1The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Regulation in turbulent time:an adaptive behavior?

Stefano Paleari (Scientific Director)

THE AIRPORT CHARGES AFTER THE NEW EU DIRECTIVE: FROM REGULATION TO THE MARKET?

Rome, March 13th 2009

2The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Why is this time turbulent?

3The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Why is this time turbulent?

Expansion of low cost carriers: parallel and mass market% ASK offered in competition

(spring 2007)

Airline% ASK with

altern routes

% ASK with direct

competition

Ryanair 60% 11%easyJet 69% 43%Air Berlin 56% 77%Jet2.com 71% 35%Lufthansa 45% 80%Iberia 42% 87%Air France 65% 58%British Airways 84% 83%SAS 43% 72%Alitalia 56% 89%

Source: ICCSAI elaboration on Eurocontrol data Source: ICCSAI Factbook 2008

4The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Why is this time turbulent? Expansion of low cost carriers: parallel and mass market Concentration process among traditional carriers

• Set up of CAI (Alitalia + AirOne) and Air France Shareholdings in CAI• Takeover/merger Lufthansa over SwissAir, Austrian, SN Brussels• Next merger? AF - KLM - Alitalia ; Lufthansa - SAS ; British Airways - Iberia ?

Source: ICCSAI elaboration on AEA data

5The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Why is this time turbulent?

Expansion of low cost carriers parallel and mass market Concentration process among traditional carriers Turbulence in oil prices

Source: IATA

6The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Why is this time turbulent?

Expansion of low cost carriers : parallel and mass market Concentration process among traditional carriers Turbulence in oil prices Turbulence in financial markets

11/3/092003200420052006200720086080100120140160180200220MILAN MIB 30 - PRICE INDEXDJ EURO STOXX - PRICE INDEXSource: Thomson Datastream

7The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Why is this time turbulent?

Expansion of low cost carriers : parallel and mass market Concentration process among traditional carriers Turbulence in oil prices Turbulence in financial markets Credit crunch and rise in risk premium

EU R O AR EA B O N D YIEL D C O R PO R AT E (EC O N ) - M ID D L E R AT EFR OM 1/1/03 TO 10/3/09 WEEKLY

2003 2004 2005 2006 2007 2008 20093.00

3.50

4.00

4.50

5.00

5.50

6.00

H IGH 5.91 23/ 7/08 LOW 3.32 7/ 9/05 LAST 5.12 Source: Thomson D atastream

EU R O AR EA B O N D YIEL D C O R PO R AT E (EC O N ) - M ID D L E R AT EFR OM 1/1/03 TO 10/3/09 WEEKLY

2003 2004 2005 2006 2007 2008 20093.00

3.50

4.00

4.50

5.00

5.50

6.00

H IGH 5.91 23/ 7/08 LOW 3.32 7/ 9/05 LAST 5.12 Source: Thomson D atastream

8The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Why is this time turbulent? Expansion of low cost carriers : parallel and mass market Concentration process among traditional carriers Turbulence in oil prices Turbulence in financial markets Credit crunch Dramatic decrease of the demand due to the economic downturn

Forecast 2009

IATA: World RPK -3%ACI: world pass. -4%ACI: EU pass. -5%Eurocont: EU flight -5%

9The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Why is this time turbulent? Expansion of low cost carriers : parallel and mass market Concentration process among traditional carriers Turbulence in oil prices Turbulence in financial markets Credit crunch Dramatic decrease of the demand due to the economic downturn High speed train competition at work

€ 50€ 100€ 150€ 200€ 250€ 300€ 350€ 400€ 450

-20-19-18-17-16-15-14-13-12-11-10 -9 -8 -7 -6 -5 -4 -3 -2 -1Advance bookings

London-Paris trip costs (city centre)

BRITISH AIRWAYSAIR FRANCEEASYJETTRENO Eurostar

0.00

1.00

2.00

3.00

4.00

5.00

Dur

ata

Departure time

Travel time "door to door" London-Paris(city centre)

AereoTreno

Source: ICCSAI elaboration

By airBy train

hours

By train

10The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Why is this time turbulent? Low cost carriers expansion: parallel and mass market Concentration process among traditional carriers Turbulence in oil price Turbulence in financial markets Credit crunch Dramatic decrease of the demand with the economic downturn High speed train competition at work

Hub competition among “national hubs” now at risk of marginalization

N.ITA-World

code %hub1 CDG 69,8%2 FRA 68,5%3 MUC 58,8%4 FCO 53,1%5 AMS 48,9%6 LHR 42,4%7 ZRH 40,8%8 MXP 34,3%

% of airport pairs (italian airports toward worldwide airports) that the hub

can interconnet with a competitive overall travel time (i.e. the hub is the

best choice available or it requires an extra travel time, compared to the

best path, less then15%)

Source: ICCSAI elaboration on Innovata data

11The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Why the behavior is (should be) adaptive?

