airport boundaries play a role in the nature of development and activities. In particular, the boundaries of airfields were established many decades ago, when no idea about their commercial and competitive potential had yet risen. 3 The concept has recently evolved into the aerotropolis as aviation-oriented businesses settled along transportation corridors radiating from airports up to 30 kilometres outwards. Strategic infrastructure and urban planning, sided by airport expansion masterplan and development plan, can improve further the concept. To make some examples: dedicated airport expressway links (aerolanes) and airport express trains (aerotrains) to connect airports to major regional business and residential concentrations truck-only lanes where needed to reduce congestion time-cost accessibility should be the primary metric rather than distance new airport related business should be steered to locate in proximity to the airport in order to reduce accessibility time separation between cargo and passengers flows and areas planning has to take into account externalities (e.g. noise and pollutant emissions) and intensivety-used flight paths development per clusters rather than per strip; vast usage of green belts to mitigate esternalities establish general design standards to make way-finding inside the terminals easier, interpretable, navigable, and welcoming Aerotropolis development and sustainable "smart growth" have to go hand-in-hand. 4 There are, nevertheless, obvious drawbacks to this concept: first of all the fact that an American concept should 2 Mathis and Michael Güller. From Airport to Airport City. Airports Region Conference, Barcelona Spain, John D. Kasarda: Airport Cities: The Evolution; Chapter 1 (London: Insight Media, 2008) 4 John D. Kasarda: The Way Forward; Global Airport Cities; Insight Media,

10 not be simply transferred to an European one where the framework is different (and the topic will be further analysed) from different points of view. Secondly, there is an issue regarding the sustainability of air transport and its dependence on fossil fuels (which is not an inexhaustible resource). Third, radical technology improvements have to take place on both the airport and aircraft industry sides. Fourth, the ratio behind the concentration (and, likely, duplication) of infrastructures which are not unique to air transport in the vicinities of aerotropolis such as fair- exhibition-business centres, transport nodes like railway and coach stations; therefore, the issues concerning security become more and more relevant in comparison with the old airport concept. Last but not least there are doubts on whether air transport had the power to become a driver of economic activities and trade or it would act only as a major partner in the economic development of an airport catchment areas: this could be true in the US, but the concept is not transferrable as such to the European context and in particular to the countries involved in the project which are first of all incomparable to US with reference to geographical magnitude, economic importance, amplitude of the market and regulation. 5 The concept of airport catchment area The second concept to be introduced and analysed in this project has been the airport catchment area. People using air transport choose the airport of departure and destination on the basis of a range of different factors. The choice is determined by considerations such as: air connections offered, choice of carriers (traditional, low-cost, etc.), accessibility of the airport (duration and cost of travel to and from the airport), quality of service, etc. The nearest airport not always is the natural choice for the passenger. Nevertheless, the fundamental measure for identifying the catchment area of an airport is its distance from the passengers' place of residence although it does not take into account the working place of potential travellers. Thus a catchment area may be intended as the area from which come the passengers using a connection present from the airport concerned. In general, a catchment area may be defined as the area or sphere of influence of an airport or the portion of the market where a given airport dominates over others. 5 Airport futures: Towards a critique of the aerotropolis model by Michael B. Charles, Paul Barnes, Neal Ryan, Julia Clayton; 10

11 Figure 1 - Airport catchment area, Source: Author The market advantage of a given airport over others is a consequence of factors such as function of the area served, demographic potential, airport s location... The network of connections offered may extend the catchment area of even a relatively small airport and the traffic figures may not correspond to the territorial size of the catchment area. Accessibility (i.e. airport access time, which depends on the degree to which transport to the terminal is organised) and frequency of flights are the most important parameters, even more than the quality of services. The catchment area is not a permanent, closed feature of the airport and depends from the socio-economic framework of the territory, the legal framework, size, ownership structure and airlines operating in the sense that socio-economic forces contribute to the development of the network of connections offered by an airport. Airports catchment area overlap, as not every airport is designed for responding to the expectations of all the potential passengers. Nevertheless, airports should take action to limit traffic shifts towards other airports, thus resulting in fiercer competition. The biggest metropolitan areas of Western Europe are served by regional systems of airports (Trzepacz et al 2012), thus one may speak of specialisation of the individual system components where each node focusses on a specific market with its own sub-catchment area within the catchment area of the central airport (Fröhlich, Niemeier 2011). The area of influence of an airport depends on the organisation of the transport, therefore an overall improvement of accessibility is a benefit mainly to the largest airports. 11

12 Figure 2 - Catchment areas of airports according to their rank and role within the system (Source: author) The easiest solution applied in determining the catchment area is to draw a circle with the airport in the middle, whose radius represents a pre-determined distance from the airport or averaged travel time. This approach has been the one adopted in this project in the SQ analysis carried out by each member state, where a 10km and 40km radius have been taken into consideration to define the area over which the airport has direct and indirect impact respectively. Although, more refined options such as the accessibility time by mean of transport, have been taken into account. All in all, this approach is simplified as it provides a static picture of the airport's potential market, doesn t foresee contingent diminution of the airport's power of influence, gives no correlation between airport influence and the destination offered. Areas may fall out of the radius irrespectively of the propensity to flight of the residents and ignoring the internal variation of socio-economic characteristics within the catchment area. Catchment area delimitation based on the accessibility of an airport by different means of transport gives a different picture of the possible influence of the airports on the aviation market. The accessibility takes into account both the national and the local level and different means of transport (official timetables for rail transport and for buses, access time). 12

13 The diversity of destinations offered by airports is a factor convincing potential passengers to use airports which are not necessarily those closest to their place of residence. Surveys, then, seem a reasonable option for the purpose of delimiting airport catchment areas. Another method for mapping the areas of influence of an airport on the market for passenger air services involves analysing the streams of passengers leaking out of the catchment area of a given airport to other airports based on MIDT (Marketing Information Data Transfer), which relies on the Global Distribution System (GDS) based on figures for passenger volume stemming from data on the offers of air carriers, hotels and car rentals accessible via the Amadeus and Sabre systems. The fundamental weakness of this method is the fact that MIDT data don t cover all carriers, first of all low-cost carriers. The purpose of the airled project As business markets become national and international in scale, airports and their adjacent areas are increasingly being viewed as catalysts for local economic development. The potential to generate jobs, wealth and attract new business acts as a justification for investments in new construction and expansion in and around airports by both the private entities and the local public stakeholders, as an appropriate spatial planning is deemed of an utmost importance for the future asset of the territory. Although, so far, airports have been located in peripheral areas of the regions with few concern paid to the externalities on both social and economic sides; then a lot of literature exists on the quantification of the externalities but few models analyse the development of the areas from a encompassing point of view: a strong cooperation in the division of tasks and responsibilities is needed between cities, minor urban settlements, public and private stakeholders, development agencies and the airport management boards. The vision behind airled project builds on the ongoing policy reflection with regards to the Airport City concept, advocating the importance of appropriately planned airport-area development. In the frame of this concept, an Airport City is characterised by all the functions of a modern metropolitan centre being located on and immediately around major airport sites. It may entail arterial spines and clusters of aviation-linked and also other businesses with systematically planned transport connections radiating outwards up to 20 km from the airport. The airled project focuses on the economic development of catchment areas around airports, taking into account the direct, indirect and induced impacts of airport activities (both existing or expanding airports), all in the frame of polycentric territorial cooperation and governance. This means that the project aims primarily at enhancing the cooperation between public authorities and bodies concerned and having a stake in the economic development of areas surrounding a given airport. The project partners expressed this goal in the Application Form as follows: The purpose of 'Regional and EU state-of-art' is to set the scene by gaining deeper insight into European trends as regards Airport City development (to achieve this it is needed) Desk research on sites with 'Airport City' characteristics, also synthesise outcome of EU reflections on project topics so far, utilising the knowledge and experience of associated partner such as ARC." 6 The starting point of the analysis is to understand which European airports are already airport cities or aetropolis according to the classification provided and periodically reviewed by professor J. 6 Application Form of airled project, page

14 Kasarda 7 himself or have the potential to evolve in the next future. Basic data concern passenger flows, commercial movements of aircrafts and air-freight transport indexes. In Europe there are 660 airports: of which 510 operative (that is to say with traffic figures) and of which 314 are major airports; 12 have been labelled as aerotropolises and airport cities and 8 as Developing. The operational European airport cities and aerotropolises are situated mainly in a barycentric position within the continent while the developing ones are located in the peripheral zones. In scientific literature correlation between location of airports with parameters such as economic development, traffic, population, GDP and its services share, employment (sources: NUTS3 region and EUROSTAT databases) 8 have been investigated: with no surprise there are correlations (although only medium-to-strong) and surprisingly more frequently for other airports rather than for those already labelled as airport cities or aerotropolises. Other than stated in scientific literature, the comparison between GDB growth rates on NUTS2 level and air passenger traffic growth at a European level in the period shows no correlation; this can be due to both the restructuring processes undertaken by air traffic players to tackle the effects of the economic crisis and to the shortness of period taken into account in the analysis. To a certain extent this can also lead to the conclusion that the level of the economic performance of a region is more important than the dynamism of the economy of the nation as a whole. The presence of an airport and its performance is influenced by the share of R+D activity and the characteristic (urban or rural) of the regions as well, as urban areas and R+D activity centres need a greater amount of air traffic relation to support business and residents as well as firms displacement needs. Higher income, the presence of multinational companies headquarters and large universities also acts as a propeller for a region s air traffic. High density of airport infrastructures offers better connections between destinations, enhancing opportunities for both leisure and business purposes. Large airports moreover offer higher frequencies, permitting same day return flights for business purposes and the possibility to arrange meetings inside the airports Business Lounges. The specific objective of airled is to enhance integrated polycentric development planning in CE airport catchment areas with the common vision of becoming Airport Cities. Strategy building has been implemented via an Open Living Lab (OLL) process involving many stakeholders on various aspects of the development. Strategy building has been carried out along 3 thematic pillars which have been pinpointed in the earliest phase of the project: Logistics and transport; Spatial development, environment and architecture Business and investment development The project objectives have been pursued through many activities: first of all, the elaboration of EU state-of-art report linked to Airport City development, then each PP has developed a status quo analysis on its region; finally each region has set-up a Regional Development Coordination Body (RDCB) involving major stakeholders. At a higher level, ASG and peer review workshops have

15 eased the exchange of knowledge and the simulation of policy-making case (Tools) and business case (One-Stop Shop) also through a Master Class held in Bologna in February The outcomes of the masterclass have been the Integrated Regional Polycentric Development Plans arranged by each region and this final document which is the Transnational Strategy. Project implementation will be supported by expert meetings, promotion and public activities. The project primarily builds on the notion that airports are important growth poles and they drive 21st century business location and urban development. In the international context of enhanced competition, CE regions need to follow European development trends on how best to capitalize the economic potentials provided by airports and their catchment areas. airled has been meant to offer a policy-making tool to identify topics which need further impetus and harmonization and frame a future sustainable development. The project aims at arousing awareness of socio-economic potentials of airport catchment areas and strengthening social acceptance, suggests solutions and best practises on how to maximise the economic potentials while respecting urban habitats and quality of life within an appropriate planning of the airport-area. This model brings together airport planning, urban and regional planning as well as business-site planning to create a new urban form that is highly competitive, attractive and sustainable. In order to achieve this vision, airled fosters a framework for improved polycentric governance where all parties have a clear vision and role in the development process and in its endorsement. In achieving the specific objective, the airled consortium has been engaged in: enhancing cooperation between relevant stakeholders and experts in the Open Living Labs, thus identifying and strategically planning the functional complementarity between towns and settlements in order to motivate business actors to set foot around the airport; identifying and analysing factors impacting economic development, along the 3 pillars; elaborating a transnational toolkit for integrated polycentric development of airport catchment areas, establishing common final criteria for Airport Cities and formulating EU recommendations; designing the regional integrated polycentric development plans as further specifications and extensions of existing regional scenarios and strategies in order to define the steps to become an Airport City; initiating the endorsement process at regional / national level; raising awareness of economic potentials of airport catchment areas. The project s vision reflects the objectives that were set in the Lisbon Agenda which were to make the EU "the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion". The economic development in the vicinity of an airport has both economic and social impacts, which also reflects the Lisbon goals. The systematic planning of airport catchment areas leads to the integration of economically isolated airport areas into urban development strategies, creation of new jobs, improved competitiveness, sustainable economic development and adaptation to the social and economic challenges of globalisation. The aim of optimising transport capacity while reducing its adverse environmental effects is in line with the Gothenburg agenda that stresses the importance of 15

16 limiting the transport externalities. Therefore, airled project addresses the topics of environmental issues within the thematic pillar spatial development, environment and architecture, transport sustainability and multi-modality within the pillar transport and logistics and traffic regulation and innovation within the pillar business and investment development, territorial marketing. Analysis carried out in the earliest phase of the project and confirmed in this transnational output confirm the fact that CE airport are often not adequately prepared to meet the socio-economic challenges of globalisation: capacity crunches in Air Traffic Management (due to delays in acceptance and adoption of Single European Sky), efficiency in land use management, transport systems, marketing, business planning, economic strategies, public acceptance of airport development, regulation and ownership issues still linked to an old-fashioned view of the industry. Therefore this negative dichotomy between growing economic development of airport areas and likely adverse environmental impacts and quality of life has to be somehow mitigated through enhanced sustainability and concern by all the relevant stakeholders and participation of the communities. Regional Development Coordination Bodies (RDCB), involving all key regional stakeholders, are meant to encourage shared visions and viable solution of of policy-making and planning functions division especially from the public side. Further, airled emphasises synergy building at 3 levels: aligning diverse stakeholder interests by enhancing cooperation and talks among stakeholders; drawing a common path moving from regional development plans and strategic documents to become an Airport City; synthesising ideas and inputs from different CE regions to create a transnational toolkit for Airport City development. All this will be carried out to achieve the critical mass to properly initiate development processes at transnational, national and regional levels, and to pave the way for future investments in CE regions. The project lays a special emphasis on the cooperation between urban, sub-urban and regional actors having a stake in territorial and economic development by improving functional complementarity between them in the context of polycentric governance emphasising a bottom-up approach to strategic planning. Improved governance is the key to successful and efficient development planning as it is to a large extent up to regional and local urban planners and policymakers to plan airport cities to meet competitive needs of business, boost trade and create wellpaying jobs while generating sustainable economic growth. airled project starts from the outcomes of the 5 th Report on Economic, Social and territorial Cohesion ( urban areas are the engines of growth and hubs for creativity and innovation and new jobs can be created provided a critical mass of actors is established. [ ] urban authorities [have a strong role] in designing and implementing urban development strategies ). Also the EU2020 Strategy aims at creating smart, sustainable and inclusive growth. Finally, the EC s White Paper On Transport states clearly that the environmental task is crucial for the transport industry, while the Leipzig Charter states the essential role of cities as providers of secure, efficient and sustainable urban infrastructure in an attractive setting. The project is based also on the policy lines issued by 16

17 ACI Europe and ARC on the aviation industry side. As the European framework on regulation and ownership is scattered, this project contributes to the reflection process and to set an impartial field. Moreover, the project aims at filling the lack of significant awareness and strategic planning of airport network and planning at both national and regional level. The outcomes of the project at a local level are expected to become the basis for the continuation of the operation of RDCBs through the endorsement of project achievements, strategic measures and investment plans included in the Integrated Regional Polycentric Development Plan; this final step will also ensure the transferability of the project through both the stakeholders and the project partners network: tools will be tested, promotion will be issued through conferences, workshops, aviation-related exhibitions, forums and so on. This document the Transnational Strategy is the output of the Application Form and is included in WP3. The Work package includes also a Regional and EU state-of-art on European trends in Airport City development, the assessment of an initial set of criteria for Airport City development, the status quo analysis drawn by each region to analyse both the local state of the art and outline development scenarios. OLLs results, peer reviews, workshops, the collection of regional good practices have been then discussed at the Master Class where outside experts as well (among those Munich and Bologna Airports) took part through the speeches and a public roundtable. From the outcomes of the Master Class, this final document has been developed which aims at setting the path for a shared vision of the concept among partners and in the CE as well, through recommendations and the final criteria for Airport City development. The application form describes the transnational strategy as a wide-scale document encompassing a huge amount of topics: The strategy reflects the outcome of measurement of multipliers effect of airport and airport investment zones in min. 2 partner regions which provided the fullest scope of data sets in the status quo phase. The strategy also provides a strategic framework and guidance for improved polycentric governance as regards the thematic pillars. As for spatial development, the strategy outlines possible scenarios for efficient land use with respect to area physiography; draws up possible scenarios for land ownership restructuring; provides recommendations for architectural design in view of the European green city concepts; offers solutions to minimising environmental impacts and risks tackling topics such as safety and noise reduction. Regarding business development, the strategy focuses on the identification of wide scope of economic growth issues within airportmetropolitan areas. It also reflects knowledge on investment structure, commuting patterns, suppliers distribution etc. Importantly, the delimitation of the catchment areas together with their division into a few functional zones (investment influence, transportation influence, passengers inflow area, indirect influence zone, etc) is clarified. As for transport issues, the document includes guidance for sustainability, conflicts of transport demand and capacity, a minimum set of criteria needed to assess the transport system, recommended tools (e.g. Intelligent Transport Systems and Services) for integrated transport planning for all transport modes. The links between business development and transport infrastructure capacity will also be explored. The strategy provides impetus and ideas for the finalisation of the Integrated Regional Polycentric Development Plans. 17

18 As a result, the three pillars have been deeply analysed in the following sections of this document. To provide the PP and the policy-makers with a more nimble document, each pillar has been analysed under different points of view in different section which are quickly summarized below: Logistics and transport the pillar has been analysed under three different point of view. The first one (chapter 1) is a review of air traffic market evolution in the past, a description of the present situation and of which are likely to be the upcoming trends in response to the fast paced restructuring of the multi-segmented air transport industry in the recent years. The second point of view (chapter 2) regards the airport connectivity, hereafter meant as the linkages of the airport with other territories through the transport network. Being not a stable feature over time, connectivity is influenced by market trends in the market which can result in sudden losses of attractiveness for the territory as a whole; suggestions are hence provided to tackle as much as possible the phenomena which is unmistakably already on the go in Europe. Finally (chapter 5) the topic regarding the accessibility to the airport from the catchment area and vice-versa is dealt with, highlighting criteria to make transport network accessible, viable and multi-modal. Spatial development, environment and architecture in chapter 3 the topics of land ownership as well as airport regulation (which is how the airports deal with revenues coming from both aeronautical and non-aeronautical sources) have been taken into account; in addition, the topics of land ownership re-thinking and mitigation of externalities have been dealt with in sections of chapters 4 and 1 respectively. Business and investment development topics related to the third pillar have been investigated in chapter 4 focussed on the relationships between the governmental layers, the productive and service industry and the airports from the point of view of investment and development planning and chapter 6, focussed on the role of technologies to actively promote the airport cities territories inside and outside the airports themselves. Quick overview of the industry: state of the art According to ACI EUROPE on 403 airports in , more than 85% of them have total or majority public shareholding (and handle circa 60% of passenger traffic) while 11,3% have majority private and the remaining 8,7% (35 airports) full private shareholding. The latter category alone handles 13,8% of passengers and 15,4% of freight traffic in Europe, while mixed and 100% public-owned airports serve the 71,5% of passengers and 72,8% of air cargo. Normally, in EU member states several airports are managed by some public administrations while in others only the main airport is publically managed. All in all, full private or mixed-private management is the dominant form in the larger airports, even more in non-eu countries, while airports below 5 million passengers/year are usually public. Smaller airports can serve mainly public transport needs in remote regions of Finland, Norway or Sweden and islands of some Mediterranean country (Greece, Portugal, Spain, Italy) and normally have to face the competition from other transport modes (such as high speed train) and struggle to stay profitable because aeronautical revenues are not sufficient to cover costs 10. The rationale behind the smaller airports to remain in public ownership lies in the fact that the time of 9 In the different databases (Eurostat and ACI EUROPE) we have find data only of 238 airports of them, or their passenger traffic were less than 100 thousand persons in E.g. ACI EUROPE Economics Report 2012; 18

19 return of investment is very large while those airport experiment frequent market volatility in traffic volumes which can harm their economic performance (for example, when in 2004 flights from/to Bologna airport in Italy were temporarily diverted to Forlì airport to allow heavy works in Bologna airport s airside eg the runway extension Forlì airport experimented a traffic boom which was not kept in the future after the reopening of Bologna airport; nevertheless Forlì s airport management approved improvements to greatly enhance airside capacity of the airport which then were not used at the fullest). Small regional airports, although, are necessary to serve their territories needs for connectivity keeping also in mind the presence of nearby bigger airports; then niche market and profitable operation opportunities have to carefully sought and investigated. Airports are key assets for the communities they serve, but they cannot be moved to better locations when demand decreases, nor demand can be artificially moved to an airport to make it profitable. Therefore, efforts have to be made to be more competitive and more attractive as competing airports. In fact, among the cost an airport has to face for several purposes (maintenance, replacement, security, firefighting and airfield safety), the most crucial loss for an airport is an airline ceasing operations as costs cannot be reduced correspondingly. Therefore, a traffic loss has a double impact: not only on aeronautical revenues (airport charges) but also on non-aero revenues (shopping, food and beverage, car parking). The profitability of an airport is now crucially dependent on traffic volume. This gives airports a natural incentive to attract traffic and, on the other hand, airlines a strong bargaining power on airports (crescent with the traffic share) due to the subtle menace to take their business elsewhere if price or quality is not satisfactory. Judicious airport management will minimise the exposure to revenue loss through collection of regional economic data, exploring incentives and marketing opportunities, competition through the modulation of airport charges (where possible), serving niche/tailored services to passengers/airlines and strictly cooperating with shareholders to attract investors through tailored spatial development policies (if permitted by the law). Nevertheless the playing field of airport competition is all but local, where non- EU airports are entering the EU market offering competing services with less restrictions and larger financial opportunities. This, coupled with the aviation market deregulation and the technological developments which have made information easily accessible to users too, has brought operational flexibility, more choice alternatives in a dynamic field: new airports have also entered the market (+81 airports in Europe from 1996 to 2008) and existing ones have sought solution to increase their capacity; airlines have proved flexible in restructuring their structure and network to maintain market power and profitability in order to avoid the menace of bankruptcy brought in by the negative economic context; passengers have at least two departing airport alternatives within two hours drive, are permitted to seek alternate routes and are more price sensitive. Airports are not only instrumental in boosting tourism but they act as a magnet for the establishment of new business: the immediate proximity of a well-connected airport remains one of the top criteria for company location. It also helps attracting skilled labour and facilitates economic transformation. Similarly, smaller airports have developed into dynamic micro-economies, attracting warehouses, 19

