European fares €2.1bn higher than costs

A new study has found that consumers in Europe are currently paying €2.1 billion each year in additional air fares due to capacity constraints at airports.

The research study by SEO Amsterdam Economics and Cranfield University estimated that by 2035, passengers will be paying even more – an annual €6.5 billion in higher fares – specifically due to a lack of airport capacity.

As airport industry group ACI-EUROPE explained, scarce capacity ultimately means a limit to the number of aircraft that can arrive at or depart from an airport– particularly at the busiest times of the day or year. While economic regulation of larger airports keeps airport charges low – and even below actual airport costs, it does not suppress demand.

With passenger demand to fly at peak times continuing to rise at congested airports, but the supply of aircraft and air services remaining constant, prices go up – meaning that passengers have to pay higher air fares to airlines if they wish to fly to/from these airports. And with no spare airport capacity, market access is blocked – effectively preventing more airlines from entering and competing down air fares.

Speaking at a recent reception of European airport association ACI EUROPE, Augustin de Romanet, association president and Groupe ADP chief, said: “This new study spells it out very clearly. Incumbent airlines are collecting scarcity rents at capacity constrained airports – which of course undermines their incentive to support capacity expansion and also helps explain why they so fiercely oppose increases in airport charges.

“This situation also has implications for airport regulation. If airlines are pricing on the basis of what passengers are prepared to pay, rather than on a cost-basis, then lower airport charges will not result in lower air fares – instead any savings will go straight into airlines’ back pockets.”

Commenting on the European Commission’s recently launched evaluation of the EU Airport Charges Directive, de Romanet added: “Ultimately, what this shows is that what may be good for airlines – like lower airport charges – is not always good for passengers. Along with the rise of airport competition, this calls for a significant reset of the regulatory mindset – Europe needs to move towards a more passenger-focused and market-based approach to the regulation of its aviation sector.”

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