Wednesday, 12 Dec 2018
Business

Air transport is about to become even less romantic

Despite all the disagreements of the sector on the future of aviation, there is a perfect agreement on one point: there will be many more.

The world's air passengers have traveled a total distance of 7.64 billion kilometers (4.75 billion kilometers) in 2017, according to the latest Boeing Co. market outlook for 20 years. By 2037, this figure will reach 18.97 billion kilometers, including about 40% in five intra-regional markets: China, India, North America, Europe and Southeast Asia.

This triggers a battle on the biggest bottleneck that holds back this growth: airports. Governments that still have many should be more open to privatization to cover a funding gap of $ 78 billion in needed capital investment, said the industry group Airports Council International in a report released earlier this year.

Airlines, the largest customers of airports, see things differently: the costs of privatized terminals are higher and governments must be cautious about such actions in order to develop the entire industry. 39; aviation. same month.

The immediate cause of this struggle is probably the enthusiasm of President Donald Trump's administration to sell American infrastructure. Most US airports, with the exception of a handful, are owned by the government, thanks in part to tax-advantaged bonds and federal funding available only for public terminals. The configuration is so unattractive to private operators that only two sites have bothered to privatize since setting up a federal program to encourage such moves. A level playing field between public and private operators could go a long way in stimulating private investment.

Sixth in a series on the future of transport. Read more:

• Why transport prophets are always wrong

• $ 6 trillion barrier holds electric cars

• Rail puts China on a belt and a road without nowhere

• Cities are the key to the future of transport

• Our biggest cities are short of road

It is unlikely, however, that this solves the fundamental problem. Privatizing an airport does not necessarily make it more efficient. A 2008 study found that there was little difference between the performance of airports owned 100% by commercial-oriented state companies and those controlled mostly by private companies. Rather, the solution is to avoid structures where the motives of executives are confused or misaligned, for example when private companies are introduced as minority investors or when managers are essentially bureaucrats governed by political imperatives.

There is a better solution, but it is probably not very appealing for airlines, airports or historic passengers who love the current generation of brilliant terminals: Build more cheaper airports.

If airlines like to think of airports as monopolies, they often compete with one another. Airlines that do not like fares at Heathrow Airport in London can travel to Gatwick, Stansted, Luton, Southend or City Airport. If Amsterdam Schiphol increases its fares too much, carriers and passengers may leave for Brussels or Düsseldorf.

The cost of hub traffic at Changi Airport in Singapore remains competitive as competing hubs in Bangkok, Dubai, Hong Kong or Kuala Lumpur will deprive international carriers of better fares. Heathrow and Frankfurt airports have lower capital returns than their main customers.

The needs of major airlines for route planning and customer proposition are best served if they can route all their passengers to mega-airports owned by the state. Fees may be a bit higher, but incumbents will end up with dominant positions, excellent connectivity with other flights in their networks, and publicly funded infrastructure below the cost of capital.

Nevertheless, the best option is to track what Southwest Airlines Co. and Ryanair Holdings Plc have achieved in the US and Europe and spread the new wave of traffic on a much wider range of tracks the suburbs of the larger city from India, which do not even exist yet.

This is probably how the world will respond to its future demand for air travel, but do not expect it to be as bright as the present. Roofs designed by architects, Prada dealerships and day spas are all a symptom of the inefficiency of our saturated airports. A 2016 study found that airport receipts were starting to decline as soon as capacity exceeded about 25 flights per hour, as a reduction in delays was delaying retail spending, which could account for about half of revenues at major terminals.

So, enjoy shopping and caviar bar on your next visit to an airport. Outside the walled gardens of business class lounges, the future of aviation will probably be a lot more functional.

To contact the author of this story: David Fickling at dfickling@bloomberg.net

To contact the editor responsible for this story: Paul Sillitoe at psillitoe@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

David Fickling is an editorialist with Bloomberg Opinion, specializing in commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

© 2018 Bloomberg L.P.

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