20 business complexes, leisure activities and hotels to service and complement their niche core business. Airports are fundamental enterprises for their national economies (large hubs located small countries); thanks to their networking position they enable a broad range of economic activities and act as development poles. A key concept which will be repeatedly mentioned in this document is that the airport development cannot be separated from the spatial development of the surrounding area. The airport city concept foresees the establishment of airport corridors between the airport area and the central business district (CBD) or between the metropolitan poles of a metropolitan area alongside which activities can locate accordingly to the relatedness of the activities with the airport operation. As the indirect impact zone of the airport is usually very extended (sometimes even more than the 40 km radius introduced in the status quo analysis of the PP) the whole region situated alongside the corridors is subject to a strategic spatial planning process. Airports functioning as intermodal hubs is a necessary step of the development process of an airport; therefore passengers and cargo could be permitted to take the most appropriate transport mode they need for continuing the trip till their final destinations. The wider and smoother is the modal choice at the airport, the more successful could be the airport. This doesn t mean that each airport must have all the set of transport alternatives, but also the offer has to be tailored on the framework of the area and on the typology of service provided by the airport. Finally, also the transit time at the airports is important; connections and linkages to other modal alternatives have to be reliable and clear-cut signalled. It is crucial that the stakeholders have a common vision regarding on the future of the airport and their surrounding area to enable the airport or airport region to develop the appropriate strategic development plan and to follow the realization of this strategy. Moreover, as space and infrastructures are indispensable to attract enterprises in relation with the airport, enough space to grow within the area is needed and there shouldn t be controversy to the airport activities and their externalities. Therefore, those basic criteria have been identified and will be specified and confirmed in the concluding remarks of this document: minimum level of traffic for achieving profitability (10 million passenger), good positioning, connected network and ability to tailor services, a clear and realistic business strategy, economic background that is to say presence of air-transport intensive sectors, high GDP, high share of activities such as R+D activities, research, IT, financial services, perishable and medical industries, dynamic and skilled population, efficient transport network in the area 20

21 Chapter 1 : Air traffic market evolution, situation and trends Introduction As far as Europe is concerned, Central and Western countries are the most connected both in terms of destination served and seat capacity available, with the London area being still by far the leading market in the continent followed by Frankfurt, Paris and Amsterdam areas. As it has been demonstrated, connectivity as well as accessibility are the key issues when establishing an airport city is concerned and this will be a crucial development needed for all primary airports in Europe willing to evolve their operating structure. Figure 3 - Destination served and Seat capacity available per day at notable markets in Europe (time series ) (Source: CAA analysis based on OAG data) Globalisation and technological innovation are driving an increase in cross-border flows of goods, services and people. Lifestyles have also changed, with many people taking advantage of European integration to live and work outside their country of origin. Passenger traffic at airport Passenger demand for air travel has been on a persistent upward trend since the middle of the 20 th century, although growth has recently been tempered by economic downturn, natural events and geopolitical unrest in some areas of the world usually in still non-mature markets which then have, from the air traffic industry point of view, an hidden potential still to be discovered and capitalized. Thanks to the economic growth those regions are experimenting, traffic demand and hence the global economy s centre of gravity is shifting eastwards towards Middle East and Asia; moreover the composition of passenger demand is changing as well as VFR is gaining significant shares over business trips. 21

22 Figure 4 - Regional distribution of scheduled traffic passengers carried, (Source: ICAO - Based on services of airlines of ICAO member states) Freight traffic at airport As far as the air freight market is concerned, the trend is similar to the passenger market, although it is still a niche market but with a high value added. IATA figures for 2013 assess that freight market by air account for around 6.4 trillion $ (35% of all world trade by value); the figure has been deeply hit by the economic crisis and the market in some regions has not still recovered pre-crisis levels. In addition, the traffic figure varies dramatically depending on the regions linked and the availability of alternative modes of transport. For example, the level of air freight between EU countries is lower relative to the number of passengers on these routes, given the availability of road transport. Two distinct business models appear to operate within the freight sector: freight-forwarders and integrators. While the former provide a link between freight customers and full-service airlines on long-haul passenger services (belly hold freight), integrators are dedicated logistics companies (such as FedEx, DHL, and UPS) that offer a complete end-to-end express delivery service from collection to delivery. Integrators usually have an extensive surface transport network as well as an in-house fleet of dedicated freighter aircraft. They normally operate from dedicated freight hubs with low night flight regimes. Some low-cost carriers as well (Air Asia, Norwegian Air Shuttle and Southwest Airlines among the others) run limited freight-forwarders operations but they tend to be willing to avoid the additional complexity. Analysis carried out during the project have highlighted that the majority of intra-eu freight goods travels on the road network although associated with all strict security controls typical of air transport which are provided within custom offices at freight platforms. This phenomenon goes under the name of air cargo and it accounts for the vast majority of goods flow within EU. Only high value added goods (for example heavy machinery, perishable food, pharmaceuticals and rare materials) travel actually by air but they account for a small part of the total output in tonnes. 22

23 The drawbacks to scheduled air freight flights at most airports and in particular at airports targeted in this project could be: uncertainties on volumes over time peripheral geographical position lack of economic convenience as far as short distance transport are concerned lack of a strong air cargo carrier based at the airport, freight operators alone are not sufficient as they operate few feeder scheduled flights to their already established hubs. Figure 5 - Country by country passengers vs. freight volumes in 2012 (Source: PwC analysis based on IATA Airline Industry Forecast ) Air transport industry: a fast changing history As far as airport operations are concerned, the concepts of integrated and collaborative decision making processes are widely used in order to match different objectives from different stakeholders into a common aim of rationalization and enhancement of transport efficiency of both passengers and goods to/from the territory. To make an example, airport capacity is not the only important topic as far as an efficient airport operation is concerned, but also passive and active accessibility that is to say accessibility time, modal split and number/frequency of destination served by the airport as well as the presence of key economic players are of relevant importance in the process of evolution from an airport into an airport city. The current structure of the global aviation industry is the product of recent economic, social and technological changes. Globalisation and technological innovation have allowed increasing crossborder flows of goods, services and people over time. Aviation has had to adapt to all changes that emerged in the recent years (constraints and competitive pressures) and which have shaken the traditional vision of air transport and airport industries in mature markets, showing a hidden resilience that analysts have failed to predict. Competition between major airports may drive some 23

24 further improvements over the coming years. The following are some of the main trends which have become evident in the recent years: Consolidation and network integration: in 2012 the five largest US carriers held 66% of domestic seat capacity compared to 53% in 2008, while the figure for the intra-eu market was 50% in 2012 compared to 35% in In the EU as well consolidation practises exist and the market is dominated by three airlines groups: Lufthansa (which owns Austrian, Swiss, Sabena, Germanwings and airberlin), Air France-KLM and the International Airlines Group, which incorporates British Airways, Iberia and a number of smaller airlines. At the global level, however, the industry is still relatively fragmented, as many countries still impose restrictive ownership and traffic rules. Therefore, three mega-groups had been forming in the late 1990s in the most mature markets like North America (notably United States) and Western-Central-Southern Europe and have grown rapidly: Star Alliance, oneworld and SkyTeam. Those mega carriers, as a result of airline mergers and lighter agreement forms such as code shares, equity stakes and joint ventures, are further strengthening links and are then more likely to develop dense and integrated route networks focused around major hubs, bringing together high levels of connectivity at those airports. Their route networks are focused on United States, Europe and, more recently, the Middle East and Asia. The phenomenon has been exacerbated by liberalisation which exposed previously protected airlines, flying primarily point-to-point services from country A to country B, to greater competition and cost pressures: airlines failing to cope with cost restructuring went bankruptcy (this is the case as far as Europe is concerned of eastern and southern Europe ex-legacy carriers) while those which proved capable of cutting costs have also showed capacity to increase their revenues. Two recent and notable example of those practises have been the merger between American Airlines and US Airways ( ) and the buyout agreement between Alitalia and Etihad (2014); both had to face issues about market dominance, ownership restriction as well as labour union complaints due to overstaffing. Another recent trend has been the coordinated investment by airline alliances in shared facilities at major airports, including for example integrated check-in areas. 24

25 Figure 6 - Market share of the 20 largest airlines (% of total revenue passenger kilometres (RPK)), (Source: Deutsche Bank (May 2012), Global Airline Sector Achieving Financial Stability through Consolidation ) Figure 7 - Airline alliance market share by seat capacity, January June 2012 (Source: Deutsche Bank (May 2012), Global Airline Sector Achieving Financial Stability through Consolidation ) The emergence of new business models: due to the network consolidation at major hubs by American and European airlines, low-cost carriers acquired scope at airports with spare capacity profiting from a cost-cutting approach and a point-to-point network. Although, some differences in strategies have been highlighted: some airlines (such as Ryanair) have focussed on smaller, less congested airports while others (such as easyjet) have been operating low-cost services to/from primary airports with an attention to business travellers through flexibility and priority boarding or, such as Norwegian, have explored medium-to-long 25

26 haul routes in direct competition with legacy carriers thanks to improvements in aircraft technology. Recently, point-to-point network models are slightly shifting towards embryonic forms of huband-spoke models, ancillary services are being provided (assigned seating on board and some forms of fare segmentation), connections are being opened also from primary airports profiting of bankruptcies of legacy carriers and new markets are being explored such as business travel routes and long-haul routes. Middle Eastern and south eastern Asian carriers profiting from the shift towards east of the economic power have been competing with long-haul legacy airlines based in Europe and North America, offering new international links to second-tier airports. Middle Eastern markets are similar to those in Europe with small domestic market and a focus on international passengers (e.g. Amsterdam). Middle Eastern airports, in addition, have an abundance of surrounding, unrestricted land to further develop, which is a key factor that most of its European competitors don t have. This competition takes place in a variety of forms: some carriers (Qatar Airways and most of Asian carriers like Turkish Airlines, Singapore Airlines, Air China and Malaysian Airlines) have become a member of one of the big-three alliances, whereas others (Emirates, Air India) have created their own network through bilateral partnerships with other airlines or (Etihad) have chosen to take equity stakes in EU legacy as well as low-cost airlines which can embed with their networks. Their strategic choices in the future could be of a great influence also for EU hubs (either existing or willing to develop) as they could profit from their better geographic position and situation to pose themselves as an alternate stopover to east-west routes (see Figure below for an example) Figure 8 - Flight time from Dubai International Airport. (Source: DfT) Cost-efficiency and new technologies: while in the first few decades of the air transport industry, technological progress concerned cruising speeds, in the last 50 years efforts have been made to reduce fuel consumption and noise externalities. The combined effect of quieter aircraft and increasing movements brought little relief in absolute terms, but the overall trend of reducing impacts can be nevertheless discerned in terms of both energy 26

27 emission and noise footprint dimensions at ground. The introduction of new aircrafts, for example the Airbus A350 and Boeing 787, will make new routes and service types possible. Figure 9 - Historical and forecast improvements in aircraft fuel efficiency, the range for each aircraft reflects the range of possible configurations on board (Source: International Energy Agency (2009), Transport, Energy and CO2 ) Figure 10 - Reduction in aircraft noise over time 90 db noise footprint shape and size at the ground area (Source: Australian Government (December 2008) The emergence of self-connecting practises at non hub airports: whereas transfer traffic implies that both the arrival and the departure flights are operated by the same airline, selfconnection foresees a transfer from a flight operated by airline A to a flight operated by 27

28 airline B provided that those flights STA & STD (Scheduled Time of Arrival and Departure respectively) are scheduled like at an hub-and-spoke airport (through waves). Figure below shows the most air crowded patterns as far as transfer traffic is concerned, without taking into account direct flights or itineraries with more than one stop. As the possibility to develop into an airport city depends among the others - from factors like stable-growing traffic flows, connectivity and location, it is most likely than airports situated alongside those patterns have higher possibility to meet the target. Obviously, dots and routes represent a graph whose arcs and nodes represent respectively the focal O/D points of each continent (North America, South America, Europe, Middle East, Asia, Africa and Australia) and the intensity (according to the thickness of the line) of passengers flow figures, providing no information on neither the exact location of main hubs nor the actual pattern of the air routes. Though, it is possible to derive that the two crucial routes link Asia and north America via either Europe or Middle East. Middle Eastern hubs are particularly well positioned as stopover points on trips between South Asia and Europe, but are less suited for trips between North Asia and North America, where European hubs are more natural places to transfer. Other zones of the world need to further develop significant amount of traffic to express airport city potential. Figure 11 - Dominant Interregional Transfer Passenger Flows, 2012 (Source: PwC analysis based on Sabre ADI) Geography is not the only factor that determines the location of international aviation hubs. The availability of suitable airport infrastructure, the nature of economic, fiscal and regulatory regimes in different countries, and historic, cultural and trading links all play a part. Climate change: the Intergovernmental Panel on Climate Change s 5th Assessment Report argues that total CO2 from all anthropogenic sources would need to be limited to a cumulative budget of 1 trillion tonnes if the world is to have a likely chance of limiting 28

29 temperature rise to 2 C 11. IATA has adopted a set of targets to mitigate the climate impacts of aviation which include: o an average improvement in fuel efficiency of 1.5% per year from 2009 to 2020; o a cap on net aviation CO2 emissions from 2020 (carbon-neutral growth); o a reduction in net aviation CO2 emissions of 50% by 2050, relative to 2005 levels. Technological and operational improvements will help mitigate the climate impacts of aviation but the rate of growth in air travel will cause nevertheless an increase in total aviation emissions. Biofuels are allowed up to 50% of the blend, however resources are scarce and to be shared with other sectors (road transport, energy generation, household); moreover the production would diminish water reservoir and land available to nourish human food. A global framework to control aviation emissions through the imposing of a emission cap 12 provoked significant opposition from third-party states as it would distort the market (between developed and developing countries or by hitting only airlines coming from target regions) and infringe countries sovereignty. The forecasted capacity shortage issue at airports Industry has also to face the problem of future forecasted capacity shortage, as a doubling of passenger air traffic worldwide up to 2030 is expected. Existing infrastructures, in areas where huge traffic boost are foreseen, might not be sufficient to guarantee efficient operations. This problem will hit country s largest airports which have already capacity problems during peak hours and hence operate under some form of coordination, but also smaller airports which have recently been successful at attracting some forms of traffic because they are lacking of many services which are typical of large airports. Both, then, will have to face huge investments in the years to come to cope with foreseen traffic demand even if recent economic downturns have slowed the pace of air traffic growth; nevertheless the problem might have been only postponed. The UK Airport Commission s analysis suggests that the costs of failing to address these issues could amount (as far as UK is concerned and in a sixty-year time span) to: billion of costs to users and providers of airport infrastructure billion of costs to the wider economy. Airports which operate nearly at capacity are more likely to face delays and service unreliability, which is more true in case of combined effect of capacity constraints and one-off, unforeseeable events. Moreover, already coordinated airports might be hindered from opening new routes to newly established aviation markets, then harming airports accessibility in the next future. The best solution might not consist in the building of new infrastructures and land consumption, which are long term and irreversible solutions; in literature airport managers as well as government and planners have explored different routes whose transferability to our context is worth being considered: 11 IPCC, Fifth Assessment Report, 12 EU ETS scheme proposed a cap for aviation emissions at 97% of average emissions between 2004 and 2006 to be then reduced to 95% 29

30 Traffic redistribution at other nearby airports were the entity which redistributes traffic demand public (the country government, the transport department or the national air traffic regulator) or private (the airport manager), in both cases the measure would result in a competition distortion; moreover past measures of this kind have proven to be of little success. A package of surface transport improvements to make airports with spare capacity more attractive to airlines and passengers. Imposing a congestion charge to incentivize airlines and passengers to use other airports this option would result in service duplication, let alone competition distortion issues. Making the best use of existing infrastructures this result could be achieved through a range of different measures which can also be combined between each other, such as: o airport collaborative decision making to provide accurate and timely flight information for all those involved in processing aircraft to increase the predictability and speed of the aircraft turnaround process; o airspace changes supporting performance based navigation in order to permit closer spaced departure routes or alternating multiple arrival and departure routes for respite; this measure fosters the mutual-paced enhancement of remote air traffic control and on-board technologies. Since nowadays, the long lifespan of aircraft (more than 30 years in some cases) has forbidden the use of more precise aircraft route tracking and the adoption of quieter (steeper and hence affecting territory and resident population to a smaller extent) flight paths at both take-offs and landings; o enhanced en-route traffic management; o time based separation between aircrafts irrespective of wind conditions, increasing the operational resilience of the airport in high wind conditions. Adding capacity through the building of new infrastructures don t favour neither point-topoint nor hub traffic capacity enhancement, it is better to provide infrastructures which caters for a range of business models because the air traffic market evolution is not clearly foreseeable at the moment Smoothing operational peaks (in particular those at early morning) to minimise delays and provide respite for local communities Flexibility in runway usage where more than one runway exists. Independent Authorities in charge of carrying on projects on externalities reduction and implementing strategies for future developments and improvements. Likely future of the industry and players responsibilities In this context, the future of the industry remains difficult to predict. Someone argues that airline alliances and the hub-and-spoke network model will remain central. Others maintain that a wider range of airports will start to operate some form of hub, even where they lack a major network carrier, by enabling passengers to self-connect or by hosting new partnerships between low-cost carriers and other airlines. A third view is that new aircraft with longer ranges will make more longhaul destinations viable as point-to-point routes, resulting in a decline in the importance of hubs. Those issues about industry assets (balance between emerging and mature markets as well as 30

31 between LCCs and former legacy carrier) could feasibly bring variable implications for airports and on their development choices. Governments and airport management boards, on the other hand, have a responsibility to plan ahead for the future, particularly in the case of long-living infrastructures like runways which require many years to be planned and built. To do so, policymakers need to consider a range of future scenarios and their implications. That is why airport masterplans must be flexible and foresee different scenarios and exploitation possibilities for targeted areas as well as airport catchment areas and their surroundings. Where a country or city is successful in developing one of its airports into an airport city, significant benefits can arise for the territory at both local and wider range: both business and tourist are provided with a range of direct connections with a good degree of frequency, reduced transfer time, potential attractiveness of the territory in terms of investment attracted and potential to create jobs. On the other hand, downsides exist given the scale of infrastructures necessary to support the airport cities operation: aircraft noise, air pollution, landscape alterations, and surface transport congestion. The number of people affected can be reduced by locating the airport away from major population centres and densely populated areas; although this makes it more time-consuming and costly to access. An independent commission for airport city development should be created at either national or regional level; it should be able to carry on meetings, site visits, promotional and information campaigns, to rise consensus, awareness and participation among the residents through collection and discussion of proposal, to individuate local impacts and potential development areas. Transparency in periodic dissemination of reports on public evidence sessions, proposals, performances (as far as both traffic, impacts and financial matters are concerned) is also a key factor to rise consensus and awareness to the topic among population. 31

32 Chapter 2 - Connectivity Introduction The increasing trends in air passenger forecasts made by airlines and aircraft manufacturers as well as the analysis of traffic data suggest that the traffic is increasing while the number of aircraft movements is decreasing slightly as bigger aircrafts will be operated in order to pursue cost cutting procedures while maintaining the level of service. This will enable several European hub airports to alleviate the traffic and to avoid facing problems with airside capacity. The main problems with airside capacity are: difficulty to open new routes, hence loss of connectivity in the medium-long term; this parameter could be estimated with monitoring weekly and daily services to target destinations13; airlines concentrating on the routes with higher rate of return; difficulty to cope with delays due to ATC, weather Airside capacity could be enhanced also by building new infrastructures (runways, taxiways, rapid exit paths to clear the runways once the aircraft has landed ) but the beneficial effects subsist only if those airside infrastructure can be used at the same time (for example, two parallel runways must have a target distance according to the classification of the aircraft operating, two crossing runways can t be used at the same time ). The reduction in aircraft movements could also relieve one of the historical problems connected with aviation, that is to say noise and annoyance. Trends traceable in airport masterplans show an inverse relationship between aircraft movements and the numbers of people affected by significant levels of noise; this is mostly due to: improved aircraft technologies (dismissal of principal noisy aircrafts: Vickers VC-10 (1981), Boeing 707 (1984), Hawker Siddeley Trident (1985), Concorde (2003), B757(2005), A (2007), the MD80 family in the next future ) and adoption of new generation planes (both wide and narrow-body); take-off and landing procedures designed to minimise noise impacts; as improvements from technology side connected with aircraft engines are slowing their pace due to long times needed to become effective and to the consistent results already obtained so far, a reduction of noise and annoyance is expected from the debate and the adoption of new flight control techniques and landing/take-off procedures made possible by improvements in differential positioning systems on board and on ground. The day-to-day operational performance of an airport needs to be resilient to unforeseen events, whether they arise from airline behaviour or from extraneous events such as fog, low visibility, or strong winds. Delays, cancellations and unreliability impose costs on passengers and airlines and ultimately on the wider economy: longer flight times are perceived negatively by passengers, leave 13 Weekly service: at least 52 passenger flight departures/year to that destination. Daily service: at least 362 passenger flight departures/year to that destination. 32

