Airport competition in Europe continued at a high level from 2016 to 2019, and as the industry recovers from Covid-19 looks set to strengthen further.

Previous work, including two studies commissioned by ACI EUROPE and a range of other studies, illustrated how airports compete with each other. This study extends the data analysis contained in those previous studies and introduces new mechanisms and indicators of the extent of competition between airports in Europe.

Competition between airports is important because – ultimately - it benefits consumers. Consumers benefit from competition between airports in a number of ways that include:

• Total price offered to passengers: where airports compete with each other on the price they charge to airlines and passengers (collected via airlines) i.e., on the level of airport charges, this will reduce airlines’ costs and therefore – at the aggregate level – the prices that airlines charge to passengers.4 Airlines set the final price offered to passengers based on the markets they operate in and their yield management systems. Airport charges are a relatively small part of this total price charged to passengers, but if they are set at a level that enables airlines to offer new routes and/or increased frequencies, it will increase the range of services offered and tend thereby to reduce the overall average airfares charged to passengers.
• Service quality: airports compete with each other to attract airlines and passengers who have a choice of which airport to use. By competing to attract airlines, airports have a strong incentive to offer airlines products and services that airlines find attractive, which will generally align with passenger preferences (for example, efficient operations). In addition, airports have a strong incentive to offer passengers the types of services and facilities that they would like, including adequate terminal capacity and service hours.
• Improved surface access links: surface access links play an important role; where airports compete with each other to attract passengers from a particular geographic area, they have an incentive to invest in improving surface access links to the airport. Surface access links can stretch for 100s of kilometres, with airports and other stakeholders investing in long-distance bus or rail lines that bring passengers to airports.

Airports compete for airline services and passengers because a small change in passenger numbers can result in a substantial change in profitability: this is a typical result for businesses with high proportions of fixed costs - small changes in volumes result in much larger changes in profitability. This characteristic of airports means that the marginal (i.e., incremental) airline services and passengers are of substantial importance to airports. This gives strong reasons in theory to expect airports to compete for airline services and passengers. As we will see, the statistical and market evidence fully supports this theoretical expectation.

As airports cannot discriminate between airlines or passengers (as required by the EU Airport Charges Directive), the negotiating power that airlines derive from having the ability to move (or the credible threat of moving) capacity creates a mechanism by which those “marginal services” work to the benefit of all airlines operating at an airport. In other words, airport competition works “at the margins” but that margin cannot be directly observed by the airport (while an airport can be expected to have a sense of which routes/services are marginal, it will have much less information on this than airlines) – and thus disciplines the behaviour of the airport vis-à-vis all airlines, both existing and potential.

Naturally, the Covid-19 pandemic fundamentally affected the aviation sector, reducing passenger volumes across the European aviation network to very low levels. This study therefore looks separately at two time periods: the period up to 2019, and 2020-22.

For the period up to 2019, this study looks at four mechanisms through which airports compete:

• For airline services: airports compete with each other for airline services. The mobility of aircraft and, in particular, of point-to-point business models means that such competition is geographically disparate – in effect, pan-European.
• For connecting passengers: passengers travelling long-haul, particularly from smaller cities, often need to change planes between their origin and destination; typically flying on a smaller plane to hub feeding larger long-haul planes or other short-haul flights. These are known as connecting passengers. Those connecting passengers can often choose between a number of different hubs in Europe and the Middle East.
• For passengers in local areas: where there is more than one airport operator serving a particular city or area, and there are flights from those airports to a particular destination, a passenger can choose which airport they would like to use.
• In the market for corporate control (a new mechanism outlined in this study): many airports are active in the market to own or operate other airports (in whole or in part). This creates competition between airports at the time the concession or management contract is let. Airports will be assessed on their record and performance, including in attracting services and growing business, reinforcing the competitive pressures from other sources.

1. Summary
2. Introduction
3. How Does Airport Competition Affect Consumers?
4. Market Developments up to 2019
5. Developments in European Airport Competition to 2019
6. Responses to the Covid-19 Pandemic
7. Key Trends Shaping the Future of the Aviation Industry
8. Conclusions and Recommendations