Air transportation Week 10Airport operation and management 2Dr. PO‐LIN LAI 

Airport ownership

In the 1970s, airports were typically government owned At a national level Examples include Heathrow, Johannesburg, Dublin,

Paris CDG, Sydney At a local level Regional UK airports, US airports

Mixed Frankfurt, Amsterdam

Airport ownership

Managed in three different ways Directly by the government Particularly in Asia, Middle East, Africa and South

America Semi-autonomous Examples include Heathrow and Amsterdam

Concessions with some private sector involvement Venice, Zurich

Airport ownership

The 1990s has seen increased privatisation of airports Driven by growth in passenger demand Reducing governmental budgets Privatisation of airlines requiring a more commercial

outlook Process began in the UK

The 1990s has seen privatisation become more common, as the potential commercial returns from airports become visible

Airport ownershipFor airport privatisation

Reduce the need for public sector investment

Free access to commercial markets

Reduce government control Freedom to diversify Improved efficiency Greater competition

Against airport privatisation Airports are national/

regional assets Political beliefs Monopoly position Priority to shareholders over

local people

Types of airport ownership Government owned and operated  e.g. Finland, and some airports in the US.

Mixed private–government ownership, with the private sector owning a majority share e.g. Denmark, Austria, and Switzerland.

Mixed government–private ownership, with the government owning a majority share e.g. Hamburg, France, China, and Kansai‐Japan.

Government ownership but contracted out to an airport authority under a long term lease  e.g. Chile, Hamilton and some airports in the US.

Types of airport ownership

Multi‐level governments who form an authority to own and operate airports in the region. e.g. some airports in the UK.

100% government corporation ownership and operation e.g. Singapore, Hong Kong, Korea and Taiwan.

Fully private ownership. e.g. BAA.

Independent non‐profit corporations. e.g. Canada.

In general, airports in the US are almost the most privatised in the world, despite the fact that all of the major commercial airports are owned by government entities. 

The high level of private participation in the management and strategic development of major commercial airports in the US is summarised in the following table.

In the US, airport privatisation typically involves the lease of airport property and/or facilities to a private company to build, operate, and/or manage commercial services offered at the airport. However, no commercial airport property has been completely sold to a private entity. 

AIRPORT OWNERSHIP EVOLUTION INDIFFERENT AREAS

U.S.

UK: Historical Pattern of Ownership

During WWII, all airports taken over for military use

In 1947, the Ministry of Civil Aviation took over management of 44 airports

A white paper in 1961 transferred loss making airports to local authority ownership

Historical Pattern of Ownership In 1966, the British Airports Authority was

established to manage and develop the main international airports

Although the majority were publicly owned, there was a lack of an effective policy framework

Airports in the Scottish Highlands were owned by central Government through the Civil Aviation Authority

Airports Act 1986

Objectives To encourage enterprise and efficiency in the operation

of major airports by providing for the introduction of private capital (Privatisation)

Air transport facilities should not in general be subsidised by the taxpayer or the ratepayer. Airports, whoever their owners, should normally operate as commercial undertakings (Commercialisation)

Aims of Airport Privatisation

Improve efficiency Reduce subsidies Reduce burden on Government Provide access to private capital Gain political advantage Introduce commercially focused management

Airports Act 1986

BAA quoted on the stock exchange Regulated by the Civil Aviation Authority (CAA) which

determines the prices it can charge airlines

Airports with an annual turnover in excess of £1m formed into a Companies Act company 100% of shares owned by local authorities

Competition in UK airports

For many years there has been concern about the level of competition in the airport industry

Particularly focussed on South East England where BAA is dominent

Potential for airport charges to be high leading to larger profits

In June 2006, the Office of Fair Trading (OFT) announced a preliminary investigation into the market

Share of Passenger Trips by Ownership

Owner Million passengers per year % of market

BAA 144.3 63%

Manchester Airport Group 27.6 12%

Abertis 15.7 7%

Peel Airports 5.9 3%

Other 24.6 15 %

Other issues

Investment in infrastructure The Government has proposed significant levels of

investment in the South East over the next 30 years Is it in the best interests of consumers and airlines that

this is provided by one operator? Experience with competition in regional airports These have grown significantly in recent years Often there is competition between airports Attracts a range of different airlines

The Office of Fair Trading(OFT) Report

The results of the study were published in December 2006 for consultation

It recommends that the UK Airports Market is referred to the Competition Commission: BAA market share in SE England and Lowlands of Scotland System of economic regulation, which encourages investments

that increase charges and not capacity Capacity constraints and the desire of BAA to provide appropriate

facilities for airports

In March 2007, it was announced that a full investigation will take place

The Competition Commission produced its final report in March 2009

Competition Commission Findings

Competition between airports Good competition between non-BAA, regional airports

Demand substitutability Limited/no competition in the catchment areas for BAA

airports Capacity development Lack of runway capacity in the South East, although

policy makers are partially responsible for this Having separate ownership may encourage innovation

and different pricing strategies

Competition Commission Findings

Economic regulation A number of problems requiring a new

regulatory regimeBAA performance Slower route development in Scotland Scottish airports more profitable