33 alone flight cancellation without earlier notice; delays in both arrival and departure times leads to inconvenience and congestion inside airport terminals. Moreover aircrafts in holding stacks cause higher pollutant emissions and noise over residential areas when trying to recover from delays. Airside congestion at airports can also result in higher fares for passengers (and also for airlines through airport charges) as demand outstrips supply. A PwC study focussed on UK found that (taking into consideration all airports and routes) fare revenue per passenger mile is on average 18% higher for constrained airports than unconstrained, with higher values on premium routes. Definition of connectivity and how to measure it Connectivity is a key issue both in terms of accessibility to the airport from the territory (and this topic will be discussed in the following Focus) and in terms of the number of airports that can be reached from it. In literature, a variety of indicators of airport competitiveness refers straightforwardly or not to connectivity; just to make an example, the % of world GDP reached from the airport without intermediate stops or with one or more stopovers or the IATA methodology that assess connectivity through combining destinations served and total seats available, weighted by the economic value of the destinations. Connectivity can be interpreted under different perspectives: at a global level, in terms of flight distance covered or in terms of destinations reached: for example to interpret the capability of the airport to adjust its target in accordance with the economic scenario, it could be useful to assess how much connectivity (how many routes, frequency as business trips are very sensitive to this parameter - and seats offered) it can grant to airports located in fast developing areas, for example BRIC countries or Middle East, as business routes will likely be willing to get easily to those areas. But what is to be meant by air connectivity? The traditional definition, still traceable in reports of national air transport regulators and airport management groups, deals with the most frequent and densely populated routes departing from a target airport and broken down by geographical region. This is actually the direct connectivity, that is to say which airports could be reached without stopovers. This information, although, is incomplete when passengers need to change aircraft to reach their final destination. Therefore, four possible types of connectivity have been taken into account by ACI (see Fig. 14 below for further explanations): Total connectivity: which is made up of direct connectivity and indirect connectivity. Direct connectivity: direct connections offered by airport X to other airports. Indirect connectivity: indirect connections offered by airport X to other destinations via an intermediate airport. Indirect connectivity also allows to determine through which intermediate airport this connectivity is channelled. The connectivity channelled through hub airports is called onward connectivity. Hub connectivity: connections offered through hub airport X between two other airports. 33

34 Figure 12 - Different kinds of air connectivity (Source: ACI Europe) Factors affecting connectivity There are wide variations between countries as regards their connectivity, which reflect several factors including country size and population, GDP (both absolute and per capita) and geographical location. The level of national connectivity is also influenced by: the number of commercial airports: a dense network of airports at national level will naturally tend to guarantee a higher level of national connectivity; the presence of hub airports with a significant activity of Full Service Carriers: thanks to their hub-and-spoke networks, FSC usually generate transfer traffic and permit to offer more connections that wouldn t otherwise be offered by neither the local market alone nor Low Cost Carriers. Germany is the country with the best airport connectivity, followed by the UK and France; altogether those three countries account for 44% of the EU s total connectivity and for 35% of Europe s total airport connectivity. Together with Spain and Italy, they account for 65% of the EU s connectivity and 51% of Europe s airport connectivity. Turkey; Switzerland and Russia are the top three among non- EU countries in terms of connectivity, with 13% of continental connectivity. Germany and the UK have almost the same level of direct connectivity but Germany boasts a higher level of indirect connectivity partly due to the presence of 2 large hubs which serve the same airline alliance and are well connected to other German airports. EU countries total, direct & indirect connectivity If EU countries are taken into consideration, EU has still a good degree of connectivity as Europe has been up to recent past one of the two poles of economic growth. As each EU country has developed tougher bonds with other countries during its past history, it could be understood easily that routes between the target country and those bond countries are likely to be more frequent than in other countries of the EU: for example Spanish airports have better connectivity from/to the Latin 34

35 America, while the UK with former Commonwealth countries and North America; the strategy of developing routes to/from a country the territory has strong bonds with is a starting point for the establishment of an airport city as it consists in a competitive advantage to nearby competing airports. London has been for a long time the hub with the highest degree of connectivity in Europe, but the capacity issues nowadays are preventing this area from keeping its leading role against other EU and Middle East hubs. Germany now outperforms the UK in terms of total connectivity, and using the IMF weighting, the UK s lead over Germany has been significantly narrowed, as it has in relation to long-haul connectivity. Figure 13 - Network expressing the connectivity of FRA Airport (Source: Fraport) Figure 14 - FRA airport connectivity in terms of passengers (2013 vs. 2012) (Source: Fraport) 35

36 Figure 15 - FRA airport connectivity in terms of cargo (Source: Fraport) Figure 16 - London s total connectivity to destinations other than North America and Europe is less than other hubs. Total connectivity excluding North America and Europe, IMF GDP weights (Source: PwC analysis based on Sabre ADI) Airport connectivity comes in different forms, although inter-related. There are also different measures direct, indirect, total and hub connectivity, as well as the closely related onward connectivity. Connectivity has become more and more important over time due to the crescent need of interactions between areas of the world both for economic and touristic reasons. As technology advances and expertise becomes even more specialized, products and services cannot be created any longer by one person, or even one nation or society. Trade, tourism, foreign direct investment and most fundamentally, increased productivity, all tally closely to the connectedness of a people. Aviation is today the more relevant way to enable global connectivity as it moves people and goods at a record speed to almost every corner of the world. Air connectivity is, therefore, an essential 36

37 element of the competitiveness of a territory, a booster for economic growth and a source of job opportunities. The increasing strategic relevance of connectivity matters not just at a European level, but trickles down the national, regional and local levels where it ends up shaping not just the fortunes of communities but also the mandate of every airport. ACI Europe has often stated the deep relation between the economic impact of European airports, connectivity, economic growth and trade as it depicted in the figure below. Figure 17 - The virtuous circle of connectivity (Source: ACI Europe) An airport s route network and the connectivity it delivers must become core elements of airports business plans, with both airports and the regions/countries they serve having a strong common interest in boosting this connectivity wherever possible. In the past, higher connectivity increases took place at airports with less than 5 million passengers/year due to the establishment of the Low Cost Carrier segment and, indirectly, via closer network integration with larger hub airports. Nevertheless, those airports have been hit harder by the crisis while hub airports managed to recover and, sometimes, to increase their performance. This, together with the fact that the recovering has been faster for indirect connectivity data rather than direct connectivity, resulted in a continental decline of connectivity performance. In Europe, hub connectivity which measures an airport s connectivity in terms of the intermediate links it provides between other origin and destination airports is unsurprisingly generated mostly by the larger airports, with the hub connectivity within Europe, between Europe and North America and between Europe and Asia- Pacific forming an overall share of 74%. However European hub connectivity increases have been dwarfed by increases in the Gulf: indeed, between 2004 and 2014, the hub connectivity of Abu Dhabi, Doha and Dubai increased by +1913%, 1861% and 485% respectively. The outcome of this noticeable growth has been that the top three Gulf hubs now provide twice the level of intercontinental connectivity compared to their European counterparts, while only ten years ago the top three European hubs had 3,5 times the intercontinental connectivity of the top 3 Gulf hubs. Connectivity statistics for individual European airports highlight that the top 5 airports in terms of total connectivity are London-Heathrow, Frankfurt, Paris-Charles de Gaulle, Amsterdam and Istanbul-Atatürk. 37

38 Figure below shows the close correlation between the level of air connectivity of a country and its level of wealth. Both connectivity and GDP figures are on a per capita basis, showing that high levels of GDP per capita as well as geographic position positively influence connectedness of a country relative to its size. Unsurprisingly, the majority of the richest countries in Europe lay above the line, meaning that there is scope for further improvement of total connectivity level. Figure 18 - Total connectivity per capita vs GDP per capita (Source: ACI Europe) Fig. 19 below, instead, highlights the strong relationship between the EU s overall air connectivity to other global regions and the overall value of exports and imports between them. Exports in goods and services facilitated by connectivity allow the creation of jobs and salaries which would otherwise not be available. Imports facilitated by connectivity allow citizen a wider choice of higher quality goods at lower prices. Figure 19 - EU International Trade vs. Total Air connectivity ( ) (Source: ACI Europe) Airports increasingly not only play a role in facilitating this connectivity, but are rather instrumental in shaping its level and structure: over the past 15 years, airports have taken an active role in attracting air services and developing their network of destinations, competing for new routes and frequencies. The inclusion of actual and prospective links between their catchment area and other destinations 38

39 means that there is a natural complement between an airport s commercial incentive to develop its network and a local, regional or national economy s requirement for greater connectivity. The ACI Europe report collected connectivity data according to the SEO NetScan model, which measures the Airport Connectivity Index from airline schedule data: the number and quality (that is to say frequency, travel time, connecting and transfer time) of direct/non-stop connections as well as indirect connections via other airports are measured. The Airport Connectivity Index represents the number of weekly frequencies (direct and indirect) weighted by their quality. This quality index ranges from 1 (one) for direct connections with the shortest possible travel time, to 0 (zero) when travel time (of indirect connections) exceeds particular predefined limits. Multiplying the quality index by the flight frequency yields the overall connectivity index. Across Europe, total connectivity increased by +38% between 2004 and 2014 (with a +100% increase when only non-eu connectivity is concerned), primarily driven by growth in indirect connectivity (+50%) rather than direct connectivity (+19%) (fig. 15). The figure is more or less the same as passenger traffic growth (+37,4%). Given the fact that a direct connection between two airports often results in more than one indirect connection from the first airport through the second one, we can assume that direct connectivity is a booster to indirect connectivity as well even if the two phenomena are not systematically linked (the so called network impact). From the perspective of the travelling public, businesses and public authorities, direct connectivity is generally considered of more value than indirect connectivity and captures the majority of passenger demand as it allows reduction of travel times when compared to indirect connectivity, which in turn delivers increases in efficiency and productivity. Nevertheless, when taking into consideration frequency and pricing, indirect routes become valuable as well as they are more flexible than direct ones: they can be used to explore the feasibility of a direct connection between two airports, they give the passengers additional choice and then create additional competition both on airlines and airports hence forcing them to lower prices. Figure 20 - Airport connectivity and passenger traffic ( ) (Source: ACI Europe) 39

40 Figure 21 - Total direct indirect connectivity for Europe ( ) (Source: ACI Europe) Analysis show that European airport connectivity increased the most towards the Middle East (+95%), Asia-Pacific (+88%) and Africa (+63%) following the economic trend - while connectivity within Europe and towards the Americas increased at a slower but similar pace (just under +30%). Although, a very large part of the connectivity gains to Asia-Pacific were delivered through indirect connectivity (+90%) as a result of the strong increase in direct connectivity to the Middle East (+94%) and Turkey. Direct connectivity to Latin America has barely increased (+5%), with most connectivity gains being delivered through indirect connectivity (+29%). The global financial crisis impacted on the connectivity of European airports in an uneven way: the total loss of -4,9% between 2008 and 2009 was focused on intra-european traffic (-6,7%), followed by Asia-Pacific (-6,0%), North America (-3,3%) and Latin America (-2,6%); on the contrary, connectivity to the Middle East and Africa kept growing (respectively by +11% and +4,6%). The decrease was more evident for direct connectivity (-6,1%) rather than indirect (-4,2%). As pointed before, indirect connections are 40

41 normally a multiplier effect of direct connections; therefore a lighter loss in indirect connectivity indicates that there were less cuts in hub routes than in point to point routes. Moreover, the trend of the recovery path shows that direct connectivity hardly recovered while indirect grew significantly, meaning that Europe s connectivity has favoured hub airports on secondary ones. Within Europe itself, differences exist: there is a considerable connectivity gap between western and eastern Europe, dependent from country size and wealth, with Germany, the UK and France enjoying the top three connectivity positions respectively while the top three non-eu countries are Turkey, Switzerland and Russia. What is clear in the recent past is the weakening of EU connectivity when compared with non-eu airports; although in absolute terms EU airports connectivity data are still four times larger than non-eu airports, the gap is reducing: total airport connectivity from non- EU airports (that is to say airports located in countries which have not joined the EU) increased by +107% vs. +27% from EU airports. This contrasted performance is due to various aspects: different degree of maturity of aviation market, as EU airports are still delivering close to 80% of Europe s connectivity and nearly 85% of its connectivity to other regions of the world; a single direct connection at EU airports is capable of enabling 0,5 more indirect connection than at non-eu airports, as non-eu airports still face lower demand and hub concentration and a peripheral economic integration; non-eu airports performed better during the crisis as the market was less mature, with losses only towards Europe (-3,9%) and growth towards the Middle East (+23%), Africa (+10,4%), North America (+9.7%) and Latin America (+2%). Non-EU total, countries direct & indirect connectivity Since 2008, non-eu airports connectivity grew at a pace tenfold that of EU airports, notwithstanding the impacts of the financial crisis. Moreover, the recovery at EU airports did not result in a parallel growth of connectivity, meaning that a concentration trend at hub airports and on existing and profitable routes has been preferred: reduced frequency, higher load factors, use of larger aircraft and concentration on indirect routes via hub airports have been the main characteristics of this trend; indeed direct connectivity is still under 2008 levels (-7%) while indirect connectivity grew (+11,3%). As a result, direct connectivity now makes up 32% of overall connectivity from EU airports (37% in 2008). The deterioration of the overall quality of connectivity out of EU airports is flanked by market penetration from non-european hubs, which attracts traffic mainly to/from Americas through their hubs. Total, direct & indirect connectivity figures per airport group If we group together airports according to their traffic output, ACI has identified four categories, which are: 41

42 ACI airport group Traffic (mln pax/year) N of airports in Europe I >25 14 II III IV <5 390 Table 1 - European airports group segmentation according to ACI Methodology (Source: ACI Europe) Figure 22 - Total direct indirect connectivity by airport group for Europe ( ) (Source: ACI Europe) Between 2004 and 2014, all groups of airports saw their total connectivity increasing with the highest growth in relative terms at Group IV airports (+46%) and the lowest at Group I airports (+34%). This is mainly due to the development of low cost airlines, which has taken place primarily at small regional airports (thus, each direct connection between Group IV airports counts twice), and 42

43 to the network impact generated by this traffic for those airports. The majority of this growth has been reached from 2004 to 2008, then the global financial crisis hit harder Group IV and III airports and to a lighter extent Group II and I, which then were those capable of a faster recovery. On the other hand, Group IV airports proved incapable of recovering pre-crisis level of direct connectivity (- 3,4%). The market shares in connectivity between the different groups of airports did not change significantly over the last 10 years, with group I airports accounting for the biggest share of Europe s connectivity: when compared to 2004, the 2014 market share of Group I airports has gone down by - 1%, while the share of Group II airports has also gone down by -0,6% to the benefit of Group IV airports (+1,2%) and Group III (+0,4%). Figure 23 - Airport connectivity market share by airport group (2004 vs. 2014) (Source: ACI Europe) Onward & hub connectivity figures When onward connectivity is taken into account, it is possible to determine which hub airports are the most important in terms of indirect connectivity. Indeed, indirect connections offered from Europe to other world regions are channelled through European hubs (62%) which might be located inside the EU or not. Again in the recent past, the share of EU hubs in onward connectivity has decreased by -8% to the benefit of non-eu hubs (+307%) and non-european hubs (+53%). Despite the connectivity growth in absolute terms, EU airports have been losing market share in onward connectivity indifferently from which group they belong to. In the same period, the two principal non- EU hubs (Istanbul-Atatürk and Moscow-Sheremetyevo) registered an exponential growth in onward connectivity pinching traffic from those in the EU. Frankfurt, Amsterdam and Paris-Charles de Gaulle remain the top 3 European hubs offering the most onward connections from Europe. However, their combined market share has gone down from 32% to 29% since 2004; on the other hand Istanbul- Atatürk, Moscow- Sheremetyevo and Dubai are featured in the top-20 hubs for onward connectivity while ten years ago those airport were not so important. Similarly, the 5 biggest European airports in terms of 2004 passenger traffic (London-Heatrhow, Paris-Charles de Gaulle, Frankfurt, Amsterdam and Madrid) saw their combined market share of onward connectivity decrease from 43% to 36% between 2004 and At the moment it is not possible to identify a dominant position among EU hubs in terms of onward connectivity towards each world region; each one has a low market share although some forms of specialization is traceable as target airports serve determined regions for example: Paris-Charles de Gaulle providing the most onward connections to Africa, Frankfurt to Asia-Pacific, Istanbul to the Middle East and Madrid to Latin America. 43

44 Hubs offer another form of indirect connectivity which is called hub connectivity, literally transfer traffic generated at the hub which supports direct connectivity and also stimulates cost efficiencies of both airports and airlines and economic growth. Transfer traffic, indeed, fills the empty seats on destination where the local demand is not sufficient to justify the existence/establishment/increase of frequency/capacity offer. Local communities around hubs benefit from the existence of those routes to widen their basin of direct connections. This form of traffic is usually generated by larger airports (Group I and II, according to the aforementioned ACI classification, process circa the 97% of the total amount). The markets which represent the largest share of hub-connectivity market are the traditional ones (Intra-European, Europe-North America and Europe-Asia) with a combined share of 74%. However, extending the analysis at the global level, European airports are being outreached and have been losing relevance on the intercontinental market, which now accounts only for 5% of their total hub connectivity. The 3 hubs located in the Gulf region are now playing the role of leading airports as far as intercontinental connectivity is concerned. Beyond the Middle East, also other airports have started to grow significantly in terms of hub connectivity, for example Addis Ababa (+1572% between 2004 and 2014). Figure 24 - Hub connectivity by world region and relative growth (2004 vs. 2014) (Source: ACI Europe) 44

45 Figure 25 - Hub intercontinental connectivity at target airports (2004 vs. 2014) (Source: ACI Europe) International connectivity The split between connectivity to Europe and to other world regions varies significantly for each of Europe s largest countries. Germany is the country with the highest share of its airport connectivity to non-european countries (60%), followed by the UK (59%), France (57%), Italy (52%), Spain (37%), Turkey (33%) and Russia (24%). Smaller countries with large hub airports achieve a comparatively higher share of their connectivity to non-european countries also because of the absence or small level of domestic connections. This is the case of the Netherlands (63%) and Switzerland (60%). In absolute terms, the UK has the most intercontinental direct connections (mostly North America and Asia Pacific), followed by France (mostly to Africa and North America) and Germany (which has a balanced geographical split to North America and to Asia Pacific). Turkey, Spain, Italy, the Netherlands and Russia follows and almost equate each other, although differences subsist in terms of destination served (see fig. below). As regards hub connectivity, Germany is also the best performer (accounting alone for 26% of total European hub connectivity), followed by France (13%) and the Netherlands. The UK only comes to the 4th position (9%), closely followed by Turkey (8,4%). Russia has a small share of hub connectivity (4,2%) given its size and geographical location equivalent to Switzerland and lower than Spain (4,6%). 45

46 Figure 26 - Intercontinental connectivity offered from European countries to other world regions (Source: ACI Europe) 46

47 Summary The fact that in a time span of 10 years, airports from non-eu and Middle East countries have appeared while airports from EU have disappeared from the top 20 airport list in terms of connectivity indicates that connectivity cannot be taken for granted (see figure below). While market forces and technology are primarily shaping connectivity, public policies and regulation policies also have a role to play especially given the strong correlation between connectivity and economic growth; otherwise Europe will face the risk of being by-passed as an aviation hub and significant player in providing global connectivity. Figure 27 - Top 15 airport per connectivity index ( ) (Source: ACI Europe) To make it possible a strengthening of awareness on airport connectivity as a focal topic at European level, significant progresses need to be made in a few fields, among those: airport capacity: as already pointed, capacity crunch is a problem of actual concern for the future as, with no action taken in advance, airports will be more and more congested thus harming further connectivity; national airport network denseness, which can help boosting direct and indirect connectivity; 47

48 air traffic liberalization: Bilateral Air Services Agreements are a constraint to the establishment of a freer air traffic market, as they enable only a limited number of actor to operate traffic. An open market, made possible via negotiation between the EU and its trading partners is a priority to be fulfilled in order to increase connectivity at all levels; improve connectivity to regions where opportunities exist; improve the economic aspects at airports which airlines and passengers are facing, for example operating costs & aviation taxes related to security and safety topics. Achieving costs efficiencies in these areas would improve the competitive position of European airports and make them more attractive; Common legislation on airport-airline cooperation: this topic will be further investigated as conflicting legislation exist between continental and national level which prevent cooperation. 48

49 Chapter 3 : Economic framework of airports Forms of Airport management and their shareholding Due to the global economic crisis that has been raging since 2008 which has forced governments of various countries to deep cuts on public spending in order to control public finances, the opportunities for major investments by the public sector in public transport infrastructures - in particular airports have been further reduced. In this section we analyse the airport infrastructure from the point of view of management and economic regulation, key topics to be bore in mind when a strategy for the development of airports to promote the resulting development of the territory is concerned. It is not our concern to express which system is preferable, as countries keep their independence, have different economic situation and concepts of management; however, we refer to laws and recommendations by the EU and Competition Authority that are already in place but not always enforced. Up to the late seventies all airports were owned by the public sector and only small general aviation airports were privately owned. The biggest airports around Europe as well as many airports in the world were owned by the national governments; there were also cases (US and regional airports in Germany and UK) in which the ownership was 100% held by public sector but often at a regional or municipal level, while most European capital city s airports had both local and national government shareholdings. Those airports were administrated as public service facilities with few importance given to marketing and commercial management, where costs and revenues were treated as items within the government department s overall financial accounts (Graham, 2008). In the 1970s and 1980s, however, the air transport market made a breakthrough towards deregulation: the first step was the establishment of more independent authorities or airport companies with public shareholdings. This phenomenon took place essentially in UK and Australia, while continental European countries opted for partial privatization. The privatization process is like most of the topics regarding air market deeply connected to the political and economic situation, with easing and stops whenever turmoil or economic crisis break out. Other reasons that may slow down or harm the process are bureaucracy and conflicts between the government and the private investors (especially when the latter is a foreign investor) and inappropriate/unrealistic estimations of passenger/airline demand. With commercialization, much greater attention began to be placed on financial management, non-aeronautical revenue generation and airport marketing. With reference to the governance of airport and ownership, many possible solutions are feasible; each country decided which one to adopt on the basis of political and economic reasons and framework. Talking about privatization, both the ownership and the control have to be taken into account; thus the degree of government participation in the broad range of the elements of management and strategic direction of an activity is an important issue. In particular five topics have to be assessed: 1. Does primary decision-making responsibility for airport operations and development reside in a general purpose government or special purpose authority? If a general-purpose government, what are the level of government (federal, state, county, municipal) and form of government (e.g., strong legislative, strong executive) involved? What role do elected officials play in day-to-day airport decision-making process? Is there a 49

