Airport Incentive Programmes: A European Perspective

Abstract

This study investigates the current pricing practices at 200 airports in the European Union (EU). The analysis shows that airport incentive programmes, which are used in one-third of all airports, are generally a common tool of airport pricing. This study also finds evidence of bilateral agreements between airport operators or regional authorities, on the one hand, and airlines, on the other hand, that substitute for published incentive programmes. Geographically, the usage of these different tools varies substantially between different EU countries. A detailed assessment of the incentive schemes offered at German airports within our broader European sample reveals that the average level of landing and take-off, parking and positioning, and passenger charges is generally reduced by more than 10%. The highest reduction amounts to 44%. Given the usually low profit margin of airlines and that airport charges account for up to 10% of the total operating costs, these incentives can have an important influence on the economic viability of a route. Moreover, in an airline's multi-criteria-based assessment of potential market entries or route expansions, such incentive schemes might compensate for selected weaknesses of an airport's strategic position.

Notes

In practice, governments also negotiate with airlines to choose a provider for routes on which a public service obligation (PSO) has been imposed. PSO routes cannot be provided profitably, but are believed to be important for the economic development of remote regions and are thus subsidized (Williams & Pagliari, 2004). PSO agreements are not taken into account in this paper as they aim at providing basic air connectivity and not at incentivizing airline growth.

The percentages do not sum up to 100, as some airports offer both dedicated incentives for certain markets and general incentives without restrictions on markets.

Again, the individual percentages do not sum up to 100 as some airports offer both rebates and discounts depending on the scope of the incentive concerned.

Since 2007, the EC has been investigating whether agreements made by Berlin Schoenefeld airport with several airlines constitute state aid. To date, no decision has been published on this matter. However, the agreements were made before the incentive programme came into force, and the programme itself is not part of the investigation. See European Commission (2007).