12The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Why the behavior is (should be) adaptive? The new Directive is “adaptive”, at least conceptually. It takes into account

the existing differences across Europe (many path dependencies)

Country Airport Indep.Regulator Type of Regulation Single or Dual

Till Austria Vienna Yes Price cap with sliding scale Single till

Belgium Brussels No Rate of return with yardstick elements Introd. dual till Denmark Copenhagen No Price cap Dual till

Finland Helsinki No No regulation, charges based on cost recovery n/a

France Paris No Hybrid average revenue based price cap Single till

Germany No Price cap with sliding scale (HAM), revenue sharing (FRA,DUS) All other airports are cost plus regulated

HAM/FRA dual? Single till

Greece Athens No Airport sets own charges Dual till Hungary Budapest No Price cap Dual till Ireland Dublin Yes Price cap revenue based Single till Malta Malta Int. n/a Price cap Dual till Netherlands Amsterdam Yes RoR with WACC as asset base Dual till Norway Oslo No Cost based Single till Portugal ANA Yes Cost based Single till Spain AENA No Cost based Single till Sweden Stockholm n/a Cost based Single till UK BAA Yes Price cap Single till Sources: Gillen and Niemeier (2007). Davy, European Commission (2006a), Graham, Cranfield, IATA, Airport websites

13The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Why the behavior is (should be) adaptive?

The new Directive is “adaptive”, at least conceptually. It takes into account the existing differences across Europe (many path dependencies)

The situation is changing rapidly and with high volatility• Principles (cost relatedness, non discriminatory, flexibility etc..) are

more important than the specific procedures

14The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Which consequences for the domestic regulators?

15The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

Which consequences for the domestic regulators?

Monitor competition as a must

Policy targets become more important• Promote or stop investments ?• Attract private capital or government investment program ?• Limit airports’ size?

Flexibility becomes a part of the regulation contract• Role of risk sharing mechanisms in turbulent time• Promote quicker processes

16The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

What about Italy?

17The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

What about Italy?

Flag carrier Alitalia merged with Air One and completely privatized

?

AP 2008

AZ 2008

Source: ICCSAI Business report 2008

18The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

What about Italy? Flag carrier Alitalia completely privatized A decreasing “level of investment”

Airport operator2005 2006 2007

Overall (€mln)

Per pax (€)

Overall (€mln)

Per pax (€)

Overall (€mln)

Per pax (€)

ADR 69 2,1 58 1,6 85 2,2Sea 121 3,5 121 3,8 106 3,6SAVE 54 7,6 27 3,5 38 4,4GESAC 19 4,0 13 2,5 34 5,8SACBO 14 3,3 11 2,1 15 2,5GESAP 10 2,7 17 3,9 n.a. n.a.SAB 9 2,5 12 3,0 7 1,6SAT 7 3,1 15 5,0 18 4,7SAGAT 53 16,7 15 4,4 6 1,6ADF 4 2,5 19 12,7 5 1,8SACAL 0,7 0,6 0,2 0,1 0,2 0,1Aeroporti FVG 0,6 0,9 0,5 0,7 0,2 0,2

Average ITA 4,2 3,6 2,5

Weighted average ITA 4,0 2,9 2,6

Average top 20 EU airport operator

7,1 6,2 7,6

Weighted average top 20 EU airport operator

8,6 7,8 12,0

Source: ICCSAI Business report 2008

19The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

What about Italy? Flag carrier Alitalia completely privatized A decreasing “level of investment” scenario Airport charges among the cheapest in Europe

AirportsAirport charges rank in 2008 (5 typical flight scenarios)

Long Haul Medium-haul Charter Feeder Point to Point (LCC)

Amsterdam-Schiphol 1° 1° 1° 1° 1°Athens Eleftherios 5° 2° 2° 2° 2°Paris Orly 2° 4° 3° 6° 4°London Heathrow 8° 3° 5° 3° 3°Paris CdG 3° 7° 4° 8° 7°Vienna 11° 5° 8° 5° 5°Brussels National 9° 6° 9° 4° 6°Zurich 4° 8° 7° 7° 8°Frankfurt 6° 11° 6° 10° 9°Düsseldorf 7° 14° 16° 9° 11°Oslo 12° 12° 13° 12° 10°Manchester 10° 9° 10° 13° 18°Munich F.J. Strauss 15° 13° 11° 11° 12°Stockholm-Arlanda 20° 16° 15° 17° 14°Copenhagen 17° 15° 14° 24° 13°London Gatwick 23° 10° 23° 14° 15°Lisbon 16° 20° 12° 18° 20°Milano Malpensa 22° 18° 18° 15° 16°Roma Fiumicino 21° 19° 17° 16° 17°Madrid Barajas 13° 21° 19° 20° 21°

Source: ICCSAI Business report 2008

20The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

What about Italy? Flag carrier Alitalia completely privatized A decreasing “level of investment” scenario Airport charges among the cheapest in Europe Economic and financial situation is getting worse also for airports

0

0,5

1

1,5

2

2,5

3

3,5

01/0

702

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03/0

704

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05/0

706

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07/0

708

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09/0

710

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11/0

712

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SAVE Venezia

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ADP Paris

SAT Pisa

Average (simple)

Passengers in Italian airports:

2008 -1,8%Gen 09 -14,8%

Source: ICCSAI elaboration on Thomson Datastream data

21The airport charges after the new EU Directive: from regulation to the market? Rome, March 13th 2009

What should we promote?

• Investment

• Flexibility

• Making things easy: a general framework accepted by all the

airports with more than 5 million passengers