50 delegated body that exercises some authority or oversight for the airport? To what extent is the airport subject to generally applicable rules (e.g., civil service, contracting)? If a special-purpose authority, what is the nature of the authority (port authority, airport authority) and what is the role, if any, of a general purpose government in decision-making (e.g., appointment of authority commissioners, etc.) process? Who chooses the commissioners or board members, and how are they selected? 2. Has significant decision-making power or operational control been commercialized or privatized? 3. How many transportation assets are under the public entity s control? Does the public entity operate multiple airports as a system? Does the public entity control other modes of transportation in addition to airports? 4. Does the entity with primary decision-making responsibility for the airport own the underlying property? 5. Does the entity with primary decision-making responsibility maintain land use and zoning jurisdiction over the airport and over the surrounding areas? Generally speaking, the ownership of the land usually rests within the Central Government or a Department while the day-to-day operation and management take different forms on varying countries and the amplitude of the infrastructure considered. Starting from the highest degree of public involvement, we have publically owned and operated airports. The infrastructure might be under direct control and management of the Central Government through a Civil Aviation Authority or a Ministerial Department, through a lower level of Government (Region, Municipality) or through an autonomous entity with financial and operational autonomy established under the provision of the law. This definition also includes public yet independent authorities to whom the Government has transferred the ownership or the responsibility for the daily operation of the airport. Those airports traditionally operate focusing on the public interest fulfilment (the protection of the national airline or the fostering of the economic development within a region) rather than on the commercial point of view. Nevertheless, some form of best practices and targets to achieve may be set. The airports will develop according to requirements and decisions set by the Government which oversees also on regulation, air traffic control, air navigation and in some case operation of a national airline in addition to airport operations. Otherwise, all aviation related duties are assigned to a semi-independent Government agency, while the Department/Minister of Transport is responsible for the establishment of broad policy toward aviation. Strengths points are the direct accountability and the fact that the airport is likely to gain a dominant position in the area, while the weaknesses consist in vaguely defined and changing objectives and investment allocation according to the political situation, inefficient use of airport assets and lack of transparency in decision making, poorly customer service-oriented, reliance on government subsidy. One notable example is AENA (Spain). If the semi-independent Agency turns into a Government Corporation, the Department of Transport keeps the responsibility for the establishment and enforcement of regulations, while the former operate the airport on a commercial basis. Although the corporation will report to the Department of 50

51 Transport, it has a degree of independence in its financial planning. Under that business model, airports are recognized as enterprises and are capable to take more flexible measures to airports operation. One notable example is Aéroports de Paris (France). If an autonomous entity is created to operate and manage an airport with the aim of better meeting the needs of the local community we fall under the form of governance typical of US airports. The Authority may manage only the major international airports within a country or some regional, financially un-self-sufficient airports as well as other transport facilities. These authorities might exceptionally exercise taxation, zoning or veto powers. The scope of the services and areas the airport entity is responsible of may differ from country to country. The entity may have to pay the government an annual rent and draw a financial plan. The strength points are that the management of airports rests with the local level and thus a crescent level of cost-effectiveness is present, on the other hand problematic financing issues may arise if airports are not top-priority assets. Management contracts, a lease as well as a minority participation in the equity share are not to be intended as privatization but as private participation since the ownership and control rest within the Government. This is one of the new tendencies in airport business that is spreading all around the world because of the airports urgent need of funding due to the diminishing public financial participation. Another reason for is the focus on marketing and commercial revenues: the nonaeronautical revenues share (parking, rental, shops ) has been growing since the last decades and now according to balance sheets of airport management companies - represent almost the 40-50% of the total revenue of an airport. Airports are generally seen as attractive organizations to investors because the airport industry is supposed to have strong growth potential; moreover there are high entrance barriers to competitors due to the large capital needed and therefore airports are perceived to face limited competition. Private participation connotes either full ownership (the actual privatization) or majority/minority ownership by private investors. Although the majority of airport management shareholding are still owned by the Government (State, districts, municipalities or a combination of these) a growing number of airports are under some form of private participation: airport entities fully or partially privatized or private entities willing to buy, own and rule airport facilities leaving the rest in public ownership. Airport private participation can occur in different ways (Carney and Mew, 2003). The selection of the most appropriate path involves a complex decisionmaking process which will ultimately depend on the airport management s objectives in seeking a private shareholder. Factors such as the extent of control which the public side wishes to maintain; the quality and expertise of the current airport operators; further investment requirements and the financial robustness of the airports under consideration have to be taken into account. (Graham, 2008) The first form of private involvement in airport operations is through not-for-profit authorities managing the airports under a lease agreement after which the land and assets revert to the federal Government, as it is in Canada. The board s members are selected independently from the Government and the Authorities are financially independent. Revenues collected from passenger taxation and profits are reinvested in airport infrastructures. These airports have objectives specified in their contracts with the Government that largely mirror those of a publicly owned airport. 51

52 The second form of private involvement is through Public-Private Partnership (PPP) that is a cooperative venture between the public and private sectors, built on the expertise of each partner that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards. Unlike privatization that requires the transfer of ownership, a PPP entails the private party taking substantial risk for financing a project s capital and operating costs (e.g. designing and building a facility) and managing its operations to specified standards, normally over a significant period of time. Therefore under PPP full retention of responsibility for providing the service and the ownership of the assets rest within the Government, while the actual dissemination of the service and part of the risks and reward are up to the private counterparts. Various PPP models - especially when applied to specific airport facilities such as passenger terminals, freight terminals, runways - can be found. Whatever the model is, the major objectives are: to improve the economic performance and the level of service by involving a highly experienced airport operator, to fund infrastructure with private investments, to transfer airport project development risks to a private party and to improve airport profitability. Project financing involves equity investors and a syndicate of banks or other lending institutions that provide loans to the operation. Recently, project financing principles have been applied to public infrastructure under public private partnerships (PPP) or, Private Finance Initiative (PFI) transactions (e.g., school facilities) as well as to sports and entertainment venues. Beyond developing the infrastructure and providing finance, private sector companies operate the public facilities, in many cases using former public sector staff who have had their employment contracts transferred to the private sector through a process protecting their entrenched rights. (Hoffman, 2007; Sorge, 2004) Several long-term contracts such as construction, supply, off-take and concession agreements, along with a variety of joint-ownership structures are used to align incentives and deter opportunistic behaviour by any party involved in the project. Build-own-operate-transfer (BOOT) or build-operate-transfer (BOT): a private entity receives a concession to finance, design, construct and operate a facility which is transferred to the Government at the end of the concession period without any remuneration. BOT is new in airport financing and management but it is quickly spreading in the industry because it solves the problem of quickly raising large funds. (Smith&Charles, 1995; Sapte, 2006; Mishra, 2006) BLT (Build Lease Transfer): the private entity builds the project and leases it to the Government. After the expiry of the leasing, the ownership of the asset and the operational responsibility are transferred to the Government at a previously agreed price. DBFO (Design Build Finance Operate): it is very similar to BOOT except that the Government remains the owner of the facility, but it gets no direct payment from the users. The cash flows repay the investment and reward its shareholders. DCMF (Design Construct Manage Finance): a private entity is built to design, construct, manage and finance a facility based on the specifications of the Government. Project cash flows result from the Government s payment for the rent of the facility. 52

53 Figure 28 - Number of PPP initiatives at airports in the world between 1991 and (Source: World Bank Group PPI Database) Fig. 29: Figure 29 - Number of PPP at Airports by region, (Source: World Bank Group PPI Database) Figure 30 - Amount of PPP investments at airports by region, (Source: World Bank Group PPI Database) 53

54 Figure 31 - PPP at airports by region and type, (Source: World Bank Group PPI Database) Figure 32 - PPP at airports by segment and region, (Source: World Bank Group PPI Database) In summary, the company (no importance is given to its shareholdings) owns the right to build and then operate an entire airport or a particular facility for a certain period of time in order to recover the costs and earn all or a part of the revenues and then the ownership reverts to the Government. It is possible to note that usually one of the shareholders is either a powerful airline brand or an affirmed international airport operator: the new Athens airport at Spata Eleftherios Venizelos (the BOOT contract was awarded to a private consortium led by German construction company Hochtief with 36,125% of the shares, along with ABB Calor Emag Schaltanlagen AG with 5%, H.Krantz-TKT GmBH with 3,75% and Flughafen Athen-Spata Projektgesellschaft mbh with 0,125%); Ninoy Aquino International Airport in Manila (Fraport and PairCargo won the bid to build the international passenger Terminal 3); Queen Alia International airport in Jordan, where The Edgo Group has been awarded the expansion project of the Airport. The Edgo Group is part of a consortium led by Aéroports de Paris Management, along with Edgo Group, Joannou & Paraskevaides (Overseas) Ltd., J&P-Avax, Abu Dhabi Investment Company (ADIC) and Noor Financial Investment Company. 54

55 The management contract is the least radical privatization option because ownership remains with the Government and the contractors take responsibility for the day-to-day operations. The airport management company or consortium will purchase the concession to operate the airport for a defined period of time through a tendering process. The airport operator is constrained by the terms of the contract but it is allowed to seek a return to its shareholders. The Government either pays an annual management fee to the contractor (usually related to the performance of the airport) or the contractor will pay the Government a share of its revenues. Concession differs from lease contract in the rights of the operator and its remuneration: a lease gives a company the right to operate and maintain a public utility, while under a concession the private entity is also responsible for the expansion and development of the airport. A public tendering process has to be held and a contract has to be signed between the Government and the winner, which is then deputed to operate the airport for a defined period of time (ranging from 20 to years depending on the country). Strength points are cost-effectiveness, stimulus to enhance productivity, customer focus and flexibility; on the other hand a negative perception might be associated with the fear of negative financial impacts in case the partnership has to be repudiated for some reasons and higher degree of externalities. This form of agreement was very common in the 1990s and in developing countries. In more recent years concessions have increasingly been used in Eastern Europe and Asia. Privatization can occur through the transfer of both ownership and management control from Government to private groups, foreign founded enterprises or natural persons. Normally the sale involves partners with established expertise on airport management. Also public-owned entities can participate in airport privatization via trade sale: Schiphol group is a public-owned entity but took part in privatization processes of several other airports in the world. The process starts with the establishment of joint ventures through trading shares on the stock market (IPOs) or through a private bidding process. The advantages are the possibility to have access to new capitals, diversify the equity base, gain a higher public profile and a greater potential to acquire new business on the stock market and have multiple financing options; while the disadvantages are the vulnerability to market fluctuation, significant costs and regulatory requirements to comply with, the necessity to disclose financial data and the relation with the equity shareholders. If a partial privatization is chosen, attention is to be paid so as to balance and protect interests of both the public and the private sector. There are two different scenarios: airports in which the private investors share is the minority and airports with the majority share held by a single private investor. These forms of governance have been successful in bringing a more commercial oriented view to airport operations and strategies: a significant increase in the number of carriers serving the airport (including low cost carriers) has also been noticed. The private ownership is widely seen as a mean to get to cost control and efficiency as long as the private investors are looking to earn a rate of return on their investment. The full privatization of an airport comes with the same modality of the partial one. Airports entirely owned and operated by the private sector have the obligation to maximize returns to shareholders. As a result, management decisions are generally focused on ensuring that the airport generates a 55

56 profit in the short term. The difference with lease agreement consist in the fact that with a lease the Government has residual liability and can step in and immediately operate should the contractor file for or be brought into bankruptcy. Strength points reside in the fact that strong private shareholdings guarantees coherence in investment choices, transparency, availability of money to invest not relying on government funds versus a reasonable return, much more customer oriented service. On the other hand airlines fear lower level of service, higher landing fees and user charges; inhabitants fear externalities, Governments have to find a balance between oversight on service provision, service quality and safety of operations to be guaranteed and intrusiveness. The recent trend towards privatization has slowed (ACI 2010). This can be attributed to the recent global economic downturn, which has adversely affected the cost and availability of finance for large projects, driving investors towards forms of partial privatizations. As far as Italy is concerned, private investors were given the opportunity to become airport shareholders after the liberalization process. Nowadays we have airports management groups with 100% public shareholding sided by mixed ownership public-private (often with the former holding the majority especially at small-medium sized airports). Italy has a very complex airport network with a few big airports and a lot of airports with less than 2 million passengers/year, often very close to bigger airports and therefore with little possibility to further develop but nevertheless granting the inhabitants and the territories they serve some accessibility to the rest of the country and to the continent. As a consequence of liberalization, the right to manage and develop the airport facilities switched from the central Government to managerial entities with Act n. 537/93 later revised by DM 12/11/97 n.521 and paragraphs of Codice della Navigazione. The management entity must be a corporate enterprise (although not necessarily Italian but with a base in Italy and whose country allows Italian enterprises to take part to public tenders) and must win a public tender on the basis of development plan and economic capability. The Departments of Transport and Economy and, in particular cases, also the Department of Defence give the winner the concession to operate the airport for a period up to 40 years during which the enterprise is expected to realize the investment plan, provide the level of service expected and keep the qualifications required under the periodic control by ENAC (the Italian agency for Air Traffic). The Italian law allows three different levels of concession: full: the airport management enterprise is in charge of the whole airport services and collects money from air traffic royalties; partial: the deputed Airport Management is responsible for the provision of Airport Terminal Services. The loyalties collected are those regarding boarding and debark of passengers and duties/freight. The guideline n 141-T from the Department of transport considers mandatory the presence of at a least one private investors in the capital share to turn a partial concession into a full one. Under a partial concession to operate, from the legal point of view, the airport management is not allowed to decide on repairing or extensions of airside structures, but often the central Government (via ENAC) gave them the power to realize those repairing. Therefore, it has been decided to foster the transition from partial to full concession to operate. Nevertheless, the worsening economic situation in 2011, forced the 56

57 Government to stop the pending transitions and to focus on the quick development of an Airports Development Plan at a National Level; Government run airports, regarding only small airports. The management enterprise is responsible for the organization of airport activities within its scope, the repairing, the extensions and the modernization of airport infrastructures. The D.L. 251/1995 stated that the control of the majority of the airport management enterprise s shares by either the Central Government, the regional Government, municipalities or public entities was no longer mandatory. Regions, provincial administrations, municipalities, chambers of commerce as well as private investors might hold the majority of the shares. Nevertheless, the procedure is slow and perceived as uncertain by private shareholders that historically have been reluctant to invest in Italian airports (in particular those with foreign assets). As far as the airports in the regional airport system of Emilia Romagna region are concerned, both management enterprises of Forlì and Rimini Airports both 100% public shareholdings - filed for bankruptcy in the recent past. Airports have been keeping up to now their small volume of operations under a temporary concession given by ENAC: according to recent news, only one offer has been presented for Forlì airport by an Italo- American group, while four offers have been presented for Rimini Airport (one from the same entity that seems to have won the tender for Forlì) which has been deemed to be more strategic due to high touristic flows from Russia and its closeness to San Marino Republic (which counts on a BOT agreement inked with the Italian Government to build and operate for 30 years custom-free logistic and maintenance facilities inside the area of Fellini Airport). With regard to Bologna International Airport, its shareholding it s mixed public-private with the majority of the shares held by the local Chamber of Commerce (50,55%), followed by local government entities (municipality, province, region owning, respectively, 16,75% - 10% - 8,80% of the shares) and private shareholding (among those F2i through the Airport of Turin). On last April 2014, the shareholders announced the partial flotation of the shares on the market, with the Chamber of Commerce and public shareholders that will keep as a whole around 40% of the shares (according to the preliminary speech of Bologna Airport s Head of Directors Board). With regard to Poland, as well as for countries like Portugal, Sweden, Finland, Ireland and Israel, airports are owned and operated by the Central Government. Indeed, Warsaw Chopin International Airport is operated by Polish Airports State Enterprise (PPL); as far as Warsaw Modlin Airport is concerned, the airport is run by company Mazowiecki Port Lotniczy Warszawa Modlin which has public shareholdings (Agencja Mienia Wojskowego 34,43%, Województwo Mazowieckie 30,37%, Państwowe Przedsiębiorstwo Porty Lotnicze 30,39% and Nowy Dwór Mazowiecki 4,81%) and operates under a Public Airport License and Public Airport Administrative Permit. As far as Hungarian Ferenc Liszt International Airport is concerned, it was first partially then full privatized and it is the country s most important airport. It is managed by Budapest Airport Zrt. which is composed by AviAlliance (former HOCHTIEF AirPort) 52,67%, Caisse de dépôt et placement du Québec (Canada) 20,16%, GIC Special Investments (Singapore) 22,17% and KfW IPEX-Bank 5%, connoting itself as a full privatized airport with more than one shareholder. As far as Ljubljana Airport is concerned, it had had a mixed public-private shareholding with the absolute majority held by the National Government (50,67%) with other shares held by Kapitalska 57

58 družba, d. d. (7,36%), Slovenian Sovereign Holding (6,82%), various private investors (17,72%) and other legal entities (corporations and public funds 17,43%). In June 2013, the Parliament endorsed a Government plan to sell state-owned shares in 15 companies including national flight carrier Adria Airways and Ljubljana Airport. In September 2014, Germany's Fraport AG acquired 75,5% of the shares and in October another 21,5% (for a total amount of 234,4 million ). Up to 31/12/2014, Fraport AG holds 97,99% of the shares, 1,76% is held by private entities and the remaining 0,25% is held by minor investors 14. To summarize, different airport management compositions exist, each one with its strength and weak sides. The recent trend has been through partial privatization of the shares in favour of skilled partners with expertise in airport management issues even in countries which had been stepping back up to now. It is not straightforwardly assumed that a public shareholders is incapable of developing and managing an airport city, given the bright example of Munich Airport, but it has to be kept in mind that the presence of a more profit and quality-oriented point of view in the provision of the service seems to be a strategic issue, as huge capitals need to be invested and stability is to be granted over a long period of time. Economic regulation The second important topic inside Airport Economics is the economic regulation of airport. An airport is a transport infrastructure characterized by a twofold business: the aviation market and the nonaviation market. The main issue so far has been whether a form of regulation was necessary and, if positive, which one was to be preferred. Regulation may concern those activities which cannot be duplicated without substantial cost. In the debate on how to regulate airports, three features are important: the complementarity between aviation and non-aviation activities, the degree of congestion (capacity) and the level of competition in the industry (or at the airport if it is a hub). Regulation aims at being a strong input to a more efficient airport management. The structure of charges, the allocation mechanism and the incentives for investment become a major issue for airport regulation in order to attain a reasonable balance between demand and income. National regulators and competition policy authorities are in charge of carefully monitoring the process. The 1944 Chicago Convention and its amendments gave ICAO members the authority for levying airport charges, meeting the following criteria: independency of the regulator from political interests; accountability; formal consultation process between airports and airlines; regulation should favour cost reduction and investment in additional capacity; price regulation should be established on an individual basis because the market power of each airport depends on characteristics such as the volume and type of traffic or the potential competition from other airports (Starkie, 2002; Gillen, 2008, Bel & Fageda, 2010). Nevertheless, in most European countries regulation has been introduced by a central Government agency, which is clearly irrespective of independency and potentially market-distortive: for example,

59 in Germany, regional Governments are responsible for regulating airports but in the meantime they are also airports minor/major shareholders (Niemeier, 2002). Figure 33 - Relationship between government and regulator (Source: D. Gillen, H.M. Niemeier, 2006) Moreover, the fact of airlines holding shares of their hub airports suggests the intention to take part to the process and if necessary exert veto-power. Many airports run by the public sector are used to setting airport charges according to the principle that charges should cover total costs and each charge should reflect its costs. Moreover, charges are often levied on the basis of aircraft weight without taking into consideration aircraft movements that is a far more consistent marker of airport congestion. Figure 34 - Regulation form at EU airports (Source: ICF SH&E, 2006) 59

60 The Directive 2009/12/EC of the European Parliament and the Council of 11 March 2009 on airport charges, which should have been incorporated within corresponding national legislations by March 2011 and put in force on EU airports handling more than five million passengers each year as well as to each country s main airport under this threshold (which shall not apply to air navigation, ground handling and assistance to disabled passengers) remarks that airport charges must not be discriminative, that the regulator should be independent, that airports and airlines share information on cost structure, traffic forecasts, equipment and level of service before charges are finally approved. Generally speaking, two kind of regulation are present: Basic regulation prices are set and adjusted according to costs. There is a strong dependence on regulations, but the costs determinants are not explicit. Generally, airports and airlines do not enter into a formal consultation process. Regulation is never under the responsibility of an independent agency. Detailed regulation a formal mechanism establishes the assets that are to be regulated. Prices are set and adjusted each year according to costs, revenues, evolution in traffic volume and depreciation rates. Regulation might be accompanied by a formal consultation process between airports and airlines. However, regulation is not usually under the responsibility of an independent agency. Prices are set directly by the firm (public or private) that manages the airport in case of non-regulation. Among the mechanisms applied in detailed regulation, we should distinguish between: o Rate Of Return regulation o Price Cap regulation o Reserve Regulation o Airport Airline Agreements Basic regulation is the preferred form in the case of public run airports, while detailed regulation is preferred where forms of private participation subsist. Moreover, detailed regulation is preferred when relevant traffic is handled. In both ROR and Price cap regulation, airport management and the regulator have to shortlist which airport facilities and services are to be considered under the pricing regime in order to determine the Price cap. The so-called single till approach includes both aeronautical and non-aeronautical revenues in the determination of the price cap. Alternatively, the dual till system only considers aeronautical revenues. The single till principle has been widely used but this long tradition is slowly breaking down and even more EU airports are switching towards dual till regulation. The major arguments for dual till regulation is that - at capacity constrained airports - a single till approach would lead to aeronautical charges reduction to cope with the cap, thus potentially attracting more traffic getting the problem worse. Likewise, at un-congested airports the single till approach may potentially create further costs as aero-taxes are lowered to attract demand. On the other hand, the dual till approach fails in considering the extra-incomes in nonaeronautical activities generated by infrastructure investments and so it would suggest to invest less money or delay the investment while a single till regulated airport would balance the investment for airside capacity with the incremental revenue from landside activities. Moreover, under a dual till regulation, airside charges are likely to rise since they are no longer balanced by non-airside revenue, potentially leading to traffic reduction. (D. Gillen, 2008) 60

