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Regulatory stability drives private investment, ensures long term focus: Gittens

Airports Council International director-general Angela Gittens, a 25-year veteran of the airport industry who has headed the ACI since 2008, is no stranger to the stand-off over airport charges.

She has been chief executive of major airports in Miami and Atlanta and was deputy chief executive at San Francisco International Airport.

The numerous aviation committees and boards on which she’s served include the Federal Aviation Administration and NASA advisory committees, the executive committee of the National Academy of Science’s Transportation Board and JetBlue Airways’ board of directors.

And she has first-hand experience with privatisation, having overseen the transition at London’s Luton Airport while working at vice-president at TBI Airport management.

Arriving in Australia for the IATA AGM in Sydney this week, she has reflected on that experience when commenting on the current debate on airport charges in Australia.

Qantas, Air New Zealand and Virgin Australia have launched a campaign for more regulation of the nation’s privatised airports ahead of an expected Productivity Commission review.

The airlines have been ramping up their public campaign through new lobby group Airlines for Australia and New Zealand (A4ANZ), with the Board of Airline Representatives and IATA also weighing into the debate.

However, former Department of Infrastructure and regional Development secretary Mike Mrdak argued that the government-owned Federal Airports Corporation would have been unable to match the infrastructure investment ploughed in to Australian airports by their private owners.

Mrdak believed that investment in infrastructure, which totals $11.5 billion in the last decade, has been central to accommodating the strong growth in the airline industry.

Gittens agrees.

“We’ve seen that in other parts of the world, including in very mature and rich markets like the United States,’’ she says.

“The airports in the US are very concerned about their ability to keep up with demand because of constraints on financing.”

In the US, a federal cap on the Passenger Facility Charge is fuelling concerns among airports that they will not be able to modernise and expand.

Nonetheless, Gittens says there are “outbreaks” of private capital in areas such as Puerto Rico and the New York area airports LaGuardia and John F Kennedy.

For Puerto Rico, recently devastated by a hurricane, this means the airport is being restored faster than it would have been in government hands. For LaGuardia, it meant necessary improvements were undertaken after a hiatus of 30 years.

“Every country is different and every airport’s different and governments have so many demands on their finances,’’ Gittens notes, adding that it comes down to why governments should hit taxpayers for something the private sector can do.

Australia was among the first countries to privatise its airports and Gittens believes it has been a great success story that has encouraged other countries to head along the same path.

One reason for this is that it helped demonstrate that private investors can be interested in airports.

“Interestingly, in Australia even some of the smaller airports have been able to attract private investment, which is not very easy in most of the world,’’ she says.

“The regulatory stability in Australia has helped.”

“Private investors are pretty comfortable with business risks, they can measure them based on their own corporate principles and history. They factor that in.

“But they’re very uncomfortable with the country risk and regulatory risk because they have very little control over that and it can really swing a financial transaction in some very uncomfortable ways.”

Asked about the tension between airlines and airports on charging regimes, Gittens smiles and asks: “Do you know the saying “t’was ever thus?’.”

Her view it is that airport charges are one of the few things the airlines, fractured over many other issues, can agree on.

“If you can get government to have airports subsidise you, why wouldn’t you?” she says.

“I think it’s very short term of them, but they tend to think short term because it’s a very competitive, very difficult business and it’s often a fragile business.”

The result, she says, is that airlines galvanise their big marketing departments and turn up the political rhetoric to “get the government to do their work for them”.

“The problem with that is they almost have to hope government doesn’t listen because the result of what they’re asking is not to keep up with demand, not to make investments,’’ she says.

“And although in the short run they may find that comfortable because it keeps out their competition, it’s not good for the economy, it’s not going to be good for the country, it’s not going to be good for the consumer and, ultimately, it won’t be good for them either.”

The ACI boss has little time for rhetoric claiming that airport charges lead to higher fares, arguing there is little correlation between changes in the two.

The ACI estimates airport charges as a share of airline operating costs average about five per cent, varying from about three per cent for full-service carriers to 12 percent for low-cost carriers.

“Airlines fares are highly dynamic, primarily driven by demand elasticity and patterns and the level of competition on any given route,’’ Gittens says.

She points to several examples of differences in airport charges that were not passed on by airlines as lower fares to passengers.

These include a UK example where airport charges at London-Gatwick are 14 pounds while those at London-Heathrow are 45 pounds yet the British Airways fare from the airports on the New York route is the same.

There is also a 2011 US government shutdown where taxes expired but most airlines simply compensated by raising fares. Then there are fuel surcharges which lingered long after prices started to fall.

“In short, there is ample evidence proving that lower airport charges do not necessarily result in lower air fares and higher airport charges do not necessarily result in higher airfares,’’ she says.

Nor does she agree with the way airport profit margins are characterised, noting critics concentrate on earnings before interest tax depreciation and amortisation (EBITDA) rather than the return on invested capital.

“If you look at return on invested capital you get a better picture because airports are capital intensive businesses,’’ she says.

Also often forgotten in the argument, she says, is the fact that airlines can move aircraft around in response to changes in demand but airports can be stuck with assets that are underutilised or no longer needed.

She cites the investment Australian airports made in infrastructure to handle the Airbus A380 superjumbo as an example of this.

“With airports, you have to try and make the right decision because once you’ve made that commitment and you’ve spent that money, you’re stuck,’’ she says.

By Steve Creedy

About Steve Creedy

An award-winning journalist, Steve began covering aviation in the United States in the early nineties before returning to Australia later that decade and editing The Australian’s aviation section for 17 years. He is editor of Airline Ratings and has co-authored books on industry initiatives aimed at reducing greenhouse emissions.

Steve has joined the AAA to write interesting and informative editorial on the aviation industry.

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