Competition Commission Remedies

Sell off Gatwick, Stansted and either Glasgow or Edinburgh within 2 years

More detailed reporting and consultation at Aberdeen airport

A change to the regulatory process Suggested considerations for transport policy to

enable the new owners to develop the airports

Recent Developments In May 2009 – BAA appealed to the Competition Appeal

Tribunal against the decision Despite this, the sale of Gatwick was announced in

October 2009 Following several court cases, the Supreme Court

decided in February 2011 that the original decision was correct

However, the Competition Commission is now investigating whether there have been any changes in the market since 2009

UK Airport Ownership

Although in 2011, China had 142 civilian airports, the market was skewed towards the largest 10 airports, which together possess a 60% share of passenger volumes. 

Seven of these are located along the eastern seaboard i.e. Beijing, Shanghai Pudong, Shanghai Hongqiao, Hangzhou, 

Guangzhou, Shenzhen, and Hainan. 

China

In order to encourage privatization several methods have been undertaken in China.

Foreign investment For example, the Airport Authority Hong Kong (AAHK) agreed to invest a stake of 35% in Hangzhou Xiao Shan International Airport. After AAHK’s investment in Hangzhou Airport, airports in Ningbo, Nanjing, Chengdu and Kunming were reportedly negotiating with foreign investors on stake sales. In 2005, German airport operator Fraport AG signed a strategic partnership agreement to buy 25% of Ningbo LisheInternational Airport.

Privatization method 

Publicly listed company The most common process of privatisation in China has been to issue shares in the stock market to introduce private capital intended to support the expansion and upgrade of airport facilities. In most cases, the local government has remained a majority shareholder and is still in control of the board of the airport company. Since 2000, six Chinese airports (i.e. Shenzhen, Shanghai, Xiamen, Hainan, Beijing and Guangzhou) have been listed on the stock market.

Public Private Partnership (PPP) The airport corporations

Privatization method 

The airport corporations In contrast to the core business of passenger terminal management and aircraft handling (i.e. the aeronautical part of aviation), the Chinese government has always been more receptive to opening the market of the non‐core aviation business (i.e. non‐aeronautical) to private operators, which is considered less essential (such as retail in passenger terminals and ground handling services). 

Consequently, in China, airport assets and property are usually managed by the airport company, which is 100% or majority owned by the government, while the non‐aeronautical part of the airport business is now often contracted out to private companies. 

Privatization method 

Public Private Partnership (PPP) In China, due to the lack of a legal framework in the management of concessions, the major types of PPP models in commercial activities usually involve short‐term sub contracting of services and mid‐term leasing. 

For example, the retail spaces in Shanghai International Airport are leased out to private operators, and their performance is reviewed regularly. Meanwhile, the maintenance of their terminal facilities is contracted out. Shanghai International Airport has also established a joint‐venture company with Frankfurt Airport to provide training to their airport employees. 

Privatization method 

The Chinese government has allowed mergers and acquisitions between airports in the last few years. Consequently, several large airport corporations have been formed in China to achieve economies of scale and the synergy by which to improve management and financial strength. 

Although the size of most airport corporations in China is still relatively small when compared with other international airport operators (e.g. BAA), the creation of airport corporations managing more than one airport signifies the Chinese government’s effort in promoting operational autonomy and a strategy to achieve balanced developments between the regions. 

Collectivization

Major airports ownership type

:*Airport has foreign investment. ** Airport has airlines investment.

In 2020, 45 million passengers, Cargo volume 2.4 million tonnes, 375,000 movement 

In 2012, 29.56 million passengers, 0.85 millions, 240,000movements.

Shenzhen airport 

Competition of Hong Kong

Korea Airports Corporation was established in 1980 to carry out construction, management and operation of airports and to manage air transportation efficiently. 

As an organization specializing in airport management, KAC manages and operates total of 14 airports in Korea including Gimpo, Gimhae, Jeju, Daegu, Muan, Cheongju, and Yangyanginternational airport. 

KAC also manages the Area Control Center, 10 VOR/TACs and Korea Civil Aviation Training Center.

Korean Example

Management and operation of 14 airport nationwide (7 domestic airports, 7 international airports)

Construction, management, maintenance, expansion and improvement of airport facilities

R&D of technology related on construction, management & operation of airport facilities

Production, Sales & Export of the system developed by KAC Airport consulting and overseas airport operation Projects of local/national government for construction, management and operation of airports

Major business of KAC

Incheon airport corporation was founded in 1999. It is a government owned company. According to 2012 statistics: 40 % passenger using ICN.   

Incheon airport

Conclusion

Traditionally, airports have been viewed as strategically important assets

However, have evolved into commercial organisations

Privatisation is the next step in this and is gaining momentum worldwide

The first country to introduce privatisation was the UK