61 The Rate of Return approach is based on the principle that prices must be set high enough so as to cover total costs (depreciation of capital included) and generate a profit. ROR regulation limits the profits of the airport operator on the basis of its historical costs, therefore a tax increase is allowed only after an increase in costs. This system is seen as: incapable of providing incentives to reduce costs; irrespective of efficiency (cost inefficiencies might be built into the cost structure and then passed on to the consumers through increased prices); capable of encouraging over-investment Price cap regulation was introduced in the 1980s to lower the overall costs of regulation and to provide the incentives to improve economic welfare. Unlike ROR, price-cap regulated airport operators are allowed to increase prices. Nevertheless, price-cap mechanism is forward-looking and therefore provides better incentives for reducing costs and investing in capacity (Gillen and Niemeier, 2008). The cap is derived by the following formula Price cap = CPI (or RPI) X (1) where CPI is the Consumer Price Index, RPI the Retail Price Index and X the expected productivity growth. The difference between CPI and RPI consists in which items are taken into consideration (RPI includes mortgage interest costs and council tax) and in the fact that RPI is an arithmetic mean while CPI is a geometric mean. The value of X is determined by the regulator on the basis of a range of criteria. A highly positive value of X might be the result of cost savings in the past or suggest the will to improve efficiency. On the other hand, a highly negative X (thus enabling an increase of the price cap) might suggest a rise in the firm s costs or the need of infrastructure investments. The little incentive to investments is the main negative aspect of price cap due to the difference of life-span between investments and regulation period. Hybrid price cap foresee benchmarking techniques and provides still fewer incentives for cost reductions. Another issue with Price cap is the way to calculate CPI or RPI: the airport management may choose between a method relying on the predicted revenue/passenger (revenue yield) and a weighted average price. The latter is independent on traffic forecasts, is simpler and less prone to be manipulated and gives airports greater incentives to move to a more efficient pricing structure. Reserve regulation, also known as light-handed approach, consists in the intervention of the regulator whenever either the airport s market power is abused or the airport management and the airlines cannot reach an agreement. It is the threat of regulation rather than actual regulation which provides a safeguard against anti-competitive behaviour. This system suits countries with uncongested airport and with absence of competition due to geographical reason (for example it might be the case of Australia, Canada, China and USA to some extent). Airports can directly contribute to the degree of airline competition through pricing and capital investment decisions. Therefore policy makers should not only consider the welfare effects of airport regulation in relation to airports and their customers, but also the associated welfare effects on airline competition that result from airport pricing and investment decisions under the various 61

62 regulatory regimes (D. Gillen, 2008). Revenue sharing agreements in the European airport industry are often built in order to inversely bind the level of charges to the passenger growth over a certain period, configuring a sort of mutual agreement between the airlines and airports. The average charge per passenger is determined according to the future passenger growth rate: if the actual growth rate were higher than it was expected, airlines would give the airport management part of the additional revenues so as to balance revenue losses; on the contrary the airport would cover the whole or part of the airline s revenue losses through higher charges (D. Gillen, H.M. Niemeier, 2006). Also LCCs, such as Ryanair and easyjet, have sought long-term deals at their base airport but these agreements were sometimes rejected by the country s Competition Board (A. Graham, 2008). Very often these agreements increase the airlines bargaining power on airports. Figure 35 - Regulation form at some EU countries (Source: D. Gillen, H.M. Niemeier, 2006) Here is a few example on how unevenly the topic has been dealt with in EU: In the United Kingdom, only airports with relevant market power have some forms of regulation, while the other are not regulated provided that they don t engage in anticompetitive practices such as unreasonable discrimination between users, artificially low prices in order to influence competition or misuse of market power. The value of X in the price-cap formula is revised every 5 years by the CAA after a consultation with the Competition Authority and the airlines, during this time the airport operator is allowed to profit from efficiency improvements without having to reduce prices. Both the Civil Aviation 62

63 Authority (CAA) and the Competition Commission are independent from the Ministry of Transport. In Germany two federal laws establish that the prices charged by airports should be approved by the corresponding regulatory agency. Contrary to the rest of Europe, regional governments (rather than the federal government) are responsible for regulating airport prices. Thus, there is a potential conflict of interests with the regional governments acting as both regulator and airport manager. Hence, some agencies opted for ROR, others for pricecap regulation and other airports with private participation such as Dusseldorf, Frankfurt, Hamburg and Hanover have entered into private contracts with their airlines. A formal consultation process between airlines and airports is conducted. Aeropuertos Españoles y Navegación Aérea (AENA) is a public firm, dependent on the Ministry of Transport, which owns and manages on a centralized basis more than 40 commercial airports in Spain. AENA and the Ministry of Transport take all the relevant decisions regarding airports including investments, charges and slot allocations (thus disabling competition between airports). The prices charged by the Spanish airports to the airlines are, therefore, proposed by AENA and ratified by the Spanish Parliament without any consultation. Distinction between Aeronautical and Non-Aeronautical revenues Major airports now receive greater percentage of their revenues from non-aeronautical sources than from aeronautical sources. Rapid commercial development at and around airports make them leading urban growth generators as airport areas become significant employment, shopping, trading and business destinations in their own right. An airport area develops a brand image attracting even non-airport linked businesses. The functions and responsibilities at airports vary according to the airport s size. Here we provide a short list of the main functions and offices present at a target mid to big-size airport: security, immigration, health & custom as well as air traffic operations (routing of aircraft approaching the airport, taxi-in and out, meteorological services, pilot briefings and aeronautical documentation): these services are often the responsibility of the State in which the airport is located; administration and finance - human resources - corporate affairs: overall management of personnel, budgetary control, relationship with territorial entities and other legal issues; safety operations - infrastructures: handling services, information dissemination, inspections of the airport s infrastructures as well as decisions about operative restrictions, maintenance services, equipment and civil engineering works within the airport (depending on the degree of control the Central Government has on the airport operations); business, strategy & performance: definition of airport s long term objectives as well as of development and investment plans, assessment of airport s performances; public relation & marketing: promotes the airport, develops and manages commercial agreements and contracts with existing and new airlines, promotes the airport to general public through the use of the web, media, advertising, brochures and guided tours of the airport. 63

64 The definition of commercial activities involves a lot of services which might be located either at the terminal building or around the airport: duty free shops, retails, restaurants and bars, leisure services, hotel accommodation, banks, car rental, parking services, conference and communication facilities (O. Betancor, R. Rendeiro, 1999). Airport revenues from non-aeronautical activities consist of fees for the rights to operate businesses at the airport, rental of leased land and premises and receipts from commercial activities operating off the airport but relying on airport traffic for their customer base. Over the years, the development of commercial revenues at airports has been highly dependent on three key factors: commercialization/privatization of airports, socio-economic framework and airlines pressure for the lowering of aeronautical charges. According to the Airport Council International (ACI) annual World Airport Economic Surveys, commercial revenues accounted for 46% in 1995, peaked at 53,5% in 2001 and kept stable around 47% since then; however the importance of commercial revenues varies by region. Figure 36 - Historical breakdown of airport revenues (Source: Technopak) Figure 37 - Non-Aero revenue breakdown by region (Source: ACI) The commercial revenues share is deeply related to the traffic output: the Airport Retail Study of , which covers airports from all major world regions, found that commercial revenues/passenger were nearly twice as large for airports handling more than 20 million passengers/year if compared with airports of less than 10 million (The Moodie Report, 2007); moreover the non-aero revenue share was 35% at airports below 4 million passengers, 45% at airports between 4 and 20 million passengers and 56% for those airports over 20 million (Vogel and Graham, 2006). Non-aero revenues scenario at EU airports has been changing very quickly over time: in 1999 intra- EU duty and tax sales were abolished under the drive of the EU expansion to eastern countries, 64

65 bureau de changes outlets at airport have been diminishing since the adoption of the Euro, terrorism s menaces introduced periodic shocks in traffic demand and restrictions upon the items (and their quantities) passengers were allowed to carry on-board; finally, cheaper on-line sales and increasing restrictions on tobacco or alcohol had an impact on the kind of product sold. The urge on cost reduction exerted by airlines has been encouraging airport to take additional steps to exploit their commercial potential: additional facilities are being provided or concessioned and, if economically sustainable, aerotropolis are gaining importance in the world scenario (Kasarda, ): business parks, enterprise zones, supermarkets, cinemas, restaurants as well as participations in other core activities in the surrounding areas are for sure a vital area to invest money in. Moreover, a growing interest is being paid nowadays also to the working force of the airport. This provision permits the airport management a more profitable use of the building and land spaces other than the terminal. Concessioning or leasing terminal spaces to retail, shops, advertisement, offices and other premises occupied by airlines or governmental agencies and food & beverage is a form of private participation at airport but those private investors don t have any decision power nor representatives in the airport s management board. Normally, as it may happen for example for hotels and other facilities, airports own the space where the facility is located or the facility itself but they contract out the expertise to operate it while retaining ownership and collecting the revenues generated or periodically receiving a fixed amount of money. Airports may also be interested in making the concessioners or lessees responsible for finishing and furnishing the premises they occupy, obviously in conformity with airports plans not to alter harmony and architectural balance in layout appearance. Leasing contracts of airport properties usually are not complex, although clauses regarding the reviews of the rental charges and the reversal of ownership to the airport management when the contract expires may need to be expressed in greater detail. The length of the contract period would normally be influenced by the type of business involved: longer terms contracts would usually be offered in cases where significant investments are involved. The length of concession contracts vary from 1 to 5 years, leases of airport premises are usually shorter, while for the rental of airport land involving the construction of buildings by the lessee, the general range covers years. Generally, contracts are renewable, to permit the lessees to amortize the usually large investments involved (ICAO, 2006). Effects on competition The divestiture of airports assets and the transfer of ownership from central government to local authorities is not the solution to the problem of operational and accounting inefficiency of airport. Partial privatizations coupled with non-independent authority for regulation might still cause inefficiencies and be market distortive. The commercialization of airports has been proven positive and efficient in proposing a new form of designing, planning, financing and managing airports. Although, commercialization is an attractive option only for profitable airports. Privatization must be tempered with public interests, nevertheless strategic decision should be made on the basis of operational requirements rather than on political interests. A short duration of concessions and leases might be a driver for high quality of service and competition. The use of benchmarking analysis as well as scientific methods and analysis of passengers flows and dwell times are key issues airport managements have to take into account. 65

66 Regulation ought to be complementary to a slow developing process of competition: regulation criteria should be periodically revised. An airport charging policy has its greatest impact on airline operations when taking into consideration the existence of airport incentive schemes to encourage demand at regional and secondary airports on determined routes. Such discounts are, in many cases, a critical factor in low-cost carriers choice of a suitable airport for their operations. Subsidies are not allowed if they distort competition; hence, if given in a scheme of regional development programs, they must be made available to all players and not to a single airline. Therefore it is necessary to establish independent regulators in order to permit a balanced exchange of information on costs and demand forecasts. Finally, over-development of infrastructures is not an efficient way to boost the local economy as developments must be consistent with the demand. 66

67 Chapter 4 : Strategic overview and relationship with the territory Introduction As it is stated in the AF, airled aims at emphasizing and raising awareness about the growing socio-economic importance of airports and airport areas. Looking at international megatrends, airports today have become multi-modal, multi-functional enterprises generating considerable commercial development within and well beyond their boundaries and hence are pivotal to business competitiveness and economic development. Airports are expected to drive 21st century business location and urban development, as much as highways did in the 20th century, railroads in the 19th century and seaports in the 18th century. Investors and developers who recognise these trends and realise the potentials of airport areas (both airside and landside development) can select strategic sites at or near gateway airports and position investments to be leveraged by growing air commerce. It is demonstrated that airports are dynamic motors of economic development in their smaller or wider catchment area by generating demand for services, materials and jobs not only at the airport but at the airport supplying companies as well. Airports make it easier to connect business with other business situated on medium-to-long distance from the airport region. These relationships can exist between persons but can be developed between suppliers and clients as well (mainly businesses of high value-added sectors such as finance, R&D, drugs, food or others). If activities locate in the vicinities of airports, R&D related activities but also education, suppliers or clients of the activity in question (e.g. pharmaceutical industry or computer related activities) should be driven to locate in the area. Airports can have a positive impact on the tourist sector of their catchment area due to the enhanced network of destination to the rest of the world. Airport catchment area planning: an onion made of different layers It is of an utmost importance that a common path is assessed to establish and develop Airport Cities, taken for granted the legislative and social framework of each country. Also the administrative structure is a key issue to be taken into account as planning and development responsibility, competences, economic resources reside with different government levels varying with the countries. However, strategic planning of airport area development is often fragmented, without a consensus of the numerous stakeholders concerned and the lack of social acceptance. If there is not appropriate planning, airport-area development will continue to be spontaneous, haphazard, economically inefficient, and ultimately unsustainable. Most importantly, strategic development must be accompanied by aligning often diverse stakeholder interests and assuring an appropriate division of responsibilities and functions especially between public authorities: national and regional authorities, capital and large cities vs. peripheral districts and small and medium-sized towns in the vicinity of airports whose territories are concerned by airport area development. Functional complementarity must be guaranteed in the frame of a polycentric governance approach, in which each concerned party takes its share in planning, site marketing and implementation. This way, the competitive advantage of a given airport area could be significantly strengthened. In most cases, there are up to four different level in the administrative structure of a country: the central government, regions (land in Germany), provinces/districts and municipalities. Each level 67

68 has its own competences which are entitled with a scale of intervention (macroscopic vs microscopic point of view). The central government is entitled with competences on issuing national plans, guidelines and sectorial plans, highlighting general indications, assumptions and under a rational point of view providing a prioritization of interventions foreseen at least under a financial point of view (in this scenario of fragile economic growth, scattered public funding seems not to be a sound strategy, then the topic of resource allocation is to be deemed as a must). At a regional level, development plans are issued and prepared on the different topics this government layer has competence on; differences exist among countries as regional plans are not always requested by the law and, what is more, their content might not be imperative. For example, in France the regional plan is not compulsory, in Finland regional plans exist but are overcome by municipal Master-plans, in Ireland this level of territorial planning is not foreseen. At a provincial level, development plans exist only in a few countries. Action Area Plans are somewhere present; a delicate transition is going to happen in Italy as the concept of province will be renewed: there will be agglomeration of former separate provinces according to population and territorial closeness and accessibility and the creation of 10 large urban area agglomeration gravitating around the most important municipalities; hence, also the competences of those entities and the form and content of their development plan is still to be experimented. At a municipal level, masterplan and detailed plans are in force. Where provincial plans exist, municipalities plan are supposed to cope with them and clarify more in-depth what has been envisaged by the above levels. In other cases, masterplans are enclosed in regional or national development plan. Communities must continue to evolve and change. Acting in an entrepreneurial manner, communities can help shape the attractiveness of their region and enhance their relative competitiveness in an increasingly global marketplace. In so doing they will raise their standard of living by providing the resources necessary for economic growth and improved quality of life. By ignoring these competitive issues, a diminishing role in the global economy and ultimately a lower standard of living and quality of life is expected. More importantly, these policies and investments will allow the region to continue to reinvent itself and begin to produce job opportunities that can raise the rate of growth in standard of living. Public policies and investments designed to improve the region s standard of living must be broad based and address economic, environmental, and social equity issues. If the rate of increase in the standard of living is lower than the national one, it means that the region is not keeping the pace with the rest of the country. Possible reasons could be a higher share of jobs at the low end of the pay scale and an unbalanced growth of wages between the high and low ends of the pay scale. This could result in price excessive inflation or deflation, which are both negatively perceived, with a further deterioration of standard living (remote housing, urban congestion, diminished purchasing power). 68

69 Municipalities and government have also to foresee a proper local taxation system which permits to keep part of the revenues in-site to finance development, promote the use of greener technologies, public facilities and services expected by residents. Without sufficient funding to pay for these public facilities and services, residents would believe that these new units and people reduced their quality of life. Local government have little incentive and support to approve new, high density housing whose primary revenue contribution is the property tax; instead, they would rather approve land uses that generate revenues, such as sales taxes and transient occupancy taxes. In conclusion, a balance between policies of land-use fiscalization and a sound land-use policy is to be encouraged: the former leads to a distorted perception where the health of the municipal budget is mistaken for the community s economic prosperity while the second tries to encourage the territory players to invest into their business. Assessing which level is in charge of airport city development airled methodology doesn t conflict with the administrative structure of the countries, however some adjustment is needed in order to identify the entities in charge of the project. Air transport industry is a valuable asset within a country but it is not foreseeable that guidelines and procedures for the establishment, planning and development of airport cities are included in National Guidelines on Airports due to the diminishing involvement of public sector in airport financing, to the various kind of airport management in force which don t permit the Government to drive planning choices once some form of managerial divestiture (concession, partial/total privatization, leasing ) has taken place and finally as development of an existing airport into an airport city is not a political decision but first of all a market-driven process. Nevertheless, political decision taken by the proper administrative level could foster and ease the process as commitment is the primary key to the success of the strategy. The scope of an airport city rests within the catchment area, which is for sure larger than the boundaries of the municipality. The amplitude of the catchment area is comparable to a region although it might be larger as well as overlapping with those of other airports of a certain importance in the vicinities. Thus at the moment none of the aforementioned territorial entities seem to have the legitimation to deal with the topic of airport city development in cooperation with the airport management. Nevertheless, the administrative level which is naturally likely to be involved in the process is the region, as administrative level directly subordinated to the central Government of a country. A typical roundtable regarding airport development should include the airport management (and his shareholders), the municipality in which the airport is located as well as the adjacent ones, support agencies such as Chamber of Commerce and University, the principal municipality in the catchment area, business and commercial partners. Each of those would have their own responsibilities. The role of the airport management The airport exerts its function of provision of transport, both business and leisure, through the network of routes (through its commercial relationship with the airlines). Key factors are the capacity and the frequency provided. Moreover the airports promotes its accessibility and connectivity in 69

70 order to attract further demand. From the other point of view, the airport operates also as an economic operator through the collection of direct and indirect revenues. As we have seen in Chapter 3, indirect revenues are gaining a great importance in airports economic balance. Traditional sources of indirect revenues so far have been parking sites and shops/retail inside the terminal. Nevertheless, other strategies and possibilities of airport involvement in its development are present which require a crescent participation, capability to invest capital and bear the financial risk of land acquisition and development. More aggressive approaches in land development require also an enhanced knowledge of the territorial players and of their needs (therefore an estimation of the potential economic return of the investment), as well as know-how in marketing, development and management strategies of non-aviation related infrastructures. Figure 38 - Hierarchy of risk in Airport Participation (Source: MXDdevelopment website) 70

71 Figure 39 - Levels of Airport Development Risk to reward (Source: MXDdevelopment website) What is important is that the airport has a good idea about its masterplan, not only from the point of view of architectural solution and eco-sustainability of the project but also on the broader sense of determining in advance which areas to be allocated to infrastructure development and to which kind of business and keep them intact until the infrastructure is necessary. For example, the provision of a sufficient spacing for building a second runway, parallel to the first, so that simultaneous operation would be granted is a notable plus. It is important to bear in mind that airport development is essentially twofold: on the one hand the development is passenger-oriented (and this path is defined by the airport management through the masterplan which foresees trends and growth in a medium-long time span), on the other hand is territory-oriented through national and regional standards and regulation as well as territorial agreement with the communities. Airports growth possibilities would not exist if development opportunities were not discussed and agreed at the local level. Concepts of sustainability of new infrastructure and traffic growth as well as innovative building technologies are a core issue to make an airport renowned and therefore reliable to the stakeholders and users. Last but not least mentioned a separation between the airport area and its developing sites and the urban context is to be foreseen and kept in order to guarantee that externalities don t reach critical threshold. Real estate is a volatile and fast changing market. This is the reason why airport cities management should be able to balance risk approach in land investment-acquisition-development with flexibility in masterplan provision, that is to say that masterplan should foresee various scenarios and development solution for the target area. The ability of a sound airport management lies in investigating and foreseeing passengers and users need in advance and being ready to bring services to them in a reliable way. 71

72 The terminal will be the centre of the airport city, which will be surrounded by all the infrastructures and buildings deemed necessary and which have proven to guarantee the airport a notable revenue. Partnerships with nearby communities could be signed to host also general purpose service inside the airport, which could be for example hotels, congress areas, expositions, kindergarten. What is important is that the resulting development is harmonious (a provision of a vocational target to each area is expected) and allocates high value-added and core activities in the vicinities of the main terminal. Although all businesses and industries (and jobs) contribute to economic growth, it is important to distinguish between those industries that are primarily local serving and those that sell their products and services nationally and internationally. These two types of industries play very different roles in economic growth. This latter group of businesses, referred to traded clusters set the pace for economic growth. The role of planning office Regions which have among their traded clusters players which request skilled workforce and high level of education - granting them on the same time higher wages and standard life condition plus infrastructures capable of making them competitive and successful worldwide - have a marked competitive advantage and airports and territory will draw enormous benefits. A territory s economic prosperity depends foremost on the availability of a knowledgeable and skilled workforce. Therefore perception has been developing that school district databases have to be connected on a territorial basis to track and assess student performance to better ensure a match between education and skill requirements and attainment as well as to reduce inequality in opportunity provision to peripheral areas. Moreover, an efficient employment bureau system, capable of matching industry demand for staff with workforce availability and to provide workers with real training opportunities to favor job turnover and transition is a key driver for growth opportunities and incubator of possibilities in the territories. In an ethnically diverse framework, where also population s median age is due to increase in the next future, actions are to be taken to ensure the conservation and the developing of the productivity of the region s human capital. The airport and its surroundings should become a working place not only for airport operators but also for residents and employees of the firm situated within the catchment area; moreover the airport should become an incubator of new ideas and technologies, profiting from its proper technological vocation, in cooperation with the territorial entities. Make the airport a destination means that the airport has to become a reason to stay and not only a transport node; that is why new development should attract people and make them willing to stay. A further catalyst to the development of airport cities is the working force that lives and operates within the catchment area of the airport: given the fact that it is foreseeable that value added industries such as jewelleries, technology, IT, food and perishables, heavy machinery, advanced manufactory, logistics-distribution, aviation tech, pharmaceutical industries, research centres and universities reside in the vicinities of the airport to establish useful and efficient transport corridors to/from the airport city, the presence of skilled working force enable also the dissemination of know-how, the creation of new job opportunities within the area, the attraction of investment and diversification of activities through the network of supplying industries related with the bigger players in the area. As far as buildings and housing are 72

73 concerned workforce housing have to be affordable to avoid urban sprawl and longer commuting distances. This topic is actually directly connected with the topic of ground access to airports as transport network should be engaged by flows of both passengers and goods building the relationships between the airports and the territory and not by local commuters striving to get to their workplace. This strategy is based on smart growth principles, putting jobs close to housing to reduce commute times, urban sprawl, and CO2 emissions from tailpipes. Also, this recommendation encourages the use of more renewable energy sources also in civil engineering. Setting objectives for transparent, efficient, smart and green development of the territory and ensuring that expenditure plans are consistent with the overall long-term strategic plan and in coordination with municipalities, regional, national and private development s plans is crucial to avoid that each player pursues its own vision with no idea of the big picture, leading to service duplication and inefficiency. Public policies and capital investments are catalysts that influence the supply and demand of production inputs, through business retention and attraction, whose entrepreneurial actions in turn are responsible for creating jobs with relatively high rates of productivity, supporting higher wages and a quicker pace of economic growth. In today s economy, globalization allows firms to source their factors from the international marketplace and to locate their production and service activities off-shore. Public policies and infrastructure investments should aim at providing a condition for high rates of economic growth to occur through the retention and attraction of businesses that facilitate technological progress and stimulate innovation in the economy. Territories have to grant their key players the best framework to develop their business through infrastructure provision, synergies and supportive policies where allowed, as national and international players are deemed to influence positively the output per worker, given their higher long-term economic growth potential. Moreover, a positive trend in trade cluster industries will have a cascade benefit on the whole productive framework of the territory. Local jurisdictions can undertake advance planning and impact analysis of new investment provided that they are consistent with approved plans and current environmental issues in order to encourage development where it is most needed. Public policies and investments designed to improve the region s standard of living must be broad based and address economic, environmental, and social equity issues. Reducing the public costs imposed on businesses and assuring that activities funded by public expenditures meet their objectives and are efficiently and effectively implemented is a mean to attract investors and to assure a real competition and the promotion of value and efficiency of the territory. Finally, monitoring and reporting on the territory s progress in meeting the challenges and goals identified coupled with periodic review of the objectives can help the local stakeholder to keep the focus on the development of the activities in the territory. The point is that pure self-sufficiency is a recipe for a Stone Age standard of living. Instead, with trading exchanges, knowhow and products circulate and the result is an improvement of standard of living. The underlying point for economists is that free trade stimulates economic growth, usually by increasing productive resources and/or technological change. Economists support for free trade rests primarily on the fact that imposing or removing trade restrictions invariably helps some firms and people and hurts others, but results in a positive net benefit for the country as it moves toward freer trade. 73

74 As far as investment opportunities are concerned, in the past traditional funding forms were prevailing, coming in most cases from the public sector through the Department of Transport or the Authority in charge of air transport (FAA for US, AENA in Spain ), State & Local taxes, Government securities and loans. Those funding were typically restricted to on-airport development. Airports have to cope with the duty to offer transport opportunities to the territory they serve but also seek revenue opportunities as aeronautical revenues alone are not sufficient to ensure the cash flow necessary to deliver high standards of level of service and to finance the development. In particular, the phenomenon of LC traffic has introduced in the system a large amount of new demand but it has been negligible from the revenue point of view as Low Cost passengers are less prone to buy items inside the terminal and have been historically attracted by the low fares. We can assess then that LC traffic phenomenon has exarcebated and highlighted the issue of capacity at airports but has not resulted in additional cash flows; hence airports have been forced to upgrade infrastructure drawing revenues from other sources which have become the non-aero revenues. Airports are then oriented to explore new segments of non-aero services to offer their passengers in order to drive new typologies of income. Revenues that the airport receive from the taxes paid by the operating airlines are less and lesser sufficient to finance infrastructure investment and moreover, airlines are gaining decision powers towards airports as competition allows them to withdraw investment and routes from an airport and start service from another which offers better condition. The trend as far as aero revenues are concerned will be that the amount to be paid by the airlines will be negotiated between airport management and airlines and anymore a fixed item. In response to limited public funding, airports are exploring innovative financing opportunities which could be the sale of assets, privatization, airport retail but also real estate funds, investment funds and sovereign wealth funds where allowed by the national law. The figure below describes better the investment opportunities and makes notable example of application in existing airport cities worldwide (the topic has already been discussed in the previous focus of the document). Figure 40 - Alternative sources of airport investment financing (Source: MXDdevelopment website) 74

75 The airport should transmit the identity of the city/territory it is located into. Airports are changing their habit from a transit-oriented infrastructure to that of a transport district. For that reason areas within 10 walk distance from the terminal, which are not allowed to host residential buildings, could be used to host high-tech and creative offices, hotel and retail business for those who need quick access to airport terminals to travel for day-trip meetings profiting from the airport network. Airport areas should have a flexible vocation, that is to say that re-configuration, rehabilitation and remodelling of buildings internal layout could be foreseen in order to permit use shifts (from office to warehouse/loft/retail ) avoiding from the one hand land consumption and on the other hand vacant/underutilized parcels. In order to avoid land consumption in already urbanized territories, an online record of sites available for re-qualification and re-development should be created and kept up-to-date by municipalities. Priority should be given to sectors such as research & development, light industrial, food, pharmaceutical & bio-medical and the economic-driver clusters. It could be useful reserving prime employment land (existing and vacant) for light industrial and research and development uses and establish a redevelopment process that would renew and retain existing industrial lands for similar uses in the future. Nevertheless in the vicinities of airport terminals, corridors and districts could be realized, each one with its use vocation: industrial district with low-density buildings offices - warehouses and supporting retail, hotels convention centers and services to the airport community as well as passengers and district users (kindergarden, post offices, parks, university departments, for example transport/logistic engineering incubator as well as research centres connected with biomedical and transplant activities ), multimodal transport junction with railway station, coach connection terminal, fast transport to airport terminal and car parking slots (multi-storey or underground if compatible with airport safety). The pros behind this land use hypothesis lay in the fact that flows can be easily kept separated and traffic congestion is reduced. The weak point on this hypothesis of land use lies in the fact that some districts could lose their identity in favour of a neutral urbanization that has identity only during working hours. This is also the risk in which airport terminals might sometimes incur when an aseptic design of corridors, fingers and franchised duty free shops are the only structures foreseen. 75

76 Figure 41 - Positive relationship linking airport development non aero revenues attractiveness - competitiveness (Source: MXDdevelopment website) Figure 42 - Airports acting as self-developers (Source: MXDdevelopment website) All this effort by the airport should be carried out by a specific division in charge of developing services for the territory; this division would work closely with the Infrastructure Development Division and Marketing Division and will be focused on the improving of the image of the airport city in particular during the development of the project. It would be in charge of Airports Real Estate marketing and management, defining planning and designing guidelines to ensure the airport a renowned style (which configures itself as a brand image), territorial agreements for infrastructure and transport purposes and developing partnerships with strong subject players. 76

77 The role of the regions and of the municipalities The second principal actors in the process are the municipalities directly involved within the immediate vicinities of the airport, were they a major urban centre or a small one. In particular, the major urban centre should develop a strong bond with its airport through promotion, business relationships to establish, promotion of round tables and agencies involving business players and stakeholders and spokesperson of the airport and the territory with regards to issues concerning the area (such as externalities and ways to mitigate them and possibility to enhance commercial exchanges through i.e. free trade zones, custom offices, tax incentives ). As long as more than one community resides in the vicinities of the airport, the relationship framework becomes more complicate, then greater working together is required as objectives have to be aligned and concentrated towards the optimization of the area planning in order to favour the mutual development of both the airport and the territory. Contribution should be expected also by other players in the area such as agencies, chamber of commerce, real estate developers and local as well as regional/national transport agencies which are in charge of granting a multi-modal access to the airport. As airport cities normally have a twofold business consisting of both freight and passengers traffic, separate access and paths are needed in order to not alter the perception and the fruibility of the infrastructures. In the following figure, a list of the possible alternatives through which the public sector can contribute to infrastructure investments. Figure 43 - Public sector investment mechanism (Source: MXDdevelopment website) 77

78 Estimation of the multiplier effect of airport cities in the catchment area The topic of airport impact on the territory is of an utmost importance. In particular, an accurate assessment of the advantages as well as of the externalities induced by the presence of the airport on the territory are deemed important to plan and time investment and development processes of the area and of the airport infrastructure. Moreover, data on direct, indirect, induced and catalytic impact can be used in a twofold way: on the one hand they can serve to justify and call for further expenditures in infrastructures and facilities/services development of the airport first and of the nearby territory (accessibility, real estate opportunities, requalification of abandoned areas ), on the other hand data positive data on territorial performance can act as a Airports make substantial contributions to regional economies. They facilitate the movement of people, goods, and services throughout the nation and the world, allowing the economy to operate more efficiently. As the head of the Federal Aviation Administration s Air Traffic Organization noted, In today s ever-changing and innovative world, aviation provides a vital link to economic opportunities at home and abroad. In the wake of global economic and financial uncertainties, runways have become the new main streets for cities and towns to get down to business and soar once more. 15 Aviation is also critical for local and regional tourism. Air transportation is a major means of bringing in tourists and their related spending on food, hotel, entertainment, and other items. Airports are also centres of significant economic activity themselves, as the locus of activity directly associated with passenger and cargo air travel. There can be no doubt that there is a strong correlation between the presence of an airport and economic success. The level and fluctuation in passenger numbers are also powerful predictors of the level of economic development, population growth, business and tourism activity in an area. An extremely busy airport can generate a magnetic effect on the settlement of individual and service undertakings. A successful airport which meets the needs of the local, business and tourist industry can act as a catalyst for employment and a guarantee of the economic development of a region. The presence of an airport in a region generates economic activity, stimulates economic growth and creates employment. An airport is a location factor for businesses and opens up regional markets to foreign customers, businesses and tourists. The financial and business services sectors and high valued added actors, have been identified as air intensive industries i.e., businesses which make the greatest use of air transport and for whom accessibility to air services will have the strongest influence on location decisions. The air transport industry also has important multiplier impacts, which mean that its overall contribution to employment and GDP is much larger than its direct impact. Airports can also have catalytic effects for the economy which include: attracting new business investment to the airport area; 15 U.S. Department of Transportation, Federal Aviation Administration, The Economic Impact of Civil Aviation on the U.S. Economy, August 2011, Washington, D.C. 78

79 retaining existing companies in the airport area or region and enhancing their expansion prospects; promoting high value export success of companies located in the airport area by improving quick access to suppliers and customers; enhancing the competitiveness of time-critical manufacturers and distributors; attracting tourists and business travellers to a region and therefore generating employment and business revenues in local and regional establishments; increasing the number of distant markets; increasing land and commercial property values in the airport area; facilitating and trade and enhancing competitiveness. Understanding the economic impact of any airport is vital to understanding its value and contribution to the local, regional and national economy. A variety of methods and economic tools have been developed to measure these impacts, the most commonly used is the Input-Output Method which measures three separate effects direct, indirect and induced effects of an airport. Multipliers are used to estimate the indirect and induced effects while the size of the multiplier applied is dependent on the population of the catchment areas and the relative impact of the airport on the region. This multiplier effect comprises the local value of money as it circulates through the local economy and as individuals or firms associated with airport business buy goods and services in the local economy. A study commissioned by Airport Council International 16 found that multipliers applied to European airports ranged in value from between 1.3 to 2.4 depending on the size of the airport, economic activity in the region and the population of its hinterlands. The three major components of economic impact are direct, indirect and induced impacts. These distinctions are used as a base for the estimation of total economic impact of an airport. Each of these three components requires different tools of analysis. Employment impact analysis determines the economic impact in terms of jobs created and salaries and wages paid out. In the case of the airport, the direct, indirect, induced and total numbers of full-time equivalent jobs created at the airport are examined to produce a snapshot of airport operations. Direct aviation sector impacts account for the economic activity of the target sector itself. Direct employment impacts are measured by counting those individuals who work in a particular sector of the economy. In the case of an airport, all of those people who work in an aviation-related capacity either on-site or off-site would be considered direct employment (e.g. customer service, airline crew based in Orange County, ground handling, cleaning, maintenance and airport staff members, etc.). Direct visitor spending impacts from non-local visitors to a region that arrive and depart via the airport, rather than by other means, is considered a relevant economic impact. This includes visitor spending on lodging, meals, entertainment, transportation and retail. The direct employment associated with these categories of spending are counted as part of the economic impact of the airport. Indirect impacts are those that result because of the direct impacts. For an airport, indirect impacts encompass the economic activities of off-site firms that serve airport users. Indirect 16 York Consulting (1998). The Economic Impact of Airports. 79

80 employment includes the portion of employment in supplier industries which are dependent on sales to the air transport sector. An example would be food wholesalers that supply food for catering on flights. Induced impacts are economic impacts created by the spending of wages, salaries and profits earned in the course of the direct and indirect economic activities. Induced employment is employment generated from expenditures by individuals employed indirectly or directly. For instance, if an airline maintenance firm employee decides to remodel his/her home, this would result in additional (induced) employment hours in the general economy. The home renovation project would support hours of induced employment in the construction industry, the construction materials industry, etc. Induced impact is often called the household spending effect. Figure 44 - Direct indirect induced total impacts of an airport (Source: Intervistas) Direct economic impact measures the employment and economic impact directly associated with the airport. This includes employment from organizations such as airlines, ground handling, airport operations, airport concessionaires, and air traffic control firms. In addition, air services bring in visitors, who spend money on hotels, taxis, meals, and entertainment in the region. The annual direct impact is made of spending by visitors arriving, earnings related to the operations of the airport, jobs (full-time equivalent jobs) and employees earnings and gross domestic product generated within the territory. Total impacts are calculated by adding together the direct operations impacts, direct visitor spending impacts, indirect impacts and induced impacts The impacts of the directly-related parties business on supplier industries (e.g., off-site catering of aircraft) are indirect impacts. In addition, because the employees of the firms and organizations directly and indirectly related to the airport spend their wages on other goods and services and that spending supports other employment and economic activity (e.g., at home repair stores, dry cleaners, restaurants, etc.), activity and employment at the airport exerts induced impacts on the regional economy. 80

81 To calculate the direct employment impacts, the employers associated with the operation of the airport have to be taken into account segmented per industry type (airlines, ground handling firms, accommodations, ground transport firms personnel) - job category - residence to calculate the number of individuals employed (taking into consideration that a full time employee weights different than a part time or a seasonal employee) and the total amount of earnings paid to all employees both on-site and off-site. Indirect and induced effects are usually estimated using economic multipliers developed by national Bureau of Economic Analysis on the basis of economic models. Parameters needed are the tax collected by the airport through aeronautical revenues and paid to the government, travellers (both domestic and international)spending patterns and travel characteristics. Measurement of indirect and induced economic activity is difficult, time consuming and costly. Multiplier impacts must be interpreted with caution since they may be illusory when the economy experiences high employment and output near industry capacity. It is recommended that the following limitations are taken into account: the accuracy of the structure and parameters of the underlying model; the level of unemployment in the economy; the assumption of constant returns to scale in production; the assumption that the economy's structure is static over time; and the assumption that there are no displacement effects. Therefore, the quantification of the impacts of the airport is a tough topic, in particular as far as indirect and induced impacts, the quantification of the parameters is much dependent on the local framework of the territory hence a quantification and a comparison of data between different countries and different economy scenario is a not so reliable analysis. From the local point of view, estimation, although strictly related to the time of the analysis could be conducted in case of macroscopic changings to the framework: for example a dramatic variation of the extension of the catchment area as it might happen thanks to the opening of a new link service to a target airport such as a high speed train provided that the potential departing traffic attracted were not merely a LCC segment which has proven to be more impacting on airport infrastructures than on airport financial account, while to a certain extent LC induced traffic has a positive fallout on the economy of the territory when tourism and entertainment opportunities are taken into account. In addition variations likely to produce a noticeable impact on the territory and on the airport catchment area should be the entry of a new big player willing to base a branch of its firm within the local territory (some examples should be Amazon in the district of Piacenza which could impact positively on Parma airport or much likely on the airports of the Lombardia region and Philip Morris in the district of Bologna in the Emilia Romagna region), or the buyout of the airport itself from a renowned foreign airport operator at the continental level provided that the development plan submitted by the buyer show its willingness to develop and to invest within the airport s catchment area, territory and infrastructures (this is the case of the recent buyout of Ljubljana airport by Fraport AG) or, last but not least mentioned, a relevant natural event capable of stopping the air traffic for a while (the eruption of a volcano for example); in this last case the impact would be drawn from a negative 81

82 performance of the area due to the traffic loss and not from a positive performance due to the enhancement of the infrastructure or the enlargement of the catchment area or of the market field. The creation of traffic corridor in the vicinities of the airport Professor J. Kasarda in his books has depicted the ideal image of the airport city according to the figure below. Figure 45 - J. Kasarda s scheme of an aerotropolis (Source: aerotropolis website) Although most aerotropolis development to date has been organic, spontaneous and haphazard often spawning congestion and environmental problems in the future it can be markedly improved through strategic infrastructure and urban planning. Dedicated airport expressway links (aerolanes) and airport express trains (aerotrains) should efficiently connect airports to major regional business and residential concentrations. Special truck-only lanes should be added to airport expressways, as should improve interchanges to reduce congestion. Time-cost accessibility between key nodes should be the primary aerotropolis planning metric rather than distance. Businesses should be steered to locate in proximity to the airport based on their frequency of use, further reducing traffic while improving time-cost access. Airport area goods-processing activities (manufacturing, warehousing, trucking) should be spatially segregated from white-collar service facilities and airport passenger flows. Noise and emission-sensitive commercial and residential developments should be sited outside high-intensity flight paths. 82

83 Cluster rather than strip development should be encouraged along airport transportation corridors with sufficient green space between clusters. Form-based codes should establish general design standards for airport area buildings, walkways, travel lanes, landscaping, and public space. Placemaking and wayfinding enhanced by thematic architectural features, public art, and iconic structures should make aerotropolis development,s interpretable, navigable, and welcoming. Mixed-use residential/commercial communities housing airport area workers and frequent air travellers should be developed with easy commutes and designed to human scale providing local services and sense of neighbourhood. In short, aerotropolis development and sustainable "smart growth" can and should go hand-in-hand. The above outcomes will not occur under most current airport area planning approaches which tend to be localized, politically and functionally fragmented, and often conflicted. A new approach is required bringing together airport planning, urban and regional planning, and business-site planning in a synergistic manner so that future Aerotropolis development will be more economically efficient, aesthetically pleasing, and socially and environmentally sustainable. The real question is not whether Aerotropolises will evolve around major airports (they surely will). It's whether they will form and grow in an intelligent manner, minimizing problems and bringing about the greatest returns to the airport, its users, businesses, surrounding communities, and the larger region it serves. With this image as the final aim of the project, PPs have been requested which idea of ideal airport city they had in mind; in addition, after the Masterclass held in Bologna and in the earlier stages of the development of this document, PPs and their external experts have been requested to answer to a questionnaire investigating some of the aspects related to the airport city, in particular: Airport landside (which is all what the passenger finds before undergoing security controls) Modal alternatives to get to the airport Relationship between airport and freight infrastructures Regional marketing Creation of synergies and partnerships with local stakeholders Actions to take in case of traffic expansion Restrictions to airport fence development Need for procedures harmonization at a continental level Answers have been treated in an anonymous form; questions with multiple options were assigned a decreasing scale from the most to the less important in the PP s opinion and have been designed in order to be answered to from a target position (eg. Airport manager, part of the territorial government layer, external experts such as university staff or advisors, entrepreneurs ). Numbers in the following table will then be the sum of the grades given to each option by all the PPs that answered to the question. 83

84 Table 2 - Airport landside view according to PP s airport development masterplan (Source: Author) With no surprise, Table 2 shows that PP give an high importance to the number and quality of the connection between the urban nodes and the airport. The lower rank of options such as real estate investment, participation in building of places where to host events, fairs, business meetings, conferences, exhibitions and opportunities to draw higher non-aero revenues if compared to construction of parking slots and check-in and boarding halls on and off-site betrays a latent oldfashion idea of airport landside planning, although the level of service of boarding infrastructures must be kept high. Table 3 - PP s foreseen behaviour in case of traffic expansion (Source: Author) Table 3 confirms the importance given by PP to connection between airport, city centre and CBD and shows that, in case of relevant traffic expansion of the airport scenario which is awaited by Polish and Slovenian partner for their target airport and has been recently taking place in the main airport of the Emilia Romagna region a new masterplan and new land-use planning tools would be drawn. Less importance seems to be given in this extent to the development of air cargo facilities and of measures to limit externalities, maybe due to the fact that Polish and Slovenian airports at the moment seem not to be bothered by air transport externality issues. 84

85 Table 4 - Accessibility to airport with reference to transport modal choice (Source: Author) Again with no surprise, Table 4 shows that target airports are connected only by road at the moment while more mass transport related options such as aerolink on rail, people mover, under/overground heavy mass transport solutions have been put aside or foreseen for the next future. Table 5 - PP s view on freight terminal inside the airport city (Source: Author) Given the fact that, among PP, the willingness to involve air cargo operations as well in their operation is clear, options such as number and frequency of air connections towards, the presence of operators (meant as both handler operators/forwarders and airlines operating scheduled services from/to the airport), presence of freight facilities on and off-site, airport accessibility and capacity are heavily taken into consideration. Two issue which are worth attention such as room to stock and the possibility to expand have not been deemed important by PPs while for the logistic chain and according to the shared aim to develop accordingly territory and airport the presence of available land to be used is of a great importance. In addition, also the location of the freight dedicated infrastructures and the size of goods to be handled are worth a careful analysis: PPs divide themselves between locating structures capable of handling all kinds of good to whichever distance off-site (but at a short distance), probably with the possibility of performing security control off-site and then proceeding to the airport for the boarding and the departure, and locating facilities inside 85

86 the airport fence (versus higher taxes to be paid), probably in direct connection with multimodal transport options (eg rail and air cargo via road). Table 6 - PP s view on regional marketing opportunities (Source: Author) Table 7 - PP s view on regional marketing opportunities (Source: Author) As far as regional marketing is concerned, PPs (and in particular their external expert coming from the airport industry) agree in giving the higher marks to the internet and to the proactive participation of the airport management and/or its stakeholder to fairs, exhibition, EU projects. The most important features of the territory to be advertised should be the good accessibility, tourism opportunities and the strength points, followed by transfer time information to/from business structures and investment opportunities within the area. 86

87 Table 8 - SWOT analysis on synergies and partnerships with territorial stakeholder (Source: Author) To achieve better results, as it has previously said, cooperation between airport and local stakeholder is encouraged and expected at all levels. Therefore, permanent roundtables between the airport, the local government (in particular municipalities and region), airport city development agencies and business stakeholders is expected, cooperation between airport and freight/logistic platforms is to be set and, last but not least, harmonization and smoothing of procedures and performance based indexes such as already is for airport terminal IATA standards is to be pursued at least at a EU level. 87

88 Chapter 5 : Multi-modal and multi-directional accessibility to/from the airport cities Airport accessibility and their operation and development Airport accessibility is not limited to responding to the needs of potential passengers (Ashford, Wright 1992). The other groups who are affected by the airport s location and the transport connections between the airport and the corresponding city/region are: persons seeing passengers to and receiving them from the airport, persons visiting the airport (sightseers), airport staff, cargo handling staff, service providers. Individual transport solutions may offer a different quality of service from the perspective of the above groups of users. Their satisfaction may depend on the frequency of transport, the schedules (notably the first and last travel times during the day) and even the type of vehicle used (e.g. the degree to which it is fit for carrying luggage). Thus the accessibility of an airport as a determinant of its development and power of influence goes beyond the mere role of public transport as a means of transferring passengers to terminals. Transport solutions are divided into those supporting the functioning and impact of an airport and those that compete with it. As regards passenger transport, the competitiveness of aircraft as a means of transport grows with the distance. The duration, and for the most modern airliners also the comfort, of travel on long-haul flights make air transport the best solution in this sector of the market. The market relationships between air transport and other transport sectors for short- and mediumhaul transport are much more complex 18. Usually, international domestic travels within Europe entail short distances, whereas in other continents displacements are of medium- to long-haul nature. Thus in Europe other transport alternatives are much likely substitutes for aircraft. Rail transport is a most successful competitor for air transport, even more so considering that air and rail transport compete with each other on ever longer routes. However, in Europe the issue is not equally relevant for all countries, as it mainly concerns high-speed railways, whose further development may affect regional airports network as 600 km trips or displacement worth an hour time are the limit between cooperation and competition between rail and air transport (Givoni, Banister 2006). From the perspective of the rivalry between air and rail transport, especially for short- and medium-range travel, the distance between the airport and the centre of the city served, as well as the solutions adopted, are not negligible. Waiting times within the terminal or the railway station are to be taken into account in the total travel time. However, unlike many airports, railway stations are usually located close to city centres and provide direct access to it (the distance of newly established airports from city centres keeps growing due to urbanisation processes). A cooperation between air and rail transport alternatives can take place on a local scale through urban rail or high-speed rail. 18 To distinguish between short-, medium- and long-haul routes, use is usually made of travel time ranges the difference between the short- and mediumhaul transport is usually three, and between medium and long haul six hours of travel. 88

89 Airport accessibility is an element of rivalry also for passengers and carriers, particularly for choices of hub location. Adequate organisation of the infrastructure required to ensure proper airport operation is becoming a huge task. The choice of specific solutions as regards the means of transport serving the connection between the centre of the settlement system and the airport depends, among other things, on the following factors: the airport size in terms of the volume of passengers served, which determines the size of the demand for transfers, the regularity of air operations served by the airport, which influence bus and rail schedules, the possibilities for interfering with existing urban tissue within the area between the airport and the city centre a factor determining the costs and size of investments, the transport infrastructure available in the area of the airport. The above-mentioned factors influence not only the choice of the means of transport, but also the frequency of connections made available. The shuttle bus connecting the terminal with the city centre without intermediate stops is the most popular solution in Europe irrespective of airport size. The popularity of the use of bus transport (both at a local level and beyond the connection with the nearest city) does not depend on airport size, but rather on the location of the airport with respect to the city and its network of public transport. The importance of the presence of rail transport solutions grows with airport size: more than half of the airports that serve more than 8 million passengers per annum use a railway line and each of the largest European airports (over 25 million passengers annually) have either a city railway or subway connection, with some of them benefiting from high-speed railways. Attempts to use maglev trains or monorail systems to connect airports and city centres are also worth noting. In general, monorails are mainly used to transport passengers between airport terminals. Sufficient parking areas in the vicinity of the airport and the network of public transport connections between the airport and the main city served are among the crucial determinants of an airport's market success. Matching public transport to airport needs still remains a major challenge; frequency, number of connections, travel times and cost are not the only problems linked to the organisation of public transport between the city and the airport: if the terminal is just one of many stops, also staff, students and commuters will use it to the detriment of level of service of both airport passengers and the local population. To be successful, public transport schedules need to be correlated with the flight schedule, with reasonable fares charged. 89

90 Accessibility and potential catchment areas of long-haul transcontinental airports in Europe Investigations of airport accessibility based both on bus and rail transport entail the delimitation of the catchment areas. The potential catchment area comprises the area within which the temporal accessibility of an airport is in each and every place better (i.e. reaching it takes less time) than the temporal accessibility of other airports of the same category. The delimitation of the potential catchment area for an airport is based on the assumption that the key factor for determining the borders of the actual catchment area is represented by temporal accessibility. The size varies depending on the means of transport analysed. The importance of the transport modal alternative chosen to reach an airport can be illustrated by isochrones. As railway connections mostly provide links to cities, rural areas - even if geographically located near to the airport - are less accessible than remoter urban agglomerations within the catchment area. When comparing bus and rail transportation curves, one can see differences in the form of the catchment area: given the omogenity of road network, the catchment area for road transport covers entire densely populated urban areas with the adjacent suburban settlements while, being the rail network a radial one, railway transport covers only the areas lying close to lines. In Central Europe, only airports serving capital cities enjoy the rank of transcontinental ports. The accessibility of European airports offering transcontinental flights varies considerably from country to country (see Fig. below). As for countries such as Germany, Belgium, the Netherlands and Switzerland the nearest airport can be reached mostly in a 2-hour drive. In the large countries of western and south-western Europe the situation is much more varied, as there might be regions worth at least a four-hour drive to reach a transcontinental airport. Although, remote areas with regard to intercontinental accessibility often have close intracontinental airports offering interregional flights to the national hub. The situation is similar in Central Europe and Scandinavian countries, where the deficit is made up for by the extended system of domestic connections. In the figure below, the chromatic scale represents the accessibility time to the airport by private car, while the decreasing dimensional square scale ranks the availability of transcontinental flights from the airports taken into account. The following image represents the catchment areas of a list of European hub airports as it has been drawn by its author in

91 Figure 46 - Accessibility of transcontinental long-haul airports in Europe (Source: Trzepacz (2012)) 91

92 Figure 47 - Catchment areas of long-haul transcontinental airports in Europe (Source: Trzepac et al (2012)) France, Spain and Italy are examples of countries where long-haul intercontinental flights are offered by major airports in addition to the central hub. The UK and German system of airports clearly stand out, with 6 ports offering long-haul intercontinental connections in both countries. In Germany and the UK distances between intercontinental airports are relatively short, with good accessibility guaranteed by a well-developed system of motorways and high-quality railway transport (including high-speed rail). This means that the airports compete directly with one another to a greater extent than elsewhere in Europe. In chapter 2 of the document we have gone through the issue of accessibility (declined in the meaning of which destinations are reachable from the airport through its network) and connectivity, leaving aside the issue of how is it possible to reach the airport from the territory. It is not a matter of establishing which of the two is the most important in the process of development of an airport city; it is shared knowledge that the two topics are deeply interrelated and both a core feature of the air transport industry. A bad connected airport is a less desirable alternative of transport for passengers as well as for airlines exploring a new route opening option from a target territory. An airport lacking of air connections is, again, a drawback to both passengers and airlines as the former would likely choose an alternate airport offering a direct connection to the destination desired and the latter would do the same to have better opportunities of network integration with partner airlines. 92

93 Moreover, in both cases, the territory cannot profit from the opportunities provided by having an active and easily reachable airport at a close distance as far as social and economic context is concerned. It is essential to establish collaborative initiatives in the territory to implement improved transportation opportunities from airports to territories and vice-versa. Key players have to be identified in the territory and brought together to discuss the goals to be addressed: airport managers, operators of public mass transport services, operators of private mass transport services, managers of the roadway system and those in charge of the regional transportation planning process. The early involvement of the agencies with environmental review power cannot be overstated, as results from the planning process are often integrated into key environmental documents. At both local and national level, no entity owns the problem of congestion nor the power to issue the solution. In some cases, leadership can be provided by a strong regional planning agency or from the managers of the airports themselves. Fig. 48: Figure 48 - Difference between passive (left) and active (right) accessibility. Left: Frankfurt Airport. Right: Bologna Airport (Source: Left: courtesy of Fraport AG. Right: Bologna Airport Masterplan courtesy of SAB) The passengers path has to be analysed taking into consideration the whole displacement from the door of origin to the door of destination. A long distance path - as a travel by air is - will require solutions, not extensions and elaborations on service concepts already provided for the metropolitan context, based on low-fare, multistep street bus service. The long-distance traveller makes logical and rational economic decisions and those decisions are different from those made in daily commuting as factors such as the amount of baggage, the traveller s sense of apprehension about the reliability of the trip and arriving on time and the total trip costs are to be considered by the analyst. Improvements must be designed only after a clear understanding of the market behaviour and of the several submarkets of airport ground access services. A continuous and periodically revised ground access survey is a key to gain the information needed for a market-driven, travelleroriented process. Decisions can then be made stemming from the analysis of the needs of the 93

94 travellers, who they are and where they are coming from. It is important to establish a market description of that subset of travellers for whom the proposed service is relevant. Target market segments should be defined and services designed for their particular needs; success or failure of those services should be established in terms of the capture rate within the target market group. Nevertheless, it has been proven that solutions provided in a certain territory aren t replicable as such elsewhere. Therefore, critical thinking and analysis are requested to monitor and investigate the target market and how to make it possible for the airport to best serve its territory. It has to be kept in mind the relation that no airport city can exist without its territory, the traffic demand and investment opportunities it can attract; on the other hand the airport city is able to return the territory services, areas in which to develop business and a renowned image to a broader scale. Figure 49 - Passenger segmentation survey for Bologna Airport in 2013 (Source: courtesy of SAB) 94

95 Figure 50 - Passenger segmentation survey for Bologna Airport in 2013 (Source: courtesy of SAB) A core issue is the possibility for the territory to access to the transport infrastructure in a variety of modes and in an even way from the various directions. Usually the links between the territory and airports consist in urban or extra-urban road network (at various degree of traffic capacity) which, in particular when the airport is close to the city, might be incapable of processing the whole demand due to additional commuter traffic congestion at peak hours. Transport and digital communication are the key ways to keep a territory at the pace from the economic point of view through, for example quick, efficient and reliable transportation system as well as innovative and up-to-date IT technology. It is recommended a thorough market analysis carried out at both national and local level and revised periodically on the modal split for airports ground access alternatives. In the case of most of the 30 largest airports in Europe, passengers have a choice between different public transport service providers for access between the centres of the respective cities and the airports. While dedicated express train services are in many cases the quickest mode, they are at the same time the most expensive ones (e.g. Stockholm Arlanda or the London airports Gatwick, Heathrow and Stansted). However, price sensitive passengers can chose from other modes, such as express busses, regular coach services or metro/underground trains, which often take longer, but are considerably cheaper. Taxi fares to and from the airports naturally depend to a large extent on distance travelled and given the relatively long distances of some airports (e.g. London Gatwick, Heathrow and Stansted) can be very expensive. Taking a look at the fares per km travelled, a high correlation with the cost of living in the respective country has been observed, making the journey to airports in United Kingdom and Switzerland the most expensive. Also with reference to parking fees at airports, a high correlation with the general price level in the respective country or city can be observed. The London airports, Zurich and Paris are among the airports with highest parking fees. Nevertheless, airports have started to differentiate the service and offer substantial discounts in case of early-booking or 95

96 weekends. Parking fees are also highly dependent on convenience, as parking lots only reachable by shuttle bus and used for long-term parking offer significant savings for the passenger, compared to parking lots located in the direct vicinity of the terminals. A good ground access in combination with the airside connectivity can create valuable synergies within the territories, helping the development of the airport city. The intermodal connectivity is a value in itself, as it increases the attractiveness of both the airport (as a location for business activities, ranging from logistics to knowledge-intensive services) and the territory (permitting quick access and offering a variety of information and business opportunities and relations). For airport operators, real estate projects therefore develop into an important business segment, creating often higher profit margins than the primary function of an airport, which is the provision of infrastructure and services for airlines. While the intermodal integration into high-speed railway networks often creates benefits for the airport operator, transport planners carefully assess the effects such integration has on railway passengers. Additional stops at airports increase journey times for travellers on the high-speed trains, which do not travel to/from the airport. Therefore, as the example of Barcelona has shown, it can be reasonable not to connect the airport directly to the high-speed railway network. In other cases, such as Frankfurt s Rhein-Main International airport, the integration has increased the airport s catchment area and the modal share of airport access, therefore creating substantial benefits for the airport operator and airlines operating there. A deep analysis of travellers flow is desirable to assess their needs as far as ground access and terminal service is concerned. Basic information to collect are the origin of the trip (through either the zip code or a specific address) and the reason for the displacement ( business versus nonbusiness ). As the modal choice decision of the traveller changes significantly between the home end and the non-home end of the trip - in particular with reference to the level of automobile availability and the degree of familiarity with the public transportation system - travellers need to be categorized into four market segments (resident business, resident non-business, non-resident business, non-resident non-business). Each market segment demands a tailored service; successful strategies offer a variety of public access mode alternatives at a variety of prices: for example a local multistep bus service, a door-to-door shared-ride service, a high speed train or a sub-urban train service will likely not appeal to the same market. In many cases, the support of a high-fare, highquality premium service is dependent upon the strength of the business market, while multistep transit service is more desirable to resident non-business market. The knowledge of demographic characteristics gained from the ground access survey will also become crucial during marketing and price assessment in order, for example, to draw higher incomes from those portions of the market which are inelastic in relation to price. Also the measurement of system s performance is a very important output. The simplest, and most basic, is the continual monitoring and measurement of modal share to the airport and to the volume of vehicle miles travelled (VMT) associated with airport access. The actual vehicle volumes throughout the airport roadway system should be monitored, while the calculation of VMT requires traffic counts segmented by vehicle classification and origin-destination information. 96

97 The form and extension of catchment areas differ depending from a variety of factors. The geographic scale of the airport s catchment area provides an early indication of the nature of the density patterns to be dealt with in the development of successful ground access services. ACRP report defines for example - the primary market area for the airport as a whole as that area composed of zones with more than 5 airport trips per square mile (by all modes), definition which has proven to be effective on a US market scale. This highly aggregated information could be further split in sub-categories with regard to the crescent number of trips. A high number of trips suggests the possibility to explore a high occupancy public mode transport solution. After the market assessment, a ground access strategy should be developed including a set of services appropriate to the submarkets revealed with reference to travellers needs and by the possibility to support specific services. The decision may be driven more by the overall public transportation strategy of the region rather than by airport access needs in isolation, considering that choice is a distinguishable feature of the territory itself. Finding the optimal solution is a complex task: for example, multistep rail transit service are perceived as slow, so that non-stop rail have been created and a choice between high speed train or not has to be made. On the other hand, busses (both dedicated to the airports or multistep services) inserted in promiscuous urban traffic cannot provide a competitive advantage over the private car without the provision of reserved bus lanes. A variety of experience around the world in the design and implementation of public transportation strategies to major airports shows that no particular modal solution is a world class standard. No single attribute (speed, directness, connectivity options to the other alternatives) can by itself explain the propensity to choose an alternative. Most airports have at least three market areas: a dense downtown/inner market area; a distant set of dispersed origins, for which dedicated express coach services can carry travellers collected by other modes; and a mid-suburban area, where door-to-door shuttle services can be supported. The sheer size of an airport does not explain the modal share to public transportation services, although it is true that the existence of public transport system has to be nourished by a certain airport size. As far as distance between the airport and the territory is concerned, closeness encourages the use of taxi against public transport, whereas distance discourages the former to the profit of the latter. At the same time, the close-in airports can offer more destinations options by public transportation. For high travel distance, rail mode is also competitive. In general, the longer the ground access trip, the less competitive are the alternative taxi and the kiss&ride access by car. The presence of direct rail service to the airline terminals (or of a short mass transport system between the rail and the terminal) should capture market shares from other alternatives, except than the bus/van operated shuttle service from major hotels to the airport. Some modal alternatives are capable of providing a service with an acceptable frequency and at a considerable high speed, establishing themselves by far as the quickest access option to the airport served (Shangai s Maglev train takes 8 to get to the airport against the needed by either taxi and bus, but at a higher cost and with a peripheral collocation with respect to the city centre); nevertheless, the rigidness of the path provided by the fast train connection makes the more flexible and cheaper access choices (bus and taxi) still attractive. The implications is that service designer must be concerned with the 97

98 closeness to trip origin, the travel times and the directness of public mode services rather than with the granting a service provided by the vehicle with the highest speed on the market. Figure 51 - Shangai s Maglev metro-line to the airport (Source: Internet) Design strategies of airport-to-downtown services are split into high-speed dedicated-service strategy (services designed specifically for air travellers) or lower speed shared-service strategy (in which air passenger share the service with commuters). Service improvement can be reached through, for example, increasing frequency. Both strategies seek to produce a door-to-door travel time that is competitive with the taxi and the private vehicle. With shared services, the line-haul travel speeds from the airport to the CBD are slow, but the service is well integrated with local distribution systems. The service, in fact, captures a higher market share. On the other hand, dedicated services provide guaranteed quality of service on the line-haul segment, leaving the traveller with the need to find adequate distribution from the rail terminal. Evidences from case studies around the world show that air traveller appreciate directness of service rather than price minimization or line-haul speed to the terminal point, followed by the amount of the fare. In an important conclusion, one of the original architects of the Hong Kong Airport Express wrote: It is apparent that even with a good design and well-integrated railway service, the Airport Express (train) does not have inherent advantages over more direct single-mode bus travel. In other words, the speed advantage of rail versus single-mode road competitors when traveling over distances of only up to 34 km do not result in significant enough time savings to compensate for the necessary transfer, thus giving information on the critical distance under which the train alternative was not perceived as convenient at that time. Under the dedicated service concept, services and vehicles designed specifically for the needs of the air traveller are provided, which is different from the shared service based on general purpose vehicles. The following are some of the more important parameters which make the rail modal choice desirable: few or no checked bags; on the other hand, large groups are less likely to use rail; concern about unreliable travel times by road and lack of convenient parking at the airport; airport terminal access within walking distance from the rail station; no necessity to transfer 98

99 a comprehensive rail network, serving a large catchment area will provide more travel opportunities than a single line system; single terminal airports as no shuttle transfer service is needed; high frequency; late-night and weekend service. Compared to daily commuters, air travellers are typically more time-sensitive and less cost-sensitive, have more baggage, are less likely to use the transit system and are more likely to use the system outside of normal commute hours. Often designing a special coach or van service to respond to this market is easier than trying to adapt a commuter-oriented, multistep bus (or rail) service to serve both. Door-to-door van and express bus services are examples of airport access modes that respond to the desire of air travellers for greater convenience and faster travel times. The following key factors make the use of bus and express van services more desirable: willingness to pay for a door-to-door service travel time (in particular its reliability) perceived as more important than travel fee; presence of drop-off locations immediately adjacent off-peak, late-night, and weekend service timetable; presence of HOV lanes offers travel time savings; stops at major activity centres; need to control competition between bus, van, and other rubber-tired services; closeness of the bus stops/stations to trip origin. The goal of the airport ground access planner is to make the full journey as seamless as possible, often by creating separate services to appeal to separate market segments. Around the world, a wide variety of strategies have been developed to create seamless trip experiences: airport-type baggage check-in at local off-airport locations and integrated ticketing between ground and airline services. In theory, a fully integrated national transportation system would have through-ticketing and through baggage-handling services between ground and air. However, the most successful overall mode share is gained by airports that offer a variety of strategies. In conclusion, no single attribute or characteristic can predict the level of market share attained by public transportation services to airports. Rather, the total travel time - which includes the efficiency of the connection - the speed, the quality of distribution services experienced after the line-haul trip, and the provision of services meeting the unique needs of the air traveller interact in determining the marketability of the alternative. At airports, the typical issue with passenger handling procedures is the vicinity of the baggage pickup location from the public transport ground access facilities. Connection between airline operations and the ground access system needs to be solved for whatever ground mode is selected as baggage are necessary to passengers but are perceived negatively and as an impediment in the choice of non-private ground access alternatives. Therefore, close at hand, same-floor facilities will be preferred rather than walkway paths or dedicated shuttle service to the terminal (which is faster, but nevertheless encompasses a modal transfer). In a strategy to encourage the use of higher occupancy modes, the level and the quality of service offered to the travellers should be as good as 99

100 or better than the private mode. The design of the terminal layouts can drive the quality of the passenger experience for those accessing to the airport by high occupancy modes: airports have been considered and still sometimes are - transfer facilities between private car and air service, with less attention paid to the provision of modal alternatives. On the other hand, curb spaces (which are the areas closer to the terminal entrance) allocated to the most efficient transport modes rather than to private vehicles would be a clear strategic decision in favour of those alternatives, when location of mass ground access stops at airport terminals in remote areas, with no protection from weather phenomena and inaccurate or lacking real-time information or services is a strategic decision in favour of private car alternative. The last step in the process requires the creation of a program to make the travellers aware of the public transportation services offered and to facilitate their purchase. Improvements in technology have been fast and quickly implemented at airports; therefore, the provision of in/off-site terminal real-time information screens showing the next departures of all the mass transport service alternatives, coupled with efficient and clear-cut signalling system and architectural choices that can drive passengers and ease the level of stress usually associated with transfers (such as heating/air conditioned walkway bridges, illumination, same-level connection - where possible - between access modes stops and check-in/baggage claim areas) contribute as a whole to the perception of a high level of service by the passengers. Indeed, travellers need to be aware that public transportation options exist: airport websites should include some form of automated trip planning for ground trips to and from the airport. For each city and town of destination, an airport information system should describe the services available, based on the actual schedules of each component segment of the trip for that particular hour of that particular day. These systems can now tie directly into the reservations systems of the ground transportation operators. Automated services capable of delivering passengers material from simple brochures to elaborate ground transportation guides will continue to be the backbone of travellers information strategies at airports. This last topic will be presented in the next chapter. Transport Plans represent a means by which the territory can make bold moves and decisive actions to achieve mobility for both goods and people. A good strategy ensures the territorial economy a competitive advantage. Emphasis should be put also on inter-regional and international trade corridors, identifying infrastructure requirements necessary to support both the regional and national supply chains as well as on the preparation of a plan of finance for freight infrastructure separate from other transportation. Hence, efforts should be put to develop a comprehensive plan to meet long-term air service needs, ensuring adequate air passenger and cargo service that can be integrated into and adopted as part of territorial Transportation Plan. Usually situated in the vicinities of highways and ringroads, dedicated points of access/exits are fostered in order not to rely on local/urban network as far as road ground access is concerned. Moreover, it has been a trend of the last decades to locate railway stations inside (or, better, under airport terminals or, in alternative, in its immediate vicinities) to permit a greener access path to passengers and to direct the use of land usually dedicated to parking garages to other remunerative retail and business allocation. 100

101 Airports have the inner capability to become ideal location for intermodal junction: infrastructure hosting parking garages, car-hire facilities, bus transit station with both local and regional/provincial coach service transit facilities might be located in the vicinities of the railway/people mover/subway terminal station linking the main city centre with the airport terminal. Connection with airport terminal will be ensured by moving walkway, pedestrian bridges and green vehicles. A primary goal of all modes of transportation is the safe and efficient movement of people and goods. Transportation is conducted through two basic facilities, terminals (nodes) and routes (segments). Airports are terminals that connect surface access segments with airway segments. To meet this role, airports must always be considered critical elements of the total transportation system. Ground access by mass transport systems (either publicly or privately managed) could be provided through a lot of means; among those ranked according to mean global cost per kilometre - scheduled bus service, on demand shuttle service, light rail services, people mover systems and subway/underground. A mean to favour mass transport systems against private car would be by providing the service according the connection s frequency to flights Standard Time of Departure/Arrival (STD/STA). Road infrastructures have to be developed and designed according to the typology of traffic foreseen (HOV lanes for coaches high weight vehicles lanes to/from the freight area without roundabouts provision ramps to/from the highways/ringroads ), with attention to be paid to pedestrian and non-invasive means of transport reserved corridors coupled with externalities mitigation measures. Airport ground access enhancement projects could be financed by either the government/territorial entity independently from its role of airport management shareholders or regulator - or by the airport management (accordingly to the provision of territorial transportation plan) through its budget or some forms of external partnership. Airport accessibility is an important criterion for airport choice and therefore also for airport competition. When air passengers choose an itinerary, they reflect basically on the transport chain from door to door. Therefore, factors affecting the traveller s decision for a particular option go beyond the price and quality of air services from airport to airport. The decision for or against a particular air service and a particular airport is, to a certain extent, linked to the accessibility of the airport. Integration of large airports into the European high-speed railway network has slowly taken place in recent years. Rail is seen as an environmentally friendly mode, which can also substitute short-haul feeder flights of up to 400 km length at congested hubs. Ground accessibility by car is still predominant at the majority of airports. Moreover, the provision of car parking facilities constitutes a major source of revenues in the non-aviation business of an airport. With good landside access by car and rail, several of the larger airports have started developing into airport cities, where the land-to-air intermodal function is supplemented by the development of real estate for offices, shops and even residential areas. Airport accessibility is a measure to describe how difficult it is for potential air passengers to reach a particular airport: passengers rate the alternatives of their choice set according to their subjective 101

102 preferences, which may vary according to trip purpose (business vs. leisure) and destination type (e.g. domestic, European and intercontinental). Decision-relevant alternative attributes usually include access time, access cost (parking fees or the fares of public transport modes), quality of terminal access from the point of arrival and the service frequency in case of public transport modes. However, not all combinations are feasible due to air traveller s (car ownership) or airport s (presence of coach/rail connection to the airport) features. Unfortunately, at present no information on the shares of airport access modes are available at the European level. Finally, the availability of attractive ticketing options for travellers is important: options range from purchasing the coach ticket in combination with an air ticket, discounts, free access to the airport by train/coach. Out of the 30 largest airports in Europe, all but seven airports have direct rail access, be it either Underground/Metro trains, short- or long-distance trains. To make some examples, Paris Orly is connected indirectly to the regional train network with an automated people mover (Orlyval), which connects the airport to the station located about 7 km from the airport; Frankfurt and Düsseldorf have two railway stations each, one for short-distance trains and the other for longdistance trains; while in the case of Frankfurt, the long-distance train station is directly connected to the terminal with a walkway, an additional automated people mover (Skytrain) was built in Düsseldorf. While access by suburban trains is predominant in Europe (22 out of 30 airports), only a limited number of airports is connected to the long-distance train network. The best integration into the rail network, as far as frequencies per day is concerned, can be found at Amsterdam Schiphol, with a total of 671 short- and long-distance train departures per day, followed by Frankfurt with 381 trains per day and Düsseldorf with 377 trains. Additionally, Amsterdam, Düsseldorf, Frankfurt, Paris-Charles de Gaulle are all connected to the European highspeed rail network with cross-border services to neighbouring countries. Concerning rail fares from the airport to the respective city centre train station, a wide spread of fares can be observed, ranging from 30 oneway ticket for the 20 minute trip in Stockholm-Arlanda to the cheapest services provided in Malaga ( 1,25 for a 12 minute trip), Geneva ( 2,26 for 7 minutes) and Düsseldorf ( 2,30 for 6 minutes). In many cases even dedicated airport express train competes with a regular train or metro service, as well as for busses, usually with fares and quality attributes. 102

103 . Table 9 - Comparison of travel time and costs (rail-bus-car) at 30 airports. All values in, non- currencies have been converted into with the exchange rate of 29 th June 2010 Parking fees are of high interest to passengers, but also to airport operators. Parking fees account for a large share of non-aeronautical revenues. Parking fees differ substantially among Europe. On average, parking fees vary between 3,15 and 4,71 for one hour, 16,91 and 40,50 for a day and 70,88 and 190,56 for one week. Usually airports differentiate prices depending on the distance of the parking lot to the terminal and, as a fairly new phenomenon, whether the parking space has been pre-booked over the internet. With this pricing strategy, airport operators follow low cost carriers, which also sell tickets booked in advance at a lower rate. Additionally, some operators have started initiatives to increase attractiveness of airports for shoppers, offering free parking, if a certain amount of purchases is exceeded. Again, a high correlation between general cost of living and the cost of airport parking can be observed. In response to airports parking fee policies inversely proportional to the distance from the terminal, private property owners in nearby villages have started renting part of their properties as parking lots and private shuttle services to the airport. This brought conflicts between the airport management and those private owners but also negative consequences to the quality of life in those villages, now seen as village parking lot. Nevertheless, this form of competition forces airports manager to lower their parking fees. Below, two example of how two renowned European airport cities have dealt with the issue of ground accessibility to the airport. Amsterdam-Schiphol one of the largest airport in Europe - located about 12 km southwest of Amsterdam, is equipped with a train station beneath the main terminal building which integrates the airport with both the local and the European high speed 103

104 railway network (1 hour 40 to get to Brussels and 3 hours to get to Paris). This facility is used by both passengers and employees. Moreover, integration between airlines and train schedules is in force to provide convenient transportation also for aircraft arriving late in the evening and departing early in the morning. This airport is the cradle of the development of the term airport city in Europe, which has then spread at other major airports throughout the continent. Barcelona s International Airport El Prat is the second largest airport in Spain and is located 13 km south-west of the city centre. Several public transport modes are available for accessing the airport from the city centre: a railway station for short-distance trains exists, which connect the airport with the city centre in about 20 every half an hour for only 3, taxi as well as metropolitan and regional bus lines to Barcelona and nearby communities at lower fares, premium express bus lines A1-A2 operate from both airport terminals to the city centre for 5,05 and finally a night bus line exists as well. With the opening of the new terminal in 2009, car parking facilities were nearly doubled, reflecting the fact that airport access by car is still the most important mode. Barcelona airport is not connected to the new highspeed railway line so that the airport didn t experiment phenomena of modal shift from aircraft to train on the Barcelona-Madrid route (which is in fact one of the densest in the EU air network). Besides El Prat, the Barcelona metropolitan area has two other airports, Girona (91 km to the northeast) and Reus (118 km southwest near Tarragona), with a low-cost core business. Bus lines connect the airports with the surrounding communities, based on Ryanair s STA/STD: passengers waiting times are around 1 hour. Figure 52 - Express coach service to airports in UK (Source: Internet) Broadly speaking, the connection of airports to the high-speed railway system is in most cases associated with conflicting objectives of transport planning: while on the one hand particularly large airports generate a large number of potential railway passengers, on the other hand there is often need to create an additional stop and a line diversion (as airports are in peripheral position), resulting in a benefit for a minority of travellers and in an increase of travel time for the rest. The presence of a rail connection is, on the contrary, very desirable in case of large amount of freight operation at the airports during off-peak and night times (provided that no night traffic restriction are in force), as freight traffic departing from business sites located in the territory 104

105 completes and diversifies the business vocation of the territory. Freight traffic can occur by road transport through trucks, by rail or by aircraft. Freight is shipped via road network when peripheral airports and territories with insufficient amount of goods to be delivered to create a scheduled service are involved; this phenomenon goes under the name of air-freight, goods are shipped to their final destination after custom securities controls at the departure site. This alternative is common for medium-to-short distances typical, for example, of intra-eu traffic. The dispatch of freight through the rail network has been envisaged since the first draft of White Book on Transport and the assessment of EU TEN-T corridors, but has never been fully implemented due to insufficient infrastructure integration among neighbouring countries in terms of tracks displacement, signalling system and locomotors traction systems lack of traffic and railway slots to permit the circulation of slower convoys; moreover freight platform might have been built separately from the territory rail network, thus making the transport alternative not viable. Finally, freight transport at airports occur only at very large hubs already established airport cities moreover located in a central position on a wider scale (it is not surprising then that the bigger amounts of freight handled at EU level are traced in an area embracing Germany, Belgium, Netherland and Luxembourg that is to say the very geographic centre of Europe). Those airport, in addition to traffic generated in their catchment area, receive-handle-ship to extra-eu destinations goods originating from peripheral areas and shipped by both air and road transport. Goods involved in freight transport by air are usually high value-added goods which are typically booster for the economy of the territory and the result of skilled know-how and workforce: heavy industrial machinery, food and perishable goods, pharmaceutical, valuable goods, biomedical components which request just-in-time service and fast connections. Airports can gain a competitive advantage granting uncongested custom control services, existing storage and warehouse areas or even better leasing their available land to freight players and integrator to build tailored facilities themselves. These services should be provided at a reasonable and competitive price, if possible experimenting synergies with existing intermodal platforms, which a sound development plan of the area should locate in the vicinities of the airports freight area and with fast and reliable connection. One of the options to allow connection between air freight terminal and remote platform might indeed be short rail connector with load/unload platform and storage areas in the vicinities of aircraft stands. Rail network might as well be used to transport goods from the airport to intermodal freight hubs or straightforwardly to the productive sites located in the catchment area. Road infrastructures have to be developed and designed according to the typology of traffic foreseen (HOV lanes for coaches high weight vehicles lanes to/from the freight area without roundabouts provision ramps to/from the highways/ringroads ), with attention to be paid to pedestrian and non-invasive means of transport reserved corridors coupled with externalities mitigation measures. In conclusion, airports located at the periphery of large urban areas can eventually grow considerably, being not harmed by externalities concerns on resident population, although their weak landside access is an issue that can lead to traffic congestion due to network s lack of capacity. This phenomenon has been exacerbated by low air fares, offered by Low-cost Carriers, which have attracted passengers from a wider area regardless of the consequences. Moreover, only recently passengers have started to become aware of the fact that the total travel cost is not only the 105

106 fee paid to the airlines to travel from airport origin to airport destination, but it encompasses also travel costs for the journey to the airport and from the airport to the destination; as far as remote airports are concerned, the advantage of lower air fares is balanced by higher ground access related travel costs. Substantial investments of public funds and airport managements are necessary to improve the infrastructure for landside access at airports, although the financing of ground access is a topic treated unevenly by governments: traditionally, airport managers have considered themselves responsible only for the air services operation with no concern for the surroundings of the airports; now that a more mature and shared point of view is in force, questions arise on who is in charge of airport ground access improvements: for example, some countries have access to Airport Development Funds or are allowed by the law to use part of the aeronautical revenues to finance infrastructure improvements but debate exists as to whether these improvements are directly related to airport operations or serve as a general purpose infrastructure (in that case, the reasons for of those financial instrument appear weaker). Figure 53 - Munich s airport overview of accessibility network (Source: courtesy of Munich airport) 106

107 Chapter 6 : The role of technologies to actively promote the airport cities territories Introduction Further than air transport provider infrastructure and multimodal exchange node, airports are incubator and labs of innovative technologies in the fields of IT. IT services are provided essentially to air passengers and airport operators through low-cost and high-circulating devices to disseminate information related to weather and airport operation timetables (check-in, boarding, scheduled and estimated time of arrival/departure STA-STD-ETA-ETD). Each airport operator (basically handlers) has an internal management system to engineer daily activities. In a field where competition actually exist, technology and passenger experience have become key aspect that influence dramatically the passengers choice. It has been demonstrated by ACI Europe that 65% of potential airport passengers have at least two airport alternatives to depart from when considering an air trip. As the trip is composed of several steps each one associated with level of service perceived and stressinduced fortuities the challenge which airports and territories are in charge of is to reduce the perceived stress during boarding procedures and path from house door to departing airports. In the previous chapter the issue of transport to/from the airport has been dealt with, in this chapter strategies to enhance passenger experience will be explored. It is to be taken in mind that whenever the target passenger chooses the airport, he chooses also the territory and the services it provides, hence it is of high importance to make those features known and well endorsed. Airport level of service assessment and passenger experience Airports are concerned about the quality of services provided, therefore a periodic review of standard and benchmarking strategies with respect to similar airports should be put in force to explore best practices to implement at a local level. As for ground access purposes, also airport services design need a careful passenger segmentation with reference to purpose, education, final destination, gender, age. Then, customer information management usually collects data from passenger using airport services, making reservation, suggesting the subscription to newsletter or soliciting feedback in order to draw as much information as possible to tailor the services according to passengers wishes. Todays passengers are more market sensitive, request on-time and reliable information and look for entertainment opportunities and services at hand even when they are waiting for the departure of their flight. Improvement in technology led to the introduction of new services to passengers; the fast-paced innovation system led also to fast changes in passengers perception: services that a few years ago were deemed as high valued such as free wifi connection, now have been de-rubricated to expected and will soon become required (see figure below for the further information). This is why airports customer care is exploring newer and newer opportunities to entertain and amaze passengers. 107

108 Figure 54 - Passengers perception features for airport services (Source: courtesy of SAB Bologna Airport) Techniques to smooth the passengers experience through boarding procedures have been changing dramatically the level of service perceived at airport, leaving more time to passengers to relax themselves and enjoy airport facilities once check-in and security controls have been completed in such a short time. Among those procedures, remote check-in opportunity, commonuse and automated baggage drop system, common use terminal equipment (CUTE) and common use self-service (CUSS) kiosks at airport, self-boarding, logiscan devices which automatically verify weight, dimensions, compliance to on-board security prescription and boarding card up to selfboarding gates are being introduced at a larger number of airports worldwide. Those platform, further than enhancing terminal capacity, permit to share big amounts of data to airport and airline personnel minimize costs and enhance operational capability to provide passengers a seamless transition as they go through check-in, security checks and boarding gates. The use of social media by airports Digital devices have become firmly integrated into airports day to day operations: passengers as well as airports/airport groups are somehow represented on social media, a significant number of major airports have either invested in free smartphone apps or are planning to do so in the near future. These innovations build a new concept of passengers experience at the airport, providing them with high quality service as well as real time and shared information. The potential of the topic lies in the facts and figures: over half of European airports have some sorts of social media presence and over three quarters of passengers passing through European airports have the option of engaging with the airport or airport group via Facebook and/or Twitter. Large capital city and hub airports clearly dominate the scene, thanks to their traffic output which broaden the boundaries of the multimedia catchment area; nevertheless also airport with smaller traffic 108

109 figures have invested large amounts of money to improve the social media presence and the quality of the service provided. The improved expertise on social devices has led to a strategic split between different social media, with more airports using different social media for different content, messages and audiences according to their own individual strategy, image and corporate culture. The more renowned and widespread social media platforms used by airports/airport groups to enter a social relationship with their passengers are Facebook and Twitter. Normally the two platforms are integrated with feed links, quote and retweet of information becoming a way to spread the information to a wider audience in a short time. Both provide the passengers with useful information and tools such as professionally-produced graphic design, welcome messages, live flight information, policy summaries, commercial opportunities within airport retail and food & beverage outlets at the airport, routes and destination promotion... Twitter has started to be used to provide straight and timely information on the evolution of contingency and sudden disruption of the service (for example strikes and phenomena such as weather restrictions due to fog or snow) then has become a straightforwardly mean of connection for passengers to airport manager via social media, making questions and answers available to a broader audience and at a larger scale within the terminal. Other platforms offer slightly different services: Linked In is a more formal platform, dedicated to professionals to connect, network and exchange opinions and ideas on all sorts of specialist areas and to job recruitment purposes. YouTube or Google+ are used to share information and media in a more appealing way through music and video on various subjects such as events, terminal expositions, snow operations, airport history, development plans, corporate brand videos, commercial promotion, advice on security regulations, news stories, celebrities in the airport, promotional tourism videos, flash mobs, celebration of new route launches, terminal construction videos, political messages, runway operation explanations and much more. Some airports spread information also through dedicated blogs authored by staff working for both the airport itself and other companies operating within the airport. The prevalence of mobile phone usage for instant internet access is crucial also for airports which can track the passenger path inside the airport terminal to investigate its behavior and preferences, communicate the right information to the right person at the right time in the right place (for example live security queue times, weather information, dynamic way-finding linked into live info on gate closure and flight departure times). On the other hand, passengers may also interact with airports, for example tagging a physical space with their own comments or feedback, sharing the information within its network of relations; moreover in case of single malfunctioning of a subsystem, airport might receive a quicker information by passengers interacting through social media rather than by traditional communication channels within the personnel. 5 main categories of use for airport social media presences have been identified: 109

110 Figure 55 - services featured on airports social media (Source: ACI Europe) Airports have also been offering the passengers the possibility of staying connected through their devices during the whole stay-over at the airport, thanks to Wi-Fi internet access, free charging facilities, mobile phone check-in platforms and creation of smartphone apps. Nevertheless apps need to be enhanced to provide tailored information and to cope with the fact that they occupy some storage memory of the device which could lead passengers to delete it just after they leaving the airport. Augmented reality through smartphone s camera is also possible for terminal way-finding, with passengers allowed to see where and how to get to, with information on walking distance according to its orientation and position within the terminal. The findings of surveys and analysis on this phenomena highlight that an empowered passenger with access to useful static and dynamic information perceives a better journey quality with a present but non-intrusive online service before and during the stay. 110

111 Figure 56 - services featured on airports social media (Source: ACI Europe) Another important feature of the airport is the capability of making the territory known to all the passengers, even to transfer passengers. This is the reason why synergy opportunities between the territory and the airports should be explored in order to create connections and spread information through both technology (Wi-Fi hotspots, Smartphone Apps and websites ) and physical availability (retail, small expositions, cross-sponsorships involving the airport and the key economic players of the territory). Also imageneering and terminal design could help in achieving the territorial marketing and advertisment through tailored signaling and interior design in transit and waitingdedicated areas: skyline, images, variable message panels, timetables of public transport services and location of the stops, screenshots of sightseeing and events held in the territory just to new a few. 111

112 Figure 57 - territorial marketing opportunities at airports (Source: courtesy of SAB Bologna Airport) The introduction of Wi-Fi at airports permits also to monitor step by step by remote the procedures with notable accuracy simply through Wi-Fi connected smartphone and Wi-Fi location management devices. Airports, through a Wi-Fi log-in service (which is not data storage consuming as smartphone Apps are), will provide the passengers with information on check-in & gate location within the terminal, expected waiting time in queue at custom/security control. The airport will have returned in exchange information on average stay-over within the terminal, time spent in the queue, passenger tracking within the terminal; those data could be then processed to derive information and statistics on density and segmentation with regard to airline, day, time of the day and shared with entities involved such as handlers, regulator, airlines 112

113 Last but not least, Near Field Communication (NFC) devices such as QR-code permit the passenger to have access to information and contacts within the airport terminal regarding a variety of topics, among those the best features of the territory simply through the smartphone camera. Those devices will make it possible the realization of diffusive information services. Figure 58 - NFC services (Source: courtesy of SAB Bologna Airport) 113